Vous êtes sur la page 1sur 67

MIDTERMS o Where one corporation is so organized and controlled and its affairs are

conducted so that it is in fact a mere instrumentality or adjunct of the


THE CORPORATION CODE OF THE PHILIPPINES (Batas Pambansa Blg. 68) other
Alter Ego a SH of a group or a group of SH of a stock corporation controls
Q: What is a corporation? another corporation
Sec. 2. Corporation defined. - A corporation is an artificial being created by o Where the corporation is a mere alter ego/farce/conduit of individual
operation of law, having the right of succession and the powers, attributes and SH; Where a subsidiary corporation is created by a parent company
properties expressly authorized by law or incident to its existence. merely as an agency especially if SH/officers are the same
Factors:
Q: What are the 4 attributes of a corporation? 1. Parent owns all/most of capital stock
(SOAP) 2. They have common directors/officers
1. It has the Right of Succession 3. Parent finances subsidiary
2. It is created by operation of law 4. Parent subscribes to all the capital stock
3. It is an artificial being with separate and distinct personality 5. Subsidiary has inadequate capital
4. It has the powers, attributes, and properties expressly authorized by law or 6. Subsidiary is only a department
incident to its existence 7. Parent uses property as its own

Q: What is the doctrine of corporate entity? Q: What are the 3 tests IF BASED ON THE INSTRUMENTALITY RULE?
A corporation is a legal or juridical person with a personality separate and apart 1. Control, not mere majority or complete stock control, but complete domination,
from its individual SH or members and from any other legal entity to which it may not only of finances but of policy and business practice in respect to the
be connected transaction attacked so that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own;
Q: What is the doctrine of piercing the corporate veil? What is the test? 2. Such control must have been used by the defendant to commit Fraud or wrong,
The court will not hesitate to disregard the corporate veil when it is misused or to perpetuate the violation of a statutory or other positive legal duty, or dishonest
when necessary in the interest of justice. The concept of corporate entity was not and unjust act in contravention of plaintiff's legal rights; and
meant to promote unfair objectives 3. The aforesaid control and breach of duty must proximately cause the injury or
The doctrine is used for unjust loss complained of. (Harm)
o 1. Convenience
o 2. To subserve the ends of justice Q: What is the difference between a corporation and a partnership?
Instances: As to creation
o 1. Separate personality will be disregarded As to # of incorporators
o 2. The veil of corporate fiction will be pierced As to commencement
o 3. A corporation will be treated as a mere alter ego As to powers
Some purposes: As to management
o To defeat public convenience, to justify a wrong, to protect fraud, to As to effect of mismanagement
defend a crime As to existence of right of succession
Caveat: the doctrine is frowned upon and must be proceeded with caution As to extent of liability to third persons
Presumption: Separate and distinct As to transferability of interest
Effect: The corporate character is not necessarily abrogated, but the corporation As to term of existence
continues for legitimate purposes As to firm name
o Effect as to liability: As to dissolution
o 1. Corpo = mere association of persons As to law governing
o 2. SH or members = may be personally liable
o 3. Where there are 2 corpos = merged into 1 Q: Can a corporation become a partner?
GR: No. In entering into partnership, the identity of a corporation is lost or merged
Q: What is the instrumentality or alter ego rule? with that of another and the direction of its affairs is placed in the hands of other
Instrumentality Rule a corporation controls another corporation persons other than those provided for by law of its creation

Nudibranch 1
o EXPN: o Non-stock Corporation - All other corporations are non-stock
o 1. Corpo may enter into a Joint Venture with another where the nature corporations.
of the venture is in line with the business authorized by its charter Purpose: public goal or welfare
o 2. SEC allowed the JVP As to # of persons:
o 3. Where the agreement provides that the 2 will manage the o Corporation Aggregate
partnership so that the management of the corporate interest is not o Corporation Sole
surrendered As to whether they are for religious purposes or not:
o REQ: o Ecclesiastical Corporation
1. All corpos are managing partners o Lay Corporation
2. Law/charter/AOI expressly allows it As to whether they are for charitable purpose or not:
3. Foreign corpo has license to transact here o Eleemosynary Corporation
o Civil Corporation
Q: What are the advantages and disadvantages of a corporation? As to State under whose laws they have been created:
Advantages (ACS-MS-LAT) o Domestic Corporation
o 1. Legal capacity to Act in its own name o Foreign Corporation
o 2. Continuity of existence As to their legal right to corporate existence
o 3. Credit is Strengthened by continuity o De Jure Corporation
o 4. Management is with BOD o De Facto Corporation
5. Creation, Organization, Management, and Dissollution is As to whether they are open to public ownership or not
Standardized o Open Corporation
o 6. Makes feasible gigantic financial undertakings o Close Corporation
o 7. SH have Limited Liability As to whether their relation to other corporation
o 8. Not general agents o Parent/Holding Corporation
o 9. Shares of stock may be transferred o Subsidiary Corporation
Disadvantages: (CEWL-LGS-TV) o Affiliated Corporation
o 1. Complicated in formation As to whether they are for government purposes
o 2. Entails high cost o Public Corporation mere instrumentality of the State subj to govt
o 3. Credit is weakened visitation and control
o 4. Lack of personal element o Private Corporation - - A contract between the State and corporation
o 5. Greater degree of governmental control not subj to visitation by the State
o 6. Management and control is separated from ownership GOCCs
o 7. Voting rights have become theoretized Quasi-Public Corporation
o 8. SH have little voice As to whether they are corporation in a true sense or limited sense only
Hypos from quiz: o True Corporation
Redeemable shares problem o Quasi-corporation
Can Redeemable shares become treasury shares? Corporation by prescription
Mismanagement problem Corporation by estoppel

Q: What are the classes of corporation? Sec. 4. Corporations created by special laws or charters. - Corporations created by special
Sec. 3. Classes of corporations. - Corporations formed or organized under this laws or charters shall be governed primarily by the provisions of the special law or charter
Code may be stock or non-stock corporations. creating them or applicable to them, supplemented by the provisions of this Code, insofar as
o Stock Corporation - Corporations which have capital stock divided into they are applicable.
shares and are authorized to distribute to the holders of such shares
dividends or allotments of the surplus profits on the basis of the shares Sec. 5. Corporators and incorporators, stockholders and members. - Corporators are those
held are stock corporations. who compose a corporation, whether as stockholders or as members. Incorporators are those
Purpose: profit stockholders or members mentioned in the articles of incorporation as originally forming and
composing the corporation and who are signatories thereof.

Nudibranch 2
further, That there shall always be a class or series of shares which have complete voting
Corporators in a stock corporation are called stockholders or shareholders. Corporators in a rights. Any or all of the shares or series of shares may have a par value or have no par value as
non-stock corporation are called members. may be provided for in the articles of incorporation: Provided, however, That banks, trust
companies, insurance companies, public utilities, and building and loan associations shall not
Q: Who are the persons composing a corporation? be permitted to issue no-par value shares of stock.
1. Corporators those who compose the corporation whether
o Stockholders; or Preferred shares of stock issued by any corporation may be given preference in the
o Members distribution of the assets of the corporation in case of liquidation and in the distribution of
2. Incorporators those corporations mentioned in the AOI as originally forming dividends, or such other preferences as may be stated in the articles of incorporation which
and composing a corporation; and who executed and signed the AOI; and are not violative of the provisions of this Code: Provided, That preferred shares of stock may
acknowledged the same before a notary public be issued only with a stated par value. The board of directors, where authorized in the articles
o Function: to enable a corporation to become a body politic under the of incorporation, may fix the terms and conditions of preferred shares of stock or any series
law thereof: Provided, That such terms and conditions shall be effective upon the filing of a
3. Stockholders the owners of shares of stock in a stock corporation certificate thereof with the Securities and Exchange Commission.
4. Members corporators of a stock corporation which has no capital stock
3 OTHER CLASSES: Shares of capital stock issued without par value shall be deemed fully paid and non-assessable
o 1. Promoter persons who bring about the formation and organization and the holder of such shares shall not be liable to the corporation or to its creditors in
of a corporation by bringing together incorporators or persons respect thereto: Provided; That shares without par value may not be issued for a
interested in the enterprise, procuring subscriptions or capital for the consideration less than the value of five (P5.00) pesos per share: Provided, further, That the
corporation and setting in motion the machinery which leads to the entire consideration received by the corporation for its no-par value shares shall be treated as
incorporation of the corporation itself; they lay the groundwork capital and shall not be available for distribution as dividends.
o 2. Subscriber persons who have agreed to take and pay for original,
unissued shares of a corporation formed or to be formed A corporation may, furthermore, classify its shares for the purpose of insuring compliance
o 3. Underwriter with constitutional or legal requirements.

Q: What are the classifications of shares? Except as otherwise provided in the articles of incorporation and stated in the certificate of
Common stock, each share shall be equal in all respects to every other share.
Preferred
Voting Where the articles of incorporation provide for non-voting shares in the cases allowed by
Non-voting this Code, the holders of such shares shall nevertheless be entitled to vote on the following
Share in escrow matters:
Over-issued 1. Amendment of the articles of incorporation;
Watered 2. Adoption and amendment of by-laws;
Par value 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of
No par value the corporate property;
Convertible 4. Incurring, creating or increasing bonded indebtedness;
Fractional 5. Increase or decrease of capital stock;
Promotion 6. Merger or consolidation of the corporation with another corporation or other
Founders corporations;
Redeemable 7. Investment of corporate funds in another corporation or business in accordance with this
Treasury Code; and
8. Dissolution of the corporation.
Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into
classes or series of shares, or both, any of which classes or series of shares may have such Except as provided in the immediately preceding paragraph, the vote necessary to approve a
rights, privileges or restrictions as may be stated in the articles of incorporation: Provided, particular corporate act as provided in this Code shall be deemed to refer only to stocks with
That no share may be deprived of voting rights except those classified and issued as voting rights.
"preferred" or "redeemable" shares, unless otherwise provided in this Code: Provided,

Nudibranch 3
Sec. 7. Founders' shares. - Founders' shares classified as such in the articles of incorporation EXPN: SEC determines that there are justifiable reasons for
may be given certain rights and privileges not enjoyed by the owners of other stocks, an earlier extension
provided that where the exclusive right to vote and be voted for in the election of directors is Extension may be made but not exceeding 50 years in a single instance
granted, it must be for a limited period not to exceed five (5) years subject to the approval of There is no limit to the number of extensions
the Securities and Exchange Commission. The five-year period shall commence from the date
of the aforesaid approval by the Securities and Exchange Commission. Q: What is the requirement as to capital stock requirement?
GR: Sec. 12. Minimum capital stock required of stock corporations. - Stock
Sec. 8. Redeemable shares. - Redeemable shares may be issued by the corporation when corporations incorporated under this Code shall not be required to have any
expressly so provided in the articles of incorporation. They may be purchased or taken up by minimum authorized capital stock (as long as the paid up capital is not less than
the corporation upon the expiration of a fixed period, regardless of the existence of 5,000)
unrestricted retained earnings in the books of the corporation, and upon such other terms EXPN: except as otherwise specifically provided for by special law, and subject to
and conditions as may be stated in the articles of incorporation, which terms and conditions the provisions of the following section.
must also be stated in the certificate of stock representing said shares. o Sec. 13: The 25%-25% rule

Sec. 9. Treasury shares. - Treasury shares are shares of stock which have been issued and fully Sec. 13. Amount of capital stock to be subscribed and paid for the purposes of
paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, incorporation. - At least twenty-five percent (25%) of the authorized capital stock as stated in
donation or through some other lawful means. Such shares may again be disposed of for a the articles of incorporation must be subscribed at the time of incorporation, and at least
reasonable price fixed by the board of directors. twenty-five (25%) per cent of the total subscription must be paid upon subscription, the
balance to be payable on a date or dates fixed in the contract of subscription without need of
Sec. 10. Number and qualifications of incorporators. - Any number of natural persons not call, or in the absence of a fixed date or dates, upon call for payment by the board of
less than five (5) but not more than fifteen (15), all of legal age and a majority of whom are directors: Provided, however, That in no case shall the paid-up capital be less than five
residents of the Philippines, may form a private corporation for any lawful purpose or Thousand (P5,000.00) pesos.
purposes. Each of the incorporators of s stock corporation must own or be a subscriber to at
least one (1) share of the capital stock of the corporation. Sec. 14. Contents of the articles of incorporation. - All corporations organized under this
code shall file with the Securities and Exchange Commission articles of incorporation in any of
Q: What are the qualifications of incorporators a corporation? the official languages duly signed and acknowledged by all of the incorporators, containing
(5-MOAN) substantially the following matters, except as otherwise prescribed by this Code or by special
1. Not less than 5 but not more than 15 law:
2. Majority must be residents
3. Each must own or subscribe to at least 1 share of the capital stock 1. The name of the corporation;
4. Of legal age 2. The specific purpose or purposes for which the corporation is being incorporated. Where a
5. Natural Person not suffering from legal incapacity corporation has more than one stated purpose, the articles of incorporation shall state which
is the primary purpose and which is/are he secondary purpose or purposes: Provided, That a
Sec. 11. Corporate term. - A corporation shall exist for a period not exceeding fifty (50) years non-stock corporation may not include a purpose which would change or contradict its nature
from the date of incorporation unless sooner dissolved or unless said period is extended. The as such;
corporate term as originally stated in the articles of incorporation may be extended for 3. The place where the principal office of the corporation is to be located, which must be
periods not exceeding fifty (50) years in any single instance by an amendment of the articles within the Philippines;
of incorporation, in accordance with this Code; Provided, That no extension can be made 4. The term for which the corporation is to exist;
earlier than five (5) years prior to the original or subsequent expiry date(s) unless there are 5. The names, nationalities and residences of the incorporators;
justifiable reasons for an earlier extension as may be determined by the Securities and 6. The number of directors or trustees, which shall not be less than five (5) nor more than
Exchange Commission. fifteen (15);
7. The names, nationalities and residences of persons who shall act as directors or trustees
Q: What is the term of existence of a corporation? until the first regular directors or trustees are duly elected and qualified in accordance with
GR: Not exceeding 50 years this Code;
o Unless: sooner dissolved; period is shortened or extended 8. If it be a stock corporation, the amount of its authorized capital stock in lawful money of
o Provided: not earlier than 5 years prior to the expiration date the Philippines, the number of shares into which it is divided, and in case the share are par
value shares, the par value of each, the names, nationalities and residences of the original

Nudibranch 4
subscribers, and the amount subscribed and paid by each on his subscription, and if some or Q: What are the components of a corporate charter?
all of the shares are without par value, such fact must be stated; It depends.
9. If it be a non-stock corporation, the amount of its capital, the names, nationalities and As to corporations formed under the general incorporation law:
residences of the contributors and the amount contributed by each; and 1. Law under which it was organized (B.P. 68)
10. Such other matters as are not inconsistent with law and which the incorporators may 2. Articles of Incorporation
deem necessary and convenient. 3. By laws
4. All applicable provisions of the Constitution and the general laws of the state in
The Securities and Exchange Commission shall not accept the articles of incorporation of any force at the time the corporation was incorporated
stock corporation unless accompanied by a sworn statement of the Treasurer elected by the As to corporations created by special laws, the charter consists of:
subscribers showing that at least twenty-five (25%) percent of the authorized capital stock of 1. Special law which creates the corporation
the corporation has been subscribed, and at least twenty-five (25%) of the total subscription 2. Executive Orders of the President
has been fully paid to him in actual cash and/or in property the fair valuation of which is equal 3. Rules & Regulations applicable to such corps
to at least twenty-five (25%) percent of the said subscription, such paid-up capital being not 4. All laws applicable thereto including the Corporation Code
less than five thousand (P5,000.00) pesos.
Q: What are the requirements to Amend the Articles of Incorporation under Section 16?
Sec. 15. Forms of Articles of Incorporation. - Unless otherwise prescribed by special law, Not otherwise prohibited by Corporation Code or by special law
articles of incorporation of all domestic corporations shall comply substantially with the For legitimate purposes,
following form: With respect to Stock corporations: (RVS)
o (resolution) By a majority vote of the board of directors or trustees and
First Meeting. o The vote or WRITTEN ASSENT of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock, without prejudice to
Sec. 16. Amendment of Articles of Incorporation. - Unless otherwise prescribed by this Code the appraisal right of dissenting stockholders in accordance with the
or by special law, and for legitimate purposes, any provision or matter stated in the articles of provisions of this Code,
incorporation may be amended by a majority vote of the board of directors or trustees and WRITEN ASSENT the SH vote on the amendment need not
the vote or written assent of the stockholders representing at least two-thirds (2/3) of the be taken at a meeting
outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders o Submission and filing to SEC
in accordance with the provisions of this Code, or the vote or written assent of at least two- With respect to Non-stock corporations:
thirds (2/3) of the members if it be a non-stock corporation. o The vote or written assent of at least two-thirds (2/3) of the members if
it be a non-stock corporation.
The original and amended articles together shall contain all provisions required by law to be o Submission and filing to SEC
set out in the articles of incorporation. Such articles, as amended shall be indicated by The original and amended articles together shall contain all provisions required by
underscoring the change or changes made, and a copy thereof duly certified under oath by law to be set out in the articles of incorporation.
the corporate secretary and a majority of the directors or trustees stating the fact that said Such articles, as amended shall be indicated by underscoring the change or
amendment or amendments have been duly approved by the required vote of the changes made, and a copy thereof duly certified under oath by the corporate
stockholders or members, shall be submitted to the Securities and Exchange Commission. secretary and a majority of the directors or trustees stating the fact that said
The amendments shall take effect upon their approval by the Securities and Exchange amendment or amendments have been duly approved by the required vote of the
Commission or from the date of filing with the said Commission if not acted upon within six stockholders or members, shall be (submitted) to the Securities and Exchange
(6) months from the date of filing for a cause not attributable to the corporation. Commission. Aside from the filing the amendment, the corresponding fees must
be paid.
Q: What is a Charter? Date of effectivity: The amendments shall take effect upon their approval by the
It is an instrument or authority from the sovereign power bestowing the right or Securities and Exchange Commission or from the date of filing with the said
privilege to be and act as a corporation Commission if not acted upon within six (6) months from the date of filing for a
cause not attributable to the corporation.
Q: How is it different from a Franchise?
Franchise is the right or privilege itself of being a corporation Sec. 17. Grounds when articles of incorporation or amendment may be rejected or
Charter applies to the instrument bestowing such right and privilege disapproved. - The Securities and Exchange Commission may reject the articles of
incorporation or disapprove any amendment thereto if the same is not in compliance with the

Nudibranch 5
requirements of this Code: Provided, That the Commission shall give the incorporators a protected by law or is patently deceptive, confusing or contrary to existing laws.
reasonable time within which to correct or modify the objectionable portions of the articles When a change in the corporate name is approved, the Commission shall issue an
or amendment. The following are grounds for such rejection or disapproval: amended certificate of incorporation under the amended name.

1. That the articles of incorporation or any amendment thereto is not substantially in Q: What are the limitations on the corporate name?
accordance with the form prescribed herein; Similarity with another trade name
2. That the purpose or purposes of the corporation are patently unconstitutional, illegal, o This is important for lawyers because the first thing that must be done
immoral, or contrary to government rules and regulations; when organizing and usually it is done by reserving a corporate name
3. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or online
paid if false; Prohibited use of certain names under special laws
4. That the percentage of ownership of the capital stock to be owned by citizens of the o United Nations/UN
Philippines has not been complied with as required by existing laws or the Constitution. o Bonded if the company is not a licensed bonding company
o Bank, Rural Bank
No articles of incorporation or amendment to articles of incorporation of banks, banking and o Savings and Loan association
quasi-banking institutions, building and loan associations, trust companies and other financial o Financing companies
intermediaries, insurance companies, public utilities, educational institutions, and other Doctrine of Secondary Meaning
corporations governed by special laws shall be accepted or approved by the Commission o A word or phrase originally incapable of exclusive appropriation with
unless accompanied by a favorable recommendation of the appropriate government agency reference to an article on the market, because geographically or other
to the effect that such articles or amendment is in accordance with law. descriptive, might nevertheless have been used so long and so
exclusively by one producer with reference to his article, in that trade
Q: What are the grounds for disapproval or rejection of amendment of the AOI? (NUTO) and to that branch of the purchasing public, the word or phrase has
1. That the articles of incorporation or any amendment thereto is not substantially come to mean that the article was his product
in accordance with the form prescribed herein; Part of name
2. That the purpose or purposes of the corporation are patently unconstitutional, o Corporation or Corp; Incorporation or Inc
illegal, immoral, or contrary to government rules and regulations;
3. That the Treasurer's Affidavit concerning the amount of capital stock subscribed Q: What is the undertaking required to be submitted to the SEC by the corporation?
and/or paid if false; The undertaking which is attached to articles of incorporation is that the
4. That the percentage of ownership of the capital stock to be owned by citizens of corporation will change its name later on in case it is discovered that it is in use
the Philippines has not been complied with as required by existing laws or the already by an existing corporation
Constitution.
LYCEUM V. CA
Q: Is the enumeration under Section 17 exclusive? Q: What is the meaning of Lyceum?
No. Under PD 902-A, the SEC may suspend or revoke after proper notice and o Root word Liceo means institution for learning
hearing the franchise of corporations, partnerships or associations upon any of the Q: Wont it be confusingly similar?
grounds: o No, in the other schools, they put the geographical phrase so as not to
1. Fraud in procuring its certificate of incorporation confuse the public (i.e. Lyceum of Aparri)
2. Serious misrepresentation
TH
3. Refusal to comply with or defiance of a lawful order of the commission 7 DAY ADVENTIST V. NORTHEASTERN
4. Continuous inoperation for a period of at least 5 years Q: One argument was that the church was a de facto government to give them
5. Failure to file by laws within the required period personality. How did SC rule?
6. Failure to file required reports in appropriate forms as determined by the o SC says that not all of the 3 requisites of a de facto corporation was
commission within the prescribed period complied with
Q: Which requisite was not complied with?
Q: Can you think of any other ground? o There was no bona fide attempt to organize. There was no application
Sec. 18. Corporate name. - No corporate name may be allowed by the Securities to become a corporation
and Exchange Commission if the proposed name is identical or deceptively or Q: Assuming that there was application, is this sufficient?
confusingly similar to that of any existing corporation or to any other name already

Nudibranch 6
nd
o No, mere application is not sufficient. In order to complete the 2 De Facto Corporation organized with a colorable compliance with the
requisite, there must be issuance of the Articles of Incorporation by SEC requirements of a valid law and its existence cannot be inquired collaterally but
such inquiry may be made by the SolGen in a quo warranto proceeding
INDUSTRIAL REFRACTORIES V. CA
Q: What are the instances that made the public confused? Q: What are the requisites of a De Facto Corporation?
o 1. Both have the same 3 words (LAC)
o 2. Similar packaging 1. A valid law under which a corporation with powers assumed might be
o 3. They cater to the same clientele steel incorporated
Q: How did the SC rule on the issue of jurisdiction? 2. A bona fide attempt in GF to organize a corporation under such law
o The SEC has the authority to approve the corporate name 3. Actual user or exercise in Good Faith of corporate powers upon it by law

Q: When does the corporation acquire juridical personality? Q: What do you mean when you say collateral attack of the corporate existence
Sec. 19. Commencement of corporate existence. - A private corporation formed or One whereby corporate existence is questioned in some incidental proceedings
organized under this Code commences to have corporate existence and juridical not provided by law for the express purpose of attacking the corporate existence
personality and is deemed incorporated from the date the Securities and Exchange
Commission issues a certificate of incorporation under its official seal; and Q: So can a private person attack the existence of a corporation?
thereupon the incorporators, stockholders/members and their successors shall No. Only the State can do so.
constitute a body politic and corporate under the name stated in the articles of
incorporation for the period of time mentioned therein, unless said period is Q: What must be done to attack the corporate existence?
extended or the corporation is sooner dissolved in accordance with law Direct Attack
o One whereby the State, in a proceeding brought for that purpose,
Q: What is the effect when the AOI are issued by SEC? attacks the existence of an association claiming to be a corporation
The incorporators, stockholders/members and their successors shall constitute a o Can only be instituted by the Solicitor General by Quo Warranto
body politic and corporate under the name stated in the articles of incorporation proceedings
for the period of time mentioned therein, unless said period is extended or the
corporation is sooner dissolved in accordance with law. Q: Instances of De Facto Corporation? What is a good example?
nd
Q: What is the corporate maximum term? Q: What is meant by the 2 requisite, bona fide intention to organize?
50 years extendible for another 50 years Application to organize corporation
Submission of all requirements
Sec. 20. De facto corporations. - The due incorporation of any corporation claiming in good Issuance of AOI
faith to be a corporation under this Code, and its right to exercise corporate powers, shall not
be inquired into collaterally in any private suit to which such corporation may be a party. Such HALL V. PICCIO
inquiry may be made by the Solicitor General in a quo warranto proceeding. To become a De Facto Corporation, the articles of incorporation need to be filed
and the SEC must issue the certificate of incorporation. This is the same doctrine
th
Q; Does a de facto corporation have juridical personality? reiterated in the 7 day Adventist case.
Yes. A de facto may exercise the same power that a de jure exercises
Assignment: starting from corporation by estoppel up to Sec. 25 plus 4 addl cases
Q: What is the difference between de facto and de jure as to the exercise of corporate
powers? Second Meeting.
No difference, as to the exercise of corporate powers.
De Jure Corporation a corporation created in strict or substantial conformity Q: What is a corporation by Estoppel?
with the mandatory or statutory requirements for incorporation and the right of Sec. 21. Corporation by estoppel. - All persons who assume to act as a
which to exist as a corporation cannot be successfully attacked or questioned by corporation knowing it to be without authority to do so shall be liable as general
any party even in a direct proceeding for that purpose by the state partners for all debts, liabilities and damages incurred or arising as a result
thereof: Provided, however, That when any such ostensible corporation is sued on

Nudibranch 7
any transaction entered by it as a corporation or on any tort committed by it as Refers to the act of conducting election of directors and officers, adoption of by-
such, it shall not be allowed to use as a defense its lack of corporate personality. laws, and filing of the same with the SEC; establishment of a principal office;
On who assumes an obligation to an ostensible corporation as such, cannot resist providing for subscription and payment of capital stock
performance thereof on the ground that there was in fact no corporation
Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code, the
INTERNATIONAL BUSINESS TRAVEL V. CA & KHAN corporate powers of all corporations formed under this Code shall be exercised, all business
Q: Was the doctrine of corporation by estoppel applied here? Yes. conducted and all property of such corporations controlled and held by the board of directors
Q: Why did the SC say that the CA misapplied the doctrine? or trustees to be elected from among the holders of stocks, or where there is no stock, from
among the members of the corporation, who shall hold office for one (1) year until their
LIM TONG LIM V. PHILPPINE FISHING GEAR successors are elected and qualified.
Q: How did the SC address that he was not even a signatory?
Q: Does the fact that he benefitted mean that he was already part of the Every director must own at least one (1) share of the capital stock of the corporation of which
corporation? he is a director, which share shall stand in his name on the books of the corporation. Any
director who ceases to be the owner of at least one (1) share of the capital stock of the
LOZANO V. DE LOS SANTOS corporation of which he is a director shall thereby cease to be a director. Trustees of non-
Q: Why does the doctrine of corporation by estoppel apply? stock corporations must be members thereof. A majority of the directors or trustees of all
Q: So when does the principle only apply? corporations organized under this Code must be residents of the Philippines.
rd
o When 3 person believed in GF
Q: Who is the governing body?
Q: Is there such a thing as automatic dissolution? Board of directors which shall exercise the powers of the corporation; enter into
Yes. business on behalf of the corporation; and hold the property of the corporation
Sec. 22. Effects on non-use of corporate charter and continuous inoperation of a
corporation. If a corporation does not formally organize and commence the Q: What is the Business Judgment Rule?
transaction of its business or the construction of its works within two (2) years Questions of policy or management are left solely to the honest decisions of
from the date of its incorporation, its corporate powers cease and the officers and directors of a corporation and so long as they act in GF, their orders
corporation shall be deemed dissolved. are not reviewable by the courts
However, if a corporation has commenced the transaction of its business but GR: Courts cannot interfere acts of directors so long as they are intra vires
subsequently becomes continuously inoperative for a period of at least five (5) o EXPN: The act is so oppressive and it adversely affects the minority
years, the same shall be a ground for the suspension or revocation of its status of the corporation
corporate franchise or certificate of incorporation.
This provision shall not apply if the failure to organize, commence the transaction Q: What is the term of the officers?
of its businesses or the construction of its works, or to continuously operate is due 1 year until a successor is elected and qualified
to causes beyond the control of the corporation as may be determined by the There is a hold over status of a member of the Board of Directors (or simply
Securities and Exchange Commission. Director). Meaning, he will continue on the business unless a successor is elected
and qualified
Q: What are the grounds for revocation or suspension?
nd
Sec 22, 2 par: However, if a corporation has commenced the transaction of its Q: What are the qualifications of a Director?
business but subsequently becomes continuously inoperative for a period of at At least 1 share
least five (5) years, the same shall be a ground for the suspension or revocation of o Which must be continuously owned by him. Otherwise, he ceases to
its corporate franchise or certificate of incorporation become a director
His name is registered in the books of the corporation
Q: What is the meaning of failure to formally organize? What acts must be done? Majority of the members are residents of the Philippines
This does NOT include the filing of the AOI. R: If there is already an existing
corporation, it already presupposes that AOI has been filed with the SEC and the Q: Can the AOI or By-laws provide for other qualifications?
latter has already issued Cert. of Incorporation. Yes. Provided, that it will not be in conflict with the qualifications set out in the
Corpo Code

Nudibranch 8
GRACE CHRISTIAN HIGH SCHOOL V. CA Q: We said that directors must be elected. What are the limitations/conditions of election?
Issue as to the validity of the clause granting to a permanent seat on the board. A meeting must be called for the purpose
Doctrine: Directors must be elected, not appointed. o Presence of majority of stockholders representing the outstanding
capital stock/members
GOKONGWEI V. SEC Method of voting permitted
Doctrine of Corporate Opportunity Director occupies a position of trust and o Viva voce (raising of hands), if there is a shareholder who wants to vote
confidence; of a fiduciary nature; he cannot take advantage of his position for his by ballot, then it shall be mandatory
own personal interest In case of failure of election, then the meeting may adjourn from day-to-day
Cannot serve 2 masters (except indefinitely)
3 issues:
(1) WON the amended by-laws which provide for disqualification is valid? Yes. Q: Is notice required? For what?
(2) WON petitioner has the right to look into the books of the corporation as a Yes. For the meeting
shareholder? The SC did not allow the inspection. Reason?
(3) WON SEC was correct in allowing the ratification of petitioner in investing in a Q: What does the law provide as to owners of delinquent stock?
foreign corporation? They cannot vote nor be voted for

INTER-ASIA INVESTMENTS V. CA Q: Stockholders cannot be deprived of the method of voting. What are the methods?
Q: Why was the corporation bound even if there was no delegation? (1) Straight voting method
Q: How did the SC come up with the implied authority? o Every SH may vote such number of shares for as many persons as there
o The power of buying stocks includes all acts necessary thereto, such as are directors to be elected
to enter into a payment scheme in order to settle an obligation of the A shareholder can vote such number of shares for as many
corporation persons as there are directors equally
(2) Cumulative voting for 1 candidate method
Sec. 24. Election of directors or trustees. - At all elections of directors or trustees, there must o A SH is allowed to concentrate his votes and give one candidate as
be present, either in person or by representative authorized to act by written proxy, the many votes as the number of directors to be elected multiplied by the
owners of a majority of the outstanding capital stock, or if there be no capital stock, a number of shares shall equal
majority of the members entitled to vote. The election must be by ballot if requested by any A shareholder can give one candidate all his votes
voting stockholder or member. In stock corporations, every stockholder entitled to vote shall (3) Cumulative voting by distribution
have the right to vote in person or by proxy the number of shares of stock standing, at the o By this method, a SH may cumulate his shares by multiplying also the
time fixed in the by-laws, in his own name on the stock books of the corporation, or where number of his shares by the number of directors to be elected and
the by-laws are silent, at the time of the election; and said stockholder may vote such number distribute the same among as many candidates as he shall see fit
of shares for as many persons as there are directors to be elected or he may cumulate said A shareholder can distribute his votes to diff directors as he
shares and give one candidate as many votes as the number of directors to be elected may see fit
multiplied by the number of his shares shall equal, or he may distribute them on the same
principle among as many candidates as he shall see fit: Provided, That the total number of Sec. 25. Corporate officers, quorum. - Immediately after their election, the directors of a
votes cast by him shall not exceed the number of shares owned by him as shown in the books corporation must formally organize by the election of a president, who shall be a director, a
of the corporation multiplied by the whole number of directors to be elected: Provided, treasurer who may or may not be a director, a secretary who shall be a resident and citizen of
however, That no delinquent stock shall be voted. Unless otherwise provided in the articles of the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or
incorporation or in the by-laws, members of corporations which have no capital stock may more positions may be held concurrently by the same person, except that no one shall act as
cast as many votes as there are trustees to be elected but may not cast more than one vote president and secretary or as president and treasurer at the same time.
for one candidate. Candidates receiving the highest number of votes shall be declared
elected. Any meeting of the stockholders or members called for an election may adjourn from The directors or trustees and officers to be elected shall perform the duties enjoined on them
day to day or from time to time but not sine die or indefinitely if, for any reason, no election is by law and the by-laws of the corporation. Unless the articles of incorporation or the by-laws
held, or if there not present or represented by proxy, at the meeting, the owners of a majority provide for a greater majority, a majority of the number of directors or trustees as fixed in the
of the outstanding capital stock, or if there be no capital stock, a majority of the member articles of incorporation shall constitute a quorum for the transaction of corporate business,
entitled to vote and every decision of at least a majority of the directors or trustees present at a meeting at

Nudibranch 9
which there is a quorum shall be valid as a corporate act, except for the election of officers Q: What is the required vote for purposes of election?
which shall require the vote of a majority of all the members of the board. 50% of the entire membership

Directors or trustees cannot attend or vote by proxy at board meetings. NACPIL V. INTL BROADCASTING CORP
Q: What is the test to determine if the assistant manager is a corporate officer?
Q: Who are the corporate officers? o Under the Labor code, there are only 3 corporate officers
President, Treasurer, and Secretary However, if there is board approval to constitute one as a
corporate officer, (not just approval of the human
Q: Are they exclusive? resources), then he is a recognized corporate officer
No. Can elect as indicated in the AOI or by-laws additional officers as the need of o The jurisdiction of intra-corporate disputes under PD 902-A has been
the nature of the business so require transferred from the SEC to the RTC by virtue of the SRC.
o Ex: VP, auditor, assistant treasurer or secretary o If the employee is not a corporate officer, then the Labor arbiter/NLRC
has jurisdiction
Q: What are the qualifications to become a president?
Must be a director (he is the only officer required to be a member of the board) Q: Can directors vote by proxy?
Must own at least 1 share GR: No. They cannot attend or vote by proxy in Board Meetings. R: they are
elected officers
Q: What are the qualifications to be secretary? o EXPN: In a Shareholders or Members Meeting
Need not be a director
Resident and citizen Assignment: Sec. 26-35 plus 5 cases
o Does not need to be natural-born citizen. Does not need to own one
share Third Meeting.

Q: What are the qualifications to be treasurer? Q: After election, what must be done?
No requirements Sec. 26. Report of election of directors, trustees and officers. - Within thirty (30)
days after the election of the directors, trustees and officers of the corporation,
Q: Can a person hold 2 positions? the secretary, or any other officer of the corporation, shall submit to the Securities
GR: Yes and Exchange Commission, the names, nationalities and residences of the
o EXPN: A president cannot be a secretary; he also cannot be a treasurer. directors, trustees, and officers elected.
These are the Prohibited Concurrent Positions.
Reason: to ensure effective monitoring of each officers Q: What happens when a director, trustee or officer dies?
separate functions Should a director, trustee or officer die, resign or in any manner cease to hold
office, his heirs in case of his death, the secretary, or any other officer of the
Q: What does the term quorom mean? corporation, or the director, trustee or officer himself, shall immediately report
Requires persons to be present in order to competently transact business such fact to the Securities and Exchange Commission.

Q: What is the required number of persons to constitute a quorum? Q: Aside from the corporate secretary or the officer, who else may report the death?
Majority of the directors fixed in the AOI
Sec. 27. Disqualification of directors, trustees or officers. - No person convicted by final
Q: What is the required vote for a corporate act? judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a
Majority of the directors present of the meeting where there is a quorum (majority violation of this Code committed within five (5) years prior to the date of his election or
of the quorum itself) appointment, shall qualify as a director, trustee or officer of any corporation.
o EXPN: except for the election of officers which shall require the vote of
a majority of all the members of the board. Q: How may directors, trustees or officers be disqualified?
Ex: there are 5 persons present. The vote of 3 of them would constitute a quorum. 2 grounds:
Thus, the vote of 2 is sufficient to pass upon a corporate act o (1) Conviction by final judgment of an offense punishable by
imprisonment for a period exceeding 6 years, or

Nudibranch 10
o (2) Commission of a violation of the Corpo Code committed within 5 Q: What does Sec. 24 provide with respect to minority stockholders? How is
years prior to the date of his election or appointment elections related to removal?
Q: Does the proviso apply even if the removal is with cause?
Q: Are the grounds under Sec. 27 exclusive? o No. The proviso only applies if the removal is without cause
No. Refer to the qualifications to become a Director, Corporate Secretary,
Treasurer or any other officer. The absence of a qualification will be a ground for Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of
disqualification directors or trustees other than by removal by the stockholders or members or by expiration
of term, may be filled by the vote of at least a majority of the remaining directors or trustees,
Sec. 28. Removal of directors or trustees. - Any director or trustee of a corporation may be if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a
removed from office by a vote of the stockholders holding or representing at least two-thirds regular or special meeting called for that purpose. A director or trustee so elected to fill a
(2/3) of the outstanding capital stock, or if the corporation be a non-stock corporation, by a vacancy shall be elected only or the unexpired term of his predecessor in office.
vote of at least two-thirds (2/3) of the members entitled to vote: Provided, That such removal A directorship or trusteeship to be filled by reason of an increase in the number of directors
shall take place either at a regular meeting of the corporation or at a special meeting called or trustees shall be filled only by an election at a regular or at a special meeting of
for the purpose, and in either case, after previous notice to stockholders or members of the stockholders or members duly called for the purpose, or in the same meeting authorizing the
corporation of the intention to propose such removal at the meeting. A special meeting of the increase of directors or trustees if so stated in the notice of the meeting.
stockholders or members of a corporation for the purpose of removal of directors or trustees,
or any of them, must be called by the secretary on order of the president or on the written Q: Assuming that there has already been a vacancy, when should the vacancy be filled?
demand of the stockholders representing or holding at least a majority of the outstanding In the same meeting which provided for the removal; or
capital stock, or, if it be a non-stock corporation, on the written demand of a majority of the In another regular meeting or special meeting
members entitled to vote. Should the secretary fail or refuse to call the special meeting upon
such demand or fail or refuse to give the notice, or if there is no secretary, the call for the Q: What are the requirements if the filling the vacancy is done in a separate meeting?
meeting may be addressed directly to the stockholders or members by any stockholder or 2 Basic Requirements:
member of the corporation signing the demand. Notice of the time and place of such o (1) Prior notice
meeting, as well as of the intention to propose such removal, must be given by publication or o (2) Meeting called of the specific purpose of filling the vacancy. This
by written notice prescribed in this Code. Removal may be with or without cause: Provided, means that that it was the agenda of the meeting
That removal without cause may not be used to deprive minority stockholders or members of
the right of representation to which they may be entitled under Section 24 of this Code. Q: Under Sec. 29, how is a vacancy filled in? (memorize)
With respect to Shareholders: (4)
Q: What is the rule on the removal of a director? With respect to Director: (1)
The requisites under Sec. 28 are:
o (1) Meeting Sec. 30. Compensation of directors. - In the absence of any provision in the by-laws fixing
o (2) Notice their compensation, the directors shall not receive any compensation, as such directors,
rd
o (3) 2/3 vote of the stockholders representing the OCS except for reasonable pre diems: Provided, however, That any such compensation other than
per diems may be granted to directors by the vote of the stockholders representing at least a
Q: Who must call the meeting? majority of the outstanding capital stock at a regular or special stockholders' meeting. In no
The secretary, upon order of the president; or case shall the total yearly compensation of directors, as such directors, exceed ten (10%)
Written demand of majority of the stockholders representing the OCS percent of the net income before income tax of the corporation during the preceding year

Q: Before hearing, a notice must be transmitted. How is this done? Q: Are directors entitled to compensation under Sec. 30?
Publication; or GR: No. Except reasonable per diems
Written Notice thru ordinary mail or registered mail or courier mail. It does not o EXPNs:
matter, so long as the notice is in writing (1) Provided for under the By-laws
(2) Majority vote of the stockholder representing the OCS
Q: Do you need to have cause in order to remove a director?
No. So long as the 3 requisites are present, then removal is valid Q: How is Compensation different from Per diem?
Sec 28 provides for only on limitation: Without prejudice to the right of Per diem is an allowance; it is the motivation of a director to attend the meetings
representation of the minority stockholder under Sec. 24

Nudibranch 11
WESTERN INSTITUTE OF TECHNOLOGY V. SALAS the corporate officers were not held personally liable in the Santos
GR: Directors or Trustees are not entitled to compensation because there is a case)
presumption that they give their services gratuitously to the corp
EXPN: Unless it is provided under the by-laws or by majority vote by stockholders MALAYAN
representing OCS Same doctrine as the Santos and Sps. David
Doctrine: When a person holds a position in a capacity other than that of a
director, (i.e. corporate officer), then he is entitled to his income in the capacity in Sec. 32. Dealings of directors, trustees or officers with the corporation.- A contract of the
which he acted corporation with one or more of its directors or trustees or officers is voidable, at the option
of such corporation, unless all the following conditions are present:
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of 1. That the presence of such director or trustee in the board meeting in which the contract
gross negligence or bad faith in directing the affairs of the corporation or acquire any was approved was not necessary to constitute a quorum for such meeting;
personal or pecuniary interest in conflict with their duty as such directors or trustees shall be 2. That the vote of such director or trustee was nor necessary for the approval of the
liable jointly and severally for all damages resulting therefrom suffered by the corporation, its contract;
stockholders or members and other persons. 3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, directors.
any interest adverse to the corporation in respect of any matter which has been reposed in
him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, Where any of the first two conditions set forth in the preceding paragraph is absent, in the
he shall be liable as a trustee for the corporation and must account for the profits which case of a contract with a director or trustee, such contract may be ratified by the vote of the
otherwise would have accrued to the corporation. stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at
least two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full
Q: What are the instances under Sec. 31 that make a Director, Officer, or Trustee solidarily disclosure of the adverse interest of the directors or trustees involved is made at such
liable for damages with the corporation (or personally liable for the actions of the meeting: Provided, however, That the contract is fair and reasonable under the
corporation)? circumstances.
3 grounds under Sec. 31; Plus 3 more
Q: Who is a self-dealing director under Sec. 32?
Q: What is a watered stock? When a corporation enters into a contract with a director, the GR is that it is
It is stock issued below its par value VOIDABLE at the option of the corporation
EXPN: It could be ratified by the presence of all 4 conditions precedent.
SANTOS
rd
GR: Directors, Trustees, or Officers are not personally liable for the corporations Q: What if only the 3 requisite is present, can there be ratification?
rd
actions. R: Doctrine of Corporate Entity (Separate and distinct) Yes, provided that it is accompanied by 2/3 vote of the stockholders representing
EXPNs: see above the OCS
In the case at bar, none of the exceptions apply. This applies in the case of contracts entered into by a Director

SPS. DAVID Q: What if there is an absence of all the conditions, is it possible that the contract be
This is a good example of the first exception which makes a director personally ratified?
liable Yes. The contract is voidable, which means that it is valid until annulled
Q: What made Sps. David revise the design? If no one questions the validity of the contract in a proper suit, then it is ratified
o To reduce the cost of construction. Thus, it is prejudicial to the interest (implied)
of Sps. Quiambao. There was the commission of patently unlawful acts
o Doctrine: This is a case where the separate and distinct personality of PRIME WHITE CEMENT
the corporation was NOT pierced, however, the corporate Although the powers were delegable to Te and the contract were ratified, still Te is
officers/director were still made liable for the corporate acts if they fall a self-dealing director who failed to prove that the contract complied with Sec. 32.
under any of the enumerated exceptions (Sir says this is the same Thus, the corporation can rescind the contract
doctrine enunciated in the Santos case. However, it must be noted that The SC ruled that the contract was not fair and reasonable

Nudibranch 12
Q: What was the SCs ruling as to Te entering into contracts with other companies?
Q: What is its composition?
Sec. 33. Contracts between corporations with interlocking directors. - Except in cases of
fraud, and provided the contract is fair and reasonable under the circumstances, a contract Q: What are the powers of the executive committee?
between two or more corporations having interlocking directors shall not be invalidated on
that ground alone: Provided, That if the interest of the interlocking director in one Q: Can they issue cash dividends? How about stock dividends? No.
corporation is substantial and his interest in the other corporation or corporations is merely
nominal, he shall be subject to the provisions of the preceding section insofar as the latter Sec. 36. Corporate powers and capacity. - Every corporation incorporated under this Code
corporation or corporations are concerned. has the power and capacity: (PIMPS-DO-SCAB)

Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be 1. To sue and be sued in its corporate name;
considered substantial for purposes of interlocking directors. 2. Of succession by its corporate name for the period of time stated in the articles of
incorporation and the certificate of incorporation;
Q: What is a contract between interlocking directors under Sec. 33? 3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this Code;
Sec. 34. Disloyalty of a director. - Where a director, by virtue of his office, acquires for 5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the
himself a business opportunity which should belong to the corporation, thereby obtaining same in accordance with this Code;
profits to the prejudice of such corporation, he must account to the latter for all such profits 6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to
by refunding the same, unless his act has been ratified by a vote of the stockholders owning subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to
or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall admit members to the corporation if it be a non-stock corporation;
be applicable, notwithstanding the fact that the director risked his own funds in the venture. 7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, including securities and bonds of other
corporations, as the transaction of the lawful business of the corporation may reasonably and
Q: Who is a disloyal director under Sec. 34? necessarily require, subject to the limitations prescribed by law and the Constitution;
One who acquires for himself a business opportunity in which he gains profit but 8. To enter into merger or consolidation with other corporations as provided in this Code;
which should belong to the corporation 9. To make reasonable donations, including those for the public welfare or for hospital,
The consequence is that such director must account, return/refund the amount to charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation,
the corporation domestic or foreign, shall give donations in aid of any political party or candidate or for
rd
o EXPN: unless the act was ratified by 2/3 vote of the stockholders purposes of partisan political activity;
representing the OCS 10. To establish pension, retirement, and other plans for the benefit of its directors, trustees,
Give a specific example of a disloyal director officers and employees; and
11. To exercise such other powers as may be essential or necessary to carry out its purpose or
Assignment: 35-45 + cases purposes as stated in the articles of incorporation

Fourth Meeting. Q: What are the powers of a corporation?


Express
Sec. 35. Executive committee. - The by-laws of a corporation may create an executive Incidental to its existence
committee, composed of not less than three members of the board, to be appointed by the Implied from express power
board. Said committee may act, by majority vote of all its members, on such specific matters
within the competence of the board, as may be delegated to it in the by-laws or on a majority Sec. 37. Power to extend or shorten corporate term. - A private corporation may extend or
vote of the board, except with respect to: (1) approval of any action for which shareholders' shorten its term as stated in the articles of incorporation when approved by a majority vote of
approval is also required; (2) the filing of vacancies in the board; (3) the amendment or repeal the board of directors or trustees and ratified at a meeting by the stockholders representing
of by-laws or the adoption of new by-laws; (4) the amendment or repeal of any resolution of at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the
the board which by its express terms is not so amendable or repealable; and (5) a distribution members in case of non-stock corporations. Written notice of the proposed action and of the
of cash dividends to the shareholders. time and place of the meeting shall be addressed to each stockholder or member at his place
of residence as shown on the books of the corporation and deposited to the addressee in the
Q: What is an executive committee? post office with postage prepaid, or served personally: Provided, That in case of extension of

Nudibranch 13
corporate term, any dissenting stockholder may exercise his appraisal right under the (7) The vote authorizing the increase or diminution of the capital stock, or the incurring,
conditions provided in this code. creating or increasing of any bonded indebtedness.

Q: What are the requirements of extending or shortening the corporate term Any increase or decrease in the capital stock or the incurring, creating or increasing of any
Approval by majority vote of BOD bonded indebtedness shall require prior approval of the Securities and Exchange Commission.
Written notice
rds
Ratification by SH representing 2/3 of the OCS One of the duplicate certificates shall be kept on file in the office of the corporation and the
A copy of the amended AOI shall be submitted to the SEC for approval other shall be filed with the Securities and Exchange Commission and attached to the original
Q: What if notice is thru LBC or Fedex? articles of incorporation. From and after approval by the Securities and Exchange Commission
o Valid. Reason: it is equivalent to personal service because what you are and the issuance by the Commission of its certificate of filing, the capital stock shall stand
doing is to merely deputize the personal service to these couriers increased or decreased and the incurring, creating or increasing of any bonded indebtedness
authorized, as the certificate of filing may declare: Provided, That the Securities and Exchange
Q: What is the appraisal right of dissenting shareholders? Commission shall not accept for filing any certificate of increase of capital stock unless
accompanied by the sworn statement of the treasurer of the corporation lawfully holding
Q: Is there appraisal right apply both to extending and shortening? office at the time of the filing of the certificate, showing that at least twenty-five (25%)
Yes percent of such increased capital stock has been subscribed and that at least twenty-five
Sec. 37 applies to extension (25%) percent of the amount subscribed has been paid either in actual cash to the
Sec. 81 applies to shortening corporation or that there has been transferred to the corporation property the valuation of
which is equal to twenty-five (25%) percent of the subscription: Provided, further, That no
Sec. 38. Power to increase or decrease capital stock; incur, create or increase bonded decrease of the capital stock shall be approved by the Commission if its effect shall prejudice
indebtedness. - No corporation shall increase or decrease its capital stock or incur, create or the rights of corporate creditors.
increase any bonded indebtedness unless approved by a majority vote of the board of Non-stock corporations may incur or create bonded indebtedness, or increase the same, with
directors and, at a stockholder's meeting duly called for the purpose, two-thirds (2/3) of the the approval by a majority vote of the board of trustees and of at least two-thirds (2/3) of the
outstanding capital stock shall favor the increase or diminution of the capital stock, or the members in a meeting duly called for the purpose.
incurring, creating or increasing of any bonded indebtedness. Written notice of the proposed
increase or diminution of the capital stock or of the incurring, creating, or increasing of any Bonds issued by a corporation shall be registered with the Securities and Exchange
bonded indebtedness and of the time and place of the stockholder's meeting at which the Commission, which shall have the authority to determine the sufficiency of the terms thereof
proposed increase or diminution of the capital stock or the incurring or increasing of any
bonded indebtedness is to be considered, must be addressed to each stockholder at his place Q: What are the requirements to increase or decrease capital stock or incur, create, and in
of residence as shown on the books of the corporation and deposited to the addressee in the increase?
post office with postage prepaid, or served personally. (PDAF-CART)

A certificate in duplicate must be signed by a majority of the directors of the corporation and Q: What is the limitation to this power?
countersigned by the chairman and the secretary of the stockholders' meeting, setting forth:
Q: What are the ways?
(1) That the requirements of this section have been complied with; (CRAC-PaNuNu)
(2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or number of shares of no- Q: What is bonded indebtedness?
par stock thereof actually subscribed, the names, nationalities and residences of the persons It is the corporation indebtedness evidenced by bonds or notes
subscribing, the amount of capital stock or number of no-par stock subscribed by each, and
the amount paid by each on his subscription in cash or property, or the amount of capital Q: What is the difference between bond v. note?
stock or number of shares of no-par stock allotted to each stock-holder if such increase is for As to the amount
the purpose of making effective stock dividend therefor authorized; As to the term
(4) Any bonded indebtedness to be incurred, created or increased; As to the persons involved
(5) The actual indebtedness of the corporation on the day of the meeting;
(6) The amount of stock represented at the meeting; and Q: What are the parties to a corporate bond?
(1) Borrowing

Nudibranch 14
(2) Bondholder None of the exceptions apply in the case at bar
(3) Trustee 31/41 (personally liable)
o He has the responsibility to secure the interest of shareholders Andrada v. Mcleod

Q: Give at least 3 kinds of bond Sec. 40. Sale or other disposition of assets. - Subject to the provisions of existing laws on
Mortgage bond illegal combinations and monopolies, a corporation may, by a majority vote of its board of
Equipment bond directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or
Collateral trust bond substantially all of its property and assets, including its goodwill, upon such terms and
Straight debenture conditions and for such consideration, which may be money, stocks, bonds or other
instruments for the payment of money or other property or consideration, as its board of
Sec. 39. Power to deny pre-emptive right. - All stockholders of a stock corporation shall enjoy directors or trustees may deem expedient, when authorized by the vote of the stockholders
pre-emptive right to subscribe to all issues or disposition of shares of any class, in proportion representing at least two-thirds (2/3) of the outstanding capital stock, or in case of non-stock
to their respective shareholdings, unless such right is denied by the articles of incorporation corporation, by the vote of at least to two-thirds (2/3) of the members, in a stockholder's or
or an amendment thereto: Provided, That such pre-emptive right shall not extend to shares member's meeting duly called for the purpose. Written notice of the proposed action and of
to be issued in compliance with laws requiring stock offerings or minimum stock ownership the time and place of the meeting shall be addressed to each stockholder or member at his
by the public; or to shares to be issued in good faith with the approval of the stockholders place of residence as shown on the books of the corporation and deposited to the addressee
representing two-thirds (2/3) of the outstanding capital stock, in exchange for property in the post office with postage prepaid, or served personally: Provided, That any dissenting
needed for corporate purposes or in payment of a previously contracted debt. stockholder may exercise his appraisal right under the conditions provided in this Code.
A sale or other disposition shall be deemed to cover substantially all the corporate property
DEE V. SEC and assets if thereby the corporation would be rendered incapable of continuing the business
Q: Why did SC say that there is no pre-emptive right? or accomplishing the purpose for which it was incorporated.
Additional issuance of original shares, not new issuances. New issuances arise only
when capital stock is increased After such authorization or approval by the stockholders or members, the board of directors
or trustees may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage,
Q: What is a pre-emptive right? When is it available to a shareholder? pledge or other disposition of property and assets, subject to the rights of third parties under
The preferential right of SH to subscribe to all issues or disposition of shares of any any contract relating thereto, without further action or approval by the stockholders or
class in proportion to their present stockholdings members.
o Purpose: to enable SH to retain his proportionate control in the
corporation and to retain his equity in the surplus Nothing in this section is intended to restrict the power of any corporation, without the
authorization by the stockholders or members, to sell, lease, exchange, mortgage, pledge or
Q: When will a corporation have new issuances? otherwise dispose of any of its property and assets if the same is necessary in the usual and
When it increases its capital stock regular course of business of said corporation or if the proceeds of the sale or other
See illustration in book disposition of such property and assets be appropriated for the conduct of its remaining
business.
Q: What is the purpose of giving pre-emptive right?
So the shareholder can retain his interest. Otherwise, his interest will diluted In non-stock corporations where there are no members with voting rights, the vote of at least
a majority of the trustees in office will be sufficient authorization for the corporation to enter
Q: When is pre-emptive right not available? into any transaction authorized by this section.

Q: How will you deny a shareholder pre-emptive right? Q: What are the requirements?
PARDS
Q: What are the requisites to the validity of the sale of all or substantially all of the property
of the corporation Q: In sale of all or substantially all of the property, is there appraisal right of a dissenting
shareholder?
MCLEOD Yes. It is the right to demand the fair value of the SH share, after dissenting from a
GR proposed corporate action involving fundamental change in the corporation in
4 exceptions cases provided by law

Nudibranch 15
It is a share which is less than 1 corporation share
Q: Do all shareholders have such right? Ex: if a SH owns 250 shares and corp declares 25% stock dividend, his total shares
Yes. Shareholders have right to demand payment to the fair value of his share will be 312 and shares. The corpo may purchase the fractional shares
Reason why fractional shares must be eliminated: they cannot be represented at
Q: When do you consider an asset substantial? corporate meetings
Sale or other disposition shall be deemed to cover substantially all the corporate
assets if Q: Can shareholders buy fractional shares? -
o 1. The corporation would be rendered incapable of continuing the
business; or Q: What are the requirements before a corporation acquire its own shares?
o 2. Accomplishing the purpose for which it was incorporated (CLUG-C)
Its capital is not impaired
Q: Can board change its mind and not push through with the sale? Must be for a legitimate corporate purpose
Yes. The board has such discretion Corporation has unrestricted retained earnings
The corporation act in good faith without prejudice to the rights of the creditors
ISLAMIC DIRECTORATE The conditions of corporate affairs allow it

PNB Q: What is the trust fund doctrine?


The subscribed capital stock of the corporation is a trust fund for the payment of
Fifth meeting. debts of the corporation which the creditors have the right to look up to satisfy
their credits, and which the corporation may not dissipate. The creditors may sue
Sec. 41. Power to acquire own shares. - A stock corporation shall have the power to purchase the SH directly for the latters unpaid subscription.
or acquire its own shares for a legitimate corporate purpose or purposes, including but not The assets of the corporation as represented by its capital stock are TRUST FUNDS
limited to the following cases: Provided, That the corporation has unrestricted retained to be maintained unimpaired and to be used to pay corporate creditor
earnings in its books to cover the shares to be purchased or acquired: o So that there can be no distribution of assets among shareholders
1. To eliminate fractional shares arising out of stock dividends; without first paying the corporate debts
2. To collect or compromise an indebtedness to the corporation, arising out of Any disposition of the corporations assets to the prejudice of creditors who
unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold extended their credit on the faith of the corporations capital stock is VOID
during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares Sec. 42. Power to invest corporate funds in another corporation or business or for any other
under the provisions of this Code purpose. - Subject to the provisions of this Code, a private corporation may invest its funds in
any other corporation or business or for any purpose other than the primary purpose for
Q: What are legitimate purposes? which it was organized when approved by a majority of the board of directors or trustees and
Under Sec. 41: (EC-PaTREC) ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital
o To eliminate fractional shares stock, or by at least two thirds (2/3) of the members in the case of non-stock corporations, at
o To collect or compromise an indebtedness a stockholder's or member's meeting duly called for the purpose. Written notice of the
o To pay the shares of dissenting or withdrawing shareholders proposed investment and the time and place of the meeting shall be addressed to each
The enumeration under Sec. 41 is not exclusive. The following are other instances stockholder or member at his place of residence as shown on the books of the corporation
not included in the enumeration: and deposited to the addressee in the post office with postage prepaid, or served personally:
o To acquire treasury shares Provided, That any dissenting stockholder shall have appraisal right as provided in this Code:
o To acquire redeemable shares Provided, however, That where the investment by the corporation is reasonably necessary to
o To reacquire shares to effect a decrease in the capital stock of a accomplish its primary purpose as stated in the articles of incorporation, the approval of the
corporation stockholders or members shall not be necessary.
o In a close corporation, where there is a deadlock in the management,
SEC may order the purchase of share at their FMV (to remove the Q: What are the requirements before a corporation can invest in another corporation or
deadlock) business?
With respect to purposes other than primary purpose: (A-RAMEN)
Q: What is a fractional share? o Approval by a majority of the board of directors

Nudibranch 16
o Ratification by the stockholders representing at least 2/3 of the Dividend is that portion of the profits or net earning which the corporation has set
outstanding capital stock aside for ratable distribution among the shareholders
o Without prejudice to a dissenting stockholders appraisal right o They are the assets of the shareholders
o Meeting duly called for the purpose o There are generally 3 kinds of dividends:
o Prior written notice 1. Cash dividend
With respect to primary purpose: 2. Property dividend
o Ratification by stockholders or member is not necessary 3. Stock dividend
Profit means return to capital rather than earning from labor performed or
Q: Is investment without the approval of shareholders allowed? Give an example services rendered. Profits are not dividends unless declared or set aside by the
Yes, with respect to investments by a corporation reasonably necessary to corporation
accomplish a primary purpose which is stated in the AOI o They are the assets of the corporation
Dividends come from profits while profits are the source of dividends
Q: Is there a possibility that an investment can be made in order to accomplish a purpose
other than the primary purpose and still there is no need for ratification by the Q: Who has the power to declare dividends?
stockholders? Board of directors have the power to declared dividends out of unrestricted
Yes, if the purpose is incidental or reasonably necessary to accomplish the primary retained earnings
purpose Stock dividends requires ratification of shareholders representing 2/3 of the
o Ex: Beer manufacturer invests in equipment from another country to outstanding capital stock in a meeting called for the purpose
brew beer (See book) Other dividends mere approval of the Board is sufficient to declare dividends

Sec. 43. Power to declare dividends. - The board of directors of a stock corporation may Q: What is the reason why ratification for stock dividends is required but it is not required in
declare dividends out of the unrestricted retained earnings which shall be payable in cash, in cash dividends? See p. 416 of book
property, or in stock to all stockholders on the basis of outstanding stock held by them:
Provided, That any cash dividends due on delinquent stock shall first be applied to the unpaid Q: What are unrestricted retained earnings?
balance on the subscription plus costs and expenses, while stock dividends shall be withheld Retained earnings = assets liabilities and legal capital
from the delinquent stockholder until his unpaid subscription is fully paid: Provided, further, o Excess of the profits Retained Earnings
That no stock dividend shall be issued without the approval of stockholders representing not o Negative balance Deficit
less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly Other term: surplus profits
called for the purpose.
Q: What is the meaning of unrestricted?
Stock corporations are prohibited from retaining surplus profits in excess of one hundred Items which are not set aside or earmarked for the some purpose; free to be
(100%) percent of their paid-in capital stock, except: (1) when justified by definite corporate distributed
expansion projects or programs approved by the board of directors; or (2) when the Unrestricted free for dividend distribution to shareholders, if they have not been
corporation is prohibited under any loan agreement with any financial institution or creditor, reserved or set aside by the board of directors for some corporate purpose or
whether local or foreign, from declaring dividends without its/his consent, and such consent some other purpose in accordance with managerial, legal, or contractual
has not yet been secured; or (3) when it can be clearly shown that such retention is necessary requirements
under special circumstances obtaining in the corporation, such as when there is need for o Example of purpose that are restrictive:
special reserve for probable contingencies. Corporate expansion
Payments for debt and liabilities
Q: What is a dividend? Insurance reserves
It is that part or portion of the profits of a corporation set aside, declared, and Bank reserves
ordered by the directors to be paid ratably to the shareholders on demand or at a
fixed time Q: May dividends be declared out of capital?
Purpose: return of investment of the stockholders GR: No. A corporation cannot make a valid contract to pay dividends other than
from retained earning or profits and an agreement to pay such dividends out of
Q: What is the difference between dividend and profit? capital is null and void
EXPN:

Nudibranch 17
o (1) Dividends from investments wasting assets corporation (ex: corp outstanding capital stock, or by at least a majority of the members in the case of a non-stock
engaged in mining or timber cutting) corporation, of both the managing and the managed corporation, at a meeting duly called for
o (2) To utilize a lease or patent the purpose: Provided, That (1) where a stockholder or stockholders representing the same
o (3) Liquidating dividends interest of both the managing and the managed corporations own or control more than one-
third (1/3) of the total outstanding capital stock entitled to vote of the managing corporation;
Q: What are the requirements before dividends may be declared? or (2) where a majority of the members of the board of directors of the managing corporation
With respect to Cash Dividends: also constitute a majority of the members of the board of directors of the managed
o Existence of unrestricted retained earnings (this is the most basic corporation, then the management contract must be approved by the stockholders of the
requirement) managed corporation owning at least two-thirds (2/3) of the total outstanding capital stock
o Resolution of the Board declaring the payment of such earning to the entitled to vote, or by at least two-thirds (2/3) of the members in the case of a non-stock
shareholders corporation. No management contract shall be entered into for a period longer than five
With respect to Stock Dividends: years for any one term.
o Existence of unrestricted retained earnings
o Resolution of the Board declaring the payment of such earning to the The provisions of the next preceding paragraph shall apply to any contract whereby a
shareholders corporation undertakes to manage or operate all or substantially all of the business of
o Approval of stockholders representing not less than two-thirds (2/3) of another corporation, whether such contracts are called service contracts, operating
the outstanding capital stock at a regular or special meeting duly called agreements or otherwise: Provided, however, That such service contracts or operating
for the purpose. agreements which relate to the exploration, development, exploitation or utilization of
o Corp must have sufficient number of authorized unissued shares for natural resources may be entered into for such periods as may be provided by the pertinent
distribution to stockholders laws or regulations.
Otherwise, it must increase its capital stock to the extent of
the corporate earnings to be declared and distributed as Q: What is a management contract?
stock dividends It is an agreement whereby a corporation delegates the management of its affairs
to another corporation for a certain period of time (not exceeding 5 years)
Q: What are the limitations in retaining surplus profits? o The managed corporation is bound by the acts of the managing
GR: Stock corporations are prohibited from retaining surplus profits in excess of corporation. It is estopped from denying such authority.
one hundred (100%) percent of their paid-in capital stock Any contract whereby a corporation undertakes or operates all or substantially all
EXPN: (SLEx) of the business of another corporation whether such contracts are service
(1) When justified by definite corporate expansion projects or programs approved contracts, operating agreements or otherwise (Sec. 44)
by the board of directors; or
(2) When the corporation is prohibited under any loan agreement with any Q: Can a natural person enter into a management contract with a corporation?
financial institution or creditor, whether local or foreign, from declaring dividends No. The law expressly provides that only a corporation can enter into a
without its/his consent, and such consent has not yet been secured; or management contract with another corporation. A contract between a
(3) When it can be clearly shown that such retention is necessary under special corporation and a natural person is called an employment contract.
circumstances obtaining in the corporation, such as when there is need for special
reserve for probable contingencies. Q: What are the requirements of a management contract?
(ARMA-5)
NIELSON CASE 1. Approval by majority of the quorum of the board of directors
Stock dividends are payable only to shareholders of the corporation and not to 2. Ratification by shareholders owning at least majority of the outstanding capital
strangers or non-stockholders stock of BOTH:
o Reason: only shareholders are entitled to ANY KIND OF DIVIDEND o The managing corporation
Q: Could there be a possibility that you pay a stranger thru shares of stock? o The managed corporation
o Yes 3. Meeting duly called for the purpose
4. Approval by the shareholders of the managed corporation owning at least two-
Sec. 44. Power to enter into management contract. - No corporation shall conclude a thirds (2/3) of the total outstanding capital stock entitled to vote:
management contract with another corporation unless such contract shall have been o (1) Where a stockholder/s representing the same interest of both the
approved by the board of directors and by stockholders owning at least the majority of the managing and the managed corporations own or control more than 1/3

Nudibranch 18
of the total outstanding capital stock entitled to vote of the managing o Recovery is permitted in most courts by the one who performed and
corporation (INTERLOCKING SHAREHOLDERS); or not the one who received benefits
o (2) Where a majority of the members of the board of directors of the o Other courts unenforceable and orders the person benefitted to
managing corporation also constitute a majority of the members of the return that which is received/pay its reasonable value
board of directors of the managed corporation (INTERLOCKING Contracts ultra vires in part:
DIRECTORS o If separable, sustain/enforce the part which is not ultra vires and hold
See illustrations of these 2 cases in the book invalid the ultra vires part
5. GR: No management contract shall be entered into for a period longer than 5 Executory contract no enforcement even at the suit of either party (void or
years for any one term unenforceable)
o EXPN: Contracts which relate to exploration, development, exploitation Executed contract courts will not set aside or interfere with such contracts
or utilization of natural resources that may be entered into for such Part executed and part authorized principle of no unjust enrichment at the
periods as may be provided for by law expense of another shall apply
Executory contract apparently authorized but Ultra Vires the principal of
Q: What are the limitations of a management contract estoppel shall apply
Must comply with: (1) Approval of the board, (2) Ratification of the SH or (4)
Approval of SH if falling under either of the 2 cases, and (5) Period of contract. HYDRO
In the case of Interlocking directors, the contract must comply with the Doctrine of apparent authority
requirements of Sec. 33
Also, a management contract cannot delegate entire supervision and control over Q: Is an ultra vires act an illegal act? What is the difference between ultra vires act and
the officers and business of a corporation to another. In other words, there is no other acts
total abdication of the powers of the corporation By itself, it is not necessarily illegal.
o Otherwise it will contravene Sec. 23, which provides for the rule that Ultra Vires Acts Illegal Acts
the corporate powers of all corporations shall be exercised by the As to nature Not necessarily unlawful, but Unlawful; against law, public
board outside the powers of the morals, public policy, and
corp public order
Sec. 45. Ultra vires acts of corporations. - No corporation under this Code shall possess or As to susceptibility of Can be ratified (expressly or Cannot be ratified because
exercise any corporate powers except those conferred by this Code or by its articles of ratification impliedly) by the they are void ab initio
incorporation and except such as are necessary or incidental to the exercise of the powers so shareholders. Reason: Such
conferred. acts are merely voidable

Q: What is an ultra vires act? As to binding effect Can bind parties wholly or Cannot bind the parties
Not within express, implied, and incidental powers. Not expressly, but rather partly executed on the basis
impliedly forbidden since it is not recognized power of the corporation of estoppel
Intra vires acts done within the legitimate powers of the corporation Ultra Vires Acts Acts beyond the powers of particular
It is an act committed outside the object for which a corporation is created as officers or directors
defined by the law of its organization and therefore beyond the powers conferred
Ultra Vires Acts Acts done w/o complying with certain
upon it by law
conditions and formalities
Q: What are the consequences/effects of an ultra vires act? Ultra Vires Acts Acts involving inexistent contracts
Ultra vires contract which is executory on both sides:
o Unenforceable by either party
This means that neither party can demand the performance Q: Is an ultra vires act subject to ratification?
of the obligation With respect to contract or act illegal per se:
Ultra vires contract which has been performed on both sides: o No. it is wholly void and inexistent. It cannot be ratified. The doctrine of
o Neither party can maintain an action to set aside transaction/recover estoppel cannot operate to give effect to a void act
Ultra vires contract which has been performed on one side: With respect to contract or act not illegal per se:
o Merely voidable and may be ratified or doctrine of estoppel may be
enforced

Nudibranch 19
o Provided that ratification must be by the officer or governing body The word by-law signifies a rule for future action (that is why it cannot be
having authority to make the contract retroactively applied if it will impair existing contracts or vested right)
GR: Approval of the Board is sufficient to ratify an ultra vires
act Q: What are the functions of by-laws? (SuSoDeRegla)
EXPN: Instances which require ratification of stockholders (1) To supplement the AOI
(2) To be the source of authority for corporate officers and agents
Assignment: (3) To define the rights and duties of the corporate officers and directors/trustees
Up to Sec. 59 plus cases as well as of stockholders/members towards the corporation and among
themselves
Sixth meeting. (4) To regulate business transactions of the corporation in a particular way

Sec. 46. Adoption of by-laws. - Every corporation formed under this Code must, within one Q: Why does a corporation need to adopt by-laws?
(1) month after receipt of official notice of the issuance of its certificate of incorporation by When a corporation comes to existence upon the issuance of the certificate of
the Securities and Exchange Commission, adopt a code of by-laws for its government not corporation, it does not mean that it is already prepared to do business. It may be
inconsistent with this Code. For the adoption of by-laws by the corporation the affirmative in existence, but it is not yet organized.
vote of the stockholders representing at least a majority of the outstanding capital stock, or of To be organized, it is required that: (1) There are executive officers charged with
at least a majority of the members in case of non-stock corporations, shall be necessary. The the management of the corporations affairs, and (2) There are rules governing the
by-laws shall be signed by the stockholders or members voting for them and shall be kept in management of its affairs
the principal office of the corporation, subject to the inspection of the stockholders or
members during office hours. A copy thereof, duly certified to by a majority of the directors Q: What are the requirements for the adoption of by-laws?
or trustees countersigned by the secretary of the corporation, shall be filed with the With respect to by-laws adopted PRIOR to incorporation:
Securities and Exchange Commission which shall be attached to the original articles of o The by-laws must be signed and approved by ALL the incorporators and
incorporation. submitted with the SEC together with the AOI
o Q: What specific time should you file or submit the by-laws if you file
Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and PRIOR to incorporation?
filed prior to incorporation; in such case, such by-laws shall be approved and signed by all the Upon filing of the AOI. Since the SEC already provides for a
incorporators and submitted to the Securities and Exchange Commission, together with the ready-made form which contains AOI and by-law, what
articles of incorporation. needs to be done is to fill it up.
With respect to by-laws adopted and filed AFTER incorporation
In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange o The by-laws must be adopted within 1 month after receipt of notice of
Commission of a certification that the by-laws are not inconsistent with this Code. issuance of the certificate of incorporation by the SEC
o The affirmative vote of the stockholders representing at least a
The Securities and Exchange Commission shall not accept for filing the by-laws or any majority of the outstanding capital stock, or of at least a majority of the
amendment thereto of any bank, banking institution, building and loan association, trust members in case of non-stock corporations
company, insurance company, public utility, educational institution or other special In either of the above cases, the following are also required:
corporations governed by special laws, unless accompanied by a certificate of the appropriate o With respect to special corporations governed by special laws, the SEC
government agency to the effect that such by-laws or amendments are in accordance with shall not accept their by-laws/amendment thereto unless accompanied
law by a certification by the appropriate government agency to the effect
that such by-laws/amendments are in accordance with law
Q: What are by-laws? o Must be signed by the voting stockholders and members voting for
By-Laws - the rules of action adopted by a corporation for its internal government them
and for the government of its stockholders or members and those having the o Must be kept in the principal office of the corporation subject to the
direction, management, and control of its affairs in their relation to the inspection of the stockholders or members during office hours
corporation and among themselves o Must file a copy of the entire by-laws (certified by majority of the
o It includes rules for routine matters (i.e. calling meetings, etc) directors/trustees and countersigned by the corporate secretary) with
The power to adopt by-laws is inherent in every corporation the SEC who will attach the same to the original AOI (but this is only a
formal requisite according to an SEC Opinion)

Nudibranch 20
Q: Explain the binding effect of the by-laws.
Q: When do by-laws take effect? Until repealed or amended, a by-law is a continuing rule for the govt of the
Upon the issuance SEC of a certification that the by-laws are not inconsistent with corporation and the individuals composing it
the Corporation Code As to members and 1. They have the force of contract between the members
shareholders themselves
Q: Is the 30-day period mandatory? What is the effect if the corporation does not file the by- 2. There is a conclusive presumption that they know the
laws within the required period? provisions of the corporate by-laws by the fact of their being
No, it is not mandatory. Failure to file the by-laws within 30 days from such is charged with notice of by-laws. If he remains actually
incorporation does not automatically dissolve the corporation ignorant of the provisions, he does so at his peril
o Reason: It is merely a ground for suspension or revocation of its charter As to corporate directors 1. They have force and effect of laws of the corporation
(See Sec. 22(2)) or imposition of administrative fine after notice and and its officers 2. They are bound by and must comply with them unless and
hearing until they are changed
o This was the doctrine cited in LOYOLA V. CA 3. Subordinate employees without actual knowledge of the by-
By failing to submit its by-laws within the prescribed period, a corporation can be laws are not bound
considered as a de facto corporation which cannot be collaterally attacked. As to third persons GR: They are not bound to know the by-laws. Reason: by-laws
Under the rules and regulations of the SEC, the failure may be merely with the merely operate as internal rules among the stockholders
imposition of an administrative fine EXPN: unless they have notice/actual or constructive knowledge.
CHINA BANK V. CA
Q: What are the elements of valid by-laws? (LaMOG-CR) Q: So who has the better right to the stock
(1) Must not be contrary to existing law and inconsistent with the Corporation certificate?
Code (See Sec. 47) o China Bank because at the time it entered into
o SC declared invalid the automatic and permanent seat in the Board of the transaction with the SH, it was not given
Directors contrary to Sec. 23 of the Corpo Code. By-laws contrary to law notice as to the by-laws of VGCCI and thus, is
cannot attain validity on the basis of long practice nor give rise to any not bound thereby
vested rights (Grace Christian High School v. CA) Q: Why did the SEC have jurisdiction?
(2) Must not be contrary to morals and public policy o SC ruled that the interpretation of the by-laws
(3) Must not impair existing obligations of contracts or rights is clearly an intra-corporate dispute which may
o SALAFRANCA V. PHILAMLIFE be resolved thru the technical expertise of the
The right to amend the by-laws lie solely in the discretion of SEC
the employer corporation. However, the right cannot impair
the obligation of existing rights such as the right to security Q: What must be contained in the by-laws? Give at least 5
of tenure of regular EEs under the LC Sec. 47. Contents of by-laws. - Subject to the provisions of the Constitution, this Code, other
Q: What right was violated? special laws, and the articles of incorporation, a private corporation may provide in its by-laws
The security of tenure which is granted to an for: (TiTiQuoP-D-Ho-Ma-PeStO)
employee who was become regular after working 1. The time, place and manner of calling and conducting regular or special meetings
for more than 1 year. Such regular employee of the directors or trustees;
cannot be dismissed without just or authorized 2. The time and manner of calling and conducting regular or special meetings of the
cause under the Labor Code stockholders or members;
(4) Must be general and uniform in their operation and not directed against a. Q: Why does this item not provide for the PLACE whereas in the 1
st

particular individuals (or not discriminatory) item it does?


o A by-law disqualifying a person from being elected as a director if he is i. The reason is because with respect to a board meeting, the
already a director in a competitor corporation is VALID if it equally place of meeting may be ANYWHERE in or out of the
applies to all stockholders (Gokongwei v. SEC) Philippines; Whereas the place of a SH/Ms meeting is
(5) Must be consistent with the charter or AOI either:
o By-laws are subordinate to the charter and AOI 1. The city/municipality where the principal office
(6) Must be reasonable of the corporation is located; or
2. The principal office of the corporation

Nudibranch 21
3. The required quorum in meetings of stockholders or members and the manner of Q: When is the delegated power revoked?
voting therein; The power delegated to the board of directors or
4. The form for proxies of stockholders and members and the manner of voting trustees to amend or repeal any by-laws or adopt
them; new by-laws shall be considered as REVOKED
5. The qualifications, duties and compensation of directors or trustees, officers and whenever stockholders owning or representing a
employees; majority of the outstanding capital stock or a
6. The time for holding the annual election of directors of trustees and the mode or majority of the members in non-stock
manner of giving notice thereof; corporations, shall so vote at a regular or special
7. The manner of election or appointment and the term of office of all officers other meeting.
than directors or trustees; Q: In the second way that by-laws may be amended, is a
8. The penalties for violation of the by-laws; meeting required?
9. In the case of stock corporations, the manner of issuing stock certificates; and Yes. Although there is no express requirement of
10. Such other matters as may be necessary for the proper or convenient transaction a meeting in this case, such meeting is necessary.
of its corporate business and affairs. Reason: if revocation of the delegated power
requires a meeting, there is no reason why a
Sec. 48. Amendments to by-laws. - The board of directors or trustees, by a majority vote meeting is not also required in the delegation of
thereof, and the owners of at least a majority of the outstanding capital stock, or at least a such power
majority of the members of a non-stock corporation, at a regular or special meeting duly Q: What are the formal requirements?
called for the purpose, may amend or repeal any by-laws or adopt new by-laws. The owners o A meeting is required (Whether in majority vote, delegation, or
of two-thirds (2/3) of the outstanding capital stock or two-thirds (2/3) of the members in a revocation of delegated authority, meeting is required)
non-stock corporation may delegate to the board of directors or trustees the power to amend o The amended or new by-laws shall be attached to the original by-laws
or repeal any by-laws or adopt new by-laws: Provided, That any power delegated to the board in the office of the corporation
of directors or trustees to amend or repeal any by-laws or adopt new by-laws shall be o A copy of the amended or new by-laws shall be duly certified under
considered as revoked whenever stockholders owning or representing a majority of the oath by the corporate secretary and a majority of the directors or
outstanding capital stock or a majority of the members in non-stock corporations, shall so trustees and shall be filed with the SEC the same to be attached to the
vote at a regular or special meeting. original articles of incorporation and original by-laws.
o With respect to special corporations governed by special laws, the SEC
Whenever any amendment or new by-laws are adopted, such amendment or new by-laws shall not accept their by-laws/amendment thereto unless accompanied
shall be attached to the original by-laws in the office of the corporation, and a copy thereof, by a certification by the appropriate government agency to the effect
duly certified under oath by the corporate secretary and a majority of the directors or that such by-laws/amendments are in accordance with law
trustees, shall be filed with the Securities and Exchange Commission the same to be attached Although this requirement is embodied under Sec. 46 and
to the original articles of incorporation and original by-laws. not in 48, still it is required. Reason: Since the power to
make by-laws implies the power to alter, amend, or enact
The amended or new by-laws shall only be effective upon the issuance by the Securities and new ones, it follows that the latter power has the same
Exchange Commission of a certification that the same are not inconsistent with this Code limits as the former power

Q: How may by-laws be amended/repealed or new by-laws be adopted? Q: When do the amended or new by-laws take effect?
There are 2 ways: The amended or new by-laws shall only be effective upon the issuance by the
o (1) By majority vote of the board of directors or trustees AND the Securities and Exchange Commission of a certification that the same are not
owners of at least a majority of the outstanding capital stock, or at least inconsistent with this Code
a majority of the members of a non-stock corporation, at a regular or
special meeting duly called for the purpose, may amend or repeal any Q: What is the difference between by-laws and resolution?
by-laws or adopt new by-laws Resolution By-Laws
o (2) The owners of 2/3 of the outstanding capital stock or 2/3 of the Nature and subj-matter Mere declaration of the Permanent rule of action of
members in a non-stock corporation may delegate to the board of corporate will; applies to a the conduct of corporate
directors or trustees the power to amend or repeal any by-laws or single act of the corporation affairs
adopt new by-laws. Rule in case of conflict Subordinate Prevails over resolution

Nudibranch 22
Necessity of approval by SEC No need for SEC approval Subj to the approval of SEC the principal office of the corporation is located, and if practicable in the principal office of
unless required by law the corporation: Provided, That Metro Manila shall, for purposes of this section, be
considered a city or municipality.
Q: What is the difference between by-laws and AOI?
AOI By-Laws Notice of meetings shall be in writing, and the time and place thereof stated therein.
As to nature Condition precedent to Condition subsequent; its
corporate existence absence is only a ground for All proceedings had and any business transacted at any meeting of the stockholders or
revocation/suspension of members, if within the powers or authority of the corporation, shall be valid even if the
charter meeting be improperly held or called, provided all the stockholders or members of the
As to purpose Constitutes the charter of Merely rules and regulations corporation are present or duly represented at the meeting.
the corporation of the corporation
As to time of execution Executed before Executed within 1 month Sec. 53. Regular and special meetings of directors or trustees. - Regular meetings of the
incorporation after certificate of board of directors or trustees of every corporation shall be held monthly, unless the by-laws
incorporation (but may be provide otherwise.
prior thereto) Special meetings of the board of directors or trustees may be held at any time upon the call of
As to Amendment Amended by majority vote Amended by majority vote of the president or as provided in the by-laws.
by the Board AND the Board AND owners of at
stockholders representing least majority of OCS Meetings of directors or trustees of corporations may be held anywhere in or outside of the
2/3 of OCS Philippines, unless the by-laws provide otherwise. Notice of regular or special meetings
stating the date, time and place of the meeting must be sent to every director or trustee at
As to delegation of power to Cannot be delegated May be delegated to the
amend Board by owners of at least least one (1) day prior to the scheduled meeting, unless otherwise provided by the by-laws. A
director or trustee may waive this requirement, either expressly or impliedly.
2/3 of the OCS
Sec. 54. Who shall preside at meetings. - The president shall preside at all meetings of the
Sec. 49. Kinds of meetings. - Meetings of directors, trustees, stockholders, or members may
directors or trustee as well as of the stockholders or members, unless the by-laws provide
be regular or special.
otherwise.
Sec. 50. Regular and special meetings of stockholders or members. - Regular meetings of
Q: What are the kinds of meetings?
stockholders or members shall be held annually on a date fixed in the by-laws, or if not so
SH/M meeting
fixed, on any date in April of every year as determined by the board of directors or trustees:
o Regular
Provided, That written notice of regular meetings shall be sent to all stockholders or members
o Special
of record at least two (2) weeks prior to the meeting, unless a different period is required by
D/T meeting (or Board Meeting)
the by-laws.
o Regular
o Special
Special meetings of stockholders or members shall be held at any time deemed necessary or
as provided in the by-laws: Provided, however, That at least one (1) week written notice shall
Q: What is the importance of the meeting?
be sent to all stockholders or members, unless otherwise provided in the by-laws.
So that the persons SH/M or D/T may act upon certain corporate matters, discuss
issues, and exercise their right to vote in appropriate case under the Corpo Code.
Notice of any meeting may be waived, expressly or impliedly, by any stockholder or member.
Whenever, for any cause, there is no person authorized to call a meeting, the Securities and
Q: Is there Any instance wherein a meeting is no longer required?
Exchange Commission, upon petition of a stockholder or member on a showing of good cause
Yes.
therefor, may issue an order to the petitioning stockholder or member directing him to call a
GR: A meeting is always needed
meeting of the corporation by giving proper notice required by this Code or by the by-laws.
o EXPN: With respect to the amendment of the AOI, mere WRITTEN
The petitioning stockholder or member shall preside thereat until at least a majority of the
ASSENT is required
stockholders or members present have been chosen one of their number as presiding officer.
Q: For example, the principal office is located in Las Pinas, can the SH meeting be held in
Sec. 51. Place and time of meetings of stockholders or members. - Stockholders' or
Muntinlupa?
members' meetings, whether regular or special, shall be held in the city or municipality where

Nudibranch 23
Yes. With respect to the place of SH/M meeting, Metro Manila shall be considered Provided, That Metro
as a city Manila shall, for
purposes of this section,
Q: Can the SEC call for a meeting? be considered a city or
No. municipality
A stockholder may petition before the SEC when there is no person authorized to
call the meeting and if the SEC finds good cause, it will direct the petitioning SH/M EXPN: If the meeting be improperly
to call the meeting held or called, it is still VALID,
The SEC will not call the meeting, it may only make an order directing SH to hold a provided:
meeting 1. The proceedings had and any
business transacted are within the
Q: Is there any instance wherein a SH/M may preside in a meeting? powers or authority of the
Yes corporation (not ultra vires); and
Q: So any ordinary SH/M may preside? 2. ALL the SH/M of the corporation
o No are present or duly represented at
the meeting
Q: If the by-laws are silent, who shall preside? Notice Written notice Written notice Written notice must be given to every
must be given to must be given Director or Trustee at least 1 day prior
EXPERT TRAVEL SH/M at least 2 to SH/M at to the meeting, unless: 1. Otherwise
A foreign corporations resident agent who is a lawyer is not authorized to sign the weeks prior to least 1 week provided under the by-laws, or 2.
certification or verification of non-forum shopping in the absence of a Board the meeting, prior to the Waived by the D/T
Resolution authorizing him to do so and such is submitted to the court unless: 1. meeting,
The SC recognized teleconferencing, videoconferencing, audio-conferencing as a Otherwise unless: 1.
means to conduct business. However, these modes cannot be used to substitute a provided in by- Otherwise
written board resolution laws, or 2. provided in by-
o Bases: Waived by the laws, or 2.
1. R.A. 8792 E-Commerce Act SH/M Waived by the
2. SEC memorandum no. 15 guidelines to be complied with SH/M
a. (Sabi ni sir take a look at these) Requisites of notice of meeting: (AW-DaBus-TiLaw)
1. Must be issued by one who has authority to issue it
STOCKHOLDERS/MEMBERS MTG. DIRECTORS/TRUSTEES MEETING 2. Must be in writing
Time Regular meeting Special Regular meeting Special meeting 3. Must state date, time, and place unless otherwise provided in by-
those held Meeting those held by the those held by the laws
ANNUALLY: those held at board MONTHLY, board at ANY 4. Must state business to be transacted
1. On a date ANY TIME: unless the by- TIME: 5. Must be sent at a certain time before scheduled
fixed in the by- 1. Deemed laws provide or 1. Upon the call of 6. Must comply with any other requirements prescribed by law or by-
laws, or necessary or otherwise the president or laws
2. On any date in 2. As provided 2. As otherwise Who may call 1. Person/s designated in by-laws By the President, unless otherwise
April of every in the by-laws provided in the by- have authority to call SH/M provided in the by-laws
year as laws meeting;
determined by 2. In the absence of such provision
the Board in by-laws, it may be called by a D/T
Place GR: (1) In the CITY OR MUNICIPALITY ANYWHERE in or out of the Philippines, or by an officer entrusted with the
where the principal office of the unless the by-laws provide otherwise management of the corp;
corporation is located, and (2) if 3. A petitioning SH/M may make the
practicable in the PRINCIPAL OFFICE call upon the order of the SEC
of the corporation: whenever for any cause, there is no

Nudibranch 24
person authorized to call the Once there is a quorum at the time the meeting is called to order, even if some
meeting; people walked out leaving less than the majority, the proceedings will be valid. A
4. A special meeting for removal of minority group cannot prevent corporate action by walking out
D/T may be called by the secretary
or by SH/M Seventh meeting.
Who may 1. President presides the meetings President presides the meetings unless
preside unless the by-laws provide the by-laws provide otherwise Sec. 55. Right to vote of pledgors, mortgagors, and administrators. - In case of pledged or
otherwise mortgaged shares in stock corporations, the pledgor or mortgagor shall have the right to
attend and vote at meetings of stockholders, unless the pledgee or mortgagee is expressly
2. A SH/M may preside in a given by the pledgor or mortgagor such right in writing which is recorded on the appropriate
temporary capacity where the corporate books.
person authorized to preside is
absent Executors, administrators, receivers, and other legal representatives duly appointed by the
court may attend and vote in behalf of the stockholders or members without need of any
3. The petitioning SH/M shall written proxy.
preside until at least a majority of
the SH/M present have chosen one Sec. 56. Voting in case of joint ownership of stock. - In case of shares of stock owned jointly
of their number as presiding officer by two or more persons, in order to vote the same, the consent of all the co-owners shall be
(in rel. to #3 of Who may call necessary, unless there is a written proxy, signed by all the co-owners, authorizing one or
Allowance of Proxy is allowed Proxy is not allowed some of them or any other person to vote such share or shares: Provided, That when the
proxy shares are owned in an "and/or" capacity by the holders thereof, any one of the joint owners
Requirements (PDP-NoQ) can vote said shares or appoint a proxy therefor
1. Held at the proper place
2. Held at the stated date and appointed time or a reasonable time Sec. 57. Voting right for treasury shares. - Treasury shares shall have no voting right as long
thereafter as such shares remain in the Treasury
3. Called by the proper person
4. There must be previous notice Q: Explain the right to vote.
5. There must be a quorum With respect to stock corporations:
o Voting is based on the number of shares owned and not on the
Sec. 52. Quorum in meetings. - Unless otherwise provided for in this Code or in the by-laws, a number of stockholders or per capita
quorum shall consist of the stockholders representing a majority of the outstanding capital o Thru the right to vote, the SH participates in the management of the
stock or a majority of the members in the case of non-stock corporations corporation
o It is the SHs supreme right and main protection
Q: What is quorum? o It is an incident of ownership or the property in the stock of which the
It is that number of members of a body which when legally assembled in their SH cannot be deprived without his consent and he may vote it as he
proper places will enable the body to transact its proper business chooses, although not in the manner or for the purposes contrary to
With respect to Stockholders or members meetings: law, public policy or fraudulently
o GR: A quorum shall consist of the SH representing a majority of the OCS o This right may be lawfully denied under the AOI/By-laws
or a majority of the member of a non-stock corporation o The right to vote does not impose a legal duty to vote
So with respect to Stock corporation, it is majority of the o The vote is based on the number of shares represented, not the
OCS while in non-stock, it is the number of the members of number of SHs present
the corporation o A director has the right to vote as a director or as a SH
o EXPN: Unless otherwise provided for in the Corpo Code or in the By- With respect to non-stock corporations:
laws (but not less than 2 SH/M may constitute a quorum) o GR: Each member shall be entitled to one vote
EXPN: The right of the members of any class to vote may be
Q: What happens when some of the shareholders or members walked out in the middle of limited, broadened or denied to the extent specified in the
the meeting and there is no more quorum, what is the effect? AOI or by-laws (Sec. 89)

Nudibranch 25
o To give voting rights to these shares could enable the directors to
Q: Who are entitled to vote? Who are not entitled to vote? prolong their stay in office against the wishes of the holders of majority
It depends upon the kind of share. of the shares.
Voting shares Only the legal owners of shares have the right to attend and vote Fractional shares not entitled to vote
in a corporate meeting Unpaid shares if they are not delinquent, they are entitled to vote
Sequestered shares Escrow shares not entitled to vote before fulfillment of the condition imposed
o GR: the registered owners of shares sequestered by govt (PCGG) or Pledged or mortgaged shares
their duly authorized representatives or proxies may vote. The govt is o GR: The pledgor or mortgagor shall have the right to attend and vote at
merely a conservator and cannot vote. meetings of stockholders
Q: How do you know if PCGG may vote sequestered shares? Q: So what is the effect of a pledge on the right to vote on a
#1 EXPN: The 2-Tiered Test: SH who pledges his shares?
1. WON there is prima facie evid showing that the shares No effect at all.
are ill gotten wealth and thus belong to the State o EXPN: Unless the pledgee or mortgagee is
2. WON there is an immediate danger of dissipation thus 1. Expressly given by the pledgor or mortgagor such right in writing
necessitating their continued sequestration and voting 2. Which is recorded on the appropriate corporate books.
by the PCGG while the main issue is pending with the a. Q: Who must record this authority?
Sandiganbayan i. The PLEDGOR
o REPUBLIC V. COCOFED Voting rights for shares a deceased stockholder
#2 EXPN: Public Charter Exception: The 2-tiered test does o Exercised only where a legal representative has been appointed
not apply in cases of sequestered shares purchased with o Executors, administrators, receivers, and other legal representatives
public funds or prima facie public funds or at least funds duly appointed by the court may attend and vote in behalf of the
affected with public interest even though the case is still stockholders or members without need of any written proxy.
pending Shares jointly owned (effect by 2 or more persons own shares jointly)
In the case of COCOFED, coco levy funds partake o GR: In order to vote the same, the consent of all the co-owners shall be
the nature of taxes. The beneficial ownership necessary,
belong to the government although the shares o EXPNs:
are in the name of Eduardo Cojuangco. 1. Unless there is a written proxy, signed by all the co-owners,
Thus, the govt has the authority vote: authorizing one or some of them or any other person to vote such
1. Where govt shares are taken over by private share or shares
persons or entities which registered them in their 2. Provided, that when the shares are owned in an "and/or"
own names; and capacity by the holders thereof, any one of the joint owners can
2. Where the capitalization or shares that were vote said shares or appoint a proxy therefor
acquired with public funds somehow landed in
private hands Q: Explain the manner of voting.
Non-voting shares the owners may vote in certain instances: A SH/M may vote:
o When law provides that 2/3 or majority vote of OCS entitled to vote, o 1. Directly (in person)
the excludes non-voting shares o 2. Indirectly, through a representative (PTA)
o GR: In all corporate acts, only voting shares are entitled to vote By means of a proxy
EXPN: Holders of non-voting shares may vote in cases By a trustee under a trust agreement
provided in Section 6, par. 6, nos. 1-8 By executor, administrators, receivers, or other legal
Disqualified shares not entitled to vote representatives duly appointed by the court
Preferred and redeemable entitled to vote, but may be denied under the AOI Voting may either be straight or cumulative (Sec. 24)
Delinquent shares not entitled to vote
Treasury shares have no voting rights so long as they remain in treasury Q: How about parents, can the vote for the minor childrens shares?
o Reason: these shares are not part of the OCS. The only right a corp has Yes. Under the family code, parents are considered JOINT ADMINISTRATORS of the
over them are to reissue them for a valuable consideration property of the minor children

Nudibranch 26
Q: What if the person represented is not a minor, there is no proxy, no trustee, no legal 2. Limited Proxy restricts the authority to vote specified matters only and direct
representative, and he dies. Who may represent him? the manner in which the vote shall be cast
No one. 3. Specific Proxy the authority granted is merely for a particular meeting on a
Q: What is the remedy of the heirs who want to vote? specific date
o They must file an action for partition 4. Continuing Proxy authority given is to represent the SHs at any and all regular
and special SHs meetings unless the SH revokes the same
CHUA v. CA
The 2 requirements of a derivative suit are: Q: What is the purpose of proxy?
o 1. It must be alleged that it is a derivative suit, meaning it is filed on 1. For convenience or favor to the distant and indifferent SH
behalf of the corporation 2. Assured the presence of a quorum
o 2. It must include all indispensible parties, meaning that the 3. Enables those who do not wish to attend a SH/Ms meeting to protect their
corporation itself must be impleaded interest by exercising their right to vote thru representative
A derivative suit may be filed by a SH on behalf of the corporation as the real party 4. Secure voting control or management control in corporation
in interest only when the Board of directors do NOT file a case. Reason: the power
to sue in the name of the corp resides with the board. Q: What are the instances wherein the right to vote by proxy may be exercised?
The SH may enforce a corporate cause of action thru a derivative suit 1. Election of the Board of D/T (Sec. 24)
In the case at bar, the petition was for certiorari and was not alleged to be a 2. Voting in case of joint ownership stock (Sec. 56)
derivative suit nor was the corporation impleaded as a party. 3. Voting by trustee under voting trust agreement (Sec. 59)
4. Voting by members in a non-stock corporation (Sec. 89)
Sec. 58. Proxies. - Stockholders and members may vote in person or by proxy in all meetings 5. Pledge or mortgage of shares
of stockholders or members. Proxies shall in writing, signed by the stockholder or member 6. As may be provided for in its by-laws
and filed before the scheduled meeting with the corporate secretary. Unless otherwise
provided in the proxy, it shall be valid only for the meeting for which it is intended. No proxy Q: Who may be appointed as a proxy?
shall be valid and effective for a period longer than five (5) years at any one time No limitation under Sec. 58
A SH/M may appoint anyone he sees fit to represent him. Such right cannot be
Q: What is proxy? restricted by the by-laws (otherwise, such provision would be void) with respect to
nd
Written authorization given by one person to another so that the 2 person can Stock corporations. It may be denied with respect to non-stock corporations, but
act for the first the same must not be discriminatory
Used to apply to the holder of the authority or person authorized by an absent D/T cannot attend or vote by proxy in Board Meetings
SH/M to vote for him at a SH/Ms meeting
Nature of proxy: purely personal. The right to appoint is an incident of ownership. Q: May proxies be revoked? Yes. How? Explain the rules
Proxies, even those with irrevocable terms, have always been considered
Q: What are the requisites for a valid proxy? revocable, unless coupled with an interest
F5-SWV
1. Filed before the scheduled meeting with the corporate secretary Q: How may revocation be done?
2. No proxy shall be valid and effective for a period longer than 5 years at any time 1. Formal notice
3. It shall be signed by the SH/M concerned 2. Verbal communication
4. Proxies shall be in writing 3. Conduct
o Oral proxies are not allowed
5. Unless otherwise provided in the proxy, it shall be valid only for the meeting Q: What are the rules on revocation?
which it was intended Last proxy given revokes all previous proxies
Where proxies are undated, the postmark dates become important
Q: What are the kinds of proxy?
1. General Proxy confers a general discretionary power of attorney to attend and Q: What are the powers and rights of a trustee?
vote at an annual meeting with all the powers the undersigned would possess if Sec. 59. Voting trusts. - One or more stockholders of a stock corporation may
personally present create a voting trust for the purpose of conferring upon a trustee or trustees:

Nudibranch 27
o 1. The right to vote and other rights pertaining to the shares for a Q: What are the purposes of voting trust agreement?
period not exceeding five (5) years at any time: Provided, That in the Unified control of the affairs of the corporation and consistent policy and
case of a voting trust specifically required as a condition in a loan management especially of a new corporation desirous of attracting investors
agreement, said voting trust may be for a period exceeding five (5) Assure continuity of policy and management especially of a new corporation
years but shall automatically expire upon full payment of the loan. A desirous of attracting investors
voting trust agreement must be in writing and notarized, and shall Enable owners of majority of the stock of the corp to control the corp
specify the terms and conditions thereof. A certified copy of such Vest and retain the management of the corporation in the persons originally
agreement shall be filed with the corporation and with the Securities promoting it
and Exchange Commission; otherwise, said agreement is ineffective and Prevent a rival concern from acquiring control of the corp
unenforceable. To carry out a proposed sale of the corps assets and to facilitate dissolution
o 2. The certificate or certificates of stock covered by the voting trust To enable 2 holding companies to operate jointly a corporation controlled by them
agreement shall be canceled and new ones shall be issued in the name To effect a plan for reorganization of a corp in financial difficulty or in bankruptcy
of the trustee or trustees stating that they are issued pursuant to said proceedings
agreement. In the books of the corporation, it shall be noted that the To aid a financially embarrassed corp to obtain a loan and protect its creditor
transfer in the name of the trustee or trustees is made pursuant to said
voting trust agreement. Q: What are the limitations (requirements) of a voting stock agreement?
o The trustee or trustees shall execute and deliver to the transferors Not more than 5 years at any 1 time
voting trust certificates, which shall be transferable in the same manner Not used to circumvent the law against monopolies/illegal combinations in
and with the same effect as certificates of stock. restraint of trade
o 3. The voting trust agreement filed with the corporation shall be subject Must be in writing, notarized, specifying the terms and conditions
to examination by any stockholder of the corporation in the same Certified copy must be filed with the Corporation and SEC
manner as any other corporate book or record: Provided, That both the Subject to examination by the SH
transferor and the trustee or trustees may exercise the right of Right automatically expired at the end of the period.
inspection of all corporate books and records in accordance with the
provisions of this Code. Q: What is the difference between voting trust agreement and proxy?
o Any other stockholder may transfer his shares to the same trustee or
trustees upon the terms and conditions stated in the voting trust MIDTERM EXAM
agreement, and thereupon shall be bound by all the provisions of said
agreement. MULTIPLE CHOICE
o No voting trust agreement shall be entered into for the purpose of VOTING TRUST AGREEMENT
circumventing the law against monopolies and illegal combinations in o What are valid purposes?
restraint of trade or used for purposes of fraud. o What is the difference between a voting trust agreement and all other
o Unless expressly renewed, all rights granted in a voting trust agreement kinds of trust pools/arrangements?
shall automatically expire at the end of the agreed period, and the o Something about liability for damages
voting trust certificates as well as the certificates of stock in the name DIVIDEND
of the trustee or trustees shall thereby be deemed canceled and new o How do you compute a guaranteed cumulative dividend?
certificates of stock shall be reissued in the name of the transferors. TELECONFERENCING
o 4. The voting trustee or trustees may vote by proxy unless the o Can you conduct a SH meeting thru teleconferencing?
agreement provides otherwise. VOTING
o When is it required that the majority vote of the board + majority vote
Q: What is a voting trust agreement? of SH representing 2/3 of the OCS be obtained?
It is an agreement whereby a SH of a stock corporation confers upon a trustee/s o When may preferred or redeemable shares vote?
the right to vote and other rights pertaining to the shares for a period not 5 years
at any time ESSAY
It is not governed by the law on agency. Unlike agency, a voting trust agreement is ECE had a lot registered in its name. FHM took possession of the land. ECE filed a
not revocable at will complaint against FHM. The court ruled in ECEs favor. A writ of execution was
filed against FHM to deliver. FHM bought a substantial amount of the shares from

Nudibranch 28
ECE. FHM refused to obey the writ and argued that there its acquisition of shares STOCKS AND STOCKHOLDERS
was a supervening event the effect of which makes FHM not liable.
No pre-emptive rights on additionally issued shares Sec. 60. Subscription contract. - Any contract for the acquisition of unissued stock in an
Non-filing the by-laws within 30 days does not make a corporation a de facto existing corporation or a corporation still to be formed shall be deemed a subscription within
corporation the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or
Ratification of 2/3 of SH is required under Sec. 40 if sale of all or substantially all some other contract.
the assests of the corporation
Q: What is a subscription contract? Nature?
EXPLAIN Any CONTRACT for the acquisition of unissued stock in an existing corporation or
Identity doctrine a corporation still to be formed shall be deemed a SUBSCRIPTION
Instrumentality rule Unissued stock = stock never been issued (original issuance or the increase of
Alter ego doctrine capital stock)
Trust fund doctrine No required form
Business judgment rule By accepting a stock certificate, or acting as SH (i.e. participate in SH meeting,
make payment), a person becomes a SH even without express contract
DOCTRINES The subscription contract may cover one or more shares. Still, it remains an
Francisco v. CA indivisible contract
Nature: The subscription contract is a consensual contract that is perfected upon
Cruz v. Dalisay
meeting of the minds of the parties . The name of the subscriber is recorded in the
Seventh day adventist v. Northeastern
stock and transfer book. From that time, the subscriber becomes a SH of record
Grace Christian Highschool
and is entitled to all rights of a SH. Until the stocks are fully paid, it continues to be
Western Institute v. Salas
a subsisting liability that is legally enforceable
Santos v. NLRC
PNB v. Andrada Q: What are the kinds of subscription contract? (Give an example for each)
Salafranca v. Philamlife (PrePo-CAS)
Chua v. CA 1. Pre-incorporation subscription entered into BEFORE INCORPORATION. It
Lyceum v. CA constitutes as a binding contract among subscribers (See: Sec. 61)
2. Post-incorporation subscription entered into AFTER INCORPORATION for the
acquisition of unissued stock
o It shall be deemed a subscription notwithstanding the fact that the
parties refer to it as a purchase or some other contract.
o Q: When does a subscriber become a SH?
Upon acceptance by the corporation of the subscribers offer
or by acceptance of subscriber of the corporations offer
(unless the agreement or law provides otherwise, and in
case of increase in ACS) even before full payment
3. Conditional subscription SUBJECT TO A CONDITION, which may be a past
event unknown to the parties or a future, uncertain event, that is, an event which
may or may not happen. (The subscriber becomes a SH only upon fulfillment of
condition)
4. Absolute subscription NOT SUBJECT TO ANY CONDITION. (Subscriber becomes
liable on subscription and acquires rights of a SH from time the subscription is
accepted)
5. Subscription with a special term where the corporation AGREES TO DO
SOMETHING, the fulfillment of which NOT being a condition precedent to liability
FINALS of subscriber or acquisition of rights as SH. It is an absolute subscription.

TITLE VII

Nudibranch 29
Q: Are SH liable to corporate creditors for unpaid subscriptions? Recall 25%-25% Rule under Sections 13 and 14. The SEC shall not accept the AOI of
Generally, SH cannot be compelled to make good deficiency when corporation is any stock corporation unless at least 25% of the ACS has been subscribed and at
not able to meet its obligation. Reason: persons dealing with the corporation are least 25% of the total subscription has been fully paid.
presumed to know that they can have recourse only to property of the
corporation. Q: When is the pre-incorporation subscription irrevocable?
However, stock subscriptions are in the nature of a Trust Fund since they are to be RULE 1: It is irrevocable for a period of 6 months from the date of subscription,
maintained unimpaired for the protection of the corporate creditor. Subscribers unless:
who have not paid in full are debtors of the corporation for the balance and if the o All of the other subscribers consent to the revocation
corporation does not enforce the liability, the creditors may do so. o The incorporation fails to materialize
An unpaid subscription is an asset which the corporate creditors may look for Q: Other than these 2 exceptions, are there any other circumstances in which the
payment and may insist that it be collected subscription is revocable?
Trust Fund Doctrine - the subscribed capital stock of the corporation is a trust fund o Yes. If the 6-month period has already lapsed, the subscription
for the payment of debts of the corporation which the creditors have the right to becomes revocable.
look up to satisfy their credits, and which the corporation may not dissipate. The RULE 2: It becomes irrevocable after the submission of AOI to the SEC
creditors may sue the SH directly for the latters unpaid subscription Reason for irrevocability it prevents a subscriber from speculating on the stocks
of a proposed corporation. Furthermore, the rule protects the corporation from
Q: When is rescission available in a subscription contract? financially irresponsible subscribes
When there is material or substantial breach of the contract.
Q: Example of material breach? Sec. 62. Consideration for stocks. - Stocks shall not be issued for a consideration less than the
par or issued price thereof. Consideration for the issuance of stock may be any or a
ONG YONG TIU combination of any two or more of the following:
If there is no material or substantial breach in the subscription contract, rescission
is not allowed 1. Actual cash paid to the corporation;
If the court will interfere, there will be a violation of the business judgment rule 2. Property, tangible or intangible, actually received by the corporation and necessary or
Q: What should have been the proper remedy in this case? convenient for its use and lawful purposes at a fair valuation equal to the par or issued value
o Specific performance of the stock issued;
Rescission is not proper remedy for distribution of capital assets and property of 3. Labor performed for or services actually rendered to the corporation;
the corporation - even if subscribers have legal standing to sue for rescission of 4. Previously incurred indebtedness of the corporation;
subscription contract based on breach of contract, such action cannot prosper 5. Amounts transferred from unrestricted retained earnings to stated capital; and
since rescission will violate the Trust Fund Doctrine and the procedures for the 6. Outstanding shares exchanged for stocks in the event of reclassification or conversion.
valid distribution of assets and properties under the Corpo Code.
o Otherwise, any SH may demand rescission for his subscription and call Where the consideration is other than actual cash, or consists of intangible property such as
for distribution of corporate assets to him without complying with the patents of copyrights, the valuation thereof shall initially be determined by the incorporators
requirements under the Corpo Code or the board of directors, subject to approval by the Securities and Exchange Commission.

Sec. 61. Pre-incorporation subscription. - A subscription for shares of stock of a corporation Shares of stock shall not be issued in exchange for promissory notes or future service.
still to be formed shall be irrevocable for a period of at least six (6) months from the date of The same considerations provided for in this section, insofar as they may be applicable, may
subscription, unless all of the other subscribers consent to the revocation, or unless the be used for the issuance of bonds by the corporation.
incorporation of said corporation fails to materialize within said period or within a longer
period as may be stipulated in the contract of subscription: Provided, That no pre- The issued price of no-par value shares may be fixed in the articles of incorporation or by the
incorporation subscription may be revoked after the submission of the articles of board of directors pursuant to authority conferred upon it by the articles of incorporation or
incorporation to the Securities and Exchange Commission. the by-laws, or in the absence thereof, by the stockholders representing at least a majority of
the outstanding capital stock at a meeting duly called for the purpose.
Q: Is pre-incorporation subscription required?
Yes, it is mandatory. Q: What are valid considerations in subscription agreements? (Explain each)
(CaPLa-PAO)
1. Actual cash paid to the corporation;

Nudibranch 30
o Q: What is evidence that cash has been paid? o Corporation is allowed to receive as payment for its stocks labor or
In practice, the bank will allow the opening of a temporary services actually performed/rendered, provided that the transaction
account in the name of the future corporation where a must be done in GF + no fraud is perpetrated upon SHs and creditors
deposit shall be made in compliance with the 25%-25% rule o Compensation payable/services actually rendered to corporation is
(25% of the ACS must be subscribed, 25% of the subscribed CREDIT which has ascertainable value.
capital must be fully paid. The bank shall await the approval o Future services is not acceptable as payment.
of the SEC. Payment of cash is evidence by a certificate 4. Previously incurred indebtedness of the corporation;
requested from the bank that a deposit has been made to o Sec. 62(4) expressly allows set off or satisfaction of previously incurred
said temporary account indebtedness of a corporation by issuance of its shares of stock where
o With respect to items 1 and 2, payment for shares of stock must be conflicting rights of creditor are not involved
actually received by the corporation. o The indebtedness must be the kind that is ACKNOWLEDGED by the
o Thus, receivables cannot be treated as cash since payment is to take board of directors
place in the future. (However, they may be treated as property o Set off = payment to creditor with shares of stock of debtor corporation
payment subject to SEC verification as to existence and credibility and in the form of property [See62(2)] in lieu of cash [62(1)] at the option of
to the condition that the same shall be held in escrow until actual the corporation
payment or collection of the receivables) o Should the corporation enters into such set off, the SEC requires that
2. Property, tangible or intangible, actually received by the corporation and the corporation submit a report on the matter indicating the total
necessary or convenient for its use and lawful purposes at a fair valuation equal to number of shares and the total amount to be paid for each claim and a
the par or issued value of the stock issued; deed of assignment executed by subscriber/creditor applying his claim
o Q: What are the requisites/conditions for property to be valid in consideration of the shares of stock.
consideration for a subscription agreement? 5. Amounts transferred from unrestricted retained earnings to stated capital; and
(RNV3-T) o This means declaration of Stock Dividends.
1. Property is actually received o If stocks are issued in consideration of profits earned by the
2. Necessary and convenient for the use and for lawful corporation but not distributed among the SH, such issue is called stock
purposes of the corporation dividends. Such consideration is permitted under Sec. 62(5). Once
3. Property is based on a fair valuation equal to the par or declared and issued, stock dividends are fully paid.
issued value of the stock issued o Stock dividends involve issuance of stock directly paid from amounts
4. The valuation is INITIALLY determined by BOD or transferred from URE to stated capital. Since the retained earnings have
incorporators already been applied as payment to issuance of shares covering stock
5. The valuation is subject to SEC approval dividend declaration, the same can no longer be reapplied as payment
6. Capable of being transferred to the corporation and to subsequent subscription rights.
applied to payment of debts 6. Outstanding shares exchanged for stocks in the event of reclassification or
o Q: Example of intangible property? conversion.
Patents; copyrights; mining claim o Q: What does conversion mean?
o Where the consideration is other than actual cash, or consists of Conversion from a sole proprietorship or a partnership to a
intangible property such as patents or copyrights, the VALUATION corporation. The consideration shall be the net assets of
thereof shall initially be determined by the incorporators or the board those enterprises/units.
of directors, subject to APPROVAL by the Securities and Exchange o A corporation may reclassify its shares by amending its AOI and
Commission. exchange outstanding shares of SHs for stocks reclassified or converted
o True Value Rule if the consideration is other than actual cash (2-4), its from one class to another.
value must be worth the value of the stocks issued. That is why SEC o Thus, a holder of preferred shares with conversion privilege may give
approval is required. his convertible preferred shares as a consideration for the issuance of a
o US dollars should be duly converted to peso, otherwise they will be certain number of common shares
considered payment by way of property A corporation cannot issue its stock as a gratuity
o Financial instruments may be considered as personal property and may
be legally accepted as capital contribution Q: What are the conditions that must complied with respect to the valid consideration?
3. Labor performed for or services ACTUALLY rendered to the corporation;

Nudibranch 31
1. Where the consideration is other than actual cash, or consists of intangible corporation shall be issued in accordance with the by-laws. Shares of stock so issued are
property such as patents of copyrights, the valuation thereof shall initially be personal property and MAY be transferred by delivery of the certificate or certificates
DETERMINED by the incorporators or the board of directors, subject to APPORVAL endorsed by the owner or his attorney-in-fact or other person legally authorized to make the
by the Securities and Exchange Commission. transfer. No transfer, however, shall be valid, except as between the parties, until the transfer
2. Shares of stock shall not be issued in exchange for promissory notes or future is recorded in the books of the corporation showing the names of the parties to the
service. transaction, the date of the transfer, the number of the certificate or certificates and the
o The same considerations provided for in this section, insofar as they number of shares transferred.
may be applicable, may be used for the issuance of bonds by the
corporation. No shares of stock against which the corporation holds any unpaid claim shall be transferable
3. The issued price of no-par value shares may be FIXED: (ABS) in the books of the corporation.
a. In the articles of incorporation or
b. By the board of directors pursuant to authority conferred upon it by the Q: What is a certificate of stock?
articles of incorporation or the by-laws, or Certificate of stock a WRITTEN INSTRUMENT signed by the proper officer of a
c. In the absence thereof, by the stockholders representing at least a majority corporation stating or acknowledging that the person named therein is the owner
of the outstanding capital stock at a meeting duly called for the purpose. of a designated number of shares of its stock
o Thus, the Issued Value of no-par value shares may vary from time to Q: Who is the proper officer referred to?
time o The certificate must be signed by the PRESIDENT OR VICE PRESIDENT,
o But they may not be issued for a consideration less than 5 pesos [Sec. countersigned by the SECRETARY OR ASSISTANT SECRETARY
6(3)] The Certificate must indicate:
o However, the Stated Value of the issued no par value shares cannot be o The name of the holder
changed anymore because they are deemed fully paid and non- o The number, kinds, and class of shares represented, and
assessable upon issuance [Sec.6(3)] o The date of issuance
Certificate is NOT STOCK but is merely evidence of the holders interest and
Q: What are watered stocks? What is the consequence of issuing watered stocks? (See Sec. status in the corporation. It is not equivalent to ownership. It expresses the
65) contract between the corporation and SH. It is based on the # of shared owned by
SH.
Q: What is the difference between par value and issued value? Certificate is not essential to the existence of a share of stock
Par value the value of a share as fixed in the AOI and reflected in the certificate It is prima facie evid that the holder is a SH in the corporation
of stock The certificate itself is property, but it has a value separate and distinct from the
Issued value the value fixed by the Board of Directors which can be higher than value of the shares represented
the par vale As between a General Information Sheet and corporate books, the latter controls
Only stock corporations can issue shares of stock
Q: What should be the amount of the consideration? A certificate of stock is not necessary to render one a SH
GR: Under Section 65, shares of stock shall NOT be issued for a consideration LESS
than the par or issued price thereof Q: Is a certificate of stock a negotiable instrument?
o Watered stocks stocks issued for a consideration less than their par No. Reason: A certificate of stock can only be issued to the registered owner
or issued price Also, a certificate of stock does NOT comply with Section 1 of the Negotiable
EXPN: treasury shares so long as the price is reasonable (Sec. 9) Instruments Law.
It is implied under Sec. 62 that a corporation may issue shares of stock at a price o Section 1. Form of negotiable instruments. An instrument to be
ABOVE the par or issued value. This does not necessarily reflect the true or actual negotiable must conform to the following:
value of stock since book or market vale normally fluctuates (a) It must be in writing and signed by the maker or drawer;
However, a new issue of capital stock above par value may be issued, provided (b) Must contain an unconditional promise or order to pay a sum
that old SHs are given the right to purchase their proportionate part of the issue certain in money;
(c) Must be payable on demand, or at a fixed or determinable future
Sec. 63. Certificate of stock and transfer of shares. - The capital stock of stock corporations time;
shall be divided into shares for which certificates signed by the president or vice president, (d) Must be payable to order or to bearer; and
countersigned by the secretary or assistant secretary, and sealed with the seal of the

Nudibranch 32
(e) Where the instrument is addressed to a drawee, he must be named (See modes and requirements below)
or otherwise indicated therein with reasonable certainty.
It is not a negotiable instrument. However, it is sometimes regarded as quasi- Q: What are the modes of stock transfer?
negotiable in the sense that it may be transferred by indorsement coupled by According to De Leon, there is more than 1 mode of transferring stock. Reason:
delivery, it is well-settled that it is non-negotiable because the holder takes it Section 63 states: Shares of stock so issued are personal property and MAY be
without prejudice to the right or defenses as the registered owners or transferors transferred.
creditor may have under the law o 1. Indorsement and delivery of stock certificate and to issue a new
o EXPN: When estoppel arises. Street Certificate of Stock is one which is certificate unless the original certificate is surrendered unless the
indorsed in blank by the owner thereof and thus is transferrable by original certificate is surrendered for cancellation or is clearly shown to
mere delivery. If a street certificate is delivered by the owner to a have been lost, stolen, or destroyed
broker who pledged it to a bank which had no knowledge that the o 2. Transfer made in a separate instrument this mean the transfer of
certificate did not belong to the broker, he is estopped from claiming stock by the execution of a Deed of Sale or Assignment. While an
title or interest against the pledgee bank assignment may be valid and binding between the parties despite non-
compliance with the requisite endorsement and delivery, it does not
Q: What are the REQ for the issuance of Certificate of stock? necessarily make the transfer effective for the assignee cannot enjoy
(SSID-RFSO) the status of a SH until and unless the issue of ownership is resolved
1. Certificate must be signed by the president or vice president, countersigned by with finality
the secretary or assistant secretary, and o 3. Judicial or extra-judicial settlement of estate upon the death of
2. Sealed with the seal of the corporation the SH, his administrator or executor becomes vested with the legal
3. Issued in accordance with the by-laws. title of the stock until the settlement and division of the estate is made
4. Delivery of the certificate with endorsement However, jurisprudence (Rural Bank v. CA) provides that there is really only 1
5. To be valid against third persons, the transfer is recorded in the stock and mode: Indorsement + Delivery (in order to bind the parties) + Registration in the
transfer books of the corporation corporate books (in order to bind the corporation). Without delivery and
6. The par value, as to par value shares, or the full subscription as to no par value indorsement at the very least, the transfer shall be fatally defective
shares, must first be fully paid
7. The original certificate must be surrendered where the person requesting the Q: What are the requirements for a valid stock transfer?
issuance of a certificate is a transferee from the SH RURAL BANK OF LIPA V. CA in case of shares represented by a certificate, the
8. Such other requirements as may be pursuant to AOI or valid by-laws transfer must strictly comply with the ff conditions:
o 1. There must be DELIVERY of the certificate
Q: What must be recorded in the books of the corporation? o 2. The share must be INDORSED by the owner or his attorney-in-fact or
(NaDaNuNu) any authorized person
rd
1. The names of the parties to the transaction, o 3. To be valid to the corporation and 3 persons, the transfer must be
2. The date of the transfer, duly REGISTERED in the books of the corporation
3. The number of the certificate or certificates and While an assignment or sale may be valid between the
4. The number of shares transferred. parties, even without endorsement and delivery, it does not
necessarily make the transfer effective, for the assignee
Q: What are the remedies where the corporation refuses to issue a certificate? cannot enjoy the status of a SH; and the assignor cannot yet
1. A petition for mandamus be deprived of his rights as SH until and unless the issue of
o See: Ponce v. Alsons ownership and transfer of the shares in question is resolved
o Mandamus will not lie where the certificate was not indorsed by the with finality
owner If there is no certificate that has been issued yet, or where it is not in the possession
2. A suit for specific performance of an express or implied contract of the SH shares may be transferred by means of a deed of assignment duly
3. May sue for damages where specific performance cannot be granted recorded in the corporate books
4. Rescission of contract of subscription and recover the consideration paid
Q: Who causes the registration?
Q: Can you transfer shares?
Yes

Nudibranch 33
The registration of transfers of shares of stock in the stock and transfer books is a Considering that the law does not prescribe a period within which the registration
function which usually pertains to that of the corporate secretary or the transfer of the transfer of shares should be effected, the action to enforce the right does
agent of the corporation (Lim Tay v. CA) not accrue until there has been a demand and a refusal concerning the transfer
The registered owner will REQUEST from the Secretary or transfer agent to change
the name under the certificate to the transferees name. NAVA V. PEERS
As to the issue on assignment, in the absence of a certificate of stock, there can be
Q: What are the effects of unregistered transfer of shares? no transfer of shares of stock
1. It is valid and binding as between the transferor and the transferee A stock subscription is a subsisting liability from the time it is made. The
2. It is void as to the corporation except when notice is given to the corporation for subscriber is as much bound to pay his subscription, as he would be to pay any
purposes of registration other debt. The right of the corporation to demand payment is no less
3. It is void as against corporate creditors, and the transferor is still liable to the incontestable, and this is true even in then absence of an express promise to pay
corporation the amount subscribed.
4. It is void as to the attaching or executing creditors of the transferor, as well as Restrictions on transfer of stock the power to impose restrictions on transfer of
subsequent purchasers in good faith without notice of the transfer shares cannot be exercised unless conferred upon the corporation by law or it AOI
5. Where no certificate has been issued or for some reason, it is not in the Indorsement and delivery The certificate must be properly indorsed and title is
possession of the SH, it may be transferred by means of a deed of assignment but vested to certificate by delivery of the duly indorsed certificate even without
the same must be duly recorder in the books of the corporation executing a deed of assignment or sale of shares which is necessary only when no
certificate of stock has as yet been issued or where the same is not in the
Q: What is an unpaid claim? possession for whatever reason of the transferor.
Unpaid claim those claims arising from unpaid subscription and not to any
indebtedness which a subscription may owe the corporation arising from any LIM TAY V. CA
other transaction A mere pledgee of shares of stock does not have ownership over the shares. If the
No shares of stock against which the corporation holds any unpaid claim shall be obligation is not paid, the creditor (in this case, Lim Tay) should have foreclosed
transferable in the books of the corporation. the shares or caused the transfer in his own name. There is no automatic
appropriation allowed. In credit transactions, automatic appropriation is referred
PONCE v. ALSONS CEMENT to as pactum commissorium and is void.
Q: Is a corporation justified in refusing to register the transfer even though Validity of stock transfer A bona fide transfer of shares of a corporation not
delivery and indorsement has been made? registered or noted in the books, is invalid as against a subsequent lawful
o Yes. The buyer/assignee of shares cannot just go to the corporation and attachment or execution of said shares regardless of whether the attaching
have the transfer registered in the corporate books. Only the creditor had actual notice of the transfer or not. And indeed, as to all persons
registered owner, his attorney, or any authorized person, may cause interested, except the parties to the transfer
registration. Absent any instruction and despite the fact that there is Sec. 63 strictly requires the recording of the transfer in the corporate books, and
rd
valid indorsement and delivery, the transfer is not consummated not elsewhere, to be valid as against 3 parties
because there is no valid registration. Reason for requiring registration of stock transfer intended principally for the
Q: What must the assignee do to protect his interest? benefit and protection of the corporation to whom it must accord the right
o He must secure a SPA executed by the registered owner of the share granted to them by law and against whom it can enforce liability that may arise
authorizing the transferor to demand transfer in the stock and transfer from ownership of stock
book Right of corporation to refuse registration of transfer the registration of
o The transferee must present the indorsed certificate to the corporate transfers of shares of stock in the stock and transfer books is a function which
secretary who shall effect the transfer in the corporate books, issue a usually pertains to that of the corporate secretary or the transfer agent of the
new stock certificate in favor of the transferee and cancel the former corporation
certificate
Mandamus as a remedy where corporation refuses to issue certificate Assignment: Up to Sec. 73.
mandamus should not issue to compel the secretary of the corporation to make a
transfer of the stock on the books of the corporation UNLESS it affirmatively Sec. 64. Issuance of stock certificates. - No certificate of stock shall be issued to a subscriber
appears that he has failed or refused to do so upon demand of the proper person until the full amount of his subscription together with interest and expenses (in case of
delinquent shares), if any is due, has been paid.

Nudibranch 34
o = shall be SOLIDARILY LIABLE with the stockholder concerned to the
Q: Can the corporation issue stock certificates without full payment of the subscription? corporation and its creditors
No. No certificate of stock shall be issued to a subscriber until the FULL AMOUNT Q: For how much?
of his subscription together with interest and b (in case of delinquent shares), if any o For the difference between the FAIR VALUE received at the time of
is due, has been PAID issuance of the stock and the PAR OR ISSUED VALUE of the same.
o Par value the value of a share as fixed in the AOI and reflected in the
Q: For instance, you subscribe to 5 shares at a par value of P100 for each share, the full certificate of stock
amount of which is P500. You paid P200 as down payment and have a balance of P300. Can o Issued value the value fixed by the Board of Directors which can be
the corporation issue stock certificate? higher than the par vale
Generally, no. No stock certificate shall be issued until full payment of Q: Is there any way to escape liability?
subscription. Reason: Subscription is an indivisible contract. The prohibition in Sec. o Yes. Upon having knowledge of the issuance of the watered stock, the
64 is to prevent partial disposition of subscription when it is not yet fully paid director/officer must immediately file his written objection to the
However, De Leon has the following contrary view: when it is not restricted by issuance with the corporate secretary
the by-laws, a corporation has the option to issue stock certificates with respect to
the shares that may be covered by the amount paid (pro-rata) Sec. 66. Interest on unpaid subscriptions. - Subscribers for stock shall pay to the corporation
o Note: Sir says that since this view is based on an SC case promulgated in interest on all unpaid subscriptions from the date of subscription, if so required by, and at the
1965 (prior to the enactment of the present corpo code), the view is rate of interest fixed in the by-laws. If no rate of interest is fixed in the by-laws, such rate
obsolete and Sec. 64 prevails. This was in essence embodied in a SEC shall be deemed to be the legal rate
opinion.
Q: When is a subscriber liable to pay interest for unpaid subscription?
Sec. 65. Liability of directors for watered stocks. - Any director or officer of a corporation If so required by the by-laws and/or subscription contract
consenting to the issuance of stocks for a consideration less than its par or issued value or for
a consideration in any form other than cash, valued in excess of its fair value, or who, having Q: What is the rate of interest?
knowledge thereof, does not forthwith express his objection in writing and file the same with Generally, the rate fixed in the by-laws
the corporate secretary, shall be solidarily, liable with the stockholder concerned to the In the absence thereof, the legal rate of 12% per annum
corporation and its creditors for the difference between the fair value received at the time of
issuance of the stock and the par or issued value of the same. Q: When should you reckon the payment interest?
From the date of subscription until the payment of such interest is made
Q: What is a watered stock? What are the instances wherein a watered stock is issued?
Watered stock It is a stock issued not in exchange for its equivalent either in Sec. 67. Payment of balance of subscription. - Subject to the provisions of the contract of
case, property, share, stock dividends, or services. It includes stock subscription, the board of directors of any stock corporation may at any time declare due and
o 1. Issued without corporation (bonus share) payable to the corporation unpaid subscriptions to the capital stock and may collect the same
o 2. Issued as fully paid when the corporation has received a lesser sum or such percentage thereof, in either case with accrued interest, if any, as it may deem
than its par or issued value (discount share); or necessary.
o 3. Issued for a consideration other than actual cash, such as property or
services, the fair valuation of which is less than its par or issued value Payment of any unpaid subscription or any percentage thereof, together with the interest
o 4. Issued as stock dividend when there are no sufficient retained accrued, if any, shall be made on the date specified in the contract of subscription or on the
earning or surplus to justify it date stated in the call made by the board. Failure to pay on such date shall render the entire
Purpose of prohibition against issuance of Watered stock: to protect persons who balance due and payable and shall make the stockholder liable for interest at the legal rate on
may acquire stock and the creditors of the corporation particularly those who may such balance, unless a different rate of interest is provided in the by-laws, computed from
become such on the faith of its outstanding capital stock being fully paid such date until full payment. If within thirty (30) days from the said date no payment is made,
all stocks covered by said subscription shall thereupon become delinquent and shall be
Q: What is the liability may be liable for issuance of watered stock? subject to sale as hereinafter provided, unless the board of directors orders otherwise
Any director or officer of a corporation:
o 1. Consenting to the issuance of watered stocks or, Q: When does a stock become delinquent?
o 2. Having knowledge thereof, does not forthwith express his objection When the subscriber fails to pay the unpaid subscription or balance within 30 days
in writing and file the same with the corporate secretary, Q: When is the 30-day period reckoned?

Nudibranch 35
o 1. From the date fixed in the subscription contract to make payment; Notice of said sale, with a copy of the resolution, shall be sent to every delinquent stockholder
OR either personally or by registered mail. The same shall furthermore be published once a week
o 2. From the date fixed or stated in the call, if there is no date fixed in for two (2) consecutive weeks in a newspaper of general circulation in the province or city
the subscription contract where the principal office of the corporation is located.
Q: What is the effect if stock is declared delinquent?
o It may be subject to sale by the corporation Unless the delinquent stockholder pays to the corporation, on or before the date specified for
the sale of the delinquent stock, the balance due on his subscription, plus accrued interest,
Q: What is a call? costs of advertisement and expenses of sale, or unless the board of directors otherwise
Call a declaration officially made by a corporation requiring payment of all or a orders, said delinquent stock shall be sold at public auction to such bidder who shall offer to
certain prescribed portion of a shareholders stock subscription pay the full amount of the balance on the subscription together with accrued interest, costs
Q: What must be the form of the call? of advertisement and expenses of sale, for the smallest number of shares or fraction of a
o Resolution of the BOD share. The stock so purchased shall be transferred to such purchaser in the books of the
Q: What must the resolution contain? corporation and a certificate for such stock shall be issued in his favor. The remaining shares,
o The date in which payment is to be made (otherwise, non-payment will if any, shall be credited in favor of the delinquent stockholder who shall likewise be entitled to
make stock delinquent) the issuance of a certificate of stock covering such shares.

Q: Is call always necessary in order to make a stock delinquent? Should there be no bidder at the public auction who offers to pay the full amount of the
No. Even if there is no call, but the date of payment is fixed in the subscription balance on the subscription together with accrued interest, costs of advertisement and
contract, a stock may become delinquent due to continuous non-payment for 30 expenses of sale, for the smallest number of shares or fraction of a share, the corporation
days from the date fixed in the subscription contract may, subject to the provisions of this Code, bid for the same, and the total amount due shall
be credited as paid in full in the books of the corporation. Title to all the shares of stock
Q: What are the REQ for a valid call? covered by the subscription shall be vested in the corporation as treasury shares and may be
1. Made by the BOD (thru a resolution) disposed of by said corporation in accordance with the provisions of this Code.
2. Made in the manner prescribed by law
3. Must operate uniformly to all SH Q: What is delinquency sale?
Sale of delinquent stocks in a public auction to the highest bidder
Q: What is the meaning of operate uniformly? Example?
Firstly, when a call is made, it must be applied to all subscribers with unpaid Q: What is the procedure for the sale of delinquent stock?
subscriptions 1. RESOLUTION declaring unpaid subscriptions payable
Q: Assuming that the call complies with the first, is there any other way that the o This means that the BOD shall make a call for payment
rd
3 requisite is violated? In other words, is there any other form of o Q: What are the contents of the resolution?
discrimination? The date which payment is to be made. Reason why this is
o Yes. When some subscribers are called to pay a HIGHER RATE or price necessary: to know when to reckon the 30-day period in
than other, then the call does not operate uniformly determining when stock becomes delinquent
2. NOTICE to SHs of resolution
Q: What are the remedies to enforce payment of stock subscription? o Must give notice to SH to make payment, otherwise the stock shall be
1. Extrajudicial (Sec. 67-69) delinquent
2. Judicial (Sec. 70) o The corporation must wait for 30 days to lapse
3. Collection of Cash Dividends deduct the cash dividends before issuing them o After the days and the SH fails to make payment, the next step is:
4. Withholding of Stock Dividends (recall Sec. 43) 3. RESOLUTION ordering sale of delinquent sale
o Q: What are the contents of the resolution?
Sec. 68. Delinquency sale. - The board of directors may, by resolution, order the sale of FULL AMOUNT = Amount due + interest + costs of
delinquent stock and shall specifically state the amount due on each subscription plus all advertisements + expenses of sale
accrued interest, and the date, time and place of the sale which shall not be less than thirty Date, time, and place of sale which is not less than 30 days
(30) days nor more than sixty (60) days from the date the stocks become delinquent. but not more than 60 days from date stock becomes
delinquent
4. NOTICE AND PUBLICATION of sale

Nudibranch 36
o The SH shall be notified personally or thru registered mail
o Publication once a week for two (2) consecutive weeks in a newspaper Q: Assuming that there is already a highest bidder, is the corpo bound to accept the offer of
of general circulation in the province or city where the principal office the highest bidder?
of the corporation is located NO. In a public auction, the bidders are the ones who are making their offers to
5. SALE of delinquent stocks the corporation. Thus, the BOD have the discretion whether or not to accept their
o Sale of so many shares so as to effect payment of the full amount to the offer.
highest bidder
Sec. 69. When sale may be questioned. - No action to recover delinquent stock sold can be
Q: Who is the highest bidder? sustained upon the ground of irregularity or defect in the notice of sale, or in the sale itself of
Highest bidder such bidder who shall offer to pay the full amount of the balance the delinquent stock, unless the party seeking to maintain such action first pays or tenders to
on the subscription (together with accrued interest, costs of advertisement and the party holding the stock the sum for which the same was sold, with interest from the date
expenses of sale) for the smallest number of shares or fraction of a share of sale at the legal rate; and no such action shall be maintained unless it is commenced by the
filing of a complaint within six (6) months from the date of sale.
Q: For instance, the corporation is offering 5 shares with a par value of 100 peso each or a
total amount of 500 for subscription for each SH. A subscribed to 5 shares and paid the full Q: What are the grounds to question a delinquency sale? Example?
subscription of 500. B only paid the amount of 300, the leaving 200 remaining unpaid. The IRREGULARITY or DEFECT:
corporation made a call and gave notice to the SH but still B was not able to pay. The o 1. In the notice of the sale
corporation made a call for payment but B failed to pay. The corporation declared the Ex: No notice was made; the date of sale in the notice was
unpaid stock of B delinquent and caused its sale after notice and publication. There where 3 incorrect (not less than 30 days, not more than 60 days from
dealers who wanted to buy the remaining shares: X bid 200 for 2 shares, Y bid 25 for 2 delinquency); no publication or the publication was not fully
shares, and Z bid 250 for 1 share. The interest and cost and expenses cost 50 pesos complied with (I.e. only 1 week of publication)
Q: What is the minimum bid? o 2. In the sale itself of the delinquents stock
o The minimum bid is 250. The full amount = amount due, which is 200; + Ex: Failure to conduct a public bidding or auction (i.e. the
interest and costs and expenses, which is 50. Thus, yielding a full corporation sold it to whomever it wishes); incorrect
amount of 250 determination of the correct full amount due
Q: Who is the highest bidder?
o Z is the highest bidder because he offers to pay the full amount of the Q: Is Irregularity in call a ground to question the sale? Why or why not?
unpaid subscription for the smallest number of shares (250 for 1 share. No.
o X is not the highest bidder because he does not even meet the
minimum bid of 250 Q: What are the requisites before filing an action questioning the delinquency sale?
o Y is no the highest bidder because he is offering to buy 2 shares at 250, REQ:
which is equivalent only to 125 per share. Thus, his offer does not even 1. Pay or tender the sum + interest
meet the minimum bid o Sum the amount for which the stock was sold
Q: Where shall each share go? 2. Commence and file the action within 6 months from the date of sale
o Of the total subscription of 5 shares: o Otherwise, the action will be barred/Prescribed
B shall retain the 3 shares that he has already paid
Z, being the highest bidder of the sale shall own 1 share Sec. 70. Court action to recover unpaid subscription. - Nothing in this Code shall prevent the
And the remaining 1 share shall be deemed fully paid and corporation from collecting by action in a court of proper jurisdiction the amount due on any
shall be credited to the delinquent SH, B. unpaid subscription, with accrued interest, costs and expenses.

Q: What if there are no bidders, can the corporation forfeit the delinquent stock? Q: What are the requisites for judicial action?
NO. The corporation may only purchase the stock from the net earning or from the REQ:
URE 1. Prior call
Q: What doctrine will be violated if no URE? o Q: Why do you need a call?
o The Trust Fund Doctrine which provides that the subscribed capital o Reason: In oblicon, an obligation becomes due upon demand. The call
stock shall not be impaired because it is the common fund which shall serves as a demand because it is the resolution by the board calling out
be for the payment of creditors

Nudibranch 37
to all SH to pay their unpaid subscriptions. A call is necessary to make Sec. 73. Lost or destroyed certificates. - The following procedure shall be followed for the
the obligation to pay due and demandable. issuance by a corporation of new certificates of stock in lieu of those which have been lost,
2. The action must be filed within the prescriptive period stolen or destroyed:
o With respect to written subscription contract = 10 YEARS reckoned
from the date the right of action accrues (meaning from the date of the 1. The registered owner of a certificate of stock in a corporation or his legal representative
subscription itself shall file with the corporation an affidavit in triplicate setting forth, if possible, the
o With respect to verbal subscription = 6 YEARS reckoned from the LAST circumstances as to how the certificate was lost, stolen or destroyed, the number of shares
DEMAND represented by such certificate, the serial number of the certificate and the name of the
3. The amount must be limited to the amount due on any unpaid subscription corporation which issued the same. He shall also submit such other information and evidence
o Amount due = balance of unpaid subscription + Interest + Costs of SUIT which he may deem necessary;
+ Expenses of LITIGATION
4. With respect to the jurisdiction, the commercial courts of the RTC have 2. After verifying the affidavit and other information and evidence with the books of the
jurisdiction corporation, said corporation shall publish a notice in a newspaper of general circulation
published in the place where the corporation has its principal office, once a week for three (3)
Sec. 71. Effect of delinquency. - No delinquent stock shall be voted for be entitled to vote or consecutive weeks at the expense of the registered owner of the certificate of stock which
to representation at any stockholder's meeting, nor shall the holder thereof be entitled to any has been lost, stolen or destroyed. The notice shall state the name of said corporation, the
of the rights of a stockholder except the right to dividends in accordance with the provisions name of the registered owner and the serial number of said certificate, and the number of
of this Code, until and unless he pays the amount due on his subscription with accrued shares represented by such certificate, and that after the expiration of one (1) year from the
interest, and the costs and expenses of advertisement, if any. date of the last publication, if no contest has been presented to said corporation regarding
said certificate of stock, the right to make such contest shall be barred and said corporation
Q: What are the effects of stock delinquency? shall cancel in its books the certificate of stock which has been lost, stolen or destroyed and
1. The SH cannot vote or be voted upon and to be represented in a SH meeting issue in lieu thereof new certificate of stock, unless the registered owner files a bond or other
2. GR: All other rights are lost security in lieu thereof as may be required, effective for a period of one (1) year, for such
o EXPN: The right to receive dividends amount and in such form and with such sureties as may be satisfactory to the board of
o Reason: One of the modes to collect payment of unpaid subscription is directors, in which case a new certificate may be issued even before the expiration of the one
through these dividends (i.e. collection of cash dividends; withholding (1) year period provided herein: Provided, That if a contest has been presented to said
of stock dividends) corporation or if an action is pending in court regarding the ownership of said certificate of
3. Subject the stock to delinquency sale (depending upon BODs discretion) unless stock which has been lost, stolen or destroyed, the issuance of the new certificate of stock in
otherwise ordered by the board lieu thereof shall be suspended until the final decision by the court regarding the ownership
4. Directors who are elected by virtue of delinquency stock may be subject to quo of said certificate of stock which has been lost, stolen or destroyed.
warranto proceedings
o Reason: Except in case of fraud, bad faith, or negligence on the part of the corporation and its officers,
no action may be brought against any corporation which shall have issued certificate of stock
Sec. 72. Rights of unpaid shares. - Holders of subscribed shares not fully paid which are not in lieu of those lost, stolen or destroyed pursuant to the procedure above-described.
delinquent shall have all the rights of a stockholder.
Q: What must a SH do if his stock certificate is lost or destroyed?
Q: If you are a subscriber with unpaid stock, do you lose all your rights as a SH? 1. File an AFFIDVIT (of loss) in triplicate containing the following:
No. The subscriber is still entitled to all rights of a SH until the stock has been o 1. The circumstances as to how the certificate was lost, stolen or
declared delinquent destroyed,
However, the subscriber is liable for interest on his unpaid subscription, provided: o 2. The number of shares represented by such certificate,
o It is required under the By-Laws. The amount of interest shall be that o 3. The serial number of the certificate and
stated in the Subscription Contract or By-Laws. In the absence thereof, o 4. The name of the corporation which issued the same
the interest shall be charged at the legal rate of 12% He shall also submit such other information and evidence which he may deem
o The liability to pay interest shall be reckoned from the date of necessary.
subscription Q: What could be evidence in addition to the affidavit of loss? What could be
supporting documents?

Nudibranch 38
o Blotter in the barangay; police report; Certified True Copy of either. The TITLE VIII
purpose of additional evidence is to prove to the corporate secretary CORPORATE BOOKS AND RECORDS
that the certificate was indeed lost
2. VERIFICATION of the affidavit and other information and evidence Sec. 74. Books to be kept; stock transfer agent. - Every corporation shall keep and carefully
Q: Why is it necessary for the affidavit, etc. to be verified? preserve at its principal office a record of all business transactions and minutes of all
o In order to compare the same with the corporate books. (i.e. the serial meetings of stockholders or members, or of the board of directors or trustees, in which shall
number and other details correspond with that reflected in the books) be set forth in detail the time and place of holding the meeting, how authorized, the notice
3. PUBLICATION of a notice in a newspaper of general circulation in the place given, whether the meeting was regular or special, if special its object, those present and
where the corporation has its principal office, once a week for 3 consecutive absent, and every act done or ordered done at the meeting. Upon the demand of any
weeks at the expense of the registered owner of the certificate of stock. The director, trustee, stockholder or member, the time when any director, trustee, stockholder or
notice shall contain the ff: member entered or left the meeting must be noted in the minutes; and on a similar demand,
o The name of said corporation, the yeas and nays must be taken on any motion or proposition, and a record thereof carefully
o The name of the registered owner and made. The protest of any director, trustee, stockholder or member on any action or proposed
o The serial number of said certificate, and action must be recorded in full on his demand.
o The number of shares represented by such certificate, and
o That after the expiration of one 1 year from the date of the last The records of all business transactions of the corporation and the minutes of any meetings
publication, if no contest has been presented to said corporation shall be open to inspection by any director, trustee, stockholder or member of the
regarding said certificate of stock, the RIGHT TO CONTEST shall be corporation at reasonable hours on business days and he may demand, writing, for a copy of
barred and said corporation shall cancel in its books the certificate of excerpts from said records or minutes, at his expense.
stock which has been lost, stolen or destroyed and issue in lieu thereof
new certificate of stock Any officer or agent of the corporation who shall refuse to allow any director, trustees,
o Q: When may the 1 year period be dispensed with? stockholder or member of the corporation to examine and copy excerpts from its records or
unless the registered owner files a BOND or other SECURITY minutes, in accordance with the provisions of this Code, shall be liable to such director,
in lieu thereof as may be required, effective for a period of trustee, stockholder or member for damages, and in addition, shall be guilty of an offense
one (1) year, for such amount and in such form and with which shall be punishable under Section 144 of this Code: Provided, That if such refusal is
such sureties as may be satisfactory to the board of made pursuant to a resolution or order of the board of directors or trustees, the liability
directors under this section for such action shall be imposed upon the directors or trustees who voted
o Q: What if there is a contest? for such refusal: and Provided, further, That it shall be a defense to any action under this
If a contest has been presented to said corporation or if an section that the person demanding to examine and copy excerpts from the corporation's
action is pending in court regarding the ownership of said records and minutes has improperly used any information secured through any prior
certificate of stock which has been lost, stolen or destroyed, examination of the records or minutes of such corporation or of any other corporation, or
the issuance of the new certificate of stock in lieu thereof was not acting in good faith or for a legitimate purpose in making his demand.
shall be SUSPENDED until the final decision by the court
regarding the ownership of said certificate of stock which Stock corporations must also keep a book to be known as the "stock and transfer book", in
has been lost, stolen or destroyed which must be kept a record of all stocks in the names of the stockholders alphabetically
arranged; the installments paid and unpaid on all stock for which subscription has been made,
Q: Can you sue a corporation for issuing new stock certificates? and the date of payment of any installment; a statement of every alienation, sale or transfer
GR: No action may be brought against any corporation which shall have issued of stock made, the date thereof, and by and to whom made; and such other entries as the by-
certificate of stock in lieu of those lost, stolen or destroyed pursuant to the laws may prescribe. The stock and transfer book shall be kept in the principal office of the
procedure above-described. corporation or in the office of its stock transfer agent and shall be open for inspection by any
EXPN: in case of fraud, bad faith, or negligence on the part of the corporation and director or stockholder of the corporation at reasonable hours on business days.
its officers
No stock transfer agent or one engaged principally in the business of registering transfers of
Q: What must the corporate secretary do? stocks in behalf of a stock corporation shall be allowed to operate in the Philippines unless he
secures a license from the Securities and Exchange Commission and pays a fee as may be
Assign: Sec. 74-80 fixed by the Commission, which shall be renewable annually: Provided, That a stock
corporation is not precluded from performing or making transfer of its own stocks, in which

Nudibranch 39
case all the rules and regulations imposed on stock transfer agents, except the payment of a o A legitimate purpose could be to determine whether the fund used to
license fee herein provided, shall be applicable. distribute dividends really come from URE, otherwise the trust fund
doctrine will be violated
Q: What are the documents that must be kept in the principal office of a corporation? o Ex of not legitimate purpose?
1. A record of all business transactions
2. Minutes of the SH/members meetings GONZALES V. PNB
3. Minutes of the Board/trustees meetings A SH can inspect corporate books, subject to limitations (the right is not absolute).
4. Stock and transfer books (with respect to stock corporations only) The SC ruled that the SH, Gonzales, acted on ulterior motives and in bad faith. He
only owned 1 share of stock. The significance of this is that he acquired only 1
Q: What do you mean by Stock and Transfer Books? share not for the purpose of investing in the corporations business, but to get
Records all stock ownership, as well as any alienation, sale or transfer of stocks. information relevant to his case with PNB (since he sued PNB for several
Before incorporation, the corporation must buy a blue book with the SEC which is transactions)
kept therein worth around 500 pesos
Sec. 75. Right to financial statements. - Within ten (10) days from receipt of a written
Q: What do you mean by record of business transactions? request of any stockholder or member, the corporation shall furnish to him its most recent
Includes all papers pertaining to the operation of the corporation to its SHs, such financial statement, which shall include a balance sheet as of the end of the last taxable year
as: journal, ledger, financial statement, income tax returns, vouchers, receipts, and a profit or loss statement for said taxable year, showing in reasonable detail its assets and
contracts, etc. liabilities and the result of its operations.

Q: A corporation applied a loan with BPI. What should be kept in relation to the At the regular meeting of stockholders or members, the board of directors or trustees shall
transaction? present to such stockholders or members a financial report of the operations of the
Promissory note (to prove contract of loan); corporation for the preceding year, which shall include financial statements, duly signed and
A Rea Estate Mortgage or Chattel mortgage (to prove that the loan is secured by a certified by an independent certified public accountant.
mortgage)
Receipts or bank deposits (to prove payment, assuming that the corporation However, if the paid-up capital of the corporation is less than P50,000.00, the financial
All other records in relation to the transaction must be kept at the principal office statements may be certified under oath by the treasurer or any responsible officer of the
corporation.
Q: What do you mean by minutes?
All matters taken up during the meeting. It does not only include the time it Q: What is included in the right to financial statements?
started and adjourned. 1. Balance Sheet as of the end of the last taxable year
2. Income Statement (profit or loss statement for the taxable year, stating in detail
Q: Every SH is entitled to inspect corporate books. What are the remedies in case a SHs the assets and liabilities of the corporation)
right is violated?
1. Petition for Mandamus Q: Is it necessary to always have a request?
2. Civil Action No. There shall be an annual SH/members meeting and each SH shall receive a
3. Criminal Action based on Section 144 which is the penal provision of the copy of the financial statement
Corporation Code Q: Who shall CERTIFY the financial statement?
o It depends
Q: What could be the grounds to deny the right to inspect corporate books? o If the paid-up capital of the corporation is MORE than P50,000.00 - By
1. Misuse of information previously obtained by the SH an Independent CPA
2. The SH acted in bad faith o If the paid-up capital of the corporation is LESS than P50,000.00 - the
o Ex: to obtain trade secrets for the SHs own benefit or to be divulged to financial statements may be certified under oath by the TREASURER
competitors only (or any responsible officer of the corporation Sir did not mention
3. The exercise of the right was not for a legitimate purpose this)
o This applies when the SH did not act in BF but his purpose was not Q: Who shall SIGN the financial statement?
legitimate o Aside from the independent CPA, the other signatories are: the
President OR Vice-president

Nudibranch 40
TITLE IX 1. The plan of the merger or the plan of consolidation;
MERGER AND CONSOLIDATION 2. As to stock corporations, the number of shares outstanding, or in the case of non-stock
corporations, the number of members; and
Sec. 76. Plan or merger of consolidation. - Two or more corporations may merge into a single 3. As to each corporation, the number of shares or members voting for and against such plan,
corporation which shall be one of the constituent corporations or may consolidate into a new respectively.
single corporation which shall be the consolidated corporation.
The board of directors or trustees of each corporation, party to the merger or consolidation, Sec. 79. Effectivity of merger or consolidation. - The articles of merger or of consolidation,
shall approve a plan of merger or consolidation setting forth the following: signed and certified as herein above required, shall be submitted to the Securities and
Exchange Commission in quadruplicate for its approval: Provided, That in the case of merger
1. The names of the corporations proposing to merge or consolidate, hereinafter referred to or consolidation of banks or banking institutions, building and loan associations, trust
as the constituent corporations; companies, insurance companies, public utilities, educational institutions and other special
2. The terms of the merger or consolidation and the mode of carrying the same into effect; corporations governed by special laws, the favorable recommendation of the appropriate
3. A statement of the changes, if any, in the articles of incorporation of the surviving government agency shall first be obtained. If the Commission is satisfied that the merger or
corporation in case of merger; and, with respect to the consolidated corporation in case of consolidation of the corporations concerned is not inconsistent with the provisions of this
consolidation, all the statements required to be set forth in the articles of incorporation for Code and existing laws, it shall issue a certificate of merger or of consolidation, at which time
corporations organized under this Code; and the merger or consolidation shall be effective.
4. Such other provisions with respect to the proposed merger or consolidation as are deemed
necessary or desirable. If, upon investigation, the Securities and Exchange Commission has reason to believe that the
proposed merger or consolidation is contrary to or inconsistent with the provisions of this
Sec. 77. Stockholder's or member's approval. - Upon approval by majority vote of each of the Code or existing laws, it shall set a hearing to give the corporations concerned the
board of directors or trustees of the constituent corporations of the plan of merger or opportunity to be heard. Written notice of the date, time and place of hearing shall be given
consolidation, the same shall be submitted for approval by the stockholders or members of to each constituent corporation at least two (2) weeks before said hearing. The Commission
each of such corporations at separate corporate meetings duly called for the purpose. Notice shall thereafter proceed as provided in this Code.
of such meetings shall be given to all stockholders or members of the respective corporations,
at least two (2) weeks prior to the date of the meeting, either personally or by registered Sec. 80. Effects or merger or consolidation. - The merger or consolidation shall have the
mail. Said notice shall state the purpose of the meeting and shall include a copy or a summary following effects:
of the plan of merger or consolidation. The affirmative vote of stockholders representing at
least two-thirds (2/3) of the outstanding capital stock of each corporation in the case of stock 1. The constituent corporations shall become a single corporation which, in case of merger,
corporations or at least two-thirds (2/3) of the members in the case of non-stock corporations shall be the surviving corporation designated in the plan of merger; and, in case of
shall be necessary for the approval of such plan. Any dissenting stockholder in stock consolidation, shall be the consolidated corporation designated in the plan of consolidation;
corporations may exercise his appraisal right in accordance with the Code: Provided, That if 2. The separate existence of the constituent corporations shall cease, except that of the
after the approval by the stockholders of such plan, the board of directors decides to surviving or the consolidated corporation;
abandon the plan, the appraisal right shall be extinguished. 3. The surviving or the consolidated corporation shall possess all the rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities of a corporation
Any amendment to the plan of merger or consolidation may be made, provided such organized under this Code;
amendment is approved by majority vote of the respective boards of directors or trustees of 4. The surviving or the consolidated corporation shall thereupon and thereafter possess all
all the constituent corporations and ratified by the affirmative vote of stockholders the rights, privileges, immunities and franchises of each of the constituent corporations; and
representing at least two-thirds (2/3) of the outstanding capital stock or of two-thirds (2/3) of all property, real or personal, and all receivables due on whatever account, including
the members of each of the constituent corporations. Such plan, together with any subscriptions to shares and other choses in action, and all and every other interest of, or
amendment, shall be considered as the agreement of merger or consolidation. belonging to, or due to each constituent corporation, shall be deemed transferred to and
vested in such surviving or consolidated corporation without further act or deed; and
Sec. 78. Articles of merger or consolidation. - After the approval by the stockholders or 5. The surviving or consolidated corporation shall be responsible and liable for all the
members as required by the preceding section, articles of merger or articles of consolidation liabilities and obligations of each of the constituent corporations in the same manner as if
shall be executed by each of the constituent corporations, to be signed by the president or such surviving or consolidated corporation had itself incurred such liabilities or obligations;
vice-president and certified by the secretary or assistant secretary of each corporation setting and any pending claim, action or proceeding brought by or against any of such constituent
forth: corporations may be prosecuted by or against the surviving or consolidated corporation. The

Nudibranch 41
rights of creditors or liens upon the property of any of such constituent corporations shall not corporation in case of consolidation, all the statements required to be
be impaired by such merger or consolidation. set forth in the AOI for corporations organized under the corpo code;
and
o 4. Such other provisions with respect to the proposed merger or
Q: What is merger? consolidation as are deemed necessary or desirable
nd
2 or more corporations unite, where 1 corporation is dissolved and the other is 2 STEP: SHs approval the plan of merger shall then be submitted for approval
retained. In other words, there is an absorption of 1 corporation of the other by the SHs or members of each corporation at separate corporate meetings duly
Surviving Corporation The corp which absorbs the other corp called for the purpose. Notice of such meetings shall be given to all SHs or
Absorbed Corporation The corp which is dissolved members of the respective corporations, at least 2 weeks prior to the date of the
meeting, either personally or by registered mail. Said notice shall state the
Q: What are the effects of merger? purpose of the meeting and shall include a copy or a summary of the plan of
The assets, rights, and privileges of the AC are transferred to the SC merger or consolidation. The affirmative vote of stockholders representing at
The liabilities and responsibilities of the AC shall be assumed by the SC least 2/3 of the outstanding capital stock of each corporation in the case of stock
The AC will be dissolved corporations or at least (2/3) of the members in the case of non-stock
The SC will be retained corporations shall be necessary for the approval of such plan.
rd
o Ex: Landbank and DBP merged. LB is the SC. DBP is the AC 3 STEP: Draft the Articles of Merger or Consolidation - articles of merger or
The SHs of the AC will become the SH of the SC articles of consolidation shall be executed by each of the constituent corporations,
to be signed by the president or vice-president and certified by the secretary or
Q: What is consolidation? assistant secretary of each corporation setting forth:
2 or more corporations unite to give rise to a new corporation. o 1. The plan of the merger or the plan of consolidation;
The dissolved corporations are called Constituent Corporations o 2. As to stock corporations, the number of shares outstanding, or in the
The new corporation is called Consolidated Corporation case of non-stock corporations, the number of members; and
o 3. As to each corporation, the number of shares or members voting for
Q: What are the effects of consolidation? and against such plan, respectively.
The assets, rights, and privileges of the constituent corps shall be transferred to o (Sir: in short, the matter set forth in 78)
th
the consolidated corp 4 STEP: If the proposal is inconsistent with the Corpo Code, the SEC will hold a
The consolidated corp shall assume the liabilities and responsibilities of the hearing to give the parties a chance to be heard (due process) - If, upon
constituent corps investigation, the Securities and Exchange Commission has reason to believe that
The constituent corps will be dissolved the proposed merger or consolidation is contrary to or inconsistent with the
A new corp shall be established provisions of this Code or existing laws, it shall set a hearing to give the
The SH of the constituent corps shall become the SH of the consolidated corp corporations concerned the opportunity to be heard.
th
5 STEP: If a corporation is created by special law, a recommendation by the
Q: If you are a director of a corporation, which would you prefer? Why? appropriate government agency must first be obtained - That in the case of
(not answered) merger or consolidation of banks or banking institutions, building and loan
Merger one of the corporations has already an established name associations, trust companies, insurance companies, public utilities, educational
Consolidation can start a new slate institutions and other special corporations governed by special laws, the favorable
recommendation of the appropriate government agency shall first be obtained
th
Q: Explain the procedure in case of merger/consolidation. 6 STEP: Issuance of Certificate of Merger/Consolidation by SEC. The articles of
ST
1 STEP: Board approval - The BOD/BOT of each corporation to the merger or merger or of consolidation, signed and certified as herein above required, shall be
consolidation, shall approve a plan of merger or consolidation setting forth the submitted to the Securities and Exchange Commission in quadruplicate for its
following: approval. If the Commission is satisfied that the merger or consolidation of the
o 1. The names of the corporations proposing to merge or consolidate, corporations concerned is not inconsistent with the provisions of this Code and
hereinafter referred to as the constituent corporations; existing laws, it shall issue a certificate of merger or of consolidation, at which
o 2. The terms of the merger or consolidation and the mode of carrying time the merger or consolidation shall be effective.
the same into effect;
o 3. A statement of the changes, if any, in the AOI of the surviving ASSOCIATED BANK V. CA
corporation in case of merger; and, with respect to the consolidated

Nudibranch 42
AB can enforce the promissory note because there was an effective merger. AB Q: Define the appraisal right of a SH.
already assumed the assets and liabilities. It now has the right to collect Appraisal right the right of a SH to demand payment of the fair value of his
Principle of unjust enrichment under Article 19 of the CC if AB will not be able to shares, after dissenting from a proposed corporate action involving fundamental
collect, the defendant will be unjustly enriched. change in the corporation in the cases provided for by law.
REQ: (SDC)
MINDANAO SAVINGS V. CA 1. You should be a SH of a corporation
1. The merger did not take effect. If the steps/procedure under the Corpo Code o Thus, a treasurer or a secretary do not necessarily have appraisal right
are not followed, there will be no issuance of Certificate of Merger by the SEC since they are not required to be SH. Unless of course they happen to
which will give rise to creation of MSLAI. be SH as well
Q: Why was MSLAI party to the case? 2. The SH must dissent to a proposed corporate action involving fundamental
MSLAI did not yet assume the assets and liabilities of FSLAI. Due to incomplete change in the corporation
submission of documents, SEC did not yet issue the certification. Uy was correct in 3. Must exercise the right only in cases provided for by law
suing FSLAI, since the latter still continued to exist and was not yet absorbed by
MSLAI Q: What are the instances when the right may be exercised?
2. Other than the Corpo Code, another issue was on novation. The REQ for a valid (ASMIC)
novation are: Under Sec. 81:
o Previous valid obligation 1. Amendment to the AOI that has the effect of:
o Consent of the creditor is obtained o Changing or restricting the rights of any stockholder or class of shares,
In the case at bar, consent of the creditor Uy was not obtained or
BAPST V. CA o Of authorizing preferences superior to those of outstanding shares of
1. BPI has standing to sue and is the real party in interest. There was a valid merger any class,
between BPI and CBPC. Thus, BPI assumed the assets and liabilities of CBPC o Or of extending or shortening the term of corporate existence;
2. BPI cannot run after ELISCON. DBP has already assumed the debts and liabilities 2. Sale, lease, exchange, transfer, mortgage, pledge or other of all or substantially
of ELISCON. One of the requisites of novation is consent of the creditor. There was all of the corporate property and assets
implied consent on the part of BPI when it did not object during the meeting. Thus, 3. Merger and consolidation
there was a valid novation. The obligation of ELISCON is now extinguished and BPI Under Sec. 42:
can only run after DBP 4. Investment of corporate funds in another corporation or in a purpose other
3. The obligation of Bapst and Chua are likewise extinguished. A surety agreement than the primary purpose
is an accessory contract which cannot exist on its own without the principal Under Sec. 105:
contract. A spring cannot jump higher than its source. 5. In a close corporation, a SH may, for any reason, compel the corporation to
purchase his shares when the corporation has sufficient assets in its books to cover
Assignment: 81-86 its debts and liabilities exclusive of capital stock

TITLE X Sec. 82. How right is exercised. - The appraisal right may be exercised by any stockholder who
APPRAISAL RIGHT shall have voted against the proposed corporate action, by making a written demand on the
corporation within thirty (30) days after the date on which the vote was taken for payment of
Sec. 81. Instances of appraisal right.- Any stockholder of a corporation shall have the right to the fair value of his shares: Provided, That failure to make the demand within such period
dissent and demand payment of the fair value of his shares in the following instances: shall be deemed a waiver of the appraisal right. If the proposed corporate action is
implemented or affected, the corporation shall pay to such stockholder, upon surrender of the
1. In case any amendment to the articles of incorporation has the effect of changing or certificate or certificates of stock representing his shares, the fair value thereof as of the day
restricting the rights of any stockholder or class of shares, or of authorizing preferences in any prior to the date on which the vote was taken, excluding any appreciation or depreciation in
respect superior to those of outstanding shares of any class, or of extending or shortening the anticipation of such corporate action.
term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or If within a period of sixty (60) days from the date the corporate action was approved by the
substantially all of the corporate property and assets as provided in the Code; and stockholders, the withdrawing stockholder and the corporation cannot agree on the fair value
3. In case of merger or consolidation. of the shares, it shall be determined and appraised by three (3) disinterested persons, one of
whom shall be named by the stockholder, another by the corporation, and the third by the

Nudibranch 43
two thus chosen. The findings of the majority of the appraisers shall be final, and their award Q: After the appraisers make an award, what happens next?
shall be paid by the corporation within thirty (30) days after such award is made: Provided, o The SH shall be paid by the corporation based on the award within
That no payment shall be made to any dissenting stockholder unless the corporation has thirty (30) days after such award is made
unrestricted retained earnings in its books to cover such payment: and Provided, further, That
upon payment by the corporation of the agreed or awarded price, the stockholder shall Q: What are the limitations of the appraisal right?
forthwith transfer his shares to the corporation. 1. Any of the instances under the law must be present
2. The dissenting SH must have voted against the proposed action
Q: What is the procedure in exercising the right? 3. Demand for payment must be made within 30 days from the date the vote is
st
1 STEP: SH shall make Written Demand - The appraisal right may be exercised by taken. Failure to demand shall be deemed a waiver
any stockholder who shall have voted against the proposed corporate action, by 4. Price must be based on the fair value as of the day prior to the date on which
making a written demand on the corporation within thirty (30) days after the date vote was taken
on which the vote was taken for payment of the fair value of his shares 5. Submission by the SH of his shares to the corporation for notation of being
o Q: What is the effect is the SH does not make a demand? dissenting shares within 10 days from the written demand
Failure to make the demand within such period shall be 6. Payment must be made only when the corporation has unrestricted retained
deemed a waiver of the appraisal right. earnings (most important)
nd
2 STEP: Corpo shall pay the SH - If the proposed corporate action is implemented 7. SH must transfer his shares to the corporation upon payment by the
or affected, the corporation shall pay to such stockholder corporation
o Q: When shall the corpo pay?
Upon surrender of the certificate/s of stock representing the TURNER V. LORENZO SHIPPING
SHs shares within 10 days after demanding payment if his Q: What is the reckoning period in determining when the corporation must have
shares URE: upon demand, when the case is filed, or even when it is still pending?
o Q: What shall be the basis of the amount to be paid? o At the time when the case is filed. Reason: civil cases must be based on
The fair value thereof as of the day PRIOR to the date on a cause of action at the time of the filing of the complaint. If there is no
which the vote was taken URE at the time of filing, there is no COA.
Excluding: any appreciation or depreciation in o In the case at bar, the corporation only had URE during the pendency of
anticipation of such corporate action the case. When the case was filed, there was no URE and consequently
Note: if the parties cannot agree to the fair value, an no COA. Thus, the case shall be dismissed.
appraisal committee shall be established. (To be discussed Lesson learned: if you are the dissenting SH, check first for the existence of URE
later ons) before filing a complaint. Otherwise, wait for the corporation to have URE
rd
3 STEP: SH shall transfer the shares - upon payment by the corporation of the
agreed or awarded price, the stockholder shall forthwith transfer his shares to the Sec. 83. Effect of demand and termination of right. - From the time of demand for payment
corporation. of the fair value of a stockholder's shares until either the abandonment of the corporate
action involved or the purchase of the said shares by the corporation, all rights accruing to
Q: Who shall determine the Fair Value of the dissenting shares? such shares, including voting and dividend rights, shall be suspended in accordance with the
Initially BOTH provisions of this Code, except the right of such stockholder to receive payment of the fair
However, in case of disagreement as to the value of the shares, an Appraisal value thereof: Provided, That if the dissenting stockholder is not paid the value of his shares
Committee shall be constituted. It shall be composed of 3 disinterested persons: within 30 days after the award, his voting and dividend rights shall immediately be restored.
o 1. One shall be named by the stockholder,
o 2. Another shall be named by the corporation, and Q: What is the effect of the exercise of the right?
o 3. The third by the two thus chosen All rights accruing to such shares, including voting and dividend rights, shall be
rd
This means that a 3 appraiser shall be chosen by both SUSPENDED
parties, namely the SH and the Corpo o EXCEPT the right of such stockholder to receive payment of the fair
The 3 appraisers will now determine and appraise the fair value of the shares. A value thereof:
majority is sufficient to make an award deciding on the fair value. Majority means Q: What happens if the dissenting SH is not paid?
2 appraisers against 1 o The SH shall be restored in all his rights and status as a SH
Q: Is the award of the appraisers questionable or appealable?
o No. The findings of the majority of the appraisers shall be final

Nudibranch 44
If the dissenting stockholder is not paid the value of his EXPN: The SH shall bear costs in the ff instances:
shares within 30 days after the award, his voting and o 1. Where the price offered by the corporation is approximately the
dividend rights shall immediately be restored. same as the fair value determined by the appraisers
Q: What happens if the dissenting SH is paid? o 2. Where an action is filed by the dissenting SH and his refusal to accept
o He shall lose all his rights as a SH permanently payment is unjustified
Q: What if the proposed corporate act is abandoned or not pushed through?
o The SH shall be restored in all his rights and status as a SH Sec. 86. Notation on certificates; rights of transferee. - Within ten (10) days after demanding
payment for his shares, a dissenting stockholder shall submit the certificates of stock
Sec. 84. When right to payment ceases. - No demand for payment under this Title may be representing his shares to the corporation for notation thereon that such shares are
withdrawn unless the corporation consents thereto. If, however, such demand for payment is dissenting shares. His failure to do so shall, at the option of the corporation, terminate his
withdrawn with the consent of the corporation, or if the proposed corporate action is rights under this Title. If shares represented by the certificates bearing such notation are
abandoned or rescinded by the corporation or disapproved by the Securities and Exchange transferred, and the certificates consequently canceled, the rights of the transferor as a
Commission where such approval is necessary, or if the Securities and Exchange Commission dissenting stockholder under this Title shall cease and the transferee shall have all the rights
determines that such stockholder is not entitled to the appraisal right, then the right of said of a regular stockholder; and all dividend distributions which would have accrued on such
stockholder to be paid the fair value of his shares shall cease, his status as a stockholder shall shares shall be paid to the transferee.
thereupon be restored, and all dividend distributions which would have accrued on his shares
shall be paid to him. Q: After demanding payment, what must the SH do?
Within ten (10) days after demanding payment for his shares, a dissenting
Q: Can a SH withdraw his appraisal right? stockholder shall submit the certificates of stock representing his shares to the
GR: No corporation
EXPN: When the corporation consents thereto Q: What must the corporation do upon receipt of the stock certificate/s?
o The corporation shall make an annotation thereon that such shares are
Q: When is the appraisal right extinguished? dissenting shares
1. When demand for payment is withdrawn with the consent of the corporation, Q: What is the effect of failure by the SH to submit the stock certificate/s?
2. If the proposed corporate action is abandoned or rescinded by the corporation, o His right to be paid shall be terminated
or Q: What happens when the dissenting shares are transferred?
3. Disapproved by the SEC where such approval is necessary, or o If shares represented by the certificates bearing such notation are
4. If the SEC determines that such stockholder is not entitled to the appraisal right transferred, and the certificates consequently canceled:
1. The rights of the transferor as a dissenting stockholder
Q: What is the effect of extinguishment? under this Title shall cease and
The dissenting SHs status as a SH shall be restored, and all dividend distributions 2. The transferee shall have all the rights of a regular
which would have accrued on his shares shall be paid to him stockholder; and all dividend distributions which would have
accrued on such shares shall be paid to the transferee.
Sec. 85. Who bears costs of appraisal. - The costs and expenses of appraisal shall be borne o Q: Who will now have the right to receive the fair value of the
by the corporation, unless the fair value ascertained by the appraisers is approximately the dissenting share?
same as the price which the corporation may have offered to pay the stockholder, in which No one. Since the dissenting SH (transferor) has already
case they shall be borne by the latter. In the case of an action to recover such fair value, all been paid, he will not receive the fair value. When he
costs and expenses shall be assessed against the corporation, unless the refusal of the transferred his right to another (transferee), the latter is
stockholder to receive payment was unjustified. entitled to all rights and status of a SH. He is not entitled to
the fair value of the share.
Q: Who shall bear the cost of appraisal? The essence of appraisal right of a SH is that you want to get
It depends: back your investment. You want to get out of the company
GR: The corporation shall bear costs in the ff instances: because you disagree with a proposed corporate action. You
o 1. Where the price which the corporation offered to pay the dissenting will then be given the fair value of your share.
SH is lower than the fair value determined by the appraisers
o 2. When an action is filed by the dissenting SH and his refusal to accept CUA V. OCAMPO
payment is unjustified The ff are the REQ for a valid derivative suit:

Nudibranch 45
o 1. The petitioner was a SH/M at the time the acts or transactions The provisions governing stock corporation, when pertinent, shall be applicable to
subject of the action took place and at the time the action is filed non-stock corporations, except as may be covered by specific provisions of this
o 2. He exerted all reasonable efforts and alleges the same with Title.
particularity in the complaint, exhaust all remedies available under the
AOI, by-laws, laws, or rules governing the corporation to obtain relief Q: What are the valid purposes of a non-stock corporation? (memorize)
desired Sec. 88. Purposes. - Non-stock corporations may be formed or organized for:
o 3. No appraisal rights are available for the act/acts complained of o Charitable,
o 4. The is not a nuisance or harassment suit o Religious,
th
In this case, the 4 requisite was not complied with o Educational,
SC: the SH had appraisal rights but failed to exercise them. In this case, the o Professional,
transaction falls under one of the instances wherein the appraisal right is available o Cultural,
under Sec. 81: sale of all or substantially all the property of the corporation o Fraternal,
It was the SH themselves who caused the unavailability to exercise their appraisal o Literary,
right by not voting against the proposed corporate action. Instead, they filed a o Scientific,
th
derivative suit which does not comply with the 4 requisite. o Social,
o Civic service, or
VILLAMOR V. UMALE o Similar purposes, like trade, industry, agricultural and like chambers, or
th
Same REQ as Cua v. Ocampo, but the SC added a 5 : any combination thereof,
o Although not expressly enumerated as a requisite, it is implied that the Subject to the special provisions of this Title governing particular classes of non-
corpo should be impleaded because it is the RPI whereas the SH is only stock corporations
a nominal party Q: Is the enumeration exclusive?
o This was recognized in the Western Institute case o Yes. Thus, a corporation engaging in political purposes is not a valid
Q: Why did the SC rule that there is no derivative suit? -- non-stock corporation
The essence of a derivative suit is that the SH shall file a case on behalf of the
corporation in order to prosecute a corporate cause of action because the Q: What are the requisites for a non-stock corporation?
directors did not do anything/lift a finger in filing a case. The SH take the cudgels in 1. No part of its income is distributable as dividends
filing the suit 2. Must be for any of the purposes under Sec. 88
o Ex: the directors did not do anything to collect receivables amounting 3. Must not own capital stock divided into shares
to 1 million which matured in 2016. SH can now file a derivative suit on
behalf of the corpo provided that the REQ are complied with, to wit: Q: Is a non-stock corporation absolutely not allowed to earn profit?
Sue in the name and on behalf of the corporation; Implead the GR: a non-stock corporation is one where no part of its income is distributable as
corporation; and the 4 other REQ dividends
EXPN: Any profit which a non-stock corporation may obtain as an INCIDENT TO ITS
Assign: Sec. 87-95 OPERATIONS shall, whenever necessary or proper, be used for the furtherance of
the purpose or purposes for which the corporation was organized
TITLE XI Q: What is a good example of a purpose incident to its operation?
NON-STOCK CORPORATIONS o With respect to a school, a canteen business. Reason: it earns money,
but it is operated to that the students and teachers have something to
Q: What is a non-stock corporation? eat
Sec. 87. Definition. - For the purposes of this Code, a non-stock corporation is one o With respect to a homeowners association, the collection of association
where no part of its income is distributable as dividends to its members, dues
trustees, or officers, subject to the provisions of this Code on dissolution: In such instances, these are not the main business, but they
Provided, That any profit which a non-stock corporation may obtain as an incident are merely incidental. Meaning, that they are reasonably
to its operations shall, whenever necessary or proper, be used for the furtherance necessary to the operation of the main business
of the purpose or purposes for which the corporation was organized, subject to the Q: Can a non-stock corporation invest its funds in another activity?
provisions of this Title. o Yes, as long as the profit is used for the purpose it is organized
Ex: used to pay salaries, defray operational expenses, etc

Nudibranch 46
Q: Can a non-stock corporation invest its funds in a business other than its
primary purpose? Q: Can membership be transferred?
o Yes, as long as the profit is used for the purpose it is organized Sec. 90. Non-transferability of membership. - Membership in a non-stock
Q: For instance, a member of a non-stock corporation dissents from a proposed corporation and all rights arising therefrom are personal and non-transferable,
corporate action. Can he exercise his appraisal right? unless the articles of incorporation or the by-laws otherwise provide.
o No. An appraisal right is the right of a SH to demand the fair value of his GR: No. Reason: it involves the personal element. A member is admitted to the
share if he dissents to a proposed corporate action. A member of a corporation because of his qualifications and personal attributes, and not by his
non-stock corporation does NOT have an appraisal right because such contributions
right involves shares which applies only to stock corporations EXPN: Unless otherwise allowed under the AOI/BL
Q: What do you mean by the word Transfer? What does it cover?
Q: Can a non-stock corporation be converted to a stock corporation by mere amendment of o Transfer covers sale, donation, inheritance (transfer by descent)
the AOI? Unlike in stock corporation where the heirs can own the
No. Reason: because the assets will be converted into capital to be distributed to shares after proper proceedings
its members who are now SHs. This is unfair because there are certain rules for o EXPN: Unless otherwise provided under the AOI/BL
distribution with respect to non-stock corporation that must be complied with
(Sec. 94) Q: What are the rules on termination?
o Other reasons: it will change the nature of the corporation from non- Sec. 91. Termination of membership. - Membership shall be terminated in the
profit to profit; it will defraud persons who have already contributed or manner and for the causes provided in the articles of incorporation or the by-
donated to the non-stock corporation only to find out that it has been laws. Termination of membership shall have the effect of extinguishing all rights of
converted to a stock corporation a member in the corporation or in its property, unless otherwise provided in the
The non-stock corporation must first be dissolved and a new stock corporation articles of incorporation or the by-laws.
may be set up o Must be terminated in accordance with the MANNER and for the
CAUSES provided for in the AOI/NBL
Chapter I - MEMBERS Q: What are the usual CAUSES to terminate membership?
o Non-payment of membership dues
Q: What are the rules on voting rights? o Acts of disloyalty
Sec. 89. Right to vote. - The right of the members of any class or classes to vote o Acts of dishonesty
may be limited, broadened or denied to the extent specified in the articles of o Acts involving moral turpitude
incorporation or the by-laws. Unless so limited, broadened or denied, each o Any act inimical to the interest of the corporation
member, regardless of class, shall be entitled to one vote. When members dies, it is obvious that membership
o GR: each member is entitled to 1 vote terminates. What we are talking about are the usual causes
o EXPN: unless it is limited, broadened, or denied of termination as stated by the AOI/BL
o Example for each:
o 1. BROADENED If by-laws provide that for every 5,000 pesos LONG V. BASA
contributed, a member shall be entitled to 1 vote. Thus, if he The by-laws must conform to existing laws including the Constitution. Petitioners
contributes 10,000, he shall be entitled to 2 votes. contend that they were deprived of their right to due process of law because they
o 2. LIMITED If by-laws provide that regardless of contribution, each were not given ample notice of their expulsion as members of the church
member shall only be entitled to 4 votes SC: Although every person is entitled to due process of law, petitioners were
o 3. DENIAL members must maintain good standing to be entitled to continuously warned for 5 years. It is NOT the lack of prior notice which the law
vote. He is not in good standing if he commits an infraction, does not abhors, but it is the total absence of opportunity to be heard
pay association dues, etc In the case at bar, the petitioners were continuously reminded and admonished.
Unless otherwise provided in the articles of incorporation or the by-laws, a This gave them the opportunity to reform their ways. But still, they did not
member may vote by proxy in accordance with the provisions of this Code. SC: there was implied waiver of the right to prior notice on the part of the
Voting by mail or other similar means by members of non-stock corporations may petitioners because when they joined the church, they knew the rules and
be authorized by the by-laws of non-stock corporations with the approval of, and regulations including that the church had the right to expel any member by
under such conditions which may be prescribed by, the Securities and Exchange resolution without the need of giving notice or the reasons for expulsion
Commission.

Nudibranch 47
o By adhering to the by-laws, they became members of the corporation directors in a stock corporation is 5, the minimum number of trustees in a non-
voluntarily. They bound themselves through their consent stock corporation is also 5

Assign: same (up to 95) Q: May the term of office be reduced from 3 years to 2 years?
Yes. Sec. 92 provides: unless otherwise provided in the articles of incorporation or
Chapter II - TRUSTEES AND OFFICERS the by-laws

Sec. 92. Election and term of trustees. - Unless otherwise provided in the articles of Q: Who may elect the corporate officers?
incorporation or the by-laws, the board of trustees of non-stock corporations, which may be In a Stock corporation, it is the Board of Directors
more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws, The law is silent as to who shall elect corporate officers in non-stock corporation
shall, as soon as organized, so classify themselves that the term of office of one-third (1/3) of (Not sure ito:)
their number shall expire every year; and subsequent elections of trustees comprising one- GR: Board of Trustees shall elect
third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a o EXPN: Unless otherwise provided under the AOI/BL
term of three (3) years. Trustees thereafter elected to fill vacancies occurring before the
expiration of a particular term shall hold office only for the unexpired period. Sec. 93. Place of meetings. - The by-laws may provide that the members of a non-stock
corporation may hold their regular or special meetings at any place even outside the place
No person shall be elected as trustee unless he is a member of the corporation. where the principal office of the corporation is located: Provided, That proper notice is sent
Unless otherwise provided in the articles of incorporation or the by-laws, officers of a non- to all members indicating the date, time and place of the meeting: and Provided, further, That
stock corporation may be directly elected by the members the place of meeting shall be within the Philippines.

Q: Give an illustration of the term of office of trustees. Q: Where shall meetings be held?
The term of trustees shall be in a staggered basis GR: Place where the principal office of the corporation is located
The Board is composed of 15 trustees. The 15 shall be divided into 3. Assuming EXPN: The by-laws may proved that member may hold their meeting even outside
that the elections is held on 2016, the term of the First 1/3 shall be 1 year, or on of the principal office, provided
2017. Upon expiration of their term, an election shall be held but this time the o 1. Proper notice is sent to al member indicating date, time and place of
First 1/3 shall serve for 3 years the meeting; and
o After one year, or on 2018, the term of the Second 1/3 shall expire. An o 2. The place of meeting shall be within the Philippines
election shall be held and the Second 1/3 shall serve for 3 years
o After one year, or on 2019, the term of the Third 1/3 shall expire. An Q: Can members conduct meetings thru teleconferencing?
election shall be held and the Third 1/3 shall serve for 3 years To answer this, we must first answer the MT question: Can SH meeting be held
thru teleconferencing?
Q: When do you apply the last sentence of Sec. 92 which states: trustees thereafter elected o Yes, as long as it is held in the city or municipality where the principal
to fill vacancies occurring before the expiration of a particular term shall hold office only for office is located.
the unexpired period.? o GR: SH meeting must be held, if practicable, in the principal office of
It is only applied when there is a vacancy in the middle of the term of the trustee. the corporation
A special election shall be held to fill such vacancy and the person elected shall o EXPN: In the city or municipality where the principal office of the
only serve for the unexpired term. corporation is located
o The answer is not as long as it complies with SEC circular 15 because
Q: How many trustees are allowed? this only applies to board meetings
No maximum provided for by law By analogy, a Members Meeting of a non-stock corporation may be held thru
o However, according to an SEC opinion, the number of trustees should teleconferencing as long as it complies with Sec. 93 insofar as prior notice is sent
not exceed the total number of membership of the corporation + it is done within the Philippines
The minimum number of trustees is 5. Reason: Sec. 87 provides: the provisions
governing stock corporation, when pertinent, shall be applicable to non-stock Chapter III - DISTRIBUTION OF ASSETS IN
corporations, except as may be covered by specific provisions of this Title. The law NON-STOCK CORPORATIONS
is silent as to the minimum number of Trustees. Since the minimum number of
Q: What are the rules of distribution? (Memorize)

Nudibranch 48
Sec. 94. Rules of distribution. - In case dissolution of a non-stock corporation in Such plan of distribution shall be adopted upon approval of at least two-thirds
accordance with the provisions of this Code, its assets shall be applied and (2/3) of the members having voting rights present or represented by proxy at such
distributed as follows: meeting.
o 1. All liabilities and obligations of the corporation shall be paid, satisfied
and discharged, or adequate provision shall be made therefore; PADCOM V. ORTIGAS CENTER ASSOCIATION
o 2. Assets held by the corporation upon a condition requiring return, Freedom of association was not violated. Automatic membership was provided for
transfer or conveyance, and which condition occurs by reason of the under the terms and conditions of the agreement (deed of sale) and there was an
dissolution, shall be returned, transferred or conveyed in accordance annotation to the title to that effect
with such requirements; Q: Assuming that PADCOM did not see the annotation, will it still be bound
o 3. Assets received and held by the corporation subject to limitations thereby?
permitting their use only for charitable, religious, benevolent, o Yes. Anything annotated in the title shall be constructive notice to the
educational or similar purposes, but not held upon a condition whole world. This is a feature of the Torrens system. No one forced
requiring return, transfer or conveyance by reason of the dissolution, PADCOM to but the land. They bough it voluntarily and agreed to all
shall be transferred or conveyed to one or more corporations, societies the Terms and Conditions. Lesson: Always check a title for annotations.
or organizations engaged in activities in the Philippines substantially
similar to those of the dissolving corporation according to a plan of STA. CLARA HOMES ASSOCIATION V. SPS. GASTON
distribution adopted pursuant to this Chapter; Sps. Gaston cannot be compelled to become members of SCHA by the simple
Numbers 1-3 must first be settled before 4 and 5 expedient of including them in its AOI and BL without their express or implied
o 4. Assets other than those mentioned in the preceding paragraphs, if consent
any, shall be distributed in accordance with the provisions of the As to Jurisdiction: SCHAs contention that RTC did not have jurisdiction since the
articles of incorporation or the by-laws, to the extent that the articles proper body which has jurisdiction is HIGC is erroneous. HIGC has exclusive
of incorporation or the by-laws, determine the distributive rights of jurisdiction over intra-corporate disputes affecting homeowners association.
members, or any class or classes of members, or provide for However, there is not intra-corporate dispute in the case at bar because Sps.
distribution; and Gaston are NOT members of SCHA
2 requirements: o The new name of HIGC is Housing and Land Use Regulatory Board
1. Must be authenticated under the AOI (HLURB)
2. Must be specified under a Plan of Distribution Q: What is the difference between the Padcom case and the SCHA case?
This is to determine whether members may be entitled to o In PADCOM, the title had an annotation providing automatic
distribution of assets membership in the homeowners association which is binding upon
o 5. In any other case, assets may be distributed to such persons, PADCOM
societies, organizations or corporations, whether or not organized for o In SCHA, there is no such annotation
profit, as may be specified in a plan of distribution adopted pursuant to
this Chapter. Q: Assuming that you are a non-member but you live in an association and benefit by their
Any person or entity may be entitled to distribution under a activities and projects. Can you be charged by the association for association dues?
plan of distribution Yes. No one shall be unjustly enriched at the expense of another. There is a HLURB
circular which provides that a homeowner who has benefitted by the acts of the
Q: What are the voting requirements for a plan of distribution of assets? homeowners association may be liable for association dues
Sec. 95. Plan of distribution of assets. - A plan providing for the distribution of o There is a jurisprudence implementing this. In a case, a non-member
assets, not inconsistent with the provisions of this Title, may be adopted by a non- was sued by the homeowners association before the HLURB. It
stock corporation in the process of dissolution in the following manner: submitted as evidence photos of the non-members house showing that
The board of trustees shall, by majority vote, adopt a resolution recommending a there was a lamp post which stood in front of their house. This
plan of distribution and directing the submission thereof to a vote at a regular or indicates that the non-member benefitted thru the acts of the
special meeting of members having voting rights. association
Written notice setting forth the proposed plan of distribution or a summary o Since such dispute does not involve a member of the association, it is
thereof and the date, time and place of such meeting shall be given to each not an intra-corporate dispute. The proper entity with which to file the
member entitled to vote, within the time and in the manner provided in this Code case is the RTC
for the giving of notice of meetings to members.

Nudibranch 49
TAN V. SYCIP (Not answered)
Quorum is determined by the actual number of trustees, NOT by the number A close corporation has been described as a corporation de jure and a partnership
specified under the AOI. In the case at bar, there were 15 trustees indicated under de facto. A close corporation has special needs and problems different from an
the AOI. But the actual number is only 11 because 4 had already died ordinary corporation. It would not be fair to apply indiscriminately to the 2 types
Q: Since there was a quorum, was the election of the 4 who filled the vacancies of corporations the same rules. Hence, the need for special provisions to govern
valid? close corporation
o No. The election was held in a members meeting when it should have
been held in a trustees meeting. This is wrong because in a members Q: What is the very objective of a close corporation?
meeting, members are allowed to vote by proxy, whereas in a Trustees To enjoy the advantages of the corporate organization, like the limitation of
meeting, vote by proxy is not allowed. In the case at bar, the election personal liability, and at the same time to retain internally the partnership form of
was held in a Members meeting where all the trustees voted thru doing business. Close corporations are usually small business corporations with
proxy few stockholders who participate actively in the management of the business
o Proxies cannot fill in the vacancies of trustees. Reason: Trustees were In other words, to take advantage of the benefits of both a corporation and a
elected by the SH/M to do their job. The proxies were not the ones partnership; to enjoy the best of both worlds
elected. The position of trustees involve trust and confidence A close corporation is also known as a de facto partnership
Q: What is the best benefit of a corporation or the partnership?
Assign: Sec. 95-105 + 2 cases o Corporation Limited liability
o Partnership Participation in management affairs
TITLE XII
CLOSE CORPORATIONS Q: What is the difference between close corporation, closed corporation, and closely held
corporation? (pwede itanong sa finals)
Q: What is a close corporation? Closed emphasizes a determination on the part of the participants in the
Sec. 96. Definition and applicability of Title. - A close corporation, within the enterprise to keep outsiders from acquiring any interest in the business and may
meaning of this Code, is one whose articles of incorporation provide that: indicate that they have taken steps to accomplish that objective by shareholders
o (1) All the corporation's issued stock of all classes, exclusive of treasury agreement or provision in the AOI
shares, shall be held of record by not more than a specified number of Closely Held focuses more on the number of shareholders in the corporation at
persons, not exceeding twenty (20); that particular time, indicating that they are few in numbers. The shares of a
o (2) all the issued stock of all classes shall be subject to one or more closely held corporation are owned by relatively limited number of stockholders)
specified restrictions on transfer permitted by this Title; and
o (3) The corporation shall not list in any stock exchange or make any Q: What are the permissible provisions which may be provided for in the AOI under Sec. 97?
public offering of any of its stock of any class. Sec. 97. Articles of incorporation. - The articles of incorporation of a close
Notwithstanding the foregoing, a corporation shall not be deemed a close corporation may provide:
corporation when at least two-thirds (2/3) of its voting stock or voting rights is o 1. For a classification of shares or rights and the qualifications for
owned or controlled by another corporation which is not a close corporation owning or holding the same and restrictions on their transfers as may
within the meaning of this Code. be stated therein, subject to the provisions of the following section;
o 2. For a classification of directors into one or more classes, each of
Q: Can all corporations be close corporations? whom may be voted for and elected solely by a particular class of stock;
GR: Any corporation may be incorporated as a close corporation, and
EXPN: except mining or oil companies, stock exchanges, banks, insurance o 3. For a greater quorum or voting requirements in meetings of
companies, public utilities, educational institutions and corporations declared to stockholders or directors than those provided in this Code.
be vested with public interest in accordance with the provisions of this Code.
Q: Is Section 97 in addition to Sec. 14 which provides for the general matters which must be
The provisions of this Title shall primarily govern close corporations: Provided, That the contained in the AOI? Or does Sec. 97 take the place of Sec. 14 with respect to close
provisions of other Titles of this Code shall apply suppletorily except insofar as this Title corporation?
otherwise provides. It is in addition to Sec. 14. A close corporation must both comply with Sec. 14 and
97
Q: Why is there a need for special rules with respect to close corporations?

Nudibranch 50
(Feeling ko nagkamali lang si sir. Nakalagay sa memaid with respect to close Ex: a restriction which provides for a pre-emptive right which must be exercised
corporation: the AOI must contain the provisions required by Sec. 97 aside from only within 24 hours = more onerous because the period to exercise the pre-
the general matters in Sec. 14. Failure to do so precludes a de jure close emptive right is unreasonable = invalid
corporation status. Dapat 96 yun. Kasi mandatory yung provision under 96
whereas merely permissible lang yung provisions sa 97. Feeling ko lang naman.) Q: What is a good example of a restriction that is NOT more onerous than the granting of
the pre-emptive right?
Q: May a close be corporation be managed by the shareholders? Ex sa other class: a restriction which provides that only lawyers may be transferees
Yes. of shares = NOT more onerous because it does not violate the granting of a pre-
The articles of incorporation of a close corporation may provide that the business emptive right with reasonable terms, conditions, and period
of the corporation shall be managed by the stockholders of the corporation rather
than by a board of directors. So long as this provision continues in effect: Q: What is the effect of the existing shareholder or corporation fails to exercise the pre-
Q: What are the effects if the shareholders act as directors? emptive right?
o 1. No meeting of stockholders need be called to elect directors; If upon the expiration of said period, the existing stockholders or the corporation
o 2. Unless the context clearly requires otherwise, the stockholders of the fails to exercise the option to purchase, the transferring stockholder may sell his
corporation shall be deemed to be directors for the purpose of applying shares to any third person.
the provisions of this Code; and
o 3. The stockholders of the corporation shall be subject to all liabilities of Q: What are the effects of a transfer of stock in breach of qualifying conditions?
directors. Sec. 99. Effects of issuance or transfer of stock in breach of qualifying conditions.
o 4. The stockholders shall be held to strict fiduciary duties to each other 1. If stock of a close corporation is issued or transferred to any person who is not
and among themselves. (See Sec. 100) entitled under any provision of the articles of incorporation to be a holder of
This means that they have utmost trust and confidence in record of its stock, and if the certificate for such stock conspicuously shows the
the management of the corporation. qualifications of the persons entitled to be holders of record thereof, such person
o 5. The stockholders shall be personally liable for corporate torts unless is conclusively presumed to have notice of the fact of his ineligibility to be a
the corporation has obtained reasonably adequate liability insurance. stockholder.
(See Sec. 100) 2. If the articles of incorporation of a close corporation states the number of
persons, not exceeding twenty (20), who are entitled to be holders of record of its
The articles of incorporation may likewise provide that all officers or employees or that stock, and if the certificate for such stock conspicuously states such number, and if
specified officers or employees shall be elected or appointed by the stockholders, instead of the issuance or transfer of stock to any person would cause the stock to be held by
by the board of directors. more than such number of persons, the person to whom such stock is issued or
transferred is conclusively presumed to have notice of this fact.
Q: When is a restriction on transfer of shares valid? 3. If a stock certificate of any close corporation conspicuously shows a restriction
Sec. 98. Validity of restrictions on transfer of shares. - Restrictions on the right to on transfer of stock of the corporation, the transferee of the stock is conclusively
transfer shares must appear in the articles of incorporation and in the by-laws as presumed to have notice of the fact that he has acquired stock in violation of the
well as in the certificate of stock; otherwise, the same shall not be binding on any restriction, if such acquisition violates the restriction.
purchaser thereof in good faith. Said restrictions shall not be more onerous than 4. Whenever any person to whom stock of a close corporation has been issued or
granting the existing stockholders or the corporation the option to purchase the transferred has, or is conclusively presumed under this section to have, notice
shares of the transferring stockholder with such reasonable terms, conditions or either (a) that he is a person not eligible to be a holder of stock of the corporation,
period stated therein. or (b) that transfer of stock to him would cause the stock of the corporation to be
held by more than the number of persons permitted by its articles of incorporation
Q: What is a good example of a restriction that is more onerous than the granting of the to hold stock of the corporation, or (c) that the transfer of stock is in violation of a
pre-emptive right? (sir calls it pre-emptive right) restriction on transfer of stock, the corporation may, at its option, refuse to
(Not answered) register the transfer of stock in the name of the transferee.
Ex: a restriction fixing the purchase price far below the FMV of the shares = more Q: Can the shareholder raise the defense of good faith?
onerous because the term is unreasonable = invalid o No. Good faith is not a defense because there is a conclusive
Ex: a restriction providing that no shares may be transferred without the consent presumption of knowledge of the restriction
of the BOD or SH = more onerous because the condition unreasonable = invalid Q: Are there exceptions to the rules that the shareholder will have conclusive
presumption of notice?

Nudibranch 51
o 5. The provisions of subsection (4) shall not applicable if the transfer of Q: When is a board meeting unnecessary or improperly held?
stock, though contrary to subsections (1), (2) of (3), has been consented Sec. 101. When board meeting is unnecessary or improperly held. - Unless the by-
to by all the stockholders of the close corporation, or if the close laws provide otherwise, any action by the directors of a close corporation without
corporation has amended its articles of incorporation in accordance a meeting shall nevertheless be deemed valid if:
with this Title. 1. Before or after such action is taken, written consent thereto is signed by all the
Q: What does the term transfer cover? directors; or
o 6. The term "transfer", as used in this section, is not limited to a 2. All the stockholders have actual or implied knowledge of the action and make
transfer for value. no prompt objection thereto in writing; or
7. The provisions of this section shall not impair any right which the transferee 3. The directors are accustomed to take informal action with the express or
may have to rescind the transfer or to recover under any applicable warranty, implied acquiescence of all the stockholders; or
express or implied. 4. All the directors have express or implied knowledge of the action in question
and none of them makes prompt objection thereto in writing.
SAN JUAN V. CA If a director's meeting is held without proper call or notice, an action taken therein
Sec. 96 within the corporate powers is deemed ratified by a director who failed to attend,
Just because Spouses Gruenberg own 99.866% of the subscribed capital stock of unless he promptly files his written objection with the secretary of the corporation
Motorich, it does not follow that the doctrine of piercing of the veil of corporation after having knowledge thereof.
rd
is applicable in the absence of fraud or illegality at the expense of 3 persons like
petitioner Q: What if a meeting is required under the AOI, but there was no proper notice or call?
The corporate act cannot become valid. The provision says unless the by-laws
Q: Enumerate the agreements by stockholders. provide otherwise
Sec. 100. Agreements by stockholders.
1. Agreements by and among stockholders executed before the formation and DULAY V. CA
organization of a close corporation, signed by all stockholders, shall survive the
incorporation of such corporation and shall continue to be valid and binding Sec. 102. Pre-emptive right in close corporations. - The pre-emptive right of stockholders in
between and among such stockholders, if such be their intent, to the extent that close corporations shall extend to all stock to be issued, including reissuance of treasury
such agreements are not inconsistent with the articles of incorporation, shares, whether for money, property or personal services, or in payment of corporate debts,
irrespective of where the provisions of such agreements are contained, except unless the articles of incorporation provide otherwise.
those required by this Title to be embodied in said articles of incorporation.
2. An agreement between two or more stockholders, if in writing and signed by Q: What is the difference between the pre-emptive right under Sec. 39 and Sec. 102
the parties thereto, may provide that in exercising any voting rights, the shares 1. Sec. 39 applies only to newly issued shares; while Sec. 102 applies to all
held by them shall be voted as therein provided, or as they may agree, or as shares
determined in accordance with a procedure agreed upon by them. 2. Sec. 39 subject to exceptions; Sec. 102 not subject to exceptions
3. No provision in any written agreement signed by the stockholders, relating to o Q: What are the exceptions under Sec. 39?
any phase of the corporate affairs, shall be invalidated as between the parties on o 1. Shares to be issued in compliance with laws requiring stock offerings
the ground that its effect is to make them partners among themselves. or minimum stock ownership by the public; or
4. A written agreement among some or all of the stockholders in a close o 2. To shares to be issued in good faith with the approval of the
corporation shall not be invalidated on the ground that it so relates to the conduct stockholders representing two-thirds (2/3) of the outstanding capital
of the business and affairs of the corporation as to restrict or interfere with the stock, in exchange for property needed for corporate purposes or in
discretion or powers of the board of directors: Provided, That such agreement payment of a previously contracted debt.
shall impose on the stockholders who are parties thereto the liabilities for
managerial acts imposed by this Code on directors. Q: How is the AOI of a close corporation amended?
5. To the extent that the stockholders are actively engaged in the management or Sec. 103. Amendment of articles of incorporation. - Any amendment to the articles
operation of the business and affairs of a close corporation, the stockholders shall of incorporation which seeks to delete or remove any provision required by this
be held to strict fiduciary duties to each other and among themselves. Said Title to be contained in the articles of incorporation or to reduce a quorum or
stockholders shall be personally liable for corporate torts unless the corporation voting requirement stated in said articles of incorporation shall not be valid or
has obtained reasonably adequate liability insurance. effective unless approved by the affirmative vote of at least two-thirds (2/3) of the
outstanding capital stock, whether with or without voting rights, or of such greater

Nudibranch 52
proportion of shares as may be specifically provided in the articles of incorporation o 3. His compensation shall be determined by agreement between him
for amending, deleting or removing any of the aforesaid provisions, at a meeting and the corporation subject to approval of the Commission, which may
duly called for the purpose. fix his compensation in the absence of agreement or in the event of
disagreement between the provisional director and the corporation.
Q: When is there a deadlock? Q: How long will the provisional director serve?
Sec. 104. Deadlocks. - Notwithstanding any contrary provision in the articles of o Until such time as he shall be removed by:
incorporation or by-laws or agreement of stockholders of a close corporation, if 1. Order of the Commission or
the directors or stockholders are so divided respecting the management of the 2. By all the stockholders
corporation's business and affairs that the votes required for any corporate action
cannot be obtained, with the consequence that the business and affairs of the Q: What are the 2 remedies of the shareholder under 105?
corporation can no longer be conducted to the advantage of the stockholders Sec. 105. Withdrawal of stockholder or dissolution of corporation. - In addition and
generally, the Securities and Exchange Commission, upon written petition by any without prejudice to other rights and remedies available to a stockholder under
stockholder, shall have the power to arbitrate the dispute. this Title, any stockholder of a close corporation may:
Q: What may the SEC do when there is a petition for the SEC to arbitrate filed by o 1. Appraisal Right - for any reason, compel the said corporation to
a shareholder? purchase his shares at their fair value, which shall not be less than their
In the exercise of such power, the Commission shall have authority to make such par or issued value, when the corporation has sufficient assets in its
order as it deems appropriate, including an order: books to cover its debts and liabilities exclusive of capital stock:
o (1) canceling or altering any provision contained in the articles of o 2. File a Petition for dissolution with the SEC - Provided, That any
incorporation, by-laws, or any stockholder's agreement; stockholder of a close corporation may, by written petition to the
o 2) canceling, altering or enjoining any resolution or act of the Securities and Exchange Commission, compel the dissolution of such
corporation or its board of directors, stockholders, or officers; corporation
o (3) directing or prohibiting any act of the corporation or its board of o 2 Grounds:
directors, stockholders, officers, or other persons party to the action; 1. Whenever any of acts of the directors, officers or those in
o (4) requiring the purchase at their fair value of shares of any control of the corporation is illegal, or fraudulent, or
stockholder, either by the corporation regardless of the availability of dishonest, or oppressive or unfairly prejudicial to the
unrestricted retained earnings in its books, or by the other corporation, or
stockholders; 2. Any stockholder, or whenever corporate assets are being
o (5) appointing a provisional director; misapplied or wasted.
o (6) dissolving the corporation; or
o (7) granting such other relief as the circumstances may warrant. Q: What is the difference between the appraisal right with respect to ordinary corporations
to close corporation?
Q: What are the qualifications of a provisional director? 1. With respect to ordinary corporations must be for any of the cases under Sec.
A provisional director shall be: 81; With respect to close corporations may be for any reason
o 1. An impartial person o Q: What are the cases provided for under Sec. 81?
o 2. Who is neither a stockholder nor a creditor of the corporation or of o 1. In case any amendment to the articles of incorporation has the effect
any subsidiary or affiliate of the corporation, and of changing or restricting the rights of any stockholder or class of
o 3. whose further qualifications, if any, may be determined by the shares, or
Commission. o 2. Of authorizing preferences in any respect superior to those of
Q: What are the rights and powers of the provisional director? outstanding shares of any class, or of extending or shortening the term
o 1. A provisional director is not a receiver of the corporation and does of corporate existence;
not have the title and powers of a custodian or receiver. o 3. In case of sale, lease, exchange, transfer, mortgage, pledge or other
o 2. A provisional director shall have all the rights and powers of a duly disposition of all or substantially all of the corporate property and
elected director of the corporation, assets as provided in the Code; and
Including the right to notice of and to vote at meetings of o 4. In case of merger or consolidation
directors, until such time as he shall be removed by order of o There is also appraisal right under Sec. 42 investment in corporate
the Commission or by all the stockholders. funds in another corporation or business or for any other purpose

Nudibranch 53
2. With respect to ordinary corporation no need sufficient assets to cover debts Only in case of vacancy (Such as when a trustee has died,
and liabilities exclusive of capital. What is required is that the corporation has been removed, or even resigned)
Unrestricted Retained Earnings; With respect to close corporation corporation Trustees thereafter elected to fill vacancies, occurring
needs sufficient assets to cover debts and liabilities exclusive of capital before the expiration of a particular term, shall hold office
only for the unexpired period. Trustees elected thereafter to
Q: What is the difference between an ordinary corporation and a close corporation? fill vacancies caused by expiration of term shall hold office
(See memaid for table) for five (5) years. A majority of the trustees shall constitute a
quorum for the transaction of business. The powers and
Assign: amendment of AOI of close corp up to special corporations, dulay case, 2 cases on authority of trustees shall be defined in the by-laws.
special corporations With respect to Stock:
o For institutions organized as stock corporations, the number and term
of directors shall be governed by the provisions on stock corporations.
TITLE XIII
SPECIAL CORPORATIONS Chapter II - RELIGIOUS CORPORATIONS
Chapter I - Educational Corporations
Q: What is a religious corporation?
Q: What is an educational corporation? A corporation composed entirely of spiritual persons and which is organized for
It is a stock or non-stock corporation organized to provide for facilities for teaching the furtherance of a religion or perpetuating the right of the church or for the
or instruction administration of church or religious works or property

Q: What provisions govern educational corporations? Q: What are the classes of religious corporations?
Sec. 106. Incorporation. - Educational corporations shall be governed by special Sec. 109. Classes of religious corporations. - Religious corporations may be
laws incorporated by one or more persons. Such corporations may be classified into:
o Ex of special law: RA 7798 amending the education act of 1982 o Corporations Sole, and (See Sec. 110)
and by the general provisions of this Code. o Religious societies or Corporation Aggregate (See Sec. 116)
Q: What is the difference between the 2?
Q: Is there any pre-requisite before incorporation of an educational corporation? o Corporation Sole 1 member/incorporator
Sec. 107. Pre-requisites to incorporation. - Except upon favorable o Religious Society 2 or more members/incorporators
recommendation of the Ministry of Education and Culture (Now Department of Religious corporations shall be governed by this Chapter and by the general
Education), the Securities and Exchange Commission shall not accept or approve provisions on non-stock corporations insofar as they may be applicable.
the articles of incorporation and by-laws of any educational institution.
ROMAN CATHOLIC V. DAVAO
Q: What are the rules as to number of trustees and their terms? There was no violation of the constitutional requirement which provides that
With respect to Non-Stock: agricultural lands must be 60% Filipino owned. The basis of ownership is not the
o Sec. 108. Board of trustees. - Trustees of educational institutions corporation sole. He is not the owner if such property. The true owner is the
organized as non-stock corporations shall not be less than five (5) nor Roman Catholic Faithful. The corporation sole is merely holding the property in
more than fifteen (15): Provided, however, That the number of trustees trust
shall be in multiples of five (5).
o Unless otherwise provided in the articles of incorporation on the by- IGLESIA EVANGELICA V. BISHOP LAZARO
laws, the board of trustees of incorporated schools, colleges, or other There is no need to dissolve the corporation sole to convert it to a corporation
institutions of learning shall, as soon as organized, so classify aggregate in order to increase membership. Mere amendment of the AOI is
themselves that the term of office of one-fifth (1/5) of their number sufficient by the one member of the corporation sole with the concurrence of 2/3
shall expire every year. of the membership of the organization for whom he acts as trustee
o Q: Give an illustration of the staggering term of BOT.
o Q: When does the rule with respect to the serving of unexpired period Q: What is corporation sole?
of the term apply? Sec. 110. Corporation sole. - For the purpose of administering and managing, as
trustee, the affairs, property and temporalities of any religious denomination, sect

Nudibranch 54
or church, a corporation sole may be formed by the chief archbishop, bishop, Q: Can a corporation sole acquire property?
priest, minister, rabbi or other presiding elder of such religious denomination, sect Yes.
or church. Sec. 113. Acquisition and alienation of property. - Any corporation sole may
purchase and hold real estate and personal property for its church, charitable,
Q: What must be contained in the AOI of a corporation sole? benevolent or educational purposes, and may receive bequests or gifts for such
Sec. 111. Articles of incorporation. - In order to become a corporation sole, the purposes.
chief archbishop, bishop, priest, minister, rabbi or presiding elder of any religious Q: Can a corporation sole sell or mortgage its property?
denomination, sect or church must file with the Securities and Exchange o Yes, provided that it has obtained a court order from the RTC of the
Commission articles of incorporation setting forth the following: province where the property is situated. This done by filing a verified
o 1. That he is the chief archbishop, bishop, priest, minister, rabbi or petition. Such notice thru publication or any other manner under the
presiding elder of his religious denomination, sect or church and that court order shall be made.
he desires to become a corporation sole; o Such corporation may sell or mortgage real property held by it by
o 2. That the rules, regulations and discipline of his religious obtaining an order for that purpose from the Court of First Instance of
denomination, sect or church are not inconsistent with his becoming a the province where the property is situated upon proof made to the
corporation sole and do not forbid it; satisfaction of the court that notice of the application for leave to sell
o 3. That as such chief archbishop, bishop, priest, minister, rabbi or or mortgage has been given by publication or otherwise in such manner
presiding elder, he is charged with the administration of the and for such time as said court may have directed, and that it is to the
temporalities and the management of the affairs, estate and properties interest of the corporation that leave to sell or mortgage should be
of his religious denomination, sect or church within his territorial granted. The application for leave to sell or mortgage must be made by
jurisdiction, describing such territorial jurisdiction; petition, duly verified, by the chief archbishop, bishop, priest, minister,
o 4. The manner in which any vacancy occurring in the office of chief rabbi or presiding elder acting as corporation sole, and may be opposed
archbishop, bishop, priest, minister, rabbi of presiding elder is required by any member of the religious denomination, sect or church
to be filled, according to the rules, regulations or discipline of the represented by the corporation sole:
religious denomination, sect or church to which he belongs; and Q: Is there any exception to the necessity of court intervention?
o 5. The place where the principal office of the corporation sole is to be o Yes. When the rules, regulations of the religious denomination, sect, or
established and located, which place must be within the Philippines. church, religious society, or order regulate the method or manner of
o The articles of incorporation may include any other provision not acquiring, holding, selling, or mortgaging the estate
contrary to law for the regulation of the affairs of the corporation. o Provided, That in cases where the rules, regulations and discipline of
the religious denomination, sect or church, religious society or order
Q: What is required to be filed when filing AOI? concerned represented by such corporation sole regulate the method
Sec. 112. Submission of the articles of incorporation. - The articles of of acquiring, holding, selling and mortgaging real estate and personal
incorporation must be verified, before filing, by affidavit or affirmation of the chief property, such rules, regulations and discipline shall control, and the
archbishop, bishop, priest, minister, rabbi or presiding elder, as the case may be, intervention of the courts shall not be necessary.
and accompanied by a copy of the commission, certificate of election or letter of
appointment of such chief archbishop, bishop, priest, minister, rabbi or presiding Q: How are vacancies filled in religious corporation?
elder, duly certified to be correct by any notary public. Sec. 114. Filling of vacancies. - The successors in office of any chief archbishop,
From and after the filing with the Securities and Exchange Commission of the said bishop, priest, minister, rabbi or presiding elder in a corporation sole shall become
articles of incorporation, verified by affidavit or affirmation, and accompanied by the corporation sole on their accession to office and shall be permitted to transact
the documents mentioned in the preceding paragraph, such chief archbishop, business as such on the filing with the Securities and Exchange Commission of a
bishop, priest, minister, rabbi or presiding elder shall become a corporation sole copy of their commission, certificate of election, or letters of appointment, duly
and all temporalities, estate and properties of the religious denomination, sect or certified by any notary public.
church theretofore administered or managed by him as such chief archbishop, During any vacancy in the office of chief archbishop, bishop, priest, minister, rabbi
bishop, priest, minister, rabbi or presiding elder shall be held in trust by him as a or presiding elder of any religious denomination, sect or church incorporated as a
corporation sole, for the use, purpose, behalf and sole benefit of his religious corporation sole, the person or persons authorized and empowered by the rules,
denomination, sect or church, including hospitals, schools, colleges, orphan regulations or discipline of the religious denomination, sect or church represented
asylums, parsonages and cemeteries thereof. by the corporation sole to administer the temporalities and manage the affairs,

Nudibranch 55
estate and properties of the corporation sole during the vacancy shall exercise all o 5. The place where the principal office of the corporation is to be
the powers and authority of the corporation sole during such vacancy. established and located, which place must be within the Philippines;
and
Q: How are religious corporations dissolved? o 6. The names, nationalities, and residences of the trustees elected by
Sec. 115. Dissolution. - A corporation sole may be dissolved and its affairs settled the religious society or religious order, or the diocese, synod, or district
voluntarily by submitting to the Securities and Exchange Commission a verified organization to serve for the first year or such other period as may be
declaration of dissolution. prescribed by the laws of the religious society or religious order, or of
The declaration of dissolution shall set forth: the diocese, synod, or district organization, the board of trustees to be
o 1. The name of the corporation; not less than five (5) nor more than fifteen (15).
o 2. The reason for dissolution and winding up;
o 3. The authorization for the dissolution of the corporation by the TITLE XIV
particular religious denomination, sect or church; DISSOLUTION
o 4. The names and addresses of the persons who are to supervise the
winding up of the affairs of the corporation. Q: What is dissolution?
Upon approval of such declaration of dissolution by the Securities and Exchange The extinguishment of franchise to be a corporation and the termination of its
Commission, the corporation shall cease to carry on its operations except for the corporate existence
purpose of winding up its affairs
Q: What are the steps in corporate dissolution?
Q: What is a religious corporation? STEP 1: Termination of the corporation at least as far as the right to go on during
Sec. 116. Religious societies. - Any religious society or religious order, or any ordinary business is concerned
diocese, synod, or district organization of any religious denomination, sect or STEP 2: Winding up of its affairs
church, unless forbidden by the constitution, rules, regulations, or discipline of the o This refers to the settlement of debts and liabilities to unpaid creditors.
religious denomination, sect or church of which it is a part, or by competent Whatever is left of the corporations assets will be distributed to its
authority, may, upon written consent and/or by an affirmative vote at a meeting stockholders or members
called for the purpose of at least two-thirds (2/3) of its membership, incorporate STEP 3: Termination of the corporation for all purposes
for the administration of its temporalities or for the management of its affairs,
properties and estate by filing with the Securities and Exchange Commission, Q: What are the methods of dissolution?
articles of incorporation verified by the affidavit of the presiding elder, secretary, Sec. 117. Methods of dissolution. - A corporation formed or organized under the
or clerk or other member of such religious society or religious order, or diocese, provisions of this Code may be dissolved:
synod, or district organization of the religious denomination, sect or church, Voluntarily or
setting forth the following: o 1. Dissolution where creditors are not affected
o 1. That the religious society or religious order, or diocese, synod, or o 2. Dissolution where creditors are affected
district organization is a religious organization of a religious o 3. Dissolution by shortening corporate term
denomination, sect or church; o 4. With respect to Corporations Sole, submission of a verified
o 2. That at least two-thirds (2/3) of its membership have given their declaration of dissolution for SEC approval
written consent or have voted to incorporate, at a duly convened Q: Who submits the verified declaration?
meeting of the body; The sole incorporator of a corporation sole, or the chief
o 3. That the incorporation of the religious society or religious order, or archbishop, bishop, priest, minister, rabbi or other presiding
diocese, synod, or district organization desiring to incorporate is not elder of the religious denomination, sect or church.
forbidden by competent authority or by the constitution, rules, Involuntarily.
regulations or discipline of the religious denomination, sect, or church o 1. Expiration of corporate term
of which it forms a part; o 2. Legislative enactment
o 4. That the religious society or religious order, or diocese, synod, or Especially public utilities.
district organization desires to incorporate for the administration of its Reason: Congress have the inherent power to make laws
affairs, properties and estate; which carries with it the power to alter or repeal them
Q: What are the limitations to the exercise of this power?

Nudibranch 56
1. Sec. 11, Art XII, 1987 Constition: xxx neither shall any 4. Continuous inoperation for at least 5 years
such franchise or right be granted except under the 5. Failure to file by-laws within the required
condition that it shall be subject to amendment, alteration, period
or repeal by the Congress when the COMMON GOOD so 6. Failure to file required reports in appropriate
requires forms as determined by the SEC within the
2. Sec. 145. Amendment or repeal: No right or remedy in prescribed period
favor of or against any corporation, its stockholders,
members, directors, trustees, or officers, nor any liability Q: Explain the procedure with respect to dissolution where no creditors are affected.
incurred by any such corporation, stockholders, members, Sec. 118. Voluntary dissolution where no creditors are affected. - If dissolution of
directors, trustees, or officers, shall be removed or impaired a corporation does not prejudice the rights of any creditor having a claim against
either by the subsequent dissolution of said corporation or it, the dissolution may be effected
by any subsequent amendment or repeal of this Code or of By majority vote of the board of directors or trustees, and
any part thereof By a resolution duly adopted by the affirmative vote of the stockholders owning at
3. The dissolution must NOT impair existing obligations of least 2/3 of the outstanding capital stock or of at least 2/3 of the members
contracts or take away vested rights Of a meeting to be held upon call of the directors or trustees
Q: Can Congress dissolve by legislative enactment even After PUBLICATION of the notice of time, place and object of the meeting
private entities, say San Beda? o For 3 consecutive weeks in a newspaper published in the place where
Yes, provided that the limitations are complied with the principal office of said corporation is located; and
o 3. Failure to formally organize and commence corporate business o If no newspaper is published in such place, then in a newspaper of
within 2 years from the issuance of Certificate of Incorporation general circulation in the Philippines,
Q: What do you mean by formally organize or After sending such NOTICE to each stockholder or member either by registered
commence? mail or by personal delivery at least 30 days prior to said meeting.
Election of corporate officers A copy of the resolution authorizing the dissolution shall be CERTIFIED (Certificate
o 4. Order of the SEC in cases provided for under existing law, rules and which is signed ) by a majority of the board of directors or trustees and
regulations o Q: What is the certification all about?
Q: What are the grounds in which a petition for dissolution That the majority of the board is authorized by corporation
may be filed with the SEC? and the required vote is obtained
1. Violations by a corporation COUNTERSIGNED by the secretary of the corporation.
2. Deadlocks in a close corporation The Securities and Exchange Commission shall thereupon issue the CERTIFICATE
Upon petition, SEC may arbitrate a corporation OF DISSOLUTION.
and order dissolution
3. Mismanagement of a close corporation VESAGAS V. C.A.
Grounds: 1. Illegal, dishonest, fraudulent, Members of the corporation complained that they were stripped off their
oppressive or unfairly prejudicial to the membership without due process. The defense of Vesagas was the corporation no
corporation/SH; 2. Corporate assets are being longer existed
misapplied/wasted On the issue of WON the corporation was dissolved, the SC held in the negative
4. Suspension or revocation of Certificate of Registration of a because the corporation failed to follow the required procedure under the
corporation corporation code.
Q: What are the grounds to suspend/revoke The corporation merely submitted the following documentary evidence: board
COR? resolution and minutes of the meeting. These alone do not prove dissolution
1. Fraud in procuring the COR The procedure in dissolution must be strictly followed
2. Serious misrepresentation as to what the The 3 documents required to prove dissolution
corporation can do/is doing (to the great o 1. Certificate of Dissolution issued by the SEC
prejudice to the general public) o 2. Board Resolution
3. Refusal to comply/defiance of any lawful order o 3. Certification countersigned by the majority of the board and signed
of the SEC of acts which would amount to grave by the corporate secretary authorizing the dissolution
violation of its franchise

Nudibranch 57
The Certificate of Dissolution issued by the SEC is the best evidence of dissolution. The function of the receiver is to administer the liquidation,
Thru this, the corporation is presumed to have complied with required procedure manage the settlement of liabilities and debts
under the Corporation Code
Q: Explain the procedure with respect to dissolution by shortening the corporate term of
Q: Explain the procedure with respect to dissolution where creditors are affected. existence.
Sec. 119. Voluntary dissolution where creditors are affected. - Where the Sec. 120. Dissolution by shortening corporate term. - A voluntary dissolution may
dissolution of a corporation may prejudice the rights of any creditor, the petition be effected by amending the articles of incorporation to shorten the corporate
for dissolution shall be filed with the Securities and Exchange Commission. term pursuant to the provisions of this Code.
The petition shall be signed by A copy of the amended articles of incorporation shall be submitted to the
o A majority of its board of directors or trustees OR other officers having Securities and Exchange Commission in accordance with this Code.
the management of its affairs, Upon approval of the amended articles of incorporation of the expiration of the
Verified by its shortened term, as the case may be, the corporation shall be deemed dissolved
o President or without any further proceedings, subject to the provisions of this Code on
o Secretary or liquidation.
o One of its directors or trustees, and
Shall set forth: Q: If the corporate term is shortened, do the shareholders still have appraisal right?
o All claims and demands against it, and Yes.
o That its dissolution was resolved upon by the affirmative vote of the Under Section 37, shortening of the corporate term is not one of the instances
stockholders representing at least 2/3 of the outstanding capital stock wherein the appraisal right is available
or by at least 2/3 of the members at a meeting of its stockholders or Under Section 81, however, it is included.
members called for that purpose. Thus, appraisal right is available in both shortening and extending the corporate
If the petition is sufficient in form and substance, the Commission shall, by an term
ORDER reciting the purpose of the petition, fix a date on or before which
OBJECTIONS thereto may be filed by any person, Sec. 121. Involuntary dissolution. - A corporation may be dissolved by the Securities and
o Which date shall not be less than 30 days nor more than sixty 60 days Exchange Commission upon filing of a verified complaint and after proper notice and hearing
after the entry of the order. on the grounds provided by existing laws, rules and regulations.
o Timeframe: this means that the date of filing objections must be fixed
on a date NOT earlier than 30 days after the order and NOT later than Sec. 122. Corporate liquidation. - Every corporation whose charter expires by its own
60 days after the order. limitation or is annulled by forfeiture or otherwise, or whose corporate existence for other
o Ex: if the date of entry of the order is April 4, then the date for filing purposes is terminated in any other manner, shall nevertheless be continued as a body
objections must be fixed not earlier than May 4 and not later June 5 corporate for three (3) years after the time when it would have been so dissolved, for the
Before such date, a copy of the order shall be published purpose of prosecuting and defending suits by or against it and enabling it to settle and close
o At least once a week for 3 consecutive weeks in a newspaper of its affairs, to dispose of and convey its property and to distribute its assets, but not for the
general circulation published in the municipality or city where the purpose of continuing the business for which it was established.
principal office of the corporation is situated, or At any time during said three (3) years, the corporation is authorized and empowered to
o if there be no such newspaper, then in a newspaper of general convey all of its property to trustees for the benefit of stockholders, members, creditors, and
circulation in the Philippines, and other persons in interest. From and after any such conveyance by the corporation of its
A similar copy shall be posted for 3 consecutive weeks in 3 public places in such property in trust for the benefit of its stockholders, members, creditors and others in interest,
municipality or city. all interest which the corporation had in the property terminates, the legal interest vests in
Upon 5 day's notice, given after the date on which the right to file objections as the trustees, and the beneficial interest in the stockholders, members, creditors or other
fixed in the order has expired, the Commission shall proceed to HEAR the petition persons in interest.
and try any issue made by the OBJECTIONS filed; and if no such objection is
sufficient, and the material allegations of the petition are true, Upon the winding up of the corporate affairs, any asset distributable to any creditor or
It shall render judgment dissolving the corporation and stockholder or member who is unknown or cannot be found shall be escheated to the city or
o Directing such disposition of its assets as justice requires, and municipality where such assets are located.
o May appoint a receiver to collect such assets and pay the debts of the
corporation.

Nudibranch 58
Except by decrease of capital stock and as otherwise allowed by this Code, no corporation PHILIPPINE VETERANS BANK V. VEGA
shall distribute any of its assets or property except upon lawful dissolution and after payment The enactment of Republic Act No. 7169 has rendered the liquidation
of all its debts and liabilities. court functus officio and respondent judge has been stripped of the authority to
issue orders involving acts of liquidation.
Q: What is Liquidation? Liquidation connotes a winding up or settling with the creditors and debtors while
It is the winding up of the affairs of the corporation by: rehabilitation connotes a reopening or reorganization. Both are diametrically
o 1. Reducing its assets in money opposed to each other, such that both cannot be undertaken at the same time. To
o 2. Settling with the creditors or debtors, and allow the liquidation proceedings to continue would seriously hinder the
o 3. Apportioning the amount of profit or loss rehabilitation of the subject bank.
Liquidation = termination; Rehabilitation = continuation
Q: What are the methods of corporate liquidation?
1. Liquidation by the corporation itself TAN TIONG BIO V. CIR
2. Liquidation by a duly appointed receiver Q: What if a corporation has no more assets, can the creditors still collect?
3. Liquidation by a trustee to whom the corporation had conveyed the corporate o Yes, SH be liable. The creditors can follow the properties of the
assets corporation even beyond the 3 year period under Sec. 122 if the assets
of the corporation were distributed to the SH/members without first
Q: What is the difference between a receiver and trustee? settling the corporations debts and liabilities first
Receiver appointed by the corporation or SEC to collect the corporate assets and This is the principle enunciated in American jurisprudence
pay the debts of the corporation (Sec. 119) made applicable also in this case
Trustee appointed by the corporation If the government was not allowed to collect taxes which are rightfully due to it,
then that would set a dangerous precedent for the reason that the SH/members
Q: What is the priority of obligations of corporations? could easily escape tax liability by the simple expedient of transferring to other
1. When corporation becomes insolvent - Creditors persons the property of the corporation. This is an indirect tax evasion.
2. SH/members/directors/officers who are also creditors
3. Remaining assets to be distributed to the SH/members REBOLLIDO V. CA AND PEPSICO
4. If no SH/members, escheated (forfeited) in favor of the government, specifically WON PEPSICO is a Real-Party-Interest? Yes.
the municipality or city where the asset is located Sec. 122: Every corporation shall nevertheless be continued as a body corporate
for 3 years after the time when it would have been so dissolved. xxx At any time
SPS. GELANO V. CA during said 3 years, the corporation is authorized and empowered to convey all of
While the civil case against Sps. Gelano was pending, ISI amended its AOI to its property to trustees for the benefit of stockholders, members, creditors, and
shorten its corporate existence. The case was dismissed by the RTC on the ground other persons in interest.
that it had no jurisdiction since the corporation is no longer in existence Assuming that a corporation is already dissolved but the action lasted beyond the
WON RTC had jurisdiction? Yes. 3 year period, the action may still be prosecuted as long as the corporation was
Sec. 122: Every corporation shall nevertheless be continued as a body corporate still in existence at the time of filing
for 3 years after the time when it would have been so dissolved. xxx At any time In the case at bar, the case was filed within the 3 year period.
during said 3 years, the corporation is authorized and empowered to convey all of As long as the properties are identifiable to the corporation and transferred to
its property to trustees for the benefit of stockholders, members, creditors, and another person, the creditors may follow the property
other persons in interest. Since the corporation is still subject to suit, it is incidentally subject to the court
Even if the case continued beyond the 3 year period (in this case, 7 years had processes such as summons
already elapsed), as long as the case was filed when the corporation was still in
existence, the case will still SUBSISTS Assign: Up to foreign corporations
Also, a lawyer who prosecuted and defended the interest of a corporation and
appeared on behalf of the corporation before and after dissolution, may be TITLE XV
considered as a trustee contemplated in Sec. 122. In the case at bar, there was a FOREIGN CORPORATIONS
substantial compliance of the appointment of a trustee when the lawyers
prosecuted the interest of the corporation when it was still in existence Q: What is a Foreign Corporation?

Nudibranch 59
Sec. 123. Definition and rights of foreign corporations. - For the purposes of this Sec. 125. Application for a license. - A foreign corporation applying for a license to
Code, a foreign corporation is one formed, organized or existing under any laws transact business in the Philippines shall submit to the Securities and Exchange
other than those of the Philippines and whose laws allow Filipino citizens and Commission:
corporations to do business in its own country or state. o A copy of its articles of incorporation and by-laws,
Q: From the definition under the Corporation Code, what are the 2 elements of a o Certified in accordance with law, and their
Foreign Corporation? o Translation to an official language of the Philippines, if necessary.
o 1. The FC is formed, organized or existing under any laws other than o The application shall be under oath and,
those of the Philippines; and Q: What must be contained in the application?
o 2. The laws by which the FC is organized allows Filipino citizens and o Unless already stated in its articles of incorporation, shall specifically
corporations to do business in its own country or state. set forth the following:
This also known as the Right of Reciprocity 1. The date and term of incorporation;
Q: What right is granted to foreign corporations? 2. The address, including the street number, of the principal
o It shall have the right to transact business in the Philippines after it office of the corporation in the country or state of
shall have obtained: incorporation;
1. A license to transact business in this country in 3. The name and address of its resident agent authorized to
accordance with this Code and accept summons and process in all legal proceedings and,
2. A certificate of authority from the appropriate pending the establishment of a local office, all notices
government agency. affecting the corporation;
4. The place in the Philippines where the corporation
Q: How do you determine the nationality of a corporation? (3 tests) intends to operate;
1. Incorporation test the nationality of a corporation is that of the state of 5. The specific purpose or purposes which the corporation
incorporation regardless of the nationality of the shareholders intends to pursue in the transaction of its business in the
2. Control test the nationality of a corporation is depends upon the nationality of Philippines: Provided, That said purpose or purposes are
the controlling stockholders those specifically stated in the certificate of authority issued
3. Grandfather rule the combined totals in the investing corporation and the by the appropriate government agency;
investee corporation must be traced (grandfathered) to determine the total 6. The names and addresses of the present directors and
percentage of Filipino ownership officers of the corporation;
Q: In our jurisdiction, which test do we apply? 7. A statement of its authorized capital stock and the
o According to a SEC circular, we apply the Control Test in determining aggregate number of shares which the corporation has
whether a corporation has complied with the constitutional provisions authority to issue, itemized by classes, par value of shares,
requiring certain industries to be Filipino owned (i.e. 100% Filipino- shares without par value, and series, if any;
owned, 60%-40%) 8. A statement of its outstanding capital stock and the
aggregate number of shares which the corporation has
Q: What happens when a foreign corporation was granted a license before the effectivity of issued, itemized by classes, par value of shares, shares
the Corporation Code? without par value, and series, if any;
Sec. 124. Application to existing foreign corporations. - Every foreign corporation 9. A statement of the amount actually paid in; and
which on the date of the effectivity of this Code is authorized to do business in the 10. Such additional information as may be necessary or
Philippines under a license therefore issued to it, shall continue to have such appropriate in order to enable the Securities and Exchange
authority under the terms and condition of its license, subject to the provisions of Commission to determine whether such corporation is
this Code and other special laws. entitled to a license to transact business in the Philippines,
o However, the corporation must still comply with the new requirements and to determine and assess the fees payable.
of the Corporation Code (I.e. Rule of Reciprocity) within 2 years from Q: What are the necessary attachments to the application? (Conditions
the effectivity of the Code Precedent)
o 1. Attached to the application for license shall be a duly executed
Q: What are the requirements for the issuance of a license? certificate under oath by the authorized official or officials of the
The FC must file an application under oath jurisdiction of its incorporation, attesting to the fact that:

Nudibranch 60
The laws of the country or state of the applicant allow o Unless such license is sooner surrendered, revoked, suspended or
Filipino citizens and corporations to do business therein, and annulled in accordance with this Code or other special laws
That the applicant is an existing corporation in good 2. Within sixty (60) days after the issuance of the license to transact business in the
standing. Philippines, the license, except foreign banking or insurance corporation, shall
If such certificate is in a foreign language, a translation deposit with the Securities and Exchange Commission for the benefit of present
thereof in English under oath of the translator shall be and future creditors of the licensee in the Philippines, securities satisfactory to the
attached thereto. Securities and Exchange Commission, consisting of bonds or other evidence of
o 2. The application for a license to transact business in the Philippines indebtedness of the Government of the Philippines, its political subdivisions and
shall likewise be accompanied by a statement under oath of the instrumentalities, or of government-owned or controlled corporations and
president or any other person authorized by the corporation, showing entities, shares of stock in "registered enterprises" as this term is defined in
to the satisfaction of the Securities and Exchange Commission and Republic Act No. 5186, shares of stock in domestic corporations registered in the
other governmental agency in the proper cases that: stock exchange, or shares of stock in domestic insurance companies and banks, or
The applicant is solvent and any combination of these kinds of securities, with an actual market value of at
In sound financial condition, and least one hundred thousand (P100,000.) pesos;
Setting forth the assets and liabilities of the corporation as 3. Provided, however, That within six (6) months after each fiscal year of the
of the date not exceeding one (1) year immediately prior to licensee, the Securities and Exchange Commission shall require the licensee to
the filing of the application. deposit additional securities equivalent in actual market value to two (2%)
o 3. Foreign banking, financial and insurance corporations shall, in percent of the amount by which the licensee's gross income for that fiscal year
addition to the above requirements, comply with the provisions of exceeds five million (P5,000,000.00) pesos.
existing laws applicable to them. In the case of all other foreign 4. The Securities and Exchange Commission shall also require deposit of additional
corporations, no application for license to transact business in the securities if the actual market value of the securities on deposit has decreased by
Philippines shall be accepted by the Securities and Exchange at least ten (10%) percent of their actual market value at the time they were
Commission without previous authority from the appropriate deposited.
government agency, whenever required by law. 5. The Securities and Exchange Commission may at its discretion release part of
o 4. (Sec. 128) Written power of attorney designating some person who the additional securities deposited with it if the gross income of the licensee has
must be a resident of the Philippines, on whom any summons and decreased, or if the actual market value of the total securities on deposit has
other legal processes may be served in all actions or other legal increased, by more than ten (10%) percent of the actual market value of the
proceedings against such corporation securities at the time they were deposited.
o 5. (Sec. 128) Any such foreign corporation shall likewise execute and Q: May the corporation allow the licensee to substitute the securities?
file with the Securities and Exchange Commission an agreement or o Yes. The Securities and Exchange Commission may, from time to time,
stipulation, executed by the proper authorities of said corporation, in allow the licensee to substitute other securities for those already on
form and substance with the SEC to the effect that if the FC shall cease deposit:
to transact business in the Philippines or that there is no resident agent, o 1. As long as the licensee is solvent.
then the SEC can receive summons and legal processes on behalf of the o 2. And allowed by the SEC.
FC o Such licensee shall be entitled to collect the interest or dividends on the
securities deposited.
Q: What happens when all the requirements are complied with? (Conditions Subsequent) Q: What happens if a corporation ceased to conduct business?
Sec. 126. Issuance of a license. - If the Securities and Exchange Commission is o In the event the licensee ceases to do business in the Philippines, the
satisfied that the applicant has complied with all the requirements of this Code securities deposited as aforesaid shall be returned,
and other special laws, rules and regulations, the Commission shall issue a license 1. Upon the licensee's application therefor and
to the applicant: 2. Upon proof to the satisfaction of the Securities and
1. To transact business in the Philippines (only) for the purpose or purposes Exchange Commission that the licensee has no liability to
specified in such license. Upon issuance of the license, such foreign corporation Philippine residents, including the Government of the
may commence to transact business in the Philippines and continue to do so for as Republic of the Philippines.
long as it retains its authority to act as a corporation under the laws of the country
or state of its incorporation, Q: Who may be designated as a resident agent?
Sec. 127. Who may be a resident agent. - A resident agent may be either:

Nudibranch 61
1. An individual the Philippines, service of any summons or other legal
o a. Residing in the Philippines or process may be made upon the Securities and Exchange
o b. Of good moral character and Commission and that such service shall have the same force
o c. Of sound financial standing and effect as if made upon the duly-authorized officers of
2. A domestic corporation the corporation at its home office."
o lawfully transacting business in the Philippines: o Whenever such service of summons or other process shall be made
(Provided, That in the case of an individual, he must be of good moral character upon the Securities and Exchange Commission, the Commission shall,
and of sound financial standing.) within ten (10) days thereafter, transmit by mail a copy of such
summons or other legal process to the corporation at its home or
Q: What is the function of the resident agent principal office. The sending of such copy by the Commission shall be
Receive summons and other legal processes may be served in all actions or other necessary part of and shall complete such service. All expenses incurred
legal proceedings against such corporation by the Commission for such service shall be paid in advance by the
Sec. 128. Resident agent; service of process. - The Securities and Exchange party at whose instance the service is made.
Commission shall require as a condition precedent to the issuance of the license to o In case of a change of address of the resident agent, it shall be his or its
transact business in the Philippines by any foreign corporation that such duty to immediately notify in writing the Securities and Exchange
corporation file with the Securities and Exchange Commission a written power of Commission of the new address.
attorney designating some person who must be a resident of the Philippines, on
whom any summons and other legal processes may be served in all actions or Q: What do you mean by transacting or doing business in the Philippines?
other legal proceedings against such corporation, and consenting that service The Corporation Code itself does not define such terms
upon such resident agent shall be admitted and held as valid as if served upon the Under the Foreign Investments Act (RA 7042):
duly authorized officers of the foreign corporation at its home office. o The phrase doing business shall include: (SSOAP)
Q: Aside from the resident agent, who else may receive summons or legal Soliciting orders, service contracts, opening offices,
processes? whether called liaison offices or branches; appointing
o The SEC after the FC executed an agreement/stipulation (as a representatives or distributors domiciled in the Philippines;
precondition to the issuance of license) with the SEC to the effect that if participating in the management, supervision or control of
the FC shall cease to transact business in the Philippines or that there is any domestic business, firm, entity or corporation in the
no resident agent, then the SEC can receive summons and legal Philippines; and any other act or acts that imply a continuity
processes on behalf of the FC of commercial dealings or arrangements, and contemplate
Provided that: the SEC shall, within ten (10) days thereafter, to that extent the performance of acts or works, or the
transmit by mail a copy of such summons or other legal exercise of some of the functions normally incident to, and
process to the corporation at its home or principal office. in progressive prosecution of, commercial gain or of the
All expenses incurred by the Commission for such service purpose and object of the business organization
shall be paid in advance by the party at whose instance the The Corporation Code does not define this phrase
service is made. Q: What if none of the circumstances are present, can the FC still be considered
o Any such foreign corporation shall likewise execute and file with the to be doing business?
Securities and Exchange Commission an agreement or stipulation, o Yes. Jurisprudence provides for the definition (See Eriks Pte v. CA)
executed by the proper authorities of said corporation, in form and Q: Is a license always pre-requisite before a corporation is considered to be
substance as follows: doing business? Such that if a corporation does not have license, it cannot be
"The (name of foreign corporation) does hereby stipulate considered to be doing business?
and agree, in consideration of its being granted by the o No
Securities and Exchange Commission a license to transact
business in the Philippines, that if at any time said ERIKS PTE LTD V. CA
corporation shall cease to transact business in the WON Petitioner has the capacity to sue? No.
Philippines, or shall be without any resident agent in the Petitioner, a non-resident foreign corporation, has no legal capacity to sue. License
Philippines on whom any summons or other legal is required only in transacting business in the Philippines and not required to grant
processes may be served, then in any action or proceeding the FC legal capacity to sue
arising out of any business or transaction which occurred in

Nudibranch 62
What is determinative as to whether a corporation is doing business or not is its o 2. Indicating clearly in capital letters or by underscoring the change or
intent as well as the nature of the transaction changes made,
The rule is that if a FC does business without license, any agreement executed o 3. Duly certified by the authorized official or officials of the country or
thereto is void. Moreover, it shall not have access to PH courts state of incorporation.
o Q: Is this incapacity curable? How? Q: What is the effect if the license is amended?
o Yes. By obtaining the requisite license o The filing thereof shall not of itself enlarge or alter the purpose or
However, a FC without license is not ipso facto incapacitated from bringing an purposes for which such corporation is authorized to transact business
action. A license is necessary only if it is transacting or doing business in the in the Philippines.
country.
That is why there is a need to define doing business Q: When is amended license necessary?
Q: How did the court define doing business? Sec. 131. Amended license. - A foreign corporation authorized to transact business
o The true test, however, seems to be whether the foreign corporation is in the Philippines shall obtain an amended license in the event it:
continuing the body or substance of the business or enterprise for o 1. Changes its corporate name, or
which it was organized or whether it has substantially retired from it o 2. Desires to pursue in the Philippines other or additional purposes,
and turned it over to another. Q: How is amendment done?
o The term implies a continuity of commercial dealings and o By submitting an application therefor to the Securities and Exchange
arrangements, and contemplates, to that extent, the performance of Commission,
acts or works or the exercise of some of the functions normally incident o The application must be favorably endorsed by the appropriate
to, and in progressive prosecution of, the purpose and object of its government agency in the proper cases.
organization (Memorize this!)
In the case at bar, the grant of the 90-day credit term by FC to DC for every Q: Is it possible that a FC conduct business other than the main purpose for which it is
purchase made shows an intention to continue transacting with the latter since in authorized to transact?
the usual course of commercial transactions, credit is extended to members in GR: No. The FC may transact into business only for the purpose it is authorized
good standing or to those on whom there is an intent to maintain a long-term EXPN: If the FC undertakes merely an isolated transaction, or one which is not in
relationship continuity with the commercial dealings of the corporation
Therefore, granting credit term = continuity of commercial dealing = doing Q: Give an example of an isolated transaction.
business = needs license. Without license, Eriks Pte has no legal capacity to sue. o Ex: (not sure) assignment of rights/obligation to a domestic corporation

Sec. 129. Law applicable. - Any foreign corporation lawfully doing business in the Philippines Q: Can a Foreign Corporation merge with a Domestic Corporation?
shall be bound by all laws, rules and regulations applicable to domestic corporations of the FC can merge with DC only when their respective laws provide that they can merge
same class, except such only as provide for the creation, formation, organization or FC it depends if the country has a law allowing merger
dissolution of corporations or those which fix the relations, liabilities, responsibilities, or DC there is no law in the Philippines which allow this kind of merger
duties of stockholders, members, or officers of corporations to each other or to the Therefore, the answer is NO.
corporation. Sec. 132. Merger or consolidation involving a foreign corporation licensed in the
Philippines. - One or more foreign corporations authorized to transact business in
Q: If the AOI has been amended, what is the rule? the Philippines may merge or consolidate with any domestic corporation or
Sec. 130. Amendments to articles of incorporation or by-laws of foreign corporations if such is permitted under Philippine laws and by the law of its
corporations. - Whenever the articles of incorporation or by-laws of a foreign incorporation: Provided, That the requirements on merger or consolidation as
corporation authorized to transact business in the Philippines are amended, such provided in this Code are followed.
foreign corporation shall, within sixty (60) days after the amendment becomes Q: How about a FC with another FC, are they allowed to merge?
effective, file with the Securities and Exchange Commission, and in the proper o Yes, provided that the Sec. 132 is complied with
cases with the appropriate government agency, o 1. Allowed by the state of incorporation
o 1. A duly authenticated copy of the articles of incorporation or by- o 2. Petition for withdrawal
laws, as amended, o Q: Why is there a need for withdrawal?
o Q: What do you mean by duly authenticated? There is only a need for withdrawal in cases of ABSORBED
Certified by the appropriate government entity (In the corporation doing business in the Philippines.
Philippines, we have NSO) in the country of origin

Nudibranch 63
(Alternative answer: withdrawal is important so that the contracts are actually reduced to writing, shall constitute doing
corporation will not get pregnant) business even if the enterprise has no office or fixed place of business
Q: What is a logical explanation for this? - in the Philippines. xxx
o Whenever a foreign corporation authorized to transact business in the o (2) Appointing a representative or distributor who is domiciled in the
Philippines shall be a party to a merger or consolidation in its home Philippines, unless said representative or distributor has an
country or state as permitted by the law of its incorporation, such independent status, i.e., it transacts business in its name and for its
foreign corporation shall, within sixty (60) days after such merger or own account, and not in the name or for the account of the principal.
consolidation becomes effective, file with the Securities and Exchange o (4) Opening offices, whether called 'liaison' offices, agencies or
Commission, and in proper cases with the appropriate government branches, unless proved otherwise.
agency, a copy of the articles of merger or consolidation duly o (10) Any other act or acts that imply a continuity of commercial
authenticated by the proper official or officials of the country or state dealings or arrangements, and contemplate to that extent the
under the laws of which merger or consolidation was effected: performance of acts or works, or the exercise of some of the functions
o Provided, however, That if the absorbed corporation is the foreign normally incident to, or in the progressive prosecution of, commercial
corporation doing business in the Philippines, the latter shall at the gain or of the purpose and objective of the business organization
same time file a petition for withdrawal of it license in accordance with Q: What are the circumstances in this case which constitute doing business?
this Title. o The act by a non-resident foreign corporation of recruiting Filipino
o Q: What happens to the absorbed corporation after merger? workers for its own use abroad constitutes in the law doing business in
Its assets and liabilities will belong to the surviving the Philippines.
corporation; its debts and liabilities will be assumed by the Test of "doing business": Whether the foreign corporation is continuing the body
surviving corporation; and the absorbed corporation will or substance of the business or enterprise for which it was organized or whether it
cease to exist has substantially retired from it and turned it over to another.
This is the reason behind withdrawal: because
the corporation ceases to exist Q: What are the grounds for revocation?
o Q: If the corporation is the surviving corporation, what is the rule? Sec. 134. Revocation of license. - Without prejudice to other grounds provided by
Within sixty (60) days after such merger or consolidation special laws, the license of a foreign corporation to transact business in the
becomes effective, file with the Securities and Exchange Philippines may be revoked or suspended by the Securities and Exchange
Commission, and in proper cases with the appropriate Commission upon any of the following grounds:
government agency, a copy of the articles of merger or o 1. Failure to file its annual report or pay any fees as required by this
consolidation duly authenticated by the proper official or Code;
officials of the country or state under the laws of which o 2. Failure to appoint and maintain a resident agent in the Philippines as
merger or consolidation was effected required by this Title;
o 3. Failure, after change of its resident agent or of his address, to submit
Sec. 133. Doing business without a license. - No foreign corporation transacting business in to the Securities and Exchange Commission a statement of such change
the Philippines without a license, or its successors or assigns, shall be permitted to maintain as required by this Title;
or intervene in any action, suit or proceeding in any court or administrative agency of the o 4. Failure to submit to the Securities and Exchange Commission an
Philippines; but such corporation may be sued or proceeded against before Philippine courts authenticated copy of any amendment to its articles of incorporation or
or administrative tribunals on any valid cause of action recognized under Philippine laws. by-laws or of any articles of merger or consolidation within the time
prescribed by this Title;
FMC V. DELA ROSA o 5. A misrepresentation of any material matter in any application,
WON the company was doing business? Yes. report, affidavit or other document submitted by such corporation
Under the rules and regulations promulgated by the Board of Investments, the pursuant to this Title;
phrase 'doing business' has been exemption with illustrations, among them being o 6. Failure to pay any and all taxes, imposts, assessments or penalties, if
as follows: any, lawfully due to the Philippine Government or any of its agencies or
o (1) Soliciting orders, purchases (sales) or service contracts. Concrete political subdivisions;
and specific solicitations by a foreign firm, not acting independently of o 7. Transacting business in the Philippines outside of the purpose or
the foreign firm amounting to negotiation or fixing of the terms and purposes for which such corporation is authorized under its license;
conditions of sales or service contracts, regardless of whether the

Nudibranch 64
o 8. Transacting business in the Philippines as agent of or acting for and in o Thus, the officers or persons who executed the agreement can be liable
behalf of any foreign corporation or entity not duly licensed to do for criminal offense
business in the Philippines; or
o 9. Any other ground as would render it unfit to transact business in the MR HOLDINGS
Philippines. It is not the absence of license but the doing of business without license which
prohibits FC from access to the courts
Sec. 135. Issuance of certificate of revocation. - Upon the revocation of any such license to Same definition of doing business (continuity of commercial dealings
transact business in the Philippines, the Securities and Exchange Commission shall issue a Isolated Transactions should not be defined so as to exclude every other
corresponding certificate of revocation, furnishing a copy thereof to the appropriate transaction. A transaction is isolated depending upon the circumstances
government agency in the proper cases. o Ex: assignment to a DC of certain right/obligation = no intent to do
The Securities and Exchange Commission shall also mail to the corporation at its registered business
office in the Philippines a notice of such revocation accompanied by a copy of the certificate WON MR Holdings and Marcopper are one and the same?
of revocation. o No. If a corporation is owned by a subsidiary, it does not mean that the
2 corporations are one and the same
Q: Can a FC withdraw its license? What are the requisites? o The mere fact that a corporation owns majority of the stock of another
Yes. corporation is not sufficient in order to pierce the corporate veil of
Sec. 136. Withdrawal of foreign corporations. - Subject to existing laws and fiction. There must be allegations of fraud or wrongdoing
regulations, a foreign corporation licensed to transact business in the Philippines
may be allowed to withdraw from the Philippines by filing a petition for CASES ON SRC
withdrawal of license. No certificate of withdrawal shall be issued by the Securities
and Exchange Commission unless all the following requirements are met; SUMNDAD V. HARRIGAN
o 1. All claims which have accrued in the Philippines have been paid, The actions of BBCHI did not amount to fraud but only for the simple collection of
compromised or settled; money which is cognizable by the regular courts. The mere use of in fraud of
o 2. All taxes, imposts, assessments, and penalties, if any, lawfully due to creditors does not in itself throw the case within the SECs jurisdiction Harrigans
the Philippine Government or any of its agencies or political complaint does not sufficiently allege acts amounting to fraud or
subdivisions have been paid; and misrepresentation
o 3. The petition for withdrawal of license has been published once a Q: How did the SC interpret the phrase in fraud of creditors
week for three (3) consecutive weeks in a newspaper of general o Fraud embraces all multifarious means which human ingenuity can
circulation in the Philippines. devise and which are resorted to by one individual to secure and
advantage over another by false suggestions or by suppression of truth
HUTCHINSON PORTS PHILS. V. SUBIC BAY METROPOLITAN AUTHORITY and includes surprise, trick, cunning, dissembling and any unfair way by
WON Hutchinson is doing business in the Philippines? Yes. which another is cheated
Participating in the bidding process constitutes "doing business" because it shows Q: Where there any such malicious acts done by the BOD?
the foreign corporation's intention to engage in business here. The bidding for the o No. None that would amount to fraud or misrepresentation
concession contract is but an exercise of the corporation's reason for creation or Petitioners contention that the case is intra-corporate dispute within the domain
existence. of the SEC. The jurisdiction over intra-corporate disputes was transferred from SEC
Participation in bidding process = intent to engage in business here to RTC pursuant to R.A. 8799 (SRC)

HOME INSURANCE COMPANY V. EASTERN SHIPPING LINES OREDAIN V. BF HOMES


WON HIC has capacity to sue? No. A FC doing business without license has no
capacity to sue VELARDE V. LOPEZ
A contract entered into by a foreign insurance company without license to do SC dismissed the case since Lopez is not RPI
business in the Philippines is not void. It is valid and enforceable No piercing of corporate veil. Mere control of corporate stocks do not amount to
o The effect of this is that: the perpetration of fraud or wrongdoing
o 1. The FC has no access to the courts Under the SRC IRR, the dismissal of a director is an incorporate dispute which is
o 2. The FC is subject to penalty under Sec. 144 of the Corpo Code (penal cognizable by SEC RTC
sanction)

Nudibranch 65
Sec. 5(c) of PD 902-A applies to a corporate officers dismissal. Remuneration After the CFC matures, the Trading Company shall make delivery of the
involving a person who is not a mere employee but a SH and officer of the commodity. Delivery means the act of placing the subject in the actual or
corporation is not a simple labor problem but a matter that comes within the area constructive possession to the vendee.
of corporate affairs and is in fact an intra corporate dispute Q: Is a CFC allowed?
o Yes. Just because no delivery was made it does not follow that there
TIMESHARE REALTY V. CA the CFC is invalidated
Mere registration of Timeshare as a corporation does not authorize it to deal with TC only made a final settlement regarding purchase. There was no actual delivery.
unregistered timeshares. Corporation registration is just one of several TC only subtracted the loss incurred by the purchaser
requirements before it may deal with timeshares Just like in the law of sales, there must be delivery
A corporation must first comply with the requirement of registration of the In this case, there was no delivery. There is only the intention to speculate on the
securities, otherwise, not authorized commodity
B.P. 178 - Sec. 8. Procedure for registration. (a) All securities required to be Thus, the written contract in question is not illegal but the transaction between
registered under subsection (a) of Section four of this Act shall be registered the parties to implement the contract is in the nature of a gambling agreement
through the filing by the issuer or by any dealer or underwriter interested in the under Art. 2018 of the Civil Code which entitles private respondent to refund from
sale thereof, in the office of the Commission, of a sworn registration statement petitioner what she has paid
with respect to such securities, containing or having attached thereto, the
following: CEMCO HOLDINGS V. NATIONAL LIFE INSURANCE
o (36) Unless previously filed and registered with the Commission and SEC is the regulatory agency with power of administration under Section 5.1(n) of
brought up to date: the SRC. It can exercise powers necessarily implied to its express powers or
(a) A copy of its articles of incorporation with all incidental thereto. Thus, the SEC has the incidental power to conduct hearings
amendments thereof and its existing by-laws or and render decisions fixing the rights and obligations of the parties
instruments corresponding thereto, whatever the name, if Tender Offer a publicly announced intention by a person acting alone or in
the issuer be a corporation concert with other persons to acquire equity securities of a public company
Sec. 4. Requirement of registration of securities. (a) No securities, except of a o Public company A corporation which is listed on an exchange, or a
class exempt under any of the provisions of Section five hereof or unless sold in corporation with assets exceeding 50M and with 200 or more SHs, at
any transaction exempt under any of the provisions of Section six hereof, shall least 200 of them holding not less than 100 shares of such company
be sold or offered for sale or distribution to the public within the Philippine Tender Offer Rule a tender offer is an offer by the acquiring person to SHs of a
unless such securities shall have been registered and permitted to be sold as public company for them to tender their shares therein as a corporation which is
hereinafter provided. listed on an exchange or a corporation with assets exceeding 50M and with 200 or
more SHs, at least 200 of them holding not less than 100 shares of such company
Q: What is time sharing? How do you share time? o When SH acquire at least 35% of a Public Corporation, it must first offer
to the minority SH the equivalent of their shares
UNION BANK V. SEC o Nature: a public announcement that SH has the intention of acquiring a
Petitioner is required to comply with IRR with respect to disclosure certain number of shares. Must offer it to the minority
Sec. 5 (a) (3) of the B.P.178 (Revised Securities Act) does not state or even imply o Purpose: to regulate activities relating to acquisition of control of the
that petitioner as a listed corporation is exempt from complying with the reports listed company and for the purpose of protecting the minority
required by the RSA stockholders of a listed company
Petitioner as a bank is primarily subject to the control of the BSP and as a o TOR is the remedy or exit to sell the shares at the same price as those
corporation trading securities in the stock market, it is under SEC supervision of the majority SH if the minority SH do not agree to the transaction
There are certain securities exempted from the legislation provision. However, in Rule 19(2) of the Amended Implementing Rules and Regulations of the SRC
this case, there is none which would exempt from reporting. There is still a need to provides for the ff. Mandatory tender offers:
comply with SEC rules o A. Any person or group of persons acting in concert, who intends to
acquire 35% or more of equity shares in a public company shall disclose
ONAPAL V. CA such intention and contemporaneously make a tender offer for the
Commodity Futures Contract not illegal but transaction between parties to percent sought to all holders of such class, subject to paragraph (9)(E)
implement contract is in the nature of a gambling agreement of this Rule.

Nudibranch 66
Shall disclose such intention and contemporaneously may prescribe as necessary to keep current information on the
make a tender offer for the percent sought to all holders of operation of the business and financial condition of the issuer.
such class, subject to paragraph (9)(E) of this Rule. 17.2. The reportorial requirements of Subsection 17.1 shall apply to the following:
In the event that the tender offer is oversubscribed, the o c) An issuer with assets of at least Fifty million pesos (P50,000,000.00)
aggregate amount of securities to be acquired at the close of or such other amount as the Commission shall prescribe, and having
such tender offer shall be proportionately distributed across Two hundred (200) or more holders each holding at least One hundred
both selling shareholder with whom the acquirer may have (100) shares of a class of its equity securities: Provided, however, That
been in private negotiations and minority shareholders. the obligation of such issuer to file reports shall be terminated ninety
o B. Any person or group of persons acting in concert, who intends to (90) days after notification to the Commission by the issuer that the
acquire 35% or more of equity shares in a public company in one or number of its holders holding at least one hundred (100) shares is
more transactions within a period of 12 months reduced to less than One hundred (100).
Shall be required to make a tender offer to all holders of PVB is a public corporation because Section 17.2 states that a Public Corporation
such class for the number of shares so acquired within the is one that owns at least 50M worth of assets + 200 SH, each holding at least 100
said period. shares.
o C. If any acquisition of even less than 35% would result in ownership of The reportorial requirements will be beneficial to the veterans-stockholders,
over 51% of the total outstanding equity securities of a public company, because it gives these SHs access to information on the banks financial status and
The acquirer shall be required to make a tender offer operations, resulting in greater transparency on the part of the Bank.
under this Rule for all the outstanding equity securities to all o For many SHs, these annual reports are the only means of keeping in
remaining stockholders of the said company at a price touch with the state of health of their investments.
supported by a fairness opinion provided by an independent Q: What constitute reportorial requirements?
financial advisor or equivalent third party. The acquirer in o An annual report which shall include, among others, a balance sheet,
such a tender offer shall be required to accept any and all profit and loss statement and statement of cash flows, for such last
securities thus tendered fiscal year, certified by an independent certified public accountant, and
Doctrines: a management discussion and analysis of results of operations;
1. Acquisition is construed to include direct or indirect transactions. Law does
not distinguish. Still subject to TOR SEC V. INTERPORT RESOURCES
o An indirect acquisition by petitioner of 36% of UCC shares thru
acquistion of non-listed UCHC shares is covered by the mandatory
tender offer rule
2. Purpose of TOR
3. Nature of agency of SEC = can fix the rights and obligations of the parties

ABACUS SECURITIES V. AMPIL

PHILIPPINE VETERANS BANK V. CALLANGAN


Reportorial Requirements Sec. 17. Periodic and Other Reports of Issuers.
17.1. Every issuer satisfying the requirements in Subsection 17.2 hereof shall file
with the Commission:
o a) Within one hundred 135 days, after the end of the issuers fiscal
year, or such other time as the Commission may prescribe, an annual
report which shall include, among others, a balance sheet, profit and
loss statement and statement of cash flows, for such last fiscal year,
certified by an independent certified public accountant, and a
management discussion and analysis of results of operations; and
o b) Such other periodical reports for interim fiscal periods and current
reports on significant developments of the issuer as the Commission

Nudibranch 67