BERIN vs BARTE (2002)

Indeed, it is not good for judges to engage in business except only to the extent allowed by Rule 5.03
of the Code of Judicial Conduct.
Subject to the provisions of the preceding rule, a judge may hold and manage investments but should not
serve as an officer, director, manager, advisor, or employee of any business except as director of a family business
of the judge.

AURBACH VS SANITARY WARES (1989)

It would seem therefore that under Philippine law, a joint venture is a form of partnership and should
thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others.

CHING VS SOJ (2006)

If the crime is committed by a corporation or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the offense shall be charged and penalized for the
crime, precisely because of the nature of the crime and the penalty therefor. A corporation cannot be arrested and
imprisoned; hence, cannot be penalized for a crime punishable by imprisonment. However, a corporation may
be charged and prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes both
fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined.

FILIPINAS BROADCASTING VS AMEC-BCC (2005)

Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 of the Civil Code. This
provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of
defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a
juridical person such as a corporation can validly complain for libel or any other form of defamation and
claim for moral damages.

FRANCISCO MOTORS VS CA (1999)

In our view, however, given the facts and circumstances of this case, the doctrine of piercing the
corporate veil has no relevant application here. Respondent court erred in permitting the trial courts resort to
this doctrine. The rationale behind piercing a corporations identity in a given case is to remove the barrier
between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who
use the corporate personality as a shield for undertaking certain proscribed activities. However, in the case at
bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the
situation has been reversed. (i.e. corporation being held liable for personal liabilities of the directors)

BANK OF AMERICA VS CA (2003)

As this Court has explained in the San Lorenzo case, such a course, would preclude multiplicity of suits
which the law abhors, and conduce to the definitive determination and termination of the dispute. To do
otherwise, that is, to abort the action on account of the alleged fatal flaws of the complaint would obviously be
indecisive and would not end the controversy, since the institution of another action upon a revised complaint
would not be foreclosed.

PNB VS RITRATTO(2001) cited in MR HOLDINGS VS BAJAR (2002)

The recent case of Philippine National Bank vs. Ritratto Group Inc.,outlines the circumstances which are
useful in the determination of whether a subsidiary is but a mere instrumentality of the parent-corporation,
to wit:
(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its
incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or no assets except those
conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a
department or division of the parent corporation, or its business or financial responsibility is referred to as the
parent corporation’s own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary, but take
their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.

FRANCISCO VS MEJIA (2001)

Time and again it has been reiterated that mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality.

LIPAT VS PACIFIC BANKING (2003)

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. The control necessary to invoke the rule is not majority or even complete stock control but
such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate
mind, will or existence of its own, and is but a conduit for its principal.

ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS VS IGLESIA NG DIOS KAY
KRISTO HESUS (2001)
Parties organizing a corporation must choose a name at their peril; and the use of a name similar to one
adopted by another corporation, whether a business or a nonprofit organization, if misleading or likely to injure in
the exercise of its corporate functions, regardless of intent, may be prevented by the corporation having a prior
right, by a suit for injunction against the new corporation to prevent the use of the name.

POWERS OF THE CORPORATION

AF REALTY VS DIESELMAN (2002) ultra vires act of a director

. Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate
agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of such director, are held not binding on the
corporation.

INTER-ASIA INVESTMENTS VS CA (2003)

As correctly argued by private respondent, an officer of a corporation who is authorized to
purchase the stock of another corporation has the implied power to perform all other obligations
arising therefrom, such as payment of the shares of stock. By allowing its president to sign the
Agreement on its behalf, petitioner clothed him with apparent capacity to perform all acts which are
expressly, impliedly and inherently stated therein.

REPUBLIC PLANTERS BANK VS AGANA (1997)

Thus, the declaration of dividends is dependent upon the availability of surplus profit or
unrestricted retained earnings, as the case may be. Preferences granted to preferred stockholders, moreover, do
not give them a lien upon the property of the corporation nor make them creditors of the corporation, the right
of the former being always subordinate to the latter. Dividends are thus payable only when there are profits
earned by the corporation and as a general rule, even if there are existing profits, the board of directors has the
discretion to determine whether or not dividends are to be declared.
DIRECTORS AND OFFICERS

MONTELIBANO VS BACOLOD-MURCIA (1962) business judgment rule

As the resolution in question was passed in good faith by the board of directors, it is valid and binding,
and whether or not it will cause losses or decrease the profits of the central, the court has no authority to review
them.

REV. AO-AS VS CA (2006)

It is clear from Section 24 that in the election of the trustees of a non-stock corporation, it is necessary that
at least a majority of the members entitled to vote must be present at the meeting held for the purpose. It follows
that trustees cannot be elected by zones or regions, each zone or region electing independently and separately a
member of the board of trustees of the corporation, such method being violative of Section 24.
As argued by the Ao-As group, however, the validity of the LCP By-Laws providing for a special
procedure in the election of the LCP Board of Directors was never put in issue, either by the Ao-As group or the
Batong group. The Court of Appeals, therefore, should have refrained from passing upon such issue, motu propio.
In any case, the stipulation in the By-Laws is not contrary to the Corporation Code. Section 89 of the
Corporation Code pertaining to non-stock corporations provides that (t)he right of the members of any class or
classes (of a non-stock corporation) to vote may be limited, broadened or denied to the extent specified in
the articles of incorporation or the by-laws.

VALLE VERDE COUNTRY CLUB VS AFRICA (2009)

The word term has acquired a definite meaning in jurisprudence. In several cases, we have defined term as
the time during which the officer may claim to hold the office as of right, and fixes the interval after which the
several incumbents shall succeed one another. The term of office is not affected by the holdover. The term is fixed
by statute and it does not change simply because the office may have become vacant, nor because the incumbent
holds over in office beyond the end of the term due to the fact that a successor has not been elected and has failed
to qualify. If one of the holdover director resigns, the remaining holdover directors CANNOT replace him
even if they constitute a quorum.

MARC II vs JOSON (2011)

With the given circumstances and in conformity with Matling Industrial and Commercial Corporation v.
Coros, this Court rules that respondent was not a corporate officer of petitioner corporation because his position as
General Manager was not specifically mentioned in the roster of corporate officers in its corporate by-laws.
The enabling clause in petitioner corporations by-laws empowering its Board of Directors to create additional
officers, i.e., General Manager, and the alleged subsequent passage of a board resolution to that effect cannot make
such position a corporate office.

RANIEL VS AUSTRIA-MARTINEZ (2011)

Moreover, the directors may appoint officers and agents and as incident to this power of appointment, they
may discharge those appointed.

ONG YONG VS TIU (2003)

The distribution of corporate assets and property cannot be made to depend on the whims and caprices of
the stockholders, officers or directors of the corporation, or even, for that matter, on the earnest desire of the court
a quo "to prevent further squabbles and future litigations" unless the indispensable conditions and procedures for
the protection of corporate creditors are followed. Otherwise, the "corporate peace" laudably hoped for by the court
will remain nothing but a dream because this time, it will be the creditors' turn to engage in "squabbles and
litigations" should the court order an unlawful distribution in blatant disregard of the Trust Fund Doctrine.

RURAL BANK OF LIPA VS CA (2001)

We have uniformly held that for a valid transfer of stocks, there must be strict compliance with the mode of
transfer prescribed by law. The requirements are: (a) There must be delivery of the stock certificate; (b) The
certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to
make the transfer; and (c) To be valid against third parties, the transfer must be recorded in the books of
the corporation. As it is, compliance with any of these requisites has not been clearly and sufficiently shown.
MERGER AND CONSOLIDATION

CHEMPHIL VS CA (1995)
CORPORATIONS; SHARES OF STOCK; ATTACHMENT THEREOF NEED NOT BE REGISTERED IN
TRANSFER BOOK TO BE EFFECTIVE AS AGAINST THIRD PARTIES. —

PONCE VS ALSONS (2002)

Pursuant to Sec. 63 of the Corporation Code, a transfer of shares of stock not recorded in the stock and transfer
book of the corporation is non-existent as far as the corporation is concerned.

BPI VS BPI EMPLOYEES UNION

In fact, the Corporation Code does not also mandate the absorption of the employees of the non-surviving
corporation by the surviving corporation in the case of a merger.

AND Resolution on MR Oct. 19, 2011

Taking a second look on this point, we have come to agree with Justice Brion's view that it is more in keeping with the dictates
of social justice and the State policy of according full protection to labor to deem employment contracts as automatically
assumed by the surviving corporation in a merger, even in the absence of an express stipulation in the articles of merger or the
merger plan.

REBURIANO VS CA (1999)
DISSOLUTION THEREOF, REPEAL OF ANY LAW OR ANY OTHER FACT OF SIMILAR NATURE.
—As previously mentioned, the law specifically allows a trustee to manage the affairs of the corporation in
liquidation. Consequently, any supervening fact, such as the dissolution of the corporation, repeal of a law, or any
other fact of similar nature would not serve as an effective bar to the enforcement of such right.

B. VAN ZUIDEN VS GTVL (2007)

An essential condition to be considered as "doing business" in the Philippines is the actual
performance of specific commercial acts within the territory of the Philippines for the plain reason that the
Philippines has no jurisdiction over commercial acts performed in foreign territories.

CARGILL VS INTRA STRATA (2010)

A foreign company that merely imports goods from a Philippine exporter, without opening an office or
appointing an agent in the Philippines, is not doing business in the Philippines.

STEELCASE VS DESIGN INTERNATIONAL (2012)

From the preceding citations, 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. On the other hand, if
the distributor is an independent entity which buys and distributes products, other than those of the foreign
corporation, for its own name and its own account, the latter cannot be considered to be doing business in the
Philippines.

VALLEY GOLF VS DE CARAM

Share ownership introduces another dimension to the case — the reality that termination of membership
may also lead to the infringement of property rights. Even though Valley Golf is a non-stock corporation, as
evinced by the fact that it is not authorized to distribute to the holder of its shares dividends or allotments of the
surplus profits on the basis of shares held, the Golf Share has an assigned value reflected on the certificate of
membership itself. Termination of membership in Valley Golf does not merely lead to the withdrawal of the rights
and privileges of the member to club properties and facilities but also to the loss of the Golf Share itself for
which the member had fully paid.

CALATAGAN VS CLEMENTE (2009)

Under Section 91 of the Corporation Code, membership in a non-stock corporation "shall be
terminated in the manner and for the causes provided in the articles of incorporation or the by-laws". The
By-law provisions are elaborate in explaining the manner and the causes for the termination of membership in
Calatagan, through the execution on the lien of the share. The Court is satisfied that the By-Laws, as written,
affords due protection to the member by assuring that the member should be notified by the Secretary of the
looming execution sale that would terminate membership in the club.
SECURITIES REGULATION CODE

SEC VS PROSPERITY COM, INC. (2012)

The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey Co. that,
for an investment contract to exist, the following elements, referred to as the Howey test must concur: (1) a
contract, transaction, or scheme; (2) an investment of money; (3) investment is made in a common enterprise; (4)
expectation of profits; and (5) profits arising primarily from the efforts of others. Thus, to sustain the SEC position
in this case, PCI's scheme or contract with its buyers must have all these elements.

PHIL. STOCK EXCHANGE vs CA (1997)

Notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the
PSE's decision in matters of application for listing in the market, the SEC may exercise such power only if the
PSE's judgment is attended by bad faith.

CEMCO VS NLI
Stated differently, a tender offer is an offer by the acquiring person to stockholders of a public company
for them to tender their shares therein on the terms specified in the offer. Tender offer is in place to protect
minority shareholders against any scheme that dilutes the share value of their investments. It gives the minority
shareholders the chance to exit the company under reasonable terms, giving them the opportunity to sell their
shares at the same price as those of the majority shareholders.|||

ABACUS SECURITIES CORP VS AMPIL

In the final analysis, both parties acted in violation of the law and did not come to court with clean hands
with regard to transactions subsequent to the initial trades made on April 10 and 11, 1997. Thus, the peculiar facts
of the present case bar the application of the pari delicto rule — expressed in the maxims "Ex dolo malo non oritur
action" and "In pari delicto potior est conditio defendentis" — to all the transactions entered into by the parties.
The pari delecto rule refuses legal remedy to either party to an illegal agreement and leaves them where they were.
In this case, the pari delicto rule applies only to transactions entered into after the initial trades made on April 10
and 11, 1997.

NEGOTIABLE INSTRUMENTS LAW

CALTEX VS CA (1992)
DETERMINATION OF NEGOTIABILITY OR NON-NEGOTIABILITY OF INSTRUMENT; RULES.
— On this score, the accepted rule is that the negotiability or nonnegotiability of an instrument is determined
from the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the
intention of the parties is to control, if it can be legally ascertained.

PHIL EDUCATION COMPANY VS SORIANO (1971)

The weight of authority in the United States is that postal money orders are not negotiable Instruments,
the reason behind this rule being that, in establishing and operating a postal money order system, the government
is not engaging in commercial transactions but merely exercises a governmental power for the public benefit. It is
to be noted in this connection that some of the restrictions imposed upon money orders by postal laws and
regulations are inconsistent with the character of negotiable instruments. For instance, such laws and regulations
usually provide for not more than one endorsement; payment of money orders may be withheld under a variety of
Circumstances.

CONSOLIDATED PLYWOOD VS IFC LEASING (1987)

Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a promissory
note "must be payable to order or bearer," it cannot be denied that the promissory note in question is not a
negotiable instrument.
ANG TEK LIAN VS CA (1950)
Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of "cash" is a
check payable to bearer, and the bank may pay it to the person presenting it for payment without the drawer's
indorsement.

PNB VS MANILA OIL (1922)

NEGOTIABLE INSTRUMENTS LAW (ACT No. 2031), SECTION 5 (b) OF negotiable Instrument
otherwise negotiable is not affected by a provision which authorizes a confession of judgment if the instrument be
not paid at maturity, cannot be taken to sanction judgments by confession.

SALAS VS CA (1990)
Under Section 8 of the Negotiable Instruments Law, there are only two ways by which an instrument may
be made payable to order. There must always be a specified person named in the instrument and the bill or note is
to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the
same. Without the words "or order" or "to the order of", the instrument is payable only to the person designated
therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a
holder of a negotiable instrument, but will merely "step into the shoes" of the person designated in the instrument
and will thus be open to all defenses available against the latter.

DE OCAMPO VS GATCHALIAN (1961)

Where the payee acquired the check under circumstances which should have put it to inquiry, why the
holder had the check and used it, to pay his own personal account, the duty devolved upon it to prove that it
actually acquired said check in good faith.

BATAAN CIGAR VS CA (1994)

CROSSING OF CHECK SHOULD PUT HOLDER ON INQUIRY; EFFECT OF OMISSION
THEREOF. — It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the
duty to ascertain the indorser's title to the check or the nature of his possession. Failing in this respect, the holder is
declared guilty of gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the
Negotiable Instruments Law, and as such the consensus of authority is to the effect that the holder of the check is
not a holder in due course.

ILUSORIO VS CA (2002)
In our view, petitioner is precluded from setting up the forgery, assuming there is forgery, due to his own
negligence in entrusting to his secretary his credit cards and checkbook including the verification of his
statements of account.

QUIRINO GONZALES VS CA (2003)

[I]t is no defense that the promissory notes were signed in blank as Section 14 of the Negotiable
Instruments Law concedes the prima facie authority of the person in possession of negotiable instruments, such
as the notes herein, to fill in the blanks.

PCIB VS CA (2001)
ACTION UPON A CHECK PRESCRIBES IN TEN YEARS. — The statute of limitations begins to run
when the bank gives the depositor notice of the payment, which is ordinarily when the check is returned to the
alleged drawer as a voucher with a statement of his account, and an action upon a check is ordinarily governed by
the statutory period applicable to instruments in writing. Our laws on the matter provide that the action upon a
written contract must be brought within ten years from the time the right of action accrues. Hence, the reckoning
time for the prescriptive period begins when the instrument was issued and the corresponding check was returned
by the bank to its depositor (normally a month thereafter).

PAPA VS VALENCIA (1998)

Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years
resulted in the impairment of the check through his unreasonable and unexplained delay. While it is true that the
delivery of a check produces the effect of payment only when it is cashed, pursuant to Art. 1249 of the Civil Code,
the rule is otherwise if the debtor is prejudiced by the creditor's unreasonable delay in presentment. The
acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it
is received sustains loss by want of such diligence, it will be held to operate as actual payment of the debtor or
obligation for which it was given.

HSBC VS CATALAN (2004)

In this instance, after carefully examining the amended complaint, we are convinced that the allegations
therein are in the nature of an action based on tort under Article 19 of the Civil Code. It is evident that Catalan is
suing HSBANK and HSBC TRUSTEE for unjustified and willful refusal to pay the value of the checks.
Exceptionally, a payee may sue the drawee based on Art 19 of the NCC if there was dishonor despite the
instructions of the drawer to pay

CRISOLOGO VS CA (1985)
CORPORATE OFFICERS HAVE NO POWER TO EXECUTE FOR MERE ACCOMMODATION A
NEGOTIABLE INSTRUMENT OF THE CORPORATION FOR THEIR INDIVIDUAL DEBTS OR
TRANSACTIONS IN WHICH THEY ARE PERSONALLY LIABLE. — Corporate officers, such as the
president and vice-president, have no power to execute for mere accommodation a negotiable
instrument of the corporation for their individual debts or transactions arising from or in relation to matters in
which the corporation has no legitimate concern. Since such accommodation paper cannot thus be enforced against
the corporation, especially since it is not involved in any aspect of the corporate business or operations, the
inescapable conclusion in law and in logic is that the signatories thereof shall be personally liable therefor, as well
as the consequences arising from their acts in connection therewith.

WAREHOUSE RECEIPTS LAW

(Philippine National Bank v. Sayo, Jr., G.R. No. 129918, [July 9, 1998], 354 PHIL 211-
251)
The remedies available to a warehouseman, such as private respondents, to enforce his warehouseman's lien are:
(1) To refuse to deliver the goods until his lien is satisfied, pursuant to Section 31 of the Warehouse Receipt Law;
(2) To sell the goods and apply the proceeds thereof to the value of the lien pursuant to Sections 33 and 34 of
the Warehouse Receipts Law; and (3) By other means allowed by law to a creditor against his debtor, for the
collection from the depositor of all charges and advances which the depositor expressly or impliedly contracted
with the warehouseman to pay under Section 32 of the Warehouse Receipt Law; or such other remedies allowed by
law for the enforcement of a lien against personal property under Section 35 of said law. The third remedy is
sought judicially by suing for the unpaid charges.|||

LETTERS OF CREDIT

(Bank of America, NT & SA v. Court of Appeals, G.R. No. 105395, [December 10,
1993])
UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (U.C.P.); APPLICATION
TO PHILIPPINE CODE OF COMMERCE. — Being a product of international commerce, the impact of this
commercial instrument transcends national boundaries, and it is thus not uncommon to find a dearth of national
law that can adequately provide for its governance. This country is no exception. Our own Code of Commerce
basically introduces only its concept under Articles 567-572, inclusive, thereof. It is no wonder then why great
reliance has been placed on commercial usage and practice, which, in any case, can be justified by the universal
acceptance of the autonomy of contracts rule. The rules were later developed into what is now known as the
Uniform Customs and Practice for Documentary Credits ("U.C.P.") issued by the International Chamber of
Commerce|||

LAND BANK OF THE PHILIPPINES, petitioner, vs . MONET'S EXPORT AND MANUFACTURING

CORPORATION, independence principle
Accordingly, we find merit in the contention of Land Bank that, as the issuing bank in the Beautilike
transaction involving an import letter of credit, it only deals in documents and it is not involved in the contract
between the parties. The relationship between the beneficiary and the issuer of a letter of credit is not strictly
contractual, because both privity and a meeting of the minds are lacking. Thus, upon receipt by Land Bank of the
documents of title which conform with what the letter of credit requires, it is duty bound to pay the seller, as it did
in this case.

FEATI BANK & TRUST COMPANY (now CITYTRUST BANKINGCORPORATION), petitioner, vs.
THE COURT OF APPEALS strict compliance
It is a settled rule in commercial transactions involving letters of credit that the documents tendered must
strictly conform to the terms of the letter of credit. The tender of documents by the beneficiary (seller) must
include all documents required by the letter. A correspondent bank which departs from what has been stipulated
under the letter of credit, as when it accepts a faulty tender, acts on its own risks and it may not thereafter be able
to recover from the buyer or the issuing bank, as the case may be, the money thus paid to the beneficiary. Thus the
rule of strict compliance.

ALFREDO CHING, petitioner , vs. THE SECRETARY OF JUSTICE

THE TRUST RECEIPTS LAW APPLIES TO GOODS USED BY THE ENTRUSTEE IN THE
OPERATION OF ITS MACHINERIES AND EQUIPMENT. The law applies to goods used by the entrustee in
the operation of its machineries and equipment. The non-payment of the amount covered by the trust receipts or
the non-return of the goods covered by the receipts, if not sold or otherwise not disposed of, violate the entrustee's
obligation to pay the amount or to return the goods to the entruster.

DEVELOPMENT BANK OF THE PHILIPPINES , petitioner, vs .PRUDENTIAL BANK, respondent.

WHILE THE ENTRUSTEE WAS ALLOWED TO SELL THE ITEMS HELD IN TRUST, IT HOWEVER
HAD NO AUTHORITY TO DISPOSE OF THEM OR ANY PART THEREOF OR THEIR PROCEEDS
THROUGH CONDITIONAL SALE, PLEDGE, OR ANY OTHER MEANS. — The articles were owned by
Prudential Bank and they were only held by Litex in trust. While it was allowed to sell the items, Litex had no
authority to dispose of them or any part thereof or their proceeds through conditional sale, pledge or any other
means. Article 2085(2) of the Civil Code requires that, in a contract of pledge or mortgage, it is essential that the
pledgor or mortgagor should be the absolute owner of the thing pledged or mortgaged. Article 2085 (3)
further mandates that the person constituting the pledge or mortgage must have the free disposal of his property,
and in the absence thereof, that he be legally authorized for the purpose.

VDA. DE JAYME Vs CA
THIRD PARTY MORTGAGE; PERSONS NOT DIRECTLY PARTIES TO A LOAN AGREEMENT
MAY GIVE AS SECURITY THEIR OWN PROPERTIES FOR THE PRINCIPAL TRANSACTION; CASE AT
BAR. — The Deed of Real Estate Mortgage entered into by the Jayme spouses partake of a Third Party
Mortgage under Art. 2085 (3) of the Civil Code. In the case of Lustan vs. CA, et al., this Court held that "so long
as valid consent was given, the fact that the loans were solely for the benefit of (the debtor) would not invalidate
the mortgage with respect to petitioner's property.

BPI FAMILY SAVINGS BANK, INC., petitioner , vs. MARGARITA VDA. DE COSCOLLUELA,
respondent .
Considering, therefore, that, in the case at bar, petitioner had already instituted extrajudicial foreclosure
proceedings of the mortgaged property, it is now barred from availing itself of a personal action for the collection
of the indebtedness.

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners, vs. HON. COURT
OF APPEALS
While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so
long as these future debts are accurately described, a chattel mortgage, however, can only cover obligations
existing at the time the mortgage is constituted. Although a promise expressed in a chattel mortgage to include
debts that are yet to be contracted can be a binding commitment that can be compelled upon, the security itself,
however, does not come into existence or arise until after a chattel mortgage agreement covering the newly
contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract
conformably with the form prescribed by the Chattel Mortgage Law.
Theory of Concession
The Philippine jurisprudence adopted the Concession or fiat theory, which states that a corporation is conceived as
an artificial person owing existence through creation by a foreign power. Further, a corporation has without any
existence until it has received the imprimatur of the State acting according to law, through the SEC.

Doctrine of Corporate Opportunity

Where a director, by virtue of his office, acquires for himself a business opportunity which should belong to the
corporation, thereby obtaining profits to the prejudice of such corporation, is guilty of disloyalty and should,
therefore, account to the latter for all such profits by refunding the same, notwithstanding that he risked his funds
in the venture. (CC, Sec. 34)

A director shall refund to the corporation all the profits he realizes on a business opportunity which:
1. The corporation is financially able to undertake;
2. From its nature, is in line with corporations business and is of practical advantage to it; and
3. The corporation has an interest or a reasonable expectancy. (ibid)

NOTE: The rule shall be applied notwithstanding the fact that the director risked his own funds in the venture.
However, if such act is ratified by a vote of the stockholders representing at least 2/3 of the outstanding capital
stock, the director is excused from remitting the profit realized.

INSIDER TRADING
A purchase or sale made by an insider, or such insider’s spouse or his relative by affinity or consanguinity within
the second degree, legitimate or common-law, shall be presumed to be effected while in possession of material
non-public information if transacted after such information came into existence but prior to the public
dissemination of such information, and lapse of reasonable time for the market to absorb such information.

Principle of reciprocity - It allows Filipino citizens to do business in the foreign state or country. This is merely
prescribed as a requirement to secure a license and not an essential element of being a foreign corporation.

"Commodity Futures Contract" shall refer to an agreement to buy or sell a specified quantity and grade of a
commodity at a future date at a price established at the floor of the exchange.

A commodity futures contract, being a specie of securities, is valid and enforceable as its terms are governed by
special laws, notably the Revised Securities Act and the Revised Rules and Regulations on Commodity Futures
Trading issued by the Securities and Exchange Commission (SEC) and approved by the Monetary Board of the
Central Bank; hence, the Civil Code is not the controlling piece of legislation.
Negotiable Instrument
It is a written contract for the payment of money which is intended as a substitute for money and passes from one person to
another as money, in such a manner as to give a holder in due course the right to hold the instrument free from defenses available
to prior parties (Sundiang Sr. & Aquino, 2011).

Requisites of Negotiability
An instrument to be negotiable must conform to the following requirements: (WU-POA)
1. It must be in Writing and signed by the maker or drawer;
2. Must contain an Unconditional promise or order to pay a sum certain in money;
3. Must be Payable on demand, or at a fixed or determinable future time;
4. Must be payable to Order or to bearer; and
5. Where the instrument is Addressed to a drawee, he must be named or otherwise indicated therein with reasonable
certainty (NIL, Sec.1).

HOLDER IN DUE COURSE (HIDC)

To be considered as a HIDC, the requisites under Sec. 52 of the NIL must be complied with: (COFI)
1. That is Complete and regular upon its face;
2. Became the holder before it was Overdue, and without notice that it has been previously dishonored, if such was the fact;
3. Took it in good Faith and for value;
4. At the time it was negotiated to him, he had no notice of any Infirmity in the instrument or defect in the title of the person
negotiating it. (NIL, Sec. 52)

REAL DEFENSES PERSONAL DEFENSES

(IM In Ultra. AFForD PODIF) (InnocentS2 ADD FUn In Fraud)

1. Incomplete and undelivered instrument 1. Innocent alteration or spoliation

2. Minority (available only to the minor)
3. Incapacity as far as incapacitated persons are
concerned
4. Ultra –vires acts of a corporation
5. Want of Authority, apparent and real
6. Fraudulent alteration
7. Forgery
8. Duress amounting to Forgery
9. Prescription
10. Other infirmities appearing on the face of the
instrument
11. Discharge in insolvency
12. Illegal Contract
13. Fraud in Factum or Esse Contractus
2. Discharge of party Secondarily liable by
discharge of prior party.
3. Set-off between immediate parties
4. Filling up of blanks not in accordance with the
Authority given
5. Acquisition of instrument by Duress or force and
fear; unlawful means or for an illegal consideration
6. Discharge by payment or renunciation or release
before maturity
7. Failure or absence of consideration.
8. Undelivered complete instrument
9. Insertion of a wrong date
10. Fraud in inducement or simple fraud

NOTE: Fraud in factum exists in those cases in
which a person, without negligence, has signed an
instrument, but was deceived as to the character of
the instrument and without knowledge of it, as
where a note was signed by one under the belief
that he was signing as a witness to a deed. This
kind of fraud is a real defense because there is no
contract, since the person did not know what he
was signing (De Leon, 2010).
NOTE: Fraud in inducement relates to the quality,
quantity, value or character of the consideration of
the instrument. Here, deceit is not in the character
of the instrument but in its amount or terms. This
exists when a person is induced to sign a note for
the price of a worthless stock which was
fraudulently represented by the payee as to its
value. Such type of fraud is only a personal defense
because it does not prevent a contract (De Leon,
2010).

Sec. 23. Forged signature; effect of. - When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded from setting
up the forgery or want of authority.

Material alteration
It is any change in the instrument which affects or changes the liability of the parties in any way. It means an unauthorized
change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of
words or numbers or other change to an incomplete instrument relating to the obligation of a party.
Instances that constitute material alteration
Any alteration which changes:
1. Date
2. Sum payable, either for principal or interest
3. The time or place of payment
4. Number or the relations of the parties
5. Currency in which payment is to be made
6. Adds a place of payment where no place is specified
7. Any other change or addition which alters the effect of the instrument (NIL, Sec. 125.)

Qualified Endorser:
Warrants that the:
a. Instrument is genuine;
b. He has good title to it;
c. Capacity to contract of all prior parties; and;
d. No knowledge of any fact which would impair the validity of the instrument. (NIL, Sec.65)

NOTE: He is liable to all parties who derive their title through his indorsement.

General Indorser:

a. Warrants that:
i. Instrument is genuine
ii. He had good title to it
iii. All prior parties had capacity to contract
iv. Instrument, at the time of indorse- ment, was valid and subsisting;

b. On due presentment, it shall be accepted or paid, or both according to its tenor

c. If the instrument is dishonored and the ne- cessary proceedings on dishonor be duly taken, he will pay the holder. (NIL,
Sec. 66.)

Methods for discharge of instrument

1. Payment by principal debtor:
a. By or on behalf of principal debtor
b. At or after its maturity
c. To the holder thereof
d. In good faith and without notice that the holder’s title is defective
2. Payment by accommodated party
3. Intentional cancellation of instrument by the holder (by expressly stating it in the instrument or when the instrument is
torn up, burned or destroyed)
4. Any act which discharges a simple contract for the payment of money under Art. 1231 of the NCC specifically remission,
novation, and merger.
5. Reacquisition by principal debtor in his own right. Reacquisition must be:
a. By the principal debtor
b. In his own right
c. At or after date of maturity (instrument is discharged; if made before, it may be renegotiated)
(NIL, Sec. 119).

ON A WAREHOUSE RECEIPT
A person who, for value, negotiates or transfers a receipt by indorsement or delivery, including one who assigns for value a
claim secured by a receipt, unless a contrary intention appears warrants(GRIT):
1. Receipt is Genuine
2. Legal Right to negotiate or transfer it
3. No knowledge of defects that may Impair the validity or worth of the receipt
4. That he has a right to Transfer title to the goods and that the goods are merchantable or fit for a particular purpose
whenever such warranties would have been to transfer without a receipt of goods represented thereby (WHR Law, Sec. 44).
NOTE: The indorsee does not guarantee that the warehouseman will comply with his duties (WHR Law, Sec. 45).
CHARGES COVERED BY A WAREHOUSEMAN’S LIEN
(PMA)
1. Charges for storage and Preservation of the goods (insurance and others may be included as long as it is stipulated)
2. Money advanced, interest, insurance, transportation, labor, weighing, coopering and other charges and expenses in
relation to such goods
3. Charges and expenses for notice, and Advertisements of sale, and for sale of the goods where default had been made in
satisfying the warehouseman’s lien (WHR Law, Sec. 27).

Letter of Credit (L/C)

It is any arrangement, however named or described, whereby the issuing bank acting at the request and on the instructions
of a customer (applicant) or on its own behalf, binds itself to: (PAN)
1. Pay to the order of, or accept and pay drafts drawn by a third party (Beneficiary), or
2. Authorize another bank to pay or to accept and pay such drafts, or
3. Authorizes another bank to Negotiate, against stipulated documents.

Provided, the terms and conditions of the credit are complied with (Uniform Customs & Practice for Documentary Credits, Art.
2).

NOTE: By the Doctrine of Independence, the relationship among: a) the issuing bank and the beneficiary; b) the issuing bank and
the applicant; and c) the beneficiary and the applicant while interrelated are separate, distinct and independent of one another.

Trust Receipt (TR) transaction

It is any transaction between the entruster and entrustee:
1. Whereby the entruster who owns or holds title or security interests over certain specified goods, documents or instrument
(GDI), releases the same to the possession of entrustee upon the latter’s execution of a TR agreement.
2. Wherein the entrustee binds himself to hold the GDI in trust for the entruster and, in case of default:
a. to sell or otherwise dispose such GDI with the obligation to turn over to the entruster the proceeds to the extent of the
amount owing to it or
b. to turn over the GDI itself if not sold or otherwise disposed of in accordance with the terms and conditions specified in the
TR.

There are several formalities required by the Bulk Sales Law:

1. The sale in bulk to be accompanied by sworn statement of the vendor/mortgagor listing the names and
addresses of, and amounts owing to, creditors;
2. The sworn statement shall be furnished to the buyer,
3. the seller is required to prepare an inventory of stocks to be sold,
4. the seller is required to notify the creditors of the projected sale at least 10 days before such sale.

Q: May a corporation enter into a joint venture? (1996 Bar)

A: YES. A corporation may enter into a joint venture with another where the nature is in line with the business authorized by
its charter. (Tuason v. Bolanos, G.R. L-4935, May 28, 1954) However, in as much as the term “joint venture” has no precise
legal definition, it may take various forms. It could take the form of a simple pooling of resources (not involving
incorporation) between two or more corporations for a specific project, purpose or undertaking, or for a limited time. It may
involve the creation of a more formal structure, and, hence, the formation of a corporation. What is prohibited by law is the
creation of partnership between corporations but not the creation of joint venture.

Grandfather rule – Nationality is attributed to the percentage of equity in the corporation used in nationalized or partly
nationalized area. This test is an exception to the Control Test and was applied by the SEC in several cases.

NATIONALIZED ACTIVITIES RESERVED FOR FILIPINOS UNDER THE CONSTITUTION

AND SPECIAL LAWS
100% Filipino Owned
(Zero percent (0%) foreign equity)
Code: CoFi AMMaN Co. – MiSe- US$2.5M
1. COoperatives(Art. 26, Ch. III, R.A. 6938);
2. Manufacture of FIrecrackers and other pyrotechnic devices. (Sec. 5, R.A. 7183)
3. Manufacture, repair, stockpiling and/or distribution of biological, chemical and radiological weapons and Anti-personnel
mines (Various treaties to which the Philippines is a signatory and conventions supported by the Philippines).
4. Mass media except recording
5. Utilization of MArine resources (Sec. 2, Art. XII, Constitution);
6. Manufacture, repair, stockpiling and/or distribution of Nuclear weapons (Sec. 8, Art. II, Constitution);
7. COckpits (Sec. 5, P.D. 449);
8. Small-scale MIning (Sec. 3, R.A. 7076);
9. Private SEcurity agencies (Sec. 4, R.A. 5487);
10. Retail trade enterprises with paid-up capital of less than US$2.5 M(Sec. 5, R.A. 8762);
80 % Filipino Owned
(Up to twenty percent (20%) foreign equity)
Code: Prc
1. Private Radio Communications network (R.A. 3846)
75 % Filipino Owned
(Up to twenty percent (25%) foreign equity)
Code: LoRD F
1. Contracts for the construction and repair of LOcally-funded public works (Sec. 1, CA 541, LOI 630) except:
a) infrastructure/development projects covered in R.A. 7718; and
b) projects which are foreign funded or assisted and required to undergo international competitive bidding (Sec. 2[a], R.A.
7718);
2. Private Recruitment, whether for local or overseas employment (Art. 27, P.D. 442);
3. Contracts for the construction of Defense-related structures; (Sec. 1, CA 541)
4. Under the Flag Law, in the purchase of articles for the Government, preference shall be given to materials and supplies
produced, made, or manufactured in the Philippines, and to domestic entities. Domestic entities means any citizen of the
Philippines or commercial company at least 75% of the capital of which is owned by citizens of the Philippines (Sec. 1, CA
138);
70 % Filipino Owned
(Up to twenty percent (30%) foreign equity)
Code: AdPawn
1. Advertising (Art. XVI, Constitution)
2. Corporations engaged in pawnshop business (Sec. 8, P.D. 114)
60 % Filipino Owned
(Up to twenty percent (40%) foreign equity)
Code: Go LEARN CUPIDCo
1. Contracts for the supply of materials, goods and commodities to GOCC, agency or municipal corporation (Sec. 1, R.A. 5183);
2. Ownership of private Lands (Sec. 7, Art. XII, Constitution; Sec. 22, Ch. 5, CA 141; Sec. 4, R.A. 9182);
3. Ownership/establishment and administration of Educational institutions (Sec. 4, Art. XIV, Constitution);
4. Adjustment Companies (Sec. 323, P.D. 613);
5. Culture, production, milling, processing, trading excepting retailing, of rice and corn and acquiring, by barter, purchase or
otherwise, Rice and corn and the by-products thereof (Sec. 5, P.D. 194);
6. Exploration, development and utilization of Natural resources (Sec. 2, Art. XII, Constitution);
7. Ownership of Condominium units where the common areas in the condominium project are co-owned by the owners of
the separate units or owned by a corporation (Sec. 5, R.A. 4726)
8. Operation and management of public Utilities (Sec. 11, Art. XII, Constitution; Sec. 16, CA 146);
9. Project Proponent and Facility Operator of a BOT project requiring a public utilities franchise (Sec. 11, Art. XII,
Constitution; Sec. 2a, R.A. 7718);
10. Manufacture, repair, storage and/ or distribution of products/ Ingredients requiring PNP clearance (R.A. 7042 as
amended by R.A. 8179);
11. Operation of Deep sea commercial fishing vessel (Sec. 27, R.A. 8550);
12. Corporations engaged in Coastwise shipping (Sec. 806, P.D. 1464)
40 % Filipino Owned
(Up to twenty percent (60%) foreign equity)
Code: FI [SEC]
1. Financing companies regulated by the SEC (Sec. 6, R.A. 5980 as amended by R.A. 8556);
2. Investment houses regulated by the SEC (Sec. 5, P.D. 129 as amended by R.A. 8366)

DOCTRINE OF SEPARATE JURIDICAL PERSONALITY

The doctrine of corporate juridical personality states that a corporation is a juridical entity with legal personality separate
and distinct from those acting for and in its behalf and, in general, from the people comprising it.

TRUST FUND DOCTRINE

Under the trust fund doctrine, the capital stock, property, and other assets of a corporation are regarded as equity in trust for the
payment of corporate creditors which are preferred over the stockholders in the distribution of corporate assets. The distribution
of corporate assets and property cannot be made to depend on the whims and caprices of the stockholders, officers, or directors
of the corporation unless the indispensable conditions and procedures for the protection of corporate creditors are followed.
DOCTRINE OF PIERCING THE CORPORATE VEIL
The doctrine of piercing the corporate veil is the doctrine that allows the State to disregard for certain justifiable reasons the
notion that a corporation has a personality separate and distinct from the persons composing it.

GROUNDS FOR APPLICATION OF DOCTRINE

It applies upon the following circumstances: (FACO)
a. if the fiction is used to perpetrate fraud (Fraud Test);
b. the complete control of one corporate entity to another which perpetuated the wrong is the proximate cause of the injury
(Control Test);
c. if a certain corporation is only an adjunct or an extension of the personality of the corporation (Alter ego or
Instrumentality Test); and
d. if the fiction is pierced to make the stockholders liable for the obligation of the corporation (Objective Test)
TEST IN DETERMINING APPLICABILITY
The following are the tests in determining the applicability of the doctrine of piercing the corporate veil:
(ECAO)
1. When the corporation is used to defeat public convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; (Equity Cases)
2. In fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime;
(Control Test)
3. In Alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation. (Timoteo H. Sarona vs. National
Labor Relations Commission, Royale Security Agency, et al., G.R. No. 185280, January 18, 2012)
4. The Objective test where the end result in piercing the veil of corporate fiction is to make the stockholders
liable for debts and obligations of the Corporation not to make the Corporation liable for the debts and
obligations of the stockholders. (Umali v CA, G.R. No. 89561, September 13, 1990)

Three-pronged test to determine the application of the alter ego/ instrumentality theory:
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 (Instrumentality or Control test);
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 plaintiff’s
legal right; (Fraud test) and
3. The aforesaid control and breach of duty must have proximately caused the injury or unjust loss
complained of (Harm test).

DE FACTO CORPORATION
A de facto corporation is one which actually exists for all practical purposes as a corporation but which has no
legal right to corporate existence as against the State. (8 Fletcher, pp. 62-63)
Requisites of a de facto corporation (LAP)
1. Organized under a valid Law.
2. Attempt in good faith to form a corporation according to the requirements of the law (Colorable
Compliance).

NOTE: Issuance of Certificate of Incorporation by SEC is a minimum requirement for the formation of the
corporation in good faith.(Sundiang Sr. & Aquino, 2009)
3. Use of corporate Powers - The corporation must have performed the acts which are peculiar to a
corporation like entering into a subscription agreement, adopting by-laws, and electing directors (Actual
User).

Theory of General Capacity

The general powers of a corporation also called Theory of General Capacity are the following: (SuSuCo-ABS-
PEDRO)
1. To SUe and be sued;
2. Of Succession;
3. To adopt and use of COrporate seal;
4. To amend its Articles of Incorporation;
5. To adopt its By-laws;
6. For Stock corporations: issue and sell stocks to subscribers and treasury stocks; for non-stock
corporations: admit members;
7. To Purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and deal with real and
personal property, securities and bonds;
8. To Enter into merger or consolidation;
9. To make reasonable Donations for public welfare, hospital, charitable, cultural, scientific, civic or similar
purposes, provided that no donation is given to any:
a. Political party,
b. Candidate and
c. Partisan political activity.
10. To establish pension, Retirement, and other plans for the benefit of its directors, trustees, officers and
employees – basis of which is the Labor code;
11. To exercise Other powers essential or necessary to carry out its purposes (CC, Sec. 36)

Theory of Specific Capacity

The specific powers of a corporation also called Theory of Specific Capacity are the following: (ESB-PA-SIDE-
A)
1. Power to Extend or shorten corporate term (CC, Sec. 37)
2. Increase or decrease corporate Stock (CC, Sec. 38)
3. Incur, create, or increase Bonded indebtedness (CC, Sec. 38
4. Deny Pre-emptive right (CC, Sec. 39)
5. Sell, dispose, lease, encumber all or substantially all of corporate Assets (CC, Sec. 40)
6. Purchase or acquire Shares (CC, Sec. 41)
7. Invest corporate funds in another corporation or business for other purpose other than primary purpose
(CC, Sec. 42)
8. Declare Dividends out of unrestricted retained earnings (CC, Sec. 43)
9. Enter into management contract with another corporation (not with an individual or a partnership – within
general powers) whereby one corporation undertakes to manage all or substantially all of the business of the
other corporation for a period not longer than five (5) years for any one term (CC, Sec. 44)
10. Amend Articles of Incorporation (CC, Sec. 16)

ULTRA VIRES ACTS

An ultra vires act refers to an act outside or beyond express, implied and incidental corporate powers. The
concept also includes those acts that may ostensibly be within such powers but are, by general or special
laws, either proscribed or declared illegal.

Doctrine of apparent authority

If a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an
apparent authority, it holds him out to the public possessing the power to do those acts; and thus, the
corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from
denying the agent’s authority.
Apparent authority is derived not merely from practice. Its existence may be ascertained through:
1. The general manner in which the corporation holds out an officer or agent as having the power to act, or
in other words, the apparent authority to act in general, with which it clothes him; or
2. The acquiescence in his acts of a particular nature, with actual or constructive notice thereof, within or
beyond the scope of his ordinary powers.

These are the effects for the specific acts:

1. Executed contract – courts will not set aside or interfere with such contracts;
2. Executory contracts – no enforcement even at the suit of either party (void and unenforceable);
3. Partly executed and partly executory – principle of “no unjust enrichment at expense of another” shall
apply;
4. Executory contracts apparently authorized but ultra vires – the principle of estoppel shall apply.

BUSINESS JUDGMENT RULE

Questions of policy or management are left solely to the honest decision of officers and directors of a
corporation and the courts are without authority to substitute their judgment for the judgment of the board
of directors; the board is the business manager of the corporation and so long as it acts in good faith, its
orders are not reviewable by the courts or the SEC. The directors are also not liable to the stockholders in
performing such acts.
Common qualifications of a director and trustee
1. Majority of the directors/trustees must be residents of the Philippines (CC, Sec. 23);
2. He must not have been convicted by final judgment of an offense punishable by imprisonment for period
exceeding 6 years or a violation of the Corporation Code, committed within 5 years prior to the date of his
election (CC, Sec. 27);
3. He must be of legal age;and
4. Other qualifications as may be prescribed in special laws or regulations or in the by-laws of the
corporation;

Corporate powers exercised jointly by the BOD

and stockholders (I.4PA.2G.E2-SMAV)
CORPORATE ACT VOTE REQUIREMENT
BOARD OF DIRECTORS STOCKHOLDERS
Amendments, repeal, or adoption Majority vote of the BOD GR: Majority vote of the
of new by-laws outstanding capital stock
XPN: If delegated by the
stockholders to the board
Entering into management Majority of the quorum of the GR: Vote of the majority of the
contract BOD outstanding shares of stock or
members of both the managing
and the managed corporation.
XPN: The vote required for the
managed corporation is not
merely majority but 2/3 of the
outstanding capital stock in cases
where:
1. 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. 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.

Issuance of stock dividends
Amendment to articles of
incorporation
Grant of compensation to
directors
Extending or shortening the
corporate term
Increase or decrease of capital
stock
To incur, create, or increase
bonded indebtedness
Deny Pre-emptive Right
(CC, Sec. 39)
Majority of the quorum of the
BOD
Majority vote of the BOD
Approval of the Board
Majority vote of the BOD
Majority vote of the BOD
Majority vote of the BOD
Majority vote of the BOD
Vote representing 2/3 of the
outstanding capital stock
Vote representing 2/3 of the
outstanding capital stock
Majority vote of the outstanding
capital stock
Vote representing 2/3 of the
outstanding capital stock
Vote representing 2/3 of the
outstanding capital stock
Vote representing 2/3 of the
outstanding capital stock
Vote representing 2/3 of the
outstanding capital stock
Investment of corporate funds in
another corporation or business
or for any other purpose other
than the primary purpose
The sale or other disposition of all
or substantially all of the
corporate assets
Merger or consolidation
Voluntary dissolution
To adopt a plan of distribution of
assets of a non-stock corporation
Majority vote of the BOD
Majority vote of the board
Majority vote of the BOD
Majority vote of the BOD
Majority vote of the Trustees
Vote representing 2/3 of the
outstanding capital stock
Vote representing 2/3 of the
outstanding capital stock
Vote representing 2/3 of the
outstanding capital stock
Vote representing 2/3 of the
outstanding capital stock
2/3 of the members having voting
ri

Unrestricted Retained Earnings shall include accumulated profits and gains realized out of the normal and
continuous operations of the company after deducting therefrom distributions of stockholders and transfers
to capital stock or other accounts. It does NOT include:
1. Funds appropriated by its BOD for corporate expansion projects or programs;
2. Funds covered by a restriction for dividend declaration under a loan agreement;
3. Funds required to be retained under special circumstances obtaining in the corporation such as when there
is a need for a special reserve for probable circumstances.

Ways of filling up the vacancies in the board

1. Vacancies to be filled up by stockholders or members: (ERORI)
a. Expiration of term;
b. Removal;
c. Grounds Other than removal or expiration of term, where the remaining directors do not constitute
a quorum for the purpose of filling the vacancy;
d. If the vacancy may be filled by the remaining directors or trustees but the board Refers the matter
to stockholders or members; or
e. Increase in the number of directors results to vacancy.
2. Vacancies filled up by members of the board -If still constituting a quorum, at least a majority of the
members are empowered to fill any vacancy occurring in the board other than by removal by the
stockholders or members or by expiration of term. (CC, Sec. 29)

BY SELF-DEALING DIRECTORS WITH THE CORPORATION

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 the 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;
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
4. That in the case of an officer, the contract with the officer has been previously authorized by the board of
directors. (CC, Sec. 32, par. 1)
NOTE: Sec. 32 does not require that the corporation suffers injury or damage as a result of the contract.

BETWEEN CORPORATIONS WITH INTERLOCKING DIRECTORS

Contracts between corporations with interlocking directors
A contract between two or more corporations having interlocking directors shall not be invalidated on that
ground alone. Provided that:
1. Contract is not fraudulent;
2. Contract is fair and reasonable under the circumstances; and
3. If the interest of the interlocking director in one corporation or corporations is merely nominal (not
exceeding 20% of the outstanding capital stock), he shall be subject to the provisions of Sec. 32 insofar as the
latter corporation or corporations are concerned.(CC, Sec. 33)

Management contract
A management contract is 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. A corporation under management is bound by the acts of the managing
corporation and is estopped to deny its authority.

EXECUTIVE COMMITTEE
An executive committee is a body created by the by-laws and composed of not less than three members of the
board which, subject to the statutory limitations, has all the authority of the board to the extent provided in
the board resolution or by-laws. The committee may act by a majority vote of all of its members. (CC, Sec. 35)
NOTE: An executive committee can only be created by virtue of a provision in the by-laws and that in the
absence of such by-law provision, the board of directors cannot simply create or appoint an executive
committee to perform some of its functions. (SEC Opinion, Sept. 27, 1993)

Nature of a subscription contract

A subscription contract is indivisible. Consequently, where stocks were subscribed and part of the
subscription contract price was not paid, the whole subscription shall be considered delinquent and not only
the shares which correspond to the amount not paid.
NOTE: This is called the Doctrine of Individuality (Indivisibility) of Subscription. A subscription is one
entire and indivisible whole contract. It cannot be divided into portions. (CC, Sec. 64)

DOCTRINE OF EQUALITY OF SHARES

Where the articles of incorporation do not provide for any distinction of the shares of stock, all shares issued
by the corporation are presumed to be equal and enjoy the same rights and privileges and are also subject to
the same liabilities. (CC, Sec. 6)

Derivative suit – one brought by one or more stockholders or members in the name and on behalf of the
corporation to redress wrongs committed against it or to protect or vindicate corporate rights, whenever the
officials of the corporation refuse to sue or are the ones to be sued or hold control of the corporation.
Requisites for the existence of a derivative suit (C-SENA)
1. Corporate cause of action: the cause of action must devolve upon the corporation itself; the wrongdoing
or harm having been caused to the corporation and not to the particular stockholder brining the suit (Reyes v.
Hon. RTC of Makati Br. 142, G.R. No. 165744, August 11, 2008);
2. Stockholder: the party bringing the suit must be a stockholder
a. At the time the acts or transactions subject of the action occurred and
b. at the time the action was filed
NOTE: if the cause of action is continuing in nature, the only requisite is that the party is a
stockholder at the time the action was filed. (Dean Divina’s Lecture, April 29, 2015)
3. Exhaustion of all intra-corporate remedies available under the AOI, By-Laws, laws or rules governing the
corporation or partnership to obtain the relief he desires;
4. Not a Nuisance or Harassment suit;
5. Appraisal right is not available. (Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies, cited in Anthony S. Yu, et al., v. Joseph S. Yukayguan, et al., G.R. No. 177549, June 18, 2009)

Voting trust agreement

A voting trust agreement (VTA) is an agreement whereby one or more stockholders transfer their shares of
stocks to a trustee, who thereby acquires for a period of time the voting rights (and/or any other specific
rights) over such shares; and in return, trust certificates are given to the stockholder/s, which are
transferable like stock certificates, subject, to the trust agreement
1. Twin Characterization Test
a. Continuity Test – Doing business implies a continuity of commercial dealings and arrangements,
and contemplates to some extent the performance of acts or works or the exercise of some functions
normally incident to and in progressive prosecution of, the purpose and object of its organization.
b. Sustance Test – a foreign corporation is doing business in the country if it is continuing the body
or substance of the enterprise of business for which it was organized.
2.Contract Test
- Whether the contracts entered into by the foreign corporation, or by an agent acting under the control and
direction of the foreign corporation, are consummated in the Philippines.

Order of distribution of assets in case of liquidation (CreSt-PreComE)

1. Payment of claims of CREditors who are not stockholders (based on preference or concurrence of credits)
2. Payment of claims of STockholders who are creditors of the corporation, as to the amount of their claim as
creditors.
3. Residual Balance shall be distributed proportionately:
a. Holders of PREferred stock, if any; then to the
b. Holders of COMmon stock
4. If the creditor or stockholder cannot be found, their claims or shares shall be Escheated in favor of the city
or municipality where the asset is located.

Securities Securities are 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.

Investment contract – is a contract, transaction or scheme whereby a person invests his money in a common
enterprise and is led to expect profits primarily from the efforts of others.
Howey Test
For an investment contract to exist, the following elements must concur: (CICEE)
a. A contract, transaction or scheme;
b. An investment of money;
c. Investment is made in a common enterprise;
d. Expectation of profits; and
e. Profits arising primarily from the effort of others

EXEMPT SECURITIES
(PC-RIBO)
1. Any security issued or guaranteed by the Government of the Philippines, or by any political subdivision or
agency thereof, or by any person controlled or supervised by, and acting as an instrumentality of said
government.
2. Any security issued or guaranteed by the government of any Country with which the Philippines maintains
diplomatic relations, 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.
3. Certificates issued by a Receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory
body.
4. Any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation
of the Office of Insurance Commission, Housing and Land Use Regulatory Board, or the Bureau of Internal
Revenue.
5. Any security issued by a Bank except its own shares of stock (which serves to promote the sale of securities
issued by heavily regulated banks).
6. Other securities as determined by the SEC by rule or regulation, after public hearing. (SRC, Sec. 9)
EXEMPT TRANSACTIONS
(JuDe ISCaRIOT’S Ex-20-QB’s)
1. Any JUdicial sale, or sale by an executor, administrator, guardian, receiver or trustee in insolvency or
bankruptcy;
2. Those sold by a pledge holder, mortgagee, or any other similar lien holder, to liquidate a bona fide debt a
security pledged in good faith as security for such Debt;
3. Those sold or offered for sale in an Isolated transaction for the owner’s account and the owner not being an
underwriter;
4. Distribution by the corporation of Securities to its stock holders or other security holders as stock
dividends or distribution out of surplus;
5. Sale of CApital stock of a corporation to its own stockholders exclusively wherein no commission or
remuneration is paid or given directly or indirectly in connection with the sale of such capital stock;
NOTE: Also, this sale must not involve an underwriter or financial advisor
6. Bonds or notes secured by a 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;
7. Issue and delivery of any security in exchange for any other security of the same Issuer pursuant to the
right of conversion entitling the holder of the security surrendered in exchange to make such conversion.
8. Broker’s transactions executed upon customer’s Orders, on any registered Exchange or other Trading
market
9. Share Subscriptions in capital stock prior to incorporation 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 be registered
and duly incorporated, or its authorized capital increased;
10. EXchange of securities by the issuer with its existing security holders exclusively, when no commission or
other remuneration is paid or
given directly or indirectly for soliciting such exchange;
11. Sale by issuer to fewer than 20 persons in the Philippines during any 12 month period, otherwise known
as private placement transactions;
12. Sale of securities to any number of the following Qualified Buyers:
a. banks,
b. registered investment houses,
c. insurance companies,
d. pension funds or retirement plans 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, investment companies, and
e. other persons or entities ruled qualified by the SEC on the basis of such factors such as financial
sophistication, net worth, knowledge, and experience in financial and business matters, or amount of
assets under management. (SRC, Sec. 10.1)

RATIONALE: Although the securities themselves must still be registered, the sale or issue need not be
registered because the investors involved herein are considered as highly sophisticated investors or
specialized investors and as such, have a greater risk tolerance or do not need strict protection from the
Commission.

FRAUDULENT TRANSACTIONS
The following are considered as fraudulent transactions: (EUF)
1. Employment of any device, scheme or artifice to defraud investors;
2. Obtaining money or property by means of any untrue statement of a material fact or any omission to
state a material fact necessary in order to make the statement made not misleading;
3. Engaging in any act, transaction, practice or course of business, which operates as a fraud or deceit upon
any person
Material non-public information
1. Information about the issuer or the security 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
2. 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. (SRC, Sec. 27.2)

TENDER OFFER RULE

Tender offer (2002, 2010 Bar)
Tender offer means a publicly announced intention by a person acting alone or in concert with other
persons to acquire equity securities of a public company. It is also an offer by the acquiring person to
stockholders of a public company for them to tender their shares therein on the terms specified in the offer.
Tender offer is in place to protect their minority shareholders against any scheme that dilutes the share value of
any investments. It gives the minority shareholders the chance to exit the company under reasonable terms, giving
them opportunity to sell their shares at the same price as those of the majority shareholders.

Public company
The following are considered as public company:
1. Those listed on an exchange; or
2. Those with assets of at least PHP 50M and having 200 shareholders owning at least 100 shares each.
3. Those companies that have an effective registration statement under Section 12 of the SRC

Margin trading
A kind of trading that allows a broker to advance for the customer/investor part of the purchase price of
the security and to keep the same security as collateral for such advance

AURBACH VS SANITARY WARES (1989) joint venture

It would seem therefore that under Philippine law, a joint venture is a form of partnership
and should thus be governed by the law of partnerships. The Supreme Court has however
recognized a distinction between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however engage in a joint
venture with others.

CHING VS SOJ (2006) crime

If the crime is committed by a corporation or other juridical entity, the directors,
officers, employees or other officers thereof responsible for the offense shall be charged and
penalized for the crime, precisely because of the nature of the crime and the penalty therefor. A
corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime punishable
by imprisonment. However, a corporation may be charged and prosecuted for a crime if the
imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a
corporation may be prosecuted and, if found guilty, may be fined
FRANCISCO MOTORS VS CA (1999) piercing
In our view, however, given the facts and circumstances of this case, the doctrine of piercing
the corporate veil has no relevant application here. Respondent court erred in permitting the trial
courts resort to this doctrine. The rationale behind piercing a corporations identity in a given case is
to remove the barrier between the corporation from the persons comprising it to thwart the
fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking
certain proscribed activities. However, in the case at bar, instead of holding certain individuals
or persons responsible for an alleged corporate act, the situation has been reversed. (i.e.
corporation being held liable for personal liabilities of the directors)
VALLE VERDE COUNTRY CLUB VS AFRICA (2009) holdover director
The word term has acquired a definite meaning in jurisprudence. In several cases, we have
defined term as the time during which the officer may claim to hold the office as of right,
and fixes the interval after which the several incumbents shall succeed one another. The term of
office is not affected by the holdover. The term is fixed by statute and it does not change
simply because the office may have become vacant, nor because the incumbent holds over in
office beyond the end of the term due to the fact that a successor has not been elected and has
failed to qualify. If one of the holdover director resigns, the remaining holdover directors
CANNOT replace him even if they constitute a quorum.
RURAL BANK OF LIPA VS CA (2001) transfer of stocks
We have uniformly held that for a valid transfer of stocks, there must be strict compliance
with the mode of transfer prescribed by law. The requirements are: (a) There must be delivery of
the stock certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact
or other persons legally authorized to make the transfer; and (c) To be valid against third
parties, the transfer must be recorded in the books of the corporation. As it is, compliance with
any of these requisites has not been clearly and sufficiently shown.
STEELCASE VS DESIGN INTERNATIONAL (2012) distributor
From the preceding citations, 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. On the other hand, if the distributor is an independent entity which buys and distributes
products, other than those of the foreign corporation, for its own name and its own account, the latter
cannot be considered to be doing business in the Philippines.
CALTEX VS CA (1992) face
DETERMINATION OF NEGOTIABILITY OR NON-NEGOTIABILITY OF
INSTRUMENT; RULES. — On this score, the accepted rule is that the negotiability or
nonnegotiability of an instrument is determined from the writing, that is, from the face of the
instrument itself. In the construction of a bill or note, the intention of the parties is to control, if it
can be legally ascertained.

ANG TEK LIAN VS CA (1950) cash

Under the Negotiable Instruments Law (sec. 9 [d], a check drawn payable to the order of
"cash" is a check payable to bearer, and the bank may pay it to the person presenting it for
payment without the drawer's indorsement.
HSBC VS CATALAN (2004) art 19
In this instance, after carefully examining the amended complaint, we are convinced that the
allegations therein are in the nature of an action based on tort under Article 19 of the Civil Code. It is
evident that Catalan is suing HSBANK and HSBC TRUSTEE for unjustified and willful refusal to
pay the value of the checks. Exceptionally, a payee may sue the drawee based on Art 19 of the
NCC if there was dishonor despite the instructions of the drawer to pay
ALFREDO CHING, petitioner , vs. THE SECRETARY OF JUSTICE
THE TRUST RECEIPTS LAW APPLIES TO GOODS USED BY THE ENTRUSTEE IN THE
OPERATION OF ITS MACHINERIES AND EQUIPMENT.
The law applies to goods used by the entrustee in the operation of its machineries and
equipment. The non-payment of the amount covered by the trust receipts or the non-return of the
goods covered by the receipts, if not sold or otherwise not disposed of, violate the entrustee's
obligation to pay the amount or to return the goods to the entruster.
DEVELOPMENT BANK OF THE PHILIPPINES , petitioner, vs .
PRUDENTIAL BANK, respondent. Absolute owner
WHILE THE ENTRUSTEE WAS ALLOWED TO SELL THE ITEMS HELD IN TRUST, IT
HOWEVER HAD NO AUTHORITY TO DISPOSE OF THEM OR ANY PART THEREOF OR
THEIR PROCEEDS THROUGH CONDITIONAL SALE, PLEDGE, OR ANY OTHER MEANS.
— The articles were owned by Prudential Bank and they were only held by Litex in trust. While
it was allowed to sell the items, Litex had no authority to dispose of them or any part
thereof or their proceeds through conditional sale, pledge or any other means. Article 2085
(2) of the Civil Code requires that, in a contract of pledge or mortgage, it is essential that
the pledgor or mortgagor should be the absolute owner of the thing pledged or
mortgaged. Article 2085 (3) further mandates that the person constituting the pledge or
mortgage must have the free disposal of his property, and in the absence thereof, that he
be legally authorized for the purpose.

Theory of Concession
The Philippine jurisprudence adopted the Concession or fiat theory, which states that a corporation is
conceived as an artificial person owing existence through creation by a foreign power. Further, a
corporation has without any existence until it has received the imprimatur of the State acting
according to law, through the SEC.

Doctrine of Corporate Opportunity

Where a director, by virtue of his office, acquires for himself a business opportunity which should
belong to the corporation, thereby obtaining profits to the prejudice of such corporation, thereby
obtaining profits to the prejudice of such corporation, is guilty of disloyalty and should, therefore,
account to the latter for all such profits by refunding the same, notwithstanding that he risked his
funds in the venture. (CC, Sec. 34)

A director shall refund to the corporation all the profits he realizes on a business opportunity which:
1. The corporation is financially able to undertake;
2. From its nature, is in line with corporations business and is of practical advantage to it; and
3. The corporation has an interest or a reasonable expectancy. (ibid)

NOTE: The rule shall be applied notwithstanding the fact that the director risked his own funds in the
venture.
However, if such act is ratified by a vote of the stockholders representing at least 2/3 of the
outstanding capital stock, the director is excused from remitting the profit realized.

INSIDER TRADING
A purchase or sale made by an insider, or such insider’s spouse or his relative by affinity or
consanguinity within the second degree, legitimate or common-law, shall be presumed to be effected
while in possession of material non-public information if transacted after such information came into
existence but prior to the public dissemination of such information, and lapse of reasonable time for
the market to absorb such information.

Principle of reciprocity - It allows Filipino citizens to do business in the foreign state or country.
This is merely prescribed as a requirement to secure a license and not an essential element of being a
foreign corporation.
"Commodity Futures Contract" shall refer to an agreement to buy or sell a specified quantity and
grade of a commodity at a future date at a price established at the floor of the exchange.

A commodity futures contract, being a specie of securities, is valid and enforceable as its terms are
governed by special laws, notably the Revised Securities Act and the Revised Rules and Regulations
on Commodity Futures Trading issued by the Securities and Exchange Commission (SEC) and
approved by the Monetary Board of the Central Bank; hence, the Civil Code is not the controlling
piece of legislation.