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FRATERNAL ORDER OF UTOPIA

ATENEO DE MANILA UNIVERSITY


SCHOOL OF LAW

ARIS S. MANGUERA

PHILIPPINE CORPORATE LAW


Commercial Law Review

OUTLINE
(1) Nature of Corporations (2) Formation and Organization of Corporations (3) !e Corporate "ntit# ($) %owers of Corporation (&) 'toc(!olders ()) *oard of +irectors (,) Officers (-) .eetings (/) *oo(s and Records (10) .ergers and Consolidations (11) Non1'toc( Corporations (12) Close Corporations (13) "ducational Corporations (1$) Religious Corporations (1&) +issolution (1)) Foreign Corporations

1. A!"anta#e$ an! !i$a!"anta#e$ of the Corporate For%


CL& ADVANTAGES (1) Strong Personality (2) Centralized Management ( ) !imited !ia"ility to t#e in$estors (%) &ree Trans'era"ility o' (nits o' In$estments
S'n!ian# (pa#e )*+

DISADVANTAGES (1) A")se o' Cor*orate Management (2) A")se o' !imited lia"ility 'eat)re ( ) +ig# ,ost o' maintenan,e (%) Do)"le Ta-ation (.) !a,/ o' Personal Element

ADVANTAGES
(1) T#e ,a*a,ity to a,t as a legal )nit0 (2) !imitation o'1 or e-em*tion 'rom1 indi$id)al lia"ility o' s#are#olders0 ( ) Contin)ity o' E-isten,e (%) Trans'era"ility o' S#ares0 (.) Centralized management o' 2oD0 and (3) Standardized met#od o' organization1 and 'inan,e (Salonga1 P#il4 !a5 on Pri$ate Cor*s1 rd ed41 *age 64)

DISADVANTAGES
(1) More ,om*li,ated in 'ormation and management0 (2) +ig#er ,ost o' 'ormation and o*eration0 ( ) !a,/ o' *ersonal element0 (%) Greater go$ernmental ,ontrol and reg)lation0 (.) Management and ,ontrol are se*arate 'rom o5ners#i*0 Sto,/#olders #a$e little $oi,e in t#e ,ond),t o' ")siness

1. NATURE OF CORPORATIONS
1.1 Concept of the corporation
Sec. . Corporation defined. 2 corporation is an artificial 3eing created 3# operation of law4 !aving t!e rig!t of succession and t!e powers4 attri3utes and properties e5pressl# aut!orized 3# law or incident to its e5istence6

A!"anta#e$, 1) 'trong Legal %ersonalit# 7 !e corporation !as a legal capacit# to act and contract as a distinct unit in its own name7 and it !as continuit# of e5istence6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
7 One of t!e advantages of t!e corporation is t!e limitation of an investor8s lia3ilit# to t!e amount of investment4 w!ic! flows from t!e legal t!eor# t!at a corporate entit# is separate and distinct fro its stoc(!olders6 ('an =uan vs6 C2) :t is !orn3oo( law t!at corporate personalit# is a s!ield against personal lia3ilit# of its officers1 a coporate officer and !is spouse cannot 3e personall# lia3le under a trust receipt w!ere !e entered into and signed t!e contract clearl# in !is official capacit#6 (Consolidated *an( vs6 C2) O3ligations incurred 3# t!e corporation acting t!roug! its directors4 officers and emplo#ees4 are its sole lia3ilities6 (.ala#ang 'ama!an vs6 Ramos)

2 corporation8s creation4 organization4 management and dissolution are standardized as t!e# are governed 3# a general incorporation law6 2 corporation is an entit# separate and distinct from its stoc(!older6 9!ile not in fact and in realit# a person4 t!e law treats t!e corporation as t!oug! it were a person 3# process of fiction or 3# regarding it as an artificial person distinct and separate from its individual stoc(!olders6 (Remo vs6 :2C) 'toc(!olders vs6 Register of +eeds !e transfer of corporate assets to t!e stoc(!older is not in t!e nature of a partition 3ut is a conve#ance from one part# to anot!er6

2) Centralized .anagement 7 2 corporation8s management is centralized in t!e 3oard of director8s6 2 corporation presents a more sta3le and efficient s#stem of governance and dealings wit! t!ird parties4 since management prerogatives are centralized in its 3oard of directors6 7 2s can 3e gleaned from 'ec 23 of Corporation Code4 it is t!e 3oard of directors or trustees w!ic! e5ercises almost all t!e corporate powers in a corporation6 (Firme vs6 *u(al) 7 !e e5ercise of t!e corporate powers of t!e corporation rest in t!e *oard of +irectors save in t!ose instances w!ere t!e Corporation Code re;uires stoc(!older8s approval for certain specific acts6 (<reat 2sain 'ales Center vs6 C2) 3) Limited Lia3ilit# to :nvestors1 !e lia3ilit# in a corporation is limited to t!eir s!ares6 7 Provided by jurisprudence only 7 Simple division between naked title and beneficial title gives rise to limited liability. 7 Peculiar only between the shareholders and a corporation 7 Underlying Principle: Principle of elativity 7 !"#$s formula: Strong %uridical Personality & !entrali'ed (anagement) "imited "iability 7 !"#: *here are ways to circumvent the law to make the shareholder liable for more than his actual share +e,. *he chairman makes himself joint debtor for a loan7 .hen a person invest its property in the corporation/ he abdicates his jus of ownership

CLV Class Notes 0: 1s a corporation in our jurisdiction given the feature of limited liability2 3: 4o. *he feature of limited liability is given to the stockholder and not to the corporation. 0: 1s limited liability a normal run of things2 3: 4o. 1t is only there because it comes with the separate juridical personality 0: 1f limited liability as shown in the corporation setting is good for the investors/ does it mean that delectus personarum is a bad thing2 3: 4o. 1t is good in a way/ since person are bound by the contracts they enter into.

$) Free ransfera3ilit# of >nits of :nvestments 7 2s a general rule4 t!e s!ares of stoc(s can 3e transferred wit!out t!e consent of ot!er stoc(!olders6 !is places more li;uidit# in t!e corporate setting and encourages investors to c!annel t!eir investments t!roug! corporate ve!icles6 7 2ut!orit# granted to corporations to regulate t!e transfer of its stoc( does not empower t!e corporation to restrict t!e rig!t of a stoc(!older to transfer !is s!ares4 3ut merel# aut!orizes t!e adoption of regulations as to t!e formalities and procedure to 3e followed in effecting transfer ( !omson vs6 C2) &) 2dvantages as registered "ntit#1 7 Corporations en?o# perpetual succession under its corporate name and in an artificial form7 it !as t!e capacit# to ta(e and grant propert#4 and contract o3ligations7 it can sue and 3e sued in its corporate name as a ?uridical person7 it !as t!e capacit# to receive and en?o# common grants of privileges and

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212

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
de3ts6 <enerall#4 ever# partner is an agent of t!e partners!ip and 3# !is sole act4 !e can 3ind t!e partners!ip w!ereas in a corporation4 onl# t!e *oard of +irectors or its agents can 3ind t!e corporation6 @ere are t!e features of a partners!ipD Delectus Personarum 7 'election of %artners7 No outsider can come in wit!out t!e consent of all partners 7 %revents t!e development of an# mar(et for units of owners!ip 3ecause of no assurance t!at 3u#ers would 3e a3le to 3ecome partners 7 .utual Representation 7 %ower to +issolve Mutual Agency 7 "ac! partner can legall# 3ind t!e 3usiness enterprise 7 *usiness ma# 3e undermined 3# act of one foolis! partner Unlimited Liability Community of Interest 7 Co1owners!ip of capital or propert#
CLV Class Notes 0: 5ow does contractual management of a corporation compare with the management of a partnership2 3: 6very partner/ in the absence of a stipulation in the articles of partnership/ binds the partnership as every partner is an agent of the others. 1n a corporation/ only the 7oard of 8irectors and not the stockholders can bind the corporation. !"#: *he principle in constitutional law that delegated power cannot be delegated further has no application in a corporate setting because a corporation is not a product of political te,t9 it is a product of business. 3 corporate setting is best described as hierarchal and fiat. %ust because the 7o8 are to be elected by the stockholders does not mean that the former derives its power from the latter. *he powers of the 7o8 is original/ said powers are not delegated by the stockholder. *he powers are vested by law +and 3rticles of 1ncorporation-. *he 7o8 sit on the board not as representatives of the stockholders but because they are directors. 0: .hat are the : types of partnerships2 3: egular and joint venture 0: !an a corporation be a partner in a regular partnership2 3: 4o/ because a partner must be a natural person. 1t is against public policy for corporation to be a partner in a regular partnership.

immunities7 and its stoc(!olders or mem3ers generall# !ave no personal lia3ilit# 3e#ond t!eir s!ares6 -i$a!"anta#e$ of Corporate For% 1) 23use of Corporate .anagement1 :n a practical sense4 investors !ave ver# little voice over t!e conduct of 3usiness of t!e corporation6 2) 23use of limited lia3ilit# feature1 Limited lia3ilit# feature !as tended to increase transaction cost 3# t!e parties 3eing forced to enter into contractual sc!emes s(irting t!e limited lia3ilit# of t!e corporation w!en it is a part# to a transaction6 Limited lia3ilit# !its innocent people6 3) @ig! cost of maintenance1 Complicated and Costl# Formation and .aintenance6 !ere is a greater degree of governmental control and supervision6 $) +ou3le a5ation1 !e profits if t!e corporation w!ic! are alread# su3?ected to corporate income ta5 w!en declared and distri3uted as dividends to t!e stoc(!olders are again su3?ected to t!e furt!er income ta56 +ividends received 3# individuals from domestic corporations are su3?ect to final 10A ta5 fro income earned on or after =anuar# 14 1//('ection 2$(*)(2)4 1//, N:RC)6 :nter1corporate dividends 3etween domestic corporations4 !owever4 are not su3?ect to an# income ta5 ('ec6 2, (+)($)4 1//, N:RC)6 :n addition4 t!ere is re1imposition of t!e 10A Bimproperl# accumulated earnings ta5C for !olding companies ('ec 2/4 1//, N:RC) &) Lac( of %ersonal "lement1 !is !as spawned corporate irresponsi3ilit#6

1.. -ifferentiate! fro% /'$ine$$ or#ani0ation$

partner$hip$

an!

other

1+ SOLE PROPRIETORSHIP 1 @ere4 it is t!e owner w!o controls t!e 3usiness w!ile in a corporation4 it is t!e *oard of +irectors6 + PARTNERSHIPS 1 !e most important distinction 3etween a partners!ip and a corporation is t!eir legal capacities6 2 corporation !as a stronger legal capacit#6 "na3ling it to continue despite deat!4 insolvenc# or wit!drawal of an# of its stoc(!olders or mem3ers6 Limited Lia3ilit# is a main feature in a corporate setting4 w!ereas partners are lia3le personall# foe partners!ip

I sweat, I bleed, I soar Service, Sacrifice, Excellence

213

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
3: 7ecause Pioneer shows us that for a person to be liable as a partner/ he should have actively participated in the conduct of the business/ the S! held in this case that to be able to be held liable the person should possess powers of management business/ the S! held in this case this case that to be able to be held liable the person should possess powers of management. 0: 1n cases where there is a defective attempt to form a corporation/ which is the prevailing rule/ a partnership inter se is created or a corporation by estoppel2 3: 1t depends wholly on the e,tent of the participation of the party who claim is being mind. 1n P1A466 / there was no intent on the other parties to enter into a partnership but a corporation. 3s to !ervantes and 7ormacheco/ they cannot be considered to have entered into a partnership inter se/ since there was no intention to do so ans to be held liable as such. 7ut if it were !ervantes or 7ormacheco/ who entered into the contracts using the corporate name and actively participated in the activities of the corporation/ then they are to be held liable as partners.

0: .hy did the legislature put such limited liability as an attribute of a corporation2 1f the feature of limited liability costs money then why not take it out2 .hy not leave it up to the investors who can decide if they want limited liability or not2 3: 6ven though limited liability will cost a lot of money/ borrowing makes a lot more sense. 1f 1 have ;<<(/ it would be foolish to put all my eggs in one basket+if the basket falls/ all eggs break-. So 1 merely out ;<( in one corp and then borrow the =<( while the rest of my money 1 put somewhere else. 1f the corporation fails/ 1 do not lose all my ;<< (. 7ut if the corps succeeds and 1 get to pay my creditor/ 1 retain the ;<( plus profits ac>uired from the =<( paid up loan. *his is the concept of "everaging/ using other people$s money to make a profit for yourself. *his is why borrowing is an integral part of corporate life and it is up to the creditors to make a diligent appraisal of the credit standing of the corp. 0: .hat is the main distinction between a corporation and a partnership2 3: 3 corporation is intermingling of corporation law and contract law. Partnership is purely contractual relationship and so every time a partner dies/ the contract is actually distinguished. 0: .hat is a corporation law all about2 3: 1t is all about jurisprudence actually built around the ? attributes of a corporation. 0: 8oes a 8efective 1ncorporation result into a Partnership2 3: 4o. @irst/ both corporate and partnership relationship are fundamentally contractual relationships created by the co9venturers. +so/ yung intention is controlling-Second/ there are important differences between a corporation and the partnership.+i.e. "imited liability/ centrali'ed management/ easy transferability of units of ownershipSummary of the doctrinal pronouncement in P1A466 14SU 34!6 case: a- Parties who intended to participate or actually participate in the business affairs of the proposed corporation would be considered as partners under a de facto partnership/ and would be liable for partnership obligations. b- Parties who took no part e,cept to subscribe for stock in a proposed corporation/ do not become partners with other subscribers who engaged in the business under the name of pretended corporation/ are not liable for action foe settlement of the alleged partnership contribution. 0: .hy are we taking up Pioneer2 .hy were not they liable2

Lim ong Lim vs6 %!il6 Fis!ing <ear :ndustries 7 0: .hat is the difference between Pioneer and "im *ong "im2 3: 1n Pioneer/ the S! stopped when it declared that to be liable/ you have to possess powers of management. 1n "im/ it continues its pronouncement by saying that you have beneficial ownership over the business/ then you are also liable as a partner !"#: Pioneer caseactors who knew of corporation$s non9 e,istence are liable as general partners while actors who did not know are liable as limited partners/ passive investors are not liable. "im 6ven passive investors should be held liable provided they benefited from such transactions. .+ 1USINESS TRUST1 :t is simpl# a deed of trust w!ic! is easier and less e5pensive to constitute for it is not 3ound 3# an# legal re;uirements6 :t does not !ave separate ?uridical personalit#4 and is mainl# governed 3# contractual doctrines and common law principles on trust6 rust relations!ip centered upon properties4 and w!ic! places na(ed tile in t!e trustor and t!e 3eneficial title in t!e 3eneficiar#6
CLV Class Notes 0: .hat is the difference of a 7usiness *rust and a corporation2

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
!as a ?uridical personalit# distinct from its mem3ers and !as a limited lia3ilit# feature6 Cooperatives are governed 3# principles of democratic control w!ere t!e mem3ers in primar# cooperatives !ave e;ual voting rig!ts in a one1mem3er1one1 vote principle6 !e general assem3l# in full mem3ers!ip e5ercises all t!e rig!ts and performs all t!e o3ligations of t!e cooperative6 !e# are under t!e supervision and control of t!e Cooperative +evelopment 2ut!orit#6 (%rimar# o3?ectiveD '"LF @"L%) Cooperatives are esta3lis!ed to provide a strong social and economic organization to ensure t!at t!e tenant1farmers will en?o# on a lasting 3asis t!e 3enefits of agrarian reforms6 (Corpuz vs6 <rospe)

3: *he relationship in a business trust is essentially a trust relationship. *he business trust does not have a personality which is apart from the trustor of the trusteeBbeneficiary. *he concept of a separate juridical personality is absent from a business trust.

)+ 2OINT &ENTURES 7 :ts legal concept is of common law origin6 :t is a form of partners!ip and s!ould t!us 3e governed 3# t!e law of partners!ips6 7 =oint venture is an association of persons or companies ?ointl# underta(ing some commercial enterprise7 generall#4 all contri3ute assets and s!are ris(s6 :t re;uires a communit# of interest in t!e performance of t!e su3?ect matter4 a rig!t to direct and govern polic# in connection t!erewit!4 and dut#4 w!ic! ma# 3e altered 3# agreement to s!are 3ot! in profit and losses6 (Eilos3a#an vs6 <uingona)
CLV Class Notes 0: .hat is the difference between a joint venture and a partnership2 3: 3 joint venture is by law a partnership because it follows the same definition as having two or more persons binding themselves together under a common fund with the intention of dividing the profits between themselves. *herefore/ every joint venture is a partnership. *he distinction between the two is a joint venture is for a limited purpose only while a partnership involves an arrangement or an on9going concern. 0: 1s it possible for a joint partnership not be a partnership2 3: Ces/ when the joint venture forms a corporation/ it hen becomes a joint venture corporation. 0: 1s the re>uirement of registration needed in a partnership re>uired in a joint venture2 3: 4o. Anly in a partnership is registration re>uired. +3rt ;DD:-

3+ COOPERATI&ES 7 :t is a dul# registered association of persons4 wit! a common 3ond of interest4 w!o !ave voluntaril# ?oined toget!er to ac!ieve lawful common social or economic end4 ma(ing e;uita3le contri3utions to t!e capital re;uired and accepting a fair s!are of t!e ris(s and 3enefits of t!e underta(ing in accordance wit! universall# accepted cooperative principles6 :t

4+ SOCIE-A- ANONIMAS 7 2 sociedad anonima was considered a commercial partners!ip w!ere upon t!e e5ecution of funds and personal propert#4 3ecome a ?uridical person1 an artificial 3eing4 invisi3le4 intangi3le4 and e5isting onl# in contemplation of law1 wit! power to !old4 3u#4 and sell propert#4 and to sue and 3e sued1 a corporation1 not a general co1partners!ip nor a limited co1 partners!ipF !e inscri3ing of its articles of agreement in t!e commercial register was not necessar# to ma(e it a ?uridical person1 a corporation6 'uc! inscription onl# operated to s!ow t!at it partoo( of t!e form of a commercial corporation4 (.ead vs6 .cCulloug!) 7 !e sociedades anonimas were introduced in t!e %!ilippine ?urisdiction on 1 +ecem3er 1--- wit! t!e e5tension to %!ilippine territorial application of 2rticles 1&1 to 1&/ of t!e 'panis! Code of Commerce6 !ose articles contained t!e features of limited lia3ilit# and centralized management granted to a ?uridical entit#6 *ut t!e# were more similar to t!e "nglis! ?oint stoc( companies t!an t!e modern commercial corporations6 (*enguet vs %ineda) 7 Our corporation law recognizes t!e difference 3etween sociedades anonimas and corporations and will not appl# legal provisions pertaining to t!e latter to t!e former6(%!il %roduct vs6 %rimateria 'ociete 2non#me) 5+ CUENTAS EN PARTICIPACION

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
B:t is a 3asic postulate t!at 3efore a corporation ma# ac;uire ?uridical personalit#4 t!e 'tate must give its consent eit!er in t!e form of a special law or a general ena3ling act4C and t!e procedure and conditions provided under t!e law for t!e ac;uisition of suc! ?uridical personalit# must 3e complied wit!6 2lt!oug! t!e statutor# grant to an association of t!e powers to purc!ase4 sell4 lease and encum3er propert# can onl# 3e construed t!e grant of a ?uridical personalit# to suc! an association 6 6 6 nevert!eless4 t!e failure to compl# wit! t!e statutor# procedure and conditions does not warrant a finding t!at suc! association ac;uired a separate ?uridical personalit#4 even w!en it adopts sets of constitution and 3#1laws6 1nternational 6,press *ravel E *our Services/ 1nc. v. !ourt of 3ppeals/ 3$3 'CR2 ),$ (2000)6 'ince all corporations4 3ig or small4 must a3ide 3# t!e provisions of t!e Corporation Code4 t!en even a simple famil# corporation cannot claim an e5emption nor can it !ave rules and practices ot!er t!an t!ose esta3lis!ed 3# law6 *orres v. !ourt of 3ppeals4 2,- 'CR2 ,/3 (1//,)6
Catindig Class Notes 0: 5ow does government regulate corporations2 3: @rom creation to dissolution ,,, 5omeowner$s 5"U 7 !ondos S6! !ooperative 7ureau of !ooperative 8evelopment

2 cuentas en particiapacion as a sort of an accidental partners!ip constituted in suc! manner t!at its e5istence was onl# (nown to t!ose w!o !ad an interest in t!e same4 t!ere 3eing no mutual agreement 3etween t!e partners4 and wit!out a corporate name indicating to t!e pu3lic in some wa# t!at t!ere were ot!er people 3esides t!e one w!o ostensi3l# managed and conducted t!e 3usiness4 governed under 2rticle 23/ of t!e Code of Commerce6 !ose w!o contract wit! t!e person under w!ose name t!e 3usiness of suc! partners!ip of cuentas en participacion is conducted4 s!all !ave onl# a rig!t of action against suc! person and not against t!e ot!er person interested4 and t!e latter4 on t!e ot!er !and4 s!all !ave not rig!t of action against t!ird person w!o contracted wit! t!e manager unless suc! manager formall# transfers !is rig!ts to t!em6 (*ourns vs6 Carman)

1.) Go"ern%ent Re#'6ation of Corporation$


1a$i$D 'ection 2 of Corp Code7 !eor# of Concession Theor7 of Conce$$ion, Loo(s at a corporation as a creature of t!e 'tate wit!in t!e control of t!e latter6 !is t!eor# is essentiall# followed in t!e %!ilippines6
2 corporation is an artificial 3eing created 3# operation of law6 :t owes it life to t!e state its 3irt! 3eing purel# dependent on its will6 Corporate 3#1laws must #ield to ?udicial orders6 2s a matter of fact4 a corporation4 once it comes into 3eing4 comes more often wit!in t!e (en of t!e ?udiciar# t!an t!e ot!er two coordinate 3ranc!es6 :t institutes t!e appropriate court action to enforce its rig!t6 Correlativel#4 it is not immune from ?udicial control in t!ose instances4 w!ere a dut# under t!e law as ascertained in an appropriate legal proceeding is cast upon it6 ( a#ag v6 *enguet Consolidation) o organize a corporation t!at could claim a ?uridical personalit# of its own and transact 3usiness as suc!4 is not a matter of a3solute rig!t 3ut a privilege w!ic! ma# 3e en?o#ed onl# under suc! terms as t!e 'tate ma# deem necessar# to impose6 cf. 3ng Pue E !o. v. Sec. of !ommerce and 1ndustry 4 & 'CR2 )$& (1/)2)

1.3 8in!$ of Corporation$


(a+ Stoc9 (/+ Non:Stoc9 (c+ -e Facto (!+ Corporation /7 e$toppe6 (e+ C6o$e (f+ E!'cationa6 (#+ Re6i#io'$; So6e an! A##re#ate (h+ Specia6 Charter (i+ Forei#n

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
Sec. A. De facto corporations !e due incorporation of an# corporation claiming in good fait! to 3e a corporation under t!is Code4 and its rig!t to e5ercise corporate powers4 s!all not 3e in;uired into collaterall# in an# private suit to w!ic! suc! corporation ma# 3e a part#6 'uc! in;uir# ma# 3e made 3# t!e 'olicitor <eneral in a ;uo warranto proceeding6

(<+ GOCC (9+ Ho%eo=ner>$ A$$ociation

(a+ Stoc9
Sec. .. Classes of corporations. Corporations formed or organized under t!is Code ma# 3e stoc( or non1stoc( corporations6 Corporations w!ic! !ave capital stoc( divided into s!ares and are aut!orized to distri3ute to t!e !olders of suc! s!ares dividends or allotments of t!e surplus profits on t!e 3asis of t!e s!ares !eld are stoc( corporations6 2ll ot!er corporations are non1stoc( corporations6

Nature of the Doctrine +e facto corporation is formed also in accordance wit! law6 :t falls s!ort of t!e re;uirements provided 3# law6 'uc! is awarded a separate ?uridical personalit#4 it ma# t!us enter into contracts4 it ma# sue and 3e sued6 (noteD t!ird parties ma# sue t!e corporation4 incorporators ma# sue 3ut t!e corporation cannot sue) Onl# t!e actors will 3e !eld lia3le6 :n proceeding against suc!4 compliance wit! due process must 3e !ad6 !e doctrine of de facto corporation applies as to t!e first level relations!ip (as 3etween t!e 'tate and corporations) and also to t!e t!ird level of relations!ip6

(/+ Non:$toc9
Section$ . an! ?5.
Sec. ?5. Definition. For t!e purposes of t!is Code4 a non1stoc( corporation is one w!ere no part of it$ inco%e i$ !i$tri/'ta/6e a$ !i"i!en!$ to it$ %e%/er$@ tr'$tee$@ or officer$@ $'/<ect to the pro"i$ion$ of thi$ Co!e on !i$$o6'tionD %rovided4 !at an# profit w!ic! a non1stoc( corporation ma# o3tain as an incident to its operations s!all4 w!enever necessar# or proper4 3e used for t!e furt!erance of t!e purpose or purposes for w!ic! t!e corporation was organized4 su3?ect to t!e provisions of t!is itle6 !e provisions governing stoc( corporation4 w!en pertinent4 s!all 3e applica3le to non1stoc( corporations4 e5cept as ma# 3e covered 3# specific provisions of t!is itle6 (n)

lements! "Arnold #. Piccio$ (1) Galid Law under w!ic! it is incorporated (2) 2ttempt in good fait! to incorporate (3) 2ssumption of corporate powers (1+ &a6i! La= 'n!er =hich it i$ incorporate! :f t!e constitutionalit# of t!e statue is raised for t!e first time in an action w!erein it is soug!t to prevent future incurring of rig!ts and o3ligations4 it will 3e proper to permit collateral attac(7 w!ere t!e constitutionalit# of t!e statue is raised for t!e first time in litigation see(ing enforcement of contracts or transaction w!ic! !ave 3een full# or partiall# consummated4 collateral attac( on t!e ?uridical personalit# of t!e corporation s!ould not 3e permitted4 since t!e corporation s!ould 3e treated as a de facto corporation6 Courts4 !owever4 t!roug!

'ee page /02 of CLG8s Commercial Law Reviewer (200,)6 :n spite of t!e e5istence of capital stoc(4 a corporation ma# 3e considered a non1stoc( corporation for purpose of ta5ation6 (C:R v6 Clu3 Filipino) .ere realization of profits does not ma(e a corporation a stoc( corporation6 (Collector v6 >G)

(c+ -e facto

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
transactions entered into with said corporations may be sued upon and they can recover. *hat is why aside from the other two re>uisites there must be a set of officers or directors because the principle that a corporation can only act through its officers.

?urisprudence4 arrived at t!e same result as t!at up!eld 3# suc! minorit# opinion4 !olding t!at a corporation organized under a statute su3se;uentl# declared unconstitutional ma# nevert!eless 3e considered a corporation 3# estoppel4 w!ere t!ere !ave 3een previous dealing 3etween t!e parties on a corporate 3asis6 ( + Atte%pt in #oo! faith to incorporate: co6ora/6e co%p6iance6 !e Corporation must !ave filed its 2rticles of :ncorporation and t!e '"C dul# issued a Certificate of :ncorporation6 ( !e incorporators must !ave 3een aware of t!e issuance of t!e certificate of incorporation 3# t!e '"C for suc! good fait! to e5ist6) (.ere intent is not sufficient)

Catindig Class Notes &ir! Ance there is a certificate issued/ there is no de facto corporation. So for me the concept is merely historical.

(!+ Corporation /7 e$toppe6


Sec. 1. Corporation by estoppel 2ll persons w!o assume to act as a corporation (nowing it to 3e wit!out aut!orit# to do so s!all 3e lia3le as general partners for all de3ts4 lia3ilities and damages incurred or arising as a result t!ereofD %rovided4 !owever4 !at w!en an# suc! ostensi3le corporation is sued on an# transaction entered 3# it as a corporation or on an# tort committed 3# it as suc!4 it s!all not 3e allowed to use as a defense its lac( of corporate personalit#6 On w!o assumes an o3ligation to an ostensi3le corporation as suc!4 cannot resist performance t!ereof on t!e ground t!at t!ere was in fact no corporation6
CLV Class Notes 0: .hat is minimum re>uirement for a corporation by estoppel to e,ist2 3: *here must be an innocent party who believes that a corporation e,ists +believes in good faith- because of representations. Catindig Class Notes 0: 1s a corporation by estoppel a corporation2 3: 4o. +See definition in Section :*he parties are the one made liable93S(. 0: 5ow does government regulate corporations2 3: @rom creation to dissolution 555 5omeowner$s 5"U 7 !ondos S6!

(.+ A$$'%ption of corporate po=er$D .inimum re;uirementD "lection of *o+6 %ationale o prevent an# part# from raising t!e defect of aut!orit# as a means to avoid fulfillment of a contract or a transaction entered into6 o protect t!e enforcea3ilit# of corporate dealings and contracts4 to allow t!e pu3lic to ta(e at reasona3le face value t!e aut!orit# of t!e corporation to enter into valid and 3inding contracts6 !e doctrine is meant to appl# to e5tra Hcorporate dealings and not to intra1corporate relations!ip
CLV Class Notes 0: 1f a member of a public deals with a corporation knowing its defect/ will the de facto doctrine apply2 3: Ces/ because +a- juridical personality cannot be subject to collateral attack +b- 4o juridical entity/ no separate liability !"#: *he de facto doctrine was formulated to safeguard the security of commercial transactions whenever they involve the corporation. Parties dealing with said corporation are secured by the fact that the

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA ?uridical personalit#6 !hristian !hildren$s @und v. 4" !/ 1,$ 'CR2 )-1 (1/-/)6 One w!o deals wit! an organization w!ic! is not dul# incorporated is not estopped to den# its corporate e5istence w!en !is purpose is not to avoid lia3ilit#6 1nt$l 6,press *ravel v. !ourt of 3ppeals/ 3$3 'CR2 ),$ (2000)6 >nder t!e law on estoppel including t!at under 'ec6 21 of Corporation Code4 t!ose acting on 3e!alf of an ostensi3le corporation and those benefited by it/ knowing it to be without valid e,istence/ are !eld lia3le as general partners6 "im *ong "im v. Philippine @ishing Gear 1ndustries/ 1nc. 4 31, 'CR2 ,2- (1///)6

!ooperative 7ureau of !ooperative 8evelopment UP Class Notes CO.."N D !e doctrine is founded on principles of e;uit# and is applied n order to prevent in?ustice and unfairness to t!ird persons vis1 I1vis t!e corporation (or vice versa as in par6 2 'ection 21)6 :n t!is case t!e :nternational "5press ravel see(s to enforce a valid contract7 it is t!e Federation and @enri Ea!n w!o wis! to do it in?ustice 3# tr#ing to evade responsi3ilit# t!ereon6 :n t!e last point4 t!e C2 possi3l# tried to appl# paragrap! 2 'ection 214 al3eit mista(enl#6

Nature of Doctrine 2n admission or representation is rendered conclusive upon t!e person ma(ing it4 and cannot 3e denied or disproved as against t!e person rel#ing t!ereon6 @ounded on principles of e>uity and designed to prevent injustice and unfairness/ the doctrine applies when persons assume to form a corporation and e,ercise corporate functions and enter into business relations with third persons. .here no third person is involved in the conflict/ there is no corporation by estoppel. 3 failed consolidation therefore cannot result in a consolidated corporation by estoppel. Lozano v6 +e Los 'antos/ :D? S! 3 ?F: +;==D2 part# cannot c!allenge t!e personalit# of t!e plaintiff as a dul# organized corporation after !aving ac(nowledged same w!en entering into t!e contract wit! t!e plaintiff as suc! corporation for t!e transportation of its merc!andise6 Ahta 8ev. !o. v. Steamship Pompey/ $/ %!il6 11, (1/2))61 2 person w!o accepts emplo#ment in an unincorporated c!arita3le association is estopped from alleging its lac( of

'(o Le#els (1) 9it! Fraud (2) 9it!out Fraud 9!en t!e incorporators represent t!emselves to 3e officers of t!e corporation w!ic! was never dul# registered wit! t!e '"C4 and engage in t!e name of t!e purported corporation in illegal recruitment4 t!e# are estopped from claiming t!at t!e# are not lia3le as corporate officers under 'ec6 2& of Corporation Code w!ic! provides t!at all persons w!o assume to act as a corporation (nowing it to 3e wit!out aut!orit# to do so s!all 3e lia3le as general partners for all t!e de3ts4 lia3ilities and damages incurred or arising as a result t!ereof6 People v. Garcia4 2,1 'CR2 )21 (1//,)7 People v. Pineda4 <6R6 No6 11,0104 1- 2pril 1//, (unpu3)6

T#e same *rin,i*le a**lied in Compania Agricole de Ultramar v. Reyes1 % P#il4 1 816119 ")t t#at ,ase *ertained to a ,ommer,ial *artners#i* 5#i,# re:)ired registration in t#e registry )nder t#e terms o' t#e Code o' Commer,e)4

(1+ With Fra'! 2ctor is lia3le as a #enera6 partner for de3ts4 damages and lia3ilities incurred6 BCorporationC cannot set up as defense t!at corp actuall# does not e5ist6 Geil will 3e pierced to ma(e corporators lia3le6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
!"AS6 !A PA 3*1A4S !is is a new title4 made in recognition of t!e fact t!at t!e overw!elming ma?orit# of t!e corporations are famil# corps6 :n man# famil# corporations !ere4 t!e set1up is suc! t!at t!e !us3and is t!e president4 t!e wife is t!e treasurer4 3ut it is t!e wife w!o is actuall# running t!e corp6 !e !us3and is ?ust t!e nominal figure!ead6 "56 esoro @andicraft6 2 close corp6 @as a tec!nical meaning in t!e law6 For it to 3e a close corp64 t!e articles must provide t!at it cannot !ave more t!an 20 stoc(!olders6 !ere s!ould 3e restrictions on t!e transfer of t!e s!ares4 li(e usuall# it will 3e provided t!at if a stoc(!older wants to sell !is s!are4 !e must first offer it to t!e ot!er stoc(!olders6 Onl# if t!e# are not willing to 3u# can !e offer it to an outsider6 Or it ma# also provide t!at if no stoc(!older is willing to 3u# t!e s!ares4 t!en !e must offer it to t!e corporation 3efore offering to an outsider6 !e corporation s!all not 3e listed in an# stoc( e5c!ange6 !e law sa#s t!at t!e mere fact t!at a corp6 is controlled 3# anot!er corp6 does not ma(e it a close corp6 !e articles must contain t!e features mentioned in t!e law6 *ut corps6 "ngaged in mining4 oil companies4 stoc( e5c!anges4 3an(s4 insurance companies4 pu3lic utilities4 sc!ools4 and corps6 vested wit! pu3lic interest are not allowed to 3e close corps6 *ecause t!e#Jre engaged in lines of 3usiness vested wit! pu3lic interest and so t!e# s!ould 3e su3?ect to regulation and close scrutin#6 !e law sa#s t!e articles ma# provide for classification of s!ares and ;ualifications for owning t!em6 For e5ample4 #ou !ave t!ree 3rot!ers w!o form a close corp6 'o t!e# ma# provideD a) we will classif# t!ese s!ares into class a4 class 34 class c6 Onl# t!e mem3ers of t!e famil# of t!e first 3rot!er can own class a s!ares6 Onl# mem3ers of 2 nd 3rot!er can own class 3 s!ares4 and class c s!ares can 3e owned onl# 3# mem3ers of t!e 3rd 3rot!er7 3) we will !ave nine (/) directors4 and 3 will 3e elected 3# !olders of class a s!ares7 c) can provide for a greater ;uorum or voting re;uirements6 :t can 3e provided t!at #ou will need t!ree fourt!s (3K$) ma?orit# to approve an# action 3# t!e 3oard4 an# action 3# t!e stoc(!older6 9!#L *ecause eac! group would want to 3e protected for ot!erwise if t!e two groups com3ine t!e# can get an#t!ing approved4 li(e t!ere would 3e two t!irds6 2nd so t!e t!ird group would want to 3e protected7 d) t!e articles ma# provide t!at if itJs t!e stoc(!olders and not t!e 3oard w!o will manage t!e affairs and t!at t!ere is no need for formal meetings4 if t!e stoc(!olders will 3e t!e directors4 t!en t!e# will 3e su3?ect to t!e same lia3ilities as directors6

:f corporation sues t!e ot!er part#4 it cannot resist o3ligation 3# sa#ing t!at no corp e5ist6

( + Witho't Fra'! 2ctors are lia3le as 6i%ite! partner6 Corporation 3# estoppel applies to save t!e contract 3ut ?uridical entit# is t!en 3ro(en down to ma(e actors lia3le6

Note, 1oth in /a! faith, Corporation 3# estoppel does not appl#6 (%ari +elicto +octrine4 or t!e contract is recissi3le)

(e+ C6o$e
Sec. *4. Definition and applicability of 'itle. 2 close corporation4 wit!in t!e meaning of t!is Code4 is one w!ose articles of incorporation provide t!atD (1) 2ll t!e corporationJs issued stoc( of all classes4 e5clusive of treasur# s!ares4 s!all 3e !eld of record 3# not more t!an a specified num3er of persons4 not e5ceeding twent# (20)7 (2) all t!e issued stoc( of all classes s!all 3e su3?ect to one or more specified restrictions on transfer permitted 3# t!is itle7 and (3) !e corporation s!all not list in an# stoc( e5c!ange or ma(e an# pu3lic offering of an# of its stoc( of an# class6 Notwit!standing t!e foregoing4 a corporation s!all not 3e deemed a close corporation w!en at least two1t!irds (2K3) of its voting stoc( or voting rig!ts is owned or controlled 3# anot!er corporation w!ic! is not a close corporation wit!in t!e meaning of t!is Code6 2n# corporation ma# 3e incorporated as a close corporation4 e5cept mining or oil companies4 stoc( e5c!anges4 3an(s4 insurance companies4 pu3lic utilities4 educational institutions and corporations declared to 3e vested wit! pu3lic interest in accordance wit! t!e provisions of t!is Code6 !e provisions of t!is itle s!all primaril# govern close corporationsD %rovided4 !at t!e provisions of ot!er itles of t!is Code s!all appl# suppletoril# e5cept insofar as t!is itle ot!erwise provides6 )ac*+s Lecture

'ee page ,0)1,3) of CLG8s te5t3oo( or page /0/ of CLG8s Commercial Law Reviewer (200,)6

(f+ E!'cationa6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2110

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
religious societies6 Religious corporations s!all 3e governed 3# t!is C!apter and 3# t!e general provisions on non1stoc( corporations insofar as t!e# ma# 3e applica3le6 (n) Sec. 11A. Corporation sole For t!e purpose of administering and managing4 as trustee4 t!e affairs4 propert# and temporalities of an# religious denomination4 sect or c!urc!4 a corporation sole ma# 3e formed 3# t!e c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or ot!er presiding elder of suc! religious denomination4 sect or c!urc!6 (1&$a) Sec. 111. Articles of incorporation :n order to 3ecome a corporation sole4 t!e c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder of an# religious denomination4 sect or c!urc! must file wit! t!e 'ecurities and "5c!ange Commission articles of incorporation setting fort! t!e followingD 16 !at !e is t!e c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder of !is religious denomination4 sect or c!urc! and t!at !e desires to 3ecome a corporation sole7 26 !at t!e rules4 regulations and discipline of !is religious denomination4 sect or c!urc! are not inconsistent wit! !is 3ecoming a corporation sole and do not for3id it7 36 !at as suc! c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder4 !e is c!arged wit! t!e administration of t!e temporalities and t!e management of t!e affairs4 estate and properties of !is religious denomination4 sect or c!urc! wit!in !is territorial ?urisdiction4 descri3ing suc! territorial ?urisdiction7 $6 !e manner in w!ic! an# vacanc# occurring in t!e office of c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i of presiding elder is re;uired to 3e filled4 according to t!e rules4 regulations or discipline of t!e religious denomination4 sect or c!urc! to w!ic! !e 3elongs7 and &6 !e place w!ere t!e principal office of t!e

Sec. 1A4. Incorporation "ducational corporations s!all 3e governed 3# special laws and 3# t!e general provisions of t!is Code6 (n) Sec. 1A5. Pre,re-uisites to incorporation "5cept upon favora3le recommendation of t!e .inistr# of "ducation and Culture4 t!e 'ecurities and "5c!ange Commission s!all not accept or approve t!e articles of incorporation and 3#1laws of an# educational institution6 (1)-a) Sec. 1A?. .oard of trustees rustees of educational institutions organized as non1stoc( corporations s!all not 3e less t!an five (&) nor more t!an fifteen (1&)D %rovided4 !owever4 !at t!e num3er of trustees s!all 3e in multiples of five (&)6 >nless ot!erwise provided in t!e articles of incorporation on t!e 3#1 laws4 t!e 3oard of trustees of incorporated sc!ools4 colleges4 or ot!er institutions of learning s!all4 as soon as organized4 so classif# t!emselves t!at t!e term of office of one1fift! (1K&) of t!eir num3er s!all e5pire ever# #ear6 rustees t!ereafter elected to fill vacancies4 occurring 3efore t!e e5piration of a particular term4 s!all !old office onl# for t!e une5pired period6 rustees elected t!ereafter to fill vacancies caused 3# e5piration of term s!all !old office for five (&) #ears6 2 ma?orit# of t!e trustees s!all constitute a ;uorum for t!e transaction of 3usiness6 !e powers and aut!orit# of trustees s!all 3e defined in t!e 3#1laws6 For institutions organized as stoc( corporations4 t!e num3er and term of directors s!all 3e governed 3# t!e provisions on stoc( corporations6 (1)/a)

'ee page /1, of CLG8s Commercial Law Reviewer (200,)6

(#+ Re6i#io'$, $o6e an! a##re#ate


Sec. 1A*. Classes of religious corporations Religious corporations ma# 3e incorporated 3# one or more persons6 'uc! corporations ma# 3e classified into corporations sole and

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2111

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
sect or c!urc! represented 3# t!e corporation soleD %rovided4 !at in cases w!ere t!e rules4 regulations and discipline of t!e religious denomination4 sect or c!urc!4 religious societ# or order concerned represented 3# suc! corporation sole regulate t!e met!od of ac;uiring4 !olding4 selling and mortgaging real estate and personal propert#4 suc! rules4 regulations and discipline s!all control4 and t!e intervention of t!e courts s!all not 3e necessar#6 (1&/a) Sec. 11). /illing of #acancies !e successors in office of an# c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder in a corporation sole s!all 3ecome t!e corporation sole on t!eir accession to office and s!all 3e permitted to transact 3usiness as suc! on t!e filing wit! t!e 'ecurities and "5c!ange Commission of a cop# of t!eir commission4 certificate of election4 or letters of appointment4 dul# certified 3# an# notar# pu3lic6 +uring an# vacanc# in t!e office of c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder of an# religious denomination4 sect or c!urc! incorporated as a corporation sole4 t!e person or persons aut!orized and empowered 3# t!e rules4 regulations or discipline of t!e religious denomination4 sect or c!urc! represented 3# t!e corporation sole to administer t!e temporalities and manage t!e affairs4 estate and properties of t!e corporation sole during t!e vacanc# s!all e5ercise all t!e powers and aut!orit# of t!e corporation sole during suc! vacanc#6 (1&-a) Sec. 113. Dissolution 2 corporation sole ma# 3e dissolved and its affairs settled voluntaril# 3# su3mitting to t!e 'ecurities and "5c!ange Commission a verified declaration of dissolution6 !e declaration of dissolution s!all set fort!D 16 !e name of t!e corporation7 26 !e reason for dissolution and winding up7 36 !e aut!orization for t!e dissolution of t!e corporation 3# t!e particular religious denomination4 sect or c!urc!7 $6 !e names and addresses of t!e persons w!o are to supervise t!e winding up of t!e affairs of t!e

corporation sole is to 3e esta3lis!ed and located4 w!ic! place must 3e wit!in t!e %!ilippines6 !e articles of incorporation ma# include an# ot!er provision not contrar# to law for t!e regulation of t!e affairs of t!e corporation6 (n) Sec. 11 . &ubmission of the articles of incorporation !e articles of incorporation must 3e verified4 3efore filing4 3# affidavit or affirmation of t!e c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder4 as t!e case ma# 3e4 and accompanied 3# a cop# of t!e commission4 certificate of election or letter of appointment of suc! c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder4 dul# certified to 3e correct 3# an# notar# pu3lic6 From and after t!e filing wit! t!e 'ecurities and "5c!ange Commission of t!e said articles of incorporation4 verified 3# affidavit or affirmation4 and accompanied 3# t!e documents mentioned in t!e preceding paragrap!4 suc! c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder s!all 3ecome a corporation sole and all temporalities4 estate and properties of t!e religious denomination4 sect or c!urc! t!eretofore administered or managed 3# !im as suc! c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder s!all 3e !eld in trust 3# !im as a corporation sole4 for t!e use4 purpose4 3e!alf and sole 3enefit of !is religious denomination4 sect or c!urc!4 including !ospitals4 sc!ools4 colleges4 orp!an as#lums4 parsonages and cemeteries t!ereof6 (n) Sec. 11.. Ac-uisition and alienation of property 2n# corporation sole ma# purc!ase and !old real estate and personal propert# for its c!urc!4 c!arita3le4 3enevolent or educational purposes4 and ma# receive 3e;uests or gifts for suc! purposes6 'uc! corporation ma# sell or mortgage real propert# !eld 3# it 3# o3taining an order for t!at purpose from t!e Court of First :nstance of t!e province w!ere t!e propert# is situated upon proof made to t!e satisfaction of t!e court t!at notice of t!e application for leave to sell or mortgage !as 3een given 3# pu3lication or ot!erwise in suc! manner and for suc! time as said court ma# !ave directed4 and t!at it is to t!e interest of t!e corporation t!at leave to sell or mortgage s!ould 3e granted6 !e application for leave to sell or mortgage must 3e made 3# petition4 dul# verified4 3# t!e c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder acting as corporation sole4 and ma# 3e opposed 3# an# mem3er of t!e religious denomination4

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2112

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
)6 !e names4 nationalities4 and residences of t!e trustees elected 3# t!e religious societ# or religious order4 or t!e diocese4 s#nod4 or district organization to serve for t!e first #ear or suc! ot!er period as ma# 3e prescri3ed 3# t!e laws of t!e religious societ# or religious order4 or of t!e diocese4 s#nod4 or district organization4 t!e 3oard of trustees to 3e not less t!an five (&) nor more t!an fifteen (1&)6 (1)0a)

corporation6 >pon approval of suc! declaration of dissolution 3# t!e 'ecurities and "5c!ange Commission4 t!e corporation s!all cease to carr# on its operations e5cept for t!e purpose of winding up its affairs6 (n) Sec. 114. %eligious societies 2n# religious societ# or religious order4 or an# diocese4 s#nod4 or district organization of an# religious denomination4 sect or c!urc!4 unless for3idden 3# t!e constitution4 rules4 regulations4 or discipline of t!e religious denomination4 sect or c!urc! of w!ic! it is a part4 or 3# competent aut!orit#4 ma#4 upon written consent andKor 3# an affirmative vote at a meeting called for t!e purpose of at least two1 t!irds (2K3) of its mem3ers!ip4 incorporate for t!e administration of its temporalities or for t!e management of its affairs4 properties and estate 3# filing wit! t!e 'ecurities and "5c!ange Commission4 articles of incorporation verified 3# t!e affidavit of t!e presiding elder4 secretar#4 or cler( or ot!er mem3er of suc! religious societ# or religious order4 or diocese4 s#nod4 or district organization of t!e religious denomination4 sect or c!urc!4 setting fort! t!e followingD 16 !at t!e religious societ# or religious order4 or diocese4 s#nod4 or district organization is a religious organization of a religious denomination4 sect or c!urc!7 26 !at at least two1t!irds (2K3) of its mem3ers!ip !ave given t!eir written consent or !ave voted to incorporate4 at a dul# convened meeting of t!e 3od#7 36 !at t!e incorporation of t!e religious societ# or religious order4 or diocese4 s#nod4 or district organization desiring to incorporate is not for3idden 3# competent aut!orit# or 3# t!e constitution4 rules4 regulations or discipline of t!e religious denomination4 sect4 or c!urc! of w!ic! it forms a part7 $6 !at t!e religious societ# or religious order4 or diocese4 s#nod4 or district organization desires to incorporate for t!e administration of its affairs4 properties and estate7 &6 !e place w!ere t!e principal office of t!e corporation is to 3e esta3lis!ed and located4 w!ic! place must 3e wit!in t!e %!ilippines7 and

'ee page /1- of CLG8 Commercial Law Reviewer (200,)6

(h+ Specia6 charter


Sec. ). Corporations created by special la(s or charters Corporations created 3# special laws or c!arters s!all 3e governed primaril# 3# t!e provisions of t!e special law or c!arter creating t!em or applica3le to t!em4 supplemented 3# t!e provisions of t!is Code4 insofar as t!e# are applica3le6

(i+ Forei#n
Sec. 1 .. Definition and rights of foreign corporations For t!e purposes of t!is Code4 a foreign corporation is one formed4 organized or e5isting under an# laws ot!er t!an t!ose of t!e %!ilippines and w!ose laws allow Filipino citizens and corporations to do 3usiness in its own countr# or state6 :t s!all !ave t!e rig!t to transact 3usiness in t!e %!ilippines after it s!all !ave o3tained a license to transact 3usiness in t!is countr# in accordance wit! t!is Code and a certificate of aut!orit# from t!e appropriate government agenc#6 (n)

'ee page ,// of CLG8s te5t3oo( or page /$) of CLG8s Commercial Law Reviewer6 <overnment8s ma?orit# s!ares does not ma(e an entit# a pu3lic corporation6 4ational !oal !o./ v. !ollector of 1nternal evenue4 $) %!il6 &-3 (1/2$)6

(<+ GOCC

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2113

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA su3stantial and important part of t!e nation4 it is not a pu3lic corporation in t!e same sense t!at municipal corporation or local governments are pu3lic corporation since its does not govern a portion of t!e state4 3ut it also does not !ave proprietar# functions in t!e same sense t!at t!e functions or activities of government1owned or controlled corporations4 is ma# still 3e considered as suc!4 or under t!e 1/-, 2dministrative Code as an instrumentalit# of t!e <overnment4 and it emplo#ees are su3?ect to t!e Civil 'ervice Law6 7oy Scouts of the Philippines v. 4" !4 1/) 'CR2 1,) (1//1)6 *ut 3eing a <OCC ma(es it lia3le for laws and provisions applica3le to t!e <overnment or its entities and su3?ect to t!e control of t!e <overnment6 !ervantes v. 3uditor General4 /1 %!il6 3&/ (1/&2)6 *e#ond cavil4 a <OCC !as a personalit# of its own4 distinct and separate from t!at of t!e government4 and t!e intervention in a transaction of t!e Office of t!e %resident t!roug! t!e "5ecutive 'ecretar# does not c!ange t!e independent e5istence of a government entit# as it deals wit! anot!er government entit#6 PUP v. !ourt of 3ppeals4 3)'CR2 )/1 (2001)6 !e doctrine t!at emplo#ees of <OCCs4 w!et!er created 3# special law or formed as su3sidiaries under t!e general corporation law are governed 3# t!e Civil 'ervice Law and not 3# t!e La3or Code4 !as 3een supplanted 3# t!e 1/-, Constitution6 !e present doctrine in determining w!et!er a <OCC is su3?ect to t!e Civil 'ervice Law is the manner of its creation4 suc! t!at government corporations created 3# special c!arter are su3?ect t!e Civil 'ervice Law4 w!ile t!ose incorporated under t!e general corporation law are governed 3# t!e La3or Code6 P4A!96nergy 8evelopment !orp. v. 4" !4 201 'CR2 $-, (1//1)7 8avao !ity .ater 8istrict v. !ivil Service !ommission4 201 'CR2 &/3 (1//1)6

2 corporation is created 3# operation of law under t!e Corporation Code w!ile a government corporation is normall# created 3# special law referred to often as a c!arter6 7liss 8ev. !orp. 6mployees Union v. !alleja/ 23, 'CR2 2,1 (1//$)6 !e test to determine w!et!er a corporation is government owned or controlled4 or private in nature is simple6 :s it created 3# its own c!arter for t!e e5ercise of a pu3lic function4 or 3# incorporation under t!e general corporation lawL !ose wit! special c!arters are government corporations su3?ect to its provisions4 and its emplo#ees are under t!e ?urisdiction of t!e Civil 'ervice Commission4 and are compulsor# mem3ers of t!e <':'6 !amparedondo v. 4" !4 312 'CR2 $, (1///) 9!ile pu3lic 3enefit and pu3lic welfare ma# 3e attri3uta3le to t!e operation of t!e *ases Conversion and +evelopment 2ut!orit# (*C+2)4 #et it is certain t!at t!e functions it performs are 3asicall# proprietar# in natureMt!e promotion of economic and social development of Central Luzon4 particularl#4 and t!e countr#8s goal for en!ancement6 !erefore4 t!e rule t!at prescription does not run against t!e 'tate will not appl# to *C+24 it 3eing said t!at w!en title of t!e Repu3lic !as 3een divested4 its grantees4 alt!oug! artificial 3odies of its own creation4 are in t!e same categor# as ordinar# persons6 Shipside 1nc. v. !ourt of 3ppeals/ 3&2 'CR2 33$ (2001)6 2lt!oug! *o# 'couts of t!e %!ilippines does not receive an# monetar# or financial su3sid# from t!e <overnment4 and its funds and assets are not considered government in nature and not su3?ect to audit 3# t!e CO24 t!e fact t!at it received a special c!arter from t!e government4 t!at its governing 3oard are appointed 3# t!e <overnment4 and t!at its purpose are of pu3lic c!aracter4 for t!e# pertain to t!e educational4 civic and social development of t!e #out! w!ic! constitute a ver#

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
needed for t!e operation and maintenance of t!e newl# created unit or office as a conse;uence of t!e transfer of functions and powers6 %ending t!e approval of t!e @L>R* Revised 'taffing Organizational %lan and release of 3udgetar# allocations t!ereof4 t!e Corporation s!all e5tend tec!nical4 operational4 and administrative assistance to t!e @L>R* as ma# 3e mutuall# deemed necessar# to ensure smoot! turnover of functions6 @owever4 suc! assistance s!all not e5tend 3e#ond a period of 1 #ear from t!e date of effectivit# of t!is 2ct6

'ection 31 of Corporation Code ( "iability of 8irectors and Afficers) is applica3le to corporations w!ic! !ave 3een organized 3# special c!arters since 'ec6 $ of Corporation Code renders t!e provisions supplementaril# applica3le to all corporations4 including t!ose wit! special or individual c!arters4 suc! as cooperatives organized under %6+6 2)/4 so long as t!ose provisions are not inconsistent wit! suc! c!arters6 7enguet 6lectric !ooperative/ 1nc. v. 4" ! 4 20/ 'CR2 && (1//2)6 9ater districts can validl# e5ists as corporate entities under %+ 1/-4 and provided t!e# are government1owned or controlled4 and t!eir 3oard of directors and ot!er personnel are government emplo#ees su3?ect to civil service laws and anti1graft laws6 @eliciano v. !ommission on 3udit4 $1/ 'CR2 3)3 (200$)6

Registration is made 3efore t!e @L>R*6

1.4 Ca$e$
Lo0ano ". !e6o$ An#e6e$ an! An!a (=une 1/4 1//,) !e doctrine of corporation 3# estoppel cannot override ?urisdictional re;uirements1 ?urisdiction is fi5ed 3# law and cannot 3e ac;uired t!roug! or waived4 enlarged or diminis!ed 3#4 an# act or omission of t!e parties4 and neit!er can it 3e conferred 3# t!e ac;uiescence of t!e court6 Corporation 3# estoppel is founded on principles of e;uit# and is designed to prevent in?ustice and unfairness4 and w!ere t!ere is no t!ird person involved and t!e conflict arises onl# among t!ose assuming t!e form of a corporation4 w!o (now t!at it !as not 3een registered4 t!ere is no corporation 3# estoppel6 Internationa6 EBpre$$ Tra"e6 ". CA (Octo3er 1/4 2000) (1) !e Federation !as no ?uridical personalit#6 :ndeed4 R626 313& and %6+6 No6 )0$ recognized t!e ?uridical e5istence of national sports association6 !is ma# even 3e gleaned from t!e powers and functions granted to t!ese association6 @owever4 t!ese laws onl# provided t!e manner 3# w!ic! t!ese entities ma# ac;uire ?uridical personalit#6 !e corporate status of t!ese associations does not automaticall# ta(e place6 !ese laws actuall# re;uires t!at 3efore an entit# 3e considered as a

(9+ Ho%eo=ner>$ A$$ociation$ (Section ) an! RA ?54.@ March 5@ AAA+

4 of

Rep'/6ic Act No. ?54. "March 01 2333$ 'ection $6 @ome <uarantee Corporation6 !e @ome :nsurance and <uarantee Corporation is !ere3# renamed as t!e @ome <uarantee Corporation4 !ereinafter refereed to as t!e Corporation4 w!ic! s!all !ave its principal office in .etropolitan .anila and s!all e5ist for a period of &0 #ears from +ecem3er 1&4 20006 !e Corporation ma# esta3lis! suc! offices4 agencies4 su3sidiaries4 or 3ranc!es an#w!ere in t!e %!ilippines as its operations would re;uire and its *oard of +irectors would determine6 'ection 2)6 %owers over @omeowners 2ssociations6 !e powers4 aut!orities and responsi3ilities vested in t!e Corporation wit! respect to !omeowners association under Repu3lic 2ct No6 &-04 as amended 3# "5ecutive Order No6 &3& is !ere3# transferred to t!e @ousing and Land >se Regulator# *oard (@L>R*)6 'u3?ect to e5isting laws4 t!e @L>R* is !ere3# aut!orized to create additional positions and augment its present 3udget as ma# 3e

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

national sports association suc! must recognized 3# t!e accrediting organization (i6e6 %22F)6 !is fact of recognition4 !owever t!e %resident of t!e Federation failed to su3stantiate6 (2) !e %resident must 3e !eld lia3le in accordance wit! t!e principle t!at an# person acting or purporting to act on 3e!alf of a corporation w!ic! !as no valid e5istence assumes suc! privileges and o3ligations and 3ecome personall# lia3le for contracts entered into or for ot!er acts performed as suc! agent6 (3) !e doctrine of corporate estoppel is not applica3le6 :t is onl# applied to a t!ird part# w!en !e tries to escape lia3ilit# on a contract from w!ic! !e !as 3enefited6 :n t!e case at 3ar4 t!e petitioner is not tr#ing to escape lia3ilit# 3ut rat!er is t!e one claiming it6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
!"#: *he definition of promoter is important to determine the liability for promoter$s contract. 7efore you can make a promoter liable/ you must be able to determine who is the promoter. 5e must be the one who takes initiative on the founding and organi'ation of the business venture which eventually ends up as the corporation being organi'ed. 0: 3t the promoter$s stage there is no juridical personality until S6! issues the certificate of 1ncorporation. Until the certificate is issued/ the stage of the de facto corporation has not yet been reached. Prior to the de facto corporation stage/ what then is the status of the contract entered into by a promoter for and in behalf of the person or agent who had undertaken the transaction2 3: Unenforceable. 1t is not binding upon the corporation because it has not given consent to the authority of the person or agent who had undertaken the transaction. 0: 5ow can ratification be done2 3: atification can be done in two ways: +;-e,press ratification9 a mere board resolution making the corporation liable by accepting the contract and +:- implied ratification9 by accepting of benefits. 0: .hat is the effect of promoter$s contract on the corp and other contracting parties2 3: 3s to the corp/ it is voidable/ as to other contracting parties/ it is valid and enforceable Catindig: Promotion is not a necessary stageH

. FORMATION AN- ORGANICATION OF CORPORATIONS


(%age )1, of CLG8s Commercial Law Reviewer)

.1 Who %a7 for% a corporationD


Sec. 1A. Number and -ualifications of incorporators 2n# num3er of natural persons not less t!an five (&) 3ut not more t!an fifteen (1&)4 all of legal age and a ma?orit# of w!om are residents of t!e %!ilippines4 ma# form a private corporation for an# lawful purpose or purposes6 "ac! of t!e incorporators of a stoc( corporation must own or 3e a su3scri3er to at least one (1) s!are of t!e capital stoc( of t!e corporation6

. Step$ in for%ation of a corporation (a+ Pro%otion


CLV Class Notes P A(A*6 $S !A4* 3!* !A P 7C 6S*APP6"86 @3!*A or 86 %U 681SSA"U*1A4 0: 1n order to reach the level of corporation by estoppel/ what is the essential ingredient of such doctrine2 3: .here there is a representation that a corporation e,ists when in fact there is none and at least one party thought there was a corporation.

Who are pro%oter$D B%romoterC is a person w!o4 acting alone or wit! ot!ers4 ta(es initiative in founding and organizing t!e 3usiness or enterprise of t!e issuer and receives consideration t!erefor6 ('ec6 36104 'ecurities Regulation Code NR626 -,//O)
CLV Class Notes 0: 8ifferentiate a promoter from an incorporator. 3: 3 promoter begins or initiates the formation of a corporation while an incorporator is one of the initial members of the S5$s

Nat're of Pre:incorporation A#ree%ent$ >nder 'ec )0 an# contract for t!e ac;uisition of unissued stoc( in a corporation still to 3e formed s!all 3e deemed a $'/$cription wit!in t!e meaning of t!e Corporation Code6 >nder 'ec )14 a su3scription for s!ares of stoc( of a corporation still to 3e formed s!all 3e irrevoca3le for a period of ) mos6 from t!e date of su3scription4 unless all of t!e ot!er su3scri3er consent to t!e revocation4 or unless t!e incorporation of said corporation fails to materialize wit!in said period or wit!in a longer period as ma# 3e stipulated in t!e contract of su3scription6 @owever4 no pre1incorporation

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

su3scription ma# 3e revo(ed after t!e su3mission of t!e articles of incorporation to '"C6 'ecs )0 and )1 !ave effectivel# adopted in our ?urisdiction a fused version of 3ot! Bcontract t!eor#C and t!e Boffer t!eor#C in defining t!e nature of pre1incorporation su3scription agreements6 o Offer Theory7 ,onstr)es s)"s,ri*tion agreement as only ,ontin)ing o''ers to *ro*osed ,or*orations1 5#i,# o''er does not ri*en into a ,ontra,t )ntil a,,e*ted "y t#e ,or*oration 5#en organized4 T#e o"$io)s res)lt o' t#e o''er t#eory is t#at it allo5s 5it#dra5al o' s)"s,ri"er at least "e'ore t#e ,or*oration ,omes into e-isten,e and a,,e*ts t#e o''er4 Contract Theory7 A s)"s,ri*tion agreement among se$eral *ersons to ta/e s#ares in a *ro*osed ,or*oration "e,omes a "inding ,ontra,t and is irre$o,a"le 'rom time o' s)"s,ri*tion1 )nless ,an,elled "y all *arties "e'ore a,,e*tan,e "y t#e ,or*oration4

4hat should be contained in the Articles of Incorporation5 (a) Corporate Name (3) %rimar# %urpose (c) 'econdar# %urpose or purposes (d) %rincipal Office (e) erm (f) :ncorporators (g) :ncorporating directors (!) Capital (i) Classification of s!ares (?) 'u3scri3ers (() reasurer1in1trust (l) 'pecial provisions (a+ Corporate Na%e
Sec. 1?. Corporate name No corporate name ma# 3e allowed 3# t!e 'ecurities and "5c!ange Commission if t!e proposed name is identical or deceptivel# or confusingl# similar to t!at of an# e5isting corporation or to an# ot!er name alread# protected 3# law or is patentl# deceptive4 confusing or contrar# to e5isting laws6 9!en a c!ange in t!e corporate name is approved4 t!e Commission s!all issue an amended certificate of incorporation under t!e amended name6 SEC MEMO CIRCULAR NO. 1): AAA
oD 'u3?ectD 2ll Concerned Revised <uidelines in t!e 2pproval of Corporate and %artners!ip Names

'u3scription agreements are Bspecial contractsC in t!e sense t!at t!e# go 3e#ond w!at we would term as ordinar# contracts6 2lt!oug! su3scription agreements are contracts 3etween t!e su3scri3er and t!e corporation4 t!e# are at t!e same time deemed to 3e contracts among t!e stoc(!olders of t!e corporation6

Theorie$ on Lia/i6itie$ for Pro%oter>$ Contract$ 9it!out ratification 3# a corporation after its due incorporation4 a contract entered into in 3e!alf of a corporation #et to 3e organized or still in t!e process of incorporation is void as against t!e corporation ( !agayan @ishing 8ev. !o./ 1nc. v. *eodoro Sandiko 4 )& %!il6 223 N1/3,O)

:n implementing 'ection 1- of t!e Corporation Code of t!e %!ilippines (*% )-)4 t!e following revised guidelines in t!e approval of corporate and partners!ip names are !ere3# adopted for t!e information and guidelines of all concernedD 16 !e corporation name s!all contain t!e word BCorporationC or its a33reviation BCorp6C or B:ncorporatedC or B:nc6C

(/+ -raftin# of Artic6e$ of Incorporation

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
name s!all not 3e allowed if suc! word is coined or !as alread# 3een appropriated 3# a registered firm4 regardless of t!e num3er of t!e different words in t!e proposed name4 unless t!ere is consent from t!e registered firm or t!is firm is one of t!e stoc(!olders of partners of t!e entit# to 3e registered 116 !e name of an internationall# (nown foreign corporation4 or one similar to it ma# not 3e used 3# a domestic corporation wit!out t!e consent of t!e former !e term B%!ilippinesC w!en used as part of t!e name of a su3sidiar# corporation s!all 3e in parent!esisD i6e6 B(%!ilippines)C or B(%!il6)C !e following names s!all not 3e used as part of a corporate or partners!ip nameD a6 2s provided 3# special lawsD i6 ii6 BFinanceC4 BFinancingC4 of BFinance and :nvestmentC 3# corporations or partners!ips not engaged in t!e financing 3usiness (R626 No6 &/-04 as amended) B"ngineerC4 B"ngineeringC4 or B2rc!itectsC as part of t!e corporate name (R626 No6 &$) and R626 No6 1&-2) B*an(C4 B*an(ingC4 B*an(erC4 B*uilding and Loan 2ssociationC4 B rust CorporationC4 B rust Compan#C4 or words of similar import 3# corporations or associations not engaged in a 3an(ing 3usiness (R626 No6 33,4 as amended) B>nited NationsC in its full or a33reviated form cannot 3e part of a corporate or partners!ip name (R626 No6 22) B*ondedC for corporations or partners!ips wit! unlicensed ware!ouse (R626 No6 2$&)

!e partners!ip name s!all contain t!e word BCompan#C or BCo6C6 For limited partners!ips4 t!e word BLimitedC or BLtd6C s!all 3e included6 :n case of professional partners!ips4 t!e word BCompan#C need not 3e used6 26 erms descriptive of a 3usiness in t!e name s!all 3e indicative of t!e primar# purpose6 :f t!ere are two (2) descriptive terms4 t!e first s!all refer to t!e primar# purpose and t!e second s!all refer to one of t!e secondar# purposes6 !e name s!all not 3e identical4 misleading or confusingl# similar to one alread# registered 3# anot!er corporation or partners!ip wit! t!e Commission or a sole proprietors!ip registered wit! t!e +epartment of rade and :ndustr#6 :f t!e proposed name is similar to t!e name of a registered firm4 t!e proposed name must contain at least one distinctive word different from t!e name of t!e compan# alread# registered6 $6 *usiness or trade name of an# firm w!ic! is different from its corporate or partners!ip name s!all 3e indicated in t!e articles of incorporation or partners!ip of t!e said firm rade name or trademar( dul# registered wit! t!e :ntellectual %ropert# Office cannot 3e used as part of a corporate or partners!ip name wit!out t!e consent of t!e owner of suc! trademar( or trade name :f t!e name or surname of a person is used as part of a corporate or partners!ip name4 t!e consent of t!e said person or !is !eirs must 3e su3mitted4 e5cept if t!at person is a stoc(!older4 mem3er4 or partner of a declared national !ero6 :f suc! person cannot 3e identified or is non1e5istent4 an e5planation for t!e use of suc! name s!all 3e re;uired !e meaning of t!e initials in t!e name s!all 3e disclosed in writing 3# t!e registrant !e name containing a term descriptive of a 3usiness different from t!e 3usiness or a registered compan# w!ose name also 3ears similar terms(s) used 3# t!e former ma# 3e allowed !e name s!ould not 3e patentl# deceptive4 confusing4 or contrar# to e5isting laws !e name w!ic! contains a word identical to a word in a registered

36

126

136

&6

iii6

)6

iv6 v6 36 i6

,6 -6

2s a matter or polic#D B:nvestmentsC 3# corporations or partners!ips not organized as investment !ouse compan# or !olding compan# BNationalC 3# all stoc( corporations and partners!ips B2seanC4 BCala3arzonC4 and B%!ilippines 2000C

/6 106

ii6 iii6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA difficulties of administration and supervision over corporations6 1ndustrial efractories !orp. v. !ourt of 3ppeals4 3/0 'CR2 2&2 (2002)7 "yceum of the Philippines v. !ourt of 3ppeals/ 21/ 'CR2 )104 )1& (1//3)6 2 corporation !as no rig!t to intervene in a suit using a name4 not even its acron#m4 ot!er t!an its registered name4 as t!e law re;uires and not anot!er name w!ic! it !ad not registered6 "aureano 1nvestment and 8ev. !orp. v. !ourt of 3ppeals4 2,2 'CR2 2&3 (1//,)6 !ere would 3e no denial of due process w!en a corporation is sued and ?udgment is rendered against it under its unregistered trade name4 !olding t!at BNaO corporation ma# 3e sued under t!e name 3# w!ic! it ma(es itself (nown to its wor(ers6C Pison93rceo 3gricultural 8ev. !orp. v. 4" !/ 2,/ 'CR2 312 (1//,)6 2 corporation ma# c!ange its name 3# t!e amendment of its articles of incorporation4 3ut t!e same is not effective until approved 3# t!e '"C6 Philippine @irst 1nsurance !o. v. 5artigan4 3$ 'CR2 2&2 (1/,0)6 2 c!ange in t!e corporate name does not ma(e a new corporation4 and !as no effect on t!e identit# of t!e corporation4 or on its propert#4 rig!ts4 or lia3ilities6 epublic Planters 7ank v. !ourt of 3ppeals4 21) 'CR2 ,3- (1//2)6
)ac*+s Lecture C6%P6%A' NAM No corporation name ma# 3e allowed if it is identical or deceptivel# or confusingl# similar to t!at of an# e5isting corp6 2nd t!at t!e wa# t!e ?urisprudence !as developed4 t!e name will not 3e allowed if it uses a dominant word in t!e name of anot!er corporation4 and t!e# are engaged in t!e same line of 3usiness6 9ell4 #ou !ave4 for e5ample4 t!e case of >N:G"R'2L "P :L" .:LL' and some3od# formed anot!er corporationD >N:G"R'2L .:LL'6 !e dominant word is universal4 and t!e# 3ot! engage in t!e same line of 3usiness6 Qou (now4 t!e elep!one +irector# is not owned 3# %L+ 6 !at is prepared 3# t!e <eneral elep!one +irector# Corporation6 %L+

1$6

!e name of a dissolved firm s!all not 3e allowed to 3e used 3# ot!er firms wit!in t!ree (3) #ears after t!e approval of t!e dissolution of t!e corporation 3# t!e Commission4 unless allowed 3# t!e last stoc(!olders representing at least a ma?orit# of t!e outstanding capital stoc( of t!e dissolved firm

1&6 Registrant corporations or partners!ips s!all su3mit al letter of underta(ing to c!ange t!eir corporate or partners!ip name in case anot!er person of firm !as ac;uired a prior rig!t to t!e use of t!e said name or t!e name is deceptivel# or confusingl# similar to t!e one alread# registered4 unless !is underta(ing is alread# included as one of t!e provisions of t!e articles of incorporation or partners!ip of t!e registrant !ese guidelines !all ta(e effect fifteen (1&) da#s after pu3lication in a newspaper of general circulation

'ee page 2/3 of CLG8s 3oo( for <uidelines in Corporate Name ('"C .emorandum No6 1$4 series of 20006) %arties organizing a corporation must c!oose a name at t!eir peril7 and t!e use of a name similar to one adopted 3# anot!er corporation4 whether a business or a nonprofit organi'ation4 if misleading or li(el# to in?ure t!e e5ercise of its corporate functions4 regardless of intent4 ma# 3e prevented 3# t!e corporation !aving a prior rig!t6 3ng (ga Iaanib sa 1glesia ng 8ios Iay Iristo 5esus v. 1glesia ng 8ios Iay 8risto %esus4 3,2 'CR2 1,1 (2001)6 'imilarit# in corporate names 3etween two corporations would cause confusion to t!e pu3lic especiall# w!en t!e purposes stated in t!eir c!arter are also t!e same t#pe of 3usiness6 Universal (ills !orp. v. Universal *e,tile (ills 1nc. 4 ,- 'CR2 )2 (1/,,)6 'ection 1- of Corporation Code e5pressl# pro!i3its t!e use of a corporate name w!ic! is B identical or deceptively or confusingly similar to that of any e,isting corporation or to any other name already protected by law or is patently deceptive/ confusing or contrary to e,isting laws. !e polic# 3e!ind t!e foregoing pro!i3ition is to avoid fraud upon t!e pu3lic t!at will occasion to deal wit! t!e entit# concerned4 t!e evasion of legal o3ligations and duties4 and t!e reduction of

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2120

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
2nd t!e law pro!i3its t!e use of >nited Nations as part of t!e 3usiness name of an# compan#6 !e general *onded 9are!ouse 2ct sa#s4 if #ou are not a 3onded ware!ouse4 #ou cannot use t!at as part of #our name6 !e '"C issued a memo circular in 1/-,4 it was updated 20024 w!ic! sa#s4 #ou cannot use certain name as part of #ourF li(e engineering4 arc!itectureF as part of t!e corporate name 3ecause #ou cannot practice a profession6 Or4 it sa#s t!ere #ou cannot use calabar'on or national as part of #our corporate name6 2lso #ou cannot use %!ilippines 2000 as part of #our corporate name6 Or an# w!ic! consists of similar wordsF Jcoz #ou (now t!e records are computerized4 w!en #ou appl#4 t!e# will c!ec(6 2nd t!e one w!o verifies will list down all t!e names w!ic! are similar to w!at #ou !ave6 Now4 #ou could 3e allowed to use t!at if #ou add #our line of 3usiness4 and #ou add anot!er word w!ic! signifies t!at #ou are engaged in a different line of 3usiness6 Li(e for e5ample4 #ou !ave a <olden %awns!op :ncorporated4 and #ou !ave some3od# running a restaurantF so4 <olden Restaurants :ncorporated6 !e '"C will allow t!at6

is t!e one w!ic! merel# collects t!e pa#ment from t!e advertisers in t!e #ellow pages6 *ut t!e# donJt ownKpu3lis! t!at director#6 Now4 t!ere was t!is 3unc! of swindlers w!o formed a corporationD <"N"R2L +:R"C ORQ6 !e# would start contacting advertisers in t!e #ellow pagesD R2#4 3inago na !o J#ung set1up6 Nga#on !o4 we will collect t!e pa#ment directl#6 'o4 we will send our collectorFR Qou file a crim case against t!em for estafa4 and t!e#Jll sa#D RNOS 9e are printing or own director#6R 2nd t!e# will s!ow itF and it is a t!in director#6 9e filed a complaint wit! t!e '"C and t!e '"C ordered t!em to c!ange t!eir name 3ecause it is confusingl# similar wit! <eneral elep!one +irector#6 !ere was t!is %!ilippine corporation t!at wanted t!e name R'tandard %!illips CorporationR6 Court saidD t!at is part of t!e name of %!illips "lectrical Lamps4 %!illips e5port6 %!illips is t!e dominant wordF and 3ot! of t!em manufacture electrical appliances6 On t!e ot!er !and4 t!e Court !as said t!at L#ceum of t!e %!ils6 cannot prevent ot!er sc!ools from using LQC">. 3ecause l#ceum is a generic name6 :t means a sc!ool6 Li(e >N:G"R': Q4 >" cannot prevent ot!ers from using universit# as part of t!eir name 3ecause itJs a generic name6 'o L#ceum of t!e %!ils6 cannot !ave an e5clusive rig!t to use l#ceum 3ecause it is a generic term for sc!ools6 !e same wa# Ateneo is a spanis! word w!ic! means sc!ool6 *ut : t!in( w!at !as !appened is t!e reverseF it is a generic term t!at !as ac;uired secondar# meaning6 Qou can prevent anot!er sc!ool from using t!at6 9ell4 #ou !ave t!is case of Carlos Galdes4 t!e accountant4 a ver# controversial c!aracter (=ac(Js side1stor# omitted )6 @is son left !is compan# and formed t!e G2L+"' CON'>L 2N '6 Galdes o3?ected to t!at4 3ecause it was a confusingl# similar name6 *ut t!e '"C saidD R"!4 mag(ai3a naman (a#o ng line of 3usinessF #ou are in accounting4 #our son set up a consultanc# firm6 2nd #our clients are sophisticated 3ig men6 !e# (now t!at t!e two are different6R 'o t!e '"C allowed t!at6 Now4 t!e e5istence of a corporation 3egins at t!e time w!en #ou get #our certification4 issued 3# t!e '"C6 !at is w!en e5istence 3egins6 !ere are man# limitations found in t!e law6 2s for e5ample4 #ou are not a 3an(4 #ou cannot use 3an( as part of #our name7 #ou are not a financing compan#4 #ou cannot use financing6

(/+ Pri%ar7 P'rpo$e


Sec. 1). Contents of the articles of incorporation 2ll corporations organized under t!is code s!all file wit! t!e 'ecurities and "5c!ange Commission articles of incorporation in an# of t!e official languages dul# signed and ac(nowledged 3# all of t!e incorporators4 containing su3stantiall# t!e following matters4 e5cept as ot!erwise prescri3ed 3# t!is Code or 3# special lawD 16 !e name of t!e corporation7 26 !e specific purpose or purposes for w!ic! t!e corporation is 3eing incorporated6 9!ere a corporation !as more t!an one stated purpose4 t!e articles of incorporation s!all state w!ic! is t!e primar# purpose and w!ic! isKare !e secondar# purpose or purposesD %rovided4 !at a non1stoc( corporation ma# not include a purpose w!ic! would c!ange or contradict its nature as suc!7

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2121

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
articles of incorporation ma# 3e e5tended for periods not e5ceeding fift# (&0) #ears in an# single instance 3# an amendment of t!e articles of incorporation4 in accordance wit! t!is Code7 %rovided4 !at no e5tension can 3e made earlier t!an five (&) #ears prior to t!e original or su3se;uent e5pir# date(s) unless t!ere are ?ustifia3le reasons for an earlier e5tension as ma# 3e determined 3# t!e 'ecurities and "5c!ange Commission6

!e 3est proof of t!e purpose of a corporation is its articles of incorporation and 3#1laws6 !e articles of incorporation must state t!e primar# and secondar# purposes of t!e corporation4 w!ile t!e 3#1laws outline t!e administrative organization of t!e corporation4 w!ic!4 in turn4 is supposed to insure or facilitate t!e accomplis!ment of said purpose6C !erefore4 t!e Court 3rus!ed aside t!e contention t!at t!e corporations were organized to illegall# avoid t!e provisions on land reform and to avoid t!e pa#ment of estate ta5es4 as 3eing pro!i3ited collateral attac(6 Gala v. 6llice 3gro9 1ndustrial !orp.4 $1- 'CR2 $31 (2003)6

Not e5ceeding &0 #ears No e5tension of term can 3e effected once dissolution stage !as 3een reac!ed4 as it constitutes new 3usiness6 3lhambra !igar v. S6!4 2$ 'CR2 2)/ (1/)-)6
UP Class Notes Shall e,ist for a period not e,ceeding F< years from the date of incorporationJ may be e,tended for period not e,ceeding F< years by an indefinite number of amendments +meaning that the corporation can virtually live forever-J no e,tension can be made earlier than F years before the e,piry date unless there are justifiable reasons for the earlier e,tension

(c+ Secon!ar7 P'rpo$e (!+ Principa6 Office


Sec. 1). Contents of the articles of incorporation 555 !e place w!ere t!e principal office of t!e corporation is to 3e located4 w!ic! must 3e wit!in t!e %!ilippines7 555

%lace of residence of t!e corporation is t!e place of its principal office6 Clavecilla Radio '#stem v6 2ntillon4 1/ 'CR2 3,/ (1/),) !e residence of its president is not t!e residence of t!e corporation 3ecause a corporation !as a personalit# separate and distinct from t!at of its officers and stoc(!olders6 Sy v. *yson 6nterprises/ 1nc.4 11/ 'CR2 3), (1/-2)6
UP Class Notes (ust be within P so that service of summons may be easily madeJ establishes the residence of the corporation which is important in determining the venue of actions by or against the corporation +S6! !ircular 4o. K dated @ebruary ;L/ :<<L-

(f+ Incorporator$
Sec. 1A. Number and -ualifications of incorporators. 2n# num3er of natural persons not less t!an five (&) 3ut not more t!an fifteen (1&)4 all of legal age and a ma?orit# of w!om are residents of t!e %!ilippines4 ma# form a private corporation for an# lawful purpose or purposes6 "ac! of t!e incorporators of a stoc( corporation must own or 3e a su3scri3er to at least one (1) s!are of t!e capital stoc( of t!e corporation6

!erefore4 a mem3er can no longer e5ist as incorporator in a stoc( corporation6

(e+ Ter% Sec. 11. Corporate term 2 corporation s!all e5ist for a period not e5ceeding fift# (&0) #ears from t!e date of incorporation unless sooner dissolved or unless said period is e5tended6 !e corporate term as originall# stated in t!e

(#+ Incorporatin# -irector$


Sec. 1). Contents of the articles of incorporation 555 ,6 !e names4 nationalities and residences of persons w!o s!all act as directors or trustees until t!e first regular directors or trustees are

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2122

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
t!e su3scription must 3e paid6 Qou can form a su3sidiar# w!ere & individuals will su3scri3e to 1 s!are eac! to ;ualif# for t!e 3oard M#ou must own at least 1 s!are to 3e an incorporator4 t!e rest of t!e s!ares will 3e su3scri3ed 3# t!e !olding corporation and t!at will satisf# t!e 2&12& rule4 3ecause t!at !olding corporation paid for t!e su3scription6 :n computing 2&12& rule4 su3scriptions made 3# a corporation will 3e included6 Corporations can 3e su3scri3ers4 onl# t!at t!e# can not 3e incorporators6

dul# elected and ;ualified in accordance wit! t!is Code7 555

(h+ Capita6
(i) (ii) (iii) (iv) (v) (vi) 2ut!orized ('ec6 12) 'u3scri3ed ('ec6 13) %aid1up ('ec6 13) %aid1in surplus Outstanding :ssued (iii) (iv) (v) (vi)

(i) 2ut!orized Sec. 1 . Minimum capital stoc* re-uired of stoc* corporations


'toc( corporations incorporated under t!is Code s!all not 3e re;uired to !ave an# minimum aut!orized capital stoc( e5cept as ot!erwise specificall# provided for 3# special law4 and su3?ect to t!e provisions of t!e following section6 (ii) 'u3scri3ed Contractuall# enforcea3le6 Sec. 1.. Amount of capital stoc* to be subscribed and paid for the purposes of incorporation 2t least twent#1five percent (2&A) of t!e aut!orized capital stoc( as stated in t!e articles of incorporation must 3e su3scri3ed at t!e time of incorporation4 and at least twent#1five (2&A) per cent of t!e total su3scription must 3e paid upon su3scription4 t!e 3alance to 3e pa#a3le on a date or dates fi5ed in t!e contract of su3scription wit!out need of call4 or in t!e a3sence of a fi5ed date or dates4 upon call for pa#ment 3# t!e 3oard of directorsD %rovided4 !owever4 !at in no case s!all t!e paid1up capital 3e less t!an five !ousand (%&4000600) pesos6
)ac*+s Lecture 27,27 %UL 9!en #ou form a corporation4 at least 2&A of t!e aut!orized capital stoc( must 3e su3scri3ed and at least 2&A of

%aid1up ('ec6 13) %aid1in surplus %aid in e5cess of par value Outstanding Owned 3# parties ot!er t!an t!e corporation itself :ssued Legall#4 it is s#non#mous wit! outstanding s!ares6

(i+ C6a$$ification of Share$ (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Common ('ec6 )) %referred ('ec6 )) %ar Galue and No par value s!ares ('ec6 )) Founder8s s!ares ('ec6 ,) Redeema3le ('ec6 -) reasur# ('ec6 /) Converti3le %articipating

Sec. 4. Classification of shares !e s!ares of stoc( of stoc( corporations ma# 3e divided into classes or series of s!ares4 or 3ot!4 an# of w!ic! classes or series of s!ares ma# !ave suc! rig!ts4 privileges or restrictions as ma# 3e stated in t!e articles of incorporationD %rovided4 !at no s!are ma# 3e deprived of voting rig!ts e5cept t!ose classified and issued as RpreferredR or Rredeema3leR s!ares4 unless ot!erwise provided in t!is CodeD %rovided4 furt!er4 !at t!ere s!all alwa#s 3e a class or series of s!ares w!ic! !ave complete voting rig!ts6 2n# or all of t!e s!ares or series of s!ares ma# !ave a par value or !ave no par value as ma# 3e provided for in t!e articles of incorporationD %rovided4 !owever4 !at 3an(s4 trust companies4 insurance companies4 pu3lic

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2123

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
)6 .erger or consolidation of t!e corporation wit! anot!er corporation or ot!er corporations7 ,6 :nvestment of corporate funds in anot!er corporation or 3usiness in accordance wit! t!is Code7 and -6 +issolution of t!e corporation6 "5cept as provided in t!e immediatel# preceding paragrap!4 t!e vote necessar# to approve a particular corporate act as provided in t!is Code s!all 3e deemed to refer onl# to stoc(s wit! voting rig!ts6

utilities4 and 3uilding and loan associations s!all not 3e permitted to issue no1par value s!ares of stoc(6 %referred s!ares of stoc( issued 3# an# corporation ma# 3e given preference in t!e distri3ution of t!e assets of t!e corporation in case of li;uidation and in t!e distri3ution of dividends4 or suc! ot!er preferences as ma# 3e stated in t!e articles of incorporation w!ic! are not violative of t!e provisions of t!is CodeD %rovided4 !at preferred s!ares of stoc( ma# 3e issued onl# wit! a stated par value6 !e 3oard of directors4 w!ere aut!orized in t!e articles of incorporation4 ma# fi5 t!e terms and conditions of preferred s!ares of stoc( or an# series t!ereofD %rovided4 !at suc! terms and conditions s!all 3e effective upon t!e filing of a certificate t!ereof wit! t!e 'ecurities and "5c!ange Commission6 '!ares of capital stoc( issued wit!out par value s!all 3e deemed full# paid and non1assessa3le and t!e !older of suc! s!ares s!all not 3e lia3le to t!e corporation or to its creditors in respect t!eretoD %rovided7 !at s!ares wit!out par value ma# not 3e issued for a consideration less t!an t!e value of five (%&600) pesos per s!areD %rovided4 furt!er4 !at t!e entire consideration received 3# t!e corporation for its no1par value s!ares s!all 3e treated as capital and s!all not 3e availa3le for distri3ution as dividends6 2 corporation ma#4 furt!ermore4 classif# its s!ares for t!e purpose of insuring compliance wit! constitutional or legal re;uirements6 "5cept as ot!erwise provided in t!e articles of incorporation and stated in t!e certificate of stoc(4 eac! s!are s!all 3e e;ual in all respects to ever# ot!er s!are6 9!ere t!e articles of incorporation provide for non1voting s!ares in t!e cases allowed 3# t!is Code4 t!e !olders of suc! s!ares s!all nevert!eless 3e entitled to vote on t!e following mattersD 16 2mendment of t!e articles of incorporation7 26 2doption and amendment of 3#1laws7 36 'ale4 lease4 e5c!ange4 mortgage4 pledge or ot!er disposition of all or su3stantiall# all of t!e corporate propert#7 $6 :ncurring4 creating or increasing 3onded inde3tedness7 &6 :ncrease or decrease of capital stoc(7

(i)

(ii)

Common ('ec6 )) One w!ic! entitles t!e !older t!ereof to a pro rata division of t!e profits4 if t!ere are an#4 and in its assets upon dissolution4 wit!out an# preference or advantage in t!at respect over ot!er stoc(!older or class of stoc(!olders e5cept preferred stoc(!olders6 (%age -$ of +e Leon (200)) %referred ('ec6 )) One wit! a stated par value w!ic! entitles t!e !older to certain preferences over t!e !olders of common stoc(6 %age -$ of +e Leon (200))

UP Class Notes Shares that carry a preferential claim either to dividend or assets but usually carries no voting rightsJ only shares that can be deprived of voting rights )ac*+s Lecture P% // % D &8A% & %references given to preferred s!ares s!ould not violate t!e law6 Qou can not provide t!at !older of preferred s!ares will 3e paid a!ead of t!e creditors of t!e corporation4 and #ou can not issue preferred s!ares wit! no par value s!ares6 :t must 3e noted t!at preferred s!ares must !ave par value6 !e preferred s!ares ma# 3e given preference in t!e distri3ution of dividends6 :f t!e profits are not enoug! to give ever#3od# dividends4 t!e !olders of preferred s!ares get a first crac( 3efore t!e !olders of t!e common s!ares get an#t!ing6 Or t!e# ma# !ave preference in t!e distri3ution of t!e assets in case of li;uidation6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

212$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
t!e stated value6 'o4 if #ou !old a stoc(!olderJs meeting4 t!e one w!ose no par value s!are wit! stated value of %104000 will !ave one(1) vote4 same as t!e one w!o !as a stated value of %&6006 :f t!e corporation declares a dividend and sa#s4 Twe will pa# %100600 per s!are111t!e one wit! stated value of %104000 will get %1004 and t!e one wit! %&600 will get t!e same6 !e# are all e;ual irrespective of t!e stated value6 (?ac( said t!is is useful for estate planning6 @ereJs a fat!er4 !e forms a corporation w!ere !is c!ildren will su3scri3e to no par value wit! stated value of %& eac!4 after t!at4 !e transfers all t!e properties to t!e corporation 1 t!e c!ildren w!o su3scri3ed wit! a stated value of %& eac!4 t!e# pro3a3l# own %204000 eac! wit! a stated value of %&6 !en 4 t!e fat!er would transfer !is properties t!ere and get 1 sa#4 104000 s!ares wit! a stated value of %104000 eac!6 'uppose #ou now dissolve t!e corporation and distri3ute t!e properties 3# wa# of li;uidating dividends6 !e c!ildren will get t!e 3ul( of t!e properties6 Qou could (eep t!e properties t!ere6 !is is t!e wa# t!e fat!er could dilute !is transfer of properties6)

N6 PA% VALU &8A% & !ere are limitations on t!e power to classif# s!ares of stoc(s6 *an(s4 trust companies4 insurance companies4 pu3lic utilities4 3uilding and loan associations are not allowed to issue no par value s!ares6 9!en a corporation !as no par value s!ares4 no amount will 3e mentioned6 >nli(e corporations wit! par value s!ares4 for e564 t!e 2ut!orized Capital 'toc( (2C') of t!e corporation s!all 3e %1. consisting of 104000 s!ares wit! a par value of %100 eac!4 if #ou !ave a corporation wit! no par value s!ares4 it will simpl# 3e4 t!e 2C' of t!e corporation consists of 104000 no par value s!ares111no amount is mentioned6 !atJs w!# t!ese 3an(s4 trust companies4 etc6 are not allowed to !ave no par value s!ares 3ecause t!ese are enterprises w!ic! are re;uired 3# law to !ave a minimum paid1up capital 1 so t!at #ou can easil# see rig!t awa# 1 !as it met t!e minimum paid1up capital4 3ecause if its s!ares !ave no par value 1 #ou cannot see if it !as satisfied t!e re;uired minimum paid1up capital6

(iii)

%ar Galue and No par value s!ares ('ec6 )) %ar value s!are is one wit! a specific mone# value fi5ed in t!e articles of incorporation and appearing in t!e certificate stoc(6 No par value s!are is one wit!out an# stated value appearing on t!e face of t!e certificate of stoc(6 :n ot!er words4 it is a stoc( w!ic! does not state !ow muc! mone# it represents6
)ac*+s Lecture &'A' D VALU "N6 PA% VALU &8A% $ No par value s!ares must also !ave a stated value6 9!en #ou form a corporation wit! no par value s!ares4 t!e articles of incorporation states4 t!e aut!orized capital stoc( s!all consist of4 for e5ample4 104000 no par value s!ares6 !ose s!ares will also 3e given a stated value4 so t!e director sa#s4 To(4 t!e stated value we will issue initiall# upon incorporation4 will 3e %&6006 9e will !ave 34000 s!ares and t!at will 3e su3scri3ed wit! a stated value of %&6006 Now4 t!e 3usiness was good4 t!e# are ra(ing in t!e mone#4 so t!e director decided to declare a stoc( dividend111Twe will !ave a stoc( dividend wit! a stated value of %300600 eac!6 *usiness was again good111t!e director again declared stoc( dividend4 t!is time wit! a stated value of %104000600 eac!6 'o pwedeng mag3ago13ago ang stated value6 2nd t!ose s!ares would 3e e;ual irrespective of t!e difference in

(iv)

Founder8s s!ares ('ec6 ,)

Sec. 5. /ounders9 shares FoundersJ s!ares classified as suc! in t!e articles of incorporation ma# 3e given certain rig!ts and privileges not en?o#ed 3# t!e owners of ot!er stoc(s4 provided t!at w!ere t!e e5clusive rig!t to vote and 3e voted for in t!e election of directors is granted4 it must 3e for a limited period not to e5ceed five (&) #ears su3?ect to t!e approval of t!e 'ecurities and "5c!ange Commission6 !e five1#ear period s!all commence from t!e date of t!e aforesaid approval 3# t!e 'ecurities and "5c!ange Commission6
)ac*+s Lecture /6UND %9& &8A% & !e# ma# 3e given certain rig!ts not en?o#ed 3# t!e owner of ot!er stoc(s 3ut if t!e# are given t!e e5clusive rig!t to vote4 t!at will 3e valid for & #ears onl#6 Li(e t!is *aguio Countr# Clu34 t!e# used to !ave onl# 100 s!ares6 !e# said we s!ould 3roaden our mem3ers!ip in order to raise more mone# to improve t!e facilities and to e5pand6 !e articles were amended and t!ose 100 s!ares were converted to founderJs s!ares6 !e# created 24000 common s!ares w!ic! were t!en sold to t!e pu3lic6 *ut t!is was t!e sc!emeD "ac! owner of 1 founder s!are su3scri3ed to 20 s!ares4 20 common s!ares at par value4 and t!en !e turned around and sold t!e & s!ares at %)04000 eac!6 !e price was computed in suc! a wa# t!at w!at #ou will get from

I sweat, I bleed, I soar Service, Sacrifice, Excellence

212&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
redeema3le s!ares4 t!e# s!ould 3e paid 3# t!e corporation even if t!e latter !as no unrestricted retained earnings6

selling & s!ares would 3e enoug! to pa# for t!e 20 s!ares t!at #ou !ave su3scri3ed6 'o4 at t!e end of e5ercise4 #ou will !ave 1& s!ares wit!out s!elling out an# mone# 3ecause t!e price #ou will get from selling & s!ares will cover ever#t!ing6 !ese founderJs s!ares4 for & #ears4 t!e# !ave e5clusive voting rig!ts6 2fter & #ears4 ever#3od# !as t!e same rig!ts6

Founders8 s!ares !ave 3een defined as Bs!ares issued to t!e organizers and promoters of a corporation in consideration of some supposed rig!t or propert#6 'uc! s!ares usuall# s!are in t!e profits onl# after a certain percentage !as 3een paid upon t!e common stoc(4 3ut are often given special privileges over ot!er stoc(s as to voting and as to division of profits in e5cess of a minimum dividend on t!e common stoc(6
UP Class Notes Shares given to the original incorporatorsJ may be given certain rights and privileges not enjoyed by owners of other classes of sharesJ where the e,clusive right to vote and be voted for in the election of directors is granted/ such right to vote shall be for a limited period not e,ceeding F years subject to the S6! approval

Redeema3le or calla3le s!ares4 usuall# preferred4 w!ic! 3# t!eir terms are redeema3le at a fi5ed date or at t!e option of eit!er t!e issuing corporation or t!e stoc(!older or 3ot! at a certain redemption price6
Catindig Class Notes 0: Pedro needs ;(. %uan has ;(. %uan wants to invest with conditions.+a- F year period +b- 8ividends ;<M annually .hat do you do2 3: +a- 1ssue redeemable shares +b- Provide that it will be given at a rate ;<M per annum 0: .hat if %uan wish to be a holder of common stock: 3: Give him with convertability feature. *ip: 3lways indicate conversion ratio. 0: .hat are the special advantages of redeemable shares2 3: +;- edeemabilityJ +:-*hey should be paid by the corporation even if there is no unrestricted retained earningsJ +K- 1f the corporation is not li>uid/ it can borrow for the purpose.

(v)

Redeema3le ('ec6 -)

Sec. ?. %edeemable shares Redeema3le s!ares ma# 3e issued 3# t!e corporation w!en e5pressl# so provided in t!e articles of incorporation6 !e# ma# 3e purc!ased or ta(en up 3# t!e corporation upon t!e e5piration of a fi5ed period4 regardless of t!e e5istence of unrestricted retained earnings in t!e 3oo(s of t!e corporation4 and upon suc! ot!er terms and conditions as ma# 3e stated in t!e articles of incorporation4 w!ic! terms and conditions must also 3e stated in t!e certificate of stoc( representing said s!ares6
)ac*+s Lecture REDEEMABLE SHARES Redeemable shares may be issued by the corporation when it is e5pressl# provided in t!e articles of incorporation6 erms and conditions affecting redeema3le s!ares are re;uired to 3e provided for in t!e articles of incorporation and to 3e stated on t!e certificate o stoc(6 >pon maturit# of

(vi)

reasur# ('ec6 /)

Sec. *. 'reasury shares reasur# s!ares are s!ares of stoc( w!ic! !ave 3een issued and full# paid for4 3ut su3se;uentl# reac;uired 3# t!e issuing corporation 3# purc!ase4 redemption4 donation or t!roug! some ot!er lawful means6 'uc! s!ares ma# again 3e disposed of for a reasona3le price fi5ed 3# t!e 3oard of directors6

reasur# s!ares are s!are w!ic! !ave 3een lawfull# issued 3# t!e corporation and full# paid for and later reac;uired 3# eit!er purc!ase4 redemption4 donation4 forfeiture and ot!er lawful means6
)ac*+s Lecture '% A&U%: &8A% &

I sweat, I bleed, I soar Service, Sacrifice, Excellence

212)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
Reese w!ic! were ac;uired 3# t!e corporation !ad t!ese 2 featuresD t!e# could vote and t!e# could receive stoc( dividends6 !ese are inconsistent wit! t!e nature of treasur# s!aresF 3ecause a treasur# s!are is not outstanding alt!oug! it is not cancelled for it can 3e re1issued6 !e onl# t!ing #ou can do wit! it is to re1issue it6 Now4 w!en t!e *oard re1issued it4 t!e# can sell it at an# reasona3le priceF 3ecause #ou donJt !ave to sell it for its par value as its minimum4 3ecause remem3er4 it is unissuedF remem3er4 w!en #ouJre going to sell or offer for su3scription4 part of t!e aut!orized 3ut unissued s!are4 t!e corporation must sell at least at par value6 Ot!erwise t!at would 3e watered stoc(6 *ut in t!e case of treasur# s!ares4 t!at !as alread# 3een paid for 3# t!e original '@4 so t!e corporation alread# got t!e mone# e;uivalent to t!e par value6 'o w!en t!e corporation re1issues t!at4 suppose t!e# offer it for sale4 t!e# can fi5 an# price6 :t can even 3e less t!an par value4 letJs sa# t!e 3oo( value is less t!an t!e par value6 Now if t!e corporation decides to declare t!at as dividend it will not 3e declared as stoc( dividend4 it will 3e declared as propert# dividend6 *ecause t!at is propert# owned 3# t!e corporation #ou declare stoc( dividends from t!e aut!orized 3ut unissued s!aresF 3ut t!ese are s!ares (treasur#) w!ic! !ave alread# 3een issued 3ut ac;uired 3# t!e corp6 'o t!e# are properties 3elonging to t!e corporation6 'o if t!e corporation distri3utes t!em4 as dividends4 t!e# will 3e propert# dividend4 not stoc( dividend6

!en #ou !ave t!ese treasur# s!ares6 !ese are s!ares w!ic! !ave 3een full# issued and full# paid for 3ut su3se;uentl# re1ac;uired 3# t!e issuing corporation 3# purc!ase4 redemption4 donation4 or some ot!er lawful means6 Li(e for instance if a stoc(!older ('@) defaulted w!en a call was made for '@ to pa# t!eir unpaid su3scription4 and '@ failed to pa#F and so s!ares sold at pu3lic auction and t!e corporation ac;uired it6 Now t!e 'C !as said t!at treasur# s!ares are in lim3oF t!e# are not outstanding4 3ut neit!er are t!e# cancelled6 !e# !ave alread# 3een issued6 Now w!en t!e corporation re1 ac;uires t!em4 t!e# are not cancelled4 3ut t!e# are not outstandingF so in t!e meantime4 t!e# are frozen66 t!e# are in lim3o6 !e# cannot vote4 t!e# cannot receive dividends6 !e onl# t!ing #ou can do wit! t!em is to re1issue t!em6 !at is t!e onl# t!ing #ou can do6 9ell4 #ou !ave t!is case (sorr#S canJt understand t!e case title)F !ere is t!is law officeD Rossell Carascosso 2nda (RC2)4 used to 3e t!e 3iggest law firm in 2siaF it was t!e retained counsel of all t!e 3ig companies li(e '!ell4 Calte54 '.C4 *an( of 2merica4 Citi3an(F Now4 Reese (: spell it as : !ear it ) one of t!e controlling stoc(!olders of t!e .anila rading and 'uppl# Compan#4 wanted to transfer t!e s!ares to !is friends wit!out an# ta5 conse;uence6 'o w!at was t!e 3rig!t sc!eme concocted 3# t!is RC2L Reese e5ecuted a rust 2greement ( 2)6 @e appointed t!e Law Office (RC2) as trustee and transferred to t!e law office !is s!ares of stoc(s6 !e 2 included stoc( dividends6 >pon t!e deat! of Reese t!e corporation was supposed to 3u# t!e s!ares666 3ut in t!e meanw!ile4 t!e trustees would !ave t!e rig!t to vote t!e s!ares of stoc(sF and as : said stoc( dividends are also covered 3# t!at6 'o w!at !appenedL Reese died6 !e corporation 3oug!t t!e s!ares6 !e remaining '@ were t!e friends of Reese6 !en t!e corporation now turns around and declares t!e s!ares as stoc( dividends of e5isting '@F stoc( dividends !ave no ta5 conse;uenceF6 'o t!e remaining '@4 all friends of Reese would ac;uire t!e s!ares wit!out pa#ing a single centavoF 3ecause t!e corporation 3oug!t t!e s!ares4 and t!e# saidD Rtreasur# s!ares #an e!SR 'o t!e corporation now declared it as a stoc( dividend4 and so t!e remaining '@ got it M t!e# got t!e s!ares of Reese wit!out pa#ing an#t!ingF Now t!e Court saidD RNOS !ese are not treasur# s!aresSR w!#L *ecause t!e 2 provided t!at t!e trustees would vote t!e s!ares and t!at it also provided t!at t!e trust would include stoc( dividends t!at ma# 3e declared6 'o t!ese s!ares of

(vii) Converti3le Converti3le s!are is s!are w!ic! is converti3le or c!angea3le 3# t!e stoc(!older form one class to anot!er class (suc! as from preferred to common) at a certain price and wit!in a certain period6 (%age -) of +e Leon4 200)) (viii) %articipating
Catindig Class Notes Participating shares impinges upon the rights of the common shares to the residual corporate assetsNhence/ participating shares not usually issued.

(<+ S'/$cri/er$
Sec. 1). Contents of the articles of incorporation

555 -6 :f it 3e a stoc( corporation4 t!e amount of its aut!orized capital stoc( in lawful mone# of t!e %!ilippines4 t!e num3er of

I sweat, I bleed, I soar Service, Sacrifice, Excellence

212,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

s!ares into w!ic! it is divided4 and in case t!e s!are are par value s!ares4 t!e par value of eac!4 t!e names4 nationalities and residences of t!e original su3scri3ers4 and t!e amount su3scri3ed and paid 3# eac! on !is su3scription4 and if some or all of t!e s!ares are wit!out par value4 suc! fact must 3e stated7 555 (9+ Trea$'rer in Tr'$t !e person elected 3# t!e su3scri3ers as reasurer of t!e corporation at t!e time of t!e incorporation w!o is named as suc! in t!e 2o: and w!o !as 3een aut!orized to receive for and in t!e name of t!e corporation4 all su3scriptions4 fees4 contri3utions or donations paid of given 3# t!e su3scri3ers or mem3ers6 (>% Reviewer) Not a regular treasurer !e treasurer w!o signs t!e treasurer8s affidavit in 'ection 1& (6+ Specia6 Pro"i$ion$ (i) "5panded pre1emptive rig!ts %re1emptive rig!t is t!e stoc(!older8s rig!t to '>*'CR:*" to all issues or disposition of s!ares of an# class in proportion of !is stoc(!oldings6 'ee 'ection 3/ %re1emptive rig!t includes re1 issuance of '6 See page OK: of !" +:<<DRig!t of First Refusal See page LDK of !"#$s !ommercial "aw eviewer Ald 6dition

Documents accompanying the Articles


('ee page ,33 of CLG8s Commercial Law Review *oo(4 200,) Sec. 13. /orms of Articles of Incorporation >nless ot!erwise prescri3ed 3# special law4 articles of incorporation of all domestic corporations s!all compl# su3stantiall# wit! t!e following formD

(ii)

Catindig Class Notes *ip: ight to first refusal should be accompanied by: +;- time to get approval and +:- ight to assign.

(iii)

@ig! ;uorum andK or !ig! voting re;uirements

I sweat, I bleed, I soar Service, Sacrifice, Excellence

212-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
555 6 N:N @D !at t!e a3ove1named su3scri3ers !ave paid at least twent#1five (2&A) percent of t!e total su3scription as followsD Name of 'u3scri3er 555 (.odif# Nos6 - and / if s!ares are wit! no par value6 :n case t!e corporation is non1stoc(4 Nos6 ,4 - and / of t!e a3ove articles ma# 3e modified accordingl#4 and it is sufficient if t!e articles state t!e amount of capital or mone# contri3uted or donated 3# specified persons4 stating t!e names4 nationalities and residences of t!e contri3utors or donors and t!e respective amount given 3# eac!6) "N @D !at 666666666666 !as 3een elected 3# t!e su3scri3ers as reasurer of t!e Corporation to act as suc! until !is successor is dul# elected and ;ualified in accordance wit! t!e 3#1laws4 and t!at as suc! reasurer4 !e !as 3een aut!orized to receive for and in t!e name and for t!e 3enefit of t!e corporation4 all su3scription (or fees) or contri3utions or donations paid or given 3# t!e su3scri3ers or mem3ers6 "L"G"N @D (Corporations w!ic! will engage in an# 3usiness or activit# reserved for Filipino citizens s!all provide t!e following)D RNo transfer of stoc( or interest w!ic! s!all reduce t!e owners!ip of Filipino citizens to less t!an t!e re;uired percentage of t!e capital stoc( as provided 3# e5isting laws s!all 3e allowed or permitted to recorded in t!e proper 3oo(s of t!e corporation and t!is restriction s!all 3e indicated in all stoc( certificates issued 3# t!e corporation6R :N 9: N"'' 9@"R"OF4 we !ave !ereunto signed t!ese 2rticles of :ncorporation4 t!is 6666666666666666666 da# of 6666666666666666666666666666664 1/ 66666666666 in t!e Cit#K.unicipalit# of 66666666666666666666666666666666666666664 %rovince of 66666666666666666666666666666666666666666666666664 Repu3lic of t!e %!ilippines6 66666666666666666666666666666666666666666666 666666666666666666666666666666666666666666666 66666666666666666666666666666666666666666666 666666666666666666666666666666666666666666666 666666666666666666666666666666666666666666666666 (Names and signatures of t!e incorporators) ':<N"+ :N @" %R"'"NC" OFD 66666666666666666666666666666666666666666666 666666666666666666666666666666666666666666666 (Notarial 2c(nowledgment) 2mount 'u3scri3ed otal %aid1:n

ARTICLES OF INCORPORATION OF
UUUUUUUUUUUUUUUUUUUUUUUUUU (Name of Corporation) ENO9 2LL ."N *Q @"'" %R"'"N 'D !e undersigned incorporators4 all of legal age and a ma?orit# of w!om are residents of t!e %!ilippines4 !ave t!is da# voluntaril# agreed to form a (stoc() (non1stoc() corporation under t!e laws of t!e Repu3lic of t!e %!ilippines7 2N+ 9" @"R"*Q C"R :FQD F:R' D !at t!e name of said corporation s!all 3e R66666666666666666666666666666666666666666666664 :NC6 or COR%OR2 :ONR7 '"CON+D !at t!e purpose or purposes for w!ic! suc! corporation is incorporated areD (:f t!ere is more t!an one purpose4 indicate primar# and secondar# purposes)7 @:R+D !at t!e principal office of t!e corporation is located in t!e Cit#K.unicipalit# of 6666666666666666666666666666666666666666666664 %rovince of 666666666666666666666666666666666666666666666666664 %!ilippines7 FO>R @D !at t!e term for w!ic! said corporation is to e5ist is 6666666666666666 #ears from and after t!e date of issuance of t!e certificate of incorporation7 F:F @D !at t!e names4 nationalities and residences of t!e incorporators of t!e corporation are as followsD N2." 555 ':P @D !at t!e num3er of directors or trustees of t!e corporation s!all 3e 66666666666667 and t!e names4 nationalities and residences of t!e first directors or trustees of t!e corporation are as followsD N2." 555 '"G"N @D !at t!e aut!orized capital stoc( of t!e corporation is 666666666666 (%6666666666666666666666) %"'O' in lawful mone# of t!e %!ilippines4 divided into 666666666666666 s!ares wit! t!e par value of 66666666666666666666666666666666666 (%66666666666666666666666) %esos per s!are6 (:n case all t!e s!are are wit!out par value)D !at t!e capital stoc( of t!e corporation is 666666666666666666666666666 s!ares wit!out par value6 (:n case some s!ares !ave par value and some are wit!out par value)D !at t!e capital stoc( of said corporation consists of 666666666666666666666666 s!ares of w!ic! 66666666666666666666666 s!ares are of t!e par value of 666666666666666666666666666666 (%666666666666666666666) %"'O' eac!4 and of w!ic! 66666666666666666666666666666666 s!ares are wit!out par value6 ":<@ @D !at at least twent# five (2&A) per cent of t!e aut!orized capital stoc( a3ove stated !as 3een su3scri3ed as followsD Name of 'u3scri3er Nationalit# No of '!ares 2mount 'u3scri3ed 'u3scri3ed N2 :ON2L: Q R"':+"NC" N2 :ON2L: Q R"':+"NC"

I sweat, I bleed, I soar Service, Sacrifice, Excellence

212/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
R"2'>R"RJ' 2FF:+2G:

R"%>*L:C OF @" %@:L:%%:N"' ) C: QK.>N:C:%2L: Q OF ) '6'6 %ROG:NC" OF ) :4 6666666666666666666666666666666666664 3eing dul# sworn4 depose and sa#D !at : !ave 3een elected 3# t!e su3scri3ers of t!e corporation as reasurer t!ereof4 to act as suc! until m# successor !as 3een dul# elected and ;ualified in accordance wit! t!e 3#1laws of t!e corporation4 and t!at as suc! reasurer4 : !ere3# certif# under oat! t!at at least 2&A of t!e aut!orized capital stoc( of t!e corporation !as 3een su3scri3ed and at least 2&A of t!e total su3scription !as 3een paid4 and received 3# me4 in cas! or propert#4 in t!e amount of not less t!an %&40006004 in accordance wit! t!e Corporation Code6 666666666666666666666666666666666666666 ('ignature of reasurer) '>*'CR:*"+ 2N+ '9ORN to 3efore me4 a Notar# %u3lic4 for and in t!e Cit#K.unicipalit# of 6666666666666666666666666666666666 %rovince of 6666666666666666666666666666666666666666664 t!is 6666666666666 da# of 66666666666666666666666664 1/ 666666667 3# 66666666666666666666666666666666666666666666 wit! Res6 Cert6 No6 666666666666666666666 issued at 66666666666666666 on 66666666666666666666664 1/ 6666666666

36 !at t!e reasurerJs 2ffidavit concerning t!e amount of capital stoc( su3scri3ed andKor paid if false7 $6 !at t!e percentage of owners!ip of t!e capital stoc( to 3e owned 3# citizens of t!e %!ilippines !as not 3een complied wit! as re;uired 3# e5isting laws or t!e Constitution6 No articles of incorporation or amendment to articles of incorporation of 3an(s4 3an(ing and ;uasi13an(ing institutions4 3uilding and loan associations4 trust companies and ot!er financial intermediaries4 insurance companies4 pu3lic utilities4 educational institutions4 and ot!er corporations governed 3# special laws s!all 3e accepted or approved 3# t!e Commission unless accompanied 3# a favora3le recommendation of t!e appropriate government agenc# to t!e effect t!at suc! articles or amendment is in accordance wit! law6

NO 2RQ %>*L:C
.# commission e5pires on 6666666666666666666666666664 1/ 66666666 +oc6 No6 6666666666666667 %age No6 6666666666666667 *oo( No6 666666666666667 'eries of 1/66666 (,a)

(c+ Fi6in# of Artic6e$ of Incorporation an! pa7%ent of fee$


UP Class Notes 3A1 and re>uired attachments must be filed with the S6!J filing fees re>uired here are ;<M of ;M of the authori'ed capital stock

Sec. 15. ;rounds (hen articles of incorporation or amendment may be re<ected or disappro#ed !e 'ecurities and "5c!ange Commission ma# re?ect t!e articles of incorporation or disapprove an# amendment t!ereto if t!e same is not in compliance wit! t!e re;uirements of t!is CodeD %rovided4 !at t!e Commission s!all give t!e incorporators a reasona3le time wit!in w!ic! to correct or modif# t!e o3?ectiona3le portions of t!e articles or amendment6 !e following are grounds for suc! re?ection or disapprovalD 16 !at t!e articles of incorporation or an# amendment t!ereto is not su3stantiall# in accordance wit! t!e form prescri3ed !erein7 26 !at t!e purpose or purposes of t!e corporation are patentl# unconstitutional4 illegal4 immoral4 or contrar# to government rules and regulations7

(!+ EBa%ination an! Appro"a6 or re<ection of AoI /7 SEC ('ec6 1,)


9!en t!e proposed articles s!ow t!at t!e o3?ect is to organize a 3arrio into a separate corporation for t!e purpose of ta(ing possession and !aving control of all municipal propert# wit!in t!e incorporated 3arrio and administer it e5clusivel# for t!e 3enefit of t!e residents4 t!e o3?ect is unlawful and t!e articles can 3e denied registration6 3suncion v. 8e Criarte4 2- %!il6 ), (1/1$)6 :t is well to note t!at4 if a corporation8s purpose4 as stated in t!e 2rticles of :ncorporation4 is lawful4 t!en t!e '"C !as no aut!orit# to in;uire w!et!er t!e corporation !as purposes ot!er t!an t!ose stated4 and mandamus will lie to compel it to

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2130

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

issue t!e certificate of incorporation6C Gala v. 6llice 3gro9 1ndustrial !orp.4 $1- 'CR2 $31 (2003)6
UP Class Notes ejection is not preferredJ a defective 3A1 may be returned by the S6! which shall give the incorporators a reasonable time to correct or modify the objectionable portions without the necessity of filing the same againJ Grounds for rejection or disapproval: 994ot substantially in the form prescribed by the !ode 99 Purposes are patently unconstitutional or are contrary to law/ morals/ etc. 99*reasurer$s affidavit is false 99Percentage of ownership of capital stock has not been complied with 99 3A1 of banks and other financial institutions must be filed together with a recommendation of the appropriate government agency +i.e. 7SP- to the effect that such 3A1 is in accordance with the law

2.G. S'%%it Ho6!in#$ ". CA !e agreement of co1s!are!olders to mutuall# grant t!e rig!t of first refusal to eac! ot!er4 3# itself4 does not constitute a violation of t!e provisions of t!e Constitution limiting land owners!ip to Filipinos and Filipino corporations7 :f t!e foreign s!are!oldings of a land!olding corporation e5ceeds $0A4 it is not t!e foreign stoc(!older8s owners!ip of t!e s!ares w!ic! is adversel# affected 3ut t!e capacit# of t!e corporation to own landMt!at is4 t!e corporation 3ecomes dis;ualified to own land6 'ee page -33 of CLG8s CLR4 200, P.C. 2a"ier E Son$ ". CA 2 c!ange in t!e corporate name does not ma(e a new corporation4 w!et!er effected 3# a special act or under a general law6
Catindig Class Notes !atindig: *his case +P! %avier- is not entirely correct insofar as it says that there is no law or rule re>uiring notice for change of name. 3 change in corporate name is reflected in the General 1nformation Sheet.

(e+ I$$'ance of Certificate of Incorporation


4hen does corporate e=istence commence5
Sec. 1*. Commencement of corporate e=istence 2 private corporation formed or organized under t!is Code commences to !ave corporate e5istence and ?uridical personalit# and is deemed incorporated from t!e date t!e 'ecurities and "5c!ange Commission issues a certificate of incorporation under its official seal7 and t!ereupon t!e incorporators4 stoc(!oldersKmem3ers and t!eir successors s!all constitute a 3od# politic and corporate under t!e name stated in t!e articles of incorporation for t!e period of time mentioned t!erein4 unless said period is e5tended or t!e corporation is sooner dissolved in accordance wit! law6

H7att ". Go6!$tar !e residence or domicile of a ?uridical person is fi5ed 3# Blaw creating or recognizingC it6

.) Interna6 Or#ani0ation of the corporation .. Ca$e$


Ca$ti66o ". 1a6in#ha$a7 'ection ) of t!e Corp Code e5pressl# pro!i3its t!e deprivation of voting rig!ts4 e5cept as to BpreferredC and Bredeema3leC s!ares6 'ection 1$- of t!e Corp Code e5pressl# provides t!at it s!all appl# to corporation in e5istence at t!e time of t!e effectivit# of t!e Code6

(a+ A!option an! Appro"a6 of 17:6a=$


Sec. )4. Adoption of by,la(s "ver# corporation formed under t!is Code must4 wit!in one (1) mont! after receipt of official notice of t!e issuance of its certificate of incorporation 3# t!e 'ecurities and "5c!ange Commission4 adopt a code of 3#1laws for its government not inconsistent wit! t!is Code6 For t!e adoption of 3#1laws 3# t!e corporation t!e affirmative vote of t!e stoc(!olders representing at least a ma?orit# of t!e outstanding

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2131

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
trustees4 officers and emplo#ees7 )6 !e time for !olding t!e annual election of directors of trustees and t!e mode or manner of giving notice t!ereof7 ,6 !e manner of election or appointment and t!e term of office of all officers ot!er t!an directors or trustees7 -6 !e penalties for violation of t!e 3#1laws7 /6 :n t!e case of stoc( corporations4 t!e manner of issuing stoc( certificates7 and 106 'uc! ot!er matters as ma# 3e necessar# for t!e proper or convenient transaction of its corporate 3usiness and affairs6 (21a)

capital stoc(4 or of at least a ma?orit# of t!e mem3ers in case of non1 stoc( corporations4 s!all 3e necessar#6 !e 3#1laws s!all 3e signed 3# t!e stoc(!olders or mem3ers voting for t!em and s!all 3e (ept in t!e principal office of t!e corporation4 su3?ect to t!e inspection of t!e stoc(!olders or mem3ers during office !ours6 2 cop# t!ereof4 dul# certified to 3# a ma?orit# of t!e directors or trustees countersigned 3# t!e secretar# of t!e corporation4 s!all 3e filed wit! t!e 'ecurities and "5c!ange Commission w!ic! s!all 3e attac!ed to t!e original articles of incorporation6 Notwit!standing t!e provisions of t!e preceding paragrap!4 3#1laws ma# 3e adopted and filed prior to incorporation7 in suc! case4 suc! 3#1laws s!all 3e approved and signed 3# all t!e incorporators and su3mitted to t!e 'ecurities and "5c!ange Commission4 toget!er wit! t!e articles of incorporation6 :n all cases4 3#1laws s!all 3e effective onl# upon t!e issuance 3# t!e 'ecurities and "5c!ange Commission of a certification t!at t!e 3#1 laws are not inconsistent wit! t!is Code6 !e 'ecurities and "5c!ange Commission s!all not accept for filing t!e 3#1laws or an# amendment t!ereto of an# 3an(4 3an(ing institution4 3uilding and loan association4 trust compan#4 insurance compan#4 pu3lic utilit#4 educational institution or ot!er special corporations governed 3# special laws4 unless accompanied 3# a certificate of t!e appropriate government agenc# to t!e effect t!at suc! 3#1laws or amendments are in accordance wit! law6 (20a) Sec. )5. Contents of by,la(s 'u3?ect to t!e provisions of t!e Constitution4 t!is Code4 ot!er special laws4 and t!e articles of incorporation4 a private corporation ma# provide in its 3#1laws forD
16 !e time4 place and manner of calling and conducting regular or special meetings of t!e directors or trustees7 26 !e time and manner of calling and conducting regular or special meetings of t!e stoc(!olders or mem3ers7 36 !e re;uired ;uorum in meetings of stoc(!olders or mem3ers and t!e manner of voting t!erein7 $6 !e form for pro5ies of stoc(!olders and mem3ers and t!e manner of voting t!em7 &6 !e ;ualifications4 duties and compensation of directors or

Sec. )?. Amendments to by,la(s !e 3oard of directors or trustees4 3# a ma?orit# vote t!ereof4 and t!e owners of at least a ma?orit# of t!e outstanding capital stoc(4 or at least a ma?orit# of t!e mem3ers of a non1stoc( corporation4 at a regular or special meeting dul# called for t!e purpose4 ma# amend or repeal an# 3#1laws or adopt new 3#1laws6 !e owners of two1t!irds (2K3) of t!e outstanding capital stoc( or two1t!irds (2K3) of t!e mem3ers in a non1stoc( corporation ma# delegate to t!e 3oard of directors or trustees t!e power to amend or repeal an# 3#1laws or adopt new 3#1lawsD %rovided4 !at an# power delegated to t!e 3oard of directors or trustees to amend or repeal an# 3#1laws or adopt new 3#1laws s!all 3e considered as revo(ed w!enever stoc(!olders owning or representing a ma?orit# of t!e outstanding capital stoc( or a ma?orit# of t!e mem3ers in non1stoc( corporations4 s!all so vote at a regular or special meeting6 9!enever an# amendment or new 3#1laws are adopted4 suc! amendment or new 3#1laws s!all 3e attac!ed to t!e original 3#1laws in t!e office of t!e corporation4 and a cop# t!ereof4 dul# certified under oat! 3# t!e corporate secretar# and a ma?orit# of t!e directors or trustees4 s!all 3e filed wit! t!e 'ecurities and "5c!ange Commission t!e same to 3e attac!ed to t!e original articles of incorporation and original 3#1laws6 !e amended or new 3#1laws s!all onl# 3e effective upon t!e issuance 3# t!e 'ecurities and "5c!ange Commission of a certification t!at t!e same are not inconsistent wit! t!is Code6 (22a and 23a)

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2132

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA 2ut!orit# granted to a corporation to regulate t!e transfer of its stoc( does not empower t!e corporation to restrict t!e rig!t of a stoc(!older to transfer !is s!ares4 3ut merel# aut!orizes t!e adoption of regulations as to t!e formalities and procedure to 3e followed in effecting transfer6 *homson v. !ourt of 3ppeals/ 2/- 'CR2 2-0 (1//-)6 *#1laws are intended merel# for t!e protection of t!e corporation4 and prescri3e regulation4 not restriction7 t!e# are alwa#s su3?ect to t!e c!arter of t!e corporation6 ural 7ank of Salinas/ 1nc. v. !34 210 'CR2 &10 (1//2)6

1F:LAWS :ntramural contract for intra1corporate relations!ip :s not 3inding on e5tra1corporate parties (e5cept if t!ird parties !ave prior notice of t!e 3# laws) :ntended to regulate internal matters Cannot contravene t!e c!arter or t!e laws 'ee page ,$& of CLG8s CLR4 200,6 Nat're an! F'nction$ of 17:La=$ 2s t!e Brules and regulations or private laws enacted 3# t!e corporation to regulate4 govern and control its own actions4 affairs and concerns and its stoc(!olders or mem3ers and directors and officers wit! relation t!ereto and among t!emselves in t!eir relation to it4C 3#1laws are indispensa3le to corporations6 !ese ma# not 3e essential to corporate 3irt! 3ut certainl#4 t!ese are re;uired 3# law for an orderl# governance and management of corporations6 "oyola Grand #illas 5omeowners v. !3/ 2,) 'CR2 )-1 (1//,)6 Co%%on 6a= Li%itation$ on 17:La=$ (1) *#1Laws cannot 3e contrar# to law and c!arter (2) *#1Laws cannot 3e unreasona3le or contrar# to t!e nature of *#1 Laws (3) *#1Laws cannot discriminate 7y9"aws cannot be contrary to law and charter 2 3#1law provision granting to a stoc(!older permanent seat in t!e *oard of +irectors is contrar# to t!e provision in Corporation Code re;uiring all mem3ers of t!e *oard to 3e elected 3# t!e stoc(!olders6 "ven w!en t!e mem3ers of t!e association ma# !ave formall# adopted t!e provision4 t!eir action would 3e of no avail 3ecause no provision of t!e 3#1 laws can 3e adopted if it is contrar# to law6 Grace !hristian 5igh School v. !ourt of 3ppeals/ 2-1 'CR2 133 (1//,)6 7y9"aws cannot be unreasonable or contrary to the nature of 7y9 "aws

(/+ E6ection of -irector$


Sec. ). lection of directors or trustees 2t all elections of directors or trustees4 t!ere must 3e present4 eit!er in person or 3# representative aut!orized to act 3# written pro5#4 t!e owners of a ma?orit# of t!e outstanding capital stoc(4 or if t!ere 3e no capital stoc(4 a ma?orit# of t!e mem3ers entitled to vote6 !e election must 3e 3# 3allot if re;uested 3# an# voting stoc(!older or mem3er6 :n stoc( corporations4 ever# stoc(!older entitled to vote s!all !ave t!e rig!t to vote in person or 3# pro5# t!e num3er of s!ares of stoc( standing4 at t!e time fi5ed in t!e 3#1laws4 in !is own name on t!e stoc( 3oo(s of t!e corporation4 or w!ere t!e 3#1laws are silent4 at t!e time of t!e election7 and said stoc(!older ma# vote suc! num3er of s!ares for as man# persons as t!ere are directors to 3e elected or !e ma# cumulate said s!ares and give one candidate as man# votes as t!e num3er of directors to 3e elected multiplied 3# t!e num3er of !is s!ares s!all e;ual4 or !e ma# distri3ute t!em on t!e same principle among as man# candidates as !e s!all see fitD %rovided4 !at t!e total num3er of votes cast 3# !im s!all not e5ceed t!e num3er of s!ares owned 3# !im as s!own in t!e 3oo(s of t!e corporation multiplied 3# t!e w!ole num3er of directors to 3e electedD %rovided4 !owever4 !at no delin;uent stoc( s!all 3e voted6 >nless ot!erwise provided in t!e articles of incorporation or in t!e 3#1laws4 mem3ers of corporations w!ic! !ave no capital stoc( ma# cast as man# votes as t!ere are trustees to 3e elected 3ut ma# not cast more t!an one vote for one candidate6 Candidates receiving t!e !ig!est num3er of votes s!all 3e declared elected6 2n# meeting of t!e stoc(!olders or mem3ers called for an election ma# ad?ourn from da# to da# or from time to time 3ut not sine die or indefinitel# if4 for an# reason4 no

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2133

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
continuousl# operate is due to causes 3e#ond t!e control of t!e corporation as ma# 3e determined 3# t!e 'ecurities and "5c!ange Commission
Catindig Class Notes Upon issuance of the certificate of incorporation/ the corporation must begin operation by holding organi'ation meeting of the 7oard. 1n such meeting the following will be done: +;- 6lection of officers +:- 3doption of resolution closing the account +K- 3doption of resolution opening a new account +?- 8esignating the authori'ed representative +signatoriesContinuous operation General 1nformation Sheet must be file to S6! continuously for five years and 3udited @inancial Statements econciling par. ; and par. :: !atindig: 8eemed dissolved but can be revived if the parties +incorporators- in good faith ask the S6! to confirm the status of the corporation as not de9registered or in good standing. *he parties must have a good e,planation.

election is !eld4 or if t!ere not present or represented 3# pro5#4 at t!e meeting4 t!e owners of a ma?orit# of t!e outstanding capital stoc(4 or if t!ere 3e no capital stoc(4 a ma?orit# of t!e mem3er entitled to vote6 Sec. 4. %eport of election of directors1 trustees and officers 9it!in t!irt# (30) da#s after t!e election of t!e directors4 trustees and officers of t!e corporation4 t!e secretar#4 or an# ot!er officer of t!e corporation4 s!all su3mit to t!e 'ecurities and "5c!ange Commission4 t!e names4 nationalities and residences of t!e directors4 trustees4 and officers elected6 '!ould a director4 trustee or officer die4 resign or in an# manner cease to !old office4 !is !eirs in case of !is deat!4 t!e secretar#4 or an# ot!er officer of t!e corporation4 or t!e director4 trustee or officer !imself4 s!all immediatel# report suc! fact to t!e 'ecurities and "5c!ange Commission6

!e '"C !as issued t!e rule re;uiring t!e filing of t!e <eneral :nformation '!eet6 (.onfort @ermanos 2gricultural +ev6 Corp v6 .onfort :::) 9!en t!e names of some of t!e directors w!o signed t!e 3oard resolution does not appear in t!e <eneral :nformation '!eet filed wit! t!e '"C4 t!en t!ere is dou3t w!et!er t!e# were indeed dul# elected mem3ers of t!e *oard legall# constituted to 3ring suit in 3e!alf of t!e Corporation6 (.onfort @ermanos 2gricultural +ev6 Corp v6 .onfort :::)

(c+ Co%%ence%ent of /'$ine$$$


Sec. . ffects on non,use of corporate charter and continuous inoperation of a corporation :f a corporation does not formall# organize and commence t!e transaction of its 3usiness or t!e construction of its wor(s wit!in two (2) #ears from t!e date of its incorporation4 its corporate powers cease and t!e corporation s!all 3e deemed dissolved6 @owever4 if a corporation !as commenced t!e transaction of its 3usiness 3ut su3se;uentl# 3ecomes continuousl# inoperative for a period of at least five (&) #ears4 t!e same s!all 3e a ground for t!e suspension or revocation of its corporate franc!ise or certificate of incorporation6 !is provision s!all not appl# if t!e failure to organize4 commence t!e transaction of its 3usinesses or t!e construction of its wor(s4 or to

BOrganizeC involves t!e election of officers4 providing for t!e su3scription and pa#ment of t!e capital stoc(4 t!e adoption of 3#1laws4 and suc! ot!er steps as are necessar# to endow t!e legal entit# wit! t!e capacit# to transact t!e legitimate 3usiness for w!ic! t!e corporation was created6 BOrganizationC relates merel# to t!e s#stematization and orderl# arrangement of t!e internal and managerial affairs and organs of t!e corporation6 *enguet Consolidated .ining Co6 v6 %ineda4 /- %!il6 ,116

.3 Ca$e$
Lo7o6a Gran! &i66a$ Ho%eo=ner$ ". CA *#1laws ma# 3e necessar# for t!e BgovernmentC of t!e corporation 3ut t!ese are su3ordinate to t!e 2rticles of :ncorporation as well as t!e Corporation Code and related statutes6 Failure to file t!e 3#1laws wit!in t!e period re;uired 3# law 3# no means tolls t!e automatic dissolution of a corporation6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

213$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
may be re<ected or disappro#ed !e 'ecurities and "5c!ange Commission ma# re?ect t!e articles of incorporation or disapprove an# amendment t!ereto if t!e same is not in compliance wit! t!e re;uirements of t!is CodeD %rovided4 !at t!e Commission s!all give t!e incorporators a reasona3le time wit!in w!ic! to correct or modif# t!e o3?ectiona3le portions of t!e articles or amendment6 !e following are grounds for suc! re?ection or disapprovalD 16 !at t!e articles of incorporation or an# amendment t!ereto is not su3stantiall# in accordance wit! t!e form prescri3ed !erein7 26 !at t!e purpose or purposes of t!e corporation are patentl# unconstitutional4 illegal4 immoral4 or contrar# to government rules and regulations7 36 !at t!e reasurerJs 2ffidavit concerning t!e amount of capital stoc( su3scri3ed andKor paid if false7 $6 !at t!e percentage of owners!ip of t!e capital stoc( to 3e owned 3# citizens of t!e %!ilippines !as not 3een complied wit! as re;uired 3# e5isting laws or t!e Constitution6 No articles of incorporation or amendment to articles of incorporation of 3an(s4 3an(ing and ;uasi13an(ing institutions4 3uilding and loan associations4 trust companies and ot!er financial intermediaries4 insurance companies4 pu3lic utilities4 educational institutions4 and ot!er corporations governed 3# special laws s!all 3e accepted or approved 3# t!e Commission unless accompanied 3# a favora3le recommendation of t!e appropriate government agenc# to t!e effect t!at suc! articles or amendment is in accordance wit! law6 Sec. )?. Amendments to by,la(s !e 3oard of directors or trustees4 3# a ma?orit# vote t!ereof4 and t!e owners of at least a ma?orit# of t!e outstanding capital stoc(4 or at least a ma?orit# of t!e mem3ers of a non1stoc( corporation4 at a regular or special meeting dul# called for t!e purpose4 ma# amend or repeal an# 3#1laws or adopt new 3#1laws6 !e owners of two1t!irds (2K3) of t!e outstanding capital stoc( or two1t!irds (2K3) of t!e mem3ers in a non1stoc( corporation ma# delegate to t!e 3oard of directors or trustees t!e power to amend or repeal an# 3#1laws or

Catindig Class Notes *he remedy should have been the inclusion of the word preferred

Sa=a!<aan ". CA 2 corporation w!ic! !as failed to file its 3#1laws wit!in t!e prescri3ed period does not ipso facto lose its powers as suc!6 6biter! *# its failure to su3mit its 3#1laws on time4 t!e 2::*% ma# 3e considered a de facto corporation w!ose rig!t to e5ercise corporate powers ma# not 3e in;uired into collaterall# in an# private suit to w!ic! suc! corporations ma# 3e a part#6

.4 A%en!%ent of Artic6e$ of Incorporation an! 17: 6a=$


Sec. 14. Amendment of Articles of Incorporation >nless ot!erwise prescri3ed 3# t!is Code or 3# special law4 and for legitimate purposes4 an# provision or matter stated in t!e articles of incorporation ma# 3e amended 3# a ma?orit# vote of t!e 3oard of directors or trustees and t!e vote or written assent of t!e stoc(!olders representing at least two1t!irds (2K3) of t!e outstanding capital stoc(4 wit!out pre?udice to t!e appraisal rig!t of dissenting stoc(!olders in accordance wit! t!e provisions of t!is Code4 or t!e vote or written assent of at least two1t!irds (2K3) of t!e mem3ers if it 3e a non1stoc( corporation6 !e original and amended articles toget!er s!all contain all provisions re;uired 3# law to 3e set out in t!e articles of incorporation6 'uc! articles4 as amended s!all 3e indicated 3# underscoring t!e c!ange or c!anges made4 and a cop# t!ereof dul# certified under oat! 3# t!e corporate secretar# and a ma?orit# of t!e directors or trustees stating t!e fact t!at said amendment or amendments !ave 3een dul# approved 3# t!e re;uired vote of t!e stoc(!olders or mem3ers4 s!all 3e su3mitted to t!e 'ecurities and "5c!ange Commission6 !e amendments s!all ta(e effect upon t!eir approval 3# t!e 'ecurities and "5c!ange Commission or from t!e date of filing wit! t!e said Commission if not acted upon wit!in si5 ()) mont!s from t!e date of filing for a cause not attri3uta3le to t!e corporation6 Sec. 15. ;rounds (hen articles of incorporation or amendment

I sweat, I bleed, I soar Service, Sacrifice, Excellence

213&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

adopt new 3#1lawsD %rovided4 !at an# power delegated to t!e 3oard of directors or trustees to amend or repeal an# 3#1laws or adopt new 3#1laws s!all 3e considered as revo(ed w!enever stoc(!olders owning or representing a ma?orit# of t!e outstanding capital stoc( or a ma?orit# of t!e mem3ers in non1stoc( corporations4 s!all so vote at a regular or special meeting6 9!enever an# amendment or new 3#1laws are adopted4 suc! amendment or new 3#1laws s!all 3e attac!ed to t!e original 3#1laws in t!e office of t!e corporation4 and a cop# t!ereof4 dul# certified under oat! 3# t!e corporate secretar# and a ma?orit# of t!e directors or trustees4 s!all 3e filed wit! t!e 'ecurities and "5c!ange Commission t!e same to 3e attac!ed to t!e original articles of incorporation and original 3#1laws6 !e amended or new 3#1laws s!all onl# 3e effective upon t!e issuance 3# t!e 'ecurities and "5c!ange Commission of a certification t!at t!e same are not inconsistent wit! t!is Code6 (22a and 23a)

I sweat, I bleed, I soar Service, Sacrifice, Excellence

213)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
ma# 3e related6 !is separate and distinct personalit# is4 !owever4 merel# a fiction created 3# law for conve#ance and to promote t!e ends of ?ustice6 "7P v. !ourt of 3ppeals/ 3)$ 'CR2 3,& (2001)6 7 One of t!e advantages of a corporate form of 3usiness organization is t!e limitation of an investor8s lia3ilit# to t!e amount of t!e investment6 !is feature flows from t!e legal t!eor# t!at a corporate entit# is separate and distinct from its stoc(!olders6 @owever4 t!e statutoril# granted privilege of a corporate veil ma# 3e used onl# for legitimate purposes6 On e;uita3le considerations4 t!e veil can 3e disregarded w!en it is utilized as a s!ield to commit fraud4 illegalit# or ine;uit#7 defeat pu3lic convenience7 confuse legitimate issues7 or serve as a mere alter ego or 3usiness conduit of a person or an instrumentalit#4 agenc# or ad?unct of anot!er corporation6 a &an )uan &tructural #. Court of Appeals 4 2/) 'CR2 )31 (1//-)6

.. THE CORPORATE ENTITF


..1 -i$tinct Per$ona6it7 (a+ -octrine of $eparate <'ri!ica6 per$ona6it7 (%age ),,
of CLG8s Commercial Law Review *oo(4 200,)
Catindig Class Notes! >! .hat are the implications of the doctrine2 A! +;- "imited "iability +:- !ontractual Abligation +K- 4on9liability for crime committed by officers +?- "iability for *orts +F- 6ntitlement for damages +in general+L-6,ercise of corporate powers +e.g. power to sue/ to ac>uire properties etc- etc.

-. App6ication$, MAIN -OCTRINE, 2 COR%OR2 :ON @2' 2 %"R'ON2L: Q '"%2R2 " 2N+ +:' :NC FRO. : ' ' OCE@OL+"R' OR .".*"R' A. So'rce$, 'ec6 2 of Corp Code7 2rticle $$4 Civil Code 1. P'rpo$eD o effectivel# pursue 3usiness endeavors C. I%portance of Protectin# Main -octrine, 7 !e separate ?uridical personalit# of t!e corporation4 !as features t!at !as made it most attractive to 3usinessmen7 rig!t of succession4 limited lia3ilit#4 centralized management4 and generall# free1transfera3ilit# of s!ares of stoc(6 !e strong ?uridical personalit# of t!e corporation facilitates and preserves t!e Bgoing concern valueC of t!e underl#ing 3usiness enterprise4 saves transaction costs4 and prevents disruption of t!e value 3ecause of investors w!o wit!draw or w!o are deceased6 >ndermining t!e separate ?uridical personalit# of t!e corporation4 necessaril# dilutes an# or all of its attri3utes6 2 corporation4 upon coming into e5istence4 is invested 3# law wit! a personalit# separate and distinct from t!ose persons composing it as well as from an# ot!er legal entit# to w!ic! it 7 7 (a+ Ma<ority -uity Directorship: 6(nership and Interloc*ing

Owners!ip of a ma?orit# of capital stoc( and t!e fact t!at ma?orit# of directors of a corporation are t!e directors of anot!er corporation creates no emplo#er1emplo#ee relations!ip wit! t!e latterJs emplo#ees6 a D.P #. NL%C4 1-) 'CR2 -$1 (1//0) .ere owners!ip 3# a single stoc(!older or 3# anot!er corporation of all or nearl# all of t!e capital stoc( of a corporation is not of itself sufficient ground for disregarding t!e separate corporate personalit#6 Sunio v. 4" ! 4 12, 'CR2 3/0 (1/-$)7 3sionics Philippines/ 1nc. v. 4" !/ 2/0 'CR2 1)$ (1//-)7 @rancisco v. (ejia/ 3)2 'CR2 ,3- (2001)7 (atutina 1ntegrated .ood Products/ 1nc. v. !34 2)3 'CR2 $/0 (1//))7 (anila 5otel !orp. v. 4" !4 3$3 'CR2 1 (2000)6 .ere su3stantial identit# of incorporators of two corporations does not necessaril# impl# fraud4 nor warrant t!e piercing of t!e veil of corporate fiction6 :n t!e a3sence of clear and convincing evidence to s!ow t!at t!e corporate personalities

I sweat, I bleed, I soar Service, Sacrifice, Excellence

213,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
7 >se of a controlling stoc(!older8s initials in t!e corporate name is not sufficient reason to pierce t!e corporate veil4 since 3# t!at practice alone does it mean t!at t!e said corporation is merel# a dumm# of t!e individual stoc(!older6 2 corporation ma# assume an# name provided it is lawful4 and t!ere is not!ing illegal in a corporation ac;uiring t!e name or as in t!is case4 t!e initials of one of its s!are!olders6 "7P v. !ourt of 3ppeals/ 3)$ 'CR2 3,& (2001)6 !e mere fact t!at a stoc(!older sells !is s!ares of stoc( in t!e corporation during t!e pendenc# of a collection case against t!e corporation4 does not ma(e suc! stoc(!older personall# lia3le for t!e corporate de3t4 since t!e disposing stoc(!older !as no personal o3ligation to t!e creditor4 and it is t!e in!erent rig!t of t!e stoc(!older to dispose of !is s!ares of stoc( an#time !e so desires6 emo/ %r. v. 13!4 1,2 'CR2 $0& (1/-/)7 P47 v. itratto Group/ 1nc.4 3)2 'CR2 21) (2001)6 =ust 3ecause two foreign companies came from t!e same countr# and closel# wor(ed toget!er on certain pro?ects would t!e conclusion arise t!at one was t!e conduit of t!e ot!er4 t!us piercing t!e veil of corporate fiction6 (arubeni !orp. v. "irag/ 3)2 'CR2 )20 (2001)6 !e creation 3# +*% as t!e mot!er compan# of t!e t!ree mining corporations to manage and operate t!e assets ac;uired in t!e foreclosure sale lest t!e# deteriorate from non1 use and lose t!eir value4 does not indicate fraud or wrongdoing and will not constitute application of t!e piercing doctrine6 87P v. !ourt of 3ppeals/ 3)3 'CR2 30, (2001)6 !e facts t!at two corporations ma# 3e sister companies4 and t!at t!e# ma# 3e s!aring personnel and resources4 wit!out more4 is insufficient to prove t!at t!eir separate corporate personalities are 3eing used to defeat pu3lic convenience4 ?ustif# wrong4 protect fraud4 or defend crime6 Padilla v. !ourt of 3ppeals4 3,0 'CR2 20- (2001)6 GCL&, In pa$t !eci$ion$@ $'ch $it'ation =o'6! #enera667 =arrant a6ter:e#o piercin#.H (!+ 6n Pri#ileges n<oyed! 7 !e ta5 e5emption clause in t!e c!arter of a corporation cannot 3e e5tended to nor en?o#ed 3# even its controlling

were used to perpetuate fraud4 or circumvent t!e law4 t!e corporations are to 3e rig!tl# treated as distinct and separate from eac! ot!er6 "aguio v. 4" !/ 2)2 'CR2 ,1& (1//))6 7 @aving interloc(ing directors4 corporate officers and s!are!olders is not enoug! ?ustification to pierce t!e veil of corporate fiction in t!e a3sence of fraud or ot!er pu3lic polic# considerations6 #elarde v. "ope'4 $1/ 'CR2 $22 (200$)7 Sesbreno v. !ourt of 3ppeals4 222 'CR2 $)) (1//3)6 (/+ .eing Corporate 6fficer! 7 *eing an officer or stoc(!older of a corporation does not 3# itself ma(e oneJs propert# also of t!e corporation4 and vice9 versa4 for t!e# are separate entities4 and t!at s!are!olders are in no legal sense t!e owners of corporate propert# w!ic! is owned 3# t!e corporation as a distinct legal person6 Good 6arth 6mporium/ 1nc. v. !34 1/$ 'CR2 &$$ (1//1)6 +*he Shareholders and members are covered by the main doctrine but the actors +officers- are not. *hey are covered by agency!e mere fact t!at one is president of t!e corporation does not render t!e propert# !e owns or possesses t!e propert# of t!e corporation4 since t!at president4 as an individual4 and t!e corporation are separate entities6 !ru' v. 8alisay4 1&2 'CR2 $-, (1/-,)7 7ooc v. 7antuas/ 3&$ 'CR2 2,/ (2001)6 :t is !orn3oo( law t!at corporate personalit# is a s!ield against personal lia3ilit# of its officersMa corporate officer and !is spouse cannot 3e made personall# lia3le under a trust receipt w!ere !e entered into and signed t!e contract clearl# in !is official capacit#6 1ntestate 6state of 3le,ander *. *y v. !ourt of 3ppeals/ 3&) 'CR2 )1 (2001)7 !onsolidated 7ank and *rust !orp. v. !ourt of 3ppeals4 3&) 'CR2 ),1 (2001)6 (c+ Dealings .et(een Corporation and &toc*holders! 7 !e fact t!at t!e ma?orit# stoc(!older !ad used !is own mone# to pa# part of t!e loan of t!e corporation cannot 3e used as t!e 3asis to pierce6 B:t is understanda3le t!at a s!are!older would want to !elp !is corporation and in t!e process4 assure t!at !is sta(es in t!e said corporation are secured6C "7P v. !ourt of 3ppeals/ 3)$ 'CR2 3,& (2001)6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

213-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
3: 4one/ because corp assets are owned by the corp and not by the S5s.

stoc(!olders6 (anila Gas !orp. v. !ollector of 1nternal evenue4 )2 %!il6 -/& (1/3))6 (e+ 6bligations and Debts! 7 Corporate de3t or credit is not t!e de3t or credit of t!e stoc(!older nor is t!e stoc(!olderJs de3t or credit t!at of t!e corporation6 *raders oyal 7ank v. !ourt of 3ppeals4 1,, 'CR2 ,-/ (1/-/)6 2 corporation !as no legal standing to file a suit for recover# of certain parcels of land owned 3# its mem3ers in t!eir individual capacit#4 even w!en t!e corporation is organized for t!e 3enefit of t!e mem3ers6 Sulo ng 7ayan v. 3raneta/ 1nc64 ,2 'CR2 3$, (1/,))6 'toc(!olders !ave no personalit# to intervene in a collection case covering t!e loans of t!e corporation since t!e interest of s!are!olders in corporate propert# is purel# inc!oate6 Saw v. !34 1/& 'CR2 ,$0 (1//1)7 and vice9versa @rancisco (otors !orp. v. !ourt of 3ppeals/ 30/ 'CR2 ,2 (1///)6 !e ma?orit# stoc(!older cannot 3e !eld personalit# lia3le for t!e attorne#8s fees c!arged 3# a law#er for representing t!e corporation6 "aperal 8ev. !orp. v. !ourt of 3ppeals4 223 'CR2 2)1 (1//3)6 "ven w!en t!e foreclosure on t!e corporate assets was wrongful done4 stoc(!olders !ave no standing to recover for t!emselves moral damages7 ot!erwise4 it would amount to t!e appropriation 3#4 and t!e distri3ution to4 suc! stoc(!olders of part of t!e corporation8s assets 3efore t!e dissolution of t!e corporation and t!e li;uidation of its de3ts and lia3ilities6 3P* v. !ourt of 3ppeals/ 300 'CR2 &,/ (1//-)6 !e o3ligations of a stoc(!older in one corporation cannot 3e offset from t!e o3ligation of t!e stoc(!older in a second corporation4 since t!e corporation !as a separate ?uridical personalit#6 !I5 1ndustrial and 8ev. !orp v. !ourt of 3ppeals/ 2,2 'CR2 333 (1//,)6

(/+ Piercin# the "ei6 of corporate fiction (%age )-2 of


CLG8s Commercial Law Review *oo(4 200,)
)ac*+s Lecture 9!enever t!e law creates a legal device4 t!e o3?ective of t!e law is ?ustice and fairnessMif #ou use t!at device to perpetrate fraud111t!e law will not allow t!at111so #ou !ave t!e doctrine of piercing t!e veil of corporate fiction 9!en t!e separate ?uridical personalit# of a corporation is used to defeat pu3lic convenience4 to ?ustif# wrong4 to protect fraud4 to commit a crime4 its separate ?uridical personalit# will 3e disregarded6

A. So'rce of Incantation !e notion of corporate entit# will 3e pierced or disregarded and t!e individuals composing it will 3e treated as identical if t!e corporate entit# is 3eing used as a cloa( or cover for fraud or illegalit#7 as a ?ustification for a wrong7 or as an alter ego4 an ad?unct4 or a 3usiness conduit for t!e sole 3enefit of t!e stoc(!olders6 Gochan v. Coung4 3&$ 'CR2 20, (2001)7 87P v. !ourt of 3ppeals4 3&, 'CR2 )2)4 3&- 'CR2 &014 3)3 'CR2 30, (2001)6 1. Nat're of -octrine (a 'raders %oyal .an* #. Court of Appeals 4 2)/ 'CR2 1& N1//,O) 7 %iercing does not mean t!at corporation is a3solved of lia3ilities6 Corporation continues to 3e lia3le 3ut piercing ?ust includes t!e officersKactors lia3le6 9!en t!e legal fiction of separate corporate personalit# is a3used4 suc! as w!en t!e same is used for fraudulent or wrongful ends4 t!e courts !ave not !esitated to pierce t!e corporate veil6 @rancisco v. (ejia/ 3)2 'CR2 ,3- (2001)6 %iercing t!e veil of corporation fiction is warranted onl# in cases w!en t!e separate legal entit# is used to defeat pu3lic convenience4 ?ustif# wrong4 protect fraud4 or defend crime4 suc! t!at in t!e case of two corporations4 t!e law will regard t!e corporation as merged into one6 #elarde v. "ope'4 $1/ 'CR2 $22 (200$)6

Catindig Class Notes 0: 8o S5s have insurable interest over corporate assets2

I sweat, I bleed, I soar Service, Sacrifice, Excellence

213/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
7 B !e rationale 3e!ind piercing a corporation8s identit# in a given case is to remove t!e 3arrier 3etween t!e corporation from t!e persons comprising it to t!wart t!e fraudulent and illegal sc!emes of t!ose w!o use t!e corporate personalit# as a s!ield for underta(ing certain proscri3ed activities6 @owever4 in t!e case at 3ar4 instead of !olding certain individuals or person responsi3le for an alleged corporate act4 t!e situation !as 3een reversed6 :t is t!e petitioner as a corporation w!ic! is 3eing ordered to answer for t!e personal lia3ilit# of certain individual directors4 officers and incorporators concerned6 @ence4 it appears to us t!at t!e doctrine !as 3een turned upside down 3ecause of its erroneous invocation6C a /rancisco Motors Corp. # Court of Appeals 4 30/ 'CR2 ,2 (1///)6 %iercing doctrine is meant to prevent fraud4 and cannot 3e emplo#ed w!en t!e net result would 3e to perpetrate fraud or a wrong6 Gregorio 3raneta/ 1nc. v. *uason de Paterno and #idal4 /1 %!il6 ,-) (1/&2)6 !e t!eor# of corporate entit# was not meant to promote unfair o3?ectives or ot!erwise4 nor to s!ield t!em6 #illanueva v. 3dre4 1,2 'CR2 -,) (1/-/)6 (!+ .asis Must .e Clear #idence! 7 o disregard t!e separate ?uridical personalit# of a corporation4 it is elementar# t!at t!e wrongdoing cannot 3e presumed and must 3e clearl# and convincingl# esta3lis!ed6 !e organization of t!e corporation at t!e time w!en t!e relations!ip 3etween t!e landowner and t!e developer were still cordial cannot 3e used as a 3asis to !old t!e corporation lia3le later on for t!e o3ligations of t!e landowner to t!e developer under t!e mere allegation t!at t!e corporation is 3eing used to evade t!e performance of o3ligation 3# one of its ma?or stoc(!olders6 "u,uria 5omes/ 1nc. v. !ourt of 3ppeals/ 302 'CR2 31& (1///)6 !e mere assertion 3# a Filipino litigant against t!e e5istence of a BtandemC 3etween two =apanese corporations cannot 3e t!e 3asis for piercing4 w!ic! can onl# 3e applied 3# s!owing wrongdoing 3# clear and convincing evidence6 (arubeni !orp. v. "irag/ 3)2 'CR2 )20 (2001)6

!e legal fiction of separate corporate e5istence is not at all times invinci3le and t!e same ma# 3e pierced w!en emplo#ed as a means to perpetrate a fraud4 confuse legitimate issues4 or used as a ve!icle to promote unfair o3?ectives or to s!ield an ot!erwise 3latant violation of t!e pro!i3ition against forum1 s!opping6 9!ile it is settled t!at t!e piercing of t!e corporate veil !as to 3e done wit! caution4 t!is corporate fiction ma# 3e disregarded w!en necessar# in t!e interest of ?ustice6 ovels 6nterprises/ 1nc. v. Acampo4 3/1 'CR2 1,) (2002)6 (a+ -uitable %emedy!

!e doctrine of piercing t!e corporate veil is an e;uita3le doctrine developed to address situations w!ere t!e separate corporate personalit# of a corporation is a3used or used for wrongful purposes6 a PN. #. %itratto ;roup/ 1nc./ 3)2 'CR2 21) (2001)6 (/+ %emedy of Last %esort!

%iercing t!e corporate veil is remed# of last resort and is not availa3le w!en ot!er remedies are still availa3le6 a Umali #. Court of Appeals4 1-/ 'CR2 &2/ (1//0)6

Umali 8octrines: +;- Piercing remedy is a last resort +:- 1ntention must to make the corp officers personally liable (c+ Purpose of Piercing! 7 %iercing is not allowed unless t!e remed# soug!t is to ma(e t!e officer or anot!er corporation pecuniaril# lia3le for corporate de3ts (L)6 Umali v. !34 1-/ 'CR2 &2/ (1//0)J a Indophil 'e=tile Mill 4or*ers Union,P';46 #. Calica4 20& 'CR2 )/, (1//2)6 +Umali is a fraud case/ 1ndophil is an alter ego case%iercing is not availa3le w!en personal o3ligations of an individual are to 3e enforced against t!e corporation (L) obledo v. 4" !/ 23- 'CR2 &2 (1//$)6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21$0

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
7 !at respondents are not stoc(!olders of t!e sister corporations does not ma(e t!em non1parties to t!is case4 since it is alleged t!at t!e sister corporations are mere alter egos of t!e directors1petitioners4 and t!at t!e sister corporations ac;uired t!e properties soug!t to 3e reconve#ed to F<'RC in violation of directors1petitioners8 fiduciar# dut# to F<'RC6 !e notion of corporate entit# will 3e pierced and t!e individuals composing it will 3e treated as identical if t!e corporate entit# is 3eing used as a cloa( or cover for fraud or illegalit#7 as a ?ustification for a wrong7 or as an alter ego4 an ad?unct4 or a 3usiness conduit for t!e sole 3enefit of t!e stoc(!olders6 a ;ochan #. :oung4 3&$ 'CR2 20, (2001)6 (#+ Piercin# i$ a po=er /e6on#in# to the co'rt an! cannot /e a$$'%e! i%pro"i!ent67 /7 a $heriff (L)6 !ru' v. 8alisay4 1&2 'CR2 $-2 (1/-,)6

o disregard t!e separate ?uridical personalit# of a corporation4 t!e wrongdoing must 3e clearl# and convincingl# esta3lis!ed6 :t cannot 3e presumed6 :n t!is case4 t!e Court finds t!at t!e Remington failed to disc!arge its 3urden of proving 3ad fait! on t!e part of .arindu;ue .ining and its transferees in t!e mortgage and foreclosure of t!e su3?ect properties to ?ustif# t!e piercing of t!e corporate veil6 87P v. !ourt of 3ppeals4 3)3 'CR2 30, (2001)6 !e part# see(ing for t!e piercing of t!e corporate veil !as t!e 3urden of presenting clear and convincing evidence to ?ustif# t!e setting aside of t!e separate corporate personalit# rule6 P47 v. 3ndrada 6lectric E 6ngineering !o.4 3-1 'CR2 2$$ (2002)6 2pplication of t!e doctrine of piercing t!e corporate veil s!ould 3e done wit! caution6 2 court s!ould 3e mindful of t!e milieu w!ere it is to 3e applied6 :t must 3e certain t!at t!e corporate fiction was misused to suc! an e5tent t!at in?ustice4 fraud4 or crime was committed against anot!er4 in disregard of its rig!ts6 !e wrongdoing must 3e clearl# and convincingl# esta3lis!ed7 it cannot 3e presumed6 Ot!erwise4 an in?ustice t!at was never unintended ma# result from an erroneous application6 P47 v. 3ndrada 6lectric E 6ngineering !o.4 3-1 'CR2 2$$ (2002)6 (e+ Not Applicable to 'heori?ing!

%iercing of t!e veil of corporate fiction is not allowed w!en it is resorted under a t!eor# of co1owners!ip to ?ustif# continued use and possession 3# stoc(!olders of corporate properties6 a .oyer,%o=as #. Court of Appeals4 211 'CR2 $,0 (1//2)6 !e piercing doctrine cannot 3e availed of to dislodge from '"C8s ?urisdiction a petition for suspension of pa#ments filed under %6+6 /02124 on t!e ground t!at t!e petitioning individuals s!ould 3e treated as t!e real petitioners to t!e e5clusion of t!e petitioning corporate de3tor6 B !e doctrine of piercing t!e veil of corporate fiction !eavil# relied upon 3# t!e petitioner is entirel# misplaced4 as said doctrine onl# applies w!en suc! corporate fiction is used to defeat pu3lic convenience4 ?ustif# wrong4 protect fraud or defend crime6C Union 7ank v. !ourt of 3ppeals/ 2/0 'CR2 1/- (1//-)6 (f+ Applicable to @'hird,PartiesA!

(i+ When app6ie! In$tance$ =hen !octrine app6ie!. ((%age 2- of +e Leon4 200)) (1) 9!ere a corporation functions for t!e 3enefit of a single person w!o !as complete control over t!e funds and t!e said person is t!e sole owner t!ereof6 (2) 9!ere t!e corporation is merel# an instrumentalit#4 an ad?unct4 3usiness conduit or alter ego of anot!er corporation6 (3) 9!ere a su3sidiar# compan# is created 3# a parent compan# merel# as an agenc# of t!e latter6 ($) 9!ere it appears t!at a corporation is merel# a 3usiness conduit of its president6 (&) 9!ere a domestic corporation is controlled 3# aliens6V ()) 9!ere a corporation is dissolved and its assets are transferred to anot!er corporation to avoid a financial lia3ilit# of t!e first corporation to its emplo#ees4 3ot! firms 3eing owned and controlled 3# t!e

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21$1

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA (3) !e aforesaid control and 3reac! of dut# must pro5imatel# cause t!e in?ur# or un?ust loss complained of6 (@eirs of Ramon +urano v6 >#) ('ee C!ild Learning Center v6 agario4 200&)
Catindig Class Notes! Cou don$t apply the control test in all cases. 4ormally/ you would apply the control testP +di nia tinuloy yung statement+8ean Sundiang implies that the control test is used in piercing the veil of corp fiction on the ground that the corp is a mere alter ego. +See page :?< of % S0: 5ere are the facts: +;- ;<<M ownership +:- Same 7o8 +K- Same officers +?- Same accounting department 1s there basis for piercing2 3: 4one. @acts are insufficient to apply piercing because no misuse of corporate fiction for fraud/ crime or injustice.

same persons wit! t!e result t!at t!e second corporation s!ould 3e considered a continuation and successor of t!e first6 (,) 9!ere all t!e stoc(!olders or mem3ers of a corporation acting as individuals instead of formal corporate action4 enter into an illegal4 act6 (-) 9!ere a corporation is formed 3# a seller of a certificate of pu3lic convenience for t!e purpose of evading !is individual contract6 (Gilla Re#) (/) 9!ere a corporation is organized 3# an insolvent de3tor to defraud !is creditors (10)9!ere a corporation is organized as a device in order to evade an outstanding legal or e;uita3le o3ligation6 (11)9!en corporate fiction is used to s!ield a violation of t!e pro!i3ition against forum s!opping or to avoid a ?udgment credit4 or to avoid pa#ment of !ig!er ta5es4 or to avoid inclusion of corporate asserts as part of t!e estate of t!e decedent4 or to confuse legitimate issues6 Te$t, (%age )/& of CLG8s Commercial Law Review *oo(4 200,) (1) Contro64 not mere ma?orit# or complete stoc( control4 3ut co%p6ete !o%inion4 not onl# of finances 3ut of polic# and 3usiness practice in respect to t!e transaction attac(ed so t!at t!e corporate entit# as to t!is transaction !ad at t!e time no separate mind4 will or e5istence of its own7 (2) 'uc! control must !ave 3een used 3# t!e defendant to commit fraud or wrong4 to perpetuate t!e violation of a statutor# or ot!er positive legal dut#4 or dis!onest and un?ust acts in contravention of plaintiff8s legal rig!ts7 and

Factor$ that =i66 <'$tif7 the app6ication of the treat%ent of the !octrine of the piercin# of the corporate "ei6, (%age )/) of CLG8s Commercial Law Review *oo(4 200,) (1) (2) (3) ($) (&) ()) !e parent corporation owns all or most of t!e capital stoc( of t!e su3sidiar#6 !e parent and su3sidiar# corporations !ave common directors or officers6 !e parent corporation finances t!e su3sidiar#6 !e parent corporation su3scri3es to all t!e capital stoc( of t!e su3sidiar# or ot!erwise causes its incorporation6 !e su3sidiar# !as grossl# inade;uate capital6 !e su3sidiar# !as su3stantiall# no 3usiness e5cept wit! t!e parent corporation or no assets e5cept t!ose conve#ed to or 3# t!e parent corporation6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21$2

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
entirel# misplaced4 as said doctrine onl# applies w!en suc! corporate fiction is used to defeat pu3lic convenience4 ?ustif# wrong4 protect fraud or defend crime6C Union 7ank v. !ourt of 3ppeals/ 2/0 'CR2 1/- (1//-)6 7 7 7 %iercing is unavaila3le to t!ose wit!in t!e intra1corporate relations!ip %iercing is unavaila3le to a non1victim 'ee %age &,/ of CLG8s Commercial Law Review *oo(4 Old edition)

(,) :n t!e papers of t!e parent corporation or in t!e statements of its officers4 t!e su3sidiar# is descri3ed as a department of division of t!e parent corporation4 or its 3usiness of financial responsi3ilit# is referred to as t!e present corporation8s own6 (-) !e parent corporation uses t!e propert# of t!e su3sidiar# as its own6 (/) !e directors or e5ecutives of t!e su3sidiar# do not act independentl# in t!e interest of t!e su3sidiar# 3ut ta(e t!eir orders form parent corporation6 (10) !e formal legal re;uirements of t!e su3sidiar# are not o3served6 (ii+ When not app6ie!
7 %iercing is not availa3le w!en personal o3ligations of an individual are to 3e enforced against t!e corporation (L) obledo v. 4" !/ 23- 'CR2 &2 (1//$)6 %iercing is not allowed unless t!e remed# soug!t is to ma(e t!e officer or anot!er corporation pecuniaril# lia3le for corporate de3ts %iercing doctrine is meant to prevent fraud4 and cannot 3e emplo#ed w!en t!e net result would 3e to perpetrate fraud or a wrong6 Gregorio 3raneta/ 1nc. v. *uason de Paterno and #idal4 /1 %!il6 ,-) (1/&2)6 %iercing of t!e veil of corporate fiction is not allowed w!en it is resorted under a t!eor# of co1owners!ip to ?ustif# continued use and possession 3# stoc(!olders of corporate properties6 a 7oyer9 o,as v. !ourt of 3ppeals4 211 'CR2 $,0 (1//2)6 !e piercing doctrine cannot 3e availed of to dislodge from '"C8s ?urisdiction a petition for suspension of pa#ments filed under %6+6 /02124 on t!e ground t!at t!e petitioning individuals s!ould 3e treated as t!e real petitioners to t!e e5clusion of t!e petitioning corporate de3tor6 B !e doctrine of piercing t!e veil of corporate fiction !eavil# relied upon 3# t!e petitioner is

Catindig Class Notes *ip: 1f the >uestion is a piercing problem/ be guided by the following: +;- 1s there injury2 +:- 1s there fraud/ injustice2 +K- Pay attention if it is a labor case. 1n labor cases/ courts are more lenient in applying the doctrine of piercing the corporate veil because of the policy in favor of labor.

(iii+ Con$eI'ence$ =hen "ei6 i$ pierce!


2pplication of t!e doctrine to a particular case does not den# t!e corporation of legal personalit# for an# and all purposes4 3ut onl# for t!e particular transaction or instance4 or t!e particular o3ligation for w!ic! t!e doctrine was applied6 Ioppel +Phil.- 1nc. v. Catco4 ,, %!il6 $/) (1/$))7 *antoco v. Iaisahan ng (ga (anggagawa sa "a !ampana4 10) %!il6 1/- (1/&/)7 @rancisco v. (ejia4 3)2 'CR2 ,3(2001)6

AREAS =here piercin# i$ a66o=e! a. Fra'! Piercin# /. A6ter:e#o Piercin# c. EI'it7 ca$e$
%undo(n on Piercing Application! !is Court pierced t!e corporate veil to ward off a ?udgment credit4 to avoid inclusion of corporate assets as part of t!e estate of t!e decedent4 to escape lia3ilit# arising for a de3t4 or to perpetuate fraud andKor confuse legitimate issues eit!er to promote or to s!ield unfair o3?ectives to cover up an ot!erwise 3latant violation of t!e pro!i3ition against forum s!opping6 Onl# is t!ese and similar instances ma# t!e veil

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21$3

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA against corporate officers or stoc(!olders or vice versa (3) !e corporate entit# !as 3een used in t!e perpetration of t!e fraud or in t!e ?ustification of wrong4 or to escape personal lia3ilit# (V %iercing must 3e t!e remed# of last resort)) t!e central doctrine6 !ose w!ose acts and actuations directl# violate t!is central doctrine4 ma(e t!emselves personall# lia3le for !aving t!emselves cast awa# t!e protective c!aracteristic of limited lia3ilit# of separate ?uridical personalit#6 (2) Ot!ers w!o deal wit! t!e corp ma# treat t!e interest of 3ot! t!e controlling stoc(!older and t!e corp as t!e same (3) %iercing in alter ego ma# prevail even no monetar# claims are soug!t against t!e stoc(!olders or officers of t!e corporation6 ($) 9!en t!e underl#ing 3usiness enterprise does not reall# c!ange is used to raise tec!nicalities (1 o warrant application of piercing to ma(e corporate officer or stoc(!older lia3le for t!e corp de3ts or o3ligations4 evidence must 3e s!own t!at suc! offer or stoc(!older was responsi3le for t!e corporate act4 and t!e stage can onl# cone during t!e !earing of t!e merits) (Corporations w!ic! !ave 3een used as instruments for ac;uisition or as 3eing depositaries of products4 of ill1gotten wealt!4 need not 3e impleaded a separate parties to cases for t!e# are res of t!e action6)

3e pierced and disregarded6 P47 v. 3ndrada 6lectric E 6ngineering !o.4 3-1 'CR2 2$$ (2002)6 (i+ Fra'! Piercin#, o o 9!en corporate entit# used to commit fraud or do a wrong .ost restricted one 3ecause t!e 'C !as re;uired t!at allegations of fraud must clearl# 3e proven to ma(e a stoc(!older or officer lia3le for corporate de3ts and t!at piercing is availa3le onl# w!en t!ere is a claim for recover# against suc! stoc(!olders or officers6

(ii+ A6ter:e#o Piercin#, o 9!en corporate entit# merel# a farce since t!e corporation is merel# t!e alter ego4 3usiness conduit4 or instrumentalit# of a person or anot!er entit#6 !is tend to !ave a wider leewa# in t!eir applications and even wit!out intending to do malice or ?ust 3# 3eing practical in costing 3# ta(ing s!ortcuts suc! as !ousing toget!er under closel# inter1related operations two or more corporate 3usinesses6

(iii+ EI'it7 Ca$e$, o 9!en piercing t!e corporate fiction is necessar# to ac!ieve ?ustice or e;uit#6

R'6e$ in Piercin# on the #ro'n! of, Fra'! A6ter E#o EI'it7 (1) !ere must 3e (1) "ven if t!e 19!en no fraud or fraud or evil controlling alter ego motive6 stoc(!older of circumstances can 3e (2) !e main action managing officer culled 3# t!e Court to must see( intends to do no warrant piercing enforcement of evil4 t!e use of 19!en t!e corp fiction pecuniar# claims t!e corporation as is used to confuse pertaining to t!e an alter ego is in legitimate issues corporations direct violation of 19!en t!e corp fiction

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21$$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA and onl# t!e medium is c!anged6 its e5clusive ?urisdiction over t!e crimes c!arged6 !e propert# of t!e corporation is not t!e propert# of t!e stoc(!olders or mem3ers or of its officers w!o are stoc(!olders6 2ar!ine -a"ie$ ". 2R1 Rea6t7 Inc. (2'67 13@ AA3+ !e e5istence of interloc(ing directors4 corporate officers and s!are!olders is not enoug! ?ustification to pierce t!e veil of corporate fiction4 in t!e a3sence of fraud and ot!er pu3lic polic# considerations6 Men!o0a ". 1anco Rea6 -e"e6op%ent 1an9 (Septe%/er 14@ AA3+ !e veil will 3e lifted w!en t!e corporation is used 3# an# of t!e directors4 officers or emplo#ees as a cloa( or cover for fraud or illegalit# or in?ustice6 (<ala v6 "llice Corp) @ere4 it is found t!at G: is .endoza and Qoto(o8s mere alter ego or 3usiness conduit6 !e# control t!e affairs of G:6 !e# transferred t!e assets to G: to F< 6 @ere4 t!e fraud was committed 3# petitioners to t!e pre?udice of respondent 3an(6 Chi6! Learnin# Center Inc. ". Ta#ario (No"e%/er 3@ AA3+ !e a3sence of t!e following elements prevents piercing t!e corporate veilD (1) ControlKComplete dominion (2) 'uc! control must !ave 3een used 3# t!e defendant to commit fraud or wrong in contravention of t!e plaintiff8s legal rig!t (3) Control and 3reac! of dut# must pro5imatel# cause t!e in?ur# or un?ust loss complained of6 -.R. CAT& Ser"ice$ ". Ra%o$ (-ece%/er *@ AA3+ @ere4 t!e s!eriff overstepped !is aut!orit# w!en !e attac!es t!e propert# of a corporation w!ic! !ad not 3een ad?udged a

.. Ca$e$
-e Leon ". NLRC (Ma7 .A@ AA1+ 9!en t!e concept of separate legal entit# is used to defeat pu3lic convenience4 ?ustif# wrong4 protect fraud or defend crime t!e law will regard t!e corporation as an association of persons4 or in cases of two corporations4 merge t!em into one6 :n t!is case4 t!e La3or 2r3iter was correct in appl#ing t!e piercing doctrine to !old t!e all respondents lia3le for unfair la3or practice and illegal termination of emplo#ment6 (Case digest at page ,0, of CLG8s Commercial Law Review *oo() Lipat ". Pacific 1an9in# (Apri6 .A@ AA.+ !is is a case of alter ego doctrine or instrumentalit# rule6
Catindig Class Notes *ransfer per se is not illegal. 1@ the transfer is for the purpose of defrauding creditorsP @raudulent transfer of assets refers to the transfer of substantial assets.

Pa%p6ona P6antation ". Tin#hi6 (Fe/ .@ AA3+ :n t!is case4 t!e corporations !ave 3asicall# t!e same incorporators and directors and !eaded 3# t!e same official6 *ot! use onl# one office and one pa#roll and are under one management6 Mo/i6ia Pro!'ct$ Inc. ". U%e0a=a (March )@ AA3+ !e 3are fact t!at t!e respondent was t!e president and general manager of t!e petitioner corporation w!en t!e crimes c!arged were allegedl# committed and was t!en a stoc(!older t!ereof does not itself deprive t!e court a ;uo of

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21$&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
7 2n educational corporation8s claim for moral damages arising from li3el falls under 2rticle 221/(,) of t!e Civil Code4 w!ic! e5pressl# aut!orizes t!e recover# of moral damages in cases of li3el4 slander or na# ot!er form of defamation4 and does not ;ualif# w!et!er t!e plaintiff is a natural or ?uridical person6 !erefore4 a ?uridical person can validl# complain for li3el or an# ot!er form of defamation and claim for moral damages6 ( Filipinas *roadcasting Networ( v6 2go .edical and "ducational Center4 $$- 'CR2 $134 200&)

de3tor6 ("ven if t!e ?udgment1de3tor is a stoc(!older and president of t!e corporation6) ApeB Minin# Corporation Inc ". So'thea$t Min!anao Go6! Minin# Corp (2'ne .@ AA4+ !e doctrine of piercing t!e veil cannot 3e used as a ve!icle to commit pro!i3ited acts 3ecause t!ese acts are t!e ones w!ic! t!e doctrine see(s to prevent6 :n t!is case4 t!e assignment of t!e permit in favor of '". is utilized to circumvent t!e condition of non1transfera3ilit# of t!e e5ploration permit6 o allow '". to avail itself of t!is doctrine and to approve t!e validit# of t!e assignment is tantamount to sanctioning illegal act w!ic! is w!at t!e doctrine precisel# see(s to forestall6

..) Corporate Lia/i6ite$


A Corporation as a person is: Entitled to: 7 Equal Protection Clauses 7 Unreasonable Searches and Seizure 7 Damages under Arts !"# $% $! &ot entitled to: 7 Pri'ilege against Sel()incrimination 7 *oral Damages +e,cept in cases o( liblel# slander etc.iable (or: 7 /orts 7 Ci'il wrongs &ot liable (or: 7 Criminal liability

... I$ a corporation entit6e! to %ora6 !a%a#e$D


It !epen!$. Genera667@ NO. If ari$in# fro% 6i/e6@ $6an!er@ or %ora6 !efa%ation@ then a c6ai% for !a%a#e$ %a7 /e %a!e.
7 2 corporation4 3eing an artificial person4 cannot e5perience p!#sical sufferings4 mental anguis!4 frig!t4 serious an5iet#4 wounded feelings4 moral s!oc( or social !umiliation w!ic! are t!e 3asis for moral damages under 2rt 221, of t!e Civil Code6 @owever4 a corporation ma# !ave good reputation w!ic!4 if 3esmirc!ed4 ma# 3e a ground for t!e award of moral damages6 (.am3ulao vs6 %N*4 2% vs6 C2) 2 corporation4 3eing an artificial person and !aving e5istence onl# in legal contemplation4 !as no feelings4 emotions nor senses4 t!erefore4 it cannot e5perience p!#sical suffering and mental anguis!6 .ental suffering can 3e e5perienced onl# 3# one !aving a nervous s#stem and it flows from real ills4 sorrows4 and grief of life1 all of w!ic! cannot 3e suffered 3# an artificial person6 (%rime 9!ite Cement vs6 :2C41//3) !e statement in %eople vs6 .anero and .am3ulao vs6 %N*4 t!at a corporation ma# recover moral damages if it B!as a good reputation t!at is de3ased4 resulting in social !umiliationC is an o3iter dictum6 Recover# of a corporation would 3e under 2rticles 1/4 204 21 of t!e Civil Code4 3ut w!ic! re;uires a clear proof of malice or 3ad fait!6 (2*'1C*N vs6 C241///)

(a+ Contract'a6
!e general rule is t!at o3ligations incurred 3# a corporation4 acting t!roug! its aut!orized agents are its sole lia3ilities6 (%age 1& of +e Leon4 200))

(/+ For Tort$


FESJJJ
CLV Class Notes 0: .hen is a corporation liable for tort2 3: .hen: +a- the act committed by an officer or agent +b-under e,press direction of authority from the stockholders or members acting as a body or through the 7o8.

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21$)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
person or a corporation4 and w!et!er t!e servant or agent 3e a natural or artificial person6
CLV Class Notes !"#: 1t is clear from the ruling of the !ourt in this case that not every tortuous act committed by an officer can be ascribed to the corporation as its liability/ for it is reasonable to presume that in granting of authority by the corporation to its agent/ such a grant did not include a direction to commit tortuous acts against third parties. Anly when the corporation has e,pressly directed the commission of such tortuous act would the damages resulting therfrom be ascribable to the corporation. 3nd such a direction by the corporation/ is manifested either by its board adopting a resolution to such effect/ as in this case/ or having taken advantage of such a tortuous act the corporation/ through its board/ e,pressly or impliedly ratifies an act or is estopped from impugning such an act.

0: 5ow can authority given to the agent of the corporation be determined2 3: 6ither by: +a- such direction by the corporation is manifested/ by its 7o8 adopting a resolution to such effect +b- by having taken advantage of such tortuous act/ the corporation through its board/ has e,pressly or impliedly ratifies such an act or estopped from impugning the same. 0: .hat is a derivative suit2 3: Since/ the act of the board is essentially that of the corporation and therefore corporate assets cannot escape enforcement of the award of damage to the tort victim. 3s a remedy/ the stockholders may institute a derivative suit against the responsible members and officers for the damages suffered by the corporation as a result of the tort suit. Catindig Class Notes 0: Pedro uses corp vehicle. 5e did not go straight home but went to (arikina to visit friends. An the way home/ he collided with another vehicle. 1s the corporation liable2 3: !orporation cannot be held liable. +under the principle of agency/ an agent acting outside the scope of authorityP*ip: (inor deviation !orp liable (ajor 8eviation !orp not liable Pag happy happy hour not essential need

Our ?urisprudence is wanting to t!e definite scope of Bcorporate tortC6 "ssentiall#4 BtortC consists in t!e violation of a rig!t given or t!e omission of a dut# imposed 3# law7 a 3reac! of legal dut#6 !e failure of t!e corporate emplo#er to compl# wit! t!e law1imposed dut# under t!e La3or Code to grant separation pa# to emplo#ees in case of cessation of operations constitutes tort and its stoc(!older w!o was activel# engaged in t!e management or operation of t!e 3usiness s!ould 3e !eld personall# lia3le6 (Naguiat vs6 NLRC)

7 7

!e act of t!e 3oard is essentiall# t!at of t!e corporation since t!e 3oard is t!e em3odiment of t!e ver# power and prerogatives of a corporation6 Not ever# tortuous act committed 3# an officer can 3e ascri3ed to t!e corporation as its lia3ilit#6 Onl# w!en t!e corporation !as e5pressl# directed t!e commission of suc! tortuous act4 would t!e damages resulting t!erefrom 3e imputa3le to t!e corporation6 +irection 3# t!e corporation is manifested eit!er 3# t!e *o+ adopting a resolution to suc! effect4 or ratification or estoppel6
%N* vs6 C2 2 corporation is civill# lia3le in t!e same manner as natural person for torts4 3ecause t!e rules governing t!e lia3ilit# of a principal or master for a tort committed 3# an agent or servant are t!e same w!et!er t!e principal or master 3e a natural

(c+ For Cri%e$


NOJJJ
7 !e trust receipts law recognizes t!e impossi3ilit# of imposing t!e penalt# of imprisonment on a corporation4 !ence4 if t!e entrustee is a corporation4 t!e law ma(es t!e officers or emplo#ees or ot!er persons responsi3le for t!e offense lia3le to suffer t!e penalt# of imprisonment6 (Ong vs6 C2) No criminal suit can lie against an accused t!at is a corporation6 ( imes vs6 Re#es) 9!en a criminal statue for3ids t!e corporation itself from doing an act4 t!e pro!i3ition e5tends to t!e 3oard of directors4 and eac! director separatel# and individuall# (%eople vs6 Concepcion) 9!ile it is true t!at a criminal case can onl# 3e filed against t!e officers and not against t!e corporation itself4 it does not follow t!at t!e corporation cannot 3e a real part#1in1interest for t!e

7 7

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21$,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

purpose of 3ringing a civil action for malicious prosecution for t!e damages incurred 3# t!e corporation for t!e criminal proceedings 3roug!t against its officer6 (Cometa vs6 C2) :t !as 3een !eld t!at t!e e5istence of t!e corporate entit# does not s!ield from prosecution t!e corporate agent w!o (nowingl# and intentionall# causes t!e corporation to commit t!e crime6 !e corporation engaged in unlawful 3usiness naturall# aids and a3ets in t!e carr#ing on of suc! 3usiness and will 3e prosecuted as principal if4 wit! (nowledge of t!e 3usiness4 its purpose and effect4 !e consciousl# contri3utes !is efforts to its conduct and promotion (illegal recruitment in t!is case)4 !owever slig!t !is contri3ution ma# 3e6 ("5ec6 'ec6 vs6 C2)

Catindig Class Notes 1f a particular offense is not made applicable to a corporation/ then the corporation cannot be made liable. 3S(: Parang 1 remember in !"# class/ that this should not be the reason for non9liability of corporation for crimes. CLV Class Notes Corporations cannot be held criminally liable because! +;- *he veil of corporate fiction cannot be used to avoid penalty imposable for committing an offense +:- 8ifficulty if not impossibility of imposing penal sanctions. +K- !riminal intent as an essential ingredient of a crime would be missing. CLV Class Notes 0: .hy be liable for torts but not on crimes2 3: 7ecause in tort/ negligence is the basis. 3nd as humans/ we are not perfectJ it is reasonable to believe that negligence may probably happen but it is reasonable to believe that malice is QnotR committed.

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21$-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA !ose t!at are nece$$ar7 to t!e e5ercise of t!e e5press or incidental powers ('ection 23)(1104 $&) (or i%p6ie!+ (3) !ose inci!ental to its e5istence ('ections 24 $&) ( or inherent) I%p6ie! po=er$ are t!ose powers w!ic! are reasona3l# necessar# to e5ecute t!e e5press powers and to accomplis! or carr# our t!e purposes for w!ic! t!e corporation was formed6 N !ese implied powers are e5pressl# recognized 3# 'ection 3)(11)6O (4akakalito na ba2 5ahaha !e purpose or purposes for w!ic! for w!ic! t!e corporation was created4 as stated in its articles of incorporation4 3# defining t!e scope of corporate 3usiness or enterprise4 in effect4 delimit its implied powers6 (+e Leon 200) at 313) C6a$$ification of i%p6ie! po=er$, (1) 2cts in t!e usual course of 3usiness2 (2) 2cts to protect dents owing to a corporation3 (3) "m3ar(ing in different 3usiness (%) 2cts in part or w!oll# to protect or aid emplo#ees$ (&) 2cts to increase 3usiness& EBpre$$ ". I%p6ie! Po=er$ EBpre$$e! I%p6ie! @ave to do largel# wit! t!e main @ave to do largel# wit! t!e 3usiness4 o3?ects and purposes means and met!ods of attaining of t!e corporation6 t!ose o3?ects and purposes6
2

). POWERS OF CORPORATIONS
(Page ;6 o' C!V<s Commer,ial !a5 =e$ie5 2oo/1 2>>;)

(2)

Un!er67in# Theor7 on Po=er of Corporation. %recisel# 3ecause t!e corporation is suc! a prevalent and dominant factor in t!e 3usiness life of t!e countr#4 t!e law !as to loo( carefull# into t!e e5ercise of powers 3# t!ese artificial persons it !as created6 (Re#noso v6 C24 2000) Meanin# of po=er$ of a corporation. !e term powers of corporation !as reference to t!e corporation8s capacit# or rig!t under its c!arter and laws to do certain t!ings (+e Leon 200) at 310 citing ) Fletc!er 230) -i$tin#'i$he! fro% it$ Kfranchi$eL. %rimar# franc!ise is t!e rig!t to e5ist as an entit# for t!e purpose of doing t!e t!ings em3raced wit!in its powers and from its secondar# franc!ise6 'econdar# franc!ise is t!e rig!t granted to an e5isting corporation to use pu3lic propert# for a pu3lic use4 wit! private profit6 (+e Leon 200) at 310 citing )12 Fletc!er $31) -i$tin#'i$he! fro% Ko/<ect$L of a corp. 2 corporation e5ercises its powers for t!e purpose of attaining its o3?ects6 !us4 t!e power to issue promissor# notes is a power and not an o3?ect of a corporation6 (+e Leon 200) at 310 citing )12 Fletc!er $31)

C6a$$ification of corporate po=er$, (1+ EBpre$$e! ( + I%p6ie! (.+ Inherent (1) EBpre$$67 #rante! or a'thori0e! /7 6a= o Corporation Code ('ecs 3)4 3,1$$7 see 1143,41)4$)1 $-4)2 and ,)1-1) o 2rticles of :ncorporation

E-am*les? 2orro5ing money1 ma/ing ordinary ,ontra,ts1 e-e,)ting *romissory notes1 a,:)iring *ersonal *ro*erty 'or )se in ,onne,tion 5it# t#e ")siness et,4 Key All a,ts ne,essary to r)n a ")siness )nder ordinary ,ir,)mstan,es4 It is generally #eld t#at a ,or*oration may tem*orarily ,ond),t an o)tside ")siness to ,olle,t a de"t o)t o' its *ro'its4 See Se,tion 3(11)4 % See Se,tion 3(1>)4 . A ,or*oration may ,ond),t ,ontests or s*onsor radio or tele$ision *rograms1 or *romote 'airs and ot#er gat#erings to ad$ertise and in,rease its ")siness4

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21$/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA .a# c!ange according to time4 place4 and surrounding circumstances6 !e test is w!et!er t!e# are fairl# incidental to t!e (former) and reasona3l# necessar# to carr# t!em out in t!e furt!erance of t!e corporation8s 3usiness6
16 o sue and 3e sued in its corporate name7 26 Of succession 3# its corporate name for t!e period of time stated in t!e articles of incorporation and t!e certificate of incorporation7 36 o adopt and use a corporate seal7 $6 o amend its articles of incorporation in accordance wit! t!e provisions of t!is Code7 &6 o adopt 3#1laws4 not contrar# to law4 morals4 or pu3lic polic#4 and to amend or repeal t!e same in accordance wit! t!is Code7 )6 :n case of stoc( corporations4 to issue or sell stoc(s to su3scri3ers and to sell stoc(s to su3scri3ers and to sell treasur# stoc(s in accordance wit! t!e provisions of t!is Code7 and to admit mem3ers to t!e corporation if it 3e a non1stoc( corporation7 ,6 o purc!ase4 receive4 ta(e or grant4 !old4 conve#4 sell4 lease4 pledge4 mortgage and ot!erwise deal wit! suc! real and personal propert#4 including securities and 3onds of ot!er corporations4 as t!e transaction of t!e lawful 3usiness of t!e corporation ma# reasona3l# and necessaril# re;uire4 su3?ect to t!e limitations prescri3ed 3# law and t!e Constitution7 -6 o enter into merger or consolidation wit! ot!er corporations as provided in t!is Code7 /6 o ma(e reasona3le donations4 including t!ose for t!e pu3lic welfare or for !ospital4 c!arita3le4 cultural4 scientific4 civic4 or similar purposesD %rovided4 !at no corporation4 domestic or foreign4 s!all give donations in aid of an# political part# or candidate or for purposes of partisan political activit#7 106 o esta3lis! pension4 retirement4 and ot!er plans for t!e 3enefit of its directors4 trustees4 officers and emplo#ees7 and 116 o e5ercise suc! ot!er powers as ma# 3e essential or necessar# to carr# out its purpose or purposes as stated in t!e articles of incorporation6

+etermined 3# t!e language of t!e corporate c!arter and t!e applica3le law6 !e test is w!et!er t!e powers are found in t!e words of t!e c!arter of t!e law

Inci!enta6 or inherent po=er %owers w!ic! a corporation can e5ercise 3# t!e mere fact of its 3eing a corporation or powers w!ic! are necessar# to corporate e5istence and are4 t!erefore impliedl# granted6 ('ee 'ection 3) (11))6 2s powers in!erent in t!e corporation as legal entit#4 t!e# e5ist independentl# of t!e e5press powers6 ('ee 'ection $&) !ese incidental powers are e5pressl# recognized 3# 'ections 2 and $&6 'ome of t!e powers enumerated in 'ection 3) are incidental powers w!ic! can 3e e5ercised 3# a corporation even in t!e a3sence of an e5press grant6 "5amples of incidental powers areD t!e power of succession7 to sue and 3e sued7 to !ave a corporate name7 to purc!ase and !old real and personal propert#7 to adopt and use a corporate seal7 to contract7 to ma(e 3#1laws7 etc6 "ver# corporation !as implied or incidental power to esta3lis! 3ranc! offices !ere or a3road as t!e need or e5igenc# of t!e 3usiness of t!e corporation ma# re;uire6 ('"C Opinion4 .a# 1,4 1//0)

).1 In Genera6
Sec. .4. Corporate po(ers and capacity "ver# corporation incorporated under t!is Code !as t!e power and capacit#D

'ection 3) of t!e Corporation Code enumerates some of t!e

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21&0

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA !is power ('ection 3)(1)) is an incident to corporate e5istence6 6 (+e Leon 200) at 31/) 2s a rule4 suits are to 3e 3roug!t 3# or against t!e corporation in !is own name6 Corporation de facto ma# sue or 3e sued 3ut a corporation w!ic! !as 3een dissolved after t!e e5piration of 31#ear winding1up period ceases to e5ist de jure or de facto. >nder 'ec6 3) of Corporation Code4 in relation to 'ec6 234 w!ere a corporation is an in?ured part#4 its power to sue is lodged wit! its *oard of +irectors6 2 minorit# stoc(!older w!o is a mem3er of t!e *oard !as no suc! power or aut!orit# to sue on t!e corporation8s 3e!alf6 *am .ing *ak v. (akasiar/ 3&0 'CR2 $,& (2001)7 Shipside 1nc. v. !ourt of 3ppeals/ 3&2 'CR2 33$ (2001)7 SSS v. !A34 3-$ 'CR2 &$- (2002)7 United Paragon (ining !orp v. !3/ 200)) 9!ere t!e corporation is real part#1in1interest4 neit!er administrator or a pro?ect manager could sign t!e certificate against forum1s!opping wit!out 3eing dul# aut!orized 3# resolution of t!e *oard of +irectors (6steban/ %r. v. #da. de Anorio/ 3)0 'CR2 230 N2001O)4 nor t!e <eneral .anager w!o !as no aut!orit# to institute a suit on 3e!alf of t!e corporation even w!en t!e purpose is to protect corporate assets6 (!entral !ooperative 6,change 1nc. v. 6nciso 4 1)2 'CR2 ,0) N1/--O)6 9!en t!e power to sue is delegated 3# t!e 3#1laws to a particular officer4 suc! officer ma# appoint counsel to represent t!e corporation in a pre1trial !earing wit!out need of a formal 3oard resolution6 !itibank/ 4.3. v. !hua/ 220 'CR2 ,& (1//3)6 For counsel to sign t!e certification for t!e corporation4 !e must specificall# 3e aut!orized 3# t!e *oard of +irectors6 7P1 "easing !orp. v. !34 $1) 'CR2 $ (2003)7 (ariveles

e5press powers of corporations (man# of w!ic! even if not e5pressl# provided for 3# law would constitute implied powers of ever# entit#6 (%age ,/$ of CLG8s CLR4 200,) 'ection 3) enumerates 10 powers t!at a corporation en?o#s in addition to t!e special powers t!at ma# 3e provided for in t!e purpose clause of t!e articles of incorporation4 w!ic! would also constitute e5press powers6 (%age ,/& of CLG8s CLR4 200,) 'ources of powers of eBpre$$ po=er$ of a corporationD (%age ,/& of CLG8s CLR4 200,) (1) (2) !ose provided in t!e law (Corporation Code) !e %urpose clause of t!e 2o:6

'ection $& recognizes also implied powers of ever# corporate entit# emanating from its e5press powers6 ) !e rule is t!at in eac! case it is a ;uestion of t!e logical relation of t!e act to t!e corporate purpose e5pressed in t!e c!arter6 :F t!e act is one w!ic! lawful in itself4 and not ot!erwise4 and is reasona3l# tri3utar# to t!e promotion of t!ose end4 in a su3stantial and not in a remote and fanciful sense4 it ma# fairl# 3e considered wit!in c!arter powers6 The te$t to /e app6ie! i$ =hether the act in I'e$tion i$ in !irect an! i%%e!iate f'rtherance of the corporation>$ /'$ine$$@ fair67 inci!enta6 to the eBpre$$ po=er$ an! rea$ona/67 nece$$ar7 to their eBerci$e. :f so4 t!e corporation !as t!e power to do it4 ot!erwise4 no6 (.onteli3ano v6 *acolod .urcia .illing Co4 1/)2 cited in (%age ,/& of CLG8s CLR4 200,)

To $'e an! /e $'e! in it$ corporate na%e


3

No ,or*oration@s#all *ossess or e-er,ise any ,or*orate *o5ers e-,e*t t#ose ,on'erred "y t#is Code or "y its Arti,les o' In,or*oration and e-,e*t s),# a! nece!!ary or "nc"#enta$ to the e%erc"!e of the &o'er! !o conferre#()

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21&1

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA %ropert# o3tained 3# a corporation w!ic! is foreign to t!e purposes for w!ic! it was organized is an unlawful ac;uisition6 (+e Leon 200) at 32$) !e transfer or sale of s!ares owned 3# a corporation in anot!er corporation re;uires approval 3# t!e 3oard of directors of t!e seller corporation and w!ile a corporation is e5pressl# empowered 3# 'ection 3)(W) to dispose corporate assets4 suc! power is su3?ect to t!e provisions of 'ection $06 (+e Leon 200) at 32&) !e rig!t or power of private corporations to deal in real as well as personal propert# is also su3?ect to limitations or restrictions prescri3ed 3# special laws and t!e Constitution6 (+e Leon 200) at 32&) Po=er to acI'ire $hare$ or $ec'ritie$ 'ection 3)(,) aut!orizes a private corporation to ac;uire s!ares or securities of ot!er corporations6 'uc! an act does not need t!e approval of t!e stoc(!olders if done in pursuance of t!e purpose or purposes of t!e corporation as stated in its articles of incorporation6 *ut w!en t!e purpose is done solel# for investment4 t!e approval of t!e stoc(!olders as re;uired 3# 'ection $2 is necessar#6 (+e Leon 200) at 32)) %ower to ac;uire s!ares in ot!er corporation is su3?ect to specific limitations esta3lis!ed 3# t!e Code4 special laws and t!e Constitution6 (+e Leon 200) at 32)) 9!en a corporation su3scri3es to t!e capital stoc( of anot!er corporation4 it is re;uired4 as a rule4 to pa# its su3scription in full6 !is is 3ased upon t!e fact t!at w!ile a corporation !as an unlimited capacit# to contract o3ligations4 it !as onl# a limited capacit# to pa#6 ('"C Opinion4 =ul# 134 1/)1) 2 corporation ma# purc!ase its own stoc(4 !owever4 onl# w!en it !as Bunrestricted retained earningsC to cover t!e s!ares to 3e purc!ased or ac;uired6 (+e Leon 200) at 32,)

Shipyard !orp. v. !34 $1& 'CR2 &,3 (2003)6 (etro 8rug 8istribution 1nc. v. 4arciso/ (200))6 Po=er to a!opt an! '$e a corporate $ea6 2 seal is a device (as an em3lem4 s#m3ol4 or word) used to identif# or replace t!e signature of an individual or organization and to aut!enticate (as under common law) written matter purportedl# emanating from suc! individual or organization6 :t ma# refer also to t!e impression of suc! a device on documents li(e certificates of stoc(s6 6 (+e Leon 200) at 323) 2n# seal adopted and used 3# t!e corporation ma# 3e altered 3# it at pleasure6 9!ere a corporation adopts a seal for a special occasion4 different from its corporate seal4 t!e seal adopted is t!e corporate seal onl# for t!at time or occasion6 6 (+e Leon 200) at 323) 2 seal is not re;uired for t!e validit# of an# corporate act6 >nder 'ection )34 certificates of stoc( issued 3# corporations are re;uired to 3e sealed wit! t!e seal of t!e corporation6 Nevert!eless4 t!e use of a corporate seal in certificates of stoc( must 3e deemed merel# director# rat!er t!an mandator#6 2 corporation ma# e5ist even wit!out a seal6 !e presence of a seal esta3lis!es4 prima facie4 t!at t!e instrument to w!ic! it is affi5ed is t!e act of t!e corporation6 (1- 2m =ur 2d) Po=er to acI'ire an! con"e7 propert7 !is power ('ection 3)(,)) w!ic! is also e5pressl# conferred under t!e law !as alwa#s 3een regarded as an incident to ever# corporation6 2 corporation need properties or assets to carr# on its 3usiness6 (+e Leon 200) at 323) !e power under 'ection 3)(,) is ;ualified 3# t!e p!rase Bas t!e transaction of t!e lawful 3usiness of t!e corporation ma# reasona3l# and necessar# re;uire6C (+e Leon 200) at 32$)

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21&2

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA t!e issuance of resolution granting suc! gratuit# pa#6 Lopez Realt# v6 Fontec!a4 2$, 'CR2 1-34 1/2 (1//&)6 1orro= F'n!$ !e power to 3orrow mone# is one of t!ose cases w!ere even a special power of attorne# is re;uired under 2rt6 1-,of Civil Code6 !ere is invaria3l# a need of an ena3ling act of t!e corporation to 3e approved 3# its *oard of +irectors6 !e argument t!at t!e o3taining of loan was in accordance wit! t!e ordinar# course of 3usiness usages and practices of t!e corporation is devoid of merit 3ecause t!e prevailing practice in t!e corporation was to e5plicitl# aut!orize an officer to contract loans in 3e!alf of t!e corporation6 C!ina *an(ing Corp6 v6 Court of 2ppeals4 2,0 'CR2 &03 (1//,)6
Catindig Class Notes 0: .hat is the catch9all provision as regards powers of corporations2 3: Si !ris vinerbatim yung Section KL+;;-/ haha. Ceah/ that$s the right answer.

Se66 Lan! an! Other Propertie$ 9!en t!e corporation8s primar# purpose is to mar(et4 distri3ute4 e5port and import merc!andise4 t!e sale of land is not wit!in t!e actual or apparent aut!orit# of t!e corporation acting t!roug! its officers4 muc! less w!en acting t!roug! t!e treasurer6 Li(ewise 2rticles 1-,$ and 1-,- of Civil Code re;uires t!at w!en land is sold t!roug! an agent4 t!e agent8s aut!orit# must 3e in writing4 ot!erwise t!e sale is void6 'an =uan 'tructural v6 C24 2/) 'CR2 )31 (1//-)7 2F Realt# W +ev64 :nc6 v6 +ieselman Freig!t 'ervices Co64 3,3 'CR2 3-& (2002)7 Firme v6 *u(al "nterprises and +ev6 Corp64 $1$ 'CR2 1/0 (2003)6 Po=er to contri/'te to charit7 'ection 3)(/) e5pressl# vests in 3usiness corporations t!e aut!orit# to contri3ute for purel# c!arita3le purposes6 1a$i$, 'ection 3)(/) gives recognition to t!e growing tendenc# to regard c!arita3le gifts as wit!in t!e scope of corporate aut!orit#6 :t is 3ased on t!e modern view t!at 3usiness corporations are not organized solel# as profit1 ma(ing enterprises 3ut also as economic and social institutions wit! corresponding pu3lic responsi3ilit# to aid in t!e 3etterment of economic and social conditions in t!e communit# in w!ic! suc! corporation are doing 3usiness6 Li%itation$, !e limitation under t!e code is t!at t!e donations areD (a) t!e amount t!ereof must 3e reasona3le7 and (3) t!e donations must not 3e in aid of an# political part# or candidate or for purposes of partisan political activit#6 Pro"i!e Grat'it7 Pa7 for E%p6o7ee$ 'uc! powers are e5pressl# permitted 3# t!e Code on t!e t!eor# t!at suc! activities promote 3etter relations 3etween t!e corporation and its emplo#ees6 (1/ 2m =ur 2d) %roviding gratuit# pa# for emplo#ees is an e5press power of a corporation under t!e Corporation Code4 and cannot 3e considered to 3e ultra vires to avoid an# lia3ilit# arising from

). Specific Po=er$ (a+ To eBten! or $horten corporate ter% (Section .5


co%pare =ith Section ?1+
Sec. .5. Po(er to e=tend or shorten corporate term 2 private corporation ma# e5tend or s!orten its term as stated in t!e articles of incorporation w!en approved 3# a ma?orit# vote of t!e 3oard of directors or trustees and ratified at a meeting 3# t!e stoc(!olders representing at least two1t!irds (2K3) of t!e outstanding capital stoc( or 3# at least two1t!irds (2K3) of t!e mem3ers in case of non1stoc( corporations6 9ritten notice of t!e proposed action and of t!e time and place of t!e meeting s!all 3e addressed to eac! stoc(!older or mem3er at !is place of residence as s!own on t!e 3oo(s of t!e corporation and deposited to t!e addressee in t!e post office wit! postage prepaid4 or served personall#D %rovided4 !at in case of e5tension of corporate term4 an# dissenting stoc(!older ma# e5ercise !is appraisal rig!t under t!e conditions provided in t!is code6 (n)

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21&3

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA 'ection -1 s!ould not prevail over t!e specific provision under 'ection 3,6 (%age 23, of CLG8s e5t3oo() CL&, !e e5ercise of appraisal rig!ts rig!tl# 3elongs to a case of e5tension of corporate term 3ecause e5tension actuall# novates t!e corporate contract wit! eac! s!are!older4 w!ic! now see(s to e5tend t!e corporate relations!ip 3e#ond t!e original term provided for in t!e articles of incorporation6 (%age 23, of CLG8s e5t3oo() Note t!at t!e appraisal rig!t applies onl# to a stoc(!older of a stoc( corporation6 (%age 333 of +e Leon4 200)) :n case of e5tension of corporate term4 an# dissenting stoc(!older ma# e5ercise !is appraisal rig!t to !ave !is s!ares 3oug!t 3ac( at fair value 3# t!e corporation6 (%age 23) of CLG8s e5t3oo()

Sec. ?1. Instances of appraisal right 2n# stoc(!older of a corporation s!all !ave t!e rig!t to dissent and demand pa#ment of t!e fair value of !is s!ares in t!e following instancesD 16 :n case an# amendment to t!e articles of incorporation !as t!e effect of c!anging or restricting t!e rig!ts of an# stoc(!older or class of s!ares4 or of aut!orizing preferences in an# respect superior to t!ose of outstanding s!ares of an# class4 or of e5tending or s!ortening t!e term of corporate e5istence7 26 :n case of sale4 lease4 e5c!ange4 transfer4 mortgage4 pledge or ot!er disposition of all or su3stantiall# all of t!e corporate propert# and assets as provided in t!e Code7 and 36 :n case of merger or consolidation6 (n)

ReI'ire%ent$ for eBten!in# or $hortenin# corporate 6ife, (1) .a?orit# vote of t!e *o+K (2) Ratification in a meeting 3# 2K3 of outstanding capital stoc( or 2K3 of t!e mem3ers4 as t!e case ma# 3e6 !e e5tension or s!ortening of corporate life actuall# reI'ire$ the a%en!%ent of the artic6e$ of incorporation 6 *ut w!ereas4 in general amendments of t!e articles can 3e made 3# written assent of t!e stoc(!older or mem3ers4 wit!out need of meeting4 in t!e case provided for under 'ection 3,4 a meeting must 3e dul# called for t!e purpose6 (%age -1) of CLG8s CLR4 200,) -e Leon, 'ection 3, grants appraisal rig!t to a dissenting stoc(!older (rig!t of t!e stoc(!older in t!e cases provided 3# law to demand pa#ment of t!e fair value of !is s!ares) Bin case of e5tension of corporate term6C 'uc! rig!t s!ould also 3e availa3le to a dissenting stoc(!older if t!e corporate term is s!ortened as it is e5pressl# recognized in 'ection -1(1)6 (%age 333 of +e Leon4 200)) 1't =ait@ CL& ha$ a !ifferent opinion. CL&, !e appraisal rig!t $ho'6! not 3e triggered w!en it comes to s!ortening of corporate life4 3ecause t!ere is reall# no violation of t!e original contractual intent since6 !erefore4 t!e inclusion of t!e case of s!ortening of corporate life under

(/+ To increa$e or !ecrea$e capita6 $toc9 (Section .?+


Sec. .?. Po(er to increase or decrease capital stoc*B incur1 create or increase bonded indebtedness No corporation s!all increase or decrease its capital stoc( or incur4 create or increase an# 3onded inde3tedness unless approved 3# a ma?orit# vote of t!e 3oard of directors and4 at a stoc(!olderJs meeting dul# called for t!e purpose4 two1t!irds (2K3) of t!e outstanding capital stoc( s!all favor t!e increase or diminution of t!e capital stoc(4 or t!e incurring4 creating or increasing of an# 3onded inde3tedness6 9ritten notice of t!e proposed increase or diminution of t!e capital stoc( or of t!e incurring4 creating4 or increasing of an# 3onded inde3tedness and of t!e time and place of t!e stoc(!olderJs meeting at w!ic! t!e proposed increase or diminution of t!e capital stoc( or t!e incurring or increasing of an# 3onded inde3tedness is to 3e considered4 must 3e addressed to eac! stoc(!older at !is place of residence as s!own on t!e 3oo(s of t!e corporation and deposited to t!e addressee in t!e post office wit! postage prepaid4 or served personall#6

Nat're of Po=er. !e power to increase or decrease capital stoc( is not an in!erent of t!e corporation4 not onl# 3ecause it touc!es item e5pressl# re;uired to 3e provided for in t!e articles of incorporation4 3ut also t!e capital stoc( of a

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21&$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA prescri3ed or limited 3# its articles of incorporation is ultra vires and t!e stoc( so issued :s void even in t!e !ands of a bona fide purc!aser for value6 (1- 2m =ur 2d ,&,) Una'thori0e! increa$e of capita6 $toc9. 2n attempted unaut!orized increase of capital stoc( amounts to an over1 issue and suc! stoc( is a3solutel# void and cannot 3e validated 3# application of t!e doctrine of estoppel6 No apprai$a6 ri#ht in -ecrea$e in Capita6 Stoc9. !e decrease to of t!e capital stoc( of a corporation s!ould not trigger t!e e5ercise of t!e appraisal rig!t for precisel#4 t!e decrease of capital stoc( would result in returning part of t!e investments of t!e stoc(!olders w!o dissented6 (%age 2$1 of CLG8s e5t3oo() !e non1granting of appraisal rig!t to dissenting stoc(!olders in case of increase of capital stoc( ma# 3e rationalized on two groundsD (1) !e increase in capital stoc( does not prevent an# stoc(!older4 including a dissenting stoc(!older from opting out of t!e contractual relations!ip 3# simpl# selling !is s!ares in t!e corporation to an# interested 3u#er6 (2) !e grant of appraisal rig!t in case of increase of capital stoc( would defeat t!e ver# purpose for w!ic! t!e power is e5ercised4 i6e64 to raise funds for t!e operation or even survival of t!e corporate 3usiness6 (%age 2$1 of CLG8s e5t3oo() I%p6ie! Po6ic7 'n!er Section .?. !e polic# em3odied in 'ection 3- of t!e Corporation Code t!erefore4 alt!oug! it recognizes t!at an increase in aut!orized capital stoc( redefines t!e contractual relations in t!e corporate setting as it re;uires t!e approval of stoc(!olders owning or representing two1t!irds (2K3) of t!e OC'4 does not include t!e appraisal rig!t on t!e part of dissenting stoc(!olders4 in t!e sense t!at ever# stoc(!older s!ould come into t!e corporate setting full# aware t!at t!e e5pediencies of corporate life ma# re;uire t!at eventuall#4 t!e corporation ma# need to increase capitalization to fund its operations or e5pansions4 and needs

corporation is governed 3# common law doctrines4 suc! as t!e trust fund doctrine and pre1emptive rig!ts6 Li%itation$ on the po=er 2s a general rule4 a corporation cannot lawfull# decrease its capital stoc( if suc! decrease will !ave t!e effect of relieving e5isting su3scri3ers from t!e o3ligation of pa#ing for t!eir unpaid su3scriptions wit!out a valua3le consideration for suc! release4 as suc! an act of t!e corporation constitutes an attempted wit!drawal of so muc! capital upon w!ic! corporate directors are entitled to rel#6 (%!il rust Co6 v6 Rivera4 1/23) ReI'ire%ent$, (1) .a?orit# vote of t!e mem3ers of t!e *o+ (2) Ratification 3# 2Kvote of t!e outstanding capital stoc(4 in a meeting dul# called for t!at purpose wit! notice previousl# given (3) Certificate of said corporate act s!all 3e signed 3# ma?orit# of t!e mem3ers of t!e *oard and t!e C!airman and 'ecretar# of t!e stoc(!olders8 meeting ($) Certificate must 3e accompanied 3# t!e reasurer8s 2ffidavit certif#ing compliance wit! t!e 2&A12&A re;uirements as to stoc( corporation6 (%age -1, of CLG8s CLR4 200,) !e corporation must su3mit proof to t!e '"C t!at suc! decrease will not pre?udice t!e rig!ts of creditors6 ('"C Opinion no6 0&1104 =ul# 124 200&) 2 corporation cannot issue stoc( in e5cess of t!e amount limited 3# its articles of incorporation7 suc! issue is ulra vires and t!e stoc( so issued is void even in t!e !ands of a bona fide purc!aser for value 2 reduction or increase of t!e capital stoc( can ta(e place onl# in t!e manner and under t!e conditions prescri3ed 3# law6 2n o"er:i$$'e! $toc9 is also (nown as spurious stoc(6 2n issue of stoc( 3# a corporation in e5cess of t!e amount

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21&&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA to one class of s!ares or it ma# distri3ute it to all classes of s!ares4 e;uall# or unevenl#6 ('"C Opinon4 2pril 114 1//&) No treasurer8s affidavit is re;uired to 3e attac!ed in case of !ecrea$e of capita6 $toc9. (%age 3$1 of +e Leon4 200)) Wa7$ of increa$in# (!ecrea$in#+ a'thori0e! capita6 $toc9, (1) :ncreasing t!e num3er of s!ares aut!orized to 3e issued wit!out increasing t!e par value t!ereof6 (2) *# increasing t!e par value of eac! s!are wit!out increasing t!e num3er t!ereof (3) *# increasing 3ot! num3er of s!ares aut!orized to 3e issued and t!e par value t!ereof6 (%age 3$1 of +e Leon4 200)) Increa$e /7 =a7 of $toc9 !i"i!en!$6 ('toc( dividends are ordinaril# declared out of t!e aut!orized 3ut unissued s!ares of t!e corporation6) (%age 3$2 of +e Leon4 200)) 2 corporation ma# increase its capital stoc( 3# wa# of stoc( dividends wit!out touc!ing its unissued s!ares as long as t!ere as long as t!ere are sufficient retained earnings to cover t!e increase6 (:f t!e proposed stoc( dividend would result in t!e issuance of s!ares of stoc( in e5cess of t!e corporation8s aut!orized capital stoc(4 t!e over1all issue is null and void6 'uc! dividend declaration ma# 3e validl# done provided t!at t!e corporation simultaneousl# increases its capital stoc( and applies t!e proposed stoc( dividends as full pa#ment of t!e su3scriptions to t!e capital stoc( increase6) ('"C Opinion4 =ul# 304 1/)/)
Catindig Class Notes 0: !an the S5s in one meeting do all of these three/ done se>uentially2 1tem ;: 1ncrease the authori'ed capital stock2 ;( F( 1tem :: 8ecrease 2 F( :( 1tem K: *hen 1ncrease again2 :( F( 3: Ces. *here is nothing in the !ode which prohibits such action. *here is this decision by %ustice !ampos/ the !itibank case. +;- 1t must be done se>uentiallyJ +:- @ile K amended 3o1 with the S6! and S6! will approved it se>uentially. +3lam na nila yun.-

to loo( primaril# into its e;uit# investors to fund t!e same6 (%age 2$3 of CLG8s e5t3oo() +espite t!e 3oard resolution approving t!e increase in capital stoc( and t!e receipt of pa#ment on t!e future issues of t!e s!ares from t!e increased capital stoc(4 suc! funds do not constitute part of t!e capital stoc( of t!e corporation until approval of t!e increase 3# '"C6 !entral *e,tile (ills/ 1nc. v. 4ational .ages and Productivity !ommission 4 2)0 'CR23)(1//))6 2 reduction of capital to ?ustif# t!e mass la#off of emplo#ees4 especiall# of union mem3ers4 amounts to not!ing 3ut a premature and plain distri3ution of corporate assets to o3viate a ?ust s!aring to la3or of t!e vast profits o3tained 3# its ?oint efforts wit! capital t!roug! t!e #ears4 and would constitute unfair la3or practice6 (adrigal E !o. v. Samora 4 1&1 'CR2 3&& (1/-,)6 !e Corporation Code contains no pro!i3ition for a corporation to increase its aut!orized capital stoc( even if t!e same !as not #et 3een full# su3scri3ed6 (%age 33) of +e Leon4 200)) Nece$$it7 of ne= $'/$cription for increa$e. 2n increase in t!e aut!orized capital stoc( cannot 3e lawfull# accomplis!ed wit!out an actual increase in t!e assets of t!e corporation and additional su3scriptions e5cept w!en suc! increase is for the purpose of effecting a stock dividend previousl# aut!orized6 (%age 33, of +e Leon4 200)) Subscriptions and payments based on additional amount by which capital is increased. !e '"C !as construed t!e p!rase to mean t!e additional amount 3# w!ic! t!e capital stoc( is increased6 Af such increased capital. :t is opined t!at t!is refers to t!e total su3scription (not to individual su3scriptions) and regardless of class6 !us4 w!en t!e corporation !as several classes of s!ares4 t!e 2&A su3scription re;uirement ma# 3e applied onl# to one class of s!ares or it ma# 3e applied onl#

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21&)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA and an >nderwriting 2greement4 toget!er wit! t!e printed prospectus and titles covering t!e securities for t!e 3onded inde3tedness6 (%age 2$$ of CLG8s e5t3oo() Note t!at no appraisal rig!t is granted to dissenting stoc(!olders w!en t!e corporation eit!er validl# incurs4 creates or increases 3onded inde3tedness since4 t!e granting of suc! appraisal rig!t under suc! circumstances would drains t!e corporation of financial resources contrar# to t!e purpose for w!ic! t!e power is e5ercised to raise funds for corporate affairs6 (%age 2$& of CLG8s e5t3oo() NoteD (1) 9!ere a corporation increases capital stoc(4 stoc(!olders are entitled to a pre1emptive rig!t to su3scri3e to a sufficient num3er of s!ares in order to maintain t!eir previous relative voting power6 (2) +issenting stoc(!olders cannot e5ercise t!e rig!t of appraisal in t!is case6 (%age -1- of CLG8s CLR4 200,)
Catindig Class Notes 0: .hat are subordinated debts2 3: 8ebts used as capital

+K-

7o8 delegated approval of certain transaction to an 6,ecutive !ommittee +8eins ko lam relevance nito93S(*his process is called 6!3P1*3"1S3*1A4J when the corp is in a deficit situation.

(c+ To inc'r@ create or increa$e /on!e! in!e/te!ne$$


(Section .?+ B*ondC is a securit# representing denominated units of inde3tedness issued 3# a corporation to raise mone# or capital o3liging t!e issuer to pa# t!e maturit# value at t!e end of a specified period w!ic! s!ould not less t!an 3)0 da#s4 w!ere applica3le4 pa#ment of interest on stipulated dates6 ('"C :nterim <uidelines for t!e Registration of *onds) (%age 2$3 of CLG8s e5t3oo() '"C !as limited t!e term B/on!e! in!e/te!ne$$C to cover onl# inde3tedness of t!e corporation w!ic! are secured 3# mortgage on real or personal propert#6 -e/ent're$ are issued on t!e 3asis of t!e general credit of t!e corporation and are not secured 3# collaterals4 and t!erefore do not constitute 3onded inde3tedness and will not re;uire approval of t!e stoc(!olders6 (%age 2$3 of CLG8s e5t3oo() 2 corporate bond is an o3ligation to pa# a definite sum of mone# at a future time at a fi5ed rate of interest6 (%age 3$, of +e Leon4 200)) Nat're of Po=er, !e power to incur or create lia3ilities is an in!erent power on t!e part of 3usiness corporations4 since it is presumed t!at t!e# would need to incur or create lia3ilities as part of t!e normal operations of t!e 3usiness and t!e pursuit of t!e purpose of t!e corporation6 Partic'6ar ReI'ire%ent$ of SEC. >nder t!e '"C :nterim <uidelines4 an application for registration and issuance of 3onds can onl# 3e filed 3# t!e issuing corporation w!ic! !as a minimum net wort! of %2&. at t!e time of t!e filing of t!e application4 and must !ave 3een in operation for 3 #ears6 :n addition4 it must fulfill t!e financial ratios mandated 3# t!e '"C in t!e :nterim <uidelines6 2n issuing corporation must also e5ecute and su3mit a rust :ndenture wit! a trustee 3an(

(!+ To !en7 pre:e%pti"e ri#ht$ (Section .*+


Sec. .*. Po(er to deny pre,empti#e right 2ll stoc(!olders of a stoc( corporation s!all en?o# pre1emptive rig!t to su3scri3e to all issues or disposition of s!ares of an# class4 in proportion to t!eir respective s!are!oldings4 unless suc! rig!t is denied 3# t!e articles of incorporation or an amendment t!eretoD %rovided4 !at suc! pre1emptive rig!t s!all not e5tend to s!ares to 3e issued in compliance wit! laws re;uiring stoc( offerings or minimum stoc( owners!ip 3# t!e pu3lic7 or to s!ares to 3e issued in good fait! wit! t!e approval of t!e stoc(!olders representing two1 t!irds (2K3) of t!e outstanding capital stoc(4 in e5c!ange for propert# needed for corporate purposes or in pa#ment of a previousl# contracted de3t6

2 pre1emptive rig!t is t!e s!are!older8s rig!t to su3scri3e to all issues or disposition of shares or any class in proportion to

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21&,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
dul# called for t!e purpose6 9ritten notice of t!e proposed action and of t!e time and place of t!e meeting s!all 3e addressed to eac! stoc(!older or mem3er at !is place of residence as s!own on t!e 3oo(s of t!e corporation and deposited to t!e addressee in t!e post office wit! postage prepaid4 or served personall#D %rovided4 !at an# dissenting stoc(!older ma# e5ercise !is appraisal rig!t under t!e conditions provided in t!is Code6 2 sale or ot!er disposition s!all 3e deemed to cover su3stantiall# all t!e corporate propert# and assets if t!ere3# t!e corporation would 3e rendered incapa3le of continuing t!e 3usiness or accomplis!ing t!e purpose for w!ic! it was incorporated6 2fter suc! aut!orization or approval 3# t!e stoc(!olders or mem3ers4 t!e 3oard of directors or trustees ma#4 nevert!eless4 in its discretion4 a3andon suc! sale4 lease4 e5c!ange4 mortgage4 pledge or ot!er disposition of propert# and assets4 su3?ect to t!e rig!ts of t!ird parties under an# contract relating t!ereto4 wit!out furt!er action or approval 3# t!e stoc(!olders or mem3ers6 Not!ing in t!is section is intended to restrict t!e power of an# corporation4 wit!out t!e aut!orization 3# t!e stoc(!olders or mem3ers4 to sell4 lease4 e5c!ange4 mortgage4 pledge or ot!erwise dispose of an# of its propert# and assets if t!e same is necessar# in t!e usual and regular course of 3usiness of said corporation or if t!e proceeds of t!e sale or ot!er disposition of suc! propert# and assets 3e appropriated for t!e conduct of its remaining 3usiness6 :n non1stoc( corporations w!ere t!ere are no mem3ers wit! voting rig!ts4 t!e vote of at least a ma?orit# of t!e trustees in office will 3e sufficient aut!orization for t!e corporation to enter into an# transaction aut!orized 3# t!is section6 (2- 1K2a)
)ac*+s Lecture :n non1stoc( corporations w!ere t!ere are no mem3ers wit! voting rig!ts4 t!e vote of at least a ma?orit# of t!e trustees in office will 3e sufficient aut!orization for t!e corporation to enter into an# transaction aut!orized 3# t!is section6 :n t!e sale4 lease4 e5c!ange4 mortgage or disposition of all or su3stantiall# all of t!e properties or assets of t!e corpration4 #ou need approval not onl# of t!e ma?orit# of t!e *oard 3ut also of at least 2K3 of t!e stoc(!olders6 2ccording to t!e law4 t!e test of w!et!er t!e sale covers all or su3stantiall# all of t!e assets of t!e corporation is t!isD will t!e corporation 3e capa3le of continuing

!is present stoc(!oldings4 t!e purpose 3eing to ena3le t!e s!are!older to retain !is proportionate control in t!e corporation and to retain !is e;uit# in t!e retained earnings and also in t!e net assets in t!e event of dissolution6 (%age -32 of CLG8s CLR4 200,) 9!enever a capital stoc( of a corporation is increased and new s!ares of stoc(s are issued4 t!e new issue must 3e offered first to t!e stoc(!olders w!o are suc! at t!e rime t!e increase was made in proportion to t!eir e5isting s!are!oldings and on e;ual terms wit! ot!er !olders of t!e original stoc(s 3efore su3scriptions are received from t!e general pu3lic6 For e5ample4 if a stoc(!older wit! pre1emptive rig!t owns 20A of t!e outstanding s!ares of t!e corporation4 !e ma# su3scri3e 20A of an# s!ares of stoc( issued 3# t!e corporation6 !is principle is (nown as t!e right of pre9 emption or pre9emptive right of stoc(!olders (%age 3&& of +e Leon4 200)) !e rule Non pre1emptionO aims to safeguard t!e rig!t of stoc(!older to preserve unaltered and unimpaired !is proportionate influence and interest in t!e corporation and t!e relative value of !is !oldings6 (%age 3&) of +e Leon4 200))

(e+ To $e66 or other=i$e !i$po$e of corporate a$$et$


(Section )A+
Sec. )A. &ale or other disposition of assets 'u3?ect to t!e provisions of e5isting laws on illegal com3inations and monopolies4 a corporation ma#4 3# a ma?orit# vote of its 3oard of directors or trustees4 sell4 lease4 e5c!ange4 mortgage4 pledge or ot!erwise dispose of all or su3stantiall# all of its propert# and assets4 including its goodwill4 upon suc! terms and conditions and for suc! consideration4 w!ic! ma# 3e mone#4 stoc(s4 3onds or ot!er instruments for t!e pa#ment of mone# or ot!er propert# or consideration4 as its 3oard of directors or trustees ma# deem e5pedient4 w!en aut!orized 3# t!e vote of t!e stoc(!olders representing at least two1t!irds (2K3) of t!e outstanding capital stoc(4 or in case of non1stoc( corporation4 3# t!e vote of at least to two1 t!irds (2K3) of t!e mem3ers4 in a stoc(!olderJs or mem3erJs meeting

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21&-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA corporation i$ an entit7 i$ ti66 capa/6e of p'r$'in# it$ charter p'rpo$e. (%age 2&0 of CLG8s e5t3oo()
Catindig Class Notes 0: +: Iats were asked here/ hehe- 37! !orp is a Property 8evt !orp. 1t sells property +;<< lots- to a manufacturing corporation. *ell whether approval of the following will be enough: +a-7o8 only$+b-Stockholders only +c- 7oth. 3: (a) 7o8 only Ces/ if the corporation after the sale decides or has the intention to continue its business. (b) S5s only 4o/ because the corp acts thru its 7o8 (c)7oth Ces/ if there is no intention to continue business. Note! 1f the sale is in accordance with the primary purpose of the corporation then only 7o8 approval is needed. Atherwise/ S5 approval is necessary. !onisder also the intention to continue the corp business.

its 3usiness or accomplis!ing its purpose6 For e5ample4 =olli3ee must !ave more t!an $00 stores all over t!e countr#6 :f t!e# sell & stores4 #ou don8t !ave to get stoc(!older approval6 Qou !ave a case w!ere t!e assets of a corporation were foreclosed and t!e onl# remaining asset of t!e corporation was t!e rig!t of redemption and t!e# sold it6 !e Court said #ou need stoc(!older approval6 : don8t (now w!atever !appened to t!is 3ut #ou !ave t!at propert# in Commonwealt! 2venue owned 3# t!e :slamic +irectorate6 !e .uslim countries in t!e .iddle "ast donated mone# for t!e .uslims to ac;uire t!at propert#6 9!en .artial Law was declared4 t!e *oard of rustees fled to t!e .iddle "ast and a 3unc! of people w!o were not directors sold t!at propert# to :glesia Ni Cristo6 !e 'upreme Court said t!e sale was not valid 3ecause t!e people w!o sold it were not t!e elected directors and secondl#4 t!at was t!e onl# propert# of t!at corporation and t!erefore4 stoc(!older approval was re;uired6 2 corporation can ac;uire its own s!ares 3ut it is re;uired t!at it s!ould !ave unrestricted retained earnings4 as a rule6 Remem3er t!at we said t!e assets of a corporation constitute a trust fund to answer for its o3ligations to its creditors6 :f #ou allow a corporation w!en it !as no retained earnings4 in effect4 it is returning t!e investment of its stoc(!olders6 !us4 t!at will pre?udice t!e creditors6

!e propert# of t!e corporation is not t!e propert# of t!e stoc(!olders or mem3ers4 and as suc!4 ma# not 3e sold wit!out t!e e5press aut!orit# from t!e 3oard of directors6 (Liton?ua v6 "ternit# Corp4 200)) +isposition of properties in t!e regular course of t!e 3usiness does not need approval 3# or aut!orit# of stoc(!olders or mem3ers6 (%age -1/ of CLG8s CLR4 200,) An7 !i$po$ition of corporate a$$et or propert7@ =hich i$ not in the '$'a6 co'r$e of /'$ine$$ of the corporate@ =o'6! /e =ithin the co"ere! tran$action$ 'n!er Section )A =hich =o'6! reI'ire $toc9ho6!er$> or %e%/er$> appro"a6@ e"en =hen practica667@ the

Nat're of Po=er !e e5ercise of t!e power to sell or dispose of all or su3stantiall# all of t!e assets of t!e corporation is deemed to undermine t!e contractual relations!ip of t!e corporation and its stoc(!olders6 (%age 2$) of CLG8s e5t3oo() !e e5ercise of suc! a power reall# affects t!e /'$ine$$ enterpri$e 6e"e6 of corporate set1up6 (%age 2$) of CLG8s e5t3oo() 2 sale or ot!er disposition s!all 3e deemed to cover $'/$tantia667 a66 t!e corporate propert# and assets if t!ere3# t!e corporation would 3e rendered incapa3le ifD (1) Continuing t!e 3usiness7 (2) 2ccomplis!ing t!e purpose for w!ic! it was incorporated6 2 corporation 3# t!e action of its 3oard of directors or trustees supported 3# t!e vote of s!are!olders or mem3ers ma# sell4 lease e5c!ange4 mortgage4 pledge4 or ot!erwise dispose of all or substantially all of all of its propert#4 and assets including its good will6 !e reI'i$ite$ for t!e validit# of suc! sale4 etc6 are as followsD

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21&/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA !e appraisal rig!t is accorded to dissenting stoc(!olders as a matter of e;uit# and fairness since t!e# s!ould 3e allowed to ploug! t!eir investments into ventures t!e# feel t!e# could get a 3etter return rat!er wit! a corporation t!at is no longer capa3le of pursuing t!e 3usiness6 (%age 2&2 of CLG8s e5t3oo() :t s!ould 3e noted t!at t!e e5ercise of t!e appraisal rig!t of an# stoc(!older is predicate on t!e Bsale or ot!er disposition of all or su3stantiall# allC of t!e corporate assets6 2n# disposition w!ic! does not involve all or su3stantiall# all of t!e corporate assets4 does not re;uire t!e approval of t!e stoc(!olders or mem3ers and would not entitle an# dissenting stoc(!older to e5ercise !is appraisal rig!t6 (%age 3)) of +e Leon4 200))

!e sale etc6 must 3e approved 3# t!e 3oard of directors or trustees7 (3) !e action of t!e 3oard of directors or trustees must 3e aut!orized 3# t!e vote of stoc(!olding representing 2K3 of t!e outstanding capital stoc( including !olders of non1 voting s!ares or 2K3 of t!e mem3ers as t!e case ma# 3e7 and ($) !e aut!orization must 3e done at a stoc(!olders8 or mem3ers8 meeting dul# called for t!at purpose after written notice6 2side form t!e re;uirements of 'ection $0 4 t!e sale of all or su3stantiall# all of t!e corporate assets of propert# ma# re;uire compliance wit! t!e *ul( 'ales Law6 (%age 2&1 of CLG8s e5t3oo() Effect of non:co%p6iance. 'ale 3# *oard of rustees of t!e onl# corporate propert# wit!out compliance wit! 'ec6 $0 of Corporation Code re;uiring ratification of mem3ers representing at least two1t!irds of t!e mem3ers!ip4 would ma(e t!e sale null and void6 1slamic 8irectorate v. !ourt of 3ppeals4 2,2 'CR2 $&$ (1//,)7 PeTa v. !34 1/3 'CR2 ,1, (1//1)6 !e disposition of t!e assets of a corporation s!all 3e deemed to cover su3stantiall# all t!e corporate propert# and assets4 if t!ere3# t!e corporation would 3e rendered incapa3le of continuing t!e 3usiness or accomplis!ing t!e purposes for w!ic! it was incorporated6 'uc! a sale or disposition must 3e understood as valid onl# if it does not pre?udice t!e creditors of t!e assignor4 w!ic! necessaril# implies t!at t!e assignee assumes t!e de3ts of t!e assignor6 (Calte5 :nc6 v6 %NOC4 200))

(2)

(f+ To acI'ire o=n $hare$ (Section )1+


Sec. )1. Po(er to ac-uire o(n shares 2 stoc( corporation s!all !ave t!e power to purc!ase or ac;uire its own s!ares for a legitimate corporate purpose or purposes4 including 3ut not limited to t!e following casesD %rovided4 !at t!e corporation !as unrestricted retained earnings in its 3oo(s to cover t!e s!ares to 3e purc!ased or ac;uiredD 16 o eliminate fractional s!ares arising out of stoc( dividends7 26 o collect or compromise an inde3tedness to t!e corporation4 arising out of unpaid su3scription4 in a delin;uenc# sale4 and to purc!ase delin;uent s!ares sold during said sale7 and 36 o pa# dissenting or wit!drawing stoc(!olders entitled to pa#ment for t!eir s!ares under t!e provisions of t!is Code6 (n)

Apprai$a6 Ri#ht. 2n# dissenting stoc(!older ma# e5ercise !is appraisal rig!t in case of sale of all or su3stantiall# all of t!e corporate assets or propert#6 (%age 2&2 of CLG8s e5t3oo()

!e enumeration is 3# no means e5clusive since ot!er purposes4 w!ic! !ave legitimate 3usiness o3?ectives4 are accepta3le to ?ustif# a stoc( corporation purc!asing or ac;uiring its own s!ares6 (%age 2&3 of CLG8s e5t3oo()

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21)0

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
purpose ot!er t!an t!e primar# purpose for w!ic! it was organized w!en approved 3# a ma?orit# of t!e 3oard of directors or trustees and ratified 3# t!e stoc(!olders representing at least two1t!irds (2K3) of t!e outstanding capital stoc(4 or 3# at least two t!irds (2K3) of t!e mem3ers in t!e case of non1stoc( corporations4 at a stoc(!olderJs or mem3erJs meeting dul# called for t!e purpose6 9ritten notice of t!e proposed investment and t!e time and place of t!e meeting s!all 3e addressed to eac! stoc(!older or mem3er at !is place of residence as s!own on t!e 3oo(s of t!e corporation and deposited to t!e addressee in t!e post office wit! postage prepaid4 or served personall#D %rovided4 !at an# dissenting stoc(!older s!all !ave appraisal rig!t as provided in t!is CodeD %rovided4 !owever4 !at w!ere t!e investment 3# t!e corporation is reasona3l# necessar# to accomplis! its primar# purpose as stated in t!e articles of incorporation4 t!e approval of t!e stoc(!olders or mem3ers s!all not 3e necessar#6 (1, 1K2a)
)ac*+s Lecture >nder 'ection $24 t!e corporation can invest its funds in anot!er corporation 3ut it is wit! t!e same purpose4 #ou onl# need approval 3# t!e *oard4 #ou don8t need stoc(!older approval6 !is is w!# t!e Court !as said '.C can 3u# a 3rewer# in @ong Eong wit!out need of getting stoc(!older approval 3ecause t!at is consistent wit! t!e primar# purpose of t!e corporation6 :n t!e same wa# t!at t!e Court !as said t!at .au 'ugar Central could 3u# a compan# t!at manufactures sugar 3ags6 :t doesn8t !ave to get '@ approval 3ecause t!at is related to its primar# purpose6 *ecause #ou need sugar 3ags to pac( t!e sugar t!at it is selling6

2 corporation8s rig!t to purc!ase its s!ares is su3?ect to t!e following limitationsD (1) !at its capital is not t!ere3# impaired (2) !at it 3e for a legitimate and proper corporate purpose (3) !at t!ee s!all 3e unrestricted retained earnings to purc!ase t!e same and its capital is not t!ere3# impaired ($) !at t!e corporation acts in good fait! and wit!out pre?udice to t!e rig!ts of creditors and stoc(!olders (&) !at t!e conditions of corporate affairs warrant it6 ('"C Opinions)
Catindig Class Notes 0: !an a corporation ac>uire its own share2 3: 4o. the general rule is that the corporation has no right to ac>uire its own share unless permitted by legitimate corporate purposes. 0: 1s ac>uisition of own shares the only way to eliminate fractional shares2 3: 4o. *he 7o8 may allow the S5 to round9up or to pay the corporation to get ; whole share. 1f the S5 refuses to buy/ the 7o8 may provide that the corporation shall buy the fractional part of the S5. 0: !an redeemable shares once redeemed be revived2 3: 4o. Same is true with regard to convertible shares +e.g. preferred to common/ preferred disappears6,ample: *here are F incorporators. ; died and survived by his widow. !an the corp buy the shares from the widow2 @or what good corporate purpose2 +;*he corp can e,ercise its right of first refusal +applies to transferors thru succession+:1n the (inutes/ to help the widow to li>uidate her shares of stock. +good reputation of the corporation-. 1f all signed the (inutes/ no one can complain afterwards.

(#+ To in"e$t corporate f'n!$ in another corporation or /'$ine$$ (Section ) +


Sec. ) . Po(er to in#est corporate funds in another corporation or business or for any other purpose 'u3?ect to t!e provisions of t!is Code4 a private corporation ma# invest its funds in an# ot!er corporation or 3usiness or for an#

Rationa6e of R'6e. !e law presumes t!at w!en stoc(!olders invest4 or mem3ers ?oin a corporation4 it is wit! t!e primar# e5pectation t!at t!e corporation4 t!roug! its 3oard4 will onl# pursue t!e primar# purpose indicated in t!e articles of incorporation4 and if t!e 3oard feels t!at it is propitious to pursue a secondar# purpose4 t!en it would do so onl# if t!e stoc(!olders or mem3ers !ave !ad a c!ance to evaluate an decide upon suc! diversion of corporate funds

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21)1

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA anot!er corporation or 3usiness4 as a means of o3taining t!e 3est returns of t!eir investi3le funds6 (%age 2&, of CLG8s e5t3oo()
Catindig Class Notes 0: !an a cement corporation with e,cess cash put up a power plantBgenerator2 7uild a road2 3: Ces/ if there is insufficient power in the cement factory for that will further the primary business. !: 7usiness means your own business. +!an be your secondary purpose0: 3 corporation is engaged in mining. 1t makes no much money and decides to engage in commercial fishing. .hat kinds of approval needed2 3: 1f within the secondary purpose 7o8 & S5s 1f outside secondary purpose 7o8&S5s& S6!

from t!e primar# 3usiness of t!e corporation6 ((%age 2&) of CLG8s e5t3oo() !e term BfundsC in 'ection $2 includes an# corporate propert# to 3e used in furt!erance of t!e 3usiness6 !us4 idle corporate propert# ma# 3e temporaril# leased to ma(e it productive in t!e a3sence of e5press restrictions in t!e articles of incorporation or 3#1laws and t!e leasing is not used as a sc!eme to pre?udice corporate directors4 su3?ect to t!e re;uirements of 'ection $26 2 non1stoc(4 non1profit foundation ma# invest its funds in or su3scri3e to s!ares of anot!er domestic corporation6 !e term BfundsC as used in 'ection $2 include BdonationsC received 3# t!e corporation from ot!er entities6 @owever4 its power to invest is limited 3# its articles of incorporation6 ('"C Opinion No6 &$4 Nov6 3 4 2003) 3 secondary purpose6 !e ot!er purposes for w!ic! funds ma# 3e invested wit!out amending t!e article of incorporation must 3e among t!ose enumerated in t!e articles of incorporation6 :n order to legall# engage in an# of its secondar# purposes4 t!e corporation must compl# wit! 'ection $26 4ot among the secondary purposes. 2 corporation is not allowed to engage in a 3usiness distinct form t!ose enumerated in t!e articles of incorporation wit!out amending t!e purpose clause of said articles to include t!e desired 3usiness activit# among its secondar# purposes6 1ncident to primary purpose. 2 corporation ma# invest its funds in anot!er 3usiness w!ic! is incident or au5iliar# to its primar# purpose as stated in its articles of incorporation wit!out t!e approval of t!e stoc(!olders or mem3ers as re;uired under 'ection $26 "ven !olders of no1voting mem3ers4 as t!e case ma# 3e4 are entitled to vote on t!e matter6 :n suc! a case4 a dissenting stoc(!older s!all !ave no appraisal rig!t6 (%age 3,)13,- of +e Leon4 200)) 2ll corporations4 w!atever ma# 3e t!eir primar# purposes4 are deemed to !ave t!e power to invest corporate funds in

(h+ To !ec6are !i"i!en!$ (Section ).+


Sec. ).. Po(er to declare di#idends !e 3oard of directors of a stoc( corporation ma# declare dividends out of t!e unrestricted retained earnings w!ic! s!all 3e pa#a3le in cas!4 in propert#4 or in stoc( to all stoc(!olders on t!e 3asis of outstanding stoc( !eld 3# t!emD %rovided4 !at an# cas! dividends due on delin;uent stoc( s!all first 3e applied to t!e unpaid 3alance on t!e su3scription plus costs and e5penses4 w!ile stoc( dividends s!all 3e wit!!eld from t!e delin;uent stoc(!older until !is unpaid su3scription is full# paidD %rovided4 furt!er4 !at no stoc( dividend s!all 3e issued wit!out t!e approval of stoc(!olders representing not less t!an two1t!irds (2K3) of t!e outstanding capital stoc( at a regular or special meeting dul# called for t!e purpose6 (1)a) 'toc( corporations are pro!i3ited from retaining surplus profits in e5cess of one !undred (100A) percent of t!eir paid1in capital stoc(4 e5ceptD (1) w!en ?ustified 3# definite corporate e5pansion pro?ects or programs approved 3# t!e 3oard of directors7 or (2) w!en t!e corporation is pro!i3ited under an# loan agreement wit! an# financial institution or creditor4 w!et!er local or foreign4 from declaring dividends wit!out itsK!is consent4 and suc! consent !as not #et 3een secured7 or (3) w!en it can 3e clearl# s!own t!at suc! retention is necessar# under special circumstances o3taining in t!e corporation4

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21)2

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
.ost common t#pes7 cas!4 propert#4 stoc( dividends6 Onl# t!e 3oard approval is needed to declare cas! dividends 3ut t!e corporation must !ave retained earnings6 Now w!en t!e corporation declares cas! dividends and it !as no retained earnings t!is is illegal and '@ must return w!at t!e# received and in fact directors will 3e made lia3le6 Qou !ave t!at Philban*ing Corporation case 3efore w!ic! 3ecame 3an(rupt 3ecause it (ept declaring dividends at t!e time it was incurring losses and t!e ?ustificationD B"! #ou see we !ave alwa#s 3een declaring dividends regularl# and if we stop now t!ere mig!t 3e a 3an( run6C 9ell #ou tell me now4 (atwiran 3a #an ng taong matinoL !e# attac(ed t!e C* for closing %!il3an(ing6 2ssuming it !as retained earnings4 once cas! dividends !ave 3een declared t!e# cannot 3e revo(ed 3ecause #ou can use t!at to manipulate t!e price6 For e5ample t!e# declare t!at 2&A cas! dividend so t!e price moves up6 !e directors sell t!eir s!ares t!en t!e# revo(e t!e declaration so t!e price goes down t!e# 3u# 3ac( t!e s!ares6 :n t!e case of propert# dividends #ou onl# need 3oard approval 3ut in t!e case of stoc( dividends #ou need t!e approval of t!e stoc(!olders6 Now4 a stoc( dividend !as no taBa/6e conse;uence 3ecause it is t!e same pie 3ut #ou are slicing it into more pieces6 For instance4 !ere is some3od# w!ose s!ares represent 10A of t!e net wort! of t!e corp6 !e corp declared a 100A stoc( dividend6 9!at will !appenL @e will still own 10 A of t!e net wort! of t!e corporation6 !e 3oo( value of !is original s!are plus !is stoc( dividend will 3e t!e same6 :t is onl# w!en !e sells and ma(es a profit will t!ere 3e a ta5a3le conse;uence6 2nd 3ecause of t!at even if a stoc( dividend !as 3een declared it can still 3e revo(ed 3ecause it8s t!e same pie onl# #our slicing it in more pieces so even if #ou declare it #ou can revo(e as long as t!e stoc( certificates !ave not #et 3een distri3uted6 !e '"C !as said t!at paid1in surplus cannot 3e declared as dividends w!et!er stoc( or cas!6 For instance4 !ere is a corp t!at made a pu3lic offering6 !e par value of t!e s!ares is 10 pesos per s!are 3ut t!e# offer to t!e pu3lic for 1) pesos so t!e 3u#ers will 3e pa#ing ) pesos more6 Now4 t!at paid in surplus cannot 3e declared as a stoc( or cas! dividend 3ecause according to t!e '"C #ou can onl# declare dividends from earnings from operations6 !at paid in surplus was not from operations

suc! as w!en t!ere is need for special reserve for pro3a3le contingencies6 (n)

2 stoc( corporation e5ists to ma(e profit and to distri3ute a portion of t!e profits to its stoc(!olders6 2 dividend is t!at part or portion of t!e profits of a corporation set aside4 declared and order 3# t!e directors to 3e paid rata3l# to t!e stoc(!olders on demand or at a fi5ed time6 :t is a pa#ment to t!e stoc(!olders of a corporation as a return upon t!eir investment6 :t is a c!aracteristic of a dividend t!at all stoc(!olders of t!e same class s!are in it in proportion to t!e respective amounts of stoc( w!ic! t!e# !old6 'toc( dividend is t!e amount t!at t!e corporation transfers from its surplus profit account to its capital account6 :t is t!e same amount t!at can loosel# 3e termed as t!e Btrust fundC of t!e corporation6 4*! v. !3/ 311 'CR2 &0- (1///)6 !e power granted to stoc(!olders to demand from t!e *oard t!e declaration of dividends under 'ection $3 is one for t!e few instances under t!e Code w!ere t!e stoc(!olders t!emselves e5ercise a primar# power4 instead of t!e usual ratificator# vote on action ta(en primaril# 3# t!e 3oard of directors6 (%age 2)0 of CLG8s e5t3oo() -i"i!en!$ pa7a/6e o't of 'nre$tricte! retaine! earnin#$. >nder t!e law4 dividends ot!er t!an li;uidating dividends (w!ic! are not reall# dividends as t!e# are from caoital) ma# 3e declared and paid out Bt!e unrestricted retained earningsC of t!e corporation6 !e capital or capital stoc( w!ic! ma# not 3e impaired or depleted 3# t!e dividends is not t!e entire net assets of t!e corporation7 rat!er4 it is t!e legal capital of t!e corporation in t!e strict sense4 referring to t!at portion of t!e net assets directl# or indirectl# contri3uted 3# t!e stoc(!olders as consideration for t!e stoc(s issued to t!em upon t!e 3asis of t!eir par or issued value6
)ac*+s Lecture

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21)3

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
ano 3a #anL :n t!is case4 t!e '"C must loo( in6 Li(e t!is fellow @enr# Ng of >nimart4 !e doesn8t declare dividends and !e8s alwa#s sa#ing Be5pansionC : don8t (now !ow !e8s getting awa# wit! itS 26 :f t!e corporation is pro!i3ited 3# a loan agreement from declaring dividends wit!out t!e consent of t!e creditors or w!en t!e consent !as not 3een o3tained6 9ell4 usuall# if it8s a 3ig loan t!e creditor will re;uire t!at as a condition and t!e# will ma(e sure t!e corp !as enoug! funds to pa# 'pecial circumstances t!ere is a need to 3uild up reserves for contingencies (e56 !ere is a stri(e and t!e union filed a case for unfair la3or practice 3ecause man# emplo#ees were terminated so t!e# said if we lose we will 3e made to pa# 3ac(wages and t!at will amount to a !eft# amount so we 3etter start 3uilding reserves

:tong si 2g3a#ani sa3i it cannot 3e declared 3ut t!e '"C said it can 3e declared4 su3?ect to certain ;ualifications6 One of t!e tric(s for window dressing t!e financial statement is w!en t!e value of t!e corp is negative #ou !ave #our real propert# re1 appraised6 Now4 t!e appraisal will increase t!e value of t!e propert# and t!at wipes out #our negative value t!at8s w!# normall# #our e5ternal auditor will put a footnote in #our financial statement for several #ears indicating t!at t!ere !as 3een a re1 evaluation6 Now4 according to 2g3a#ani it cannot 3e declared 3ut t!e '"C sa#s it can 3e declared su3?ect to certain conditions6 !e propert# must 3e su3?ect to depreciation so if it is land #ou cannot declare a dividend6 :t must 3e su3?ect to depreciation and t!en #ou c!arge depreciation allowance and #ou !ave retained earnings t!en #ou can declare t!at as dividends6 16 reasur# s!ares4 if t!e# are declared4 s!ould 3e considered propert#4 not stoc( dividends6 Now t!e law provides (ta(en from a decree issued 3efore) t!at if t!e surplus profits e5ceed 100A of t!e paid1in capital4 #ou must declare dividends w!et!er cas! or stoc( ot!erwise #ou will 3e fined 3# t!e '"C6 !at is one of t!e rac(ets of '<G6 BO4 mataas na #ung retained earnings n#o4 lagpas ng 100A mumulta!an (a#o ng '"C4 #ou !ave to declare dividends6C 'o at t!e end of t!e #ear in #our financial statement wala na #an and of course 3ecause of t!at4 t!e# will !ave to prepare a long1form report (asi !indi na (asali sa fiscal #ear and si#empre tatagain (a for t!e long1form report6X =ustified 3# definite corporate e5pansion pro?ects approved 3# t!e 3oard6 For instance #ou get a franc!ise from a3road t!ere will 3e a development sc!edule6 For instance t!e# will tell #ou to open so man# outlets wit!in & #ears so w!en +un(in +onuts first opened t!e# were re;uired to open & outlets wit!in & #ears so t!e compan# was not declaring an# dividends6 9!atever retained earnings t!e# were accruing were 3eing used to put up ot!er outlets6 9e !ave t!is client w!o owned a !eav# mi5 (L) plant and said t!at t!e present plant cannot cope wit! our volume of 3usiness6 9e !ave to put up a 3igger plant so t!e# purc!ased a parcel of land in t!e C2L2*2RYON and t!e# will need 100 million to put up t!e new plant so t!e# are not declaring an# dividends6 *ut it !as to 3e definite in fact4 t!e '"C will as( for copies of t!e *oard Resolution s!owing t!e definite e5pansion plans6 !e *oard Resolution is sufficient of course4 #ou can8t 3e s!owing t!e same resolution for & #ears in a row6 Eung !indi gumagalaw #ung financial statement or !indi gumagalaw #ung assets4

36

Now t!e dividends will 3e given to t!e 'toc(!older ('@) of record6 :f t!e '@ sells !is s!ares 3ut t!e transfer !as not 3een recorded in t!e 3oo(s of t!e corporation4 it goes to t!e seller 3ut !e will !ave to deliver t!at to t!e 3u#er6 !at is 3etween !im and t!e 3u#er 3ecause remem3er it is t!e 3oo(s t!at are controlling6 >suall# w!en t!e corporation declares a dividend it will sa# Bresolve t!at t!e corporation declare a cas! div of 2&A on Fe3 2& to '@ of record as of Fe3 1& 2002 and for t!is purpose t!e 3oo(s of t!e corporation 3e closed at t!e end of 3usiness !ours on Fe3 1& and will 3e open again at -D00 am of Fe3 2) 2002C6

(i+ Ca$h +ividend pa#a3le in cas! 2s soon as cas! dividends are pu3licl# declared4 t!e stoc(!olders !ave t!e rig!t to t!eir pro rata shares. :t is t!e declaration of t!e dividends w!ic! creates 3ot! t!e dividends itself and t!e rig!t of t!e stoc(!olders to demand and receive it6 (%age $0)4 +e Leon4 200) citing '"C Opinion4 Octo3er /4 1//2) Can 3e declared 3# mere *oard resolution from unrestricted earnings6 (%age 2$) of CLG8s CLR4 200,) Revoca3le 3efore announcement to t!e s!are!olders6 (%age -3) of CLG8s CLR4 200,)
Catindig Class Notes

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21)$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA so4 suc! date s!all 3e t!e date of t!e notice of meeting6 (%age $-$ of +e Leon4 200)) !ere is no !ard and fast rule descri3ing t!e interval of time 3etween t!e date of t!e declaration of dividends4 the !ate of recor! of stoc(!olders entitled t!ereto4 and t!e date of pa#ment4 t!e same 3eing left to t!e sound and ?udicious discretion of t!e directors6 ('"C Opinion4 2pril 114 1/)2) :t is customar# for t!e directors to fi5 t!e time for pa#ment of a dividend6 *ut a corporation cannot discriminate among t!e s!are!olders as to t!e time of pa#ment of dividends6 :f no time is fi5ed 3# t!e resolution declaring a dividend4 it is pa#a3le on demand4 and if t!e resolution declares t!at it s!all 3e pa#a3le at suc! time as t!e 3oard of directors ma# direct and t!e 3oard fi5es no time4 t!e law implies t!at it s!all 3e paid wit!in a reasona3le time6
Catindig Class Notes ecord date must be a current or prospective date/ never a past date. 0: .hy not a past date for record date2 3: 7ecause of the problem of asymmetric information. 1n sales of stock/ price is the primary consideration. 3nd price is determined by information. 1f record date is ante9dated/ the seller might be prejudiced because in setting the price it did not consider the benefit of dividends.

0: 14 :<<L/ U !orp has U 6 of ;<<*. *he amount is not enough to cover cash dividends to all S5s. 5ere/ no declaration of dividends during the ;st >uarter. Anly in %une/ the corp ac>uired ? (. So ?(&;<<* income in U 6. !ould the corp declare a cash dividend of K.; (. 3: 4o. K.; ( is stil part of capital or it is not yet par of U 6. *o issue cash dividends of K.;( might violate the trust fund doctrine.

(ii+ Stoc9 :t is dividend pa#a3le in unissued or increased or additional s!ares of t!e corporation instead of in cas! or in propert# out of t!e unrestricted retained earnings of t!e corporation6 2 stoc( dividend ma# 3e declared onl# to t!e e5tent of t!e ma5imum num3er of s!ares aut!orized in t!e articles of incorporation6 +eclaration ma# 3e revo(ed prior to actual issuance6 (%age -3) of CLG8s CLR4 200,)
Catindig Class Notes 0: .hat are dividends2 3: 1t refers to return of investment. 1t is what a S5 would want their 7oard to declare. 0: if a corp has treasury shares/ can it decide to give the shares to S5s2 3: Cep/ it could be property dividends being assets of a corporation. +Si 1na yata nagrecit nito-

(iii+ Propert7 :t is dividend distri3uted to t!e stoc(!olders in t!e form of propert#4 real or personal4 suc! as ware!ouse receipts4 or s!ares of stoc( of another corporation6 (i"+ Interi%
Catindig Class Notes 0: 1s this your first time to hear interim .hat do you mean by interim2 3: 1t means temporary di ba. 8eclaration of interim dividends is not prohibited by law.

("+ Recor! -ate Record date is fi5ed 3# t!e 3oard of directors for determination of stoc(!olders entitled to vote7 if it does not do

("i+ Li%itation on retention of $'rp6'$ profit$ 'toc( corporations are pro!i3ited from retaining surplus profits in e5cess of 100A of t!eir paid9in capital stoc( e5cept w!en ?ustified 3# an# of t!e reasons mentioned6 ('ection $3(2)) Of t!e re;uirement w!ic! is mandator# is violated4 t!e corporation ma# 3e compelled 3# t!e '"C to declare dividends to its stoc(!olders6 !e pro!i3ition on retention of profits provided in 'ection $3 is applica3le to all stoc( corporations6 !ere ma# 3e some ;uestion as to w!et!er or not t!e retention of profits is ?ustified 3# t!e Breasona3le needs of t!e 3usinessC6 'uffice it to sa# t!at t!e polic# of t!e law to

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21)&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
corporations own or control more t!an one1t!ird (1K3) of t!e total outstanding capital stoc( entitled to vote of t!e managing corporation7 or (2) w!ere a ma?orit# of t!e mem3ers of t!e 3oard of directors of t!e managing corporation also constitute a ma?orit# of t!e mem3ers of t!e 3oard of directors of t!e managed corporation4 t!en t!e management contract must 3e approved 3# t!e stoc(!olders of t!e managed corporation owning at least two1t!irds (2K3) of t!e total outstanding capital stoc( entitled to vote4 or 3# at least two1t!irds (2K3) of t!e mem3ers in t!e case of a non1stoc( corporation6 No management contract s!all 3e entered into for a period longer t!an five #ears for an# one term6 !e provisions of t!e ne5t preceding paragrap! s!all appl# to an# contract w!ere3# a corporation underta(es to manage or operate all or su3stantiall# all of t!e 3usiness of anot!er corporation4 w!et!er suc! contracts are called service contracts4 operating agreements or ot!erwiseD %rovided4 !owever4 !at suc! service contracts or operating agreements w!ic! relate to t!e e5ploration4 development4 e5ploitation or utilization of natural resources ma# 3e entered into for suc! periods as ma# 3e provided 3# t!e pertinent laws or regulations6 (n)
)ac*+s Lecture 2 corporation can enter into a management contract6 9!at t!e law reall# does !ere is to regulate management contracts6 .gt contracts can 3e necessar# at times6 Li(e !ere is a mining compan# w!ose directors and officers don8t (now an#t!ing a3out mining6 !e# can enter into a contract wit! a corporation w!ic! !as tec!nical e5pertise to manage its mines6 Qou !ave t!at case of 4ielson E !o. vs. "epanto w!ere Lepanto entered into a managment contract wit! Nielson W Co6 to manage its mines6 9!en t!e war 3ro(e out4 t!e =aps too( over t!e mines of Lepanto6 (Qamas!ita must !ave 3een t!ere6) 2fter t!e war4 Nielson wanted to continue t!e contract 3ecause t!ere was a stipulation t!ere t!at if t!e contract is interrupted4 it will 3e e5tended6 Lepanto did not agree6 Nielson W Co6 sued6 !e contract provided t!at t!e# would 3e provided a certain percentage of t!e gross income as t!eir management fee6 :n addition4 Nielson W Co6 would get a certain percentage of t!e stoc( dividends t!at will 3e declared6 Lepanto lost in t!e 'C in +ecem3er 1/))6 !e award reac!ed a3out 30 .illion pesos6 ( !at case was !andled 3# :(e *ello (for Lepanto) w!o was devastated 3# t!e decision6) Lepanto went to our office w!ic!

encourage and force t!e distri3ution of dividends curtails t!e discretionar# power of directors to retain corporate earnings6 'ection 2/ of t!e a5 Code imposes a 10A surta5 on corporations improperl# accumulating profits or surplus4 in addition to ot!er income ta5es imposed on corporations6 !e purpose is to prevent individual ta5pa#er from avoiding t!e progressive rates of income ta5 3# emplo#ing t!e corporate form for t!e accumulation of ta5a3le income6 (%age 3/,4 +e Leon4 200)) Note, No dividends can 3e declared out of capital4 e5cept li;uidating dividends distri3uted at dissolution6 ('ection 122) Note, +ividends (w!et!er cas! or stoc() can 3e declared onl# out of t!e unrestricted retained earnings4 alt!oug! stoc( dividends ma# 3e issued out of premium surplus (since in t!e latter case4 it is not!ing 3ut a 3oo(1entr# procedure)6 (%age -3, of CLG8s CLR4 200,)
Catindig Class Notes 0: 5ow does a corporation prove that the e,ceptions apply to them as regards retained profits in e,cess of ;<<M2 3: 7o8 issues a 6SA"U*1A4 approving corporation e,pansion +for e,ample-. 7o8 creates a reserve. 6,cerpts of (14U*6S of the 7oard esolution may be shown to the S6!. 0: .hat are those legal provisions as regards retention of surplus profits2 3: +;- Section ?K +:- *a, !ode/ Section :=

(i+ To enter into %ana#e%ent contract$ (Section ))+


Sec. )). Po(er to enter into management contract No corporation s!all conclude a management contract wit! anot!er corporation unless suc! contract s!all !ave 3een approved 3# t!e 3oard of directors and 3# stoc(!olders owning at least t!e ma?orit# of t!e outstanding capital stoc(4 or 3# at least a ma?orit# of t!e mem3ers in t!e case of a non1stoc( corporation4 of 3ot! t!e managing and t!e managed corporation4 at a meeting dul# called for t!e purposeD %rovided4 !at (1) w!ere a stoc(!older or stoc(!olders representing t!e same interest of 3ot! t!e managing and t!e managed

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21))

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA t!at suc! a management contract is a deviation form t!e principle under 'ection 23 t!at t!e corporate affairs s!all 3e managed 3# t!e 3oard of directors4 and t!ere3# a departure from suc! an agreement would re;uire t!e approval of t!e stoc(!olders under t!e principle t!at it would var# t!e contractual corporate arrangements4 3# allowing 3asicall# an outsider to involve itself in t!e management of corporate affairs6 (%age 2)3 of CLG8s e5t3oo() Rationa6e for Ratification ReI'ire%ent$ on Part of Mana#in# Corporation. !at t!e management arrangement is a deviation form t!e principle also t!at t!e 3oard of directors in t!e managing corporation assumed office wit! t!e understanding t!at t!e# would devote t!eir time and resources for t!e affairs of t!e corporation6 (%age 2)3 of CLG8s e5t3oo() !e ratificator# procedure s!ould not t!erefore 3e applica3le to a corporation t!at is organized primaril# as a management compan#4 and its entering into a management contract is clearl# wit!in t!e primar# purpose of t!e corporation and in accordance wit! t!e contractual understanding wit! t!e stoc(!olders of suc! managing corporation6 (%age 2)3 of CLG8s e5t3oo() Ca$e$ not co"ere! /7 Section )). 9!en it comes to a management contract entered into 3# t!e managed corporation under t!e definition of 'ection $$4 not =ith another corporation /'t =ith a partner$hip or an in!i"i!'a64 t!e same would not 3e covered 3# and t!ere3# need not compl# wit! t!e ratificator# re;uirements of 'ection $$6 (%age 2)3 of CLG8s e5t3oo() 2 management contract cannot delegate entire supervision and control over t!e officers and 3usiness of a corporation to anot!er as t!is will contravene 'ection 236 !e 3oard cannot

drafted a motion for reconsideration6 One of t!e arguments raised was t!at a management contract is a contract of agenc#6 !erefore4 it can 3e terminated at an# time6 *ut t!e Court re?ected t!at argument6 !e Court said t!at a management contract is a contract for lease of services6 :t does not involve a representation so #ou cannot terminate it at an# time6 !e Court4 !owever4 eliminated t!e award for stoc( dividend6 :t said t!at Nielson W Co6 was not a stoc(!older and onl# a stoc(!older can 3e given stoc( dividends6 !e law tries to regulate management contracts 3ecause it !as 3een used too often to UUUUUUU mone# for t!e corporation6 9!en 'oriano was still managing %2L4 !e was a minorit# stoc(!older 3ut !e !ad t!is compania w!ic! !ad a management contract6 'o 'oriano W Co6 was getting a percentage of t!e gross income of %2L6 "ver#time %2L would 3u# or sell an#t!ing4 it !ad a commission6 9!en oda(L) too( over %2L4 !e did t!e same t!ing wit! !is Ru3icon w!ic! !ad a management contract6 !at8s w!# w!en .r6 Fred Ramos of National *oo(store was ;uestioning t!isK was waging a pro5# fig!t against 'oriano ::: in 2tlas .ines4 t!at was an issue !e raised6 @e said t!at 2tlas .ining !ad a management contract wit! 'oriano Compania w!ic! was c!arging a fee 3ased on t!e gross income6 !is was a time w!en 2tlas was incurring losses6 :n fact4 later4 2tlas .ining closed6 !is is w!# t!e laws sa#s t!at a management contract s!ould 3e approved 3# ma?orit# of t!e *oard4 3# ma?orit# of t!e stoc(!olders4 of 3ot! t!e managed and managing corporation6 2nd if a stoc(!older of t!e managed corporation owns more t!an 1K3 of t!e managing corporation4 t!e management contract must 3e approved 3# at least 2K3 of t!e stoc(!olders of t!e managed corporation6 2 management contract s!ould not 3e valid for more t!an & #ears for an# one term6 Qou can ?ust (eep renewing it provided4 t!at it is not for more t!an & #ears at an# one time6

Mana#e%ent Contract is an agreement w!ic! a corporation delegates t!e management of its affairs to anot!er corporation for a certain period of time6 (%age $23 of +e Leon4 200)) Rationa6e for Ratification ReI'ire%ent$ on Part of Mana#e! Corporation6 !e rationale for t!e ratificator# re;uirement under 'ection $$ of t!e managed corporation is

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21),

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
:t would 3e different w!en t!e propert# dividend is declared out of additional paid1in capital6 >nder t!is situation4 t!e capital of t!e corporation represented 3# t!e additional paid1in capital is reduced to t!e e5tent of t!e propert# dividend declared6 !is is not allowa3le since t!is will involve return of capital to stoc(!olders6) R'6e, !e capital surplus or additional paid1in capital can onl# 3e declared as stoc( dividends 3ut not as cas! or propert# dividends6

surrender or a3dicate its power and dut# of supervision and control for ot!erwise4 it 3ecomes a mere instrumentalit# of t!e management compan#6 (*allantine4 page 13))
Catindig Class Notes *ip: "arge corporation use SP3 system of 6,e!om for efficiency. Ather modes: +;- SP3 system +:- 6,e !om +K- !ombination of both +?- (anagement !ontract

).) I%p6ie! Po=er$


'ection $& recognizes also implied powers of ever# corporate entit# emanating from its e5press powers6 ,

).. A!!itiona6 %ateria6, SEC Opinion No. 31@ $erie$ of AA. a!!re$$e! to Att7. Lie06 C. Para$ re i$$'ance of $toc9 !i"i!en!$ o't of pai!:in $'rp6'$
SEC Opinion No. 31 M, .a# a corporation issue stoc( dividends to 3e paid from its paid1in surplusL A, Qes6 2s a rule in corporate practice4 additional paid1in surplus !as two general usesMto wipe off deficits during re1organization and as pa#ment for issuance of stoc( dividends6 *asic in corporate law is t!e rule t!at paid1in surplus cannot 3e issued as cas! or propert# dividends 3ecause it would4 in effect4 result in a return of capital w!ic! is pro!i3ited under 'ection $3 of t!e Corporation Code6 @owever4 in t!e case of issuance of stoc( dividends4 t!e same ma# 3e sourced from t!e corporation8s paid1in surplus /eca'$e that =o'6! on67 in"o6"e a rec6a$$ification of one capita6 acco'nt to another6 ( !e declaration of stoc( dividends from paid1in surplus was allowed ta(ing into consideration t!at w!en a corporation converts t!e premium or contri3uted surplus into capital 3# issuing to its stoc(!olders s!ares of stoc( representing t!eir respective participation4 it actuall# parts wit! not!ing 3ut merel# transfers t!e surplus capital account and issues s!ares of stoc( to represent t!e same6

I%p6ie! po=er$ are t!ose powers w!ic! are reasona3l# necessar# to e5ecute t!e e5press powers and to accomplis! or carr# our t!e purposes for w!ic! t!e corporation was formed6 N !ese implied powers are e5pressl# recognized 3# 'ection 3)(11)6O (4akakalito na ba2 5ahaha !e purpose or purposes for w!ic! for w!ic! t!e corporation was created4 as stated in its articles of incorporation4 3# defining t!e scope of corporate 3usiness or enterprise4 in effect4 delimit its implied powers6 (+e Leon 200) at 313) C6a$$ification of i%p6ie! po=er$, (3) 2cts in t!e usual course of 3usiness(;) 2cts to protect dents owing to a corporation/ (-) "m3ar(ing in different 3usiness
;

No ,or*oration@s#all *ossess or e-er,ise any ,or*orate *o5ers e-,e*t t#ose ,on'erred "y t#is Code or "y its Arti,les o' In,or*oration and e-,e*t s),# a! nece!!ary or "nc"#enta$ to the e%erc"!e of the &o'er! !o conferre#() A E-am*les? 2orro5ing money1 ma/ing ordinary ,ontra,ts1 e-e,)ting *romissory notes1 a,:)iring *ersonal *ro*erty 'or )se in ,onne,tion 5it# t#e ")siness et,4 Key All a,ts ne,essary to r)n a ")siness )nder ordinary ,ir,)mstan,es4 6 It is generally #eld t#at a ,or*oration may tem*orarily ,ond),t an o)tside ")siness to ,olle,t a de"t o)t o' its *ro'its4 See Se,tion 3(11)4

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21)-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
2 mining compan# !as no power to engage in real estate development6 5eirs of 3ntonio Pael v. !ourt of 3ppeals/ 3,2 'CR2 &-, (2001)6 2n officer w!o is aut!orized to purc!ase t!e stoc( of anot!er corporation !as implied power to perform all ot!er o3ligations arising t!erefrom suc! as pa#ment of t!e s!ares of stoc(6 1nter93sia 1nvestments 1ndustries v. !ourt of 3ppeals4 $03 'CR2 $&2 (2003)6

(6) 2cts in part or w!oll# to protect or aid emplo#ees10


(10)2cts to increase 3usiness
11

EBpre$$ ". I%p6ie! Po=er$ EBpre$$e! I%p6ie! @ave to do largel# wit! t!e main @ave to do largel# wit! t!e 3usiness4 o3?ects and purposes means and met!ods of attaining of t!e corporation6 t!ose o3?ects and purposes6 +etermined 3# t!e language of .a# c!ange according to time4 t!e corporate c!arter and t!e place4 and surrounding applica3le law6 circumstances6 !e test is w!et!er t!e powers !e test is w!et!er t!e# are fairl# are found in t!e words of t!e incidental to t!e (former) and c!arter of t!e law reasona3l# necessar# to carr# t!em out in t!e furt!erance of t!e corporation8s 3usiness6
9!en t!e articles e5pressl# provide t!at t!e purpose of t!e corporation was to Bengage in t!e transportation of person by water4C suc! corporation cannot engage in t!e 3usiness of land transportation4 w!ic! is an entirel# different line of 3usiness4 and4 for w!ic! reason4 ma# not ac;uire an# certificate of pu3lic convenience to operate a ta5ica3 service6 "uneta (otor !o. v. 3.8. Santos/ 1nc64 & 'CR2 -0/ (1/)2)6 2 corporation w!ose primar# purpose is to generate electric power !as no aut!orit# to underta(e stevedoring services to unload coal into its pier since it is not reasona3l# necessar# for t!e operation of its power plant6 4P! v. #era/ 1,0 'CR2 ,21 (1/-/)6 2 corporation organized to engage as a lending investor cannot engage in paw3ro(er6 Philipinas "oan !o. v. S6! 4 3&) 'CR2 1/3 (2001)6

).3 U6tra &ire$ Act$


Sec. )3. Ultra #ires acts of corporations No corporation under t!is Code s!all possess or e5ercise an# corporate powers e5cept t!ose conferred 3# t!is Code or 3# its articles of incorporation and e5cept suc! as are necessar# or incidental to t!e e5ercise of t!e powers so conferred6 (n) U6tra "ire$ refers to an act outside or 3e#ond corporate powers4 including t!ose t!at ma# ostensi3l# 3e wit!in suc! powers 3ut are4 3# general or special laws4 pro!i3ited or declared illegal6 ( win owers Condo v6 C24 2003 cited in CLG8s CLR4 200,) 4ote: 1f the contract is ultra vires but has been completely performed by both parties/ it can no longer be set aside. 1f it has been performed by one party and the other party doesn$t comply/ if he is sued/ he cannot raise the defense that the contract is ultra vires because having benefited from the performance of that contract/ he will be in estoppel to raise that defense. ULTRA VIRES ACTS: (1) Acts done beyond the powers of the corporation as pro ided for in the !aw or its artic!es of incorporation" (#) Acts or contracts entered into in beha!f of the corporation by persons who ha e no corporate a$thority" and (%) Acts or contracts which are per se i!!e&a! as bein& contrary to !aw'

1> 11

See Se,tion 3(1>)4 A ,or*oration may ,ond),t ,ontests or s*onsor radio or tele$ision *rograms1 or *romote 'airs and ot#er gat#erings to ad$ertise and in,rease its ")siness4

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21)/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
good fait! dealt wit! it t!roug! suc! agent4 3e estopped from den#ing t!e agent8s aut!orit#6 NoteD "5istence of apparent aut!orit# must 3e ascertained t!roug!D (a) #enera6 %anner in w!ic! t!e corporation !olds out an officer or agent as !aving t!e power to act or in4 ot!er words4 t!e apparent aut!orit# to act in general4 wit! w!ic! it clot!es !im7 or (3) t!e acI'ie$cence in !is acts of a particular nature4 wit! act'a6 or con$tr'cti"e 9no=6e!#e t!ereof4 w!et!er wit!in or 3e#ond of !is ordinar# powers6 :f t!e corporation desires to set up t!e defense t!at t!e contract was e5ecuted 3# one not aut!orized as agent4 it %'$t p6ea! suc! fact6 (Ramirez +octrine) @owever4 once t!e corporation !as disc!arged its 3urden under t!e Ramirez +octrine4 t!en t!e 3urden of proof now s!ifts to t!e contracting part# to s!ow t!at indeed 3# previous acts and actuations4 t!e acting officer !ad 3een clot!ed 3# t!e corporation wit! apparent aut!orit# for t!e pu3lic to ta(e suc! aut!orit# at face value6 (Qao Ea 'in1 imel# Repudiation +octrine)
CLV Class Notes >! !an two corporations form a partnership2 A! 4o. 1f two corporations try to form a partnership/ none would be created thereby. +*uason v. 7olanos- *he reason behind the rule that corps cannot validly enter into a partnership is because in the partnership all the other partner can bind the partners under the mutual agency principle which would be violative of the principle of of centrali'ed management under Section :K of !orp !ode which provides that only the 7o8 can bind the corporation. +Page O<; of !"#$s !" /:<<D>! !an : corporations enter in a joint venture2 A! Ces. !orporations have legal capacity to form a joint venture/ i.e./ one with a limited purpose and duration. >! .hat makes a project or undertaking a joint venture2 A! .hat makes a project or undertaking a joint venture to authori'e the corporation to be a co9venturer therein is the very nature and essence of the undertaking that limits it to a particular project which allows the board of directors of the participating corporation to properly evaluate all the conse>uences and likely liabilities to which the corporation would be held liable for.+ Page :LD of !"#$s *e,tbook-

(1+ Act$ !one /e7on! the po=er$ of the corporation a$ pro"i!e! for in the 6a= or it$ artic6e$ of incorporation; .onteli3ano estD o :f t!e act is one w!ic! is lawful in itself o !e act in ;uestion is not in direct and immediate furtherance of t!e corporation8s /'$ine$$4 and is not fairly incident to t!e e5press po=er$ and reasonably necessary to t!eir e5ercise6 ( + Act$ or contract$ entere! into in /eha6f of the corporation /7 per$on$ =ho ha"e no corporate a'thorit7; an! (.+ Act$ or contract$ =hich are per $e i66e#a6 a$ /ein# contrar7 to 6a=. 7 !e act is illegal per se 7 @arden estD o "ven w!en acts are illegal per se4 w!en onl# pu3lic or government polic# is at sta(e and no private wrong is committed4 t!e courts will t!e parties as t!e# are4 in accordance wit! t!eir original contractual e5pectations6 For Act$ or contract$ =hich are not per $e i66e#a6, Genera6 R'6e, :n t!e a3sence of an aut!orit# from t!e 3oard of directors4 no person4 not even t!e officers of t!e corporation4 can validl# 3ind t!e corporation6 EBception$, (1) Doctrine of %atification or stoppel1 2cts of contracts w!ic! are not per se illegal can 3e validated6 "ven w!en t!e contract entered into in 3e!alf of t!e corporation is outside t!e usual powers of t!e corporate officer4 t!e corporation8s ratification of t!e contract and acceptance of the benefits !ave made suc! contract 3inding upon t!e corporation6 NoteD Ratification t!at would 3ind t!e corporation would !ave to come from t!e 3oard of directors or a properl# aut!orized representative6 Ratification can never 3e made on t!e part of t!e corporation 3# t!e same persons w!o wrongfull# assume t!e power to ma(e t!e contract4 3ut t!e ratification must 3e 3# t!e officers as governing 3od# !aving aut!orit# to ma(e suc! contract6 (2) Doctrine of Apparent Authority: :f a corporation (nowingl# permits one of its officers4 or an# ot!er agent to act wit!in t!e scope of an apparent aut!orit#4 it !olds !im out to t!e pu3lic possessing t!e power to do so t!ose acts7 and t!us4 t!e corporation will4 as against an#one w!o !as in

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21,0

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

>! 7akit pede sa joint venture and hindi sa partnership2 A! 1n a joint venture/ being for a particular project undertaking/ when the 7o8 of a corp evaluate the risks and responsibilities involved/ they can more or less e,ercise their own business judgment in determining the e,tent by which the corp would be involved in the project and the likely liabilities incurred. Unlike in an ordinary partnership arrangement which may e,pose the corporation to any and various liabilities and risks which cannot be evaluated and anticipated by the board. +Page :LD of !"#$s *e,tbookCatindig Class Notes 0: U corp has several #Ps. 7o8 approved issuance of corporate credit card to #Ps. *he credit company re>uired U !orp to guarantee the card obligation of the #Ps. U corp is not in the business of issuing guaranties or sureties. !an U !orp without violating Section ?F guarantee the card obligations2 *ip: !onsider the primary purpose of the corporation. +*ry to relate to the primary purpose of the corp/ if you could then there is no ultra vires0: 6mployees applied for limited credit facilities with a grocery store nearby the corp. !an the corp guarantee F<M of the obligations2 3: C6S. +Such guarantee will improve the morale of the employees. 6mployees with high9morale are good for the business.-

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21,1

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
alread#4 in ot!er words4 past services6 !en4 previous de3t6 'o w!en de3t !as 3een converted into e;uit#6 !en amount transferred from unrestricted retained earnings to capital6 !at is w!at !appens w!en t!e corporation declares a stoc( dividend6 2 3oo((eeping entr# will 3e made and t!e amount corresponding to t!e stoc( dividend will 3e de3ited from unrestricted retained earnings and transferred to capital6 !en outstanding s!ares e5c!anged for stoc(s in t!e event of reclassification or conversion6 For instance4 a preferred s!are is given t!e option to 3e e5c!anged for common s!ares6 9!en #ou surrender4 #ou8ll 3e given common s!ares6 Or sa#4 t!e corporation decided to c!ange t!e par value from %100 to %106 'o t!e# sa#4 #ou (now4 it8s ver# !ard to sell t!e s!ares in t!e stoc( mar(et 3ecause t!e price is too !ig!6 %100S 'toc(!olders will 3e as(ed to surrender t!eir stoc( certificates6 :n return4 t!e# will 3e given new stoc( certificates wit! t!e par value of %106 Or w!en #ou !ave a merger4 stoc(!olders of t!e a3sor3ed corporation will surrender t!eir s!ares and in e5c!ange t!e# will 3e given s!ares in t!e surviving corporation6 2nd also4 it is illegal to issue s!ares w!ere t!e consideration is a promissor# note6 2 promise to pa# for future services6 Now t!e stoc( certificate will 3e signed 3# t!e %resident4 or in !is a3sence t!e Gice1%resident4 and countersigned 3# t!e 'ecretar# (VLKJ Certificate of stoc( and transfer of s!ares)6 !at8s w!# in one caseF#ou !ave t!is orres caseF a retired =udge w!o was t!e controlling stoc(!older in a corporation6 2nd !is nep!ew to w!om !e !ad given s!ares of stoc( turned out to 3e recalcitrant and ram3unctious so !e decided to regain control of t!e corporation 3# giving s!ares to ot!er nep!ews6 2nd w!at did !e doL @e was t!e president of t!e corporation and !e simpl# posted entries in t!e stoc( and transfer 3oo(6 O4 one s!are to t!is fellow4 anot!er s!are to t!atF !e court said t!at t!at is not valid6 !at is not t!e wa# toFand 3esides4 !e is t!e president4 not t!e corporate secretar#6 @e is not supposed to !andle t!e stoc( and transfer 3oo(6 Catindig Class Notes 0: 5ow to become a S52 3: +;- Subscribing to new shares +:- Purchase of previously issued sharesJ +K- Succession 0: .hat are the advantages to the corp pf having subscription agreements2 3: *he corp can set a date for payment of balance. 4o need for a call in this case.

3. STOC8HOL-ERS
3.1 S'/$cription to $hare$ (a+ Ho= !o 7o' acI'ire $hare$ in a co%pan7D
In a corporation@ a per$on %a7 /eco%e a $hareho6!er, (1) *# su3scription contract wit! an e5isting corporation for t!e ac;uisition of unissued s!ares6 (2) *# purc!ase from t!e corporation of treasury shares. (3) *# transfer from a previous stoc(!older of t!e outstanding s!ares or e5isting su3scription6 (+e Leon p6 &104 200)) (:8m not sure if isasama dito #ung Bma(ing a stoc( dividendC and assignment 12'. (p&2- of +e Leon4200))) !atindig: emember the modes of ac>uiring ownership like succession. What i$ a $hareD '!ares of stoc( issued 3# t!e corporation Bare personal propert# and ma# 3e transferred 3# deliver# of t!e certificate or certificates indorsed 3# t!e owner or !is attorne#1in1fact or ot!er persons legall# aut!orized to ma(e t!e transfer6C ('ection )3) '!ares of 'toc( t!erefore are properties and !ave intrinsic pecuniar# value6 (page 3)2 of CLG8s e5t3oo()
)ac*+s Lecture V L< N'u3scription contractO simpl# defines w!at is a su3scription agreement and V L;N%re1incorporation su3scriptionO sa#s a su3scription for s!ares of stoc( of a corporation still to 3e formed s!all 3e irrevoca3le for at least ) mont!s unless all t!e su3scri3ers agree or t!e incorporation fails to materialize6 VL: NConsideration for stoc(sO mentions t!at consideration ma# 3e paidF :t sa#s !ere t!at stoc( s!ould not 3e issued for a consideration less t!an t!e par value4 or if it is a no1par value s!are4 less t!an t!e stated value and t!e consideration possi3le ma# 3e actual cas! w!ic! is t!e most common consideration6 Or propert#6 %a#ment made in t!e form of propert#4 t!e '"C will re;uire an appraisal6 >suall#4 t!e propert# given will 3e land so t!e# will re;uire an appraisal6 2nd t!en4 la3or actuall# rendered

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21,2

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA t!em from t!e operations of ordinar# contract principles4 suc! as rescission 3# reason of 3reac!4 waiver4 condonation or mutual wit!drawal and t!e effects of t!e !appening and non1 !appening of conditions4 to ensure t!at su3scription due t!ereon will 3e paid for t!e protection of corporate creditors under t!e trust fund doctrine6 (%age -)0 of CLG8s CLR4 200,) Ne"erthe6e$$4 a su3scription agreement is a species of t!e genus sale in t!at it involved t!e transfer of owners!ip to a propert# rig!t (s!are) for a valua3le consideration6 (%age -)2 of CLG8s CLR4 200,)

!atindig: ==M of the time/ subscription does not have subscription agreement. *ip: @or incorporation/ it is advisable to pay in cash to avoid delay due to valuation. !: 1n case of additional issuance of shares +after incorporation-/ the S6! would take the word of the corporation/ anyway the transaction will appear on the 7alance Sheet.

(/+ What i$ $'/$criptionD (Section 4A+


Sec. 4A. &ubscription contract 2n# contract for t!e ac;uisition of unissued stoc( in an e5isting corporation or a corporation still to 3e formed s!all 3e deemed a su3scription wit!in t!e meaning of t!is itle4 notwit!standing t!e fact t!at t!e parties refer to it as a purc!ase or some ot!er contract6 (n) Sec. 5 . %ights of unpaid shares @olders of su3scri3ed s!ares not full# paid w!ic! are not delin;uent s!all !ave all t!e rig!ts of a stoc(!older6 (n)

(c+ What are (Section 41+

pre:incorporation

$'/$cription$D

Sec. 41. Pre,incorporation subscription 2 su3scription for s!ares of stoc( of a corporation still to 3e formed s!all 3e irrevoca3le for a period of at least si5 ()) mont!s from t!e date of su3scription4 unless all of t!e ot!er su3scri3ers consent to t!e revocation4 or unless t!e incorporation of said corporation fails to materialize wit!in said period or wit!in a longer period as ma# 3e stipulated in t!e contract of su3scriptionD %rovided4 !at no pre1 incorporation su3scription ma# 3e revo(ed after t!e su3mission of t!e articles of incorporation to t!e 'ecurities and "5c!ange Commission6 (n)

S'/$cription is an offer to ac;uire a specified num3er of unissued s!ares of an e5isting corporation or one still to 3e formed6 (%age &12 of +e Leon4 200)) S'/<ect Matter. !ere can 3e a su3scription onl# wit! reference to stoc* (hich has ne#er been issued6 (%age &11 of +e Leon4 200)) !e Code pro!i3its t!e distinction 3etween t!e sale unissued stoc( or su3scription of suc! stoc(7 all contracts for t!e su3scription or sale of unissued stoc( s!all 3e governed solel# 3# t!e rules pertaining to su3scription agreement6 (%age -&/ of CLG8s CLR4 200,) Ho=e"er@ (a) ransfer for consideration of treasur# s!ares is a sale 3# t!e corporation7 (3) 2 transfer of full# paid s!ares 3# a s!are!older to a t!ird person is a sale6 (%age -)0 of CLG8s CLR4 200,) Note, !e purpose of removing all contracts dealing wit! unissued s!ares form t!e coverage of BsaleC is to e5clude

9!en properties were assigned pursuant to a pre1 incorporation su3scription agreement4 3ut t!e corporation fails to issue t!e covered s!ares4 t!e return of suc! properties to t!e su3scri3er is a direct conse;uence of rescission and does not amount to corporate distri3ution of assets prior to dissolution6 On Qong v6 iu4 3,& 'CR2 )1$ (2002)6

(!+ What co'6! /e the con$i!eration for $toc9$D


Sec. 4 . Considering for stoc*s

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21,3

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
t!e purpose6 (& and 1))

'toc(s s!all not 3e issued for a consideration less t!an t!e par or issued price t!ereof6 Consideration for t!e issuance of stoc( ma# 3e an# or a com3ination of an# two or more of t!e followingD 16 2ctual cas! paid to t!e corporation7 26 %ropert#4 tangi3le or intangi3le4 actuall# received 3# t!e corporation and necessar# or convenient for its use and lawful purposes at a fair valuation e;ual to t!e par or issued value of t!e stoc( issued7 36 La3or performed for or services actuall# rendered to t!e corporation7 $6 %reviousl# incurred inde3tedness of t!e corporation7 &6 2mounts transferred from unrestricted retained earnings to stated capital7 and )6 Outstanding s!ares e5c!anged for stoc(s in t!e event of reclassification or conversion6 9!ere t!e consideration is ot!er t!an actual cas!4 or consists of intangi3le propert# suc! as patents of cop#rig!ts4 t!e valuation t!ereof s!all initiall# 3e determined 3# t!e incorporators or t!e 3oard of directors4 su3?ect to approval 3# t!e 'ecurities and "5c!ange Commission6 '!ares of stoc( s!all not 3e issued in e5c!ange for promissor# notes or future service6 !e same considerations provided for in t!is section4 insofar as t!e# ma# 3e applica3le4 ma# 3e used for t!e issuance of 3onds 3# t!e corporation6 !e issued price of no1par value s!ares ma# 3e fi5ed in t!e articles of incorporation or 3# t!e 3oard of directors pursuant to aut!orit# conferred upon it 3# t!e articles of incorporation or t!e 3#1laws4 or in t!e a3sence t!ereof4 3# t!e stoc(!olders representing at least a ma?orit# of t!e outstanding capital stoc( at a meeting dul# called for

!e word issue as used in 'ection )2 refers to t!e original issue4 t!at is4 w!en t!e stoc( first passes from t!e corporation to t!e !ands of stoc(!older6 (%age &2- of +e Leon4 200)) 2 treasur# stoc( t!erefore ma# 3e sold for reasona3le price fi5ed 3# t!e *o+ even for less t!an t!e par or issued value t!ereof6 ('ection /) 9!en consideration is agreed upon is eit!er cas! or propert#4 it is not necessar# for t!e su3scription agreement to 3e valid t!at t!e same must 3e delivered at perfection4 for a su3scription agreement is a consensual (not real) contract4 3eing a species of genus sale6 (%age -)3 of CLG8s CLR4 200,) !e terms Bactuall#FpaidC and Bactuall# receivedC in 'ection )2 is meant to indicate t!at eventuall# t!e consideration must 3e paid and cannot 3e given as a discount or amount to watered stoc(6 (%age -)3 of CLG8s CLR4 200,) 'toc( dividends are in t!e nature of s!ares of stoc(4 t!e consideration for w!ic! is t!e amount of unrestricted retained earnings converted into e;uit# in t!e corporation8s 3oo(s6 Lincoln %!il6 Life v6 Court of 2ppeals4 2/3 'CR2 /2 (1//-)6 12

(i+ Ho= i$ the i$$'e price of no:par $hare$ fiBe!D (Section 4 +


12

T#e "asis 'or determining t#e do,)mentary stam*s d)e on sto,/ di$idends de,lared 5o)ld "e t#eir "oo/ $al)e as indi,ated in t#e latest a)dited 'inan,ial statements o' t#e ,or*oration1 and not t#e *ar $al)e t#ereo'4 Commissioner of Internal Revenue v. Lincoln Phil. Life Insurance Co. 1 ;6 SC=A %2 (2>>2)4

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21,$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

!e issued price of no1par value s!ares ma# 3e fi5edD (1) :n t!e 2o: (2) *# t!e *o+ pursuant to aut!orit# conferred upon it 3# t!e 2o: or t!e 3#1laws7 (3) :n t!e a3sence t!ereof 3# t!e stoc(!olders at a meeting dul# called for t!e purpose representing at least a ma?orit# of t!e outstanding capital stoc(6 Chan#e in the "a6'e of i$$'e! $hare$. !e stated value of t!e issued no par value s!ares cannot 3e c!anged an#more in view of Section 4 (par 3)6(+e Leon4 p &3)4 200)) Chan#e in the "a6'e of 'ni$$'e! $hare$. 2n# c!ange in value of no par value s!ares s!all appl# onl# to unissued portion of t!e capital stoc( of t!e corporation6 ('"C Opinion4 =ul# 314 1/,/) 'ee %age 2/$ of =R'
Catindig Class Notes 0: 8ifference of Par value and no par value shares Par #alue Share 4o Par #alue @loor Price Par #alue 4ot less than PF !eiling 4o !eiling 4o !eiling *he corp normally sells them at par value and not at boo* #alue 1n both cases/ the 7od has discretion to sell at prices higher than floor price. .oo* Value QPaid up capital & Paid in Surplus & 6arningsR B Qtotal number of Autstanding sharesR etained

(ii+ If the con$i!eration for $hare$ i$ other than ca$h@ ho= i$ the "a6'e thereof !eter%ine!D (Section 4 +
9!ere consideration is ot!er t!an actual cas!4 or consists of intangi3le propert# suc! as patents or cop#rig!ts4 t!e valuation t!ereof s!all initiall# 3e determined 3# t!e incorporators or t!e *o+4 su3?ect to t!e final approval of t!e '"C6 (%age -)$ of CLG8s CLR4 200,) :f t!e consideration is ot!er t!an actual cas!4 its value must 3e wort! t!e value of t!e stoc(s issued6 ( Tr'e &a6'e R'6e) @ence4 t!e need of t!e approval of t!e valuation 3# t!e commission6(%age &31 of +e Leon4 200)) Recei"a/6e$6 !e# ma# 3e accepted as pa#ment for s!ares su3?ect to t!e following conditions, (1) !e '"C is a3le to verif# t!e e5istence and collecti3ilit# of t!e receiva3les7 (2) !e s!ares to 3e issued will 3e !eld in escrow until actual pa#ment or collection of t!e receiva3les6 ('"C Opinion No6 0&1114 =ul# 1$4 200&) Propert7 (1) 4ecessary or proper in carrying pm the corporate business. !e propert# w!ic! a corporation ma# accept in e5c!ange for its stoc( must 3e of a (ind w!ic! t!e corporation ma# lawfull# ac;uire and !old in carr#ing out t!e purposes of its incorporation4 and w!ic! is necessar# or proper for it to own in carr#ing on its 3usiness6 (2) Possesses ascertainable pecuniary value. !e propert# must 3e of su3stantial nature4 !aving pecuniar# value capa3le of ascertainment (at a fair valuation e;ual to t!e par or issued value of t!e stoc( issued)4 and must 3e somet!ing real and tangi3le as distinguis!ed from somet!ing constructive and speculative6 (3) !apable of being transferred and applied to payment of debts. :t must 3e of suc! c!aracter t!at it can 3e delivered to t!e corporation4 instead of 3eing merel# communicated to its officers or emplo#ees4 and it must 3e actuall# transferred to

.oo* Value W @air #alue 7ook value fluctuates because etained 6arnings also changes 0: .hat is the disadvantage of 4o9par2 3: 1ts in the record keeping. *here are different price for each shares.

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21,&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA (3) +isposition of treasur# s!ares (%age -32 of CLG8s CLR4 200,) Pre:e%pti"e ri#ht not a"ai6a/6e, (1) '!ares to 3e issued to compl# wit! laws re;uiring stoc( offering or minimum stoc( owners!ip 3# t!e pu3lic7 (2) '!ares issued in good fait! in e5c!ange for propert# needed for corporate purposes7 (3) '!ares issued in pa#ment of previousl# contracted de3ts7 ($) :N case t!e rig!t is denied in t!e 2o:6 ('ection 3/7 (%age -32 of CLG8s CLR4 200,)) 9!enever a capital stoc( of a corporation is increased and new s!ares of stoc(s are issued4 t!e new issue must 3e offered first to t!e stoc(!olders w!o are suc! at t!e rime t!e increase was made in proportion to t!eir e5isting s!are!oldings and on e;ual terms wit! ot!er !olders of t!e original stoc(s 3efore su3scriptions are received from t!e general pu3lic6 For e5ample4 if a stoc(!older wit! pre1emptive rig!t owns 20A of t!e outstanding s!ares of t!e corporation4 !e ma# su3scri3e 20A of an# s!ares of stoc( issued 3# t!e corporation6 !is principle is (nown as t!e right of pre9 emption or pre9emptive right of stoc(!olders (%age 3&& of +e Leon4 200)) !e rule Non pre1emptionO aims to safeguard t!e rig!t of stoc(!older to preserve unaltered and unimpaired !is proportionate influence and interest in t!e corporation and t!e relative value of !is !oldings6 (%age 3&) of +e Leon4 200))

t!e corporation and capa3le of 3eing transferred 3# t!e corporation6 :t must also 3e suc! as is capa3le of 3eing applied to t!e pa#ment of de3ts and of distri3ution among t!e stoc(!olders6 (%age &32 of +e Leon4 200)) Ser"ice$ 2 corporation is allowed to receive as pa#ment for its stoc(s la3or performed for or services actuall# rendered to t!e corporation provided t!e transaction is in good fait! and no fraud is perpetrated upon ot!er stoc(!olders and creditors6 Sati$faction of Pre"io'$67 inc'rre! in!e/te!ne$$ 'ection )2($) e5pressl# allows t!e set1off or satisfaction of previousl# incurred inde3tedness of a corporation 3# t!e issuance of its s!ares of stoc( w!ere conflicting rig!ts of creditors are not involved6 Profit$ :f stoc(s are issued in consideration of profits earned 3# t!e corporation4 3ut not distri3uted among t!e stoc(!olders4 suc! issue is called stoc( dividends6 (%age &3) of +e Leon4 200))

(e+ Pree%pti"e ri#ht of $toc9ho6!er$


2 pre1emptive rig!t is t!e s!are!older8s rig!t to su3scri3e to all issues or disposition of shares or any class in proportion to !is present stoc(!oldings4 t!e purpose 3eing to ena3le t!e s!are!older to retain !is proportionate control in t!e corporation and to retain !is e;uit# in t!e retained earnings and also in t!e net assets in t!e event of dissolution6 (%age -32 of CLG8s CLR4 200,) Stoc9 Tran$action$ co"ere! /7 ri#ht. 'ection 3/ !as widened t!e coverage of pre1emptive rig!t w!ic! now includes re1issuance of treasur# s!ares 3ecause of t!e use of t!e words Bdisposition of s!aresC4 w!ic! would cover t!e following instancesD (1) :ncrease in t!e 2ut!orized Capital 'toc(7 (2) Opening for su3scription t!e unissued portion of e5isting capital stoc(7 and

3. Tr'$t F'n! -octrine


TRUST FUN- -OCTRINE
Nature of Doctrine! Ang Cong v. *iu4 $01 'CR2 1 (2003)6 7 B !e assets of t!e Corporation to t!e e5tent of its capital stoc( represent a rust Fund for t!e protection of t!e creditor8s claimC o +uring t!e life of t!e corporation4 no assets ma# 3e returned to t!e stoc(!olders w!en t!ere are outstanding o3ligations

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21,)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
assets among t!e stoc(!olders wit!out first pa#ing corporate creditors6 @ence4 an# disposition of corporate funds to t!e pre?udice of creditors is null and void6 7oman 6nvironmental 8ev. !orp. v. !34 1), 'CR2 &$0 (1/--)6

o o

+ividends can onl# 3e declared out of UUrestricted retained earnings !e corporation is wit!out aut!orit# to repurc!ase its own s!ares of stoc(4 e5cept in instances mandated 3# law !e corporation cannot su3scriptions receiva3les waive or condone

o o o o

3.. Ca$e
Phi6ippine Tr'$t Co. ". Ri"era (1* .+ !e resolution releasing t!e s!are!olders from t!eir o3ligation to pa# &0 per centum of t!eir respective su3scriptions was an attempted wit!drawal of so muc! capital from t!e fund upon w!ic! t!e compan#8s creditors were entitled ultimatel# to rel# and4 !aving 3een effected wit!out compliance wit! t!e statutor# re;uirements4 was w!oll# ineffectual6
Catindig Class Notes 0: 3 corporation has F( Unrestricted etained 6arnings/ it then donated K( to typhoon victims with 7o8 approval. 3/ a stockholder filed a suit seeking to enjoin or annul the donation. 1s the suit valid2 3: Ces. *he donation is unreasonable.

!e corporation cannot reduce its capital stoc( to t!e pre?udice of t!e creditors6 (t!ere are e5ceptions) >pon insolvenc#4 all su3scriptions automaticall# 3ecome due and pa#a3le receiva3les

>pon dissolution4 all assets of t!e corporation s!all first 3e applied for t!e pa#ment of all its o3ligations

>nder t!e trust fund doctrine4 t!e capital stoc(4 propert# and ot!er assets of t!e corporation are regarded as e;uit# in trust for t!e pa#ment of t!e corporate creditors6 !omm. of 1nternal evenue v. !ourt of 3ppeals/ 301 'CR2 1&2 (1///)6 !e Btrust fundC doctrine considers t!e su3scri3ed capital stoc( as a trust fund for t!e pa#ment of t!e de3ts of t!e corporation4 to w!ic! t!e creditors ma# loo( for satisfaction6 >ntil t!e li;uidation of t!e corporation4 no part of t!e su3scri3ed capital stoc( ma# 3e turned over or released to t!e stoc(!older (e5cept in t!e redemption of t!e redeema3le s!ares) wit!out violating t!is principle6 !us dividends must never impair t!e su3scri3ed capital stoc(7 su3scription commitments cannot 3e condoned or remitted7 nor can t!e corporation 3u# its own s!ares using t!e su3scri3ed capital as t!e consideration t!erefore6 4*! v. !ourt of 3ppeals/ 311 'CR2 &0- (1///)6 !e re;uirement of unrestricted retained earnings to cover t!e s!ares is 3ased on t!e trust fund doctrine w!ic! means t!at t!e capital stoc(4 propert# and ot!er assets of a corporation are regarded as e;uti# in trust for t!e pa#ment of corporate creditors6 !e reason is t!at creditors of a corporation are preferred over t!e stoc(!olders in t!e distri3ution of corporate assets6 !ere can 3e no distri3ution of

3.) I$$'ance of Certificate of Stoc9 (Section 4)+


Sec. 4). Issuance of stoc* certificates No certificate of stoc( s!all 3e issued to a su3scri3er until t!e full amount of !is su3scription toget!er wit! interest and e5penses (in case of delin;uent s!ares)4 if an# is due4 !as 3een paid6 (3,)

Certificate of stoc( is a written evidence of t!e s!ares of stoc( 3ut it is not t!e s!are itself6 (Lincoln %!ilippines Life v6 C2) 'ee page -)$ of CLG8s CLR
)ac*+s Lecture :t sa#s !ere (CDEB I$$'ance of $toc9 certificate$) t!at no stoc( certificate s!all 3e issued until t!e full amount of t!e su3scription !as 3een paid 3ecause4 it said4 a su3scription contract is indivisi3le6 'o until t!e entire consideration is paid4 t!e stoc(!older s!all not 3e entitled to a stoc( certificate6 !at8s w!# t!at old *altazar case is wrong6 9!ere =ustice %aredes said t!atF let8s sa# #ou su3scri3ed to 1000 s!ares and #ou paid onl#

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21,,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA 2 su3scri3er must first totall# pa# !is su3scription 3efore a certificate of stoc( covering s!ares su3scri3ed and paid for could 3e issued to !im6 (CLG8s e5t3oo( $00)

2&A of t!e price4 t!e stoc(!older !as t!e option6 @e can eit!er spread out t!at partial pa#ment e;uall# among t!e 1000 s!ares so eac! s!are will 3e partiall# paid or !e can appl# t!at as full pa#ment for 2&0 s!ares and t!en as( t!e corporation to issue stoc( certificates to !im for 2&0 s!ares6 !at is wrong 3ecause t!e su3scription agreement is indivisi3le6 Catindig Class Notes 0: 1s the issuance of !ertificate of Stock/ in case of transfer (141S*6 13"2 3: Ces. !atindig: 4ot e,actly true. ( ) *a, !ode on capital gains ta, Payment thereof is necessary. *he !orp Sec must be shown the certificate authori'ing the transfer as issued by the 71 . +6,cept in case of nominee +;shareJ usually/ no capital gains ta, reali'ed-+:- Payment of ta, due on the transfer of shares 4ote: Upon issuance of !ertificate of Stock to a 4A(1466 always make a 8668 A@ * US*. Prepare (inute first and have it signed before issuing a Secretary$s !ertificate +K- Section ;F/ ;;th paragraph +?ight of @irst efusal +F- Payment of 8ocumentary stamps 0: .here can you a get a stock certificate2 3: @rom the 4ational 7ookstore. +5aha-

(c+ A!!itiona6 %ateria6, SEC Opinion No. A3:A !ate! 2an'ar7 .1@ AA3 re 1earer Certificate$.
SEC Opinion

(a+ For%a6itie$ for I$$'ance


!e certificate of stoc( must 3e signed 3# t!e %resident or Gice1%resident and countersigned 3# t!e corporate secretar# or t!e assistant secretar# ot!erwise it is not deemed issued6 (*itong v6 C2) %a# attention to 'ection 1&(11)6

(!+ Lo$t or Sto6en Certificate$ (Section 5.+


Sec. 5.. Lost or destroyed certificates !e following procedure s!all 3e followed for t!e issuance 3# a corporation of new certificates of stoc( in lieu of t!ose w!ic! !ave 3een lost4 stolen or destro#edD 16 !e registered owner of a certificate of stoc( in a corporation or !is legal representative s!all file wit! t!e corporation an affidavit in triplicate setting fort!4 if possi3le4 t!e circumstances as to !ow t!e certificate was lost4 stolen or destro#ed4 t!e num3er of s!ares represented 3# suc! certificate4 t!e serial num3er of t!e certificate and t!e name of t!e corporation w!ic! issued t!e same6 @e s!all also su3mit suc! ot!er information and evidence w!ic! !e ma# deem necessar#7 26 2fter verif#ing t!e affidavit and ot!er information and evidence

(/+ Ri#ht of a $toc9ho6!er to a certificate


>nder 'ection )3 of t!e Corp Code4 ever# stoc(!older !as a rig!t to !ave a proper certificate issued to !im 3# t!e corporation upon demand4 as soon as !e !as complied wit! t!e conditions under 'ection )$ of t!e Corp Code (CLG8s e5t3oo( $0$)

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21,-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA Bstoc( and transfer 3oo(C is t!e 3est evidence to esta3lis! stoc( owners!ip6 ('"C Opinion4 dated 2- =anuar# 1///4 addressed to .s6 .a6 Cecilia 'alazar1'antos)6 2 corporation ma# actuall# not !eed t!e procedure under 'ection ,3 of t!e Corp Code in accordance wit! '"C Opinion 3ut 3# doing so4 it cannot avail of t!e Bfree and !armlessC clause provided in 'ection ,36 (CLG8s te5t3oo( at $10)
)ac*+s Lecture Now if a stoc( certificate was lost4 to get a new one4 t!e stoc(!older must e5ecute an affidavit e5plaining t!e circumstances under w!ic! t!e stoc( certificate was lost6 ( C0FB Lo$t or !e$tro7e! certificate$)6 2nd t!en4 notice of t!e loss will 3e pu3lis!ed once a wee( for 3 consecutive wee(s in a paper of general circulation6 2nd t!en after 1 #ear from t!e date of t!e last pu3lication4 !e can get a new stoc( certificate6 *ut t!e stoc(!older mig!t want to get t!e stoc( certificate rig!t awa#6 For instance4 !e mig!t 3e appl#ing for a loan and intends to use t!e s!ares of stoc( as collateral for t!e loan6 'o !e cannot wait for a #ear6 @e will 3e allowed to get t!e stoc( certificate 3ut !e will 3e re;uired to post an indemnit# 3ond e;ual to t!e value of t!e s!ares listed in t!e stoc( mar(et6 !e stoc( and transfer agent will sa#4 BO(4 #ou ?ust give a 3ond e;ual to t!e value of t!e s!ares in t!e stoc( mar(et6C :f it is not listed in t!e stoc( mar(et4 well #ou can use t!e 3oo( value w!ic! appears on t!e latest audited financial statement6 Catindig Notes Section DK 0: 1s the corporation re>uired to verify the accuracy of all the facts in the affidavit2 3: 4o. .hat is verified is that the S5 is indeed a S5 and not an impostor. !heck the signature cards. Section DK+:+;- #erify if the affiant is really the stockholder of record. Use the signature card. +:- @orm: 4otarial re>uirementsJ !*!& Government issued 18 with picture +K- 3ddress +?- Prepare the notice. 4ewspaper of G.!. +F- Ariginal copy of the publisher$s affidavit. eplacement !ertificate +;- 1ndicate that it is a replacement certificateJ

wit! t!e 3oo(s of t!e corporation4 said corporation s!all pu3lis! a notice in a newspaper of general circulation pu3lis!ed in t!e place w!ere t!e corporation !as its principal office4 once a wee( for t!ree (3) consecutive wee(s at t!e e5pense of t!e registered owner of t!e certificate of stoc( w!ic! !as 3een lost4 stolen or destro#ed6 !e notice s!all state t!e name of said corporation4 t!e name of t!e registered owner and t!e serial num3er of said certificate4 and t!e num3er of s!ares represented 3# suc! certificate4 and t!at after t!e e5piration of one (1) #ear from t!e date of t!e last pu3lication4 if no contest !as 3een presented to said corporation regarding said certificate of stoc(4 t!e rig!t to ma(e suc! contest s!all 3e 3arred and said corporation s!all cancel in its 3oo(s t!e certificate of stoc( w!ic! !as 3een lost4 stolen or destro#ed and issue in lieu t!ereof new certificate of stoc(4 unless t!e registered owner files a 3ond or ot!er securit# in lieu t!ereof as ma# 3e re;uired4 effective for a period of one (1) #ear4 for suc! amount and in suc! form and wit! suc! sureties as ma# 3e satisfactor# to t!e 3oard of directors4 in w!ic! case a new certificate ma# 3e issued even 3efore t!e e5piration of t!e one (1) #ear period provided !ereinD %rovided4 !at if a contest !as 3een presented to said corporation or if an action is pending in court regarding t!e owners!ip of said certificate of stoc( w!ic! !as 3een lost4 stolen or destro#ed4 t!e issuance of t!e new certificate of stoc( in lieu t!ereof s!all 3e suspended until t!e final decision 3# t!e court regarding t!e owners!ip of said certificate of stoc( w!ic! !as 3een lost4 stolen or destro#ed6 "5cept in case of fraud4 3ad fait!4 or negligence on t!e part of t!e corporation and its officers4 no action ma# 3e 3roug!t against an# corporation w!ic! s!all !ave issued certificate of stoc( in lieu of t!ose lost4 stolen or destro#ed pursuant to t!e procedure a3ove1descri3ed6 (R6 26 201a)

9!ile 'ec6 ,3 of Corporation Code appears to 3e mandator#4 t!e same admits e5ceptions4 suc! t!at a corporation ma# voluntaril# issue a new certificate in lieu of t!e original certificate of stoc( w!ic! !as 3een lost wit!out compl#ing wit! t!e re;uirements under said section6 :t would 3e an internal matter for t!e corporation to find measures in ascertaining w!o are t!e real owners of stoc( for purposes of li;uidation6 :t is well1settled t!at unless proven ot!erwise4 t!e

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21,/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
transfer of s!ares)6 !at8s w!# in one caseF#ou !ave t!is orres caseF a retired =udge w!o was t!e controlling stoc(!older in a corporation6 2nd !is nep!ew to w!om !e !ad given s!ares of stoc( turned out to 3e recalcitrant and ram3unctious so !e decided to regain control of t!e corporation 3# giving s!ares to ot!er nep!ews6 2nd w!at did !e doL @e was t!e president of t!e corporation and !e simpl# posted entries in t!e stoc( and transfer 3oo(6 O4 one s!are to t!is fellow4 anot!er s!are to t!atF !e court said t!at t!at is not valid6 !at is not t!e wa# toFand 3esides4 !e is t!e president4 not t!e corporate secretar#6 @e is not supposed to !andle t!e stoc( and transfer 3oo(6 * 34S@6 A@ S53 6S A@ S*A!I :t sa#s !ere4 s!ares of stoc( are personal propert# and t!e# ma# 3e transferred 3# deliver# of stoc( certificates endorsed 3# t!e owner or !is attorne# in fact6 'o #ou need two t!ingsD an indorsement of t!e stoc( certificate plus deliver#6 !at8s w!# #ou !ave t!at case of Razon w!ere .r6 Gicente C!uidian wanted to regain s!ares of stoc( w!ic! !e claimed 3elonged to !is fat!er in 6. a'on. 2nd Razon said BNo4 t!is does not 3elong to #our fat!er6 :t actuall# 3elongs to me6C 9ell4 t!e stoc( certificates were actuall# in !is possession6 !e court said t!ere was no indorsement so !e cannot claim t!at t!e stoc( certificate 3elonged to !im6 On t!e ot!er !and4 t!e court said t!at w!ere t!e stoc( certificate was endorsed 3ut it was not delivered4 t!en t!e s!ares of stoc( represented 3# t!e stoc( certificates !ad not 3een transferred to t!e 3u#er6 2nd t!e court sa#s it is a ministerial o3ligation of t!e corporation to transfer t!e s!ares of stoc( to t!e name of t!e 3u#er6 'o even if a case !as 3een filed for t!e rescission of t!e sale4 t!e corporation still !as to transfer t!e stoc( certificates6 !ere was a case w!ere t!e seller sold t!e s!ares of stoc( and !e was paid6 2nd a new stoc( certificate was issued to t!e 3u#er6 2nd t!en t!e corporate secretar# sa#s t!at4 B9ell4 t!e old stoc( certificate !as not 3een endorsed6C 'o t!e 3u#er returned it to t!e seller and told !im4 B9ill #ou please endorse it so t!at it can 3e cancelled6C *ut t!e seller did not and refused to return t!e stoc( certificate6 'o t!e corporation declared it as cancelled6 !e court said t!at t!e cancellation was valid 3ecause actuall# !e !as sold and it and !e !as 3een paid6 :t was ?ust delivered to !im for !im to endorse and !e un?ustifia3l# refused to return t!e stoc( certificate6 2nd t!erefore t!e corporation can consider it as cancelled6 Now4 no transfer s!all 3e valid e5cept as 3etween t!e parties until t!e transfer is recorded in t!e 3oo(s of t!e corporation6 9!#L :f t!e selling stoc(!older !as a creditor and in

+:-

Same stock number

3.3 Tran$fer of $hare$ (Section 4.+


Sec. 4.. Certificate of stoc* and transfer of shares !e capital stoc( of stoc( corporations s!all 3e divided into s!ares for w!ic! certificates signed 3# t!e president or vice president4 countersigned 3# t!e secretar# or assistant secretar#4 and sealed wit! t!e seal of t!e corporation s!all 3e issued in accordance wit! t!e 3#1laws6 '!ares of stoc( so issued are personal propert# and ma# 3e transferred 3# deliver# of t!e certificate or certificates endorsed 3# t!e owner or !is attorne#1in1fact or ot!er person legall# aut!orized to ma(e t!e transfer6 No transfer4 !owever4 s!all 3e valid4 e5cept as 3etween t!e parties4 until t!e transfer is recorded in t!e 3oo(s of t!e corporation s!owing t!e names of t!e parties to t!e transaction4 t!e date of t!e transfer4 t!e num3er of t!e certificate or certificates and t!e num3er of s!ares transferred6 No s!ares of stoc( against w!ic! t!e corporation !olds an# unpaid claim s!all 3e transfera3le in t!e 3oo(s of t!e corporation6 (3&)

Ho= are $hare$ of $toc9$ tran$ferre!D :f represented 3# a certificate4 t!e following must 3e complied wit!D (1) +eliver# of t!e certificate (2) :ndorsement 3# t!e owner or !is agent (3) o 3e valid to t!ird parties4 t!e transfer must 3e recorded in t!e 3oo(s of t!e corporation6 :f not represented 3# t!e certificate (suc! as w!en t!e certificate !as not #et 3een issued or w!ere for some reason is not in t!e possession of t!e stoc(!older6 (1) *# means of a deed of assignment (2) 'uc! is dul# recorded in t!e 3oo(s of corporation6 ('ee page 2/, of =R' for illustrative pro3lems) 'ee page -,) of CLG8s CLR4 200,
)ac*+s Lecture Now t!e stoc( certificate will 3e signed 3# t!e %resident4 or in !is a3sence t!e Gice1%resident4 and countersigned 3# t!e 'ecretar# (VLKJ Certificate of stoc( and

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21-0

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
approval of t!e 3oard 3ecause remem3er !e still owes t!e corporation for !is unpaid su3scription and t!erefore if !e will sell t!e s!ares4 in effect !e will 3e su3stituting some3od# for !im as de3tor for t!e unpaid su3scription6 2nd w!en t!ere is su3stitution of de3tors4 t!at is novation and #ou need t!e consent of t!e creditor1 t!e corporation6 Now #ou !ave t!is case of C!ina *an( w!ic! : mentioned earlier w!ere C!ina *an( foreclosed t!e pledge on t!e proprietar# s!ares of Galle# <olf Clu36 9!en it as(ed Galle# <olf Clu3 to register t!e s!ares in its name4 Galle# <olf Clu3 refused6 :t said t!at t!is stoc(!older !as unpaid o3ligations6 @e !as not paid !is mont!l# dues4 !e !as not paid !is 3ills and under t!e 3#1laws4 Galle# <olf Clu3 !as a lien on t!e stoc( certificate for !is proprietar# s!are for !is unpaid claim6 2nd Galle# <olf Clu3 argued under Z)3 t!at it can8t 3e transferred in t!e 3oo(s in t!e name of C!ina *an( 3ecause we !ave t!ese claims w!ic! are not paid6 !e Court said no6 !e unpaid claim mentioned !ere refers to t!e su3scription price6 :t does not refer to amounts due t!e corporation arising from ot!er transactions6 :t onl# refers to pa#ment due under t!e su3scription agreement6

t!e 3oo(s of t!e corporation t!e s!ares are still in !is name4 t!e creditor can attac! and lev# on t!e s!ares6 Now4 alt!oug! it !as 3een said t!at s!ares of stoc( are personal propert# and are ;uasi1negotia3le 3ecause to transfer t!em4 t!e seller can simpl# sign at t!e 3ac( and deliver it t!e#8re not li(e negotia3le instruments6 !at8s w!# if t!e indorsement of t!e stoc(!older was forged even if it was an indorsement in 3lan(4 t!e 3u#er s!all not ac;uire an# rig!t to t!e s!are of stoc(6 Now if t!e one w!o forged it was an emplo#ee or officer of t!e corporation w!o was precisel# in c!arge of t!e stoc(4 t!e records or t!e stoc( certificates4 t!en t!e corporation will 3e responsi3le for !is act6 Li(e #ou (now4 #ou are re;uired to 3e a stoc(!older of %L+ to get a telep!one line6 .an# people do not claim t!eir stoc( certificates so t!e# are t!ere in t!e vault of %L+ 6 : !ave one case w!ere an emplo#ee t!ere w!o was in c!arge of t!eir custod# forged t!e indorsement of some stoc( and sold t!em in t!e stoc( mar(et6 'o t!e 3u#er would get good title4 t!e corporation will 3e lia3le6 'o w!at will !appenL !e 3u#er will get good title and t!e seller will also !ave to 3e recognized6 2nd it would 3e %L+ w!o would 3ear t!e loss6 *ut remem3er w!enever t!ere will 3e an over1issuance of t!e s!ares4 irrespective of good fait!4 t!e 3u#er cannot ac;uire title6 :f t!ere is over1issuance4 t!e owner of t!e s!ares of stoc( w!ose signature was forged must 3e recognized as still t!e owner and t!e remed# of t!e 3u#er would simpl# 3e to sue %L+ for damages6 Li(ewise if t!e indorsement was forgedF some3od# stole t!e stoc( certificate4 forged t!e indorsement and 3ecause of t!at4 t!e corporation issued a stoc( certificate to t!at forger so !e now !as a stoc( certificate in !is name and !e goes around and sells t!at to some3od# w!o 3oug!t t!at in good fait!4 !e will 3e protected 3ecause !e !as t!e rig!t to rel# on t!at stoc( certificate in t!e name of t!e seller6 'o w!at will !appen4 3ot! t!e original owner w!ose stoc( was stolen and t!at 3u#er4 para Xtong *orens title/ will 3e recognized6 *ut again if t!is will result in over1issuance4 it is t!e original owner w!o will 3e recognized and t!e remed# of t!at 3u#er will 3e to simpl# sue t!e corporation for damages6 Now t!e law sa#s no s!ares of stoc( against w!ic! t!e corporation !olds an# unpaid claim s!all 3e transfera3le in t!e 3oo(s of t!e corporation6 :n ot!er words4 if t!ere is an unpaid su3scription and t!ere8s a call (L)6 'o first of all4 t!e '"C !as said t!at a su3scription contract is an indivisi3le contract6 2nd t!erefore t!e stoc(!older4 if !e su3scri3ed to 1000 s!ares cannot sa#4 B: will sell &00 and t!en retain &006C No6 !e contract is indivisi3le6 'o it must 3e all or not!ing6 :f !e wants to sell4 !e must sell t!e entire 1000 s!ares6 Now if !e does t!at4 !e must get t!e

>nder 'ec6 )3 of Corporation Code4 t!e sale of stoc(s s!all not 3e recognized as valid unless registered in t!e 3oo(s of t!e corporation insofar as t!ird persons4 including t!e corporation4 are concernedMas 3etween t!e parties to t!e sale4 t!e transfer s!all 3e valid even if not recorded in t!e 3oo(s of t!e corporation6 7atangas "aguna *ayabas 7us !o. v. 7itanga/ 3)2 'CR2 )3& (2001)6 2 transferee !as no rig!t to intervene as a stoc(!older in corporate issue on t!e strengt! of t!e transfer of s!ares allegedl# e5ecuted 3# a registered stoc(!older6 :t is e5plicit under 'ec6 )3 t!at t!e transfer must 3e registered to affect t!e corporation and t!ird persons6 (agsaysay9"abrador v. !34 1-0 'CR2 2)) (1/-/)6 !e purpose of registration is two1foldD to ena3le t!e transferee to e5ercise all t!e rig!ts of a stoc(!older4 including t!e rig!t to vote and to 3e voted for4 and to inform t!e corporation of an# c!ange in s!are owners!ip so t!at it can ascertain t!e persons entitled to t!e rig!ts and su3?ect to t!e lia3ilities of a stoc(!older6 >ntil c!allenged in a proper

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21-1

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA !e onl# limitation imposed 3# 'ec6 )3 is w!en t!e corporation !olds an# unpaid claim against t!e s!ares intended to 3e transferred6 2 corporation4 eit!er 3# its 3oard4 its 3#1laws4 or t!e act of its officers4 cannot create restrictions in stoc( transfers4 3ecause BRestrictions in t!e traffic of stoc( must !ave t!eir source in legislative enactment4 as t!e corporation itself cannot create suc! impediment6 *#1laws are intended merel# for t!e protection of t!e corporation4 and prescri3e relation4 not restriction7 t!e# are alwa#s su3?ect to t!e c!arter of t!e corporation6C ural 7ank of Salinas v. !3 4 210 'CR2 &10 (1//2)6

proceeding4 a stoc(!older of record !as a rig!t to participate in an# meeting7 !is vote can 3e properl# counted to determine w!et!er a stoc(!olders8 resolution was approved4 despite t!e claim of t!e alleged transferee6 On t!e ot!er !and4 a person w!o !as purc!ased stoc(4 and w!o desires to 3e recognized as a stoc(!older for t!e purpose of voting4 must secure suc! a standing 3# !aving t!e transfer recorded on t!e corporate 3oo(s6 >ntil t!e transfer is registered4 t!e transferee is not a stoc(!older 3ut an outsider6 7atangas "aguna *ayabas 7us !ompany/ 1nc. v. 7itanga4 3)2 'CR2 )3& (2001)6 2 bona fide transfer of s!ares4 not registered in t!e corporate 3oo(s4 is not valid as against a su3se;uent lawful attac!ment of said s!ares4 regardless of w!et!er t!e attac!ing creditor !ad actual notice of said transfer or not6 2ll transfers not so entered on t!e 3oo(s of t!e corporation are a3solutel# void7 not 3ecause t!e# are wit!out notice or fraudulent in law or fact4 3ut 3ecause t!e# are made so void 3# statute6 Garcia v. %omouad4 323 'CR2 $2$ (2000)6 %ursuant to 'ec6 )34 a transfer of s!ares of stoc( not recorded in t!e stoc( and transfer 3oo( is non1e5istent as far as t!e corporation is concerned6 2s 3etween t!e corporation on t!e one !and4 and its s!are!olders and t!ird persons on t!e ot!er4 t!e corporation loo(s onl# into its 3oo(s for t!e purpose of determining w!o its s!are!olders are6 Ponce v. 3lsons !ement !orp.4 3/3 'CR2 )02 (2002)6 'ection )3 contemplates no restriction as to w!om t!e stoc(s ma# 3e transferred6 :t does not suggest t!at an# discrimination ma# 3e created 3# t!e corporation in favor of4 or against a certain purc!aser6 !e owner of s!ares4 as owner of personal propert#4 is at li3ert#4 under said section to dispose t!em in favor of w!omever !e pleases4 wit!out limitation in t!is respect4 t!an t!e general provisions of law6 @leishcher v. 7otica 4olasco4 $, %!il6 &-3 (1/2&)6

3.4 Ca$e$
S'n$et &ie= Con!o%ini'% Corporation ". Ca%po$ (1*?1+ Owners!ip of a unit is a sine ;ua non to 3eing a s!are!older in t!e condominium corporation6 :t follows t!at a purc!aser of a unit w!o is not #et t!e owner t!ereof for not !aving full# paid t!e full purc!ase price is not a s!are!older6 *# necessar# implication4 t!e Bseparate interestC in a condominium4 w!ic! entitles t!e !older to 3ecome automaticall# a s!are!older in t!e condominium corporation4 as provided in 'ection of t!e Condominium 2ct4 can 3e no ot!er t!an owners!ip of a unit6 !is is so 3ecause no3od# can 3e a s!are!older unless !e is t!e owner of a unit and w!en !e ceases to 3e t!e owner4 !e also ceases automaticall# to 3e a s!are!older6 ( !e su3?ect matter of t!is case are under t!e ?urisdiction of t!e regular courts 3ecause t!e private respondents are Bnot s!are!oldersC of t!e condominium corporation6 Ra0on ". IAC (1** + !e indorsement of t!e certificate of stoc( is a %an!ator7 re;uirement of law for an effective transfer of a certificate of stoc(6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21-2

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA CL&, : agree wit! t!e dissenting opinion of =ustice %unoD B !e rule N'ection )3O is intended to protect t!e interest of t!e corporation and t!eird persons w!o ma# 3e pre?udiced 3# t!e transfer of t!e s!ares of stoc(s6 1t follows therefore that as between the parties to the sale/ the transfer shall be valid even if not recorded in the books of corporation. !atindig: 1$m not satisfied with the decision becauseP !atindig: to know who are the S5/ only look at the S*7. R'ra6 1an9 of Lipa ". CA ( AA1+ !e rule is t!at t!e deliver# of t!e stoc( certificate dul# endorsed 3# t!e owner is t!e operative act of transfer of s!ares from t!e lawful owner to t!e transferee6 Re;uirements to !ave a valid transfer of stoc(sD (1) !ere must 3e a deliver# of stoc( certificate (2) !e certificate must 3e endorsed 3# t!e owner or !is attorne#1in1fact or ot!er persons legall# aut!orized to ma(e t!e transfer4 and (3) o 3e valid against t!ird parties4 t!e transfer must 3e recorded in t!e 3oo(s of t!e corporation6 Ponce ". A6$on$ Ce%ent ( AA + %ursuant to t!e Corporation Code4 a transfer of s!ares of stoc( not recorded in t!e stoc( and transfer 3oo( of t!e corporation is non1e5istent as far as t!e corporation is concerned6 2 corporate secretar# ma# not 3e compelled to issue stoc( certificates wit!out registration6 Rep'/6ic ". E$tate of Han$ Men0i ( AA3+ 2 stoc( certificate is merel# a tangi3le evidence of owners!ip of s!ares of stoc(1its presence or a3sence does not affect t!e rig!t of t!e registered owner to dispose of t!e s!ares covered 3# t!e stoc( certificate !e deliver# of a dul# indorsed stoc( certificate is sufficient to transfer owners!ip of s!ares of stoc( in stoc( corporations7

!e assertion t!at t!e petitioner did not re;uire an indorsement of t!e certificate of stoc( in view of !is intimate friends!ip wit! C!uidian cannot overcome t!e failure to follow t!e procedure re;uired 3# law6 !atindig. *his >uestion was asked in the bar. 7ut for me this is not a good case because.. R'ra6 1an9 of Sa6ina$ ". CA (1** + 'ection &(3) of %+ NO6 /0212 grants to t!e '"C t!e original and e5clusive ?urisdiction to !ear and decide cases involving intracorporate controversies6 2n intra1corporate controvers# !as 3een defined as one w!ic! arises 3etween a stoc(!older and t!e corporation6 !ere is no distinction4 ;ualification4 nor an# e5ception w!atsoever6 2 corporation cannot create restrictions in stoc( transfer !e rig!t of a transfereeKassignee to !ave stoc(s transferred to !is name is an in!erent rig!t6 Corporation8s o3ligation to register is ministerial6 1LT1 ". 1itan#a@ AA1 2 transfer of s!ares is not valid unless recorded in t!e 3oo(s of t!e corporation6 2 person w!o !as purc!ased stoc(4 and w!o desires to 3e recognized as a stoc(!older for t!e purpose of voting4 must secure suc! a standing 3# !aving t!e transfer recorded on t!e corporate 3oo(s1until t!e transfer is registered4 t!e transferee is not a stoc(!older 3ut an outsider6 8issenting Apinion by Panganiban: >nder 'ection )3 of t!e Corp Code4 t!e sale of t!e stoc(s s!all not 3e recognized as valid unless registered in t!e 3oo(s of t!e corporation4 3ut onl# insofar as t!ird persons4 including t!e corporation are concerned1 as 3etween t!e parties to t!e sale4 t!e transfer s!all 3e valid even if not recorded in t!e 3oo(s of t!e corporationF !erefore4 t!at as 3etween t!e parties to t!e sale4 t!e transfer s!all 3e valid even if not recorded in t!e 3oo(s of corporation6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21-3

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA !e controvers# Bamong stoc(!olders4 partners4 associates t!emselvesC is intracorporate in nature and falls wit!in t!e ?urisdiction of '"C6 %etitioner8s status as a mere pledge does not4 under civil law4 entitle !im to owners!ip of t!e su3?ect s!ares %etitioner8s possession of t!e stoc( certificates came a3out 3ecause t!e# were delivered to !im pursuant to t!e contracts of pledge6 @is possession as a pledge cannot ripen into owners!ip 3# prescription6 RoBa$ ". CA (1** + 2n officers8 power as an agent of t!e corporation must 3e soug!t from t!e statute4 c!arter4 t!e 3#1laws or in a delegation of aut!orit# of suc! officer4 from t!e acts of t!e 3oard of directors4 formall# e5pressed or implied from a !a3it or custom of doing 3usiness6 Garcia ". 2o%o'a! ( AAA+ 2ll transfer of s!ares s!ould 3e entered on t!e 3oo(s of t!e corporation 4 and all transfers of s!ares not so entered are invalid as to attac!ing or e5ecution creditors of t!e assignors4 as well as t!e corporation and to su3se;uent purc!asers in good fait4 and indeed4 as to all persons interested4 e5cept t!e parties to suc! transfer6 !e entr# in t!e minutes of t!e meeting of t!e Clu38s *o+ noting t!e resignation of a proprietar# mem3er does not constitute compliance wit! 'ection )3 of t!e Corporation Code6

!e a3sence of a deed of assignment is not a fatal flaw w!ic! renders t!e transfer invalid6

3.5 Co'6! the tran$fer of $hare$ /e re$tricte! (Section *?+


Sec. *?. Validity of restrictions on transfer of shares Restrictions on t!e rig!t to transfer s!ares must appear in t!e articles of incorporation and in t!e 3#1laws as well as in t!e certificate of stoc(7 ot!erwise4 t!e same s!all not 3e 3inding on an# purc!aser t!ereof in good fait!6 'aid restrictions s!all not 3e more onerous t!an granting t!e e5isting stoc(!olders or t!e corporation t!e option to purc!ase t!e s!ares of t!e transferring stoc(!older wit! suc! reasona3le terms4 conditions or period stated t!erein6 :f upon t!e e5piration of said period4 t!e e5isting stoc(!olders or t!e corporation fails to e5ercise t!e option to purc!ase4 t!e transferring stoc(!older ma# sell !is s!ares to an# t!ird person6

(3tty. !atindig talks of right to purchase shares instead of option to purchase sharesCatindig Class Notes Section =O *ag9along provision e.g. !lass 3 and 7 shares Ane holder of !lass 3 shares wants to sell his shares. 3ll holders of !lass 3 shares must also sell for the transaction to push through. (utual @und Shares +;- *ransferability of sharesJ +:ight of holder to sell back the shares to the company at any time. Settlement 3ccount 9where proceeds/ investments are deposited

3.* Unpai! S'/$cription$


)ac*+s Lecture Now4 t!e unpaid portion of t!e su3scription4 as a rule4 does not earn interest unless t!e 3#1laws provide for interest (CDDB Intere$t on 'npai! $'/$cription )6 2nd if t!e 3#1laws specif# w!at is t!e interest4 t!at is w!at will appl#6 *ut if it does not state w!at will 3e t!e interest4 t!en it will 3e t!e legal rate6

3.? Ca$e$
Li% Ta7 ". CA (1**?+ !e registration of s!ares in a stoc(!older8s name4 t!e issuance of stoc( certificates4 and t!e rig!t to receive dividends fall wit!in t!e ?urisdiction of t!e '"C6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21-$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
:f t!ere is no 3idder4 t!e corporation can 3id6 Now4 until t!e corporation ma(es a call4 t!e pa#ment of t!e su3scription is not due unless t!e su3scription agreement contains a stipulation as to w!en it is to 3e paid6 !at8s w!# in one case4 an emplo#ee of a corporation filed a case and got a ?udgment against t!e emplo#er 3ut !e was also a stoc(!older6 2nd t!e emplo#er argued t!at it s!ould not 3e ordered to satisf# t!e ?udgment 3ecauseFsince t!is emplo#ee !as an unpaid su3scription4 t!e 3alance of t!e su3scription s!ould 3e set1off against t!e ?udgment in !is favor6 !e court said4 BNo4 for compensation to ta(e place4 3ot! de3ts must 3e due6C 2nd t!e pa#ment for t!e su3scription is not #et due 3ecause no call !as 3een made6 Now t!at unpaid portion of t!e su3scription is an asset 3ecause it is a receiva3le6 2nd creditors can sue t!e stoc(!olders for t!e unpaid su3scription if t!e corporation !as no assets6 Now normall#4 t!e plaintiff will sue first t!e corporation and t!en if t!e corporationF and if !e gets a ?udgment and it cannot 3e satisfiedFt!ere is a s!eriff8s returnFunsatisfiedFt!en !e can now sue t!e stoc(!olders for t!e unpaid amount of t!eir su3scription6 Now if4 at t!e time t!e case was 3eing filed against t!e corporation4 t!e corporation is alread# insolvent and cannot pa#4 t!en t!e creditor can alread# include t!e stoc(!olders as defendants in t!at action6 9ell4 : !ad a case 3efore4 w!en .iriam +efensor was still a ?udge6 Our client was a foreign compan# w!ic! sold c!emicals to a compan# !ere6 :t was a good pro?ect 3ut t!e pro3lem was t!e# put in too little capital and instead t!e 3orrowed massivel# and so it was t!e interest pa#ments t!at was (illing t!em6 Now4 our client filed a case and t!e# compromised and agreed to pa# in installments over a period of 2 #ears 3ut t!en t!e# failed to pa#6 'o now : sued t!e stoc(!olders for t!eir unpaid su3scription and t!e case was assigned to t!en =udge .iriam +efensor 'antiago6 +efense of stoc(!oldersD pa#ment6 !e# said we !ave alread# paid for our su3scription6 2nd t!e# su3mitted receipts to prove t!at t!e# !ad paid for t!eir su3scriptions6 *ut #ou see4 w!en t!e printing press prints t!e receipts4 it must first get approval from t!e *ureau of :nternal Revenue6 'o t!e# will get approval and sa# we are printing t!ese official receipts wit! t!ese serial num3ers and it is onl# after #ou get approval t!at #ou can print and t!e num3er of t!e permit and t!e date of its issuance will 3e printed at t!e 3ottom of t!e receipts6 Now t!ese receipts were o3viousl# forged 3ecause t!e# were dated somet!ing li(e Fe3ruar# 3ut t!e date of t!e issuance of t!e permit 3# t!e *:R for printing was dated =une6 'o t!e# were o3viousl# fa3ricated6 !at8s w!# in a moment of lucidit#4 =udge .iriam +efensor 'antiago !eld t!e defendants lia3le6

Now4 so long as t!e stoc(!older is not delin;uent4 !e is entitled to e5ercise all t!e rig!ts of a stoc(!older so !e can vote !is s!ares and if t!ere are dividends declared4 !e will receive t!e dividends6 (C02B Ri#ht$ of 'npai! $hare$)6 Now w!en will t!e pa#ment of t!e 3alance fall dueL (CD0B Pa7%ent of /a6ance of $'/$cription)6 :n two cases6 First4 if t!e su3scription agreement stipulates t!at !e s!ould pa# for t!e 3alance of t!e su3scription on certain dates6 'econdl#4 if a call was made6 :f t!e director said4 B9e need more wor(ing capitalC and so it made a call6 Now a call must 3e uniform6 Qou must ma(e a call on ever#3od#6 Ot!erwise4 if #ou will allow t!e 3oard to single out some stoc(!olders and t!e# want to get rid of some stoc(!older w!o is ;uestioning so man# actions of t!e 3oard4 t!en t!e# will ma(e a call for !is s!are onl#6 2nd t!en if !e does not pa#4 t!e# will sell !is s!ares and get rid of !im6 :t !as to 3e uniform6 Now4 so if a call is made and a stoc(!older fails to pa#4 let8s sa# t!e directors sa#4 BO(4 we are ma(ing a call on 2&A of t!e su3scriptionC and !e fails to pa#4 t!e law sa#s t!e entire 3alance of !is su3scription will 3ecome due6 2lt!oug! t!e call was onl# for 2&A4 if !e fails to pa#4 t!e entire 3alance including t!e ,&A will fall due6 2nd so if wit!in 30 da#s from t!e date pa#ment s!ould !ave 3een made4 !e !as still not paid4 t!at is now delin;uent6 2nd once t!e s!ares are delin;uent4 !e will lose t!e rig!ts of a stoc(!older6 (C0GB Effect of !e6inI'enc7) @e cannot vote !is s!ares4 !e cannot receive an# dividends and if t!ere is an# stoc( dividend4 t!e deliver# of t!e stoc( certificate will 3e wit!!eld and an# cas! dividend will 3e applied in pa#ment of !is su3scription6 'o once t!e stoc(s are delin;uent4 t!en t!e corporation will now passF t!e 3oard will now pass a new resolution ordering t!at t!e s!ares 3e sold4 w!ic! s!ould not 3e less t!an 30 da#s or more t!an )0 da#s from t!e date t!e s!ares 3ecame delin;uent6 (CDHB -e6inI'enc7 $a6e) 2nd notice of t!e sale s!ould 3e sent to t!e stoc(!older and t!at s!ould 3e pu3lis!ed once a wee( for 2 wee(s in a newspaper of general circulation6 'o if t!e stoc(!older still fails to pa#4 well4 t!e s!ares will 3e sold at pu3lic auction6 !e auction will 3e t!e +utc! met!od of auction4 :n ot!er words4 t!e price is fi5ed6 !e auctioneer will sa#4 B<entlemen4 we !ave !ere 1000 s!ares w!ic! are delin;uent and t!e 3alance of t!e su3scription is %,&40006 @ow man# s!ares am : offered for %,&4000LC 'ome3od# sa#s4 B,4&00C6 'ome3od# else sa#s4 B)0006C B&&006C !e one w!o is willing to get t!e least num3er of s!ares for t!at price will 3e t!e one w!o will win t!e 3id6 2nd as a result of t!at4 t!e su3scription will now 3e full# paid and t!e rest will 3e given to t!e delin;uent stoc(!older 3ecause !e is now full# paid6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21-&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA What !oe$ the ter% 'npai! c6ai% %ean (for p'rpo$e$ of !ec6arin# the $hareho6!er !e6inI'ent+D :t refers to an# unpaid su3scription4 and not to an# inde3tedness w!ic! a su3scri3er of stoc(!older ma# owe t!e corporation arising from an# ot!er transaction6

Now if t!e owner of t!e s!ares want to ;uestion t!e sale4 t!e law re;uires !e must first pa# t!e part# w!o paid for !is s!ares of stoc( wit! legal interest6 2nd !e must file t!e case wit!in ) mont!s from t!e date of t!e sale6 (CDIB When $a6e %a7 /e I'e$tione!)6 Now t!e corporation can decide to sue instead on t!e unpaid su3scription6 (C03B Co'rt action to reco"er 'npai! $'/$cription)6 9!#L *ecause if4 for e5ample4 a corporation is incurring losses4 if #ou sell t!at at pu3lic auction4 no3od# will 3u#6 *ecause t!e value of t!e corporation is negative6 'o if t!e corporation decides to 3u# it also4 it won8t (L) ma(e sense6 'o t!e# would pro3a3l#4 in suc! a case4 c!oose to sue instead t!e stoc(!older for pa#ment of t!e 3alance of !is su3scription6

(i+ When i$ a ca66 nece$$ar7D (Section 45+


Sec. 45. Payment of balance of subscription 'u3?ect to t!e provisions of t!e contract of su3scription4 t!e 3oard of directors of an# stoc( corporation ma# at an# time declare due and pa#a3le to t!e corporation unpaid su3scriptions to t!e capital stoc( and ma# collect t!e same or suc! percentage t!ereof4 in eit!er case wit! accrued interest4 if an#4 as it ma# deem necessar#6 %a#ment of an# unpaid su3scription or an# percentage t!ereof4 toget!er wit! t!e interest accrued4 if an#4 s!all 3e made on t!e date specified in t!e contract of su3scription or on t!e date stated in t!e call made 3# t!e 3oard6 Failure to pa# on suc! date s!all render t!e entire 3alance due and pa#a3le and s!all ma(e t!e stoc(!older lia3le for interest at t!e legal rate on suc! 3alance4 unless a different rate of interest is provided in t!e 3#1laws4 computed from suc! date until full pa#ment6 :f wit!in t!irt# (30) da#s from t!e said date no pa#ment is made4 all stoc(s covered 3# said su3scription s!all t!ereupon 3ecome delin;uent and s!all 3e su3?ect to sale as !ereinafter provided4 unless t!e 3oard of directors orders ot!erwise6 (3-)

(a+ I$ intere$t !'e on 'npai! $'/$cription$D (Section 44+


Sec. 44. Interest on unpaid subscriptions 'u3scri3ers for stoc( s!all pa# to t!e corporation interest on all unpaid su3scriptions from t!e date of su3scription4 if so re;uired 3#4 and at t!e rate of interest fi5ed in t!e 3#1laws6 :f no rate of interest is fi5ed in t!e 3#1laws4 suc! rate s!all 3e deemed to 3e t!e legal rate6 (3,)

(/+ -o 'npai! $hare$ ha"e ri#ht$D (Section 5 +


Sec. 5 . %ights of unpaid shares @olders of su3scri3ed s!ares not full# paid w!ic! are not delin;uent s!all !ave all t!e rig!ts of a stoc(!older6 (n)

(c+ Ho= !o 7o' co66ect 'npai! $'/$cription$D


What are the re%e!ie$ of corporation$ to enforce pa7%ent of $toc9$D (1) "5tra1?udicial sale at pu3lic auction6 (2) =udicial 2ction (3) Collection from cas! dividends and wit!!olding of stoc( dividends6('ee page 30$ of =R')

Ca66 is a declaration 3# t!e 3oard of directors t!at t!e unpaid su3scriptions are due and pa#a3le to t!e corporation6 (=R' at 30&) !e word BcallC is capa3le of t!ree meanings4 namel#D (a) a resolution of t!e *o+ for t!e pa#ment of unpaid su3scriptions7 (3) notification of suc! resolution made on t!e stoc(!olders7 or (c) t!e time w!en su3scriptions 3ecome pa#a3le6 (CLG8s e5t3oo( 3/2) 2 call is necessar# if no time to ma(e pa#ment is stated in t!e su3scription agreement6 (=R' at 30&) 2 call is not necessar# ifD (1) t!ere is a time fi5ed in t!e agreement for pa#ment

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21-)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
No delin;uent stoc( s!all 3e voted for 3e entitled to vote or to representation at an# stoc(!olderJs meeting4 nor s!all t!e !older t!ereof 3e entitled to an# of t!e rig!ts of a stoc(!older e5cept t!e rig!t to dividends in accordance wit! t!e provisions of t!is Code4 until and unless !e pa#s t!e amount due on !is su3scription wit! accrued interest4 and t!e costs and e5penses of advertisement4 if an#6 (&0a)

(2) if t!e corporation 3ecomes insolvent (=R' at 30&) Notice of call is necessar# to 3ind t!e stoc(!olders6 (=R' at 30&)

(ii+ Co'6! the corporation re$ort to co'rt actionD (Section 5A+


Sec. 5A. Court action to reco#er unpaid subscription Not!ing in t!is Code s!all prevent t!e corporation from collecting 3# action in a court of proper ?urisdiction t!e amount due on an# unpaid su3scription4 wit! accrued interest4 costs and e5penses6 ($/a)

(!+ Ho= !o $hare$ /eco%e !e6inI'entD (Section 45+


Sec. 45. Payment of balance of subscription 'u3?ect to t!e provisions of t!e contract of su3scription4 t!e 3oard of directors of an# stoc( corporation ma# at an# time declare due and pa#a3le to t!e corporation unpaid su3scriptions to t!e capital stoc( and ma# collect t!e same or suc! percentage t!ereof4 in eit!er case wit! accrued interest4 if an#4 as it ma# deem necessar#6 %a#ment of an# unpaid su3scription or an# percentage t!ereof4 toget!er wit! t!e interest accrued4 if an#4 s!all 3e made on t!e date specified in t!e contract of su3scription or on t!e date stated in t!e call made 3# t!e 3oard6 Failure to pa# on suc! date s!all render t!e entire 3alance due and pa#a3le and s!all ma(e t!e stoc(!older lia3le for interest at t!e legal rate on suc! 3alance4 unless a different rate of interest is provided in t!e 3#1laws4 computed from suc! date until full pa#ment6 :f wit!in t!irt# (30) da#s from t!e said date no pa#ment is made4 all stoc(s covered 3# said su3scription s!all t!ereupon 3ecome delin;uent and s!all 3e su3?ect to sale as !ereinafter provided4 unless t!e 3oard of directors orders ot!erwise6 (3-)

Effect of -e6iI'enc7, (1) +eprives t!e stoc(!older t!e rig!tD a) o 3e voted for7 or 3) o 3e entitled to vote7 or c) o representation at an# stoc(!olders8 meeting (2) +eli;uent stoc(!older s!all not 3e entitled to an# of t!e rig!ts of a stoc(!older 3ut !e s!all still 3e entitled to receive dividends6 (3) +eli;uent stoc(s s!all 3e su3?ect to delin;uenc# sale NoteD :f t!e delin;uent stoc(!older is a director4 !e s!all continue to 3e a director 3ut !e cannot run for re1election6 (=R' at 30,)

(f+ What i$ a !e6inI'enc7 $a6e an! ho= i$ it con!'cte!D (Section 4?+


Sec. 4?. Delin-uency sale !e 3oard of directors ma#4 3# resolution4 order t!e sale of delin;uent stoc( and s!all specificall# state t!e amount due on eac! su3scription plus all accrued interest4 and t!e date4 time and place of t!e sale w!ic! s!all not 3e less t!an t!irt# (30) da#s nor more t!an si5t# ()0) da#s from t!e date t!e stoc(s 3ecome delin;uent6 Notice of said sale4 wit! a cop# of t!e resolution4 s!all 3e sent to ever# delin;uent stoc(!older eit!er personall# or 3# registered mail6 !e same s!all furt!ermore 3e pu3lis!ed once a wee( for two (2) consecutive wee(s in a newspaper of general circulation in t!e province or cit# w!ere t!e principal office of t!e corporation is located6 >nless t!e delin;uent stoc(!older pa#s to t!e corporation4 on or 3efore t!e date specified for t!e sale of t!e delin;uent stoc(4 t!e 3alance due on !is su3scription4 plus accrued interest4 costs of advertisement and e5penses of sale4 or unless t!e 3oard of directors ot!erwise orders4 said delin;uent stoc( s!all 3e sold at pu3lic auction

(e+ What i$ the effect of !e6inI'enc7D (Section 51+


Sec. 51. ffect of delin-uency

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21-,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA (&) 'aleMsuc! num3er of s!ares as ma# 3e necessar# to pa# t!e amount due on su3scription4 plus interest and ot!er amounts due4 will 3e sold at pu3lic auction6 !e !ig!est 3idder is t!e person offering to pa# t!e full amount of t!e 3alance on t!e su3scription and ot!er amount t!at are due for t!e smallest num3er of s!ares or fraction of a s!are6
Catindig Class Notes *he !ertificate of Stock representing the stock dividends are considered civil fruits of the delin>uent shares. 5ence/ the buyer of the 8shares shall own the certificate of stocks representing the stock dividends.

to suc! 3idder w!o s!all offer to pa# t!e full amount of t!e 3alance on t!e su3scription toget!er wit! accrued interest4 costs of advertisement and e5penses of sale4 for t!e smallest num3er of s!ares or fraction of a s!are6 !e stoc( so purc!ased s!all 3e transferred to suc! purc!aser in t!e 3oo(s of t!e corporation and a certificate for suc! stoc( s!all 3e issued in !is favor6 !e remaining s!ares4 if an#4 s!all 3e credited in favor of t!e delin;uent stoc(!older w!o s!all li(ewise 3e entitled to t!e issuance of a certificate of stoc( covering suc! s!ares6 '!ould t!ere 3e no 3idder at t!e pu3lic auction w!o offers to pa# t!e full amount of t!e 3alance on t!e su3scription toget!er wit! accrued interest4 costs of advertisement and e5penses of sale4 for t!e smallest num3er of s!ares or fraction of a s!are4 t!e corporation ma#4 su3?ect to t!e provisions of t!is Code4 3id for t!e same4 and t!e total amount due s!all 3e credited as paid in full in t!e 3oo(s of t!e corporation6 itle to all t!e s!ares of stoc( covered 3# t!e su3scription s!all 3e vested in t!e corporation as treasur# s!ares and ma# 3e disposed of 3# said corporation in accordance wit! t!e provisions of t!is Code6

(#+ Co'6! a $a6e of !e6inI'ent $hare$ /e I'e$tione!D (Section 4*+


Sec. 4*. 4hen sale may be -uestioned No action to recover delin;uent stoc( sold can 3e sustained upon t!e ground of irregularit# or defect in t!e notice of sale4 or in t!e sale itself of t!e delin;uent stoc(4 unless t!e part# see(ing to maintain suc! action first pa7$ or ten!er$ to the part7 ho6!in# the $toc9 the $'% for =hich the $a%e =a$ $o6! 4 wit! interest from t!e date of sale at t!e legal rate7 and no suc! action s!all 3e maintained unless it is commenced 3# t!e filing of a complaint wit!in si5 ()) mont!s from t!e date of sale6 ($,a)
Catindig Class Notes Ces/ a sale of delin>uent shares may be >uestioned provided there is tenderP

Proce!'re for co66ection an! !e6inI'enc7 $a6e, (1) Call w!enever re;uired must 3e made 3# t!e *oard (2) Notice of call1 t!e stoc(!olders are given notice of t!e 3oard resolution 3# t!e corporate secretar#4 eit!er personall# or 3# registered mail6 (3) :f t!e stoc(!olders concerned do not pa# wit!in t!irt# (30) da#s from t!e date specified in t!e contract of su3scription or in t!e call4 all t!e stoc(s covered 3# t!e su3scription s!all 3e declared delin;uent and s!all 3e su3?ect to sale under 'ection )-6 ($) Notice of delin;uenc# served on t!e su3scri3ers eit!er personall# or registered mail and pu3lication in a newspaper of general circulation in t!e province or t!e cit# w!ere principal office is located once a wee( for two consecutive wee(s6 Notice s!all state t!e amount due on eac! su3scription plus accrued interest4 and t!e date4 time and place of t!e sale w!ic! s!all not 3e less t!an 30 da#s nor more t!an )0 da#s form t!e date t!e stoc(s 3ecome delin;uent6

3.1A Ca$e
Apo!aca ". NLRC (1*?*+ >npaid su3scriptions are not due and pa#a3le until a call is made 3# t!e corporation for pa#ment t!roug! a 3oard resolution6 2n o3ligation arising from non1pa#ment of stoc( su3scriptions to a corporation cannot 3e offset against a mone# claim of an emplo#ee against t!e emplo#er6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21--

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
e5pressl# given 3# t!e pledgor or mortgagor suc! rig!t in writing w!ic! is recorded on t!e appropriate corporate 3oo(s6 (n)

3.11 &otin# Ri#ht$


What are the /a$ic ri#ht$ of $hareho6!er$D (1) +irect or indirect participation in management7 (2) Goting rig!ts ('ection )) (3) Rig!t to remove directors ('ection 2-) ($) %roprietar# rig!tsD
(i) rig!t to dividends (ii) appraisal rig!t ('ection -1) (iii) rig!t to issuance of stoc( certificate for full# paid s!ares ('ection )$) (iv) %roportionate participation in distri3ution of assets in li;uidation ('ection 1--111/) (v) Rig!t to transfer of stoc(s in corporate 3oo(s ('ection )3) (vi) %re1emptive rig!t ('ection 3/)

9!en s!ares are pledged 3# means of endorsement in 3lan( and deliver# of t!e covering certificates to a loan4 t!e pledgee does not 3ecome t!e owner t!ereof simpl# 3# t!e failure of t!e registered stoc(!older to pa# !is loan6 Conse;uentl#4 wit!out proper foreclosure4 t!e lender cannot demand t!at t!e s!ares 3e registered in !is name6 Lim a# v6 Court of 2ppeals4 2/3 'CR2 )3$ (1//-)6

(&) Rig!t to inspect 3oo(s and records ('ection ,$) ()) Rig!t to 3e furnis!ed wit! t!e most recent financial statementKfinancial report ('ection ,$4,&) (,) Rig!t to recover stoc(s unlawfull# sold for delin;uent pa#ment of su3scription7 (-) Rig!t to file individual suit4 representative suit4 and derivative suits6(%age 2/- of =R') Manner of &otin# (1) +irectl# (in person) (2) :ndirectl#4 t!roug! a representative (a) 3# means of pro5# ('ections &&4 &)4 &- and -/ par6 2) (3) 3# a trustee under a voting trust agreement ('ec &/) (c) 3# e5ecutors4 administrators4 receivers4 or ot!er legal representatives dul# appointed 3# t!e court6 ('ection &&(2)) VGoting ma# 3e eit!er straig!t or cumulative ('ee 'ection 2$)

(/+ EBec'tor$@ recei"er$ an! a!%ini$trator$ (Section 33+


Sec. 33. %ight to #ote of pledgors1 mortgagors1 and administrators "5ecutors4 administrators4 receivers4 and ot!er legal representatives dul# appointed 3# t!e court ma# attend and vote in 3e!alf of t!e stoc(!olders or mem3ers wit!out need of an# written pro5#6 (2,a)

2lt!oug! t!e Rules of Court4 w!ile permitting an e5ecutor or administrator to represent or to 3ring suits on 3e!alf of t!e deceased4 do no pro!i3it t!e !eirs from representing t!e deceased6 9!en no administrator !as 3een appointed4 t!ere is all t!e more reason to recognize t!e !eirs as t!e proper representatives of t!e deceased6 <oc!an v6 Qoung4 3&$ 'CR2 20, (2001)6

(c+ 2oint o=ner$ of $toc9 (Section 34+


Sec. 34. Voting in case of <oint o(nership of stoc* :n case of s!ares of stoc( owned ?ointl# 3# two or more persons4 in order to vote t!e same4 t!e consent of all t!e co1owners s!all 3e necessar#4 unless t!ere is a written pro5#4 signed 3# all t!e co1 owners4 aut!orizing one or some of t!em or an# ot!er person to vote suc! s!are or s!aresD %rovided4 !at w!en t!e s!ares are owned in an RandKorR capacit# 3# t!e !olders t!ereof4 an# one of t!e ?oint owners can vote said s!ares or appoint a pro5# t!erefor6 (n)
Catindig Class Notes

(a+ P6e!#or$ an! Mort#a#or$ (Section 33+


Sec. 33. %ight to #ote of pledgors1 mortgagors1 and administrators :n case of pledged or mortgaged s!ares in stoc( corporations4 t!e pledgor or mortgagor s!all !ave t!e rig!t to attend and vote at meetings of stoc(!olders4 unless t!e pledgee or mortgagee is

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21-/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
or series of s!ares ma# !ave a par value or !ave no par value as ma# 3e provided for in t!e articles of incorporationD %rovided4 !owever4 !at 3an(s4 trust companies4 insurance companies4 pu3lic utilities4 and 3uilding and loan associations s!all not 3e permitted to issue no1par value s!ares of stoc(6 555 9!ere t!e articles of incorporation provide for non1voting s!ares in t!e cases allowed 3# t!is Code4 t!e !olders of suc! s!ares s!all nevert!eless 3e entitled to vote on t!e following mattersD 16 2mendment of t!e articles of incorporation7 26 2doption and amendment of 3#1laws7 36 'ale4 lease4 e5c!ange4 mortgage4 pledge or ot!er disposition of all or su3stantiall# all of t!e corporate propert#7 $6 :ncurring4 creating or increasing 3onded inde3tedness7 &6 :ncrease or decrease of capital stoc(7 )6 .erger or consolidation of t!e corporation wit! anot!er corporation or ot!er corporations7 ,6 :nvestment of corporate funds in anot!er corporation or 3usiness in accordance wit! t!is Code7 and -6 +issolution of t!e corporation6 "5cept as provided in t!e immediatel# preceding paragrap!4 t!e vote necessar# to approve a particular corporate act as provided in t!is Code s!all 3e deemed to refer onl# to stoc(s wit! voting rig!ts6

0: 1n 348 shares/ can each joined owners vote for half of the total shares2 3: 4o. Gen. ule: !onsent of all needed is needed in joint ownership.

(!+ ITF $hare$


B:n trust forC "ven w!en it is s!own t!at t!e registered owner of s!ares of stoc( !olds t!e s!are in trust for t!e 3enefit of t!e principal4 it is necessar# nevert!eless t!at t!e trustee must still endorse t!e stoc( certificate to validate t!e cancellation of !er s!are and to !ave t!e transfer recorded in t!e 3oo(s of t!e corporation in favor of t!e principal or anot!er trustee6 (*itong v6 C2)

(e+ An!Nor $hare$


2n#one of t!e ?oint owners can vote said s!ares or appoint a pro5# t!erefore6

(f+ Trea$'r7 $hare$ (Section 35+


Sec. 35. Voting right for treasury shares reasur# s!ares s!all !ave no "otin# ri#ht as long as suc! s!ares remain in t!e reasur#6 (n)

(#+ Non:"otin# $hare$ (Section 4+


Sec. 4. Classification of shares !e s!ares of stoc( of stoc( corporations ma# 3e divided into classes or series of s!ares4 or 3ot!4 an# of w!ic! classes or series of s!ares ma# !ave suc! rig!ts4 privileges or restrictions as ma# 3e stated in t!e articles of incorporationD %rovided4 !at no s!are ma# 3e deprived of voting rig!ts e5cept t!ose classified and issued as RpreferredR or Rredeema3leR s!ares4 unless ot!erwise provided in t!is CodeD %rovided4 furt!er4 !at t!ere s!all alwa#s 3e a class or series of s!ares w!ic! !ave complete voting rig!ts6 2n# or all of t!e s!ares

(h+ ProBie$ (Section 3?+


Sec. 3?. Pro=ies 'toc(!olders and mem3ers ma# vote in person or 3# pro5# in all meetings of stoc(!olders or mem3ers6 %ro5ies s!all in writing4 signed 3# t!e stoc(!older or mem3er and filed 3efore t!e sc!eduled meeting wit! t!e corporate secretar#6 >nless ot!erwise provided in t!e pro5#4 it s!all 3e valid onl# for t!e meeting for w!ic! it is intended6 No pro5# s!all 3e valid and effective for a period longer t!an five (&) #ears at an# one time6 (n)

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21/0

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
said voting trust ma# 3e for a period e5ceeding five (&) #ears 3ut s!all automaticall# e5pire upon full pa#ment of t!e loan6 2 voting trust agreement must 3e in writing and notarized4 and s!all specif# t!e terms and conditions t!ereof6 2 certified cop# of suc! agreement s!all 3e filed wit! t!e corporation and wit! t!e 'ecurities and "5c!ange Commission7 ot!erwise4 said agreement is ineffective and unenforcea3le6 !e certificate or certificates of stoc( covered 3# t!e voting trust agreement s!all 3e canceled and new ones s!all 3e issued in t!e name of t!e trustee or trustees stating t!at t!e# are issued pursuant to said agreement6 :n t!e 3oo(s of t!e corporation4 it s!all 3e noted t!at t!e transfer in t!e name of t!e trustee or trustees is made pursuant to said voting trust agreement6 !e trustee or trustees s!all e5ecute and deliver to t!e transferors voting trust certificates4 w!ic! s!all 3e transfera3le in t!e same manner and wit! t!e same effect as certificates of stoc(6 !e voting trust agreement filed wit! t!e corporation s!all 3e su3?ect to e5amination 3# an# stoc(!older of t!e corporation in t!e same manner as an# ot!er corporate 3oo( or recordD %rovided4 !at 3ot! t!e transferor and t!e trustee or trustees ma# e5ercise t!e rig!t of inspection of all corporate 3oo(s and records in accordance wit! t!e provisions of t!is Code6 2n# ot!er stoc(!older ma# transfer !is s!ares to t!e same trustee or trustees upon t!e terms and conditions stated in t!e voting trust agreement4 and t!ereupon s!all 3e 3ound 3# all t!e provisions of said agreement6 No voting trust agreement s!all 3e entered into for t!e purpose of circumventing t!e law against monopolies and illegal com3inations in restraint of trade or used for purposes of fraud6 >nless e5pressl# renewed4 all rig!ts granted in a voting trust agreement s!all automaticall# e5pire at t!e end of t!e agreed period4 and t!e voting trust certificates as well as t!e certificates of stoc( in t!e name of t!e trustee or trustees s!all t!ere3# 3e deemed canceled and new certificates of stoc( s!all 3e reissued in t!e name of t!e transferors6 !e voting trustee or trustees ma# vote 3# pro5# unless t!e agreement provides ot!erwise6 (3)a)
)ac*+s Lecture

)ac*+s Lecture Now4 as : said 3efore4 a stoc(!older can vote 3# pro5#6 *ut if !e gave a later pro5#4 t!e later pro5# will prevail over t!e earlier pro5#6 :f #ou cannot tell w!ic! one is later 3ecause t!e# don8t !ave dates4 well4 neit!er can vote6 Or if t!e stoc(!older personall# s!owed up at t!e stoc(!olders8 meeting4 t!en !e is personall# present4 t!en t!e pro5# will lose t!e rig!t to vote 3ecause t!e pro5# is ?ust an agent and agenc# can 3e revo(ed at an# time6 @owever if t!e pro5# is coupled wit! an interest4 t!en it cannot 3e revo(ed6 For instance4 if #ou !ave a 3an( w!ic! loaned a su3stantial amount of mone# and it re;uired t!is 3orrower to pledge !is s!ares of stoc( as collateral and to give a pro5# until t!e loan is full# paid4 t!en !e cannot revo(e t!e pro5# 3ecause it is coupled wit! an interest6

%ro5# refers to t!e formal written aut!orit# given 3# t!e owner or !older of t!e stoc(4 w!o !as a rig!t to vote it4 or 3# a mem3er4 as principal to anot!er person4 as agent4 to e5ercise t!e voting rig!ts of t!e former6 (%age $/0 of +e Leon4 200)) !e term also refers to t!e !older of aut!orit# or t!e person aut!orized 3# an a3sent stoc(!older or mem3er to vote for !im at a stoc(!olders8 or mem3ers8 meeting6 (%age $/0 of +e Leon4 200)) P'rpo$e of '$e of proB7, (1) %resence of ;uorum in meetings (2) "5ercise of rig!t to vote t!oug! a3sent (3) Goting and management control
Catindig Class Notes 0: !an the !orporate Secretary refuse to recogni'e a pro,y sent thru email2 3: Ces/ unless the corporation adopts a policy to receive pro,y email thru internet.

(i+ &otin# Tr'$t (Section 3*+


Sec. 3*. Voting trusts One or more stoc(!olders of a stoc( corporation ma# create a voting trust for t!e purpose of conferring upon a trustee or trustees t!e rig!t to vote and ot!er rig!ts pertaining to t!e s!ares for a period not e5ceeding five (&) #ears at an# timeD %rovided4 !at in t!e case of a voting trust specificall# re;uired as a condition in a loan agreement4

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21/1

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
as President of the corporation. 3/7/ and ! were elected. 3 was not elected President because ! voted for another person. !an 3 or 7 or other members of the pool file a suit against ! for breach of contract2 3: 4o. *he direction of business belongs to the 7oard of 8irectors and not to the S5s. *he stipulation is void if it is meant to control the discretion of the 8irectors.

2 stoc(!older can create a voting trust6 9!at will !appen is t!at t!e s!are of stoc( under !is name will 3e cancelled and will 3e issued in t!e name of t!e trustee6 !e G 2 is valid onl# for & #ears6 *ut4 if t!is was imposed as a condition in a loan4 it will 3e valid for a longer period 3ecause t!e lender imposed t!at condition to protect !is interest especiall# if it is a 3ig e5posure6 !e 3an( will want to (now w!at is !appening so t!e# will insist t!at a 3an( officer s!ould 3e given a voting trust and sit in t!e *oard to find out w!at8s !appening6 :f t!e loan is for 10 #ears it can 3e for 10 #ears 3ut if t!e loan is paid4 automaticall# t!e G 2 will lapse even if t!e 10 #ear period !as not #et e5pired 3ecause t!e voting trust is merel# to protect t!e interest of t!e 3an(6 !ese are different devices to accumulate votes4 t!e pro5ies4 t!e trusts6 Qou can also !ave a pooling agreement w!ere 2 or more '@ sign an agreement t!at t!e# will vote t!eir s!ares toget!er4 in t!e same wa#6

-i$tinction /et=een proB7 an! "otin# tr'$t


Le#a6 Tit6e Re"oca/i6it7 ProB7 No legal title Revoca3le unless coupled wit! interest6 &TA 2c;uires legal title :rrevoca3le if validl# e5ecuted *> suc! '@ can revo(e if t!ere8s a 3reac! of fiduciar# o3ligation Not limited to an# particular meeting "ven w!en t!e owner is present Can 3e voted as a director6 Considered as t!e '@ of record in t!e 3oo(s of t!e corp '!ares[Goting rig!ts >suall# longer 3ut cannot e5ceed & #ears e5cept in loan agreeements

(<+ Poo6in# a#ree%ent


%ooling agreement refers to agreement 3etween 2 or more s!are!olders to vote t!eir s!ares in t!e same wa# or as a unit6 (%age &02 of +e Leon4 200)) 'ee 'ection 100
UP Class Notes Para ;: S5 agreements in general. Pre9incorporation agreements among S5s remain effective even after incorporation if so intended and even if not reflected in 3A1/ e,cept for matter re>uired by the !ode to appear in the 3A1 Para :: efers to pooling and voting agreements in particular. *here is no reason for denying the S5s other than those in close corporations the right to enter into voting or pooling agreements to protect their interests/ as long as no wrong or fraud is committed or is intended to be committed on other S5s or parties Para K: gives close corporations freedom to operate as a partnership between and among the S5s/ but remaining as a corporation insofar as third persons are concerned. 4ote: S5S who are parties assume liabilities of directors

EBtent of Po=er When to "ote Capacit7 to /e a !irector

Can onl# act at a specified '@s8 or mem3ers7 meeting 23sence of t!e owner Cannot 3e voted as a director unless !e is also a '@ of record (owns ot!er s!ares) Goting rig!ts >suall# s!orter 3ut cannot e5ceed & #ears

S'/<ect Matter -'ration

ProB7 ". Tr'$tee ". Poo6in# an! A#ree%ent$


ProB7 *ased on law on agenc# %rincipal1agent %ro5# cannot e5ceed delegated aut!orit# .ust 3e in writing Tr'$tee *ased on law on trust rustee13eneficiar# !e onl# limit to t!is aut!orit#D must 3e for 3enefit of trustee (fiduciar# o3ligation) .ust 3e in writing and notatrized Poo6in# A#ree%ent$ *ased on Contract law Consensual .erel# an agreement to vote in t!e same wa# No formalities re;uired

Catindig Class Notes 0: 3/7/!/8/ and 6 entered in pooling agreement so as to elect 3/7/ and ! as directors. *hose elected as directors would then vote for 3

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21/2

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
.erel# a contract 3etween '@8s Owner still e5ercises voting rig!ts

Cop# must 3e filed wit! t!e corp secretar# Regular voting rig!ts6 2not!er penson e5ercise voting rig!ts onl# for a specific meeting (unless ot!erwise provided) %ro5# cannot 3e a director Revoca3le at will4 in an# manner "5cept w!en coupled wit! an interest .a5imum of & #ears at a time '"C can pass on validit#

Cop# must 3e file wit! t!e '"C ransfer of legal title to trustee 23solute voting rig!ts4 su3?ect onl# to fiduciar# dut#6 2not!er person e5ercises voting rig!ts continuousl#6 rustee can 3e a director :rrevoca3le as long as no misconduct or fraud .a5imum & #ears at a time (unless coterminous wit! loan)

M, Ho= a/o't "ia e:%ai6D A, 2s it is4 voting 3# e1mail alone is not ade;uate 3ecause a user1 participant8s role in suc! cases is passive considering t!at !is access to t!e entire proceedings is limited to t!e information in print transmitted t!roug! t!e internet6

(/+ SEC Me%o Circ'6ar No. ) $erie$ of 15@ AA)


Revoca3le 3# consent or mutual termination6 :f unilateral termination4 lia3le for damages SEC Me%o Circ No. ) Serie$ of AA) 555

AA)@ March

(3) 'toc(!olders s!all !ave t!e rig!t to vote at all stoc(!olders8 meetings in person or 3# pro5#6 !e stoc(!older ma# deliver4 in person or 3# mail4 !is pro5# vote directl# to t!e corporation6 555 (g) :f t!e stoc(!older intends to designate several pro5ies4 t!e num3er of s!ares of stoc( to 3e represented 3# eac! pro5# s!all 3e specificall# indicated in t!e pro5# form6 :f some of t!e pro5# forms do not indicate t!e num3er of s!ares4 t!e total s!are!olding of t!e stoc(!older s!all 3e tallied and t!e 3alance t!ereof4 if an#4 s!all 3e allotted to t!e !older of t!e pro5# form wit!out t!e num3er of s!ares6 :f all are in 3lan(4 t!e stoc(s s!all 3e distri3uted e;uall# among t!e pro5ies6 !e num3er of persons to 3e designate as pro5ies ma# 3e limited 3# t!e *#1laws6

3.1 A!!itiona6 Materia6$ (a+ SEC Opinion No. 4 to M$. 2a7ce6 Sato re &otin# /7 Tr'$tee$ thro'#h the internet@ March @ AA.
SEC Opinion No. 4 M, Ma7 a tr'$tee "ote thro'#h the internetD A, Qes4 provided t!at t!e internet medium to 3e used is a(in or similar (i6e64 video streaming wit! voice pac(et or video over t!e internet) to t!e one 3eing used in video1conferencing or tele1 conferencing4 w!ere a participant can see or !ear t!e actual proceedings of a 3oard meeting and activel# participate in t!e deli3eration of t!e 3oard6 @owever4 it s!ould 3e emp!asized t!at participation of directors in meetings t!roug! teleconferencing and video conferencing ma# 3e deemed accepta3le onl# w!en ade;uate safeguards !ave 3een accordingl# set in place6 .eetings of t!is nature s!ould 3e properl# recorded and t!e appropriate tapes and discs properl# stored for safe(eeping6

3.1. Apprai$a6 ri#ht


Apprai$a6 ri#ht refers to t!e rig!t to wit!draw form t!e corporation and demand pa#ment of t!e fair value of !is s!ares after dissenting from certain corporate acts involving fundamental c!anges in corporate structure6 ('ection -1) >pon demand4 all rig!ts accruing to t!e s!ares s!all 3e suspended6 ('ection -3)

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21/3

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA ($) Corporation decides to sell or dispose of all or su3stantiall# all assets of corporation ('ection -1) (&) .erger or consolidation ('ection -1) -e Leon, 'ection 3, grants appraisal rig!t to a dissenting stoc(!older (rig!t of t!e stoc(!older in t!e cases provided 3# law to demand pa#ment of t!e fair value of !is s!ares) Bin case of e5tension of corporate term6C 'uc! rig!t s!ould also 3e availa3le to a dissenting stoc(!older if t!e corporate term is s!ortened as it is e5pressl# recognized in 'ection -1(1)6 (%age 333 of +e Leon4 200)) 1't =ait@ CL& ha$ a !ifferent opinion. CL&, !e appraisal rig!t $ho'6! not 3e triggered w!en it comes to s!ortening of corporate life4 3ecause t!ere is reall# no violation of t!e original contractual intent6 !erefore4 t!e inclusion of t!e case of s!ortening of corporate life under 'ection -1 s!ould not prevail over t!e specific provision under 'ection 3,6 (%age 23, of CLG8s e5t3oo() CL&, !e e5ercise of appraisal rig!ts rig!tl# 3elongs to a case of e5tension of corporate term 3ecause e5tension actuall# novates t!e corporate contract wit! eac! s!are!older4 w!ic! now see(s to e5tend t!e corporate relations!ip 3e#ond t!e original term provided for in t!e articles of incorporation6 (%age 23, of CLG8s e5t3oo() Catindig: if the shortening of the corporate term is not intended to dissolving a corporation/ Section O; governs. Atherwise/ Section KD governs because the S5 will get more if he remains a S5 until li>uidation.
Catindig Class Notes 0: U corporation decided to shorten its corporate term +from F< to ;< years-. Ane of the S5s voted against the reduction of the corporate term. !an the dissenting S5 e,ercise appraisal right2 3: Ces under Section O;. 0: U corporation decided to shorten its corporate term +from F< to Kmonths-. Ane of the S5s voted against the reduction of the corporate term. !an the dissenting S5 e,ercise appraisal right2 3: 4o/ Section KD governs because the S5 will get more if he remains a S5 until li>uidation.

(a+ In$tance$ of apprai$a6 ri#ht (Section ?1 E Section .5+


Sec. ?1. Instances of appraisal right 2n# stoc(!older of a corporation s!all !ave t!e rig!t to dissent and demand pa#ment of t!e fair value of !is s!ares in t!e following instancesD 16 :n case an# amendment to t!e articles of incorporation !as t!e effect of c!anging or restricting t!e rig!ts of an# stoc(!older or class of s!ares4 or of aut!orizing preferences in an# respect superior to t!ose of outstanding s!ares of an# class4 or of e5tending or s!ortening t!e term of corporate e5istence7 26 :n case of sale4 lease4 e5c!ange4 transfer4 mortgage4 pledge or ot!er disposition of all or su3stantiall# all of t!e corporate propert# and assets as provided in t!e Code7 and 36 :n case of merger or consolidation6 (n) Sec. .5. Po(er to e=tend or shorten corporate term 2 private corporation ma# e5tend or s!orten its term as stated in t!e articles of incorporation w!en approved 3# a ma?orit# vote of t!e 3oard of directors or trustees and ratified at a meeting 3# t!e stoc(!olders representing at least two1t!irds (2K3) of t!e outstanding capital stoc( or 3# at least two1t!irds (2K3) of t!e mem3ers in case of non1stoc( corporations6 9ritten notice of t!e proposed action and of t!e time and place of t!e meeting s!all 3e addressed to eac! stoc(!older or mem3er at !is place of residence as s!own on t!e 3oo(s of t!e corporation and deposited to t!e addressee in t!e post office wit! postage prepaid4 or served personall#D %rovided4 !at in case of e5tension of corporate term4 an# dissenting stoc(!older ma# e5ercise !is appraisal rig!t under t!e conditions provided in t!is code6 (n)

In$tance$ =here it %a7 /e eBerci$e!, (S'n!ian#+ (1) "5tension or reduction of corporate term ('ection 3, and -1)V (2) C!ange in t!e rig!ts of stoc(!olders4 aut!orize preferences superior to t!ose stoc(!olders4 or restrict t!e rig!t of an# stoc(!older ('ections 3, and -1) (3) Corporation aut!orized t!e 3oard to invest corporate funds in anot!er 3usiness or purpose6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21/$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
option of t!e corporation4 terminate !is rig!ts under t!is itle6 :f s!ares represented 3# t!e certificates 3earing suc! notation are transferred4 and t!e certificates conse;uentl# canceled4 t!e rig!ts of t!e transferor as a dissenting stoc(!older under t!is itle s!all cease and t!e transferee s!all !ave all t!e rig!ts of a regular stoc(!older7 and all dividend distri3utions w!ic! would !ave accrued on suc! s!ares s!all 3e paid to t!e transferee6 (n)

!atindig: Shortening of corporate term is a way of dissolving a corporation. .hen the corporation is dissolved and shares are common/ the said shares have residual rights. 3fter payment of debts/ everything left goes to the S5s. *he li>uidating dividends may be greater than the fair value.

(/+ ReI'ire%ent$ for a $'cce$$f'6 eBerci$e of apprai$a6 ri#ht (Section ? an! ?4+
Sec. ? . 8o( right is e=ercised !e appraisal rig!t ma# 3e e5ercised 3# an# stoc(!older w!o s!all !ave voted against t!e proposed corporate action4 3# ma(ing a written demand on t!e corporation wit!in t!irt# (30) da#s after t!e date on w!ic! t!e vote was ta(en for pa#ment of t!e fair value of !is s!aresD %rovided4 !at failure to ma(e t!e demand wit!in suc! period s!all 3e deemed a waiver of t!e appraisal rig!t6 :f t!e proposed corporate action is implemented or affected4 t!e corporation s!all pa# to suc! stoc(!older4 upon surrender of t!e certificate or certificates of stoc( representing !is s!ares4 t!e fair value t!ereof as of t!e da# prior to t!e date on w!ic! t!e vote was ta(en4 e5cluding an# appreciation or depreciation in anticipation of suc! corporate action6 :f wit!in a period of si5t# ()0) da#s from t!e date t!e corporate action was approved 3# t!e stoc(!olders4 t!e wit!drawing stoc(!older and t!e corporation cannot agree on t!e fair value of t!e s!ares4 it s!all 3e determined and appraised 3# t!ree (3) disinterested persons4 one of w!om s!all 3e named 3# t!e stoc(!older4 anot!er 3# t!e corporation4 and t!e t!ird 3# t!e two t!us c!osen6 !e findings of t!e ma?orit# of t!e appraisers s!all 3e final4 and t!eir award s!all 3e paid 3# t!e corporation wit!in t!irt# (30) da#s after suc! award is madeD %rovided4 !at no pa#ment s!all 3e made to an# dissenting stoc(!older unless t!e corporation !as unrestricted retained earnings in its 3oo(s to cover suc! pa#mentD and %rovided4 furt!er4 !at upon pa#ment 3# t!e corporation of t!e agreed or awarded price4 t!e stoc(!older s!all fort!wit! transfer !is s!ares to t!e corporation6 (n) Sec. ?4. Notation on certificatesB rights of transferee 9it!in ten (10) da#s after demanding pa#ment for !is s!ares4 a dissenting stoc(!older s!all su3mit t!e certificates of stoc( representing !is s!ares to t!e corporation for notation t!ereon t!at suc! s!ares are dissenting s!ares6 @is failure to do so s!all4 at t!e

R'6e$ for eBerci$e of apprai$a6 ri#ht (1) !e stoc(!older must 3e a dissenting stoc(!older1 !e voted against t!e proposed action6 (2) !e stoc(!older must ma(e a written demand on t!e corporation wit!in 30 da#s after t!e vote was ta(en6 (3) !e proposed action is an# one of t!e instances enumerated a3ove (3) ($) !e price to 3e paid is t!e fair value of t!e s!ares on t!e date 3efore t!e vote was ta(en (&) !e fair value s!all 3e agreed upon 3ut in case t!ere is no agreement wit!in )0 da#s from t!e date t!e vote was ta(en4 t!e fair value s!all 3e determined 3# a ma?orit# of t!e 3 disinterested persons one of w!om s!all 3e named 3# t!e stoc(!older anot!er 3# t!e corporation and t!e t!ird 3# t!e two w!o were c!osen6 ()) !e rig!t of appraisal is e5tinguis!ed w!enD a) @e wit!draws t!e demand wit! corporation8s consent (consent of t!e corporation is necessar#) 3) !e proposal action is a3andoned c) !e '"C disapproves t!e action ('ection -$) (=R' at 30$)
Catindig Class Notes Appraisal 0: !an the corp and S5 just appoint one appraiser2 3: Cep/ the !ode does not prohibit this. Notation 0: .hy is there a need for notation2 3: *o avoid a moral ha'ardP that the S5 might sell shares already subject to e,ercise of appraisal rigts. 0: 1s one share sufficient to file a derivative suit2 3: Ces provided the other re>uisites are present.

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21/&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

(c+ Effect of !e%an! (Section ?.+


Sec. ?.. ffect of demand and termination of right From t!e time of demand for pa#ment of t!e fair value of a stoc(!olderJs s!ares until eit!er t!e a3andonment of t!e corporate action involved or t!e purc!ase of t!e said s!ares 3# t!e corporation4 all rig!ts accruing to suc! s!ares4 including voting and dividend rig!ts4 s!all 3e suspended in accordance wit! t!e provisions of t!is Code4 e5cept t!e rig!t of suc! stoc(!older to receive pa#ment of t!e fair value t!ereofD %rovided4 !at if t!e dissenting stoc(!older is not paid t!e value of !is s!ares wit!in 30 da#s after t!e award4 !is voting and dividend rig!ts s!all immediatel# 3e restored6 (n)

3.1) -eri"ati"e S'it$ (a+ -efinition


2 derivative suit is an action 3roug!t 3# minorit# s!are!olders in t!e name of t!e corporation to redress wrongs committed against t!e corporation4 for w!ic! t!e directors refuse to sue6 :t is a remed# designed 3# e;uit# and !as 3een t!e principal defense of t!e minorit# s!are!olders against a3uses 3# t!e ma?orit#6 9estern :nstitute of ec!nolog#4 :nc6 v6 'alas4 2,- 'CR2 21) (1//,)6 +erivative action1 t!ose 3roug!t 3# one or more stoc(!oldersKmem3ers in t!e name and on 3e!alf of t!e corporation to redress wrongs committed against it4 or protectKvindicate corporate rig!ts w!enever t!e officials of t!e corporation refuse to sue4 or t!e ones to 3e sued !as control of t!e corporation6 ReI'i$ite$ of -eri"ati"e Action$, (1) !e part# 3ringing suit s!ould 3e a s!are!older as of t!e time of t!e act or transaction complained of7 (2) @e !as e5!austed intra1corporate remedies7 and (3) !e cause of action actuall# devolves on t!e corporation4 t!e wrongdoing or !arm !aving 3een caused to t!e corporation and not to t!e particular stoc(!older 3ringing t!e suit6 (=R' at 300) ($) 2cts must 3e 3roug!t in t!e name of t!e corporation6 (=ac() ".ut (ait1 <ust ma*e use of the %e-uisites pro#ided by the &upreme Court1 in 7.GE"b$ of this re#ie(er$
)ac*+s Lecture Now t!e stoc(!olders are also allowed to file a derivative suit for redress of wrongs committed 3# t!e management6 !ere are four re;uisites for t!e filing of a derivative suit6 Fir$t4 t!ere must e5ist a cause of action w!ic! calls for t!is remed#6 "5ample4 t!e directors are mismanaging t!e affairs of t!e

(!+ Co$t of apprai$a6 (Section ?3+


Sec. ?3. 4ho bears costs of appraisal !e costs and e5penses of appraisal s!all 3e 3orne 3# t!e corporation4 unless t!e fair value ascertained 3# t!e appraisers is appro5imatel# t!e same as t!e price w!ic! t!e corporation ma# !ave offered to pa# t!e stoc(!older4 in w!ic! case t!e# s!all 3e 3orne 3# t!e latter6 :n t!e case of an action to recover suc! fair value4 all costs and e5penses s!all 3e assessed against t!e corporation4 unless t!e refusal of t!e stoc(!older to receive pa#ment was un?ustified6 (n)

(e+ Notation on $toc9 certificate($+ of !i$$entin# $toc9ho6!er (Section ?4+


Sec. ?4. Notation on certificatesB rights of transferee 9it!in ten (10) da#s after demanding pa#ment for !is s!ares4 a dissenting stoc(!older s!all su3mit t!e certificates of stoc( representing !is s!ares to t!e corporation for notation t!ereon t!at suc! s!ares are dissenting s!ares6 @is failure to do so s!all4 at t!e option of t!e corporation4 terminate !is rig!ts under t!is itle6 :f s!ares represented 3# t!e certificates 3earing suc! notation are transferred4 and t!e certificates conse;uentl# canceled4 t!e rig!ts of t!e transferor as a dissenting stoc(!older under t!is itle s!all cease and t!e transferee s!all !ave all t!e rig!ts of a regular stoc(!older7 and all dividend distri3utions w!ic! would !ave accrued on suc! s!ares s!all 3e paid to t!e transferee6 (n)

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21/)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
@ilda Lim6 9!ere s!eFt!e# !ad a famil# corporation and t!e 3oard passed a resolution sa#ing t!at to pa# for !er legal services to t!e corporation4 s!e s!ould 3e given s!ares of stoc( from t!e aut!orized 3ut unissued as pa#ment for !er legal services6 2not!er stoc(!older ;uestioned t!at and claimed t!at t!is violated !is rig!t to pre1emption6 9ell4 t!at was !is claim6 9ell4 @ilda Lim argued t!at !e could not file t!at case 3ecauseFt!e 'C !ad issued a RO restraining !im from acting in 3e!alf of t!e corporation and !e was filing a derivative suit6 !e court said no4 t!e cause of action !e is enforcing is !is own rig!t 3ecause !e claims t!at !e !ad a rig!t of pre1emption6 'o t!is was not a rig!t 3elonging to t!e corporation so t!is was not a derivative suit6 Now4 t!is derivative suit is allowed precisel# to ena3le a minorit# to protect its rig!ts against a ma?orit#6 !at8s w!# t!e ma?orit# cannot dismiss a derivative suit filed 3# t!e minorit#6 :n t!e case of 'an .iguel Corporation4 t!e court said it is not t!e mere factF t!at former dean "duardo de los 2ngeles owned onl# a few s!ares of 'an .iguel is not a ground to dismiss t!e case t!at !e filed 3ecause t!e cause of action !e is ascertaining pertains to 'an .iguel Corporation4 not to !imself6 !erefore t!e fact t!at !e onl# owned a few s!ares4 w!ic! are insignificant4 is not relevant6 9!at !appened was t!at .r6 2ndres 'oriano ::: 3oug!t 2 corporations6 @e 3oug!t t!em for !imself and !e used t!e funds of 'an .iguel Corporation6 2nd since t!e cause of action a stoc(!older is ascertaining in a derivative suit pertains to t!e corporation4 t!e proceeds of t!e case s!ould accrue to t!e corporation6 :f a court awards damages4 t!at s!ould go to t!e corporation4 not to t!e stoc(!older w!o filed t!e derivative suit6 2nd w!atever ?udgment is rendered in t!at case will 3e 3inding on t!e corporation6 Qou cannot !ave anot!er stoc(!older filing anot!er derivative suit6 !at8s w!# t!e court !as to 3e careful if it approves an# compromise6 2nd if t!e stoc(!older wins4 !e is entitled to 3e reim3ursed for t!e e5penses and attorne#8s fees !e incurred in prosecuting t!at case for t!e 3enefit of t!e corporation6

corporation6 On t!e ot!er !and4 remem3er #ou !ave t!e 3usiness ?udgment rule6 !e court will not set aside t!e decisions and actions of t!e 3oard unless t!e# !ave acted in 3ad fait!4 illegall# or wit! gross negligence6 "ven if t!e decisions ma# !ave resulted in losses4 t!e court will not second1guess t!e 3oard6 'o t!e# must !ave committed mismanagement4 or fraudulentl# disposed of t!eir propertiesFLi(e in one case4 #ou !ave two families w!o were stoc(!olders of t!is corporation6 One famil# was t!e one managing it and t!is famil# was sip!oning t!e funds and transferring it to t!eir own 3an( account6 2 derivative suit can 3e filed6 Or t!e e5ample given in #our 3oo( is li(e t!at Repu3lic *an( case6 Repu3lic *an( was 3eing investigated 3# t!e .onetar# *oard4 so w!at did it doL :t got Caderno4 t!e former governor of Central *an( as consultant6 :t was o3vious t!at t!e purpose was to ta(e advantage of !is influence6 'o t!is is a case of influence peddling and so t!at contract could 3e assailed6 Or in t!e old da#s4 w!en #ou still !ave t!is import control6 Qou cannot import unless #ou !ave a dollar allocation6 One compan# sold its dollar allocation6 Qou sell #our dollar allocation4 t!at8s illegal6 Qou won8t get anot!er dollar allocation again6 'o t!at could 3e t!e 3asis of a derivative suit6 Then t!e stoc(!older must e5!aust all remedies wit!in t!e corporation 3# appl#ing for redress from t!e 3oard or from t!e stoc(!olders unless t!is is e5cused6 9ell4 t!e court !as said4 well4 if t!e directors are mismanaging4 to appeal to t!em would 3e useless since t!e# are t!e ver# ones committing t!e wrong #ou are complaining a3out6 Or t!e case of 'an .iguel4 w!ere #ou !ave pro3a3l# around 204000 stoc(!olders around t!e world6 :t would 3e too unrealistic and too cum3ersome to re;uire a stoc(!older to appeal first to t!e stoc(!olders and as( for a stoc(!olders8 meeting6 Thir!4 t!e plaintiff must !ave 3een suc! at t!e time of t!e act complained of6 :f !e was not #et a stoc(!older at t!e time of t!e act complained of4 !e cannot sue unless t!e# are still 3eing continued after !e 3ecame a stoc(!older6 !at8s w!# #ou !ave t!is case of Nora *itong4 s!e filed a derivative suit against 2postol and t!ese ot!er people in t!e %!ilippine +ail# :n;uirer 3ut actuall# s!e was ?ust a dumm# of =uan %once "nrile w!o was t!e actual owner of t!e s!ares6 Now t!e court said t!at since s!e was not reall# t!e owner of t!e s!ares4 s!e could not file a derivative suit6 2nd moreover4 t!e s!ares issued in !er name were antedated to ma(e it appear t!at s!e 3ecame a stoc(!older 3efore t!e action s!e was ;uestioning occurred6 !e court said s!e cannot file a derivative suit ;uestioning t!ose transactions6 !en t!e action must 3e 3roug!t in t!e name and for t!e 3enefit of t!e corporation 3ecause t!e cause of action #ou are asserting 3elongs to t!e corporation4 t!at8s w!# t!e plaintiff will 3e t!e corporation6 9ell t!ere was t!is recent case of 2tt#6

>nder t!e Corporation Code4 w!ere a corporation is an in?ured part#4 its power to sue is lodged wit! its 3oard of directors or trustees6 *ut an individual stoc(!older ma# 3e permitted to institute a derivative suit in 3e!alf of t!e corporation in order to protect or vindicate corporate rig!ts w!enever t!e officials of t!e corporation refuse to sue4 or w!en a demand upon t!em to file t!e necessar# action would 3e futile 3ecause t!e# are t!e ones to 3e sued4 or 3ecause

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21/,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA stoc(!older is regarded as a nominal part#4 wit! t!e corporation as t!e real part# in interest6 (C!ua v6 C24 200$) :n t!e a3sence of a special aut!orit# from t!e *oard of +irectors to institute a derivative suit for and in 3e!alf of t!e corporation4 t!e president or managing director is dis;ualified 3# law to sue in !er own name6 !e power to sue and 3e sued in an# court 3# a corporation even as a stoc(!older is lodged in t!e *oard t!at e5ercises its corporate powers and not in t!e president or officer t!ereof6 *itong v6 Court of 2ppeals4 2/2 'CR2 &03 (1//-)6 2 minorit# stoc(!older and mem3er of t!e 3oard !as no power or aut!orit# to sue on t!e corporation8s 3e!alf6 Nor can we up!old t!is as a derivative suit4 since it is re;uired t!at t!e minorit# stoc(!older suing for and on 3e!alf of t!e corporation must allege in !is complaint t!at !e is suing on a derivative cause of action on 3e!alf of t!e corporation and all ot!er stoc(!olders similarl# situated w!o ma# wis! to ?oin !im in t!e suit6 !ere is no s!owing t!at petitioner !as complied wit! t!e foregoing re;uisites6 am 9ing a( v6 .a(asiar4 3&0 'CR2 $,& (2001)6 !e relators must 3e stoc(!olders 3ot! at time of occurrence of t!e events constituting t!e cause of action and at t!e time of t!e filing of t!e derivative suit6 <oc!an v6 Qoung4 3&$ 'CR2 20, (2001)7 %ascual v6 Orozco4 1/ %!il6 -3 (1/11)6 2 minorit# stoc(!older can file a derivative suit against t!e president for diverting corporate income to !is personal accounts6 Commart (%!ils6) :nc6 v6 '"C4 1/- 'CR2 ,3 (1//1)6 2 law#er engaged as counsel for a corporation cannot represent mem3ers of t!e same corporation8s 3oard of directors in a derivative suit 3roug!t against t!em6 o do so would 3e tantamount to representing conflicting interests4 w!ic! is pro!i3ited 3# t!e Code of %rofessional Responsi3ilit#6C @ornilla v6 'alunat4 $0& 'CR2 220 (2003)6

t!e# !old control of t!e corporation6 :n suc! actions4 t!e corporation is t!e real1part#1in1interest w!ile t!e suing stoc(!older4 in 3e!alf of t!e corporation4 is onl# a nominal part#6 (Filipinas %ort 'ervices4 :nc6 v6 <o (200,) !e w!ole purpose of t!e law aut!orizing a derivative suit is to allow t!e stoc(!oldersKmem3er to enforce rig!ts w!ic! are derivative (secondar#) in nature4 i6e64 to enforce a corporate cause of action6 (R6N6 '#maco rading Corp6 v6 'antos (200&) 9!ere corporate directors !ave committed a 3reac! of trust eit!er 3# t!eir fraud4 ultra vires acts4 or negligence4 and t!e corporation is una3le or unwilling to institute suit to remed# t!e wrong4 a stoc(!older ma# sue on 3e!alf of !imself and ot!er stoc(!olders and for t!e 3enefit of t!e corporation4 to 3ring a3out a redress of t!e wrong done directl# to t!e corporation and indirectl# to t!e stoc(!olders6 :t is a settled is t!e doctrine t!at in a derivative suit4 t!e corporation is t!e real part# in interest w!ile t!e stoc(!older filing suit for t!e corporation8s 3e!alf is onl# nominal part#6 !e corporation s!ould 3e included as a part# in t!e suit6 @ornilla v6 'alunat4 $0& 'CR2 220 (2003)6 Who %a7 /rin# the $'it 'ince t!e ones to 3e sued are t!e directorsKofficers of t!e corporation itself4 a stoc(!older4 li(e petitioner Cruz4 ma# validl# institute a derivative suit to vindicate t!e alleged corporate in?ur#4 in w!ic! case Cruz is onl# a nominal part# w!ile Filport is t!e real1part#1in1interest6 (Filipinas %ort 'ervices4 :nc6 v6 <o (200,) >nder 'ection 3) of t!e Corporation Code4 read in relation to 'ection 234 w!ere a corporation is an in?ured part#4 its power to sue is lodged wit! its 3oard of directors or trustees6 2n individual stoc(!older is permitted to institute a derivative suit in 3e!alf of t!e corporation w!erein !e !olds stoc(s in order to protect to vindicate corporate rig!ts4 w!enever officials of t!e corporation refuse to sue4 or are t!e ones to 3e sued4 or !old t!e control of t!e corporation6 :n suc! actions4 t!e suing

EBha'$tion of Intra:corporate re%e!ie$6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21/-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA w!ile t!e stoc(!older filing for t!e corporation8s 3e!alf is onl# nominal part#6 The corporation $ho'6! /e inc6'!e! a$ a part7 in the $'it. (@ornilla v6 'alunat4 2003)

2 derivative suit to ;uestion t!e validit# of t!e foreclosure of t!e mortgage on corporate assets can 3e filed wit!out prior demand upon t!e *oard of +irectors w!ere t!e legalit# of t!e constitution of t!e *oard lies at t!e center of t!e issues6 +*% v6 %undogar4 21- 'CR2 11- (1//3)6

(/+ ReI'i$ite$ ('ee Rule -4 'ection 14 'C :nterim Rules of


%rocedure for :ntra1Corporate Controversies effective 2pril 14 2002)
R'6e ?@ Section 1. -eri"ati"e Action 2 stoc(!older or mem3er ma# 3ring an action in t!e name of a corporation or association 4 as t!e case ma# 3e provided4 t!atD (1) @e was a stoc(!older or mem3er at t!e time t!e acts or transactions su3?ect of t!e action occurred and t!e time t!e action was filed7 (2) @e e5erted all reasona3le efforts4 and alleges t!e same wit! particularit# in t!e complaint4 to e5!aust all remedies availa3le under t!e articles of incorporation4 3#1laws4 laws or rules governing t!e corporation or partners!ip to o3tain t!e relief !e desires7 (3) No appraisal rig!ts are availa3le for t!e act or acts complained of7 and ($) !e suitNsO is not a nuisance or !arassment suit6 :n case of nuisance of !arassment suit4 t!e court s!all fort!wit! dismiss t!e case6
Catindig Class Notes 0: 1s e>uisite Y K a good policy2 !: 4o.

Nat're of Re6ief :n a derivative suit4 an# monetar# 3enefits under t!e decision of t!e court s!all pertain to t!e corporation and not to t!e stoc(!olders or mem3ers6 (R6N6 '#maco rading Corp6 v6 'antos4 200&) !e allegations of in?ur# to t!e relators can co1e5ist wit! t!ose pertaining to t!e corporation4 and does not dis;ualif# t!em from filing a derivative suit on 3e!alf of t!e corporation6 :t merel# gives rise to an additional cause of action for damages against t!e erring directors6 <oc!an v6 Qoung4 3&$ 'CR2 20, (2001)6 :n a derivative action4 t!e real part# in interest is t!e corporation itself4 not t!e s!are!olders w!o actuall# instituted it6 2 suit to enforce preemptive rig!ts in a corporation is not a derivative suit4 and t!erefore a temporar# restraining order en?oining a person from representing t!e corporation will not 3ar suc! action4 3ecause it is instituted on 3e!alf and for t!e 3enefit of t!e s!are!older4 not t!e corporation6 Lim v6 Lim1 Qu4 3&2 'CR2 21) (2001)6 2ppointment of receiver can 3e an ancillar# remed# in a derivative suit6 C!ase v6 CF: of .anila4 1- 'CR2 )02 (1/))) 9!ere corporate directors !ave committed a 3reac! of trust eit!er 3# t!eir frauds4 ultra vires acts or negligence4 and t!e corporation is una3le or unwilling to institute suit to remed# t!e wrong4 a stoc(!older ma# sue on 3e!alf of !imself and ot!er stoc(!olders and for t!e 3enefit of t!e corporation 4 to 3ring a3out a redress of t!e wrong done directl# to t!e corporation and indirectl# to t!e stoc(!olders6 !is is w!at is (nown as a derivative suit4 and settled is t!e doctrine t!at in a derivative suit4 t!e corporation is t!e real part# in interest

3.13 Ca$e
Franci$ Ch'a ". Ca ( AA)+ 2 derivative action is a suit 3# a s!are!older to enforce a corporate cause of action7 t!e corporation is necessar# part# to t!e suit6 Not ever# suit filed in 3e!alf of t!e corporation is a derivative suit6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21//

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA record6 +e Liano v6 Court of 2ppeals4 3,0 'CR2 3$/ (2001)6 B !e p!#sical acts of t!e corporation4 li(e t!e signing of documents4 can 3e performed onl# 3# natural persons dul# aut!orized for t!e purpose 3# corporate 3#1laws or 3# a special act of t!e 3oard of directors6C Firme v6 *u(al "nterprises and +ev6 Corp64 $1$ 'CR2 1/0 (2003)7 '!ipside :nc6 v6 Court of 2ppeals4 3&2 'CR2 33$ (2001)6 Rationa6e for Centra6i0e! Mana#e%ent -octrine. !e concentration in t!e 3oard of t!e powers of control of corporate 3usiness and appointment of corporate officers and managers is necessar# for efficienc7 in large organization6 (Filipinasl %ort 'ervice v6 <o4 200,) 1oar! M'$t Act a$ a 1o!7. 2 corporation4 t!roug! its *oard of +irectors4 s!ould act in t!e manner and wit!in t!e formalities prescri3ed 3# its c!arter or 3# t!e general law6 !us4 directors must act as a 3od# in a meeting called pursuant4 ot!erwise4 an# action ta(en t!erein ma# 3e ;uestioned 3# an# o3?ecting director or s!are!older6 *e t!at as it ma#4 ?urisprudence tells us t!at an action of t!e 3oard of directors during a meeting4 w!ic! was illegal for lac( of notice4 ma# 3e ratified eit!er e5pressl#4 3# t!e action of t!e directors in su3se;uent legal meeting4 or impliedl#4 3# t!e corporationJs su3se;uent course of conduct6 Lopez Realt# v6 Fontec!a4 2$, 'CR2 1-3 (1//&)6 Effect of K1o#'$L 1oar!. !e acts or contracts effected 3# a 3ogus 3oard would 3e "oi! pursuant to 2rt6 131- of Civil Code 3ecause of t!e lac( of BconsentC6 :slamic +irectorate of t!e %!ilippines v6 Court of 2ppeals4 2,2 'CR2 $&$ (1//,)6 2s can 3e gleaned form 'ection 23 of Corporation Code4 Bit is t!e 3oard of directors or trustees w!ic! e5ercises almost all t!e corporate powers in a corporationC (Firme v6 *u(al4 2003) Conse;uentl# under t!e doctrine of centralized management4 it cannot 3e said t!at t!e *oard act as agents of t!e stoc(!olders4 since t!eir source of power is originall# vested

4. 1OAR- OF -IRECTORS

4.1 1oar! of -irector$ (Section . et $eI+


Sec. .. 'he board of directors or trustees >nless ot!erwise provided in t!is Code4 t!e corporate powers of all corporations formed under t!is Code s!all 3e e5ercised4 all 3usiness conducted and all propert# of suc! corporations controlled and !eld 3# t!e 3oard of directors or trustees to 3e elected from among t!e !olders of stoc(s4 or w!ere t!ere is no stoc(4 from among t!e mem3ers of t!e corporation4 w!o s!all !old office for one (1) #ear until t!eir successors are elected and ;ualified6 "ver# director must own at least one (1) s!are of t!e capital stoc( of t!e corporation of w!ic! !e is a director4 w!ic! s!are s!all stand in !is name on t!e 3oo(s of t!e corporation6 2n# director w!o ceases to 3e t!e owner of at least one (1) s!are of t!e capital stoc( of t!e corporation of w!ic! !e is a director s!all t!ere3# cease to 3e a director6 rustees of non1stoc( corporations must 3e mem3ers t!ereof6 a ma?orit# of t!e directors or trustees of all corporations organized under t!is Code must 3e residents of t!e %!ilippines6

B*oard of +irectorsC is t!e 3od# w!ic! (1) e5ercises all powers provided for under t!e Corporation Code7 (2) conducts all 3usiness of t!e corporation7 and (3) controls and !olds all propert# of t!e corporation6 :ts mem3ers !ave 3een c!aracterized as trustees or directors clot!ed wit! a fiduciar# c!aracter6 :t is clearl# separate and distinct from t!e corporate entit# itself6 @ornilla v6 'alunat4 $0& 'CR2 220 (2003)6 2 corporation is an artificial 3eing and can onl# e5ercise its powers and transact its 3usiness t!roug! t!e instrumentalities of its *oard of +irectors4 and t!roug! its officers and agents4 w!en aut!orized 3# resolution or 3# its 3#1laws6 Conse;uentl#4 w!en legal counsel was clot!ed wit! aut!orit# t!roug! formal 3oard resolution4 !is acts 3ind t!e corporation w!ic! must 3e !eld 3ound t!e actuations of its counsel of

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21100

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA -'tie$ of -irector$ +ut# of O3edience ('ection 2)K31 of Corp Code) +ut# of +iligence ('ection 31 of Corp Code) +ut# of Lo#alt# ('ection 31 of Corp Code) +ut# of Care +ut# of +isclosure +ut# of Be5tra careC Specific -'tie$ an! Re$pon$i/i6itie$ of a -irector (Corp <ov Reviewer) (SEC Co!e of CG+OOO (1) o conduct fair 3usiness transactions wit! t!e corporation (2) o devote time and attention necessar# (3) o act ?udiciousl# ($) o e5ercise ?udgment (&) o !ave a wor(ing (nowledge of t!e law4 corp rules and industr# developments6 ()) o o3serve confidentialit# (,) o (eep t!e compan#8s control environment
VVV ('"C Code of C< is applica3le onl# to UUUUUUUUUU)

3# law and not delegated 3# t!e stoc(!olders6 (%age ,&$ of CLG8s CLR4 200,) !e e5ercise of t!e corporate powers of t!e corporation rests in t!e *o+ save in t!ose instances w!ere t!e Corporation Code re;uires stoc(!olders8 approval for certain specific acts6 (<reat 2sian 'ales Center v6 C24 2002) Conse;uentl#4 t!ere can 3e no valid contract t!at can 3e enforced on 3e!alf of t!e corporation over an alleged sale of a parcel land4 w!en t!ere is no s!owing t!at t!ere was approval of t!e purc!ase 3# t!e *oard of +irectors4 w!ic! e5ercise almost all t!e corporate powers in a corporation6 Firme v6 *u(al4 2003) (%age ,&$ of CLG8s CLR4 200,) Princip6e on !e6e#ation of 1oar! Po=er. >nder 'ection 23 of t!e Corporation Code4 t!e power and t!e responsi3ilit# to decide w!et!er t!e corporation s!ould enter into a contract is lodged in t!e *oard4 su3?ect to t!e articles of incorporation4 3# laws4 or relevant provisions of law6 @owever4 ?ust as a natural person ma# aut!orize anot!er to do certain acts for and on !is 3e!alf4 t!e *o+ ma# validl# delegate some of its functions and powers to officers4 committees or agents6 !e aut!orit# of suc! individuals to 3ring t!e corporations is generall# derived form law4 corporate 3#1laws or aut!orization form t!e 3oard4 eit!er e5pressl# or impliedl# 3# !a3it4 custom or ac;uisence in t!e general course of 3usiness6 (%eople8s 2ircargo v6 C24 1//-) (%age ,&, of CLG8s CLR4 200,) -'tie$ in Genera6, (>% Reviewer) -UTF &IOLATION UN-ER Section .1 O/e!ience 9illfull# and (nowingl# vote for or assent patentl# unlawful acts of t!e corporation -i6i#ence <uilt# of gross negligence or 3ad fait! directing t!e affairs of t!e corporation Lo7a6t7 2c;uire an# personal or pecuniar# interest conflict wit! t!eir dut# as suc! directors trustees -irector Re$pon$i/i6itie$ (Corp <ov ReviewerVVV)

(a+ A'thorit7 (Section )+


Sec. ). lection of directors or trustees 2t all elections of directors or trustees4 t!ere must 3e present4 eit!er in person or 3# representative aut!orized to act 3# written pro5#4 t!e owners of a ma?orit# of t!e outstanding capital stoc(4 or if t!ere 3e no capital stoc(4 a ma?orit# of t!e mem3ers entitled to vote6 !e election must 3e 3# 3allot if re;uested 3# an# voting stoc(!older or mem3er6 :n stoc( corporations4 ever# stoc(!older entitled to vote s!all !ave t!e rig!t to vote in person or 3# pro5# t!e num3er of s!ares of stoc( standing4 at t!e time fi5ed in t!e 3#1laws4 in !is own name on t!e stoc( 3oo(s of t!e corporation4 or w!ere t!e 3#1laws are silent4 at t!e time of t!e election7 and said stoc(!older ma# vote suc! num3er of s!ares for as man# persons as t!ere are directors to 3e elected or !e ma# cumulate said s!ares and give one candidate as man# votes as t!e num3er of directors to 3e elected multiplied 3# t!e num3er of !is s!ares s!all e;ual4 or !e ma# distri3ute t!em on t!e same principle

to in in or

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21101

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA (&) @e must possess ot!er ;ualifications as ma# 3e prescri3ed in t!e 3#1laws of t!e corporation6 For e5ample4 t!e percentage of e;uit# participation of foreigners wit! respect to nationalized activities must 3e complied wit! or !e must not 3e a director in a competing corporation6 PeTa v. !34 1/3 'CR2 ,1, (1//1) 1 a purported director w!ose name did not appear in t!e <eneral :nformation s!eet filed on 3e!alf of t!e corporation in t!e '"C was deemed not ;ualified to act as a mem3er of t!e *oard6 Gokongwei/ %r. v. S6!4 -/ 'CR2 33) (1/,/) 1 !e 3#laws of t!e corporation can provide ot!er ;ualifications and dis;ualifications in addition to t!ose provided in t!e Corporation Code6 !e *oard ma# provide for additional ;ualifications of a director ('"C Code of C<)
VVV ('"C Code of C< is applica3le onl# to UUUUUUUUUU)

among as man# candidates as !e s!all see fitD %rovided4 !at t!e total num3er of votes cast 3# !im s!all not e5ceed t!e num3er of s!ares owned 3# !im as s!own in t!e 3oo(s of t!e corporation multiplied 3# t!e w!ole num3er of directors to 3e electedD %rovided4 !owever4 !at no delin;uent stoc( s!all 3e voted6 >nless ot!erwise provided in t!e articles of incorporation or in t!e 3#1laws4 mem3ers of corporations w!ic! !ave no capital stoc( ma# cast as man# votes as t!ere are trustees to 3e elected 3ut ma# not cast more t!an one vote for one candidate6 Candidates receiving t!e !ig!est num3er of votes s!all 3e declared elected6 2n# meeting of t!e stoc(!olders or mem3ers called for an election ma# ad?ourn from da# to da# or from time to time 3ut not sine die or indefinitel# if4 for an# reason4 no election is !eld4 or if t!ere not present or represented 3# pro5#4 at t!e meeting4 t!e owners of a ma?orit# of t!e outstanding capital stoc(4 or if t!ere 3e no capital stoc(4 a ma?orit# of t!e mem3er entitled to vote6 'ee %age 2$0 of +e Leon for :llustration and computation6

(/+ ReI'ire%ent$ for e6ection of !irector


M'a6ification$ of -irector$, (2RS p. 54+
(1) 'toc( Corp61must own at least one (1) s!are capital stoc( of t!e corporation in !is own name7 Non1stoc( Corp61must 3e a mem3er6 @e must 3e a stoc(!older in !is own rig!t6 :t must 3e a legal title and not 3eneficial title6 EBa%p6e, t!e stoc(!older1trustor in a voting trust agreement cannot 3e a director 3ecause !e !as 3eneficial title7 t!e trustee can 3e elected as director 3ecause !e !as legal title6 (2) 2 ma?orit# of t!e directorsKtrustees must 3e residents of t!e %!ilippines6 ('ec6 23) (3) @e must not !ave 3een convicted 3# final ?udgment of an offense punis!a3le 3# imprisonment for a period e5ceeding si5 ()) #ears or a violation of t!e Corporation Code4 committed wit!in five (&) #ears 3efore t!e date of !is election ('ection 2,) ($) @e must 3e of legal age6

:t is clearl# deduci3le from 'ection 23 t!at onl# natural persons can 3e elected as directors or trustees and t!e# must 3e elected from among t!e stoc(!olders or mem3ers6 @owever4 a corporation w!ic! owns s!ares of stoc( or is a corporate mem3er in anot!er corporation can designate 3# 3oard resolution its officer or representative to sit in t!e latter8s 3oard and t!us ;ualif#ing !im to 3e elected as director or trustee6 2 contrar# rule would create a situation w!ere t!ere would 3e no 3oard as w!ere all t!e stoc(!olders or mem3ers are corporation or ?uridical persons6 !e appointment must 3e recorded in t!e corporate 3oo(s6 ('"C Opinion No6 0&10)4 =une -4 200&)

-irector In!epen!ence (Corp <ov Reviewer) :t is vitall# important t!at a num3er of 3oard 3e independent from management ('"C Code of C<4 'ection ::)VVV

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21102

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA !ere is no citizens!ip re;uirement demanded of t!e mem3ers of *o+6 (1) :n corporations not organized under t!e Code4 citizens!ip re;uirements are esta3lis!ed6 o !us4 in case of domestic 3an(s4 t!e <eneral *an(ing 2ct re;uires t!at at least two1t!irds of t!e mem3ers of t!e *o+ must 3e citizens of t!e %!ilippines6 ('ection 13 of R2 No6 33,)6 o For rural 3an(s4 registered investment companies and private development 3an(s4 all t!e mem3ers of t!e *o+ must 3e citizens of t!e %!ilippines6 ('ection $ of R2 ,204 as amended 3# R2 10/,7 'ection $ of R2 $0/3) (2) >nder t!e Constitution4 aliens ma# not 3e elected as directors of corporation engaged in 3usiness or industries w!ic! are totall# or partiall# nationalized 3usiness or industries6

Listed and pu3lic companies s!all !ave at least 2 independent directors or 20A of t!e 3oard w!ic! ever is lesser6 ('RC 'ection 3-)VVV :ndependent director s!all mean a person ot!er t!an an officer or emplo#ee of t!e corporation4 its parent or su3sidiaries4 or an# ot!er individual !aving a relations!ip wit! t!e corporation4 w!ic! would intervene wit! t!e e5ercise of independent ?udgment in carr#ing out t!e responsi3ilit# of a director6 ('RC 'ection 3-)VVV -e#ree$ of Re%o"a6 (Corp <ov Reviewer) Not related 3# 3lood or marriage to t!e controlling s!are!older Not related as a fiend or social relation of t!e controlling s!are!older Not a supplier nor engaged in an# 3usiness transaction wit! t!e compan# +oes not derive an income as a 3oard director t!at constitutes t!e ma?orit# of !is or !er income6 (see 'RC Rule 3-61)VVV

(i"+ -i$I'a6ification$ (Section 5+


Sec. 5. Dis-ualification of directors1 trustees or officers No person convicted 3# final ?udgment of an offense punis!a3le 3# imprisonment for a period e5ceeding si5 ()) #ears4 or a violation of t!is Code committed wit!in five (&) #ears prior to t!e date of !is election or appointment4 s!all ;ualif# as a director4 trustee or officer of an# corporation6

(i+ M'a6if7in# $hare (Section )+


2 director must own at least one s!are of stoc(6 %e\a v6 C24 1/3 'CR2 ,1, (1//1)7 +etective W %rotective *ureau4 :nc6 v6 Clori3el4 2) 'CR2 2&& (1/)/)6 *eneficial owners!ip under voting trust arrangement no longer ;ualifies (Lee v6 C24 20& 'CR2 ,&2 N1//2O)6

(ii+ Re$i!ence (Section )+


2 ma?orit# of t!e directorsKtrustees must 3e residents of t!e %!ilippines6 ('ec6 23)

(iii+ Nationa6it7

-i$I'a6ification$, !orporation !ode must not !ave 3een convicted of a crime punis!a3le 3# imprisonment of e5ceeding si5 ()) #ears must not !ave committed an# violation of t!e Corporation code wit!in five (&) #ears prior to !is election General 7anking "aw of :<<< "5cept in rural 3an(s4 no appointive or elective pu3lic official4 w!et!er fulltime or part1time s!all at t!e same time serve as officer of an# private 3an(4 save in cases w!ere suc! service is incident to financial assistance provided 3# t!e government or <OCCs to t!e 3an( or unless ot!erwise provided under

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21103

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA 3ri3er#4 false oat!4 per?ur# or ot!er fraudulent act of transgressions6 (d) 2n# person finall# found 3# '"C or a court or ot!er administrative 3od# to !ave willfull# violated4 or willfull# aided4 a3etted4 counseled4 induced or procured t!e violation of4 an# provision of t!e 'ecurities and Regulation Code4 or an# ot!er law administered 3# '"C or Corporation Code4 or an# rule4 regulation or order of '"C or *'%4 or 3# a foreign court or e;uivalent financial regulator# of similar acts6 (e) 2n# person ?udiciall# declared to 3e insolvent6 (f) 2n# person finall# found guilt# 3# a foreign court or e;uivalent regulator# aut!orit# of acts4 violations or misconduct similar to an# of t!e acts4 violations or misconduct listed in paragrap!s (a) to (e) !ereof6 (g) 2n# affiliated person w!o is ineligi3le4 3# reason of paragrap!s (a) to (e) !ereof to serve or act in t!e capacities listed in t!ose paragrap!s6 (!) Conviction 3# final ?udgment of an offense punis!a3le 3# imprisonment for a period e5ceeding si5 ()) #ears4 or a violation of Corporation Code4 committed wit!in five (&) #ears prior to t!e date of !is election or approval6

e5isting laws S6! !ode of !GZZZ (a) 2n# person w!o !as 3een finall# convicted 3# a competent ?udicial or administrative 3od# of t!e following crimesD (i) :nvolving purc!ase or sale of securities7 (ii) 2rising out of t!e person8s conduct as an underwriter4 3ro(er4 dealer4 investment adviser4 principal distri3utor6 .utual fund dealer4 principal distri3utor4 mutual fund dealer4 futures commission merc!ant4 commodit# trading advisor4 floor 3ro(er7 and (iii) 2rising out of !is relations!ip wit! a 3an(4 ;uasi13an(4 trust compan#4 investment !ouse or as an affiliated person of an# one of t!em (3) 2n# person w!o4 3# reason of an# misconduct4 is permanentl# or temporaril# en?oined 3# order4 ?udgment or decree 3# t!e '"C or an# court or ot!er administrative 3od# fromD (i) acting as underwriter4 3ro(er4 dealer4 investment adviser4 principal distri3utor4 mutual fund dealer4 futures commission merc!ant4 commodit# trading advisor4 or a floor 3ro(er7 (ii) acting as a director or officer of a 3an(4 ;uasi13an(4 trust compan#4 investment !ouse4 investment compan# or an affiliated person of an# of t!em7 (iii) engaging in or continuing an# conduct or practice in connection wit! an# suc! activit# or willfull# violating laws governing securities4 and 3an(ing activities (3ut also includes w!en covered 3# an effective interim order)7 suc! person is also dis;ualified w!en !e is currentl# su3?ect to an effective order of a self1regulator# organization suspending or e5pelling !im from mem3ers!ip or participation or from associating wit! a mem3er or participant of t!e organization (c) 2n# person finall# convicted ?udiciall# or administrativel# of an offense involving moral turpitude4 fraud4 em3ezzlement4 t!eft4 estafa4 counterfeiting4 misappropriation4 forger#4

(c+ Ho= e6ecte! (Section )+


Stoc9ho6!er$ ha"e the option to a!opt an7 of the fo66o=in#, (1) Strai#ht "otin#1 ever# stoc(!older Bma# vote suc! num3er of s!ares for as man# persons as t!ere are directorsC to 3e elected7 (2) C'%'6ati"e &otin# for One Can!i!ate 1 a stoc(!older is allowed to concentrate !is votes and Bgive one candidate as man# votes as t!e num3er of directors to 3e elected multiplied 3# t!e num3er of !is s!ares s!all e;ualC7 (3) C'%'6ati"e &otin# /7 -i$tri/'tion1 a stoc(!older ma# cumulate !is s!ares 3# multipl#ing also t!e num3er of directors to 3e elected and distri3ute t!e same among as man# candidates as !e s!all see fit6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2110$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
t!e call for t!e meeting ma# 3e addressed directl# to t!e stoc(!olders or mem3ers 3# an# stoc(!older or mem3er of t!e corporation signing t!e demand6 Notice of t!e time and place of suc! meeting4 as well as of t!e intention to propose suc! removal4 must 3e given 3# pu3lication or 3# written notice prescri3ed in t!is Code6 Removal ma# 3e wit! or wit!out causeD %rovided4 !at removal wit!out cause ma# not 3e used to deprive minorit# stoc(!olders or mem3ers of t!e rig!t of representation to w!ic! t!e# ma# 3e entitled under 'ection 2$ of t!is Code6

NoteD Cumulative voting is not availa3le in non1stoc( corporations6 (=R') Manner of E6ection, (1) :n an# form7 or (2) *# 3allot w!en re;uested 3# an# voting stoc(!older or mem3er7 (3) Goting ma# 3e in person or 3# pro5#6 (%age ,)$ of CLG8s CLR4 200,)
Catindig Class Notes 0: .hen is the 7o8 elected2 3: *he general rule is the 7o8 is elected in an annual meeting e,cept if the cause of vacancy is due to removal or if there is no more >uorum in the 7o8 to be able to fill in the vacancy in which case a director may be lected in a special meeting. 0: !an the number of the 7o8 be less than F2 3: Cep. !: 3ccording to the S6!/ there can be rounding up. 1 think there should be no rounding up because election of foreign 7o8 is merely a privilege.

ReI'i$ite$ for Re%o"a6, (Pa#e 5? of 2RS+


(1) :t must 3e ta(e place eit!er at a regular meeting or special meeting of t!e stoc(!olders or mem3ers called for t!e purpose7 (2) !ere must 3e previous notice to t!e stoc(!olders or mem3ers of t!e intention to remove7 (3) !e removal must 3e 3# a vote of t!e stoc(!olders representing 2K3 of Outstanding Capital 'toc( or 2K3 mem3ers6 ($) !e director ma# 3e removed wit! or wit!out cause unless !e was elected 3# t!e minorit#4 in w!ic! case4 it is re;uired t!at t!ere is cause for removal6 ('ection 2-)
Catindig Class Notes 0: !an directors be removed at anytime2 3: Ces if with cause and even without cause if the director does not represent the minorityP 0: !an the S5 who owns ?<M and has : nominees get rid of the : nominees without action from the 7oard2 3: Ces/ because of agency. 0: 5ow2 3: !ause the shares to be transferred. 0: 3re directors entitled to compensation2 3: General rule is they are not entitled to compensation e,cept when provided by bylaw or by a vote of S5s representing majority of A!S.

(!+ Ho= re%o"e! (Section ?+


Sec. ?. %emo#al of directors or trustees 2n# director or trustee of a corporation ma# 3e removed from office 3# a vote of t!e stoc(!olders !olding or representing at least two1 t!irds (2K3) of t!e outstanding capital stoc(4 or if t!e corporation 3e a non1stoc( corporation4 3# a vote of at least two1t!irds (2K3) of t!e mem3ers entitled to voteD %rovided4 !at suc! removal s!all ta(e place eit!er at a regular meeting of t!e corporation or at a special meeting called for t!e purpose4 and in eit!er case4 after previous notice to stoc(!olders or mem3ers of t!e corporation of t!e intention to propose suc! removal at t!e meeting6 2 special meeting of t!e stoc(!olders or mem3ers of a corporation for t!e purpose of removal of directors or trustees4 or an# of t!em4 must 3e called 3# t!e secretar# on order of t!e president or on t!e written demand of t!e stoc(!olders representing or !olding at least a ma?orit# of t!e outstanding capital stoc(4 or4 if it 3e a non1stoc( corporation4 on t!e written demand of a ma?orit# of t!e mem3ers entitled to vote6 '!ould t!e secretar# fail or refuse to call t!e special meeting upon suc! demand or fail or refuse to give t!e notice4 or if t!ere is no secretar#4

(e+ Ho= "acanc7 fi66e! (Section *+


Sec. *. Vacancies in the office of director or trustee 2n# vacanc# occurring in t!e 3oard of directors or trustees ot!er t!an

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2110&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA -irector Co%pen$ation Corp Co!eD 'ection 30 Compensation must 3e sufficient to attract and retain directors needed to run t!e compan# successfull#6 ('"C Code of C<)VVV Corporations ma# esta3lis! a formal and transparent procedure for developing a polic# on e5ecutive remuneration and for fi5ing t!e remuneration pac(ages of individual directors4 if an#6 ('"C Code of C<)VVV No director s!ould 3e involved in deciding !is or !er own remuneration ('"C Code of C<)VVV Compensation ma# 3e lin(ed wit! corporation and individual performance6

3# removal 3# t!e stoc(!olders or mem3ers or 3# e5piration of term4 ma# 3e filled 3# t!e vote of at least a ma?orit# of t!e remaining directors or trustees4 if still constituting a ;uorum7 ot!erwise4 said vacancies must 3e filled 3# t!e stoc(!olders in a regular or special meeting called for t!at purpose6 2 director or trustee so elected to fill a vacanc# s!all 3e elected onl# or t!e une5pired term of !is predecessor in office6 2 directors!ip or trustees!ip to 3e filled 3# reason of an increase in t!e num3er of directors or trustees s!all 3e filled onl# 3# an election at a regular or at a special meeting of stoc(!olders or mem3ers dul# called for t!e purpose4 or in t!e same meeting aut!orizing t!e increase of directors or trustees if so stated in t!e notice of t!e meeting

Fi66in# of "acancie$ in the 1oar!, (Pa#e 5* of 2RS+


(1) *# stoc(!olders or mem3ers H if vacanc# results 3ecause ofD (i) removal7 (ii) e5pirations of term7 (iii) t!e ground is ot!er t!an removal or e5piration of term (e6g64 deat!4 resignation4 a3andonment) w!ere t!e remaining directors do not constitute a ;uorum7 (iv) increase in t!e num3er of directors6 (2) *# 3oard if remaining directors constitute a ;uorumMcase not reserved to stoc(!olders or mem3ers6

(#+ Matter$ reI'irin# 1oar! of -irector$> action


2s can 3e gleaned from 'ection 23 of Corporation Code4 Bit is t!e 3oard of directors or trustees w!ic! e5ercises almost all t!e corporate powers in a corporationC (Firme v6 *u(al4 2003)

(h+ Lia/i6it7 (i+ In Genera6 (Section .1+


Sec. .1. Liability of directors1 trustees or officers +irectors or trustees w!o willfull# and (nowingl# vote for or assent to patentl# unlawful acts of t!e corporation or w!o are guilt# of gross negligence or 3ad fait! in directing t!e affairs of t!e corporation or ac;uire an# personal or pecuniar# interest in conflict wit! t!eir dut# as suc! directors or trustees s!all 3e lia3le ?ointl# and severall# for all damages resulting t!erefrom suffered 3# t!e corporation4 its stoc(!olders or mem3ers and ot!er persons6 9!en a director4 trustee or officer attempts to ac;uire or ac;uires4 in violation of !is dut#4 an# interest adverse to t!e corporation in respect of an# matter w!ic! !as 3een reposed in !im in confidence4 as to w!ic! e;uit# imposes a disa3ilit# upon !im to deal in !is own 3e!alf4 !e s!all 3e lia3le as a trustee for t!e corporation and must account for t!e profits w!ic! ot!erwise would !ave accrued to t!e corporation6

(f+ Ho= co%pen$ate! (Section .A+


Sec. .A. Compensation of directors :n t!e a3sence of an# provision in t!e 3#1laws fi5ing t!eir compensation4 t!e directors s!all not receive an# compensation4 as suc! directors4 e5cept for reasona3le per diemsD %rovided4 !owever4 !at an# suc! compensation ot!er t!an per diems ma# 3e granted to directors 3# t!e vote of t!e stoc(!olders representing at least a ma?orit# of t!e outstanding capital stoc( at a regular or special stoc(!oldersJ meeting6 :n no case s!all t!e total #earl# compensation of directors4 as suc! directors4 e5ceed ten (10A) percent of t!e net income 3efore income ta5 of t!e corporation during t!e preceding #ear6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2110)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA +irectors and officers w!o purport to act for t!e corporation4 (eep wit!in t!e lawful scope of t!eir aut!orit# and act in good fait!4 do not 3ecome lia3le4 w!et!er civill# or ot!erwise4 for t!e conse;uences of t!eir acts4 w!ic! are properl# attri3uted to t!e corporation alone6 *enguet "lectric Cooperative4 :nc6 v6 NLRC4 20/ 'CR2 && (1//2)6 'ee also %age ,,$ of CLG8s CLR4 200,
UP Class Notes eason for this tile is that nobody would want to be a director if he is liable for a wrong decision. 4ot liable for mistakes and errors provided they acted in good faith and with due care and prudence. +UP96lective !lass eviewer at KLCatindig Class Notes,Ateneo 0: .hat matters re>uire 7o8 action2 .hat are the e,ceptions2 3: 3ll corporate powers e,cept such delegated to 6,ecutive !ommittee/ SP3s etc. 0: 3re directors liable for wrong decision resulting to losses to the corporation2 3: 4o unlessP

A !irector i$ 6ia/6e if he,


(1) 9illfull# and (nowingl# vote for and assent to patentl# unlawful4 acts of t!e corporation7 (2) :s guilt# of gross negligence or 3ad fait! in directing t!e affairs of t!e corporation7 or (3) 9ill ac;uire an# personal or pecuniar# interest in conflict of dut#6 ('ecs 31 and 3$)

(ii+ 1'$ine$$ 2'!#%ent r'6e


*=RD >nless ot!erwise provided in t!e Code4 all corporate powers and prerogatives are vested directl# in t!e *o+6 Conse;uentl#4 t!e rule !as two conse;uencesD (1) !e resolution4 contracts4 and transactions of t!e *oard4 cannot 3e overturned or set aside 3# t!e stoc(!olders or mem3ers and not even 3# t!e courts under t!e principle t!at 3usiness of t!e corporation !as 3een left to t!e !ands of t!e *oard7 and (2) +irectors and dul# aut!orized officers cannot 3e !eld personall# lia3le for acts or contracts done wit! t!e e5ercise of t!eir 3usiness ?udgment6 EBception$, (a) 9!en t!e Corporation Code e5pressl# provides ot!erwise7 (3) 9!en t!e +irectors or officers acted wit! fraud4 gross negligence or in 3ad fait!7 and (c) 9!en +irectors or officers act against t!e corporation in conflict of interest situation6 (%age ,&/ of CLG8s CLR4 200,) No court can4 as an integral part of resolving t!e issues 3etween s;ua33ling stoc(!olders4 order t!e corporation to underta(e certain corporate acts4 since it would 3e in violation of t!e 3usiness ?udgment rule6 Ong Qong v6 iu4 $01 'CR2 1 (2003)6

(iii+ -octrine of corporate opport'nit7


:f t!ere is presented to a corporate officer or director a 3usiness opportunit# w!ic!D (a) Corporation is financiall# a3le to underta(e7 (3) From its nature4 is in line wit! corporation8s 3usiness and is of practicall# advantage to it7 and (c) One in w!ic! t!e corporation !as an interest or a reasona3le e5pectanc#6 *# em3racing t!e opportunit#4 t!e self1interest of t!e officer or director will 3e 3roug!t into conflict wit! t!at of !is corporation6 @ence4 t!e law does not permit !im to seize t!e opportunit# even if !e will use !is own funds in t!e venture6 :f !e seizes t!e opportunit# t!ere3# o3taining profits to t!e e5pense of t!e corporation4 !e must account all t!e profits 3# refunding t!e same to t!e corporation unless t!e act !as 3een ratified 3# a vote of t!e stoc(!olders owning or

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2110,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
circumstances7 and $6 !at in case of an officer4 t!e contract !as 3een previousl# aut!orized 3# t!e 3oard of directors6

representing at least two1t!irds (2K3) of t!e outstanding capital stoc(6 (%age 2,/ of =R'8 RCL4 200)) 'ections 31 and 3$ contain t!e doctrine of corporate opportunit#6 :n case of suc! conflict1of1interests 4 and t!e director acts against t!e good of t!e corporation4 !e s!all 3e accounta3le for t!e profits !e o3tained4 even if !e !ad ris(ed !is own funds6 (%age ,-3 of CLG8s CLR4 200,)
Class Notes Pedro is a director of U !orporation which is engaged in hog business. Pedro was sent on a convention abroad. An that trip/ Pedro knew about a new breed of hogs available abroad which is more profitable. Pedro proposed to the 7o8 to buy the new breed of hogs. 3fter one and a half year/ the 7o8 have not made any decision yet because of the financial condition of the corp. Pedro told 5ans about this and 5ands said they would create a new hog corp and import the hogs. !ould Pedro engage in the same business as the corporation2 !ould this business import the new breed of hogs2 .hat would be your advice to avoid trouble2 Ans! Pedro could not engage in the business of importing the hogs because of his position and he came across the information because the corporation sent him to the convention. Alternati#e Ans(er! Ane and a half year is a very long time. Cou could tell Pedro to write a letter to the corporation and disclose that he would engage in hog business.

9!ere an# of t!e first two conditions set fort! in t!e preceding paragrap! is a3sent4 in t!e case of a contract wit! a director or trustee4 suc! contract ma# 3e ratified 3# t!e vote of t!e stoc(!olders representing at least two1t!irds (2K3) of t!e outstanding capital stoc( or of at least two1t!irds (2K3) of t!e mem3ers in a meeting called for t!e purposeD %rovided4 !at full disclosure of t!e adverse interest of t!e directors or trustees involved is made at suc! meetingD %rovided4 !owever4 !at t!e contract is fair and reasona3le under t!e circumstances6
Class Notes >! Pedro owns 37! !orp +(anpower services-. 5e proposed to supply janitors/ security guards and clerks at FM below market charges to U !orp of which he is a director. !ould U !orp. enter into such contract2 Ans! Ces/ Pedro is a self9dealing director. *o ensure that the contract is not voided/ the following re>uirements must concur: +;- *he contract must be fair and reasonableJ +:- 7o8 >uorum even without the presence of PedroJ +K- #ote of Pedro is not needed for approvalJ +?- 1f U !orp is a bank/ there must be a minutes on the meeting and a copy of the minutes must be sent to the 7SP. 4ote: *here should also be full disclosure of the adverse interest. !atindig: 3ctually/ you could enter into it but risk that a 7o8 or stockholder will contest it. +UP96lective !lass eviewer at KL-

(i"+ -ea6in#$ =ith the corporation (Section . +


Sec. . . Dealings of directors1 trustees or officers (ith the corporation 2 contract of t!e corporation wit! one or more of its directors or trustees or officers is voida3le4 at t!e option of suc! corporation4 unless all t!e following conditions are presentD 16 !at t!e presence of suc! director or trustee in t!e 3oard meeting in w!ic! t!e contract was approved was not necessar# to constitute a ;uorum for suc! meeting7

("+ Contract$ /et=een corporation =ith inter6oc9in# !irector$ (Section ..+


Sec. ... Contracts bet(een corporations (ith interloc*ing directors "5cept in cases of fraud4 and provided t!e contract is fair and reasona3le under t!e circumstances4 a contract 3etween two or more corporations !aving interloc(ing directors s!all not 3e invalidated on t!at ground aloneD %rovided4 !at if t!e interest of t!e interloc(ing director in one corporation is su3stantial and !is interest in t!e ot!er corporation or corporations is merel# nominal4 !e s!all 3e su3?ect to

26 !at t!e vote of suc! director or trustee was not necessar# for t!e approval of t!e contract7 36 !at t!e contract is fair and reasona3le under t!e

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2110-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA (3) :nterloc(ing directors ('ection 33) ($) 'eizing corporate opportunit#7 +islo#alt# (3143$) (&) >sing inside information ('RC 'ections 36-4 23624 )14 ,162)

t!e provisions of t!e preceding section insofar as t!e latter corporation or corporations are concerned6 'toc(!oldings e5ceeding twent# (20A) percent of t!e outstanding capital stoc( s!all 3e considered su3stantial for purposes of interloc(ing directors6

("ii+ Watere! Stoc9$ (Section 43+


Sec. 43. Liability of directors for (atered stoc*s 2n# director or officer of a corporation consenting to t!e issuance of stoc(s for a consideration less t!an its par or issued value or for a consideration in an# form ot!er t!an cas!4 valued in e5cess of its fair value4 or w!o4 !aving (nowledge t!ereof4 does not fort!wit! e5press !is o3?ection in writing and file t!e same wit! t!e corporate secretar#4 s!all 3e solidaril#4 lia3le wit! t!e stoc(!older concerned to t!e corporation and its creditors for t!e difference 3etween t!e fair value received at t!e time of issuance of t!e stoc( and t!e par or issued value of t!e same6 (n)
)ac*+s Lecture Now under CD7 GLia/i6it7 of !irector$ for =atere! $toc9$H4 we8ve mentioned t!is 3efore4 an officer or director w!o agrees to t!e issuance of watered stoc( or suc! officer w!o4 !aving (nowledge of it4 does not file wit! t!e corporate secretar# !is written o3?ection4 will 3e lia3le if a stoc( is watered6 :n ot!er words4 t!e stoc(!older paid less t!an t!e par value or t!e stated value for t!e s!ares of stoc( and t!en !e was issued a stoc( certificate6 9!en t!e corporation receives less consideration t!an t!e par value of a par value s!are or t!e stated value if it is a no1 par value s!areF t!at is called watered stoc(6 *ecause remem3er4 cattle is called stoc(6 2nd in t!e old da#s of t!e wild4 wild west4 w!en t!e cow3o#s would 3ring t!eir cattle to t!e mar(et to 3e sold4 t!e# will ma(e t!e cattle eat salt so t!e cattle will 3e ver# t!irst#6 2nd t!en along t!e wa#4 t!e# will pass 3# a stream6 2nd so t!e cattle are ver# t!irst# and so t!e# will drin( a lot of water6 'o w!en t!e# arrive at t!e mar(et4 t!e cattle will 3e ver# !eav# 3ecause of t!e water6 'o w!en t!e cattle is weig!ed 3# t!e 3u#er4 t!e cattle is !eav# and !e will pa# t!e price for t!at weig!t 3ut w!at !e is pa#ing for 1 water6 @e is not getting !is mone#8s wort!6 !at cattle w!ic! is full of water w!ic! is 3eing sold for a !eavier weig!t H watered stoc(6 !at8s w!# s!ares of stoc( w!ere t!e corporation did not get its mone#8s wort! came to 3e called watered stoc(6

!e rule under 'ec6 33 of Corporation Code allowing annulment of contracts 3etween corporations wit! interloc(ing directors resulting in t!e pre?udice to one of t!e corporation4 !as no application to cases w!ere fraud is alleged to !ave 3een committed to t!ird parties6 +*% v6 Court of 2ppeals4 3)3 'CR2 30, (2001)6

("i+ -i$6o7a6t7 (Section .)+


Sec. .). Disloyalty of a director 9!ere a director4 3# virtue of !is office4 ac;uires for !imself a 3usiness opportunit# w!ic! s!ould 3elong to t!e corporation4 t!ere3# o3taining profits to t!e pre?udice of suc! corporation4 !e must account to t!e latter for all suc! profits 3# refunding t!e same4 unless !is act !as 3een ratified 3# a vote of t!e stoc(!olders owning or representing at least two1t!irds (2K3) of t!e outstanding capital stoc(6 !is provision s!all 3e applica3le4 notwit!standing t!e fact t!at t!e director ris(ed !is own funds in t!e venture6

Relate wit! 'ection 31 'ection 3$ applies onl# to a director and not to a trustee or officer as in t!e case of 'ection 314 and t!e implication is t!at onl# a ratificator# vote of t!e stoc(!olders would allow a director w!o violates !is dut# of lo#alt# to (eep t!e profits form t!e venture7 w!ile for trustees or officers w!o violate suc! duties4 it is wit!in t!e 3usiness ?udgment of t!e *oard to ratif# t!e act6

The fo66o=in# are %ore co%%on $it'ation$ in"o6"in# $'ch conf6ict of intere$t, (1) 'elf1dealing director ('ection 32) (2) Fi5ing compensation of directors and officers ('ection 30)

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2110/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
t!e s!are!olders6

9atered stoc(s are s!ares issued and full#1paid w!en in fact t!e consideration agreed to and accepted 3# t!e directors of t!e corporation was somet!ing (nown to 3e muc! less t!an t!e par value or issued value of t!e s!ares6 (%age --2 of CLG8s CLR4 200,) !e term !as also 3een defined as stoc(s issued 3# a corporation for w!ic! it !as in fact intentionall# or (nowingl# received or agreed to receive not!ing at all from t!em or less t!atn t!eir par value eit!er in mone#4 or in propert# or in service6 (%age --2 of CLG8s CLR4 200,) Note t!at t!e BwaterC in t!e stoc( refers to t!e difference 3etween t!e fair mar(et value at t!e same time of t!e issuance of t!e stoc( (not at t!e time of discover# of t!e inade;uate consideration or at t!e time of demand for pa#ment) and t!e par or issued value of said stoc(6 'u3se;uent in increase in t!e value of t!e propert# used in pa#ing t!e stoc( does not do awa# wit! t!e BwaterC in t!e stoc(6 !e e5istence of suc! BwaterC is determined at t!e time of t!e issuance of t!e stoc(6 (%age --2 of CLG8s CLR4 200,)
UP Class Notes 3ll directors are liable for issuance of watered stocks unless the director files a written objection with the corporate secretary.

"5cutive Committee is a Bgoverning 3od#C w!ic! functions as t!e 3oard itself6 !us4 mem3ers!ip t!erein s!all 3e governed 3# t!e same lawK rules applica3le to t!e 3oard of directors as provided in 'ection 3&6 ('"C Opinion4 =une 34 1//-) 'ection 3& recognizes an alread# e5isting corporate practice in t!e %!ilipoines dictated 3# necessit# owing to t!e growing comple5ities of modern 3usiness4 w!ere3# t!e 3oard of directors delegates to an e5ecutive committee composed of some mem3ers of t!e 3oard corporate powers to assure prompt and speed# action and solution to important matters wit!out t!e need for a 3oard meeting4 especiall# w!ere suc! meetings cannot 3e readil# 3e !eld6 !us4 t!e committee directl# manages t!e operations of t!e corporation 3etween meetings of t!e 3oard4 t!ere3# reducing t!e wor( load of t!e latter6 (%age 30& of +e Leon4 200))

4.. Ca$e$
Lee ". CA (1** + "ver# director must own at least one s!are of t!e capital of t!e corporation of w!ic! !e is a director w!ic! s!are s!all stand in !is name on t!e 3oo(s of t!e corporation6 2n# director w!ic! ceases to 3e t!e owner of at least one s!are of t!e capital stoc( of t!e corporation of w!ic! !e is a director s!all t!ere3# cease to 3e a director6 2 voting trust agreemen results in t!e separation of t!e voting rig!ts of a stoc(!older from !is ot!er rig!ts suc! as t!e rig!t to receive dividends and ot!er rig!ts to w!ic! a stoc(!older ma# 3e entitled until t!e li;uidation of t!e corporation6 Uichico ". NLRC (1**5+

(i+ EBec'ti"e Co%%ittee (Section .3+


Sec. .3. =ecuti#e committee !e 3#1laws of a corporation ma# create an e5ecutive committee4 composed of not less t!an t!ree mem3ers of t!e 3oard4 to 3e appointed 3# t!e 3oard6 'aid committee ma# act4 3# ma?orit# vote of all its mem3ers4 on suc! specific matters wit!in t!e competence of t!e 3oard4 as ma# 3e delegated to it in t!e 3#1laws or on a ma?orit# vote of t!e 3oard4 e5cept wit! respect toD (1) approval of an# action for w!ic! s!are!oldersJ approval is also re;uired7 (2) t!e filing of vacancies in t!e 3oard7 (3) t!e amendment or repeal of 3#1laws or t!e adoption of new 3#1laws7 ($) t!e amendment or repeal of an# resolution of t!e 3oard w!ic! 3# its e5press terms is not so amenda3le or repeala3le7 and (&) a distri3ution of cas! dividends to

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21110

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

:n la3or cases4 particularl#4 corporate directors and officers are solidar# lia3le wit! t!e corporation for t!e termination of emplo#ment of corporate emplo#ees done wit! malice or in 3ad fait!6

4.. A!!itiona6 Materia6, SEC Opinion NoN .1@ $erie$ of AA.@ !ate! Ma7 4@ AA. to Mr.2o$e O$car M. Sa6a0ar re =ho =o'6! /e e6ecte! !irector in a con!o%ini'% corporation.
SEC Opinion S'%%ar7, Onl# t!ose persons under w!ose names t!e Condominium certificate of itles are issued are considered as mem3ers of t!e condominium corporation6 2s a general rule4 mem3ers of t!e *o+ in a condominium corporation must 3e elected form t!e general stoc(!olders of t!e said corporation4 w!o are comprised of unit owners6 2n e5ception to t!is rule is in t!e case of corporate unit ownerKmem3er of a condominium corporation6 2n officer or a dul# aut!orized agent or trustee w!o !as 3een designated 3# t!e corporate unit ownerKmem3er of t!e corporation as its repre$entati"e for t!e e5press purpose of ;ualif#ing !im as director ma# 3e eligi3le to 3e elected as director6

We$tern In$tit'te of Techno6o#7 ". Sa6a$ (1**5+ .em3ers of t!e 3oard ma# receive compensation4 in addition to reasona3le per diems4 w!en t!e# render services to t!e corporation in a capacit# ot!er t!an as directorsKtrustees6 2 wa#s 3# w!ic! mem3ers of t!e 3oard can 3e granted compensation apart from reasona3le per diemsD (1) 9!en t!ere is a provision in t!e 3#1laws fi5ing t!eir compensation7 and (2) 9!en t!e stoc(!olders representing a ma?orit# of t!e outstanding capital stoc( at a regular or special stoc(!olders8 meeting agree to give it to t!em6
Catindig Class Notes 0: 4ormally/ what are the functions of the !hairman of the 7oard2 3: 5e presides over board meetings. 0: 8oes he perform functions outside the conte,t of a board meeting2 .hat are those functions2 3: 4o/ e,cept when the 7oard ask him to perform other functions. !: .estern case has a failure of analysis. !hairman and #ice9 !hairman performs functions related to that of the 7o8 hence should not [[[[[[[[[[[.

SEC Opinion Who6e -oc'%ent


0&12)12003 .r6 =ose Oscar .6 'alazar .a# 2)4 2003 SEC OPINION NO. .1:A. .r6 =ose Oscar .6 'alazar *orma!eco Condominium .etropolitan 2venue4 120& .a(ati Cit# +ear .r6 'alazar4 !is pertains to #our letter dated .a# 1/4 2003 re;uesting opinion on t!e following ;ueriesD

Liton<'a ". Eternit7 Corp ( AA4+ !e general principles of agenc# govern t!e relation 3etween t!e corporation and its officers or agents4 su3?ect to t!e articles of incorporation4 3#1laws4 or relevant provisions of law6 2n# sale of real propert# of a corporation 3# a person purporting to 3e an agent t!ereof 3ut wit!out written aut!orit# form t!e corporation is null and void6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21111

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
'imilarl#4 %residential +ecree No6 /&, (Regulating t!e 'ale of 'u3division Lots and Condominiums4 %roviding %enalties For Giolations !ereof)4 providesD RS6!*1A4 :F. 1ssuance of *itle N *he owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit . . . R(emp!asis supplied) Geril#4 mem3ers!ip in a condominium corporation is evidenced 3# t!e Certificate of itle issued upon full pa#ment of t!e unit6 2ccordingl#4 onl# t!ose persons under w!ose names t!e Condominium Certificate of itles (CC s) are issued are considered as mem3ers of t!e condominium corporation6 !e foregoing is even strengt!ened 3# 'ection 10 of Repu3lic 2ct No6 $,2)4 ot!erwise (nown as t!e Condominium 2ct4 w!ic! provides t!atD \. . . (embership in a condominium corporation/ regardless of whether it is a stock corporation or non9stock corporation/ shall not be transferable separately from the condominium unit of which it is appurtenance . . .\ !erefore4 as a general rule4 mem3ers of a 3oard of directors in a condominium corporation must 3e elected from t!e general stoc(!olders of t!e said corporation4 w!o are comprised of unit owners6 :n t!e same lig!t4 t!e 3#1laws cannot validl# provide t!at even t!ird parties or non1stoc(!older or non1mem3ers of t!e corporation can 3e elected to t!e 3oard of directorsKtrustees6 *#1laws cannot prevail over t!e e5press provision of law re;uiring mem3ers of t!e 3oard to 3e stoc(!olders or mem3ers of t!e corporation6 Nevert!eless4 t!e aforementioned general rule admits of certain e5ceptions4 as in t!e case of corporate unit ownerKmem3er of a condominium corporation6 :n one Opinion 4 t!e Commission stated t!at4 Rin t!e case of a condominium corporation w!ere all t!e mem3ers t!ereof are corporate mem3ers or ?uridical persons4 an officer or dul# aut!orized agent or trustee w!o !as 3een designated 3# a corporate unit ownerKmem3er of a condominium corporation as its representative for t!e e5press purpose of ;ualif#ing !im as director4 ma# 3e eligi3le to 3e elected as director6 9!ile a corporation cannot act 3# itself4 3eing a ?uridical person4 it can act t!roug! its officers or aut!orized agent or representative w!o !as 3een dul# designated in a *oard Resolution6 G H Relative to #our second ;uer#4 t!is Commission previousl# opined t!at under 2rticles ,$ and ,& of t!e Famil# Code4 spouses are given t!e freedom to c!oose w!ic! propert# regime ma# govern t!em during t!e marriage6 !e Law providesD \3rticle D?.*he property relations between husband and wife shall be governed in the following order: ;. 7y marriage settlements e,ecuted before the marriageJ :. 7y the provisions of this !odeJ and/ K. 7y the local customs. 2rticle ,&6 !e future spouse ma#4 in t!e marriage settlements4 agree upon t!e regime of a3solute communit#4 con?ugal partners!ip of gains4 complete

169!et!er an attorne#1in1fact or representative of a unit owner in a condominium corporation ;ualifies as a director t!erein especiall# if suc! attorne#1in1fact is unanimousl# elected as director of t!e corporation7 26 9!et!er t!e surviving spouse of a deceased mem3er of a condominium corporation ;ualifies as a director t!erein w!ere t!ere were no ?udicial proceedings to settle t!e estate of t!e deceased and neit!er was t!ere an e5tra1?udicial partition awarding t!e unit to t!e surviving spouse7 and4 36 9!at remed#Kies isKare availa3le to prevent t!e aforementioned persons from acting as director if t!e aforementioned persons are not ;ualified if t!e *oard of +irectorsKOfficers of t!e condominium corporation continue to recognize said persons to perform t!e duties of a directorLR G1H 2nent #our first ;uer#4 please ta(e note t!at in t!is ?urisdiction4 t!e ;ualifications of directorsKtrustees4 pursuant to t!e Corporation Code4 are as follows6 (1) @e must own at least one (1) s!are of t!e capital stoc( of t!e corporation in !is own name4 and if !e ceases to own at least one s!are in !is own name4 !e automaticall# ceases to 3e a director6 For non1stoc( corporations4 onl# mem3ers of t!e corporation can 3e elected to sit in t!e 3oard of trustees6 ('ection 23)7 (2) 2 ma?orit# of t!e directorsKtrustees must 3e residents of t!e %!ilippines6 ('ection 23)7 (3) @e must not !ave 3een convicted 3# final ?udgment of an offense punis!a3le 3# imprisonment for a period e5ceeding si5 ()) #ears4 or a violation of t!e Corporation Code4 committed wit!in five (&) #ears prior to t!e date of !is election6 ('ection 2,)7 ($) @e must not !ave su3stantial interest in a competing corporation6 (<o(ongwei vs6 '"C4 'CR2 33))7 (&) Onl# natural persons can 3e elected directorsKtrustees7 and4 ()) Ot!er ;ualifications as ma# 3e prescri3ed in t!e 3#1laws of t!e corporation6 ('ection $,N&O)6 From t!e foregoing4 it is une;uivocall# re;uired t!at 3oard mem3ers4 w!et!er as directors or trustees4 must 3e elected from among t!e !olders of stoc( or from t!e general mem3ers!ip of t!e corporation in cases of non1stoc( corporation6 Owners!ip in a condominium corporation is conferred onl# upon full pa#ment of t!e purc!ase price of t!e unit6 9e ;uote t!e pertinent portion of t!e decision of t!e 'upreme Court4 in t!e case entitled 'unset Giew Condominium vs6 Campos4 =r6 4 w!ic! reads as followsD R*he private respondents/ therefore/ who have not fully paid the purchase price of their units and conse>uently not owners of their units are not members or shareholders of the petitioner condominium corporation6R

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21112

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
Ger# trul# #ours4 ('<+6) G"RN" " >.2L:1%2CO <eneral Counsel

separation of propert#4 or an# ot!er regime6 :n t!e a3sence of marriage settlements4 or w!en t!e regime agreed upon is void4 t!e s#stem of a3solute communit# of propert# as esta3lis!ed in t!is Code s!all govern6R !us4 unless t!e spouses agree upon a different s#stem of propert# relations4 t!e propert# relations 3etween t!e !us3and and t!e wife s!all 3e governed 3# t!e s#stem of a3solute communit# of propert#6 2ssuming t!erefore4 t!at t!e !us3and and wife failed to agree on w!at propert# regime to adopt4 t!e condominium unit ma# 3e deemed as a communit# propert# and s!all 3e governed 3# t!e rules on Rco1owners!ipR pursuant to 2rticle /0 of t!e Famil# Code4 w!ic! providesD \Section =<. *he provisions on co9ownership shall apply to the absolute community property between the spouses in all matters not provided for in this !hapter.\ (emp!asis supplied) 2ccordingl#4 t!e spouses4 w!o are co1owners of a condominium unit4 s!all 3e recorded as one mem3er6 @owever4 if t!e condominium unit is4 among t!e e5cluded properties under 'ection /2 of t!e Famil# Code or w!ere t!e spouses !ave c!osen a different marriage settlement ot!er t!an t!e s#stem of a3solute communit# propert#4 t!e law on co1owners!ip s!all not appl#6 !erefore4 w!en dou3tful and in order to determine true owners!ip of t!e condominium unit4 t!e corporation ma# in;uire into t!e propert# regime governing marriage6 G.H 9it! regard #our last ;uer#4 it s!ould 3e stressed t!at most modern statutes allow t!e removal of directors 3# t!e s!are!oldersKmem3ers of a corporation4 wit! or wit!out cause and irrespective of tenure6 'uc! is t!e mandate contained in 'ection 2- of t!e Corporation Code w!en it provides t!at Ran# director or trustee of a corporation ma# 3e removed from office 3# a vote of t!e stoc(!olders !olding or representing two1t!irds (2K3) of t!e outstanding capital stoc(4 or if a corporation 3e a non1stoc( corporation4 3# a vote of two1t!irds (2K3) of t!e mem3ers entitled to voteD 6 6 6R 'ection 23 incorporates t!e so1called in!erent power of RamotionR 3# a corporation6 R2motionR is t!e power to remove directors4 officers and trustees prior to t!e e5piration of t!eir term6 !e underl#ing reason for suc! provision is t!at t!e stoc(!oldersKmem3ers s!all 3e t!e ultimate masters4 not t!e directors to ma(e t!e corporate government responsi3le to t!e owners6 .oreover4 t!e stoc(!olders s!ould feel free to remove directors at an#time t!at t!e# !ave lost t!eir trust and confidence in t!em4 w!et!er or not t!e# can prove cause of suc! loss6 @ence4 t!e Corporation Code e5plicitl# allows removal of directorsKtrustees wit!out cause4 e5cept a removal t!at would effectivel# deprive minorit# stoc(!oldersKmem3ers of t!e rig!t of representation to w!ic! t!e# ma# 3e entitled 3# virtue of t!e rule on cumulative voting6 @owever4 please 3e advised t!at t!e foregoing cited aut!orities do not restrain or preclude ?udicial interpretation and application of t!e law on t!e actual facts4 s!ould t!e issue raised !erein 3e litigated in t!e proper court6 %lease 3e guided accordingl#6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21113

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA !e fact t!at BComptrollerC is not mentioned in t!e 3#1laws does not undermine t!e appointment to suc! position since under 'ec6 2& of Corporation Code4 t!e *oard of +irectors is aut!orized to appoint suc! ot!er officers as it ma# deem necessar#6 :n t!is case t!e 3#1laws provided Band suc! ot!er officers as t!e *oard of +irectors ma# from time to time does fit to provide for6 'aid officers s!all 3e elected 3# ma?orit# vote of t!e *oard of +irectors6C *#1laws ma# and usuall# do provide for suc! ot!er officers4 and t!at w!ere a corporate office is not specificall# indicated in t!e roster of corporate offices in t!e 3#1laws of a corporation4 t!e *oard of +irectors ma# also 3e empowered under t!e 3#1laws to create additional officers as ma# 3e necessar#6 Nacpil v6 :nternational *roadcasting Corp64 3,/ 'CR2 )&3 (2002)6

5. OFFICERS
5.1 Corporate Officer$
Who are the corporate officer$ of a corporationD !e Corporate Officers areD o !e %resident (w!o s!all 3e and director) o reasurer (w!o ma# not 3e a director) o Corporate 'ecretar# (w!o s!all 3e a resident and citizen of t!e %!ilippines o 2nd suc! ot!er officers as ma# 3e provided in t!e 3#1 laws6 (page 2-3 of =R'4 200)) 2n officer8s removal is a corporate act4 and if suc! removal occasions an intra1corporate controvers#4 its nature is not altered 3# t!e reason or wisdom4 or lac( t!ereof4 wit! w!ic! t!e *oard of +irectors mig!t !ave in ta(ing suc! action6 %erforce4 t!e matter would come wit!in t!e area of corporate affairs and management4 and suc! a corporate controvers# would call for '"C ad?udicative e5pertise4 not t!at of NLRC6 +e Rossi v6 NLRC4 31$ 'CR2 2$& (1///)6 9!en t!e 3#1laws provide for t!e position of B'uperintendentK 2dministrator4C it is clearl# a corporate officer position and issues of reinstatement would 3e wit!in t!e ?urisdiction of t!e '"C and not t!e NLRC6 Ong(ingco v6 NLRC4 2,0 'CR2 )13 (1//,)6 9!en t!e 3#1laws provides t!at one of t!e powers of t!e *oard is BNtOo appoint a .edical +irector4 ComptrollerK2dministrator4 C!iefs of 'ervices and suc! ot!er officers as it ma# deem necessar# and prescri3e t!eir powers and duties4C t!en suc! specificall# designated positions s!ould 3e considered Bcorporate officersC6 !e determination of t!e rig!ts and t!e concomitant lia3ilit# arising from an# ouster from suc! positions4 would 3e intra1corporate controvers# su3?ect to '"C8s ?urisdiction6 a3ang v6 NLRC4 2)) 'CR2 $)2 (1//,)6

Co"era#e of KCorporate OfficerL for p'rpo$e of !eter%inin# eBtent of /'$ine$$ <'!#%ent of the 1oar! to fire or hire, For purposes of determining w!o is a corporate BofficerC falling wit!in t!e 3usiness ?udgment power of t!e *oard of +irectors to determine w!om to !ire and to fire4 it s!ould cover onl#D (1) !e officers provided 3# t!e corporation law4 namel# t!e president4 treasurer and secretar#7 and (2) !ose provided for in t!e 3#1laws of t!e corporation6
Catindig Class Notes 0: .ho are the basic set of officers2 3: President/ Secretary and *reasurer 0: .ho are the by9laws officers of a corporation2 3: 1f the by9laws provides that the 7o8 may create positions and provide for their function. *he officers elected to such positions are bylaws officers. 7ut the by9laws should be amended to reflect the office created. 0: .hy is the determination whether an officer is a bylaw officer or a management officer important2 3: 3s regards intracorporate dispute. 7ylaws officers are under the S6! while non9by9laws officers are under the 4" ! 0: .ho are management officers2

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2111$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

3: *hose not mentioned in the by9laws and not elected by the 7o8. *heir positions are created by the management. UP Class Notes 8o( do you elect Chairman and Vice,Chairman if the byla(s does not pro#ide for it5 +;- 7y laws must give power to the 7o8 to create other positions and provide for their functionsJ +:- 3mend the 7ylaws if there is no such provisionJ 4hat to do if you (ant to hire a foreigner5 .orking #isa and Understudy is more e,pensive/ so you make them officers. Catindig: 1f you want get rid of your President/ do not elect him as director or take away his nominal share.

(/+ M'a6ification$ (Section 3+


!e Corporate Officers areD o !e %resident (w!o s!all 3e a director) o reasurer (w!o ma# not 3e a director) o Corporate 'ecretar# (w!o s!all 3e a resident and citizen of t!e %!ilippines o 2nd suc! ot!er officers as ma# 3e provided in t!e 3#1 laws6 (page 2-3 of =R'4 200)) NoteD 2n# two (2) or more positions ma# 3e !eld concurrentl# 3# t!e same person6 EBcept, No one s!all act as %resident and 'ecretar# or as %resident and reasurer4 at t!e same time6

(a+ Mini%'% $et of officer$ (Section 3+


Sec. 3. Corporate officers1 -uorum :mmediatel# after t!eir election4 t!e directors of a corporation must formall# organize 3# t!e election of a president4 w!o s!all 3e a director4 a treasurer w!o ma# or ma# not 3e a director4 a secretar# w!o s!all 3e a resident and citizen of t!e %!ilippines4 and suc! ot!er officers as ma# 3e provided for in t!e 3#1laws6 2n# two (2) or more positions ma# 3e !eld concurrentl# 3# t!e same person4 e5cept t!at no one s!all act as president and secretar# or as president and treasurer at t!e same time6 !e directors or trustees and officers to 3e elected s!all perform t!e duties en?oined on t!em 3# law and t!e 3#1laws of t!e corporation6 >nless t!e articles of incorporation or t!e 3#1laws provide for a greater ma?orit#4 a ma?orit# of t!e num3er of directors or trustees as fi5ed in t!e articles of incorporation s!all constitute a ;uorum for t!e transaction of corporate 3usiness4 and ever# decision of at least a ma?orit# of t!e directors or trustees present at a meeting at w!ic! t!ere is a ;uorum s!all 3e valid as a corporate act4 e5cept for t!e election of officers w!ic! s!all re;uire t!e vote of a ma?orit# of all t!e mem3ers of t!e 3oard6 +irectors or trustees cannot attend or vote 3# pro5# at 3oard meetings6

(c+ -i$I'a6ification$ (Section 5+


Sec. 5. Dis-ualification of directors1 trustees or officers No person convicted 3# final ?udgment of an offense punis!a3le 3# imprisonment for a period e5ceeding si5 ()) #ears4 or a violation of t!is Code committed wit!in five (&) #ears prior to t!e date of !is election or appointment4 s!all ;ualif# as a director4 trustee or officer of an# corporation6

5. A'thorit7
R'6e on Corporate Officer>$ Po=er to 1in! Corporation
2n officer8s power as an agent of t!e corporation must 3e soug!t from t!e statute4 c!arter4 t!e 3#1laws or in a delegation of aut!orit# to suc! officer4 from t!e acts of t!e 3oard of directors formall# e5pressed or implied from a !a3it or custom of doing 3usiness6 Gicente v6 <eraldez4 &2 'CR2 210 (1/,3)7 *o#er1Ro5as v6 Court of 2ppeals4 211 'CR2 $,0 (1//2)6 Pre$i!ent6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2111&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA alread# esta3lis!ed6 Lim a# v6 Court of 2ppeals4 2/3 'CR2 )3$ (1//-)7 CL 'ales Corp6 v6 Court of 2ppeals4 3$/ 'CR2 3& (2001)6 2 sale t!at fails to compl# wit! 'ec6 $0 of Corporation Code4 cannot 3e invalidated w!en t!e 3u#er relies upon a 'ecretar#8s Certificate confirming aut!orit#6 2 secretar#8s certificate w!ic! is regular on its face can 3e relied upon 3# a t!ird part# w!o does not !ave to investigate t!e trut!s of t!e facts contained in suc! certification7 ot!erwise 3usiness transactions of corporations would 3ecome tortuousl# slow and unnecessaril# !ampered6 "sguerra v6 Court of 2ppeals4 2), 'CR2 3-0 (1//,)6 Corporate Trea$'rer 2 corporate treasurer8s function !ave generall# 3een descri3ed as Bto receive and (eeps funds of t!e corporation4 and to dis3urse t!em in accordance wit! t!e aut!orit# given !im 3# t!e 3oard or t!e properl# aut!orized officers6C >nless dul# aut!orized4 a treasurer4 w!ose power are limited4 cannot 3ind t!e corporation in a sale of its assets4 w!ic! o3viousl# is foreign to a corporate treasurer8s function6 'an =uan 'tructural v6 Court of 2ppeals4 2/) 'CR2 )314 )$& (1//-)6 2 corporate treasurer w!ose negligence in signing a confirmation letter for rediscounting of crossed c!ec(s4 (nowing full# well t!at t!e c!ec(s were strictl# endorsed for deposit onl# to t!e pa#ee8s account and not to 3e furt!er

%eople8s 2ircargo v6 Court of 2ppeals4 2/, 'CR2 1,0 (1//-)6 :t is t!e *oard of +irectors4 not t!e %resident4 t!at e5ercises corporate powers6 :t must 3e emp!asized t!at t!e 3asis for agenc# is representation and a person dealing wit! an agent is put upon in;uir# and must discover upon !is peril t!e aut!orit# of t!e agent6 'afic 2lcan W Cie v6 :mperial Gegeta3le Oil Co64 :nc64 3&& 'CR2 &&/ (2001)6 2 corporation ma# not distance itself from t!e acts of a senior officerD Rt!e dual roles of Romulo F6 'uga# s!ould not 3e allowed to confuse t!e facts6R R6F6 'uga# v6 Re#es4 12 'CR2 ,00 (1/)1)6 !e %resident is considered as t!e corporation8s agent4 and as suc!4 !is (nowledge of t!e repeal of a resolution in anot!er ?uridical person in w!ic! !is corporation !as an interest4 is ascri3ed to !is principal under t!e t!eor# of imputed (nowledge6 Rovels "nterprises4 :nc6 v6 Ocampo4 3/2 'CR2 1,) (2002)6 Corporate Secretar7 :n t!e a3sence of provisions to t!e contrar#4 t!e corporate secretar# is t!e custodian of corporate recordsM!e (eeps t!e stoc( and transfer 3oo( and ma(es proper and necessar# entries t!erein6 :t is !is dut# and o3ligation to register valid transfers of stoc( in t!e 3oo(s of t!e corporation7 and in t!e event !e refuses to compl# wit! suc! dut#4 t!e transferor1 stoc(!older ma# rig!tfull# 3ring suit to compel performance6 orres4 =r6 v6 Court of 2ppeals4 2,- 'CR2 ,/3 (1//,)6 2lt!oug! t!e corporate secretar#8s dut# to record transfers of stoc( is ministerial4 !e cannot 3e compelled to do so w!en t!e transferee8s title to said s!ares !as no prima facie validit# or is uncertain6 .ore specificall#4 a pledgor4 prior to foreclosure and sale4 does not ac;uire owners!ip rig!ts over t!e pledged s!ares and t!us cannot compel t!e corporate secretar# to record !is alleged owners!ip of suc! s!ares on t!e 3asis merel# of t!e contract of pledge6 .andamus will not issue to esta3lis! a rig!t4 3ut onl# to enforce one t!at is

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2111)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
0: .hat are the sources of the powers of officers2 3: +;3s provided in the by9laws +:*hose which the 7o8 may assign or delegate +KProvided by laws +?*hose inherent in the position +F!ustomary +with respect to the corporationBindustry+L1ncidental

negotiated4 ma# 3e personall# lia3le for t!e damaged caused t!e corporation6 2trium .anagement Corp6 v6 Court of 2ppeals4 3&3 'CR2 23 (2001)6

Ser"ice of S'%%on$ on Corporation$


Pre"ai6in# R'6eD 'ection 114 Rule 1$ of t!e 1//, Rules of Civil %rocedure uses t!e term Bgeneral managerC and unli(e t!e old provision in t!e Rules of Court4 it does not include t!e term BagentC6 Conse;uentl#4 t!e enumeration of persons to w!om summons ma# 3e served is Brestricted4 limited and e5clusiveC following t!e rule on statutor# construction e5pressio unios est e5clusion alterius6 !erefore4 t!e earlier cases t!at up!old service of summons upon a construction pro?ect manager7 13 a corporation8s assistant manager71$ ordinar# cler( of a corporation71& private secretar# of corporate e5ecutives7 1) retained counsel71, officials w!o !ad c!arge or control of t!e operations of t!e corporation4 li(e t!e assistant general manager71- or t!e corporation8s C!ief Finance and 2dministrative Officer71/ no longer appl# since t!e# were decided under t!e old rule t!at allows service of summons upon an agent20 of t!e corporation6 "6*6 Gillarosa W %artners Co64 Ltd6 v6 *enito4 312 'CR2 )& (1///)6
Catindig Class Notes

(a+ Act'a6@ eBpre$$ or i%p6ie!


Inherent a'thorit7 or power of an officer or agent is ta(en to mean t!at aut!orit# to act and 3ind t!e corporation w!ic! t!e officer !as 3# reason of !is office4 alt!oug! it ma# not 3e sanctioned 3# e5press aut!orit#6 EBpre$$ a'thorit7 of an officer or agent includes ever# power or aut!orit# e5pressl# conferred upon !im 3# law and t!e 3#1laws of t!e corporation6 I%p6ie! a'thorit7 of an officer or agent of a corporation includes all suc! incidental aut!orit# as is necessar#4 usual4 and proper to effectuate t!e main aut!orit# e5pressl# conferred6

(/+ Apparent or o$ten$i/6e


Apparent a'thorit7 is naturall# t!e same as and 3ased upon t!e same principle as aut!orit# 3# estoppel6

!anlaon Construction "nterprises Co.# Inc. v. $LRC# 2;6 SC=A ; (166;)4 1% %esulgon v. $LRC# 216 SC=A .31 (166 )4 1. %olden Country &arms# Inc. v. 'anvar (evelopment Corp. 1 21% SC=A 26. (1662)0 % ) % *rading Corp. v. Court of Appeals1 1.A SC=A %33 (16AA)4 13 'ummit *rading and (ev. Corp. v. Avenda+o# 1 . SC=A 6; (16A.)0 also ,lason "nterprises Corp. v. Court of Appeals# 1> SC=A 23 (1666)4 1; Republic v. !er ) Co.# Ltd.# 1A SC=A 2>; (1633)4 1A ,illa Rey *ransit# Inc. v. &ar "ast -otor Corp.1 A1 SC=A 26A (16;A)4 16 &ar Corporation v. &rancisco# 1%3 SC=A 16; (16A3)4 2> &iloil -ar.eting Corp. v. -arine (ev. Corp. of the Philippines 1 1;; SC=A A3 (16A2)4

In the a/$ence of an a'thorit7 fro% the /oar! of !irector$@ no per$on@ not e"en the officer$ of the corporation@ can "a6i!67 /in! the corporation6 EBception$, (1) Doctrine of %atification or stoppel1 2cts of contracts w!ic! are not per se illegal can 3e validated6 "ven w!en t!e contract entered into in 3e!alf of t!e corporation is outside t!e usual powers of t!e corporate officer4 t!e corporation8s ratification of t!e contract and acceptance of the benefits !ave made suc! contract 3inding upon t!e corporation6 NoteD Ratification t!at would 3ind t!e corporation would !ave to come from t!e 3oard of directors or a properl# aut!orized representative6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2111,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
+irectors or trustees w!o willfull# and (nowingl# vote for or assent to patentl# unlawful acts of t!e corporation or w!o are guilt# of gross negligence or 3ad fait! in directing t!e affairs of t!e corporation or ac;uire an# personal or pecuniar# interest in conflict wit! t!eir dut# as suc! directors or trustees s!all 3e lia3le ?ointl# and severall# for all damages resulting t!erefrom suffered 3# t!e corporation4 its stoc(!olders or mem3ers and ot!er persons6 9!en a director4 trustee or officer attempts to ac;uire or ac;uires4 in violation of !is dut#4 an# interest adverse to t!e corporation in respect of an# matter w!ic! !as 3een reposed in !im in confidence4 as to w!ic! e;uit# imposes a disa3ilit# upon !im to deal in !is own 3e!alf4 !e s!all 3e lia3le as a trustee for t!e corporation and must account for t!e profits w!ic! ot!erwise would !ave accrued to t!e corporation6

Ratification can never 3e made on t!e part of t!e corporation 3# t!e same persons w!o wrongfull# assume t!e power to ma(e t!e contract4 3ut t!e ratification must 3e 3# t!e officers as governing 3od# !aving aut!orit# to ma(e suc! contract6 (2) Doctrine of Apparent Authority: :f a corporation (nowingl# permits one of its officers4 or an# ot!er agent to act wit!in t!e scope of an apparent aut!orit#4 it !olds !im out to t!e pu3lic possessing t!e power to do so t!ose acts7 and t!us4 t!e corporation will4 as against an#one w!o !as in good fait! dealt wit! it t!roug! suc! agent4 3e estopped from den#ing t!e agent8s aut!orit#6 NoteD "5istence of apparent aut!orit# must 3e ascertained t!roug!D (a) #enera6 %anner in w!ic! t!e corporation !olds out an officer or agent as !aving t!e power to act or in4 ot!er words4 t!e apparent aut!orit# to act in general4 wit! w!ic! it clot!es !im7 or (3) t!e acI'ie$cence in !is acts of a particular nature4 wit! act'a6 or con$tr'cti"e 9no=6e!#e t!ereof4 w!et!er wit!in or 3e#ond of !is ordinar# powers6 :f t!e corporation desires to set up t!e defense t!at t!e contract was e5ecuted 3# one not aut!orized as agent4 it %'$t p6ea! suc! fact6 (Ramirez +octrine) @owever4 once t!e corporation !as disc!arged its 3urden under t!e Ramirez +octrine4 t!en t!e 3urden of proof now s!ifts to t!e contracting part# to s!ow t!at indeed 3# previous acts and actuations4 t!e acting officer !ad 3een clot!ed 3# t!e corporation wit! apparent aut!orit# for t!e pu3lic to ta(e suc! aut!orit# at face value6 (Qao Ea 'in1 imel# Repudiation +octrine)
UP Class Notes! Pedro went to bank. 3na is the manager of the bank. 3na told Pedro that 7SP re>uired higher collateral and told him to increase his collateral for his loan. S(! shares were given by Pedro to 3na. 3na was about to go to !anada/ and before she left/ she sold Pedro$s S(! shares. !ould Pedro sue the bank2 Ans! Ces. 3na is clothed with authority as officer to act in behalf of the bank. +UP96lective !lass eviewer at K=>! 1f teller2 A! 3gency case. +1d.-

5.. Lia/i6it7 (a+ Lia/i6it7 in #enera6 (Section .1+


Sec. .1. Liability of directors1 trustees or officers

<enerall#4 officers or directors under t!e old corporate name 3ear no personal lia3ilit# for acts done or contracts entered into for t!e corporation4 if dul# aut!orized6 Repu3lic %lanters *an( v6 Court of 2ppeals4 21) 'CR2 ,3- (1//2)6 Corporate officers w!o entered into and signed contracts on 3e!alf of t!e corporation in t!eir official capacities cannot 3e made personall# lia3le t!ereunder in t!e a3sence of stipulation to t!at effect4 due to t!e personalit# of t!e corporation 3eing separate and distinct from t!e persons composing it6 9estern 2gro :ndustrial Corp6 v6 Court of 2ppeals4 1-- 'CR2 ,0/ (1//0)7 Rustan %ulp W %aper .ills4 :nc6 v6 :2C4 21$ 'CR2 ))& (1//2)7 *an;ue <enerale *elge v6 9alter *ull and Co64 -$ %!il6 1)$ (1/$/)6 2 president cannot 3e !eld solidaril# lia3le personall# wit! t!e corporation a3sent evidence of s!owing t!at !e acted maliciousl# or in 3ad fait!6 "%< Constructions Co6 v6 C24 210 'CR2 230 (1//2)6 !e finding of solidar# lia3ilit# among t!e corporation4 its officers and directors would patentl# 3e 3aseless w!en t!e decision contains no allegation4 finding or conclusion regarding particular acts committed 3# said officers and director t!at s!ow t!em to !ave 3een individuall# guilt# of

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2111-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA corporate officer personall# lia3le on la3or claims4 t!e wrongdoing must 3e clearl# and convincingl# esta3lis!ed6 +el Rosario v6 NLRC4 1-, 'CR2 ,,, (1//0)6 Corporate officers are not personall# lia3le for mone# claims of disc!arged emplo#ees unless t!e# acted wit! evident malice and 3ad fait! in terminating t!eir emplo#ment6 2@'K%!ilippines v6 Court of 2ppeals4 2&, 'CR2 31/ (1//))7 Nicario v6 NLRC4 2/& 'CR2 )1/ (1//-)6 2 corporation4 3eing a ?uridical entit#4 ma# act onl# t!roug! its directors4 officers and emplo#ees and o3ligations incurred 3# t!em4 acting as corporate agents4 are not t!eirs 3ut t!e direct accounta3ilities of t!e corporation t!e# represent6 *rent @ospital4 :nc6 v6 NLRC4 2/2 'CR2 30$ (1//-)6 :n la3or cases4 corporate directors and officers are solidaril# lia3le wit! t!e corporation for t!e termination of emplo#ment of corporate emplo#ees done wit! malice or in 3ad fait!6 :n t!is case4 it is undisputed t!at t!e corporate officers !ave a direct !and in t!e illegal dismissal of t!e emplo#ees6 !e# were t!e one4 w!o as !ig!1ran(ing officers and directors of t!e corporation4 signed t!e *oard Resolution retrenc!ing t!e emplo#ees on t!e feigned ground of serious 3usiness losses t!at !ad no 3asis apart from an unsigned and unaudited %rofit and Loss 'tatement w!ic!4 to repeat4 !ad no evidentiar# value w!atsoever6 >ic!ico v6 NLRC4 2,3 'CR2 3& (1//,)6 'ince a corporation is an artificial person4 it must !ave an officer w!o can 3e presumed to 3e t!e emplo#er4 3eing t!e Bperson acting in t!e interest of t!e emplo#erCMt!e corporation4 in t!e tec!nical sense onl#4 is t!e emplo#er6 !e manager of t!e corporation falls wit!in t!e meaning of an Bemplo#erC as contemplated 3# t!e La3or code4 w!o ma# 3e !eld ?ointl# and severall# lia3le for t!e o3ligation of t!e corporation to its dismissed emplo#ees6 NQE :nternational Enitwear Corp6 %!il6 G6 NLRC4 3/, 'CR2 )0, (2003)6

unmista(a3le malice4 3ad fait!4 or ill1motive in t!eir personal dealings wit! t!ird parties6 9!en corporate officers and directors are sued merel# as nominal parties in t!eir official capacities as suc!4 t!e# cannot 3e !eld lia3le personal for t!e ?udgment rendered against t!e corporation6 N%C6 v6 Court of 2ppeals4 2,3 'CR2 $1/ (1//,)7 "milio Cano "nterprises4 :nc6 v6 C:R4 13 'CR2 2/1 (1/)&)7 2rcilla v6 Court of 2ppeals4 21& 'CR2 120 (1//2)6 2n officer1stoc(!older w!o signs in 3e!alf of t!e corporation to a fraudulent contract cannot claim t!e 3enefit of separate ?uridical entit#D B !us4 3eing a part# to a simulated contract of management4 petitioner ># cannot 3e permitted to escape lia3ilit# under t!e said contract 3# using t!e corporate entit# t!eor#6 !is is one instance w!en t!e veil of corporate entit# !as to 3e pierced to avoid in?ustice and ine;uit#6C %aradise 'auna .assage Corporation v6 Ng4 1-1 'CR2 ,1/ (1//0)6 9!ile t!e limited lia3ilit# doctrine is intended to protect t!e stoc(!older 3# immunizing !im from personal lia3ilit# for t!e corporate de3ts4 a corporate officer ma# nevert!eless divest !imself of t!is protection 3# voluntaril# 3inding !imself to t!e pa#ment of t!e corporate de3ts6 o! v6 'olid *an( Corp64 $0- 'CR2 &$$ (2003)6 La/or. Corporate officers cannot 3e !eld personall# lia3le for damages on account of t!e emplo#ees dismissal 3ecause t!e emplo#er corporation !as a personalit# separate and distinct from its officers w!o merel# acted as its agents6 .ala#ang 'ama!an ng mga .angagagawa sa .6 <reenfields v6 Ramos4 3&, 'CR2 ,, (2001)6 Onl# t!e responsi3le officer of a corporation w!o !ad a !and in illegall# dismissing an emplo#ee s!ould 3e !eld personall# lia3le for t!e corporate o3ligations arising from suc! act6 .aglutac v6 NLRC4 1-/ 'CR2 ,), (1//0)7 reiterated in <udez v6 NLRC4 1-3 'CR2 )$$ (1//0)7 C!ua v6 NLRC4 1-2 'CR2 3&3 (1//0)7 Rea!s Corp6 v6 NLRC4 2,1 'CR2 2$, (1//,)7 and for t!e separate ?uridical personalit# of a corporation to 3e disregarded as to ma(e t!e !ig!est

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2111/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
!atindig: 3ctually/ you could enter into it but risk that a 7o8 or stockholder will contest it

(/+ -ea6in#$ =ith the corporation (Section . +


Sec. . . Dealings of directors1 trustees or officers (ith the corporation 2 contract of t!e corporation wit! one or more of its directors or trustees or officers is voida3le4 at t!e option of suc! corporation4 unless all t!e following conditions are presentD 16 !at t!e presence of suc! director or trustee in t!e 3oard meeting in w!ic! t!e contract was approved was not necessar# to constitute a ;uorum for suc! meeting7

5.) Ca$e$
Tra%at Mercanti6e ". CA (1**)+ :t s!ould onl# 3e t!e corporation4 not t!e person acting for and its 3e!alf4 t!at propert# could 3e made lia3le under t!e ;uestioned transaction6 %ersonal lia3ilit# of a corporate director4 trustee or officer along (alt!oug! no necessaril#) wit! t!e corporation ma# so validl# attac!4 as a rule4 onl# w!enD (1) @e assentsD (a) to a patentl# unlawful act of t!e corporation4 or (3) for 3ad fait! or gross negligence in directing its affairs (c) for conflict of interest4 resulting in damages to t!e corporation4 its stoc(!olders or ot!er persons7 (2) @e consents to t!e issuance of watered stoc(s or w!o4 !aving (nowledge t!ereof4 does not fort!wit! file wit! t!e corporate secretar# !is written o3?ection t!ereto7 (3) @e agrees to !old !imself personall# and solidaril# lia3le wit! t!e corporation7 or ($) @e is made4 3# specific provision of law to personall# answer for !is corporate action6 Peop6e>$ Aircar#o ". CA (1**?+ 2pparent aut!orit# is derived not merel# from practice6 :ts e5istence ma# 3e ascertained t!roug!D (1) !e general manner in w!ic! t!e corporation !olds out an officer or agent as !aving t!e power to act or4 ot!er words4 t!e apparent aut!orit# to act in general4 wit! w!ic! it clot!es !im7 or (2) !e ac;uiescence in !is acts of a particular nature4 wit! actual or constructive (nowledge t!ereof4 w!et!er wit!in or 3e#ond t!e scope of !is ordinar# powers6

26 !at t!e vote of suc! director or trustee was not necessar# for t!e approval of t!e contract7 36 $6 !at t!e contract is fair and reasona3le under t!e circumstances7 and !at in case of an officer4 t!e contract !as 3een previousl# aut!orized 3# t!e 3oard of directors6

9!ere an# of t!e first two conditions set fort! in t!e preceding paragrap! is a3sent4 in t!e case of a contract wit! a director or trustee4 suc! contract ma# 3e ratified 3# t!e vote of t!e stoc(!olders representing at least two1t!irds (2K3) of t!e outstanding capital stoc( or of at least two1t!irds (2K3) of t!e mem3ers in a meeting called for t!e purposeD %rovided4 !at full disclosure of t!e adverse interest of t!e directors or trustees involved is made at suc! meetingD %rovided4 !owever4 !at t!e contract is fair and reasona3le under t!e circumstances6
Catindig Class Notes >! Pedro owns 37! !orp +(anpower services-. 5e proposed to supply janitors/ security guards and clerks at ;<M below market charges to U !orp of which he is a director. !ould U !orp. enter into such contract2 Ans! Ces/ Pedro is a self9dealing director. *o ensure that the contract is not voided/ the following re>uirements must concur: +;- *he contract must be fair and reasonableJ +:- 7o8 >uorum even without the presence of PedroJ +K- #ote of Pedro is not needed for approvalJ +?- 1f U !orp is a bank/ there must be a minutes on the meeting and a copy of the minutes must be sent to the 7SP. 4ote: *here should also be full disclosure of the adverse interest.

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21120

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

:t re;uires presentation of evidence of similar act(s) e5ecuted eit!er in its favor or in favor of ot!er parties6 :t is not t!e ;uantit# of similar acts w!ic! esta3lis!es apparent aut!orit#4 3ut t!e vesting of a corporate officer wit! t!e power to 3ind t!e corporation6 "ven if a certain contract is outside t!e usual power of t!e president4 t!e corporation8s ratification of t!e same and acceptance of 3enefits ma(e it 3inding6 (%rivate respondent s!ould not 3e faulted for 3elieving t!at %unsalan8s conformit# to t!e contract in dispute was also 3inding on t!e corporation6 CatindigD ]uantit# does not determine if t!ere is apparent aut!orit#6 (>%1"lective Class Reviewer at $0) R'ra6 1an9 of Mi6aor ". Ocfe%ia ( AAA+ 2 3an( is lia3le to innocent t!ird parties w!ere representation is made in t!e course of its normal 3usiness 3# an agent even t!oug! suc! agent is a3using !er aut!orit#6 Concurring opinion 3# = GitugD 2 corporation ma# 3e !eld in estoppel from den#ing as against innocent t!ird persons t!e aut!orit# of its officers or agents w!o !ave 3een clot!ed 3# it wit! ostensi3le or apparent aut!orit#6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21121

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA >nder 'ection 2&4 t!e validit# of a corporate act is predicated on t!e presence of t!e following re;uisitesD (1) .eeting of t!e directors or trustees dul# assem3led as a 3oard4 i6e64 as a 3od# in a lawful meeting7 (2) %resence of t!e re;uired ;uorum7 (3) +ecision of t!e ma?orit# of t!e ;uorum or4 in ot!er cases4 a ma?orit# of t!e entire 3oard7 and ($) .eeting at t!e place4 time4 and manner provided in t!e 3#1 laws6 (%age 2)) +e Leon4 200))
Catindig Class Notes 0: .here should S5 meeting be held2 3: 1n the place where the principal office of the corp is located unless where all the S5s agree to hold the meeting elsewhere. S6! 4ew ule Principal Affice)Principal Place of 7usiness 0: .hy do the S5s hold their meeting at the principal office2 3: +;- @or !onvenience +:- *o prevent mischief by management. 0: !an the S5s not meet at all2 3: 4o. *hey are re>uired to meet for the purpose of electing the 7o8. *ip: 1n making by9laws/ do not put specific date for the meeting. Cou can place last @riday of (ay and place that if the last @riday is a holiday/ then the meeting shall be held at the ne,t working day. 0: .hat is the >uorum re>uired2 3: 3s what the 7y9laws provide. +Pede nga less than majority0: .ho presides2 3: .hoever is authori'ed by the 7y9laws. 1f the person authori'ed is absent/ the S5 present may designate any one of them to preside.

?. MEETINGS
?.1 Meetin#$ of the $toc9ho6!er$ an! the 1oar! of -irector$ (a+ 8in!$ (Section )*+
Sec. )*. Jinds of meetings .eetings of directors4 trustees4 stoc(!olders4 or mem3ers ma# 3e regular or special6 (n)

8in!$ of $toc9ho6!er$>N%e%/er$> %eetin#, (1) Re#'6ar or t!ose !eld annuall# on a date fi5ed in t!e 3#1laws4 or if not fi5ed4 on an# dare in 2pril of ever# #ear as determined 3# t!e *o+ or trustees6 :t is !eld principall# for t!e purpose of electing anot!er set of directors or trustees7 or (2) Specia6 or t!ose !eld at an# time deemed necessar# or as provided in t!e 3#1laws6 8in!$ of !irector$>Ntr'$tee$> %eetin#, (1) Re#'6ar or t!ose !eld 3# t!e 3oard mont!l#4 unless t!e 3#1 laws provide ot!erwise7 or (2) Specia6 or t!ose !eld 3# t!e 3oard at an# time upon t!e call of t!e president or as provided in t!e 3#1laws6 ReI'i$ite$ for a "a6i! %eetin# of $toc9ho6!er$ or %e%/er$, (1) :t must 3e !eld at a proper place ('ection &1) (2) :t must 3e !eld at t!e stated date and at t!e appointed time or at a reasona3le time t!ereafter7 ('ection &1) (3) :t must 3e called 3# t!e proper person ('ection &0) ($) !ere must 3e a previous notice6 ('ecs &04&1) (&) !ere must 3e a ;uorum ('ection &2) ReI'i$ite$ for /oar! %eetin#,

(/+ When an! =here he6! (Section$ 3A@ 31 an! 3.+


Sec. 3A. %egular and special meetings of stoc*holders or members Regular meetings of stoc(!olders or mem3ers s!all 3e !eld annuall# on a date fi5ed in t!e 3#1laws4 or if not so fi5ed4 on an# date in 2pril of ever# #ear as determined 3# t!e 3oard of directors or trusteesD %rovided4 !at written notice of regular meetings s!all 3e sent to all stoc(!olders or mem3ers of record at least two (2) wee(s prior to t!e

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21122

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
.eetings of directors or trustees of corporations ma# 3e !eld an#w!ere in or outside of t!e %!ilippines4 unless t!e 3#1laws provide ot!erwise6 Notice of regular or special meetings stating t!e date4 time and place of t!e meeting must 3e sent to ever# director or trustee at least one (1) da# prior to t!e sc!eduled meeting4 unless ot!erwise provided 3# t!e 3#1laws6 2 director or trustee ma# waive t!is re;uirement4 eit!er e5pressl# or impliedl#6 (n)

meeting4 unless a different period is re;uired 3# t!e 3#1laws6 'pecial meetings of stoc(!olders or mem3ers s!all 3e !eld at an# time deemed necessar# or as provided in t!e 3#1lawsD %rovided4 !owever4 !at at least one (1) wee( written notice s!all 3e sent to all stoc(!olders or mem3ers4 unless ot!erwise provided in t!e 3#1laws6 Notice of an# meeting ma# 3e waived4 e5pressl# or impliedl#4 3# an# stoc(!older or mem3er6 9!enever4 for an# cause4 t!ere is no person aut!orized to call a meeting4 t!e 'ecretaries and "5c!ange Commission4 upon petition of a stoc(!older or mem3er on a s!owing of good cause t!erefor4 ma# issue an order to t!e petitioning stoc(!older or mem3er directing !im to call a meeting of t!e corporation 3# giving proper notice re;uired 3# t!is Code or 3# t!e 3#1laws6 !e petitioning stoc(!older or mem3er s!all preside t!ereat until at least a ma?orit# of t!e stoc(!olders or mem3ers present !ave 3een c!osen one of t!eir num3er as presiding officer6 (2$4 2)) Sec. 31. Place and time of meetings of stoc*holders or members 'toc(!oldersJ or mem3ersJ meetings4 w!et!er regular or special4 s!all 3e !eld in t!e cit# or municipalit# w!ere t!e principal office of t!e corporation is located4 and if practica3le in t!e principal office of t!e corporationD %rovided4 !at .etro .anila s!all4 for purposes of t!is section4 3e considered a cit# or municipalit#6 Notice of meetings s!all 3e in writing4 and t!e time and place t!ereof stated t!erein6 2ll proceedings !ad and an# 3usiness transacted at an# meeting of t!e stoc(!olders or mem3ers4 if wit!in t!e powers or aut!orit# of t!e corporation4 s!all 3e valid even if t!e meeting 3e improperl# !eld or called4 provided all t!e stoc(!olders or mem3ers of t!e corporation are present or dul# represented at t!e meeting6 (2$ and 2&) Sec. 3.. %egular and special meetings of directors or trustees Regular meetings of t!e 3oard of directors or trustees of ever# corporation s!all 3e !eld mont!l#4 unless t!e 3#1laws provide ot!erwise6 'pecial meetings of t!e 3oard of directors or trustees ma# 3e !eld at an# time upon t!e call of t!e president or as provided in t!e 3#1laws6

'ee page $)- of +e Leon for illustration :f t!e meeting is !eld at an unaut!orized place or wit!out proper notice and not all t!e stoc(!olders or mem3ers are present4 t!ose w!o !ave a rig!t to complain ma# ta(e steps to set aside an# action ta(en at suc! meetings even t!oug! ma?orit# of t!e stoc(!olders or mem3ers were present in t!e a3sence of waiver4 estoppel4 or ratification6 (%age $)- of +e Leon4 200)) !e proper place of t!e !olding of stoc(!olders8 or mem3ers8 meeting is t!at provided in 'ection &16 !is is mandator#6 (%age $),of +e Leon4 200))
Catindig Class Notes 0: egular meetings of the board of directors or trustees of every corporation shall be held monthly/ unless the by9laws provide otherwise. 1s monthly mandatory2 3: 4o/ its directory.

(c+ Notice reI'ire! (Section$ 3A an! 3.+


Notice is t!e writing informing t!e stoc(!olders or mem3ers of t!e meeting6 (%age $)/of +e Leon4 200))

ReI'i$ite$ of notice of %eetin#, (1) :t must 3e issued 3# one w!o !as aut!orit# to issue it7 (2) :t must 3e in writing7 (3) :t must state t!e date4 time and place of t!e meeting4 unless ot!erwise provided in t!e 3#1laws ($) :t must state t!e 3usiness to 3e transacted t!ereat7 (&) :t must 3e sent at a certain time 3efore t!e sc!eduled meeting as fi5ed 3# law4 unless a different period is re;uired 3# t!e 3#1laws6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21123

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA ]uorum is suc! a num3er of t!e mem3ers!ip of a collective 3od# as is competent to transact its 3usiness or do an# ot!er corporate act6 (%age 2)- of +e Leon4 200)) 'ee page $,) of +e Leon for matters in w!ic! t!e law re;uires minimum num3er of votes6

()) Furt!er4 t!e notice must compl# wit! an# of t!e ot!er re;uirements prescri3ed 3# t!e law of t!e 3#1laws of t!e corporation6 ('ee 'ection ,,4 11-) !e CALL for a meeting is e5ercised 3# t!e person w!o !as t!e power to call t!e meeting6 :t ma# consist of direction to t!e secretar# of t!e corporation to notif# t!e stoc(!olders or mem3ers of t!e meeting6

(e+ Who pre$i!e$ (Section 3)+


Sec. 3). 4ho shall preside at meetings !e president s!all preside at all meetings of t!e directors or trustee as well as of t!e stoc(!olders or mem3ers4 unless t!e 3#1laws provide ot!erwise6 (n)

(!+ M'or'% reI'ire! (Section$ 3 an! 3 +


Sec. 3. Corporate officers1 -uorum :mmediatel# after t!eir election4 t!e directors of a corporation must formall# organize 3# t!e election of a president4 w!o s!all 3e a director4 a treasurer w!o ma# or ma# not 3e a director4 a secretar# w!o s!all 3e a resident and citizen of t!e %!ilippines4 and suc! ot!er officers as ma# 3e provided for in t!e 3#1laws6 2n# two (2) or more positions ma# 3e !eld concurrentl# 3# t!e same person4 e5cept t!at no one s!all act as president and secretar# or as president and treasurer at t!e same time6 !e directors or trustees and officers to 3e elected s!all perform t!e duties en?oined on t!em 3# law and t!e 3#1laws of t!e corporation6 >nless t!e articles of incorporation or t!e 3#1laws provide for a greater ma?orit#4 a ma?orit# of t!e num3er of directors or trustees as fi5ed in t!e articles of incorporation s!all constitute a ;uorum for t!e transaction of corporate 3usiness4 and ever# decision of at least a ma?orit# of t!e directors or trustees present at a meeting at w!ic! t!ere is a ;uorum s!all 3e valid as a corporate act4 e5cept for t!e election of officers w!ic! s!all re;uire t!e vote of a ma?orit# of all t!e mem3ers of t!e 3oard6 +irectors or trustees cannot attend or vote 3# pro5# at 3oard meetings6 Sec. 3 . >uorum in meetings >nless ot!erwise provided for in t!is Code or in t!e 3#1laws4 a ;uorum s!all consist of t!e stoc(!olders representing a ma?orit# of t!e outstanding capital stoc( or a ma?orit# of t!e mem3ers in t!e case of non1stoc( corporations6 (n)

(f+ Who co'6! atten! an! "ote (Section 3 an! 3?+


Sec. 3. Corporate officers1 -uorum :mmediatel# after t!eir election4 t!e directors of a corporation must formall# organize 3# t!e election of a president4 w!o s!all 3e a director4 a treasurer w!o ma# or ma# not 3e a director4 a secretar# w!o s!all 3e a resident and citizen of t!e %!ilippines4 and suc! ot!er officers as ma# 3e provided for in t!e 3#1laws6 2n# two (2) or more positions ma# 3e !eld concurrentl# 3# t!e same person4 e5cept t!at no one s!all act as president and secretar# or as president and treasurer at t!e same time6 !e directors or trustees and officers to 3e elected s!all perform t!e duties en?oined on t!em 3# law and t!e 3#1laws of t!e corporation6 >nless t!e articles of incorporation or t!e 3#1laws provide for a greater ma?orit#4 a ma?orit# of t!e num3er of directors or trustees as fi5ed in t!e articles of incorporation s!all constitute a ;uorum for t!e transaction of corporate 3usiness4 and ever# decision of at least a ma?orit# of t!e directors or trustees present at a meeting at w!ic! t!ere is a ;uorum s!all 3e valid as a corporate act4 e5cept for t!e election of officers w!ic! s!all re;uire t!e vote of a ma?orit# of all t!e mem3ers of t!e 3oard6 +irectors or trustees cannot attend or vote 3# pro5# at 3oard meetings6 Sec. 3?. Pro=ies

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2112$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA least4 are affected wit! pu3lic interest6 :nasmuc! as t!e su3?ect >C%* s!ares in t!e present case were undisputa3l# ac;uired wit! coco lev# funds w!ic! are pu3lic in c!aracter4 t!en t!e rig!t to vote t!em s!all 3e e5ercised 3# t!e %C<<6 :n sum4 t!e Rpu3lic c!aracterR test4 not t!e Rtwo1tieredR one4 applies6 Repu3lic v6 Cocofed4 3,2 'CR2 $)2 (2001)6 In$tance$ When Stoc9ho6!er$ Entit6e! to &ote, 1 "lection of directors and trustees ('ec6 2$)6 1 2mendment of articles of incorporation ('ec6 1))6 1 :nvestment in anot!er 3usiness or corporation ('ecs6 3) and $2)6 1 .erger and consolidation ('ec6 ,2)6 1 :ncrease and +ecrease of capital stoc( ('ec6 3-)6 1 2doption4 amendment and repeal of 3#1laws ('ec6 $-)6 1 +eclaration of stoc( dividends ('ec6 $3)6 1 .anagement contracts ('ec6 $$)6 1 Fi5ing of consideration of no par value s!ares ('ec6 )2)6

'toc(!olders and mem3ers ma# vote in person or 3# pro5# in all meetings of stoc(!olders or mem3ers6 %ro5ies s!all in writing4 signed 3# t!e stoc(!older or mem3er and filed 3efore t!e sc!eduled meeting wit! t!e corporate secretar#6 >nless ot!erwise provided in t!e pro5#4 it s!all 3e valid onl# for t!e meeting for w!ic! it is intended6 No pro5# s!all 3e valid and effective for a period longer t!an five (&) #ears at an# one time6 (n)

:n a 3oard meeting4 an a3stention is presumed to 3e counted as an affirmative vote insofar as it ma# 3e construed as an ac;uiescence in t!e action of t!ose w!o voted affirmativel#7 3ut suc! presumption4 3eing merel# prima facie would not !old in t!e face of clear evidence to t!e contrar#6 Lopez v6 "ricta4 $& 'CR2 &3/ (1/,2)6 >ntil c!allenged successfull# in proper proceedings4 a registered stoc(!older !as a rig!t to participate in an# meeting4 and in t!e a3sence of fraud t!e action of t!e stoc(!olders8 meeting cannot 3e collaterall# attac(ed on account of suc! participation4 even if it 3e s!own later on t!at t!e s!ares !ad 3een previousl# sold (3ut not recorded)6 %rice and 'ulu +ev6 Co6 v6 .artin4 &- %!il6 ,0, (1/33)6 !e se;uestration of s!ares does not entitle t!e government to e5ercise acts of owners!ip over t!e s!ares7 even se;uestered s!ares ma# 3e voted upon 3# t!e registered stoc(!older6 Co?uangco =r6 v6 Ro5as4 1/& 'CR2 ,/, (1//1)6 !e rig!t to vote se;uestered s!ares of stoc( registered in t!e names of private individuals or entities and alleged to !ave 3een ac;uired wit! ill1gotten wealt! s!all4 as a rule4 3e e5ercised 3# t!e registered owner6 !e %C<< ma#4 !owever4 3e granted suc! voting rig!t provided it can (1) s!ow prima facie evidence t!at t!e wealt! andKor t!e s!ares are indeed ill1gotten7 and (2) demonstrate imminent danger of dissipation of t!e assets4 t!us necessitating t!eir continued se;uestration and voting 3# t!e government until a decision4 ruling wit! finalit# on t!eir owners!ip4 is promulgated 3# t!e proper court6 Nevert!eless4 t!e foregoing Rtwo1tieredR test does not appl# w!en t!e funds t!at are prima facie pu3lic in c!aracter or4 at

(#+ A#en!a
!ere are certain matters of importance w!ic! t!e law re;uires to 3e ta(en up at meetings of stoc(!olders or mem3ers called e5pressl# for t!e purpose6 :t is4 t!erefore4 necessar# t!at t!e notice s!ould state t!e purpose for w!ic! t!e meeting is called6 'ee page $,0 of +e Leon6
Catindig Class Notes 1f not a regular item in the 3genda/ then must specify the matter or item in the notice

When 1oar! Meetin# i$ Unnece$$ar7

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2112&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

>nless t!e 3#laws provide ot!erwise4 an# action 3# t!e directors of a close corporation wit!out a meeting s!all nevert!eless 3e deemed valid ifD (1) *efore or after suc! action is ta(en4 written consent t!ereto is signed 3# all t!e directors7 or (2) 2ll t!e stoc(!olders !ave actual or implied (nowledge of t!e action and made no prompt o3?ection t!ereto in writing7 or (3) !e directors are accustomed to ta(e informal action wit! t!e e5press or implied ac;uiescence of al t!e stoc(!olders7 or ($) 2ll t!e directors !ave e5press or implied (nowledge of t!e action in ;uestion4 and none of t!em ma(es prompt o3?ection t!ereto in writing6 Note, if a directors8 meeting is !eld wit!out a proper call or notice4 an action ta(en t!erein wit!in t!e corporate powers is deemed ratified 3# a director w!o failed to attend4 unless !e promptl# files !is written o3?ection wit! t!e 'ecretar# of t!e corporation after !aving (nowledge t!ereof6 (%age /1& of CLG8s CLR4 200,)

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2112)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
inform t!e director concerned of t!e contact num3erKs !e will call to ?oin t!e meeting6 !e 'ecretar# s!all (eep t!e records of t!e details4 and on t!e date of t!e sc!eduled meeting4 confirm and note suc! details as part of t!e minutes of t!e meeting6 &6 :n t!e a3sence of an arrangement4 it is presumed t!at t!e director will p!#sicall# attend t!e *oard meeting6 )6 2t t!e start of t!e sc!eduled meeting4 a roll call s!all 3e made 3# t!e 'ecretar#6 "ver# director and participant s!all state4 for t!e record4 t!e followingD a6 Full Name 36 Location c6For t!ose attending t!roug! teleKvideoconferencing4 !e s!all confirm t!atD i6 !e can completel# and clearl# !ear t!e ot!ers w!o can clearl# !ear !im at t!e end of t!e line :i state w!et!er !e !as received t!e agenda and all t!e materials for t!e meeting iii6 specif# t#pe of device used !ereafter4 t!e 'ecretar# s!all confirm and note t!e contact num3ers 3eing used 3# t!e directors and participants not p!#sicall# present6 2fter t!e roll call4 t!e 'ecretar# ma# certif# t!e e5istence of a ;uorum6 ,6 2ll participants s!all identif# t!emselves for t!e record4 3efore spea(ing and must clearl# !ear andKor see eac! ot!er in t!e course of t!e meeting6 :f a person fails to identif# !imself4 t!e 'ecretar# s!all ;uic(l# state t!e identit# of t!e last spea(er6 :f t!e person spea(ing is not p!#sicall# present and t!e 'ecretar# is not certain of t!e identit# of t!e spea(er4 t!e 'ecretar# must in;uire to elicit a confirmation or correction6 :f a motion is o3?ected to and t!ere is a need to vote and divide t!e *oard4 t!e 'ecretar# s!ould call t!e roll and note t!e vote of eac! director w!o s!ould identif# !imself6 :f a statement of a directorKparticipant in t!e meeting via teleKvideoconferencing is interrupted or gar3led4 t!e 'ecretar# s!all re;uest for a repeat or reiteration4 and if need 3e4 t!e 'ecretar# s!all repeat w!at !e !eard t!e directorKparticipant was sa#ing for confirmation or correction6 -6 !e 'ecretar# s!all re;uire all t!e directors w!o attended t!e meeting4 w!et!er personall# or t!roug! teleKvideoconferencing4 to sign t!e minutes of t!e meeting to dispel all dou3ts on matters ta(en up during t!e meeting6 !ese guidelines s!all ta(e effect fifteen (1&) da#s after pu3lication in two (2) newspapers of general circulation6 .andalu#ong Cit#4 %!ilippines6 Novem3er 204 20016

?. A!!itiona6 %ateria6, SEC Me%o Circ. No. 13 $erie$ AA1@ No". A@ AA1 re, 1oar! %eetin#$ thro'#h te6econferencin# or "i!eoconferencin#
SEC MEMORAN-UM CIRCULAR NO. 13:A1 O '>*="C 2ll Concerned 1oar! Meetin# Thro'#h Te6econferencin# or &i!eoconferencin# ( eleKGideo Conferencing) :n relation to 'ection 1) of t!e "lectronic Commerce 2ct (R626 -,/2) and 'ection 2& of t!e Corporation Code of t!e %!ilippines (*%)-) t!e following are t!e guidelines for t!e conduct of teleconferencing and videoconferencing (i6e6 conferences or meetings t!roug! electronic medium or telecommunications w!ere t!e participants w!o are not p!#sicall# present are located at different local or international places) of t!e *oard of +irectors for t!e information and guidance of all concernedD 16 !e 'ecretar# of t!e meeting s!all assume t!e following responsi3ilitiesD a6 to safeguard t!e integrit# of t!e meeting via teleKvideoconferencing 36 to find good teleKvideoconference e;uipmentKfacilities c6 to record t!e proceedings and prepare t!e minutes of t!e meeting d6 to store for safe(eeping and mar( t!e tape recordingKs andKor ot!er electronic recording mec!anism as part of t!e records of t!e corporation 26 !e 'ecretar# s!all send out t!e notices of t!e meeting to all directors in accordance wit! t!e manner of giving notice as stated in t!e corporate 3#1 laws6 36 !e notice s!all include t!e followingD a6 :n;uir# on w!et!er t!e director will attend p!#sicall# or t!roug! teleKvideoconferencing7 36 Contact num3erKs of t!e 'ecretar# and office staff w!om t!e director ma# call to notif# and state w!et!er !e s!all 3e p!#sicall# present or attend t!roug! teleKvideoconferencing7 c6 2genda of t!e meeting7 d6 2ll documents to 3e discussed in t!e meeting4 including attac!ments4 s!all 3e num3ered and dul# mar(ed 3# t!e 'ecretar# in suc! a wa# t!at all t!e directors4 p!#sicall# or electronicall# present4 can easil# follow4 refer to t!e documents and participate in t!e meeting6 $6 :f t!e director c!ooses teleKvideoconferencing4 !e s!all give notice of at least five da#s prior to t!e sc!eduled meeting to t!e 'ecretar#6 !e latter s!all 3e informed of !is contact num3erKs6 :n t!e same wa#4 t!e 'ecretar# s!all

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2112,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

('<+6) L:L:2 R6 *2> :' 2 C!airperson

:t s!ould 3e emp!asized t!at participation of directors in meetings t!roug! teleconferencing and video conferencing ma# 3e deemed accepta3le onl# w!en ade;uate safeguards !ave 3een accordingl# set in place6 .eetings of t!is nature s!ould 3e properl# recorded and t!e appropriate tapes and discs properl# stored for safe(eeping6 ('"C Opinion No6 2)4 .arc! 224 2003)

:n t!e %!ilippines4 teleconferencing and video1conferencing of mem3ers of t!e *o+ of private corporations is a realit# in lig!t of R2 -,/26 !e '"C .emorandum Circular No6 1&4 providing t!e guidelines to 3e complied wit! related to suc! conferences6 ("5pertravel W ours v6 C24 200&)

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2112-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
information secured t!roug! an# prior e5amination of t!e records or minutes of suc! corporation or of an# ot!er corporation4 or was not acting in good fait! or for a legitimate purpose in ma(ing !is demand6 'toc( corporations must also (eep a 3oo( to 3e (nown as t!e Rstoc( and transfer 3oo(R4 in w!ic! must 3e (ept a record of all stoc(s in t!e names of t!e stoc(!olders alp!a3eticall# arranged7 t!e installments paid and unpaid on all stoc( for w!ic! su3scription !as 3een made4 and t!e date of pa#ment of an# installment7 a statement of ever# alienation4 sale or transfer of stoc( made4 t!e date t!ereof4 and 3# and to w!om made7 and suc! ot!er entries as t!e 3#1laws ma# prescri3e6 !e stoc( and transfer 3oo( s!all 3e (ept in t!e principal office of t!e corporation or in t!e office of its stoc( transfer agent and s!all 3e open for inspection 3# an# director or stoc(!older of t!e corporation at reasona3le !ours on 3usiness da#s6 No stoc( transfer agent or one engaged principall# in t!e 3usiness of registering transfers of stoc(s in 3e!alf of a stoc( corporation s!all 3e allowed to operate in t!e %!ilippines unless !e secures a license from t!e 'ecurities and "5c!ange Commission and pa#s a fee as ma# 3e fi5ed 3# t!e Commission4 w!ic! s!all 3e renewa3le annuall#D %rovided4 !at a stoc( corporation is not precluded from performing or ma(ing transfer of its own stoc(s4 in w!ic! case all t!e rules and regulations imposed on stoc( transfer agents4 e5cept t!e pa#ment of a license fee !erein provided4 s!all 3e applica3le6 (&1a and 32a7 *6 %6 No6 2)-6)
)ac*+s Lecture &ection 0E 1 *oo(s to 3e (ept7 stoc( transfer agent6 1 Corporations are re;uired to (eep records of all 3usiness transactions and minutes of t!e meetings of t!e stoc(!olders and directors and upon demand4 an# stoc(!older or director can inspect t!e corporate records and o3tain copies at t!eir own e5pense6 'o stoc(!olders are given t!is rig!t of inspection so t!at t!e# will 3e properl# informed and will 3e a3le to e5ercise t!eir rig!t as stoc(!olders intelligentl#6 !e rig!t of directors to inspect t!e corporate records is 3roader t!an t!at of stoc(!olders 3ecause t!e# are t!e ones involved in t!e management of t!e corporation so t!e# would need information to 3e a3le to ma(e decisions wisel#6 !e directors and stoc(!olders !ave t!e rig!t to e5amine t!e records at reasona3le !ours on 3usiness da#s6 !e corporation cannot limit t!e rig!t to inspect on specific da#s onl#6 :f t!e rig!t of inspection is denied4 t!e officers responsi3le for t!e wit!!olding of t!e records are criminall# lia3le under section 1$$

*. 1OO8S AN- RECOR-S


*.1 What /oo9$ an! recor!$ %'$t a corporation 9eepD (Section 5)+
Sec. 5). .oo*s to be *eptB stoc* transfer agent "ver# corporation s!all (eep and carefull# preserve at its principal office a record of all 3usiness transactions and minutes of all meetings of stoc(!olders or mem3ers4 or of t!e 3oard of directors or trustees4 in w!ic! s!all 3e set fort! in detail t!e time and place of !olding t!e meeting4 !ow aut!orized4 t!e notice given4 w!et!er t!e meeting was regular or special4 if special its o3?ect4 t!ose present and a3sent4 and ever# act done or ordered done at t!e meeting6 >pon t!e demand of an# director4 trustee4 stoc(!older or mem3er4 t!e time w!en an# director4 trustee4 stoc(!older or mem3er entered or left t!e meeting must 3e noted in t!e minutes7 and on a similar demand4 t!e #eas and na#s must 3e ta(en on an# motion or proposition4 and a record t!ereof carefull# made6 !e protest of an# director4 trustee4 stoc(!older or mem3er on an# action or proposed action must 3e recorded in full on !is demand6 !e records of all 3usiness transactions of t!e corporation and t!e minutes of an# meetings s!all 3e open to inspection 3# an# director4 trustee4 stoc(!older or mem3er of t!e corporation at reasona3le !ours on 3usiness da#s and !e ma# demand4 writing4 for a cop# of e5cerpts from said records or minutes4 at !is e5pense6 2n# officer or agent of t!e corporation w!o s!all refuse to allow an# director4 trustees4 stoc(!older or mem3er of t!e corporation to e5amine and cop# e5cerpts from its records or minutes4 in accordance wit! t!e provisions of t!is Code4 s!all 3e lia3le to suc! director4 trustee4 stoc(!older or mem3er for damages4 and in addition4 s!all 3e guilt# of an offense w!ic! s!all 3e punis!a3le under 'ection 1$$ of t!is CodeD %rovided4 !at if suc! refusal is made pursuant to a resolution or order of t!e 3oard of directors or trustees4 t!e lia3ilit# under t!is section for suc! action s!all 3e imposed upon t!e directors or trustees w!o voted for suc! refusalD and %rovided4 furt!er4 !at it s!all 3e a defense to an# action under t!is section t!at t!e person demanding to e5amine and cop# e5cerpts from t!e corporationJs records and minutes !as improperl# used an#

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2112/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

and will also 3e lia3le for damages6 !ere are reasons given in t!e code for not allowing inspection4 3ut t!e rig!t e5ists as concurred 3# law7 t!erefore4 t!e 3urden is on t!e corporation to s!ow t!at a stoc(!older or director is not entitled to 3e allowed to inspect t!e records of t!e corporation6 Case of ;o*ong(ei #s. & C !e Court said <o(ongwei !ad t!e rig!t to e5amine t!e record of 'an .iguel :nternational6 'an .iguel Corporation was arguing t!at t!at is a separate corporation6 *ut t!e court said it is a w!oll#1owned su3sidiar# corporation so its capital gained from 'an .iguel Corporation4 and t!erefore <o(ongwei as stoc(!older of 'an .iguel Corporation !ad t!e rig!t to e5amine t!e records of 'an .iguel :nternational6 9!at are t!e grounds for not allowing inspectionL 16 :f t!e person demanding to e5amine t!e records !as improperl# used an# information secured for prior e5amination For e5ample4 a stoc(!older w!o was earlier allowed to e5amine t!e records made use of insider trading6 'o !e was a3le to 3u# s!ares 3ecause of information t!at 3ecame availa3le to !im w!ic! was not availa3le to ot!ers6 :f !e is not acting in good fait!6 For e5ample4 a stoc(!older w!o wants to get information on t!e 3usiness plans of t!e corp6 3ecause !eJs a stoc(!older of anot!er competing corp64 and so !e will pass on t!e info6 to t!at ot!er corp6 Or for e5ample a stoc(!older would want to (now t!e formula of Coca1Cola6 :t is not 3eing e5ercised for a legitimate purpose6

Catindig Class Notes 0: .hat are the : corporate books2 3: S*7 and (inutes 7ook 0: .hat are the other books2 3: *hose re>uired by the *a, !ode 0: .ho keeps the S*72 3: *he !orporate Secretary. *ip: 1f you are a corp sec/ do not leave it in the corp. Ieep it with you to e,ercise lawyer$s lien.

What /oo9$ are reI'ire! to /e %aintaine! /7 the corporationD (1) *oo(s of minutes of stoc(!olders meetings7 (2) *oo( of minutes of 3oard meetings7 (3) Record or *oo( of all 3usiness transactions7 ($) 'toc( and transfer 3oo(6 What are the content$ of the $toc9 an! tran$fer /oo9D (1) 2ll stoc(s in t!e name of t!e stoc(!olders alp!a3eticall# arranged7 (2) 2mount paid and unpaid on all stoc(s and t!e date of pa#ment of an# installment7 (3) 2lienation4 sale or transfer of stoc(s7 ($) Ot!er entries as t!e 3#1laws ma# prescri3e7 ST1 2 stoc( and transfer 3oo( is w!ic! records t!e names and addresses of all stoc(!olders arranged alp!a3eticall#4 t!e installments paid and unpaid on all stoc( for w!ic! su3scription !as 3een made4 and t!e date of pa#ment t!ereof4 a statement of ever# alienation4 sale or transfer of stoc( made t!e date t!ereof and 3# and to w!om made4 and suc! ot!er entries as ma# 3e prescri3ed 3# law6 2 stoc( and transfer 3oo(4 li(e ot!er corporate 3oo(s and record4 is not in an# sense a pu3lic record4 and t!us is not e5clusive evidence

26

36

Case of %amon ;on?ales , @e filed a petition for mandamus to e5amine t!e records of certain transactions entered into 3# t!e %!ilippine National *an(6 @e filed it as a ta5pa#er6 @is petition was denied6 'o w!at !e did was !e 3oug!t one s!are6 @e said t!at since !e is now a stoc(!older4 !e !as t!e rig!t to e5amine t!e records of t!ose transactions w!ic! !e earlier wanted to see6 !e Court denied !is petition 3ecause it said !e was not e5ercising !is rig!t of inspection properl#6 !is rig!t is given to stoc(!olders in order to protect t!eir investment of t!e corp6 *ut t!at is not t!e situation !ere6 @e earlier tried to see t!e records and w!en t!at wasnJt allowed !e 3oug!t one s!are4 and !eJs using t!at as ?ustification for loo(ing into t!e records6 @e 3oug!t t!e one s!are to 3e a3le to loo( and pr# into t!e records4 3ecause !e was earlier denied access to t!e records6 'o !eJs not e5ercising t!e rig!t to protect !is investment6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21130

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA The ri#ht to in$pect corporate /oo9$ an! recor!$, :s e5ercisa3le t!roug! agents and representatives4 ot!erwise it would often 3e useless to t!e stoc(!older w!o does not (now corporate intricacies6 96<6 %!ilpotts v6 %!ilippine .anufacturing Co64 $0 %!il6 $,1 (1/1/)6 Cannot 3e denied on t!e ground t!at t!e director is on unfriendl# terms wit! t!e officers of t!e corporation w!ose records are soug!t to 3e inspected6 Geragut! v6 :sa3ela 'ugar Co64 &, %!il6 2)) (1/32)6 2lt!oug! it includes t!e rig!t to ma(e copies4 does not aut!orize 3ringing t!e 3oo(s or records outside of corporate premises6 Geragut! v6 :sa3ela 'ugar Co64 &, %!il6 2)) (1/32)6 +oes not include t!e rig!t of access to minutes until suc! minutes !ave 3een written up and approved 3# t!e directors6 Geragut! v6 :sa3ela 'ugar Co64 &, %!il6 2)) (1/32)6 Cannot 3e limited to a period of ten da#s s!ortl# prior to t!e annual stoc(!olders8 meeting4 as suc! would 3e an unreasona3le restriction and violates t!e legal provision granting t!e e5ercise of suc! rig!t Bat reasona3le !ours6C %ardo v6 @ercules Lum3er Co64 $, %!il6 /)$ (1/2$)6 Li%itationD !e onl# e5press limitations on t!e rig!t of inspection under 'ec6 ,$ of Corporation Code areD (a) it s!ould 3e e5ercised at reasona3le !ours on 3usiness da#s7 (3) t!e person demanding t!e rig!t to e5amine and cop# e5cerpts from t!e corporate records and minutes !as not improperl# used an# information secured t!roug! an# previous e5amination of records7 and (c) t!e demand is made in good fait! or for a legitimate purpose6 2frica v6 %C<<4 20& 'CR2 3/ (1//2)6
UP CLA&& N6' & S5$s right to copy of the minutes does not come into effect until they ask for a copy. @inancial records must be furnished to the S5: an audited financial statements which must be audited by the auditor/ signed by the 7o8/ secretary and treasurerJ :. annual report9 report on overall condition/ plans and programs of the corporation. *he two reports can be merged in a single document but the legal re>uirement is only to furnish financial statement.

of t!e matters and t!ings w!ic! ordinaril# are or s!ould 3e written t!erein6 (Lanuza v6 C24 200&) Qou 3u# and register ' * wit! '"C What i$ the pro/ati"e "a6'e of the $toc9 an! tran$fer /oo9D !e stoc( and transfer 3oo( is t!e 3est evidence of t!e transactions t!at must 3e entered or stated t!erein6 @owever4 t!e entries are considered prima facie evidence onl# and ma# 3e su3?ect to proof to t!e contrar#6 (*itong v6 C2)

*. Ca$e
Torre$ ". CA (1**5+ .ho are authori'ed to make entries in the stock and transfer book2 !e corporate secretar# is t!e officer w!o is dul# aut!orized to ma(e entries on t!e stoc( and transfer 3oo(6 @ence4 entries made 3# t!e C!airman or %resident are invalid6 ( orres =r6 v6 C2)

*.. Who %a7 in$pect corporate /oo9$ an! recor!$ an! =hat i$ the eBtent of thi$ ri#htD (Section 5)+
Per$on$ #i"en ri#ht to in$pect corporate /oo9$, (1) 2n# director4 trustee4 or stoc(!older or mem3er7 (2) Goting trust certificate !older7 (3) 'toc(!older of a se;uestered compan# ($) *eneficial owner of s!ares6 (%age )21 of +e Leon4 200)) What are the reI'ire%ent$ for the eBerci$e of the ri#ht of in$pectionD (1) :t must 3e e5ercised at reasona3le !ours on 3usiness da#s7 (2) !e stoc(!older !as not improperl# used an# information !e secured t!roug! an# previous e5amination7 (3) +emand is made in good fait! or for legitimate purpose

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21131

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA Go9on#=ei ". SEC (1*5*+ 2 stoc(!older !as t!e power to inspect t!e corporate 3oo(s of a controlled su3sidiar# of t!e mot!er corporation of w!ic! !e is t!e stoc(!older6

Catindig Class Notes 0: .ho are allowed to inspect corporate books2 3: +;- Stockholders or members +:- *heir 3gents *ip: 1f the S6! re>uires you to submit (inutes/ only give them the e,cerpts thru the Sec !ertificate and not the (inutes.

*.) What i$ a $toc9 tran$fer a#entD (Section 5)+


2 stoc( and transfer agent is one w!o is engaged in t!e 3usiness of registering transfers of stoc(s in 3e!alf of a stoc( corporation6 @e must 3e licensed 3# t!e '"C and must pa# t!e re;uired fees6

*.3 What i$ a $toc9ho6!er>$ ri#ht to financia6 $tate%ent$ an! report$D (Section 53+
Sec. 53. %ight to financial statements 9it!in ten (10) da#s from receipt of a written re;uest of an# stoc(!older or mem3er4 t!e corporation s!all furnis! to !im its most recent financial statement4 w!ic! s!all include a 3alance s!eet as of t!e end of t!e last ta5a3le #ear and a profit or loss statement for said ta5a3le #ear4 s!owing in reasona3le detail its assets and lia3ilities and t!e result of its operations6 2t t!e regular meeting of stoc(!olders or mem3ers4 t!e 3oard of directors or trustees s!all present to suc! stoc(!olders or mem3ers a financial report of t!e operations of t!e corporation for t!e preceding #ear4 w!ic! s!all include financial statements4 dul# signed and certified 3# an independent certified pu3lic accountant6 @owever4 if t!e paid1up capital of t!e corporation is less t!an %&040006004 t!e financial statements ma# 3e certified under oat! 3# t!e treasurer or an# responsi3le officer of t!e corporation6 (n)

*.4 Ca$e

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21132

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
retrenc!ment4 for e5ample if t!ere are two !eads of t!e legal dept64 one will !ave to go7 w!at #ou will pa# to t!ose w!o will not 3e maintained4 etc67 w!at will 3e t!e interim arrangement w!ile t!e merger !as not #et 3een approved 3# t!e '"C7 and if for some reason t!e merger is disapproved 3# t!e '"C4 !ow will #ou unwind t!e transaction6 !e merger or consolidation will !ave to 3e approved 3# ma?orit# of 6t!e directors of t!e corporation involved and at least two t!irds (2K3) of t!e stoc(!olders6 2nd t!e merger of consolidation will ta(e effect upon t!e approval 3# t!e '"C6 :f it involves a corp6 engaged in a line of 3usiness regulated 3# anot!er agenc# li(e 3an(s4 insurance companies4 t!en '"C will refer t!at to t!e regulator# agenc# for comment6 2nd upon merger or consolidation4 t!ere will 3e onl# one surviving corporation4 t!e e5istence of t!e separate will cease4 t!e surviving corp6 will ac;uire all t!e rig!ts4 portfolio of 3usiness4 properties4 privileges4 and powers of t!e constituent corporations7 at t!e same time it will also assume t!e lia3ilities and o3ligations of t!e a3sor3ed corporations6 !ere was a case w!ere t!is 2ssociated *an( and : t!in( t!is %!ilman *an( w!ic! were merged6 !e# were pro3a3l# still using t!e old forms6 One 3orrower o3tained a loan and t!e promissor# note !e signed was still in t!e name of t!e 3an( w!ic! was a3sor3ed and w!ic! !as ceased to e5ist6 9!en !e was 3eing sued4 !e invo(ed t!at as !is defense6 @e said t!at t!e promissor# note is in t!e name of t!e a3sor3ed 3an(6 !e one suing !im4 !e said4 is anot!er 3an(6 !e Court said t!at is t!e surviving 3an(4 and sine t!e two 3an(s were merged4 it is entitled to sue to recover t!e pa#ment even if t!e promissor# note was issued in t!e name of t!e 3an( w!ic! was a3sor3ed6

1A. MERGERS AN- CONSOLI-ATIONS


%age -/) of CLG8s CLR6 Mer#er is one w!ere a corporation a3sor3s t!e ot!er and remains in e5istence w!ole t!e ot!ers are dissolved6 Con$o6i!ation is one w!ere a new corporation is created4 and consolidating corporations are e5tinguis!ed6 Note, 2pproval of t!e '"C is re;uired (=R' at 30-) 2 consolidation is t!e union of two or more e5isting entities to form a new entit# called t!e consolidated corporation6 2 merger4 on t!e ot!er !and4 is a union w!ere3# one or more e5isting corporations are a3sor3ed 3# anot!er corporation t!at survives and continues t!e com3ined 3usiness6 'ince a merger or consolidation involves fundamental c!anges in t!e corporation4 as well as in t!e rig!ts of stoc(!olders and creditors4 t!ere must 3e an e5press provision of law aut!orizing t!em6 %N* v6 2ndrada "lectric W "ngineering Co64 3-1 'CR2 2$$ (2002)6
)ac*+s Lecture &ection 0D deals wit! mergers and consolidations6 :n merger4 one corp6 is a3sor3ed 3# anot!er as t!e surviving corporation6 :n consolidation4 a new corp6 is formed w!ic! will a3sor3 two or more e5isting corporations6 :n case of merger or consolidation4 t!e directors of all t!e corporations involved must approve a plan of merger or consolidation6 !e# state t!ere w!at is t!e name of t!e corp64 w!o will 3e t!e constituents4 w!at are t!e terms of t!e consolidation or merger6 "5ample4 w!en %!ilippine <uarant# Compan# used to 3e an insurance compan# owned 3# t!e 2#alas4 it was merged wit! F<> :nsurance Corporation6 Recentl#4 F<> :nsurance Corporation was merged wit! t!is .itsu3is!i .itomo t!en c!anged t!em to *%: and ' :nsurance Corporation6 For e5ample4 w!en F<> Corp6 was merged wit! %!il6 <uarant#4 t!e# drew up a plan of merger6 !e# said t!is is w!at will !appenD t!e aut!orized capital stoc( of F<> will 3e increased and stoc(!olders of %!il6 <uarant# will surrender t!e s!ares of stoc( in %!il6 <uarant# in return for s!ares of stoc( of F<>6 :t could t!en pro3a3l# 3e provided in t!e merger !ow t!e directors will 3e distri3uted 3etween t!e two constituent companies and !ow t!e officers will 3e distri3uted7 or regarding

1A.1 What i$ a Kcon$tit'ent corporationLD Kcon$o6i!ate! corporationLD (Section 54+


Sec. 54. Plan or merger of consolidation wo or more corporations ma# merge into a single corporation w!ic! s!all 3e one of t!e constituent corporations or ma# consolidate into a new single corporation w!ic! s!all 3e t!e consolidated corporation6 !e 3oard of directors or trustees of eac! corporation4 part# to t!e merger or consolidation4 s!all approve a plan of merger or consolidation setting fort! t!e followingD 16 !e names of t!e corporations proposing to merge or

I sweat, I bleed, I soar Service, Sacrifice, Excellence

21133

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
referred to as t!e constituent respective corporations4 at least two (2) wee(s prior to t!e date of t!e meeting4 eit!er personall# or 3# registered mail6 'aid notice s!all state t!e purpose of t!e meeting and s!all include a cop# or a summar# of t!e plan of merger or consolidation6 !e affirmative vote of stoc(!olders representing at least two1t!irds (2K3) of t!e outstanding capital stoc( of eac! corporation in t!e case of stoc( corporations or at least two1t!irds (2K3) of t!e mem3ers in t!e case of non1stoc( corporations s!all 3e necessar# for t!e approval of suc! plan6 2n# dissenting stoc(!older in stoc( corporations ma# e5ercise !is appraisal rig!t in accordance wit! t!e CodeD %rovided4 !at if after t!e approval 3# t!e stoc(!olders of suc! plan4 t!e 3oard of directors decides to a3andon t!e plan4 t!e appraisal rig!t s!all 3e e5tinguis!ed6 2n# amendment to t!e plan of merger or consolidation ma# 3e made4 provided suc! amendment is approved 3# ma?orit# vote of t!e respective 3oards of directors or trustees of all t!e constituent corporations and ratified 3# t!e affirmative vote of stoc(!olders representing at least two1t!irds (2K3) of t!e outstanding capital stoc( or of two1t!irds (2K3) of t!e mem3ers of eac! of t!e constituent corporations6 'uc! plan4 toget!er wit! an# amendment4 s!all 3e considered as t!e agreement of merger or consolidation6 (n)

consolidate4 !ereinafter corporations7 26

!e terms of t!e merger or consolidation and t!e mode of carr#ing t!e same into effect7

36 2 statement of t!e c!anges4 if an#4 in t!e articles of incorporation of t!e surviving corporation in case of merger7 and4 wit! respect to t!e consolidated corporation in case of consolidation4 all t!e statements re;uired to 3e set fort! in t!e articles of incorporation for corporations organized under t!is Code7 and $6 'uc! ot!er provisions wit! respect to t!e proposed merger or consolidation as are deemed necessar# or desira3le6 (n)

2 con$tit'ent corporation refers to a part# to a merger or consolidation6 (>%1"lective Class Reviewer at $$) 2 con$o6i!ate! corporation is t!e outcome of t!e union of two or more e5isting corporation to form a new corporation6 (:d6) M,9!at corporate approvals are re;uiredL A, %lan of merger or consolidation s!all contain t!e followingD (1) Names of t!e corporation involved7 (2) erms and mode of carr#ing it7 (3) 'tatement of c!anges4 if an#4 in t!e present 2o: of t!e surviving corporation or t!e 2o: of t!e new corp to 3e formed in case of consolidation6

1A. What corporate appro"a6$ are reI'ire!D (Section 55+


Sec. 55. &toc*holder9s or member9s appro#al >pon approval 3# ma?orit# vote of eac! of t!e 3oard of directors or trustees of t!e constituent corporations of t!e plan of merger or consolidation4 t!e same s!all 3e su3mitted for approval 3# t!e stoc(!olders or mem3ers of eac! of suc! corporations at separate corporate meetings dul# called for t!e purpose6 Notice of suc! meetings s!all 3e given to all stoc(!olders or mem3ers of t!e

S'/%i$$ion of Financia6 State%ent$ ReI'ire%ent$ D For applications of merger4 t!e audited financial statements of t!e constituent corporations (surviving and a3sor3ed) as of t!e date not earlier t!an 120 da#s prior to t!e date of filing of t!e application and t!e long1form audit report for a3sor3ed corporation(s) are alwa#s re;uired6 Long form audit report for t!e surviving corporation is re;uired if it is insolvent6 ('"C Opinion 1$4 s6 of 20024 1& Novem3er 2002)6

1A.. What i$ a p6an of %er#er or con$o6i!ation (Section 54+


!e# state t!ere w!at is t!e name of t!e corp64 w!o will 3e t!e constituents4 w!at are t!e terms of t!e consolidation or merger6 (=ac()

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2113$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
all and ever# ot!er interest of4 or 3elonging to4 or due to eac! constituent corporation4 s!all 3e deemed transferred to and vested in suc! surviving or consolidated corporation wit!out furt!er act or deed7 and &6 !e surviving or consolidated corporation s!all 3e responsi3le and lia3le for all t!e lia3ilities and o3ligations of eac! of t!e constituent corporations in t!e same manner as if suc! surviving or consolidated corporation !ad itself incurred suc! lia3ilities or o3ligations7 and an# pending claim4 action or proceeding 3roug!t 3# or against an# of suc! constituent corporations ma# 3e prosecuted 3# or against t!e surviving or consolidated corporation6 !e rig!ts of creditors or liens upon t!e propert# of an# of suc! constituent corporations s!all not 3e impaired 3# suc! merger or consolidation6 (n)

1A.) What are artic6e$ of %er#er or con$o6i!ation (Section 5?+


Sec. 5?. Articles of merger or consolidation 2fter t!e approval 3# t!e stoc(!olders or mem3ers as re;uired 3# t!e preceding section4 articles of merger or articles of consolidation s!all 3e e5ecuted 3# eac! of t!e constituent corporations4 to 3e signed 3# t!e president or vice1president and certified 3# t!e secretar# or assistant secretar# of eac! corporation setting fort!D 16 !e plan of t!e merger or t!e plan of consolidation7 26 2s to stoc( corporations4 t!e num3er of s!ares outstanding4 or in t!e case of non1stoc( corporations4 t!e num3er of mem3ers7 and 36 2s to eac! corporation4 t!e num3er of s!ares or mem3ers voting for and against suc! plan4 respectivel#6 (n)

Effect$. ('ee codal or page 30- of =R')


UP Class Notes 8ue diligence work9know your husbandBwife before marrying her. 8ate of effectivity of merger or consolidation is the issuance of the certificate of merger or consolidation by the S6!.

1A.3 What are the effect$ con$o6i!ation (Section ?A+

of

%er#er

or

Sec. ?A. ffects or merger or consolidation !e merger or consolidation s!all !ave t!e following effectsD 16 !e constituent corporations s!all 3ecome a single corporation w!ic!4 in case of merger4 s!all 3e t!e surviving corporation designated in t!e plan of merger7 and4 in case of consolidation4 s!all 3e t!e consolidated corporation designated in t!e plan of consolidation7

26 !e separate e5istence of t!e constituent corporations s!all cease4 e5cept t!at of t!e surviving or t!e consolidated corporation7 36 !e surviving or t!e consolidated corporation s!all possess all t!e rig!ts4 privileges4 immunities and powers and s!all 3e su3?ect to all t!e duties and lia3ilities of a corporation organized under t!is Code7 $6 !e surviving or t!e consolidated corporation s!all t!ereupon and t!ereafter possess all t!e rig!ts4 privileges4 immunities and franc!ises of eac! of t!e constituent corporations7 and all propert#4 real or personal4 and all receiva3les due on w!atever account4 including su3scriptions to s!ares and ot!er c!oses in action4 and

9!en t!e procedure for mergerKconsolidation prescri3ed under t!e Corporation Code are not followed4 t!ere can 3e no merger or consolidation4 and corporate separateness 3etween t!e constituent corporations remains4 and t!e lia3ilities of one entit# cannot 3e enforced against anot!er entit#6 %N* v6 2ndrada "lectric W "ngineering Co64 3-1 'CR2 2$$ (2002)6 :t is settled t!at in t!e merger of two e5isting corporations4 one of t!e corporations survives and continues t!e 3usiness4 w!ile t!e ot!er is dissolved and all its rig!ts4 properties and lia3ilities are ac;uired 3# t!e surviving corporation6 !e surviving corporation t!erefore !as a rig!t to institute a collection suit on accounts of one of one of t!e constituent corporations6 *a3st v6 Court of 2ppeals4 3&0 'CR2 3$1 (2001)6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2113&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA Con"er$ion of Non:Stoc9 Corporation to Stoc9 Corporation !e conversion of a non1stoc( educational institution into a stoc( corporation is not legall# feasi3le4 as it violates 'ec6 -, of Corporation Code t!at no part of t!e income of a non1stoc( corporation ma# 3e distri3uta3le as dividends to its mem3ers4 trustees or officers6 B !us4 t!e Commission !as previousl# ruled t!at a non1stoc( corporation cannot 3e converted into a stoc( corporation 3# a mere amendment of t!e 2rticles of :ncorporation6 For purposes of transformation4 it is fundamental t!at t!e non1stoc( corporation 3e dissolved first under an# of t!e met!ods specified itle P:G of t!e Corporation Code6 !ereafter4 t!e mem3ers ma# organize as a stoc( corporation directed to 3ring profits or pecuniar# gains to t!emselves6 ('"C Opinion dated 2$ Fe3ruar# 20037 '"C Opinion dated 10 +ecem3er 1//2)6 :n t!e event of dissolution of a non1stoc( corporation4 its assets s!all 3e distri3uted in accordance wit! t!e rules as provided for under 'ecs6 /$ and /& of Corporation Code6 >nless4 it is so provided in t!e 2rticles of :ncorporation or *#1 Laws4 t!e mem3ers are not entitled to an# 3eneficial or vested interest over t!e assets of t!e non1stoc( corporation6 :n ot!er words4 non1stoc(4 non1profit corporations !old t!eir funds in trust for t!e carr#ing out of t!e o3?ectives and purposes e5pressed in its c!arter6 ('"C Opinion dated 2$ Fe3ruar# 20037 '"C Opinion dated 13 .a# 1//2)6
)ACJ+& L C'U% N6N,&'6CJ C6%P6%A'I6N& For a corporation to 3e non1stoc(4 it must !ave no s!ares of stoc( and it must not 3e aut!orized to declare dividends6 !e law mentions t!e different purposes for w!ic! a non1stoc( corp6 ma# 3e organizedD 16 !e# ma# 3e organized for c!arita3le purposes ('uspicio de 'an =ose4 a!anang 9alang @agdanan)6 26 2 religious order can incorporate as a non1stoc( corp6 for t!e management of its properties6

11. NON:STOC8 CORPORATIONS


-efinition, 2 non1stoc( corporation is one organized for an eleemos#nar# purpose and w!ere no part of its income is distri3uta3le to its mem3ers4 trustees4 or officers4 su3?ect to t!e provisions on dissolution6 (%age /02 of CLG8s CLR) ('ee page 302 of =R') 2 non1stoc( corporation ma# onl# 3e formed or organized for c!arita3le4 religious4 educational4 professional4 cultural4 fraternal4 literar#4 scientific4 social4 civic or ot!er similar purposes6 :t ma# not engage in underta(ings suc! as t!e investment 3usiness w!ere profit is t!e main or underl#ing purpose6 2lt!oug! t!e non1stoc( corporation ma# o3tain profits as an incident to its operation suc! profits are not to 3e distri3uted among its mem3ers 3ut must 3e used for t!e furt!erance of its purposes6 %eople v6 .enil4 <6R6 11&0&$1 ))4 12 'eptem3er 1/// Nunrep6O) !e incurring of profit or losses does not determine w!et!er an activit# is for profit or non1profit4 and t!e courts will consider w!et!er dividends !ave 3een declared or its mem3ers or t!at is propert#4 effects or profit was ever used for personal or individual gain4 and not for t!e purpose of carr#ing out t!e o3?ectives of t!e enterprise6 .anila 'anitarium and @ospital v6 <a3uco4 , 'CR2 1$ (1/)3)6 Non:App6ica/i6it7 of the Nationa6i0ation La=$ 6 2 foreigner ma# 3e mem3er or an officer of a non1stoc( corporation6 'ave for t!e position of t!e 'ecretar#4 w!o must 3e a Filipino citizen and a resident of t!e %!ilippines4 t!e pro!i3ition of foreign citizens 3ecoming officers in corporations engaged in 3usiness does not appl# to t!e activities of a non1stoc( corporation w!ic! do not fall wit!in t!e coverage of a nationalized industr# or area of 3usiness reserved 3# law e5clusivel# to Filipino citizens6 ('"C Opinion No6 124 series of 20024 21 Novem3er 2002)6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2113)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
action 3ecause under t!e 3#1laws4 if a mem3er wants to ;uestion !is suspension 3# t!e 3oard4 !e must appeal to t!e mem3ers6 @e !as not e5!austed t!e intra1corporate remed# provided 3# t!e 3#1laws6 'o it was premature6 *ut t!e '"C dismissed on t!e ground t!at it !as no ?urisdiction4 t!at it s!ould 3e filed in t!e R C6 .otion for Reconsideration in t!e R C granted6 %etition for pro!i3ition 3# t!e clu3 in t!e C2 was granted6 "ventuall# ]uisum3ing ?ust sold !is s!are6 Non1stoc( corporations ma# !ave more t!an fifteen (1&) directors6 Qou ma# even !ave 216 "56 :n alumni associations if #ou want to 3roaden representation in t!e 3oard6 Qou can provide t!at onl# one t!ird (1K3) of t!e directors would 3e elected ever# #ear so t!e terms ever# t!ree #ears would 3e staggered4 to allow for continuit# in policies6 *ut #ou can provide t!at ever#3od# will 3e elected ever# #ear6 :f #ou do not provide for suc!4 t!en 1K3 will 3e elected ever# #ear6

36 "ducationalD man# of t!e religious sectarian sc!ools are organized as non1stoc( corporations (2teneo de .anila4 La 'alle) $6 Ot!ersD %rofessional (3ar associations4 accountants4 engineers)4 Cultural4 Fraternal4 Literar#4 'cientific4 'ocial4 Civic 'ervice4 or similar purposes ( C!am3ers of Commerce)6 !e rig!t to vote ma# 3e limited4 3roadened4 or denied in t!e articles or t!e 3#1laws4 3ut unless t!e rig!t is limited4 3roadened or denied4 eac! mem3er will 3e entitled to vote6 2 mem3er ma# vote 3# pro5# unless t!at is pro!i3ited in t!e 3#1laws6 For instance4 t!e countr# clu3s6 >suall# t!e# will !ave different (inds of mem3ers6 !e# will usuall# provide t!at w!oever is t!e %resident of t!e %!ils6 and t!e ma#or of t!e place are !onorar# mem3ers4 and t!e# can use t!e %!ilippines6 2fter t!e !onorar# mem3ers4 t!ere are t!e regular mem3ers4 and t!ese are t!ose w!o own a proprietar# s!are6 *ut itJs e5pensive to run and maintain a countr# clu36 'o to 3roaden t!e 3ase of people to w!om t!e# can collect mont!l# dues4 t!e# sometimes create t!ese associate mem3ers6 !ese are mem3ers w!o do not !ave a proprietar# s!are 3ut t!e# will 3e allowed to ma(e use of t!e pla#ing rig!ts of one w!o owns a proprietar# s!are provided t!e# pa# also mont!l# dues6 2nd usuall# t!e 3#1laws will provide t!at onl# t!ose w!o own proprietar# s!ares can vote6 'o t!e !onorar# mem3ers and t!ese associate mem3ers are given onl# pla#ing rig!ts and are not allowed to vote6 Goting 3# mail or ot!ers means li(e 3# fa5 ma# 3e allowed6 *ut mem3ers!ip is non1 transferra3le6 :f some3od# owns a proprietar# s!are in a countr# clu34 if !e dies and !is s!are is in!erited 3# !is son4 t!e son does not automaticall# 3ecome a mem3er6 @e !as to appl# for mem3ers!ip6 :f !eJs disapproved4 !e cannot ma(e use of t!e facilities6 :f !e !as a reputation for not getting along wit! ot!ers4 ;uarrelsome4 t!e# wouldnJt want to !ave suc! person as mem3er6 !e onl# t!ing !e can do to t!at s!are is t!at !e can sell it4 mortgage it4 3ut !e cannot 3e a mem3er if !eJs not accepted6 .em3ers!ip s!all 3e terminated in t!e manner and for causes provided in t!e articles or 3#1laws6 For e5ample4 a case of lo#alt# to t!e organization6 Li(e for instance4 a mem3er of t!e .anila Qac!t Clu34 organizes a competing regatta in 'u3ic to compete wit! t!e regatta t!ere4 so t!atJs !is lo#alt#6 Or w!ere a mem3er pla#ing golf would ma(e a game terri3le for ever#3od#D t!e# use t!eir temper4 t!e# t!row t!e clu34 etc6 !e countr# clu3 could suspend !im as w!at was done in t!e case of Nor3erto ]uisum3ing for pic(ing a fig!t wit! a cadd#6 @e sued for moral damages in t!e R C4 3ut t!e R C dismissed it 3ecause itJs an intra1corporate dispute and s!ould 3e filed in t!e '"C4 w!ic! !e did6 !e countr# clu3 filed a motion to dismiss 3ecause t!e# said t!e complaint does not state a cause of

11.1 -i$tin#'i$h non:$toc9 corporation$ fro% $toc9 corporation$ a$ to,


P'rpo$e -i$tri/'tion of Inco%e Non:Stoc9 "leemos#nar# %urposes No part of its income is distri3uta3le as dividends to its mem3ers4 trustees4 or officers4 su3?ect to t!e provisions of t!is Code on dissolution "ac! mem3er entitled to one vote unless limited4 denied or 3roadened 3# 2o: or *L6 2o: or 3#laws ma# pro!i3it t!e voting 3# pro5# Goting 3# mail or ot!er similar means ma# 3e aut!orized 3# t!e 3#1laws of t!e non1stoc( corporation wit! t!e approval of and under Stoc9 2n# legal purpose 'toc( Corporation distri3ute dividends7 ma#

Scope of Ri#ht to &ote

No s!are ma# 3e deprived of voting rig!ts e5cept t!ose classified as preferred or redeema3le s!ares6 ('ection )) Goting 3# pro5# is a rig!t of a stoc(!older6 ('ection 2$) Goting 3# allowed mail is not

&otin# /7 ProB7

&otin# /7 %ai6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2113,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
suc! conditions w!ic! ma# 3e prescri3ed 3# t!e '"C6 or vested interest over t!e assets of t!e non1stoc( corporation unless it is so provided in t!e 2o: or *L6 ('"C Opinion4 Fe3 234 2003) satisfied6

Tran$fera/i6it7 intere$t

of

Non:tran$fera/6e4 unless t!e articles of incorporation or t!e 3#1 laws ot!erwise provide6

Go"ernin# 1oar! N'%/er an! Ter%

Num3erD .a# 3e more t!an 1& ermD 3 #ears6

P6ace of %eetin#$

2t an# place wit!in t!e %!ilippines

-i$tri/'tion of A$$et$

'ee 'ection /$ 3elow !e mem3ers are not entitled to an# 3eneficial

:n a stoc( corp4 rig!ts and s!ares are transfera3le6 !e rig!t to vote ma# 3e transferred 3# pro5# or voting trusts6 '!ares of stoc( are personal propert# and ma# 3e transferred 3# deliver# of t!e certificate or certificates endorsed 3# t!e owner or !is attorne#1 in1fact or ot!er person legall# aut!orized to ma(e t!e transfer6 NoteD No transfer s!all 3e valid4 e5cept as 3etween t!e parties4 until t!e transfer is recorded in t!e 3oo(s of t!e corporation6 ('ec )3) :n stoc( corporation4 t!e num3er of directors s!all not 3e less t!an five nor more t!an 1&6 2s to term6 *o+ s!all !old office for 1 #ear until t!eir successors are elected and ;ualified6 ('ection 23) .ust 3e !eld in t!e cit# or municipalit# w!ere t!e principal office of t!e corporation is located4 and if practica3le in t!e principal office of t!e corporation6 NoteD .etro .anila s!all 3e considered a cit# of municipalit#6 ('ection &1) 2ssets are distri3uted to t!e stoc(!olders of t!e corporation after claims of t!e creditors are

(a+ P'rpo$e$ (Section ??+


Sec. ??. Purposes Non:$toc9 corporation$ ma# 3e formed or organized for c!arita3le4 religious4 educational4 professional4 cultural4 fraternal4 literar#4 scientific4 social4 civic service4 or similar purposes4 li(e trade4 industr#4 agricultural and li(e c!am3ers4 or an# com3ination t!ereof4 su3?ect to t!e special provisions of t!is itle governing particular classes of non1stoc( corporations6 (n)

Stoc9 corporation$ ma# 3e formed or organized for an# purpose as long as it is not contrar# to law6 (>%1"lective Class Reviewer at $$)

(/+ -i$tri/'tion of Inco%e (Section ?5+


Sec. ?5. Definition For t!e purposes of t!is Code4 a non:$toc9 corporation is one w!ere no part of its income is distri3uta3le as dividends to its mem3ers4 trustees4 or officers4 su3?ect to t!e provisions of t!is Code on dissolutionD %rovided4 !at an# profit w!ic! a non1stoc( corporation ma# o3tain as an incident to its operations s!all4 w!enever necessar# or proper4 3e used for t!e furt!erance of t!e purpose or purposes for w!ic! t!e corporation was organized4 su3?ect to t!e provisions of t!is itle6 !e provisions governing stoc( corporation4 w!en pertinent4 s!all 3e applica3le to non1stoc( corporations4 e5cept as ma# 3e covered 3# specific provisions of t!is itle6 (n)

Stoc9 Corporation ma# distri3ute dividends7 t!e *o+ ma# declare dividends out of t!e unrestricted retained earnings w!ic! s!all 3e pa#a3le in cas!4 propert# or stoc(6 (>%1 "lective Class Reviewer at $$)

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2113-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
.em3ers!ip in a non1stoc( corporation and all rig!ts arising t!erefrom are personal and non1transfera3le4 unless t!e articles of incorporation or t!e 3#1laws ot!erwise provide6 (n)

(c+ Scope of ri#ht to "ote (Section ?*+


Sec. ?*. %ight to #ote !e rig!t of t!e mem3ers of an# class or classes to vote ma# 3e limited4 3roadened or denied to t!e e5tent specified in t!e articles of incorporation or t!e 3#1laws6 >nless so limited4 3roadened or denied4 eac! mem3er4 regardless of class4 s!all 3e entitled to one vote6 >nless ot!erwise provided in t!e articles of incorporation or t!e 3#1 laws4 a mem3er ma# vote 3# pro5# in accordance wit! t!e provisions of t!is Code6 (n) Goting 3# mail or ot!er similar means 3# mem3ers of non1stoc( corporations ma# 3e aut!orized 3# t!e 3#1laws of non1stoc( corporations wit! t!e approval of4 and under suc! conditions w!ic! ma# 3e prescri3ed 3#4 t!e 'ecurities and "5c!ange Commission6

:n a stoc( corp4 rig!ts and s!ares are transfera3le6 !e rig!t to vote ma# 3e transferred 3# pro5# or voting trusts6 '!ares of stoc( are personal propert# and ma# 3e transferred 3# deliver# of t!e certificate or certificates endorsed 3# t!e owner or !is attorne#1in1fact or ot!er person legall# aut!orized to ma(e t!e transfer6 NoteD No transfer s!all 3e valid4 e5cept as 3etween t!e parties4 until t!e transfer is recorded in t!e 3oo(s of t!e corporation6 ('ec )3) (>%1 "lective Class Reviewer at $&)

Stoc9 corporation1 No s!are ma# 3e deprived of voting rig!ts e5cept t!ose classified as preferred or redeema3le s!ares6 ('ection ))

(#+ Go"ernin# /oar! n'%/er an! ter% (Section * +


Sec. * . lection and term of trustees >nless ot!erwise provided in t!e articles of incorporation or t!e 3#1 laws4 t!e 3oard of trustees of non1stoc( corporations4 w!ic! ma# 3e more t!an fifteen (1&) in num3er as ma# 3e fi5ed in t!eir articles of incorporation or 3#1laws4 s!all4 as soon as organized4 so classif# t!emselves t!at t!e term of office of one1t!ird (1K3) of t!eir num3er s!all e5pire ever# #ear7 and su3se;uent elections of trustees comprising one1t!ird (1K3) of t!e 3oard of trustees s!all 3e !eld annuall# and trustees so elected s!all !ave a term of t!ree (3) #ears6 rustees t!ereafter elected to fill vacancies occurring 3efore t!e e5piration of a particular term s!all !old office onl# for t!e une5pired period6 No person s!all 3e elected as trustee unless !e is a mem3er of t!e corporation6 >nless ot!erwise provided in t!e articles of incorporation or t!e 3#1 laws4 officers of a non1stoc( corporation ma# 3e directl# elected 3# t!e mem3ers6 (n)

(!+ &otin# /7 proB7 (Section ?*+


Non:$toc9 Corp: 2o: or 3#laws ma# pro!i3it t!e voting 3# pro5# Stoc9 Corp: Goting 3# pro5# is a rig!t o f a stoc(!older6 ('ection 2$)

(e+ &otin# /7 %ai6 (Section ?*+


Non:$toc9 corporation: Goting 3# mail or ot!er similar means ma# 3e aut!orized 3# t!e 3#1laws of t!e non1stoc( corporation wit! t!e approval of and under suc! conditions w!ic! ma# 3e prescri3ed 3# t!e '"C6 Stoc9 corp: Goting 3# mail is not allowed (>%1"lective Class Reviewer at $$)

(f+ Tran$fera/i6it7 of intere$t or %e%/er$hip (Section *A+


Sec. *A. Non,transferability of membership

:n stoc( corporation4 t!e num3er of directors s!all not 3e less t!an five nor more t!an 1&6 2s to term6 *o+ s!all !old office for 1 #ear until t!eir successors are elected and ;ualified6 ('ection 23) (>%1"lective Class Reviewer at $&)

I sweat, I bleed, I soar Service, Sacrifice, Excellence

2113/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
36 2ssets received and !eld 3# t!e corporation su3?ect to limitations permitting t!eir use onl# for c!arita3le4 religious4 3enevolent4 educational or similar purposes4 3ut not !eld upon a condition re;uiring return4 transfer or conve#ance 3# reason of t!e dissolution4 s!all 3e transferred or conve#ed to one or more corporations4 societies or organizations engaged in activities in t!e %!ilippines su3stantiall# similar to t!ose of t!e dissolving corporation according to a plan of distri3ution adopted pursuant to t!is C!apter7 $6 2ssets ot!er t!an t!ose mentioned in t!e preceding paragrap!s4 if an#4 s!all 3e distri3uted in accordance wit! t!e provisions of t!e articles of incorporation or t!e 3#1laws4 to t!e e5tent t!at t!e articles of incorporation or t!e 3#1laws4 determine t!e distri3utive rig!ts of mem3ers4 or an# class or classes of mem3ers4 or provide for distri3ution7 and &6 :n an# ot!er case4 assets ma# 3e distri3uted to suc! persons4 societies4 organizations or corporations4 w!et!er or not organized for profit4 as ma# 3e specified in a plan of distri3ution adopted pursuant to t!is C!apter6 (n)

(h+ E6ection of officer$ (Section * +


Non:$toc9 corp: Officers ma# 3e directl# elected 3# t!e mem3ers unless ot!erwise provided in t!e 2o: or 3#laws6 Stoc9 Corp: Onl# t!e *o+ elect t!e corporate officers (>%1 "lective Class Reviewer at $&)

(i+ P6ace of %eetin#$ (Section *.+


Sec. *.. Place of meetings !e 3#1laws ma# provide t!at t!e mem3ers of a non1stoc( corporation ma# !old t!eir regular or special meetings at an# place even outside t!e place w!ere t!e principal office of t!e corporation is locatedD %rovided4 !at proper notice is sent to all mem3ers indicating t!e date4 time and place of t!e meetingD and %rovided4 furt!er4 !at t!e place of meeting s!all 3e wit!in t!e %!ilippines6 (n)

Stoc9 corp1 .ust 3e !eld in t!e cit# or municipalit# w!ere t!e principal office of t!e corporation is located4 and if practica3le in t!e principal office of t!e corporation6 NoteD .etro .anila s!all 3e considered a cit# of municipalit#6 ('ection &1) (>%1"lective Class Reviewer at $&)

Stoc9 Corp: 2ssets are distri3uted to t!e stoc(!olders of t!e corporation after claims of t!e creditors are satisfied6

(<+ -i$tri/'tion of a$$et$ in ca$e of !i$$o6'tion (Section *)+


Sec. *). %ules of distribution :n case dissolution of a non1stoc( corporation in accordance wit! t!e provisions of t!is Code4 its assets s!all 3e applied and distri3uted as followsD 16 2ll lia3ilities and o3ligations of t!e corporation s!all 3e paid4 satisfied and disc!arged4 or ade;uate provision s!all 3e made t!erefore7 26 2ssets !eld 3# t!e corporation upon a condition re;uiring return4 transfer or conve#ance4 and w!ic! condition occurs 3# reason of t!e dissolution4 s!all 3e returned4 transferred or conve#ed in accordance wit! suc! re;uirements7

11. A!!itiona6 %ateria6, SEC Opinion 6etter@ !ate! Fe/r'ar7 )@ AA. to M$. 1ene!icta 1e66o re Con"er$ion of non:$toc9 e!'cationa6 in$tit'tion into a $toc9 corporation.
SEC Opinion !ate! Fe/r'ar7 )@ AA. Firstl#4 t!e conversion of a non1stoc( educational institution into a stoc( corporation is not 6e#a667 fea$i/6e6 %ursuant to 'ection -, of t!e Corporation Code4 no part of t!e income of a non1stoc( corporation ma# 3e distri3uta3le as dividends to its mem3ers4 trustees or officers6 !us4 t!e Commission !as previousl# ruled t!at a non1stoc( corporation cannot 3e converted in to a stoc( corporation 3# a mere amendment of t!e 2rticles of :ncorporation6 For purposes

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211$0

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

of transformation4 it is fundamental t!at t!e non1stoc( corporation 3e dissolved first under an# of t!e met!ods specified under itled P:G of t!e Corporation Code6 !ereafter4 t!e mem3ers ma# organize as a stoc( corporation directed to 3ring profits or pecuniar# gains to t!emselves6 'econdl#4 in t!e event of dissolution of a non1stoc( corporation suc! as #our sc!ool4 its assets s!all 3e distri3uted in accordance wit! t!e rules as provided for under 'ections /$ and /& of t!e Corporation Code6 >nless4 it is so provided in t!e 2rticles of :ncorporation or *#1 Laws4 t!e mem3ers are not entitled to an# 3eneficial or vested interest over t!e assets of t!e non1stoc( corporation6 :n ot!er words4 non1stoc(4 non1profit corporations !old t!eir funds in trust for t!e carr#ing out of t!e o3?ectives and purposes e5pressed in its c!arter6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211$1

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
d) t!e articles ma# provide t!at if itJs t!e stoc(!olders and not t!e 3oard w!o will manage t!e affairs and t!at t!ere is no need for formal meetings4 if t!e stoc(!olders will 3e t!e directors4 t!en t!e# will 3e su3?ect to t!e same lia3ilities as directors6 For restrictions for t!e transfer of s!ares to 3e 3inding on t!ird parties4 t!e# !ave to appear in t!e articles of incorporation4 in t!e 3#1laws4 and must 3e printed at t!e 3ac( of t!e stoc( certificate6 'o #ou can ?ust put t!ere for e5ample4 su3?ect to t!e restrictions in article 10 of t!e articles of incorporation6 :t is up to t!e prospective 3u#er to loo( into t!e articles to find out w!at are t!ose restrictions6 !e laws sa#s t!at t!e stoc(!olders ma# enter into pre1incorporation agreement 3efore t!e# incorporate4 and t!at pre1incorporation agreement will remain 3inding even after t!e# !ave incorporated 3ecause t!at agreement will la# down t!e modus vivendi after t!e# !ave incorporated6 "5ample4 it could 3e agreed t!at eac! famil# will !ave 3 directors4 t!e president can come from one famil#4 t!e general manager from anot!er famil#4 t!e treasurer from t!e 3rd famil#4 and t!en ever# #ear t!e# will rotate t!e position6 !e# ma# also agree on !ow t!e s!ares will 3e voted6 Li(e 3 directors ma# 3e elected onl# 3# class a s!ares4 3 3# class 34 and 3 3# class c s!ares6 2nd unless t!e 3#1laws provide ot!erwise4 action of t!e directors wit!out need of a meeting will 3e valid if all t!e directors sign a written consent6 Or if t!e stoc(!olders !ave actual or implied (nowledge 3ut do not o3?ect in writing6 Or if t!e directors are used to ta(ing informal action4 or t!e directors all !ave e5press or implied (nowledge of t!e action ta(en and none of t!em o3?ects6 !e law sa#s t!at in close corps64 t!ere is rig!t of pre1emption to call issuances of s!ares even if t!e s!ares !ave 3een issued for propert# or pa#ment for past services or pa#ment to convert de3t to e;uit#6 9!en #ou !ave t!ese close corporations wit! ever#3od# !aving a veto power4 li(e #ou are re;uired 3K$ ma?orit# a t!e ;uorum of t!e 3oard4 3K$ ma?orit# for ;uorum in a stoc(!olders meeting4 #ou could 3e paral#zed 3# inaction6 2nd so t!e law provides for remedies for t!at6 !e '"C can ar3itrate6 :t can cancel or alter an# provision in t!e articles or 3#1law6 !e# can cancel for e5ample t!e greater ;uorum re;uirement6 Or t!e# ma# alter4 pro!i3it or cancel an# resolution or action of t!e corporation4 directors4 stoc(!olders4 or officers6 !e# ma# direct or pro!i3it t!e action ta(en 3# an# one of t!ose mentioned 6 Or it ma# re;uire t!e purc!ase of t!e s!ares of an# stoc(!older 3# t!e corporation or 3# ot!er stoc(!olders even if t!ere are no retained earnings6 :n fact usuall# in a corporation li(e t!is4 itJs advisa3le t!at #ou put a 3u#1out provision6 Qou anticipate6 "ver#3od# !as a rig!t to veto6 QouJJll 3e paral#zed inaction4 and suc! is intolera3le4 t!en #ouJll !ave to put t!ere a 3u#1out provision4 t!at in case #ou !ave t!is

1 . CLOSE CORPORATIONS
)ac*+s Lecture !is is a new title4 made in recognition of t!e fact t!at t!e overw!elming ma?orit# of t!e corporations are famil# corps6 :n man# famil# corporations !ere4 t!e set1up is suc! t!at t!e !us3and is t!e president4 t!e wife is t!e treasurer4 3ut it is t!e wife w!o is actuall# running t!e corp6 !e !us3and is ?ust t!e nominal figure!ead6 "56 esoro @andicraft6 2 close corp6 @as a tec!nical meaning in t!e law6 For it to 3e a close corp64 t!e articles must provide t!at it cannot !ave more t!an 20 stoc(!olders6 !ere s!ould 3e restrictions on t!e transfer of t!e s!ares4 li(e usuall# it will 3e provided t!at if a stoc(!older wants to sell !is s!are4 !e must first offer it to t!e ot!er stoc(!olders6 Onl# if t!e# are not willing to 3u# can !e offer it to an outsider6 Or it ma# also provide t!at if no stoc(!older is willing to 3u# t!e s!ares4 t!en !e must offer it to t!e corporation 3efore offering to an outsider6 !e corporation s!all not 3e listed in an# stoc( e5c!ange6 !e law sa#s t!at t!e mere fact t!at a corp6 is controlled 3# anot!er corp6 does not ma(e it a close corp6 !e articles must contain t!e features mentioned in t!e law6 *ut corps6 engaged in mining4 oil companies4 stoc( e5c!anges4 3an(s4 insurance companies4 pu3lic utilities4 sc!ools4 and corps6 vested wit! pu3lic interest are not allowed to 3e close corps6 *ecause t!e#Jre engaged in lines of 3usiness vested wit! pu3lic interest and so t!e# s!ould 3e su3?ect to regulation and close scrutin#6 !e law sa#s t!e articles ma# provide for classification of s!ares and ;ualifications for owning t!em6 For e5ample4 #ou !ave t!ree 3rot!ers w!o form a close corp6 'o t!e# ma# provideD a) we will classif# t!ese s!ares into class a4 class 34 class c6 Onl# t!e mem3ers of t!e famil# of t!e first 3rot!er can own class a s!ares6 Onl# mem3ers of 2 nd 3rot!er can own class 3 s!ares4 and class c s!ares can 3e owned onl# 3# mem3ers of t!e 3rd 3rot!er7 3) we will !ave nine (/) directors4 and 3 will 3e elected 3# !olders of class a s!ares7 c) can provide for a greater ;uorum or voting re;uirements6 :t can 3e provided t!at #ou will need t!ree fourt!s (3K$) ma?orit# to approve an# action 3# t!e 3oard4 an# action 3# t!e stoc(!older6 9!#L *ecause eac! group would want to 3e protected for ot!erwise if t!e two groups com3ine t!e# can get an#t!ing approved4 li(e t!ere would 3e two t!irds6 2nd so t!e t!ird group would want to 3e protected7

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211$2

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

continuing deadloc( t!en a stoc(!older can demand to 3u# out t!e s!ares of anot!er stoc(!older6 2nd #ou can put t!ere a formula on w!at would 3e t!e valuation4 li(e regarding t!e 3oo( value of somet!ing6 'uppose t!e# cannot agree w!o will 3u# w!om4 t!e# can provide t!at t!e one w!oJs willing to pa# t!e !ig!er price will 3e t!e one w!o will prevail6 Or dissolving t!e corporation4 t!at will 3e an e5treme case7 granting ot!er reliefs as t!e circumstances ma# warrant4 or appointing a provisional director6 !e law sa#s t!at t!e provisional director is supposed to 3e an impartial person4 an outsider w!o is not a stoc(!older or a creditor6 @e will !ave t!e rig!ts of a dul# elected director6 @e can vote6 @eJs t!e tie3rea(er6

1 .1 What are the reI'ire%ent$ for the for%ation of a c6o$e corporationD (Section *4+
Sec. *4. Definition and applicability of 'itle 2 close corporation4 wit!in t!e meaning of t!is Code4 is one w!ose articles of incorporation provide t!atD (1) 2ll t!e corporationJs issued stoc( of all classes4 e5clusive of treasur# s!ares4 s!all 3e !eld of record 3# not more t!an a specified num3er of persons4 not e5ceeding twent# (20)7 (2) all t!e issued stoc( of all classes s!all 3e su3?ect to one or more specified restrictions on transfer permitted 3# t!is itle7 and (3) !e corporation s!all not list in an# stoc( e5c!ange or ma(e an# pu3lic offering of an# of its stoc( of an# class6 Notwit!standing t!e foregoing4 a corporation s!all not 3e deemed a close corporation w!en at least two1t!irds (2K3) of its voting stoc( or voting rig!ts is owned or controlled 3# anot!er corporation w!ic! is not a close corporation wit!in t!e meaning of t!is Code6 2n# corporation ma# 3e incorporated as a close corporation4 e5cept mining or oil companies4 stoc( e5c!anges4 3an(s4 insurance companies4 pu3lic utilities4 educational institutions and corporations declared to 3e vested wit! pu3lic interest in accordance wit! t!e provisions of t!is Code6 !e provisions of t!is itle s!all primaril# govern close corporationsD %rovided4 !at t!e provisions of ot!er itles of t!is Code s!all appl# suppletoril# e5cept insofar as t!is itle ot!erwise provides6

Concept. Convergence of owners!ip and management6 'uperiorit# of contractual intent on proprietar# matters pursued in ?uridical ve!icle6 (CLG) !e concept of a close corporation organized for t!e purpose of running a famil# 3usiness or managing famil# propert# !as formed t!e 3ac(3one of %!ilippine commerce and industr#6 !roug! t!is device4 Filipino families !ave 3een a3le to turn t!eir !um3le4 !ard1earned life savings into going concerns capa3le of providing t!em and t!eir families wit! a modicum of material comfort and financial securit# as a reward for #ears of !ard wor(6 2 famil# corporation s!ould serve as a reward for #ears of !ard wor(6 2 famil# corporation s!ould serve as a rall#ing point for famil# unit# and prosperit#4 not as a flas!point for familial strife6 :t is !oped t!at people reac;uaint t!emselves wit! t!e concepts of mutual aid and securit# t!at are t!e original driving forces 3e!ind t!e formation of famil# corporations and use t!ese tenets in order to facilitate more civil4 if not more amica3le4 settlements of famil# corporate disputes6 <ala v6 "llice 2gro1:ndustrial Corp64 $1- 'CR2 $31 (2003)6 Rationa6e. :mplementing ve!icle of contractual understanding on s!aring of control4 ris(s and 3enefits in t!e 3usiness enterprise6 (CLG) ( 1t$s like an incorporated partnership) 2ac9 Tip, %rovide for a 3u#1out provision wit! valuation6

ReI'ire%ent$ for c6o$e corporation$, (1) !e 2o: must state t!at t!e num3er of stoc(!olders s!all not e5ceed 207 (2) !e 2o: must contain restriction on t!e transfer of issued stoc( (w!ic! must appear in t!e 2o:4 *#1laws and Certificate of 'toc() o Restriction on t!e transfer must not 3e more onerous t!an granting t!e e5isting '@ or corporation t!e option to purc!ase s!ares7 (3) !e stoc(s cannot 3e listed in t!e stoc( e5c!ange nor pu3licl# offered6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211$3

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

Note,

!e corporation is not a close corporation even if t!e s!ares 3elong to less t!an twent# if not all t!e re;uisites are present6 !e t!ree re;uisites must concur6 (=R' at 31-) 2 corporation s!all not 3e deemed a close corporation w!en at least 2K3 of its voting stoc( or voting rig!ts is owned or controlled 3# anot!er corporation w!ic! is not a close corporation6 (>% Class Notes at $))

!ere can 3e classification of directors into one or more classes6 !e 2o: ma# provide t!at all officers of emplo#ees s!all 3e elected 3# t!e '@s No meeting of stoc(!olders need 3e called to elect directors7 unless t!e 3#1laws provide ot!erwise4 an# action 3# t!e director of t!e close corporation wit!out a meeting s!all nevert!eless 3e deemed valid if D 16 *efore or after suc! action is ta(en4 written consent t!ereto is signed 3# all t!e directors7 or 26 2ll t!e stoc(!olders !ave actual or implied (nowledge of t!e action and ma(e no prompt o3?ection t!ereto in writing7 or 36 !e directors are accustomed to ta(e informal action wit! t!e e5press or implied ac;uiescence of all t!e stoc(!olders7 or

!ere are no classification of *o+6 !ere are no classification of *o+6 !e directors or trustees s!all not act individuall# nor separatel# 3ut as a 3od# in a lawful meeting6 'ee 'ections &04&1

Meetin#$

1 . What entitie$ %a7 not /e or#ani0e! a$ a c6o$e corporationD (Section *4+


The fo66o=in# cannot /e a c6o$e corporation, (1) .ining companies7 (2) Oil companies7 (3) 'toc( e5c!anges7 ($) *an(s7 (&) :nsurance companies7 ()) %u3lic >tilit#7 (,) "ducational institutions7 (-) Ot!er corporation declared to 3e vested wit! pu3lic interest6

1 .. -i$tin#'i$h a c6o$e corporation fro% a re#'6ar corporation a$ to,


C6o$e Corporation Mana#e%ent
2o: of close corporation ma# provide t!at t!e 3usiness of t!e corporation s!all /e %ana#e! /7 the SH$ rat!er t!an 3# a 3oard of directors7 unless t!e conte5t clearl# re;uires ot!erwise6 !e '@s s!all 3e deemed to 3e directors for t!e purpose of appl#ing t!e provisions of t!e Code6

Re#'6ar Corporation
1o-

$6 2ll t!e directors !ave e5press or implied (nowledge of t!e action in ;uestion and none of t!em ma(es prompt o3?ection t!ereto in writing

&otin#
'@s are separate and distinct from directors

!e 2o: ma# provide for a classification of directors into one or more classes4 eac! of w!ic! ma# 3e voted for and elected solel# 3# a particular class of stoc(6

No s!are ma# 3e deprived of voting rig!ts4 e5cept preferred and redeema3le s!ares6 !ere s!all alwa#s 3e a classKseries of s!ares w!ic!

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211$$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
!ave CO.%L" " GO :N< R:<@ ' "ac! s!are s!all 3e "]>2L in all respects to ever# s!are unless ot!erwise prvided 3# 2o: For *o+4 t!e 2o: or *#1laws can provide for a greater ma?orit# in ;uorum6 For stoc(!olders4 t!e 2o: can provide for a different percentage in ;uorum6 'ee 'ection &2 !ere are no classification of *o+6 'ee 'ection 2342$

2o: ma# provide for greater voting re;uirements in meetings of '@s or directors t!an t!ose provided 3# t!e Code6

Pre:e%pti"e ri#ht

M'or'%

2o: ma# provide for a greater ;uorum re;uirement in meetings t!an t!ose provided in t!e Code6

"5tends to a66 stoc(s to 3e issued4 including re1issuance of treasur# s!ares4 w!et!er for mone#4 propert#4 or personal services4 or in pa#ment of corporate de3ts4 unless t!e 2O: ot!erwise provides

1oar! A'thorit7

Re$triction$ on tran$fer of $hare$

2o: ma# provide for a classification of directors into one or more classes4 eac! of w!om ma# 3e voted for an elected solel# 3# a particular class of stoc(4 3usiness of corporation ma#3e managed 3# t!e '@s rat!er t!an t!e *o+6 2O: ma# provide for a classification of s!ares or rig!ts and t!e ;ualifications for owning or !olding t!e same and restriction on t!eir transfers as t!e# ma# 3e stated t!erein7 restrictions must appear in t!e 2O: and t!e 3#1laws as well as t!e certificates of stoc(4 ot!erwise4 t!e same s!all not 3e 3inding on a purc!aser in good fait!7 restrictions s!all not 3e more onerous t!an granting t!e e5isting '@' or t!e corporation t!e option to purc!ase t!e s!ares of t!e transferring '@ wit! suc! reasona3le terms4 conditions4 or period stated6 2t t!e end of t!e period4 wit!out t!e '@ or corporation e5ercising t!e option to purc!ase4 t!e transferring '@ ma# sell !is s!ares to pa# t!ird persons

Re$o6'tion !ea!6oc9$

of

With!ra=a6 ri#ht Ar/itration 9!en4 as a result of suc! deadloc( t!e 3usiness and t!e affairs of t!e corporation can no longer 3e conducted to t!e advantage of t!e '@s generall#4 t!e '"C4 upon written petition of an# '@4 s!all !ave t!e power to ar3itrate t!e dispute6 +Ather remedies: appointment of a provisional director by the S6!/ the S6! can compel the purchase or sale of shares/ S6! can dissolve the corporation/ S6! can cancel or alter any provision in the 3A1 or by9lawsJ S6! can cancel/ alter/ or enjoin or prohibit any act or acts or resolution of the 7A8/ S5s/ or officers-

Limitations on t!e e5ercise of t!e pre1emptive rig!tD 16 'uc! pre1emptive rig!t s!all not e5tend to s!ares to 3e issued on compliance wit! laws re;uiring stoc( offerings or minimum stoc( owners!ip 3# t!e pu3lic6 26 '!all not e5tend to s!ares to 3e issued in good fait! wit! t!e '@s approval in e5c!ange or in pa#ment of previousl# contracted de3t6 36 '!all not ta(e effect if denied in t!e 2o: or amendment t!ereto6 'ee 'ection 3/ Apprai$a6 ri#ht

'ee 'ection 10$

(a+ Mana#e%ent (Section *5+


Sec. *5. Articles of incorporation

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211$&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
action and ma(e no prompt o3?ection t!ereto in writing7 or 36 !e directors are accustomed to ta(e informal action wit! t!e e5press or implied ac;uiescence of all t!e stoc(!olders7 or

!e articles of incorporation of a close corporation ma# provideD 16 For a classification of s!ares or rig!ts and t!e ;ualifications for owning or !olding t!e same and restrictions on t!eir transfers as ma# 3e stated t!erein4 su3?ect to t!e provisions of t!e following section7 26 For a classification of directors into one or more classes4 eac! of w!om ma# 3e voted for and elected solel# 3# a particular class of stoc(7 and 36 For a greater ;uorum or voting re;uirements in meetings of stoc(!olders or directors t!an t!ose provided in t!is Code6 The artic6e$ of incorporation of a c6o$e corporation %a7 pro"i!e that the /'$ine$$ of the corporation $ha66 /e %ana#e! /7 the $toc9ho6!er$ of the corporation rather than /7 a /oar! of !irector$. 'o long as t!is provision continues in effectD 16 No meeting of stoc(!olders need 3e called to elect directors7 26 >nless t!e conte5t clearl# re;uires ot!erwise4 t!e stoc(!olders of t!e corporation s!all 3e deemed to 3e directors for t!e purpose of appl#ing t!e provisions of t!is Code7 and 36 !e stoc(!olders of t!e corporation s!all 3e su3?ect to all lia3ilities of directors6

$6 2ll t!e directors !ave e5press or implied (nowledge of t!e action in ;uestion and none of t!em ma(es prompt o3?ection t!ereto in writing6 :f a directorJs meeting is !eld wit!out proper call or notice4 an action ta(en t!erein wit!in t!e corporate powers is deemed ratified 3# a director w!o failed to attend4 unless !e promptl# files !is written o3?ection wit! t!e secretar# of t!e corporation after !aving (nowledge t!ereof6

(c+ &otin# (Section *5+


Sec. *5. Articles of incorporation !e articles of incorporation of a close corporation ma# provideD 16 For a classification of s!ares or rig!ts and t!e ;ualifications for owning or !olding t!e same and restrictions on t!eir transfers as ma# 3e stated t!erein4 su3?ect to t!e provisions of t!e following section7 26 For a classification of directors into one or more classes4 eac! of w!om ma# 3e voted for and elected solel# 3# a particular class of stoc(7 and 36 For a #reater ;uorum or "otin# reI'ire%ent$ in meetings of stoc(!olders or directors t!an t!ose provided in t!is Code6 555 !e articles of incorporation ma# li(ewise provide t!at all officers or emplo#ees or t!at specified officers or emplo#ees s!all 3e elected or appointed 3# t!e stoc(!olders4 instead of 3# t!e 3oard of directors6

The artic6e$ of incorporation %a7 6i9e=i$e pro"i!e that a66 officer$ or e%p6o7ee$ or that $pecifie! officer$ or e%p6o7ee$ $ha66 /e e6ecte! or appointe! /7 the $toc9ho6!er$@ in$tea! of /7 the /oar! of !irector$.

(/+ Meetin#$ (Section 1A1+


Sec. 1A1. 4hen board meeting is unnecessary or improperly held >nless t!e 3#1laws provide ot!erwise4 an# action 3# t!e directors of a close corporation wit!out a meeting s!all nevert!eless 3e deemed valid ifD 16 *efore or after suc! action is ta(en4 written consent t!ereto is signed 3# all t!e directors7 or 26 2ll t!e stoc(!olders !ave actual or implied (nowledge of t!e

(!+ M'or'% (Section *5+


Sec. *5. Articles of incorporation !e articles of incorporation of a close corporation ma# provideD

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211$)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

555 36 For a #reater I'or'% or voting re;uirements in meetings of stoc(!olders or directors t!an t!ose provided in t!is Code6

(#+ Pre:e%pti"e Ri#ht (Section 1A +


Sec. 1A . Pre,empti#e right in close corporations !e pre1emptive rig!t of stoc(!olders in close corporations s!all e5tend to all stoc( to 3e issued4 including reissuance of treasur# s!ares4 w!et!er for mone#4 propert# or personal services4 or in pa#ment of corporate de3ts4 unless t!e articles of incorporation provide ot!erwise6

(e+ 1oar! A'thorit7 (Section *5+


Sec. *5. Articles of incorporation 555 !e articles of incorporation of a close corporation ma# provide t!at t!e 3usiness of t!e corporation s!all 3e managed 3# t!e stoc(!olders of t!e corporation rat!er t!an 3# a 3oard of directors6 'o long as t!is provision continues in effectD 16 No meeting of stoc(!olders need 3e called to elect directors7 26 >nless t!e conte5t clearl# re;uires ot!erwise4 t!e stoc(!olders of t!e corporation s!all 3e deemed to 3e directors for t!e purpose of appl#ing t!e provisions of t!is Code7 and 36 !e stoc(!olders of t!e corporation s!all 3e su3?ect to all lia3ilities of directors6

(h+ Re$o6'tion of !ea!6oc9$ (Section 1A)+


Sec. 1A). Deadloc*s Notwit!standing an# contrar# provision in t!e articles of incorporation or 3#1laws or agreement of stoc(!olders of a close corporation4 if t!e directors or stoc(!olders are so divided respecting t!e management of t!e corporationJs 3usiness and affairs t!at t!e votes re;uired for an# corporate action cannot 3e o3tained4 wit! t!e conse;uence t!at t!e 3usiness and affairs of t!e corporation can no longer 3e conducted to t!e advantage of t!e stoc(!olders generall#4 t!e 'ecurities and "5c!ange Commission4 upon written petition 3# an# stoc(!older4 s!all !ave t!e power to ar3itrate t!e dispute6 :n t!e e5ercise of suc! power4 t!e Commission s!all !ave aut!orit# to ma(e suc! order as it deems appropriate4 including an orderD (1) canceling or altering an# provision contained in t!e articles of incorporation4 3#1 laws4 or an# stoc(!olderJs agreement7 (2) canceling4 altering or en?oining an# resolution or act of t!e corporation or its 3oard of directors4 stoc(!olders4 or officers7 (3) directing or pro!i3iting an# act of t!e corporation or its 3oard of directors4 stoc(!olders4 officers4 or ot!er persons part# to t!e action7 ($) re;uiring t!e purc!ase at t!eir fair value of s!ares of an# stoc(!older4 eit!er 3# t!e corporation regardless of t!e availa3ilit# of unrestricted retained earnings in its 3oo(s4 or 3# t!e ot!er stoc(!olders7 (&) appointing a provisional director7 ()) dissolving t!e corporation7 or (,) granting suc! ot!er relief as t!e circumstances ma# warrant6 2 provisional director s!all 3e an impartial person w!o is neit!er a stoc(!older nor a creditor of t!e corporation or of an# su3sidiar# or affiliate of t!e corporation4 and w!ose furt!er ;ualifications4 if an#4 ma# 3e determined 3# t!e Commission6 2 provisional director is not a receiver of t!e corporation and does not !ave t!e title and powers of

!e articles of incorporation ma# li(ewise provide t!at all officers or emplo#ees or t!at specified officers or emplo#ees s!all 3e elected or appointed 3# t!e stoc(!olders4 instead of 3# t!e 3oard of directors6

(f+ Re$triction$ on tran$fer of $hare$ (Section *?+


Sec. *?. Validity of restrictions on transfer of shares Restrictions on t!e rig!t to transfer s!ares must appear in t!e articles of incorporation and in t!e 3#1laws as well as in t!e certificate of stoc(7 ot!erwise4 t!e same s!all not 3e 3inding on an# purc!aser t!ereof in good fait!6 'aid restrictions s!all not 3e more onerous t!an granting t!e e5isting stoc(!olders or t!e corporation t!e option to purc!ase t!e s!ares of t!e transferring stoc(!older wit! suc! reasona3le terms4 conditions or period stated t!erein6 :f upon t!e e5piration of said period4 t!e e5isting stoc(!olders or t!e corporation fails to e5ercise t!e option to purc!ase4 t!e transferring stoc(!older ma# sell !is s!ares to an# t!ird person6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211$,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
purc!ase !is s!ares at t!eir fair value4 w!ic! s!all not 3e less t!an t!eir par or issued value4 w!en t!e corporation !as sufficient assets in its 3oo(s to cover its de3ts and lia3ilities e5clusive of capital stoc(D %rovided4 !at an# stoc(!older of a close corporation ma#4 3# written petition to t!e 'ecurities and "5c!ange Commission4 co%pe6 the !i$$o6'tion of suc! corporation w!enever an# of acts of t!e directors4 officers or t!ose in control of t!e corporation is illegal4 or fraudulent4 or dis!onest4 or oppressive or unfairl# pre?udicial to t!e corporation or an# stoc(!older4 or w!enever corporate assets are 3eing misapplied or wasted6
UP Class Notes 3ppraisal right in regular corporations can be opted by the dissenting stockholder only in cases where the fundamental change in the corporate structure or operations is involved/ whereas a S5 of a close corporation may/ for any reason/ compel the said corporation to purchase his shares at their par value/ when the corporation has sufficient assets in its books to cover his debts and liabilities e,clusive of capital stock. +1n 3ppraisal ight/ fair value of shares is given but in .ithdrawal ight/ the fair value given cannot be less than the par or issued value of the sharesJ 1n 3ppraisal ight/ there must be present unrestricted retained earnings in the books of the corporation-

a custodian or receiver6 2 provisional director s!all !ave all t!e rig!ts and powers of a dul# elected director of t!e corporation4 including t!e rig!t to notice of and to vote at meetings of directors4 until suc! time as !e s!all 3e removed 3# order of t!e Commission or 3# all t!e stoc(!olders6 @is compensation s!all 3e determined 3# agreement 3etween !im and t!e corporation su3?ect to approval of t!e Commission4 w!ic! ma# fi5 !is compensation in t!e a3sence of agreement or in t!e event of disagreement 3etween t!e provisional director and t!e corporation6

:n case of irreconcila3le disputes among t!e directors or s!are!olders4 t!e '"C ma# 3e as(ed to intervene and t!e '"C ma# perform suc! action t!at ma# 3e necessar# under t!e circumstances including t!e appointment of a provisional director w!o4 as an impartial person will !ave all t!e powers of a dul# elected director (not a receiver)6 (=R' at 31/)

1 .) What i$ a pro"i$iona6 !irectorD (Section 1A)+


2 provisional director is an impartial person w!o is neit!er a stoc(!older nor a creditor of t!e corporation or of an# su3sidiar# or affiliate of t!e corporation4 w!ose furt!er ;ualifications4 if an# ma#3e determined 3# t!e '"C7 !e is not a receiver and does not !ave t!e title and powers of a custodian or receiver 3ut rat!er !as all t!e powers of a dul# elected director6 @e8s a tie13rea(er6 (=ac()

1 .4 Ca$e
San 2'an Str'ct'ra6 an! Stee6 Fa/ricator$ ". CA (1**?+ !e corporation is not a close corporation even if t!e s!ares 3elong to less t!an twent# if not all t!e re;uisites are present6

1 .3 Co%pare the apprai$a6 ri#ht of a $toc9ho6!er of a re#'6ar corporation =ith the =ith!ra=a6 ri#ht of a $toc9ho6!er of a c6o$e corporation (Section 1A3+
Sec. 1A3. 4ithdra(al corporation of stoc*holder or dissolution of :n addition and wit!out pre?udice to ot!er rig!ts and remedies availa3le to a stoc(!older under t!is itle4 an# stoc(!older of a close corporation ma#4 for an7 rea$on4 compel t!e said corporation to

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211$-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
>nless ot!erwise provided in t!e articles of incorporation on t!e 3#1 laws4 t!e 3oard of trustees of incorporated sc!ools4 colleges4 or ot!er institutions of learning s!all4 as soon as organized4 so classif# t!emselves t!at t!e term of office of one1fift! (1K&) of t!eir num3er s!all e5pire ever# #ear6 rustees t!ereafter elected to fill vacancies4 occurring 3efore t!e e5piration of a particular term4 s!all !old office onl# for t!e une5pired period6 rustees elected t!ereafter to fill vacancies caused 3# e5piration of term s!all !old office for five (&) #ears6 2 ma?orit# of t!e trustees s!all constitute a ;uorum for t!e transaction of 3usiness6 !e powers and aut!orit# of trustees s!all 3e defined in t!e 3#1laws6 For institutions organized as stoc( corporations4 t!e num3er and term of directors s!all 3e governed 3# t!e provisions on stoc( corporations6 (1)/a)

1. . E-UCATIONAL CORPORATIONS
Jacks Lecture 0or educational corporations# where the trustees should be di'ided into multiples o( (i'e So you should ha'e (i'e# ten# or (i(teen trustees i( they are organized as non) stoc1 corporation And unless otherwise pro'ided in the articles o( incorporation or by)laws# the terms o( the trustees should be (i'e years# and e'ery year only one (i(th +!23- is elected# again to pro'ide (or continuity in policies 4ut you can pro'ide that they will all be elected instead (or a term o( one year# so e'ery year# e'erybody has to be elected

1..1 Incorporation (Section 1A4+


Sec. 1A4. Incorporation "ducational corporations s!all 3e governed 3# special laws and 3# t!e general provisions of t!is Code6 (n)

1.. Pre:reI'i$ite$ to incorporation (Section 1A5+


Sec. 1A5. Pre,re-uisites to incorporation "5cept upon favora3le recommendation of t!e .inistr# of "ducation and Culture4 t!e 'ecurities and "5c!ange Commission s!all not accept or approve t!e articles of incorporation and 3#1laws of an# educational institution6 (1)-a)

1... 1oar! of Tr'$tee$ (Section 1A?+


Sec. 1A?. .oard of trustees rustees of educational institutions organized as non1stoc( corporations s!all not 3e less t!an five (&) nor more t!an fifteen (1&)D %rovided4 !owever4 !at t!e num3er of trustees s!all 3e in multiples of five (&)6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211$/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
order or societ# and t!at at least 2K3 of t!e mem3ers !ave agreed to incorporate4 t!at t!e rules allow t!em to incorporate t!e# desire to incorporate to manage t!eir properties in t!e place w!ere located6 !e recollects are incorporated to manage t!eir properties4 t!e# are t!e single 3iggest 3loc of stoc(!older of 'an .iguel Corporation6

1). RELIGIOUS CORPORATIONS


)ac*+s Lecture !ere are t!ree (3) wa#s 3# w!ic! a religious organization can provide for t!e administration of its propertiesD 16 3# forming a non1stoc( corporation 26 3# corporation sole 36 3# religious aggregate or societ# Corporation sole ma# constitute of one person onl# so t!e !ead of a religious sect would incorporate !imself for t!e purpose of administering t!e properties of a religious sect6 o incorporate w!at #ou will file wit! t!e '"C is an affidavit6 !e affidavit will state t!at t!e affiant is t!e !ead of a religious denomination or sect and would want to 3ecome a corporation sole6 and t!e rules of !is religion allow !im to incorporate as a corporation sole and t!at !e is c!arged wit! t!e administration of its properties and in fact !e will 3e re;uired to su3mit an inventor# and t!e manner in w!ic! t!e successor will 3e c!osen and t!e place w!ere !e will !old !is office6 !e Roman Cat!olic 2rc!3is!op of .anila is a corporation sole so if Cardinal 'in dies t!e new arc!3is!op will simpl# su3mit !is appointment and !e need not incorporate again 3ecause t!e corporation is different from t!e occupant of t!e position6 !e :glesia ni Eristo is incorporated as a corporation sole6 !e court !as !eld in oman !atholic 3postolic 3dm. of 8avao/ 1nc. v. "and egistration !ommission t!at alt!oug! t!e *is!op was a foreigner4 !e could register a parcel of land in !is name 3ecause !e is a mere administrator t!e propert# reall# 3elongs to t!e fait!ful and since t!e# are Filipinos t!e# could register t!e land in t!e administrator8s name6 >nder t!e law if a corporation sole wants to dispose of or mortgage real propert#4 !e !as to get aut!orization from t!e Regional rial Court unless t!e rules of t!e religious sect allow !im to dispose of or mortgage real propert# and t!at is usuall# t!e case6 !e last is t!e religious aggregate or religious societ#6 :t can incorporate for t!e purpose of managing its properties and t!e articles would indicate t!at t!e mem3ers constitute a religious

1).1 C6a$$e$ of re6i#io'$ corporation$ (Section 1A*+


Sec. 1A*. Classes of religious corporations Religious corporations ma# 3e incorporated 3# one or more persons6 'uc! corporations ma# 3e classified into corporations sole and religious societies6 Religious corporations s!all 3e governed 3# t!is C!apter and 3# t!e general provisions on non1stoc( corporations insofar as t!e# ma# 3e applica3le6 (n)

(a+ Corporation So6e


Corporation $o6e is a special form of corporation usuall# associated wit! t!e clerg# and consists of one person onl# and !is successors4 w!o are incorporated 3# law to give some legal capacities and advantages7 Nationa6it7 2 corporation sole does not !ave an# nationalit# 3ut for purposes of appl#ing our nationalization laws4 nationalit# is determined not 3# t!e nationalit# of its !ead 3ut 3# t!e nationalit# of t!e mem3ers constituting t!e sect in t!e %!ilippines even if it is !eaded 3# t!e %ope6 (Roman Cat!olic 2postolic C!urc! v6 LRC4 1/&,) Effect of Separation of Me%/er$. .em3ers of t!e sect w!o left and w!o formed a separate religious group are not entitled to an# rig!t to vote over t!e properties of t!eir former sect6 (Canete v6 C24 1/-/) -i$$o6'tion. *# filing a verified declaration of dissolution6 (=R' at 323)

(i+ Who %a7 for% an! for =hat p'rpo$e (Section 11A+

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211&0

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
Sec. 11 . &ubmission of the articles of incorporation !e articles of incorporation must 3e verified4 3efore filing4 3# affidavit or affirmation of t!e c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder4 as t!e case ma# 3e4 and accompanied 3# a cop# of t!e commission4 certificate of election or letter of appointment of suc! c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder4 dul# certified to 3e correct 3# an# notar# pu3lic6 From and after t!e filing wit! t!e 'ecurities and "5c!ange Commission of t!e said articles of incorporation4 verified 3# affidavit or affirmation4 and accompanied 3# t!e documents mentioned in t!e preceding paragrap!4 suc! c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder s!all 3ecome a corporation sole and all temporalities4 estate and properties of t!e religious denomination4 sect or c!urc! t!eretofore administered or managed 3# !im as suc! c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder s!all 3e !eld in trust 3# !im as a corporation sole4 for t!e use4 purpose4 3e!alf and sole 3enefit of !is religious denomination4 sect or c!urc!4 including !ospitals4 sc!ools4 colleges4 orp!an as#lums4 parsonages and cemeteries t!ereof6 (n)

Sec. 11A. Corporation sole For t!e purpose of administering and managing4 as trustee4 t!e affairs4 propert# and temporalities of an# religious denomination4 sect or c!urc!4 a corporation sole ma# 3e formed 3# t!e c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or ot!er presiding elder of suc! religious denomination4 sect or c!urc!6 (1&$a)

(ii+ Ho= for%e! (Section 111 an! Section 11 +


Sec. 111. Articles of incorporation :n order to 3ecome a corporation sole4 t!e c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder of an# religious denomination4 sect or c!urc! must file wit! t!e 'ecurities and "5c!ange Commission articles of incorporation setting fort! t!e followingD 16 !at !e is t!e c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder of !is religious denomination4 sect or c!urc! and t!at !e desires to 3ecome a corporation sole7 26 !at t!e rules4 regulations and discipline of !is religious denomination4 sect or c!urc! are not inconsistent wit! !is 3ecoming a corporation sole and do not for3id it7

(iii+ Nee! for /7:6a=$


No need for 3#1laws since t!e 3usiness is conducted 3# onl# one man6

36 !at as suc! c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder4 !e is c!arged wit! t!e administration of t!e temporalities and t!e management of t!e affairs4 estate and properties of !is religious denomination4 sect or c!urc! wit!in !is territorial ?urisdiction4 descri3ing suc! territorial ?urisdiction7 $6 !e manner in w!ic! an# vacanc# occurring in t!e office of c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i of presiding elder is re;uired to 3e filled4 according to t!e rules4 regulations or discipline of t!e religious denomination4 sect or c!urc! to w!ic! !e 3elongs7 and &6 !e place w!ere t!e principal office of t!e corporation sole is to 3e esta3lis!ed and located4 w!ic! place must 3e wit!in t!e %!ilippines6 !e articles of incorporation ma# include an# ot!er provision not contrar# to law for t!e regulation of t!e affairs of t!e corporation6 (n)

(i"+ Po=er to acI'ire an! a6ienate propert7 (Section 11.+


Sec. 11.. Ac-uisition and alienation of property 2n# corporation sole ma# purc!ase and !old real estate and personal propert# for its c!urc!4 c!arita3le4 3enevolent or educational purposes4 and ma# receive 3e;uests or gifts for suc! purposes6 'uc! corporation ma# sell or mortgage real propert# !eld 3# it 3# o3taining an order for t!at purpose from t!e Court of First :nstance of t!e province w!ere t!e propert# is situated upon proof made to t!e satisfaction of t!e court t!at notice of t!e application for leave to sell or mortgage !as 3een given 3# pu3lication or ot!erwise in suc! manner and for suc! time as said court ma# !ave directed4 and t!at it is to t!e interest of t!e corporation t!at leave to sell or mortgage

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211&1

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
!e declaration of dissolution s!all set fort!D 16 !e name of t!e corporation7 26 !e reason for dissolution and winding up7 36 !e aut!orization for t!e dissolution of t!e corporation 3# t!e particular religious denomination4 sect or c!urc!7 $6 !e names and addresses of t!e persons w!o are to supervise t!e winding up of t!e affairs of t!e corporation6 >pon approval of suc! declaration of dissolution 3# t!e 'ecurities and "5c!ange Commission4 t!e corporation s!all cease to carr# on its operations e5cept for t!e purpose of winding up its affairs6 (n)

s!ould 3e granted6 !e application for leave to sell or mortgage must 3e made 3# petition4 dul# verified4 3# t!e c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder acting as corporation sole4 and ma# 3e opposed 3# an# mem3er of t!e religious denomination4 sect or c!urc! represented 3# t!e corporation soleD %rovided4 !at in cases w!ere t!e rules4 regulations and discipline of t!e religious denomination4 sect or c!urc!4 religious societ# or order concerned represented 3# suc! corporation sole regulate t!e met!od of ac;uiring4 !olding4 selling and mortgaging real estate and personal propert#4 suc! rules4 regulations and discipline s!all control4 and t!e intervention of t!e courts s!all not 3e necessar#6 (1&/a)

("+ Fi66in# of "acancie$ (Section 11)+


Sec. 11). /illing of #acancies !e successors in office of an# c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder in a corporation sole s!all 3ecome t!e corporation sole on t!eir accession to office and s!all 3e permitted to transact 3usiness as suc! on t!e filing wit! t!e 'ecurities and "5c!ange Commission of a cop# of t!eir commission4 certificate of election4 or letters of appointment4 dul# certified 3# an# notar# pu3lic6 +uring an# vacanc# in t!e office of c!ief arc!3is!op4 3is!op4 priest4 minister4 ra33i or presiding elder of an# religious denomination4 sect or c!urc! incorporated as a corporation sole4 t!e person or persons aut!orized and empowered 3# t!e rules4 regulations or discipline of t!e religious denomination4 sect or c!urc! represented 3# t!e corporation sole to administer t!e temporalities and manage t!e affairs4 estate and properties of t!e corporation sole during t!e vacanc# s!all e5ercise all t!e powers and aut!orit# of t!e corporation sole during suc! vacanc#6 (1&-a)

(/+ Re6i#io'$ $ocietie$ or corporation$ a##re#ate (Section 114+


Sec. 114. %eligious societies 2n# religious societ# or religious order4 or an# diocese4 s#nod4 or district organization of an# religious denomination4 sect or c!urc!4 unless for3idden 3# t!e constitution4 rules4 regulations4 or discipline of t!e religious denomination4 sect or c!urc! of w!ic! it is a part4 or 3# competent aut!orit#4 ma#4 upon written consent andKor 3# an affirmative vote at a meeting called for t!e purpose of at least two1 t!irds (2K3) of its mem3ers!ip4 incorporate for t!e administration of its temporalities or for t!e management of its affairs4 properties and estate 3# filing wit! t!e 'ecurities and "5c!ange Commission4 articles of incorporation verified 3# t!e affidavit of t!e presiding elder4 secretar#4 or cler( or ot!er mem3er of suc! religious societ# or religious order4 or diocese4 s#nod4 or district organization of t!e religious denomination4 sect or c!urc!4 setting fort! t!e followingD 16 !at t!e religious societ# or religious order4 or diocese4 s#nod4 or district organization is a religious organization of a religious denomination4 sect or c!urc!7 26 !at at least two1t!irds (2K3) of its mem3ers!ip !ave given t!eir written consent or !ave voted to incorporate4 at a dul# convened meeting of t!e 3od#7

("i+ -i$$o6'tion (Section 113+


Sec. 113. Dissolution 2 corporation sole ma# 3e dissolved and its affairs settled voluntaril# 3# su3mitting to t!e 'ecurities and "5c!ange Commission a verified declaration of dissolution6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211&2

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
provide for a term of e5istence of religious corporations4 w!et!er classified as a corporation sole or a corporation aggregate6 2s suc!4 t!e law intends t!at religious organizations ma# e5ist perpetuall# ('"C Opinion dated +ec6 104 1/-1)6 .oreover4 w!ere t!e 2rticles of :ncorporation does not provide for a term of e5istence4 it s!all 3e understood t!at t!e intention is for t!e corporation to e5ist for an indefinite period ('"C Opinion dated Oct6 234 1//&)

36 !at t!e incorporation of t!e religious societ# or religious order4 or diocese4 s#nod4 or district organization desiring to incorporate is not for3idden 3# competent aut!orit# or 3# t!e constitution4 rules4 regulations or discipline of t!e religious denomination4 sect4 or c!urc! of w!ic! it forms a part7 $6 !at t!e religious societ# or religious order4 or diocese4 s#nod4 or district organization desires to incorporate for t!e administration of its affairs4 properties and estate7 &6 !e place w!ere t!e principal office of t!e corporation is to 3e esta3lis!ed and located4 w!ic! place must 3e wit!in t!e %!ilippines7 and )6 !e names4 nationalities4 and residences of t!e trustees elected 3# t!e religious societ# or religious order4 or t!e diocese4 s#nod4 or district organization to serve for t!e first #ear or suc! ot!er period as ma# 3e prescri3ed 3# t!e laws of t!e religious societ# or religious order4 or of t!e diocese4 s#nod4 or district organization4 t!e 3oard of trustees to 3e not less t!an five (&) nor more t!an fifteen (1&)6 (1)0a)

1). Ca$e
Lon# ". 1a$a ( AA1+ 'ince in matters purel# ecclesiastical t!e decisions of t!e proper c!urc! tri3unals are conclusive upon t!e civil tri3unals4 t!en a c!urc! mem3er w!o is e5pelled from t!e mem3ers!ip 3# t!e c!urc! aut!orities4 or a priest or minister w!o is 3# t!em deprived of !is sacred office4 is wit!out remed# in t!e civil courts6 Long v6 *asa4 3)) 'CR2 113 (2001)6

1).. A!!itiona6 Materia6, SEC Opinion No. A):)3@ No". ?@ AA) to Ferrer an! Ferrer La= Office re ter% of eBi$tence of re6i#io'$ corporation.
SEC Opinion No. A):)3@ (No". ?@ AA)+ Re, Ter% of EBi$tence of Re6i#io'$ Corporation$ 'ection 11) (as well as 'ec6 1)0 of t!e former Corporation Law) does not

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211&3

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA 2 3oard resolution to dissolve t!e corporation does not operate to so dissolve t!e ?uridical entit#6 For dissolution to 3e effective BNtO!e re;uirements mandated 3# t!e Corporation Code s!ould !ave 3een strictl# complied wit!6C Gesagas v6 Court of 2ppeals4 3,1 'CR2 &0/4 &1) (2002)6 2 corporation cannot e5tend its life 3# amendment of its articles of incorporation effected during t!e t!ree1#ear statutor# period for li;uidation w!en its original term of e5istence !ad alread# e5pired4 as t!e same would constitute new 3usiness6 2l!am3ra Cigar W Cigarette .anufacturing Compan#4 :nc6 v6 '"C4 2$ 'CR2 2)/ (1/)-)6 9!en t!e period of corporate life e5pires4 t!e corporation ceases to 3e a 3od# corporate for t!e purpose of continuing t!e 3usiness for w!ic! it was organized6 %N* v6 Court of First :nstance of Rizal4 %asig4 *r6 PP:4 20/ 'CR2 2/$ (1//2)6
)ac*+s Lecture -ISSOLUTION !ere are different wa#s to dissolve a corporation one is voluntaril# and t!e ot!er involuntaril#4 under t!e law t!ere are t!ree provisions governing voluntar# dissolution6 !e first one is if no creditors are affected6 :n all t!e met!ods of voluntar# dissolution4 #ou need a resolution approved 3# a ma?orit# of directors and a resolution approved 3# at least 2K3 of t!e stoc(!olders :n 'ection 11-4 w!ere no creditors are affected t!e directors and t!e stoc(!olders pass t!e resolution dissolving t!e corporation and t!at will 3e filed in t!e '"C for approval6 :n a case w!ere a suit was filed and t!e corporation said4 we !ave alread# 3een dissolved and t!e# su3mitted a 3oard resolution4 t!e 'C !eld t!at it is not enoug! to dissolve a corporation6 !e 'econd one4 is under 'ection 11/ w!ere creditors are affected6 @ere t!e 3oard and t!e stoc(!olders will approve t!e dissolution 3ut a petition will 3e filed signed 3# t!e ma?orit# of t!e directors and verified 3# t!e president4 secretar# or one of t!e directors w!ic! will indicate t!e claims of creditors6 !at will 3e set for !earing and not less t!an t!irt# (30) da#s nor more t!an si5t# ()0) da#s after t!e entr# of t!e issuance of t!e order and a cop# of t!e order will 3e pu3lis!ed once a wee( for t!ree consecutive wee(s in a newspaper of general circulation and t!at will also 3e posted for t!ree wee(s in t!ree pu3lic places li(e t!e

13. -ISSOLUTION
-i$$o6'tion of a corporation is t!e e5tinguis!ment of t!e franc!ise of a corporation and termination of its corporate e5istence6 Mo!e$ of -i$$o6'tion, (1) Goluntar# +issolution (2) :nvoluntar# +issolution (3) '!ortening of term7 and ($) "5piration of term (=R' at 311) (&) Failure to organize and commence 3usiness wit!in two #ears from t!e date of issuance of certificate of incorporation7 ()) Legislative +issolution (CLG8s CLR at /3)) Effect$ of -i$$o6'tion, (1) ransfer of Legal title to corporate propert#7 (2) !e corporation ceases as a 3od# corporate to continue t!e 3usiness for w!ic! it was esta3lis!ed7 (3) Continuation of a 3od# corporation (t!e corporation continues as a 3od# corporate for 3 #ears for purposes of winding up or li;uidation) ($) 2fter t!e e5piration of t!e 3 #ear winding up period4 t!e corporation ceases to e5ist for all purposes6 (=R' at 31$)6 !e termination of t!e life of a ?uridical entit# does not 3# itself cause t!e e5tinction or diminution of t!e rig!ts and lia3ilit# of suc! entit#4 since it is allowed to continue as a ?uridical entit# for 3 #ears for t!e purpose of prosecuting and defending suits 3# or against it and ena3ling it to settle and close its affairs4 to dispose of and conve# its propert#4 and to distri3ute its assets6 Repu3lic v6 ancinco4 3/$ 'CR2 3-) (2002)6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211&$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
going to dissolve a corporation 3ecause t!at is a legal re;uirementL :t !as to 3e a serious violationS *ut in one case4 t!e 'C dissolved a corporation w!ic! was engaging in 3an(ing wit!out aut!orization from t!e monetar# 3oard4 it was accepting deposits from t!e pu3lic4 t!e court considered t!at as a serious violation6 9!en a minorit# stoc(!older files a case and as(s to dissolve t!e corporation4 t!e court said t!at t!at is a !ars! remed# unless t!e situation is reall# 3e#ond redemption #ou s!ould not impose t!at remed#6 !e corporation !as t!ree #ears after it s!ould !ave 3een dissolved for t!e purpose of winding up its affairs6 !e '"C !as said t!e t!ree #ear period s!ould 3e counted from t!e time t!e dissolution was approved 3# t!e '"C even if t!e directors and stoc(!olders pass a resolution dissolving t!e corporation t!at is not effective until it !as 3een approved 3# t!e '"C6 For t!ree #ears 4 t!e corporation will continue to e5ist it will no longer 3e a going concern 3ut onl# for t!e purpose of winding up t!at is w!# t!e 'C !as said t!at t!e corporation cannot for e5ample renew its contract of lease 3ecause it is no longer a going concern6 +uring t!e t!ree #ear period4 it s!ould devote its time prosecuting and defending law suits4 winding up its affairs disposing its properties so t!e# can 3e used to pa# off its creditors and to distri3ute 3alance to t!e stoc(!olders6 !ere are two wa#s of providing for t!e winding up of its affairs under t!e law6 !is is voluntar# eit!er t!e directors t!emselves ma# ta(e care of winding up t!e affairs of t!e corporation or t!e# ma# appoint a trustee li(e w!en Ford %!ilippines decided to close its su3sidiar# !ere one of t!e last acts of t!e *O+ was to pass a resolution appointing Ricardo Romulo as trustee vesting upon !im legal title to all t!e assets of Ford %!ilippines to 3e used to pa# off its creditors and to dispose of its properties of Ford %!ilippines6 to distri3ute t!e 3alance as li;uidating dividends6 'upposed to 3e4 t!is was t!e rule /efore if an# case is not finis!ed wit!in t!e t!ree #ear period4 t!e case will 3e a3ated w!et!er t!e corporation is plaintiff or w!et!er it is defendant 3ut recent ?urisprudence !as rendered t!at o3solete6 !at rule is applica3le if it is t!e directors winding up t!e corporation6 if t!e corporation is under receivers!ip4 it is t!e receiver w!o ma# wind up t!e affair of t!e corporation6 *ut if it is t!e trustee4 t!at will not appl#4 t!e trust will su3sist until t!e affairs of t!e corporation are

3ulletin 3oard of a municipal !all4 post office4 t!e plaza and t!en t!e '"C will set t!at for !earing and determine wKn t!e corporation s!ould 3e dissolved6 !e t!ird one #ou will ?ust s!orten t!e corporate life and t!is is t!e simplest and fastest wa# of dissolving t!e corporation voluntaril# li(e w!en Ford %!ilippines decided to close its su3sidiar# t!e# simpl# amended t!e articles of corporation t!at t!e corporation will e5ist until +ecem3er 314 1/,-6 !e '"C will re;uire to get a ta5 clearance from t!e *:R and t!e stoc(!olders will 3e re;uired to sign an underta(ing t!at t!e# will answer for t!e claim of t!e creditors to t!e e5tent of t!e li;uidating dividends t!e# will receive6 !en #ou can !ave a involuntar# dissolution6 !is could 3e done 3# filing a ;uo warranto case under rule )) of t!e ROC on t!e ground mentioned t!ere or a corporation can 3e dissolved for certain violation of t!e corporation code as mentioned in t!e Corporation Code or %+ /0212 and also a minorit# stoc(!older ma# file a petition to dissolve t!e corporation w!ere t!e ma?orit# is mismanaging t!e assets of t!e corporation4 dissipating its assets4 and fraudulentl# disposing of its properties and a receiver ma# 3e appointed in an action for involuntar# dissolution6 !e 'C !eld in t!e leading case of 6l 5ogar @ilipino/ F< Phil. K==+;=:D) t!e first corporation organized under t!e Corporation 2ct4 t!e government filed a case to dissolve t!at corporation and invo(ed 1, grounds4 t!e 'C denied t!e petition6 *uilding and loans association li(e 3an(s are re;uired to dispose of wit!in & #ears of an# properties t!e# foreclosed t!e# disposed of t!e properties after ) #ears 3ut t!e# e5erted t!eir 3est efforts4 t!e# !ired real estate 3ro(ers4 t!e# advertised in newspapers 3ut t!e# ?ust could not find 3u#ers4 t!e# ac;uired t!is land and 3uilding4 t!e 'C !eld t!at it is not illegal4 t!at t!e# leased t!e space t!at t!e# did not need for t!eir office4 t!at is not illegal t!e# are ma5imizing t!eir propert#4 t!at t!e# provide a provision in t!e 3#1laws t!at stoc(!olders can 3e compelled to surrender t!eir s!ares4 to 3e 3oug!t out well t!e court said t!at t!at is void 3ut t!at is not sufficient ground to dissolve t!e corporation6 In other =or!$ the co'rt i$ $a7in# that 7o' !o not !i$$o6"e a corporation for e"er7 infraction@ the infraction %'$t /e $erio'$@ /eca'$e !i$$o6'tion i$ i%po$in# the !eath pena6t7 'pon the corporation. !e Court said t!e emplo#ees of a railroad are re;uired to wear uniform indicating t!eir positions in t!eir nameplate4 now tell me if one emplo#ee did not !ave suc! a nameplate #ou are

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211&&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

wound up and until an# creditor can sue t!e trustee provided t!at t!e applica3le prescriptive period !as not #et lapsed6 'o if !is cause of action is 3ased on a written contract !e !as ten (10) #ears to sue t!e trustee6 !e Court !as said t!at t!e remed# t!ere if t!e t!ree #ears will end and t!ere are still pending cases4 is for t!e 3oard to appoint a trustee 3ut more recent ?urisprudence !as fas!ioned a practica3le solution to t!at t!e law#er !andling t!e cases ma# 3e considered as trustee of t!e corporation and t!erefore t!e cases will not 3e a3ated 3ut s!ould continue6 :n one case4 t!e 'C !eld t!at t!e directors ma# 3e considered as trustees after t!ree #ears so t!at t!e# can continue to wind up t!e affairs of t!e corporation and in effect t!e t!ree #ear period !as 3ecome ineffectual6

9!en a corporation is contemplating dissolution4 it must su3mit ta5 return on t!e income earned 3# it from t!e 3eginning of t!e #ear up to t!e date of its dissolution and pa# t!e corresponding ta5 due6 *%: v6 Court of 2ppeals4 3)3 'CR2 -$0 (2001)6

(ii+ ReI'ire%ent$ (Section 11*+

=here

cre!itor$

are

affecte!

Sec. 11*. Voluntary dissolution (here creditors are affected 9!ere t!e dissolution of a corporation ma# pre?udice t!e rig!ts of an# creditor4 t!e petition for dissolution s!all 3e filed wit! t!e 'ecurities and "5c!ange Commission6 !e petition s!all 3e signed 3# a ma?orit# of its 3oard of directors or trustees or ot!er officers !aving t!e management of its affairs4 verified 3# its president or secretar# or one of its directors or trustees4 and s!all set fort! all claims and demands against it4 and t!at its dissolution was resolved upon 3# t!e affirmative vote of t!e stoc(!olders representing at least two1t!irds (2K3) of t!e outstanding capital stoc( or 3# at least two1t!irds (2K3) of t!e mem3ers at a meeting of its stoc(!olders or mem3ers called for t!at purpose6 :f t!e petition is sufficient in form and su3stance4 t!e Commission s!all4 3# an order reciting t!e purpose of t!e petition4 fi5 a date on or 3efore w!ic! o3?ections t!ereto ma# 3e filed 3# an# person4 w!ic! date s!all not 3e less t!an t!irt# (30) da#s nor more t!an si5t# ()0) da#s after t!e entr# of t!e order6 *efore suc! date4 a cop# of t!e order s!all 3e pu3lis!ed at least once a wee( for t!ree (3) consecutive wee(s in a newspaper of general circulation pu3lis!ed in t!e municipalit# or cit# w!ere t!e principal office of t!e corporation is situated4 or if t!ere 3e no suc! newspaper4 t!en in a newspaper of general circulation in t!e %!ilippines4 and a similar cop# s!all 3e posted for t!ree (3) consecutive wee(s in t!ree (3) pu3lic places in suc! municipalit# or cit#6 >pon five (&) da#Js notice4 given after t!e date on w!ic! t!e rig!t to file o3?ections as fi5ed in t!e order !as e5pired4 t!e Commission s!all proceed to !ear t!e petition and tr# an# issue made 3# t!e o3?ections filed7 and if no suc! o3?ection is sufficient4 and t!e material

13.1 What are the "ario'$ %etho!$ of !i$$o6"in# corporation$D (a+ &o6'ntar7 (i+ ReI'ire%ent$ =here no cre!itor$ are affecte! (Section 11?+
Sec. 11?. Voluntary dissolution (here no creditors are affected :f dissolution of a corporation does not pre?udice t!e rig!ts of an# creditor !aving a claim against it4 t!e dissolution ma# 3e effected 3# ma?orit# vote of t!e 3oard of directors or trustees4 and 3# a resolution dul# adopted 3# t!e affirmative vote of t!e stoc(!olders owning at least two1t!irds (2K3) of t!e outstanding capital stoc( or of at least two1t!irds (2K3) of t!e mem3ers of a meeting to 3e !eld upon call of t!e directors or trustees after pu3lication of t!e notice of time4 place and o3?ect of t!e meeting for t!ree (3) consecutive wee(s in a newspaper pu3lis!ed in t!e place w!ere t!e principal office of said corporation is located7 and if no newspaper is pu3lis!ed in suc! place4 t!en in a newspaper of general circulation in t!e %!ilippines4 after sending suc! notice to eac! stoc(!older or mem3er eit!er 3# registered mail or 3# personal deliver# at least t!irt# (30) da#s prior to said meeting6 2 cop# of t!e resolution aut!orizing t!e dissolution s!all 3e certified 3# a ma?orit# of t!e 3oard of directors or trustees and countersigned 3# t!e secretar# of t!e corporation6 !e 'ecurities and "5c!ange Commission s!all t!ereupon issue t!e certificate of dissolution6 ()2a)

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211&)

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

allegations of t!e petition are true4 it s!all render ?udgment dissolving t!e corporation and directing suc! disposition of its assets as ?ustice re;uires4 and ma# appoint a receiver to collect suc! assets and pa# t!e de3ts of t!e corporation6 (Rule 10$4 RCa)

(/+ In"o6'ntar7 (Section 1 1+


Sec. 1 1. In#oluntary Dissolution 2 corporation ma# 3e dissolved 3# t!e 'ecurities and "5c!ange Commission upon filing of a verified complaint and after proper notice and !earing on t!e grounds provided 3# e5isting laws4 rules and regulations6 (n)

Gro'n!$ for In"o6'ntar7 -i$$o6'tion, (1) Failure to organize and commence 3usiness wit!in 2 #ears from incorporation7 (2) Continuousl# inoperative for & #ears (3) Continuance of 3usiness not feasi3le as found 3# t!e management committee or re!a3ilitation receiver7 ($) Fraud in procuring Certificate of RegistrationK (&) 'erious .isrepresentation ()) Failure to file reports (=R' at 313) (,) Refusal to adopt or approve 3# laws (%+ /0212) (-) >ltra vires1 mala pro!i3ita4 3ut too numerous infractions4 w!ic! are persistent despite '"C warnings6 (CLG8s CLR at /3/) (a+ M'o Warranto (Repu3lic v6 *isa#a Land ransportation Co64 -1 'CR2 / N1/,-O7 Repu3lic v6 'ecurit# Credit W 2cceptance Corp64 1/ 'CR2 &- N1/),O7 <overnment v6 "l @ogar Filipino4 &0 %!il6 3// N1/2,O)6 (/+ EBpiration of Ter% (c+ Shortenin# of Corporate Ter% ('ec6 120)
UP Class Notes Dissolution ta*es effect upon its appro#al of the & C. 5owever/ if the petition contains a date of dissolution earlier than the date of S6! approval/ dissolution takes effect on this date since S6! approves of it anyway.

(!+ Non:'$er of Charter an! Contin'o'$ Inoperation ('ec6 22) BOrganizeC involves t!e election of officers4 providing for t!e su3scription and pa#ment of t!e capital stoc(4 t!e adoption of 3#1laws4 and suc! ot!er steps as are necessar# to endow t!e legal entit# wit! t!e capacit# to transact t!e legitimate 3usiness for w!ic! t!e corporation was created6 BOrganizationC relates merel# to t!e s#stematization and orderl# arrangement of t!e internal and managerial affairs and organs of t!e corporation6 *enguet Consolidated .ining Co6 v6 %ineda4 /- %!il6 ,116 !e failure to file t!e 3#1laws does not automaticall# operate to dissolve a corporation 3ut is now considered onl# a ground for suc! dissolution6 C!ung Ea *io v6 :ntermediate 2ppellate Court4 1)3 'CR2 &3$ (1/--)6 (f+ -e%an! of Minorit7 Stoc9ho6!er$ for -i$$o6'tion. Financing Corp6 of t!e %!il6 v6 eodoro4 /3 %!il6 $0$ (1/&3)6 Corporate dissolution due to mismanagement of ma?orit# stoc(!older is too drastic a remed#4 especiall# w!en t!e situation can 3e remedied suc! as giving minorit# stoc(!olders a veto power to an# decision6 C!ase v6 *uencamino4 13) 'CR2 3)& (1/-&)6

(c+ Shortenin# of corporate ter% (Section 1 A+


Sec. 1 A. Dissolution by shortening corporate term 2 voluntar# dissolution ma# 3e effected 3# amending t!e articles of incorporation to s!orten t!e corporate term pursuant to t!e provisions of t!is Code6 2 cop# of t!e amended articles of incorporation s!all 3e su3mitted to t!e 'ecurities and "5c!ange Commission in accordance wit! t!is Code6 >pon approval of t!e amended articles of incorporation of t!e e5piration of t!e s!ortened term4 as t!e case ma# 3e4 t!e corporation s!all 3e deemed dissolved wit!out an# furt!er proceedings4 su3?ect to t!e provisions of t!is Code on li;uidation6 (n)

SEC Interna6 r'6e$ reI'ire the fo66o=in#,

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211&,

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
"5cept 3# decrease of capital stoc( and as ot!erwise allowed 3# t!is Code4 no corporation s!all distri3ute an# of its assets or propert# e5cept upon lawful dissolution and after pa#ment of all its de3ts and lia3ilities6 (,,a4 -/a4 1)a)

(1) Notice of t!e dissolution to 3e pu3lis!ed in a newspaper of general circulation for 3 consecutive wee(s7 (2) List of corporate creditors4 wit! t!eir consent to t!e s!ortening of corporate term7 (3) 'u3mission 3# ma?orit# stoc(!oldersKprincipal officers an >nderta(ing to personall# answer for an# outstanding corporate o3ligations of t!e corporation7 and ($) Latest financial statements w!ic! must not 3e earlier t!an t!e date of t!e stoc(!olders8 meeting approving amendment to t!e articles of incorporation4 and a *:R clearance on t!e ta5 lia3ilities of t!e corporation6(SEC Opinion@ 2'67 3@ 1*5*)

LiI'i!ation is a process 3# w!ic! all t!e assets of t!e corporation are converted into li;uid assets (cas!) in order to facilitate t!e pa#ment of o3ligations to creditors4 and t!e remaining 3alance if an# is to 3e distri3uted to t!e stoc(!olders6
UP Class Notes 4hat is li-uidation5 Process of converting corporate assets B properties into cash for proper distribution to persons entitled thereto. 1t begins on the day after the approval of the S6! of the dissolution. 1n the meantime/ where a petition for dissolution has already been submitted/ but the S6! has not yet approved/ the 7A8 may make advances to the S5s and other persons9in9interest.

13. What i$ 6iI'i!ationD (Section 1


Sec. 1 . Corporate li-uidation

"ver# corporation w!ose c!arter e5pires 3# its own limitation or is annulled 3# forfeiture or ot!erwise4 or w!ose corporate e5istence for ot!er purposes is terminated in an# ot!er manner4 s!all nevert!eless 3e continued as a 3od# corporate for t!ree (3) #ears after t!e time w!en it would !ave 3een so dissolved4 for t!e purpose of prosecuting and defending suits 3# or against it and ena3ling it to settle and close its affairs4 to dispose of and conve# its propert# and to distri3ute its assets4 3ut not for t!e purpose of continuing t!e 3usiness for w!ic! it was esta3lis!ed6 2t an# time during said t!ree (3) #ears4 t!e corporation is aut!orized and empowered to conve# all of its propert# to trustees for t!e 3enefit of stoc(!olders4 mem3ers4 creditors4 and ot!er persons in interest6 From and after an# suc! conve#ance 3# t!e corporation of its propert# in trust for t!e 3enefit of its stoc(!olders4 mem3ers4 creditors and ot!ers in interest4 all interest w!ic! t!e corporation !ad in t!e propert# terminates4 t!e legal interest vests in t!e trustees4 and t!e 3eneficial interest in t!e stoc(!olders4 mem3ers4 creditors or ot!er persons in interest6 >pon t!e winding up of t!e corporate affairs4 an# asset distri3uta3le to an# creditor or stoc(!older or mem3er w!o is un(nown or cannot 3e found s!all 3e esc!eated to t!e cit# or municipalit# w!ere suc! assets are located6

Metho!$ of LiI'i!ation Li;uidation4 in corporation law4 connotes a winding up or settling wit! creditors and de3tors6 :t is t!e winding up of a corporation so t!at assets are distri3uted to t!ose entitled to receive t!em6 :t is t!e process of reducing assets to cas!4 disc!arging lia3ilities and dividing surplus or loss6 %G* "mplo#ees >nion1N6>6*6"6 v6 Gega4 3)0 'CR2 33 (2001)6 !ere can 3e no dou3t t!at under 'ecs6 ,, and ,- of Corporation Law4 t!e Legislature intended to let t!e s!are!olders !ave t!e control of t!e assets of t!e corporation upon dissolution in winding up its affairs6 !e normal met!od of procedure is for t!e directors and e5ecutive officers to !ave c!arge of t!e winding up operations4 t!oug! t!ere is t!e alternative met!od of assigning t!e propert# of t!e corporation to t!e trustees for t!e 3enefit of its creditors and s!are!olders6 B9!ile t!e appointment of a receiver rests wit!in t!e sound ?udicial discretion of t!e court4 suc! discretion must4 !owever4 alwa#s 3e e5ercised wit! caution and governed 3# legal and e;uita3le principles4 t!e violation of w!ic! will amount to its a3use4 and in ma(ing suc! appointment t!e court s!ould ta(e into consideration all t!e

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211&-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA a 3od# corporate for 3 #ears after its dissolution6 (>% Class Notes at $/)
2ac9>$ Lect're !e Court !as said t!at t!e remed# t!ere if t!e t!ree #ears will end and t!ere are still pending cases4 is for t!e 3oard to appoint a trustee 3ut more recent ?urisprudence !as fas!ioned a practica3le solution to t!at t!e law#er !andling t!e cases ma# 3e considered as trustee of t!e corporation and t!erefore t!e cases will not 3e a3ated 3ut s!ould continue6 :n one case4 t!e 'C !eld t!at t!e directors ma# 3e considered as trustees after t!ree #ears so t!at t!e# can continue to wind up t!e affairs of t!e corporation and in effect t!e t!ree #ear period !as 3ecome ineffectual6

facts and weig! t!e relative advantages and disadvantages of appointing a receiver to wind up t!e corporate 3usiness6C C!ina *an(ing Corp6 v6 .6 .ic!elin W Cie4 &- %!il6 2)1 (1/33) !ere is not!ing in 'ec6 122 w!ic! 3ars an action for t!e recover# of t!e de3ts of t!e corporation against t!e li;uidator t!ereof4 after t!e lapse of t!e said t!ree1#ear period6 B:s immaterial t!at t!e present action was filed after t!e e5piration of t!e t!ree #ears 6 6 6 for at t!e ver# least4 and assuming t!at ?udicial enforcement of ta5es ma# not 3e initiated after said t!ree #ears despite t!e fact t!at actual li;uidation !as not terminated and t!e one in c!arge t!ereof is still !olding t!e assets of t!e corporation4 o3viousl# for t!e 3enefit of all t!e creditors t!ereof4 t!e assessment aforementioned4 made wit!in t!e t!ree #ears4 definitel# esta3lis!ed t!e <overnment as a creditor of t!e corporation for w!om t!e li;uidator is supposed to !old assets of t!e corporation6C Repu3lic v. (arsman 8ev. !o./ $$ 'CR2 $1(1/,2)6

(c+ What co'6! an! $ho'6! /e !one !'rin# the perio! of 6iI'i!ationD
%rosecuting and defending suits 3# or against it and ena3ling it to settled and close its affairs4 to dispose of and conve# its propert# and to distri3ute its assets4 3ut not for t!e purpose of continuing t!e 3usiness for w!ic! it was esta3lis!ed7 an#time during t!e 3 #ear period4 t!e corporation is aut!orized and empowered to conve# all of its propert# to trustees for t!e 3enefit of '@s and ot!er persons in interest6

(a+ Who %a7 corporationD

'n!erta9e

the

6iI'i!ation

of

(1) !e *o+7 (2) !e c!osen li;uidator w!o acts as a trustee (3 #ear winding up period not applica3le) (3) Creditors (acting as receiver) w!o petitioned for t!e declaration of 3an(ruptc# of t!e corporation6 (3 #ear winding up period not applica3le6) (>% Class notes at $/) ($) *# management committee or re!a3ilitation receiver6 (=R' at 31$)

(!+ What happen$ if an a$$et cannot /e !i$tri/'te!D


2n# asset distri3uta3le to an# creditor or stoc(!older or mem3er w!o is un(nown or cannot 3e found s!all 3e e$cheate! to the cit7 or %'nicipa6it7 w!ere suc! asset is located6 (>% Class Notes at $/)

Who are 6ia/6e after !i$$o6'tion an! =in!in# 'pD


2lt!oug! a corporate officer is not lia3le for corporate o3ligations4 suc! as claims for wages4 !owever4 w!en suc! corporate officer NceasesO corporate propert# to appl# to !is own claims against t!e corporation4 !e s!all 3e lia3le to t!e e5tent t!ereof to corporate lia3ilities4 since (nowing full# well t!at certain creditors !ad similarl# valid claims4 !e too(

(/+ For ho= 6on# %a7 the 6iI'i!ation of a corporation %a7 /e 'n!erta9enD
"ver# corporation w!ose corporate e5istence !as 3een terminated in an# manner s!all nevert!eless 3e continued as

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211&/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

advantage of !is position as general manager and applied t!e corporationJs assets in pa#ment e5clusivel# to !is own claims6 +e <uzman v6 NLRC4 211 'CR2 ,23 (1//2)6 :f t!e 31#ear e5tended life !as e5pired wit!out a trustee or receiver !aving 3een designated4 t!e 1oar! of -irector$ itself4 following t!e rationale of t!e decision in <elano4 ma# 3e permitted to so continue as BtrusteesC to complete li;uidation7 and in t!e a3sence of a *oard4 t!ose !aving pecuniar# interest in t!e assets4 including t!e s!are!olders and t!e creditors of t!e corporation4 acting for and in its 3e!alf4 mig!t ma(e proper representations wit! t!e appropriate 3od# for wor(ing out a final settlement of t!e corporate concerns6 Clemente v6 Court of 2ppeals4 2$2 'CR2 ,1, (1//&)6 :n <elano case4 t!e counsel of t!e dissolved corporation was considered a trustee6 :n t!e later case of Clemente v6 Court of 2ppeals4 t!e *oard of +irectors was permitted to complete t!e corporate li;uidation 3# continuing as BtrusteesC6 >nder 'ec6 1$& BNo rig!t of remed# in favor or against an# corporation 6 6 6 s!all 3e removed or impaired eit!er 3# t!e su3se;uent dissolution of said corporation or 3# an# su3se;uent amendment or repeal of t!is Code or of an# part t!ereof6C !is provision safeguards t!e rig!ts of a corporation w!ic! is dissolved pending litigation6 Re3uriano v6 Court of 2ppeals4 301 'CR2 3$2 (1///)7 Enec!t v6 >nited Cigarette Corp64 3-$ 'CR2 $- (2002)6

Re/'riano ". CA (1***+ !e 3oard of directors ma# 3e permitted to complete t!e corporate li;uidation 3# continuing as BtrusteesC 3# legal implication6 'ince t!e law specificall# allows a trustee to manage t!e affairs of t!e corporation in li;uidation4 an# supervening fact4 suc! as t!e dissolution of t!e corporation4 repeal of a law4 or an# ot!er fact of similar nature would not serve as an effective 3ar to t!e enforcement of suc! rig!t6

13. . Ca$e$
C6e%ente ". CA (1**3+ Corporation continues to 3e a 3od# corporate for 3 #ears after its dissolution for purposes of prosecuting and defending suits 3# and against it and for ena3ling it to settle and close its affairs6 !e termination of t!e life of a ?uridical entit# does not 3# itself cause t!e e5tinction or diminution of t!e rig!ts and lia3ilities of suc! entit# nor t!ose of its owners and creditors6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211)0

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
:f a foreign corporation wants to do 3usiness !ere it !as to appoint a resident agent w!o ma# 3e a corporation4 partners!ip or individual4 if individual !e must 3e of good moral c!aracter4 sound financial standing4 alt!oug! !is onl# function is to receive summonses in 3e!alf of t!e corporation6

14. FOREIGN CORPORATIONS


Forei#n corporation1 corporation formed4 organized or e5isting under an# law ot!er t!an t!ose of t!e %!ilippines4 and w!ose laws allow Filipino citizens and corporations to do 3usiness in its own countr# or state6 ('ection 123)
)ac*+s Lecture 'ection 123 defines w!at is a foreign corporation4 one formed4 organized4 or e5isting under an# laws ot!er t!an t!ose of t!e %!ilippines and w!ose laws allow Filipino citizens and corporations to do 3usiness in its own countr# or state6 Note t!e element of reciprocit7 is included in t!e definition of a foreign corporation as an ingredient of a foreign corporation6 9e said t!at a corporation is an artificial person4 it !as a ?uridical personalit# 3# legal fiction6 'o it !as personalit# 3ecause of t!e law under w!ic! it was incorporated and since it e5ists onl# 3ecause of t!e law under w!ic! it was incorporated4 if it wis!es to participate in t!e economic processes of anot!er countr#4 it must get permission from t!at ot!er countr# also and it will get permission 3# getting a license to do 3usiness and our code now re;uires reciprocit# so normall# li(e if it is an 2merican corporation it will su3mit a certification from t!e 'ecretar# of 'tate of t!at particular state under w!ic! it was incorporated li(e New Qor(4 California 3ecause t!e 'ecretar# of 'tate is t!e custodian of t!e laws and !e will certif# t!at under t!e laws of New Qor(4 Filipinos are allowed to do 3usiness in New Qor(6 !ere are different wa#s 3# w!ic! a foreign corporation can esta3lis! its presence !ere6 one is 3# setting a 3ranc! office4 anot!er is 3# setting up su3sidiar#4 for ta5 purposes t!ere are no trade1offs 3ecause a 3ranc! and a su3sidiar# are ta5ed in t!e same wa# 3ut a su3sidiar# ma# 3e 3eneficial in t!e sense t!at it limits t!e e5posure of t!e mot!er compan# to its su3scription instead of ris(ing all t!e assets of t!e mot!er compan#6 2not!er is t!e regional !ead;uarters w!ic! does not do 3usiness4 it is ?ust a coordinating and communication center6 Foreign companies are setting up regional !ead;uarters !ere 3ecause it !as su3sidiaries in 'out!east 2sia or licensees and franc!isees and its function is to supervise and coordinate wit! t!ose su3sidiaries or franc!isees so normall# a regional !ead;uarter would !ave a one room office !ere pro3a3l# wit! countr# manager and secretar#4 a telep!one4 computer and fa5 mac!ine6

14.1 What con$tit'te$ !oin# /'$ine$$ in the Phi6ippine$ (See Section .(!+ RA 5A) a$ a%en!e!+
RA 5A) @ Section .G!H !e p!rase Bdoing 3usinessC s!all include soliciting orders4 services contracts4 opening offices4 w!et!er called BliaisonC offices or 3ranc!es7 appointing representatives or distri3utors domiciled in t!e %!ilippines or w!o in an# calendar #ear sta# in t!e countr# for a period or periods totaling one !undred eig!t# (1-0) da#s or more7 participating in t!e management4 supervision or control of an# domestic 3usiness4 firm4 entit# or corporation in t!e %!ilippines7 and an# ot!er act or acts t!at impl# a continuit# of commercial dealings or arrangements4 and contemplate to t!at e5tent t!e performance of acts or wor(s4 or t!e e5ercise of some of t!e functions normall# incident to4 and in progressive prosecution of4 commercial gain or of t!e purpose and o3?ect of t!e 3usiness organizationD %rovided4 !owever4 t!at t!e p!rase Bdoing 3usinessC s!all not 3e deemed to include mere investment as a s!are!older 3# a foreign entit# in domestic corporations dul# registered to do 3usiness4 andKor t!e e5ercise of rig!ts as suc! investor7 nor !aving a nominee director or officer to represent its interest in suc! corporation7 nor appointing a representative or distri3utor domiciled in t!e %!ilippines w!ic! transacts 3usiness in its own name and for its own account7
4hen is a foreign corporation doing business5 2merican ?urisprudence ma(es a distinction6 9!en #ou tal( of foreign corporation doing 3usiness #ou will as( for w!at purpose are we tr#ing to determine w!et!er or not a foreign corporation is doing 3usiness6 :s it for t!e purpose of determining w!et!er or not it can 3e suedL :f t!at is t!e purpose4 to determine its amena3ilit# to t!e ?urisdiction of t!e courts t!e# appl# a li3eral interpretation4 t!e >''C sa#s minimal contact t!at would satisf# t!e re;uirements of due process is sufficient6 :n fact t!e different states !ave t!ese long1arm statutes 3# w!ic! state t!e instances w!en a foreign

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211)1

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
t!ere was a foreign s!ipping compan# w!ic! pass 3# !ere and !ired a Filipino a coo( in one of its vessels4 t!e 'C !eld t!at t!at is not doing 3usiness !iring a coo( is not a su3stantial portion of its 3usiness its 3usiness is transporting passengers and cargo6 36 If the contract i$ con$'%%ate! a/roa! then the forei#n corporation i$ not !oin# /'$ine$$ here. :n t!e case of Colum3ia %ictures vs6 C24 Colum3ia %ictures filed a case 3ecause its films were 3eing pirated !ere and it was argued t!at it was doing 3usiness wit!out a license4 t!e 'C said no 3ecause t!e contracts are consummated a3road6 :n t!e 2von %lc case4 t!e Court said t!at a foreign insurance compan# w!ic! accepted reinsurance is not doing 3usiness !ere 3ecause t!e contract is e5ecuted a3road6

corporation ma# 3e sued6 !ere is one state <eorgia !as t!is provision t!at if a foreign corporation commits a tort4 it will 3e considered to 3e doing 3usiness and can 3e sued6 !e >''C !as said times !ave c!anged now t!e means of communications are ver# rapid so t!at if #ou !ave a representative !ere !e can ;uic(l# communicate wit! t!e !ome office so it can ta(e steps to defend itself6 On t!e ot!er !and4 if #ou are tal(ing of determining w!et!er a foreign corporation is doing 3usiness for t!e purpose of prosecuting officers criminall#4 t!at is pena64 it must 3e strictl# construed6 :n t!e middle is t!e ;uestion of w!et!er or not t!e foreign corporation is doing 3usiness and t!erefore is ta5a3le as a resident foreign corporation6 'o man# decisions !ave 3een !anded down to determine w!et!er t!e foreign corporations are doing 3usiness 3ut t!ere are t!ree principal guidelines6 16 Tran$action$ %'$t not /e i$o6ate!. ransactions must 3e !a3itual li(e in t!e .ent!olatum case6 :n t!e 2msterdam case w!ere a foreign s!ipping compan# it !as a vessel w!ic! roam around going to places w!ere t!e# can find cargo and t!e# ?ust pass 3# !ere in 1/)34 t!e court said t!at it is an isolated transaction and not doing 3usiness !ere6

:n one case4 a foreign corporation 3oug!t copra4 seller failed to deliver and t!e# negotiated and t!e# agreed to give !im more time still !e failed to deliver t!en t!e# negotiated again and !e was given more time still !e failed to deliver and finall# t!e foreign corporation filed suit4 t!e seller claimed doing 3usiness wit!out a license4 t!e 'C said no t!at is an isolated transaction6 !e 3etter rule(according to =ac() is t!at t!at is 3u#ing t!at is not doing 3usiness #ou do not ma(e profit from 3u#ing t!at is settled in 2merican ?urisprudence6 Qou ma(e profit from selling not from 3u#ing6 :n t!e @ang lung 3an( case4 t!e 'C said t!at it is not doing 3usiness !ere so it can sue6 @owever4 an isolated transaction w!ic! indicates an intention to !a3ituall# do 3usiness ma# constitute doing 3usiness6 :f t!e foreign corporation leased space for e5ample at t!e Luneta @otel and t!e# sent t!eir officers !ere6 !ere was indication of t!eir intention to do 3usiness6 26 It %'$t in"o6"e a $'/$tantia6 portion of the /'$ine$$ of the pri%ar7 p'rpo$e of the corporation. :n one case4

What con$tit'te$ !oin# /'$ine$$ in the Phi6ippine$ for forei#n corporation$D >nder t!e contin'it7 te$t@ doing 3usiness implies a continuit# of commercial dealings and arrangements4 and contemplates to some e5tent t!e performance of acts or wor(s or t!e e5ercise of some functions normall# incident to and in progressive prosecution of4 t!e purpose and o3?ect of its organization6 >nder t!e $'/$tance te$t4 a foreign corporation is doing 3usiness in t!e countr# if it is continuing t!e 3od# or su3stance of t!e enterprise of 3usiness for w!ic! it was organized6 (=R' at 31&) Ho= !o =e !eter%ine =hether a forei#n corp i$ !oin# /'$ine$$ in the Phi6ippine$D (1a$e! on 2'$tice AI'ino>$ o't6ine+ !ere is no general rule or governing principle t!at !olds for t!e determination of w!et!er or not a foreign ?uridical entit# is doing 3usiness in t!e %!ilippines to ena3le our court to ac;uire ?urisdiction over it6 9!en suc! foreign corporation !owever participates in a 3idding process4 its mere participation manifests an intention to engage in 3usiness in t!e %!ilippines4 t!erefore participating in t!e 3idding process is Bdoing 3usinessC in t!is ?urisdiction6 .ore directl# put4 =hen a forei#n corporation perfor%$ act$ for =hich it

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211)2

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
16 !e date and term of incorporation7 26 !e address4 including t!e street num3er4 of t!e principal office of t!e corporation in t!e countr# or state of incorporation7 36 !e name and address of its resident agent aut!orized to accept summons and process in all legal proceedings and4 pending t!e esta3lis!ment of a local office4 all notices affecting t!e corporation7 $6 !e place in t!e %!ilippines w!ere t!e corporation intends to operate7

=a$ create!@ re#ar!6e$$ of "o6'%e@ it i$ !oin# /'$ine$$. (E'ropean Re$o'rce$ ". In#enie'/'ro 1ir9ahn4 200$) -oe$ an Ki$o6ate! tran$actionL /7 a forei#n corporation I'a6if7 a$ K!oin# /'$ine$$L in the Phi6ippine$D :t depends6 :f a single or isolated transaction is incidental and casual transaction4 it cannot ;ualif# as Bdoing 3usinessC since it lac(s t!e element of CON :N>: Q6 @owever4 w!ere a single or isolated transaction is not merel# incidental or casual 3ut indicates t!e foreign corporation8s intention to do ot!er 3usiness in t!e %!ilippines4 said single act or transaction constitutes Bdoing 3usinessC in t!e %!ilippines6 (=R' at 31&)

14. ReI'ire%ent$ for the e$ta/6i$h%ent of a /ranch (Section 1 .+


Sec. 1 .. Definition and rights of foreign corporations For t!e purposes of t!is Code4 a foreign corporation is one formed4 organized or e5isting under an# laws ot!er t!an t!ose of t!e %!ilippines and w!ose laws allow Filipino citizens and corporations to do 3usiness in its own countr# or state6 :t s!all !ave t!e rig!t to transact 3usiness in t!e %!ilippines after it s!all !ave o3tained a license to transact 3usiness in t!is countr# in accordance wit! t!is Code and a certificate of aut!orit# from t!e appropriate government agenc#6 (n)

&6 !e specific purpose or purposes w!ic! t!e corporation intends to pursue in t!e transaction of its 3usiness in t!e %!ilippinesD %rovided4 !at said purpose or purposes are t!ose specificall# stated in t!e certificate of aut!orit# issued 3# t!e appropriate government agenc#7 )6 !e names and addresses of t!e present directors and officers of t!e corporation7 ,6 2 statement of its aut!orized capital stoc( and t!e aggregate num3er of s!ares w!ic! t!e corporation !as aut!orit# to issue4 itemized 3# classes4 par value of s!ares4 s!ares wit!out par value4 and series4 if an#7 -6 2 statement of its outstanding capital stoc( and t!e aggregate num3er of s!ares w!ic! t!e corporation !as issued4 itemized 3# classes4 par value of s!ares4 s!ares wit!out par value4 and series4 if an#7 /6 2 statement of t!e amount actuall# paid in7 and 106 'uc! additional information as ma# 3e necessar# or appropriate in order to ena3le t!e 'ecurities and "5c!ange Commission to determine w!et!er suc! corporation is entitled to a license to transact 3usiness in t!e %!ilippines4 and to determine and assess t!e fees pa#a3le6 2ttac!ed to t!e application for license s!all 3e a dul# e5ecuted certificate under oat! 3# t!e aut!orized official or officials of t!e ?urisdiction of its incorporation4 attesting to t!e fact t!at t!e laws of t!e countr# or state of t!e applicant allow Filipino citizens and corporations to do 3usiness t!erein4 and t!at t!e applicant is an e5isting corporation in good standing6 :f suc! certificate is in a foreign

(a+ -oc'%entar7 ReI'ire%ent$ (Section 1 3+


Sec. 1 3. Application for a license 2 foreign corporation appl#ing for a license to transact 3usiness in t!e %!ilippines s!all su3mit to t!e 'ecurities and "5c!ange Commission a cop# of its articles of incorporation and 3#1laws4 certified in accordance wit! law4 and t!eir translation to an official language of t!e %!ilippines4 if necessar#6 !e application s!all 3e under oat! and4 unless alread# stated in its articles of incorporation4 s!all specificall# set fort! t!e followingD

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211)3

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
inde3tedness of t!e <overnment of t!e %!ilippines4 its political su3divisions and instrumentalities4 or of government1owned or controlled corporations and entities4 s!ares of stoc( in Rregistered enterprisesR as t!is term is defined in Repu3lic 2ct No6 &1-)4 s!ares of stoc( in domestic corporations registered in t!e stoc( e5c!ange4 or s!ares of stoc( in domestic insurance companies and 3an(s4 or an# com3ination of t!ese (inds of securities4 wit! an actual mar(et value of at least one !undred t!ousand (%10040006) pesos7 %rovided4 !owever4 !at wit!in si5 ()) mont!s after eac! fiscal #ear of t!e licensee4 t!e 'ecurities and "5c!ange Commission s!all re;uire t!e licensee to deposit additional securities e;uivalent in actual mar(et value to two (2A) percent of t!e amount 3# w!ic! t!e licenseeJs gross income for t!at fiscal #ear e5ceeds five million (%&40004000600) pesos6 !e 'ecurities and "5c!ange Commission s!all also re;uire deposit of additional securities if t!e actual mar(et value of t!e securities on deposit !as decreased 3# at least ten (10A) percent of t!eir actual mar(et value at t!e time t!e# were deposited6 !e 'ecurities and "5c!ange Commission ma# at its discretion release part of t!e additional securities deposited wit! it if t!e gross income of t!e licensee !as decreased4 or if t!e actual mar(et value of t!e total securities on deposit !as increased4 3# more t!an ten (10A) percent of t!e actual mar(et value of t!e securities at t!e time t!e# were deposited6 !e 'ecurities and "5c!ange Commission ma#4 from time to time4 allow t!e licensee to su3stitute ot!er securities for t!ose alread# on deposit as long as t!e licensee is solvent6 'uc! licensee s!all 3e entitled to collect t!e interest or dividends on t!e securities deposited6 :n t!e event t!e licensee ceases to do 3usiness in t!e %!ilippines4 t!e securities deposited as aforesaid s!all 3e returned4 upon t!e licenseeJs application t!erefor and upon proof to t!e satisfaction of t!e 'ecurities and "5c!ange Commission t!at t!e licensee !as no lia3ilit# to %!ilippine residents4 including t!e <overnment of t!e Repu3lic of t!e %!ilippines6 (n)

language4 a translation t!ereof in "nglis! under oat! of t!e translator s!all 3e attac!ed t!ereto6 !e application for a license to transact 3usiness in t!e %!ilippines s!all li(ewise 3e accompanied 3# a statement under oat! of t!e president or an# ot!er person aut!orized 3# t!e corporation4 s!owing to t!e satisfaction of t!e 'ecurities and "5c!ange Commission and ot!er governmental agenc# in t!e proper cases t!at t!e applicant is solvent and in sound financial condition4 and setting fort! t!e assets and lia3ilities of t!e corporation as of t!e date not e5ceeding one (1) #ear immediatel# prior to t!e filing of t!e application6 Foreign 3an(ing4 financial and insurance corporations s!all4 in addition to t!e a3ove re;uirements4 compl# wit! t!e provisions of e5isting laws applica3le to t!em6 :n t!e case of all ot!er foreign corporations4 no application for license to transact 3usiness in t!e %!ilippines s!all 3e accepted 3# t!e 'ecurities and "5c!ange Commission wit!out previous aut!orit# from t!e appropriate government agenc#4 w!enever re;uired 3# law6 ()-a)

(/+ -epo$it ReI'ire%ent (Section 1 4+


Sec. 1 4. Issuance of a license :f t!e 'ecurities and "5c!ange Commission is satisfied t!at t!e applicant !as complied wit! all t!e re;uirements of t!is Code and ot!er special laws4 rules and regulations4 t!e Commission s!all issue a license to t!e applicant to transact 3usiness in t!e %!ilippines for t!e purpose or purposes specified in suc! license6 >pon issuance of t!e license4 suc! foreign corporation ma# commence to transact 3usiness in t!e %!ilippines and continue to do so for as long as it retains its aut!orit# to act as a corporation under t!e laws of t!e countr# or state of its incorporation4 unless suc! license is sooner surrendered4 revo(ed4 suspended or annulled in accordance wit! t!is Code or ot!er special laws6 9it!in si5t# ()0) da#s after t!e issuance of t!e license to transact 3usiness in t!e %!ilippines4 t!e license4 e5cept foreign 3an(ing or insurance corporation4 s!all deposit wit! t!e 'ecurities and "5c!ange Commission for t!e 3enefit of present and future creditors of t!e licensee in t!e %!ilippines4 securities satisfactor# to t!e 'ecurities and "5c!ange Commission4 consisting of 3onds or ot!er evidence of

(c+ Appoint%ent of re$i!ent a#ent (Section 1 ?+


Sec. 1 ?. %esident agentB ser#ice of process !e 'ecurities and "5c!ange Commission s!all re;uire as a condition precedent to t!e issuance of t!e license to transact 3usiness in t!e %!ilippines 3# an# foreign corporation t!at suc! corporation file wit! t!e 'ecurities and "5c!ange Commission a

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211)$

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

written power of attorne# designating some person w!o must 3e a resident of t!e %!ilippines4 on w!om an# summons and ot!er legal processes ma# 3e served in all actions or ot!er legal proceedings against suc! corporation4 and consenting t!at service upon suc! resident agent s!all 3e admitted and !eld as valid as if served upon t!e dul# aut!orized officers of t!e foreign corporation at its !ome office6 2n# suc! foreign corporation s!all li(ewise e5ecute and file wit! t!e 'ecurities and "5c!ange Commission an agreement or stipulation4 e5ecuted 3# t!e proper aut!orities of said corporation4 in form and su3stance as followsD R !e (name of foreign corporation) does !ere3# stipulate and agree4 in consideration of its 3eing granted 3# t!e 'ecurities and "5c!ange Commission a license to transact 3usiness in t!e %!ilippines4 t!at if at an# time said corporation s!all cease to transact 3usiness in t!e %!ilippines4 or s!all 3e wit!out an# resident agent in t!e %!ilippines on w!om an# summons or ot!er legal processes ma# 3e served4 t!en in an# action or proceeding arising out of an# 3usiness or transaction w!ic! occurred in t!e %!ilippines4 service of an# summons or ot!er legal process ma# 3e made upon t!e 'ecurities and "5c!ange Commission and t!at suc! service s!all !ave t!e same force and effect as if made upon t!e dul#1aut!orized officers of t!e corporation at its !ome office6R 9!enever suc! service of summons or ot!er process s!all 3e made upon t!e 'ecurities and "5c!ange Commission4 t!e Commission s!all4 wit!in ten (10) da#s t!ereafter4 transmit 3# mail a cop# of suc! summons or ot!er legal process to t!e corporation at its !ome or principal office6 !e sending of suc! cop# 3# t!e Commission s!all 3e necessar# part of and s!all complete suc! service6 2ll e5penses incurred 3# t!e Commission for suc! service s!all 3e paid in advance 3# t!e part# at w!ose instance t!e service is made6 :n case of a c!ange of address of t!e resident agent4 it s!all 3e !is or its dut# to immediatel# notif# in writing t!e 'ecurities and "5c!ange Commission of t!e new address6 (,2a7 and n)

14.. Per%itte! area$ of in"e$t%ent ($ee SiBth Re#'6ar Forei#n In"e$t%ent Ne#ati"e Li$t (Li$t$ A an! 1+ anneBe! to EO No. .?* !ate$ No". .A@ AA)+
!e )t! Regular Foreign :nvestment Negative List too( effect in =anuar# -4 200&6 !e list does not include 3an(ing and ot!er financial institutions4 w!ic! are governed and regulated 3# t!e <eneral *an(ing Law of 20004 and ot!er laws administered 3# t!e *'%6 Li$t A
Li$t A. Foreign owners!ip is limited 3# mandate of t!e Constitution and specific laws6 No forei#n eI'it7 16 Ma$$ Me!ia "5cept recording (2rt6 PG:4 'ec6 11 of t!e Constitution7 %residential .emorandum dated .a# $4 1//$) .Practice of a66 profe$$ion$ a6 36 c6 d6 e6 f6 g6 !6 i6 ?6 (6 l6 m6 n6 o6 p6 ;6 r6 s6 t6 u6 v6 "ngineering .edicine and allied professions 2ccountanc# 2rc!itecture Criminolog# C!emistr# Customs *ro(erage "nvironmental %lanning Forestr# <eolog# :nterior +esign Landscape 2rc!itecture Law Li3rarians!ip .arine +ec( Officers .arine "ngine Officers .aster %lum3ing 'ugar ec!nolog# 'ocial 9or( eac!ing 2griculture Fis!eries

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211)&

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
,,1-4 and

(2rt6 P::4 'ection 1$ of t!e Constitution4 'ec6 1 of R626 No6 &1-1) ..Retai6 Tra!e Enterpri$e$ =N a pai! 'p capita6 of 6e$$ than US P @3AA@AA; Sec. 3 of RA ?54 13. ). Cooperati"e$ (Ch III@ Art. 4@ RA 4*.?+ 3.Pri"ate Sec'rit7 A#encie$ (Sec. )@ RA 3)?5+ 4.S%a66 Sca6e Minin# (Sec. .@ RA 5A54+ 5.Uti6i0ation of Marine Re$o'rce$ in archipe6a#ic =ater$@ territoria6 $ea@ an! eBc6'$i"e econo%ic 0one a$ =e66 a$ $%a66 $ca6e 'ti6i0ation of nat'ra6 re$o'rce$ in ri"er$@ 6a9e$@ /a7$@ an! 6a#oon$ (Art. QII@ Sec. Con$tit'tion ?.O=ner$hip@ operation@ an! %ana#e%ent of coc9pit$ (Sec. 3 of P)**+ *.Man'fact're@ repair@ $toc9pi6in# an!Nor !i$tri/'tion of n'c6ear =eapon$ (Art. II Sec ? of the Con$tit'tion+ 1A. Man'fact're@ repair@ $toc9pi6in#@ an!Nor !i$tri/'tion of /io6o#ica6@ ra!io6o#ica6@ che%ica6 =eapon$ an! anti:per$onne6 %ine$ ("ario'$ treatie$ to =hich the Phi6ippine$ i$ $i#nator7@ an! con"ention$ $'pporte! /7 the Phi6ippine$+ 11. Man'fact're of firecrac9er$ an! other p7rotechnic !e"ice$ (Sec. 3 of RA 51?.+ Up to AR Forei#n EI'it7 1 . Pri"ate ra!io co%%'nication$ net=or9 (RA .?)4+

36

%ro?ects w!ic! are foreign funded or assisted or re;uired to undergo international competitive 3idding ('ec6 2 NaO of R2 ,,1-)

Contract$ for con$tr'ction of !efen$e:re6ate! $tr'ct're$ (Sec. 1 of CA 3)1+

Up to .AR Forei#n EI'it7 14. A!"erti$in# (Art. Q&I@ Sec. 11 Con$tit'tion+

Up to )AR Forei#n EI'it7 15. EBp6oration@ !e"e6op%ent@ 'ti6i0ation of nat'ra6 re$o'rce$ (Art. QII@ Sec. of the Con$tit'tion+ 1?. O=ner$hip of Pri"ate Lan!$ (Art. QII Sec. 5 Con$tit'tion@ Ch. 3 Sec. of CA 1)1@ Sec. ) of RA *1? +

1*. Operation an! %ana#e%ent of p'/6ic 'ti6itie$ (Art. QII Sec. 11 Con$tit'tion@ Sec. 14 of CA 1)4+ A. O=ner$hip N e$ta/6i$h%ent an! a!%ini$tration of e!'cationa6 in$tit'tion$ (Art. QI& Sec. ) of the Con$tit'tion+ 1. C'6t're@ pro!'ction@ %i66in#@ proce$$in#@ tra!in#@ eBcept retai6in# or rice an! corn an! acI'irin#@ /7 /arter@ p'rcha$e@ or other=i$e@ rice an! corn an! the /7:pro!'ct$ thereof (Sec. 3 of P- 1*); Sec. 13 of RA ?54 + . Contract$ for the $'pp67 of %ateria6$@ #oo!$@ an! co%%o!itie$ to #o"ern%ent o=ne! or contro66e! corporation@ co%pan7@ a#enc7@ or %'nicipa6 corporation$ ($ec. 1 of RA 31?.+ .. Pro<ect proponent an! faci6it7 operator of a 1OT Pro<ect reI'irin# a p'/6ic 'ti6itie$ franchi$e (Art. QII Sec. 11 Con$tit'tion@ Sec. GaH of RA 551?+ ). Operation of !eep:$ea co%%ercia6 fi$hin# "e$$e6$ (Sec. 5 of RA ?33A+ 3. A!<'$t%ent Co%panie$ (Sec. . . of P- 41 a$ a%en!e! /7 P1?1)+

Up to 3R Forei#n EI'it7 1.. 1). Pri"ate recr'it%ent@ =hether for 6oca6 or o"er$ea$ e%p6o7%ent (Art. 5 of P- )) + Contract$ for the con$tr'ction an! repair of 6oca667 f'n!e! p'/6ic =or9$ (Sec. 1 of Co%%on=ea6th Act No. 3)1@ LOI No. 4.A@ eBcept, a6 :nfrastructure K development pro?ects covered in R2

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211))

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
i6 ?6 (6 l6 m6 .ilitar# communications and e;uipment Nig!t vision and e;uipment 'imulated content radiation devices4 components4 and accessories 2rmament training devices Ot!ers as ma# 3e determined 3# t!e 'ecretar# of t!e +N+ @owever4 t!e manufacture or repair of t!ese items ma# 3e aut!orized 3# t!e 'ecretar# of t!e +N+ to non1 %!ilippine nationals7 provided t!at a su3stantial percentage of t!e output4 as determined 3# t!e said agenc#4 is e5ported6 %rovided furt!er t!at t!e e5tent of t!e foreign e;uit# owners!ip allowed s!all 3e specified in t!e said aut!orit#Kclearance (R2 ,0$2 as amended 3# R2 -1,/) ..Man'fact're an! !i$tri/'tion of !an#ero'$ !r'#$ (RA 5A) a%en!e! /7 RA ?15*+ a$

4. O=ner$hip of con!o%ini'% 'nit$ =here the co%%on area$ in the con!o%ini'% pro<ect are co:o=ne! /7 the o=ner$ of the $eparate 'nit$ or o=ne! /7 a corporation (Sec. 3 of RA )5 4+ Up to 4AR Forei#n EI'it7 5. Financin# Co%panie$ re#'6ate! /7 the SEC (Sec. 4 RA 3*?A a$ a%en!e! /7 RA ?334+

?. In"e$t%ent ho'$e$ re#'6ate! /7 the SEC (Sec. 3 of P- 1 * a$ a%en!e! /7 RA ?.44+

Li$t 1
Li$t 1, Foreign owners!ip is limited for reasons of securit#4 defense4 ris( of !ealt!4 and morals4 and protection of small and medium scale enterprises Up to )AR Forei#n EI'it7 1.Man'fact're@ repair@ $tora#e@ an!Nor !i$tri/'tion of pro!'ct$ an!Nor in#re!ient$ reI'irin# PNP c6earance elescopic sig!ts4 sniper scope4 and ot!er similar devices6 @owever4 t!e manufacture or repair of t!ese items ma# 3e aut!orized 3# t!e C!ief of t!e %N% to non1%!ilippine nationals7 provided t!at a su3stantial percentage of t!e output as determined 3# t!e said agenc# is e5ported6 %rovided furt!er t!at t!e e5tent of foreign e;uit# owners!ip allowed s!all 3e specified in t!e said aut!orit# K clearance (R2 ,0$2 as amended 3# R2 -1,/) .Man'fact're@ repair@ $tora#e@ an!Nor !i$tri/'tion of pro!'ct$ reI'irin# -epart%ent of Nationa6 -efen$e (-N-+ c6earance, a6 36 c6 d6 e6 f6 g6 !6 <uns and ammunition for warfare .ilitar# ordinance and parts t!ereof (torpedoes4 dept! c!arges4 3om3s4 grenades4 missiles) <unner#4 3om3ing4 and fire control s#stems and components <uided missiles s#stems and components actical aircraft (fi5ed and rotar# winged)4 parts and components t!ereof 'pace ve!icles and component s#stems Com3at vessels (air4 land4 naval) and au5iliaries 9eapons repair and maintenance e;uipment

).Sa'na an! $tea% /athho'$e$@ %a$$a#e c6inic$ an! other 6i9e acti"itie$ re#'6ate! /7 6a= /eca'$e of ri$9$ po$e! to the p'/6ic hea6th an! %ora6$ (RA 5A) a$ a%en!e! /7 RA ?15*+ 3.A66 for%$ of #a%/6in#@ i.e. race trac9 operation (RA 5A) a%en!e! /7 RA ?15*+ a$

4.-o%e$tic %ar9et enterpri$e$ =ith pai! in eI'it7 capita6 of 6e$$ than the eI'i"a6ent of US P AA@AAA (RA 5A) a$ a%en!e! /7 RA ?15*+ 5.-o%e$tic %ar9et enterpri$e$ =hich in"o6"e a!"ance! techno6o#7 or e%p6o7 at 6ea$t 3A !irect e%p6o7ee$ =ith pai! in eI'it7 capita6 of 6e$$ than the eI'i"a6ent of US P 1AA@AAA (RA 5A) a$ a%en!e! /7 RA ?15*+

14.) La=$ app6ica/6e to forei#n corporation$ 6icen$e! to tran$act /'$ine$$ in the Phi6ippine$ (Section 1 *+
Sec. 1 *. La( applicable 2n# foreign corporation lawfull# doing 3usiness in t!e %!ilippines

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211),

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
laws6 ()/a)

s!all 3e 3ound 3# all laws4 rules and regulations applica3le to domestic corporations of t!e same class4 e5cept suc! onl# as provide for t!e creation4 formation4 organization or dissolution of corporations or t!ose w!ic! fi5 t!e relations4 lia3ilities4 responsi3ilities4 or duties of stoc(!olders4 mem3ers4 or officers of corporations to eac! ot!er or to t!e corporation6 (,3a)
UP C6a$$ Note$ 16 !is is limited to Filipino citizens save in cases prescri3ed 3# law 26 Full foreign participation is allowed for retail trade enterprisesD (a) wit! paid1up capital of >' ^ 24&004000 or more provided t!at investments for esta3lis!ing a store is not less t!an >' ^ -3040007 or (3) specializing in !ig! end or lu5ur# products4 provided t!at t!e paid1 up capital per store is not less t!an >' ^ 2&04000 ('ec6 & of R2 -,)2) 36 +omestic investments are also pro!i3ited (2rt6 :: 'ec6 - Constitution7 Conventions W reaties to wKc t!e %!ilippines is signator# $6 Full foreign participation is allowed t!roug! financial or tec!nical assistance agreement wK t!e %resident (2rt6 P:: 'ec6 2 Constitution) &6 Full foreign participation is allowed provided t!at wit!in t!e 30 #ear period from start of operation4 t!e foreign investor s!all divest a minimum of )0A of t!eir e;uit# to Filipino citizens ('ec6 & %+ 1/$7 NF2 Council Resolution No6 1/3 s6 1//-) )6 No foreign national ma# 3e allowed to own stoc( financing companies or investment !ouses unless t!e countr# of w!ic! !e is a national accords t!e same reciprocal rig!ts to Filipinos ('ec6 ) of R2 &/-0 as amended 3# R2 -&&)7 %+ 12/ as amended 3# R2 -3)))

S'a/i6it7 of Forei#n Corporation$, (CLG8s CLR at /$,)


+oing 3usiness in t!e %!ilippines =ith a 6icen$e +oing 3usiness in t!e %!ilippines =itho't 6icen$e Not doing 3usiness in t!e %!ilippines4 on isolated transactions
)ac*+s Lecture :f a foreign corporation is 3eing sued4 t!e summons must 3e served on t!e resident agent6 !e corporation is also re;uired to file wit! t!e '"C a power of attorne# or resolution w!ic! sa#s t!at if it !as no resident agent it agrees t!at t!e summons 3e served wit! t!e '"C w!ic! will forward t!e summons and t!e complaint to t!e foreign corporation6 :f no resident agent and an# officer w!o will 3e in t!e %!ilippines ma# 3e served wit! summons6 'ection 133 sa#s t!at if t!e foreign corporation will 3e doing 3usiness wit!out a license it cannot sue or intervene in an# action in court or administrative agenc#6 !e 'C !ad said t!at if a foreign corporation is doing 3usiness !ere wit!out a license4 a contract it entered into is valid4 it is not rendered void so t!e court said t!e legislature made a ?udgment call t!at imposing penal sanctions and den#ing access to t!e courts are sufficient penalties for doing 3usiness wit!out a license6 !e legislature did not provide t!at t!e contract it entered into is void6 2lt!oug! t!e foreign corporation did not !ave license to do 3usiness w!en it entered into in t!at contract4 it could sue if later on it ac;uired a license to do 3usiness6 :f a foreign corporation is not doing 3usiness it can sue 3ecause it is not re;uired to get a license 3ut it can not 3e sued 3ecause it !as no presence !ere it will violate due process6 :n t!e farm mac!iner# case4 t!e court made an o3iter dictum t!at a foreign corporation not doing 3usiness can 3e sued4 t!e reasoning of =ustice .a(asiar4 if t!e foreign corporation not doing 3usiness can sue4 t!en it s!ould also 3e allowed to 3e sued is wrong 3ecause t!at will violate due process 3ecause it !as no presence !ere6 Our courts cannot ac;uire ?urisdiction over it6 !e

.a# sue and can 3e sued in t!e %!ilippines Cannot sue4 3ut ma# 3e sued in t!e %!ilippines .a# sue .a# 3e sued (Facilities .gt v6 dela Osa4 1/,/)

14.3 Con$eI'ence$ of !oin# /'$ine$$ Phi6ippine$ =itho't a 6icen$e (Section 1..+


Sec. 1... Doing business (ithout a license

in

the

No foreign corporation transacting 3usiness in t!e %!ilippines wit!out a license4 or its successors or assigns4 s!all 3e permitted to maintain or intervene in an# action4 suit or proceeding in an# court or administrative agenc# of t!e %!ilippines7 3ut suc! corporation ma# 3e sued or proceeded against 3efore %!ilippine courts or administrative tri3unals on an# valid cause of action recognized under %!ilippine

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211)-

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
9!enever a foreign corporation aut!orized to transact 3usiness in t!e %!ilippines s!all 3e a part# to a merger or consolidation in its !ome countr# or state as permitted 3# t!e law of its incorporation4 suc! foreign corporation s!all4 wit!in si5t# ()0) da#s after suc! merger or consolidation 3ecomes effective4 file wit! t!e 'ecurities and "5c!ange Commission4 and in proper cases wit! t!e appropriate government agenc#4 a cop# of t!e articles of merger or consolidation dul# aut!enticated 3# t!e proper official or officials of t!e countr# or state under t!e laws of w!ic! merger or consolidation was effectedD %rovided4 !owever4 !at if t!e a3sor3ed corporation is t!e foreign corporation doing 3usiness in t!e %!ilippines4 t!e latter s!all at t!e same time file a petition for wit!drawal of it license in accordance wit! t!is itle6 (n)

remed# is to ma(e t!e action an action ;uasi in rem #ou attac! its propert# serve it summons6 :f t!e corporation is doing 3usiness w!et!er or not it is licensed it can 3e sued4 t!e law sa#s t!at if it is doing 3usiness 3ut it !as no license it cannot sue6 :f a foreign corporation is suing it must alleged eit!er t!at it is not doing 3usiness or it is doing 3usiness 3ut it is licensed 3ecause a plaintiff must indicate in t!e complaint t!at it !as t!e legal capacit# to sue6 :n t!e case of a foreign corporation it must s!ow it is eit!er not doing 3usiness or it doing 3usiness and it is licensed6 @owever4 in t!e .errill L#nc! case4 t!e court said t!at if a foreign corporation is doing 3usiness wit!out a license4 it t!e ot!er part# was aware of it4 it can not claim t!at t!e plaintiff cannot sue4 !e will 3e in estoppel !aving 3enefited from t!e contract6 "5cept in two cases4 t!e 'C !as followed t!is most of t!e su3se;uent cases6

Other than in ca$e$ of i$o6ate! tran$action$@ %a7 a forei#n corporation not !oin# /'$ine$$ in the Phi6ippine$ $'eD Qes o protect its reputation4 corporate name and goodwill ('ec 3 of R2 -2/3) For infringement of trademar( or trade1name4 unfair competition or false description of products and infringement of patent6 ('ection 1)0 R2 -2/3) (@and3oo( of Conflict of Laws at 1$-)

14.5 Re"ocation of 6icen$e an! i$$'ance of certificate of re"ocation (Section 1.) an! 1.3+
Sec. 1.). %e#ocation of license 9it!out pre?udice to ot!er grounds provided 3# special laws4 t!e license of a foreign corporation to transact 3usiness in t!e %!ilippines ma# 3e revo(ed or suspended 3# t!e 'ecurities and "5c!ange Commission upon an# of t!e following groundsD 16 Failure to file its annual report or pa# an# fees as re;uired 3# t!is Code7 26 Failure to appoint and maintain a resident agent in t!e %!ilippines as re;uired 3# t!is itle7 36 Failure4 after c!ange of its resident agent or of !is address4 to su3mit to t!e 'ecurities and "5c!ange Commission a statement of suc! c!ange as re;uired 3# t!is itle7 $6 Failure to su3mit to t!e 'ecurities and "5c!ange Commission an aut!enticated cop# of an# amendment to its articles of incorporation or 3#1laws or of an# articles of merger or consolidation wit!in t!e time prescri3ed 3# t!is itle7 &6 2 misrepresentation of an# material matter in an# application4 report4 affidavit or ot!er document su3mitted 3# suc! corporation pursuant to t!is itle7

14.4 Mer#er or con$o6i!ation in"o6"in# 6icen$e! forei#n corporation (Section 1. +


Sec. 1. . Merger or consolidation in#ol#ing a foreign corporation licensed in the Philippines One or more foreign corporations aut!orized to transact 3usiness in t!e %!ilippines ma# merge or consolidate wit! an# domestic corporation or corporations if suc! is permitted under %!ilippine laws and 3# t!e law of its incorporationD %rovided4 !at t!e re;uirements on merger or consolidation as provided in t!is Code are followed6

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211)/

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA
36 !e petition for wit!drawal of license !as 3een pu3lis!ed once a wee( for t!ree (3) consecutive wee(s in a newspaper of general circulation in t!e %!ilippines6

)6 Failure to pa# an# and all ta5es4 imposts4 assessments or penalties4 if an#4 lawfull# due to t!e %!ilippine <overnment or an# of its agencies or political su3divisions7 ,6 ransacting 3usiness in t!e %!ilippines outside of t!e purpose or purposes for w!ic! suc! corporation is aut!orized under its license7 -6 ransacting 3usiness in t!e %!ilippines as agent of or acting for and in 3e!alf of an# foreign corporation or entit# not dul# licensed to do 3usiness in t!e %!ilippines7 or /6 2n# ot!er ground as would render it unfit to transact 3usiness in t!e %!ilippines6 (n) Sec. 1.3. Issuance of certificate of re#ocation >pon t!e revocation of an# suc! license to transact 3usiness in t!e %!ilippines4 t!e 'ecurities and "5c!ange Commission s!all issue a corresponding certificate of revocation4 furnis!ing a cop# t!ereof to t!e appropriate government agenc# in t!e proper cases6 !e 'ecurities and "5c!ange Commission s!all also mail to t!e corporation at its registered office in t!e %!ilippines a notice of suc! revocation accompanied 3# a cop# of t!e certificate of revocation6 (n)

4e are (hat (e repeatedly do. =cellence then1 is not an act1 but a habit.
:Aristotle

14.? With!ra=a6 of forei#n corporation (Section 1.4+


Sec. 1.4. 4ithdra(al of foreign corporations 'u3?ect to e5isting laws and regulations4 a foreign corporation licensed to transact 3usiness in t!e %!ilippines ma# 3e allowed to wit!draw from t!e %!ilippines 3# filing a petition for wit!drawal of license6 No certificate of wit!drawal s!all 3e issued 3# t!e 'ecurities and "5c!ange Commission unless all t!e following re;uirements are met7 16 2ll claims w!ic! !ave accrued in t!e %!ilippines !ave 3een paid4 compromised or settled7 26 2ll ta5es4 imposts4 assessments4 and penalties4 if an#4 lawfull# due to t!e %!ilippine <overnment or an# of its agencies or political su3divisions !ave 3een paid7 and

'he secret of li#ing a life of e=cellence is merely a matter of thin*ing thoughts of e=cellence
:Li#ing Abo#e Mediocrity

=cellence is .eing
:Marsius 'igris

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211,0

FRATERNAL ORDER OF UTOPIA


ATENEO DE MANILA UNIVERSITY
SCHOOL OF LAW

ARIS S. MANGUERA

I sweat, I bleed, I soar Service, Sacrifice, Excellence

211,1