CORPORATION

 LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    

 
purposes  are  provided   o Function:   A   corporate   signature   that   may   represent  
in  its  articles.   consent   or   agreement.   However,   this   is   not   necessary  
  for  validity  of  agreemets.  
B.  Where  Corporate  Power  Lodged   o Atty.  Hofileña  à  this  seems  to  be  a  remnant  of  the  past  
• A   corporation   has   no   power   except   those   expressly   conferred   where  matters  of  solemnity  were  if  importance.  
on   it   by   the   Corporation   Code   and   those   that   are   implied   or   • To   issue   or   sell   stocks   to   subscribers   or   admit   members   for   non-­‐
incidental   to   its   existence.   In   turn,   a   corporation   exercises   said   stock  corporations  
powers   through   its   board   of   directors   and/or   its   duly   authorized   o Issue  v.  Sell  
officers   and   agents…In   turn,   physical   acts   of   the   corporation,   § Issue   (of   new   shares)   à   Taken   from   the  
like   the   signing   of   documents,   can   be   performed   only   by   natural   unissued/unsubscribed   shares,   which   no   one  
persons  duly  authorized  for  the  purpose  by  corporate  by-­‐laws  or   owns.   The   company   is   “giving”   or   accepting   a  
by  a  specific  act  of  the  board  of  directors.  Shipside  Inc.  v.  Court   new  subscription;  an  act  of  the  corporation.  
of  Appeals,  352  SCRA  334  (2001).1   § Sell   (previously   issued   shares)   à   Taken   from  
  shares   which   were   previously   owned;   an   act   of  
C.  Powers  of  the  Corporation   the  corporation  OR  the  owner  of  shares.  
• The  right  of  succession   o Atty.   Hofileña   à   normally   a   corporation   cannot   sell  
o This  is  possessed  for  as  long  as  the  corporation  exists.   shares   to   the   subscribers.   However,   there   are  
o This  power  is  the  key  by  which  a  corporation  is  deemed   exceptions  whereby  the  company  can  sell  shares  which  
to   have   a   “strong   juridical   personality,”   and   is   the   it  owns.  
foundation  of  the  primary  doctrine  that  the  personality   § A   corporation   can   become   the   owners   of   (and  
of  the  corporation  is  separate  and  distinct  from  that  of   eventually   sell)   issued   shares   if   it   buys   it   back  
its  stockholders  or  members.   from   the   subscribers.   These   are   TREASURY  
• To  adopt  and  use  a  corporate  seal   SHARES.  These  do  not  become  unissued  shares,  
o What:   It   is   an   emblem   or   sign   that   represents   the   but  are  still  considered  as  outstanding  stocks.  
corporation.   • To  merge  and  consolidate  with  other  corporations  
o It  can  be  done  within  reasonable  bounds.  
                                                                                                                 
1
 Salenga  v.  Court  of  Appeals,  664  SCRA  635  (2012);  Ellice  Agro-­‐Industrial  Corp.   SUMMARY  
v.  Young,  686  SCRA  51  (2012);  Fausto  C.  Ignacio  v.  Home  Bankers  Savings  and   à  Corporations  have  inherent  powers  which  it  may  exercise  even  if  it  is  
Trust  Co.,  689  SCRA  173  (2013).  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
meeting  duly  called  for  the  purpose.   corporation  must  not  only  comply  with  the  provisions  of  Section  
  38,   but   also   with   the   provisions   of   Section   16   of   the   Code  
Bonds   issued   by   a   corporation   shall   be   registered   with   the   Securities   governing  the  amendment  of  the  articles  of  incorporation.    
and   Exchange   Commission,   which   shall   have   the   authority   to   o Atty.  Hofileña  à  decrease  of  capital  stock  is  not  allowed  
determine  the  sufficiency  of  the  terms  thereof.  (17a)   when   it   would   prejudice   creditors.   Creditors   deal   with  
  the   corporation   that   there   would   be   a   specific   capital   to  
• Despite   the   board   resolution   approving   the   increase   in   capital   help  back  the  debt  incurred.  
stock   and   the   receipt   of   payment   on   the   future   issues   of   the   2. Appraisal  Rights  Issues  
shares   from   the   increased   capital   stock,   such   funds   do   not   • The   policy   embodied   in   Section   38   of   the   Corporation   Code  
constitute   part   of   the   capital   stock   of   the   corporation   until   therefore,  although  it  recognizes  that  an  increase  in  authorized  
approval   of   the   increase   by   SEC.   Central   Textile   Mills,   Inc.   v.   capital  stock  redefines  the  contractual  relations  in  the  corporate  
NWPC,  260  SCRA368  (1996).   setting   as   it   requires   the   approval   of   stockholders   owning   or  
• A   reduction   of   capital   to   justify   the   mass   layoff   of   employees,   representing   two-­‐thirds   (2/3)   of   the   outstanding   capital   stock,  
especially   of   union   members,   amounts   to   nothing   but   a   does  not  include  the  appraisal  right  on  the  part  of  the  dissenting  
premature  and  plain  distribution  of  corporate  assets  to  obviate   stockholders,   in   the   sense   that   every   stockholder   should   come  
a   just   sharing   to   labor   of   the   vast   profits   obtained   by   its   joint   into   the   corporate   setting   fully   aware   that   the   expediencies   of  
efforts   with   capital   through   the   years,   and   would   constitute   corporate  life  may  require  that  eventually  the  corporation  may  
unfair  labor  practice.  Madrigal  &  Co.  v.  Zamora,  151  SCRA  355   need   to   increase   capitalization   to   fund   its   operations   or  
(1987).   expansions,  and  needs  to  look  primarily  into  its  equity  investors  
1. Nature  of  Power1   to  fund  the  same.  
• The   power   to   increase   or   decrease   capital   stock   is   not   an   3. Effectivity  of  Increase  in  Capital  Stock  
inherent  power  of  the  corporation,  not  only  because  it  touches   • Prior   to   SEC   approval   of   the   increase   in   the   authorized   capital  
upon   an   item   expressly   required   to   be   provided   for   in   the   stock   of   the   corporation,   and   despite   the   board   resolution  
articles   of   incorporation,   but   also   the   capital   stock   of   a   approving   the   increase   in   capital   stock,   and   the   receipt   of  
corporation  is  governed  by  common  law  doctrines,  such  as  the   payment  on  the  future  issues  of  the  shares  from  the  increased  
trust   fund   doctrine,   and   pre-­‐emptive   rights.   Therefore,   in   capital   stock,   such   funds   do   not   constitute   part   of   the   capital  
increasing  or  decreasing  the  capital  stock  of  the  corporation,  the   stock   of   the   corporation   until   approval   of   the   increase   by   the  
                                                                                                                SEC.  
1
 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.  
(2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
4. Special  Rules  on  Listed  Shares  1   power   of   the   Board   of   Directors   under   the   doctrine   of  
• The   SEC   Rules   in   the   case   of   corporations   whose   securities   are   centralized   management   and   would   not   require  
listed   in   the   stock   exchange   or   registered   under   the   then   stockholders’  ratification.  
Revised  Securities  Act  (now  covered  by  the  Securities  Regulation   o The   power   to   incur   and   create   indebtedness   under  
Code),  is  that  no  announcement  of  an  offer  of  rights  to  acquire   Section  40  of  the  Code  provides  that  an  encumbrance  of  
share  or  to  issue  stock  dividends  to  stockholders  shall  be  made   all   or   substantially   all   of   the   assets   of   the   corporation  
after   an   increase   of   capital   stock   without   a   definite   fixed   date   would  require  stockholders’  ratification.  
for  the  exercise  of  such  right  or  issuance  of  stock  dividends.     1. Nature  of  a  Bond  3  
o The   rule   is   meant   to   avoid   delays   in   the   issuance   of   • In   one   opinion,   the   SEC   has   limited   the   term   "bonded  
rights  or  distribution  of  stock  dividends  after  an  increase   indebtedness"   to   cover   only   indebtedness   of   the   corporation  
of  capital  stock.   which  are  secured  by  mortgage  on  real  or  personal  property,  as  
• Atty.   Hofileña   à   regardless   of   the   status   of   the   ACS,   you   can   distinguished   from   "debentures"   which   are   unsecured  
apply  for  an  increase.   corporate  indebtedness.    
o The  law  does  not  require  that  the  unissued  shares  first   • Debentures  are  issued  on  the  basis  of  the  general  credit  of  the  
be   released   before   the   corporation   can   increase   its   corporation  and  are  not  secured  by  collaterals,  and  therefore  do  
authorized  capital  stocks.   not   constitute   bonded   indebtedness   and   will   not   require  
  approval  of  the  stockholders.  
D.  Incur,  Create  or  Increase  Bonded  Indebtedness  (Section  38)  2   • Atty.   Hofileña   à   “Public   indebtedness”;   not   similar   to   debts  
• Differentiate  between  Article  38  or  Article  40   secured  for  the  ordinary  course  of  business.  
o The   power   to   incur,   create   and   increase   bonded   2. Nature  of  Power  
indebtedness   governed   by   Section   38   of   the   Civil   Code   • Ordinarily,  the  incurring,  creating  or  increasing  of  indebtedness  
should   be   analyzed   from   the   fact   that   it   constitutes   an   really   does   not   go   into   or   amend   the   corporate   contractual  
aspect   of   the   inherent   power   of   every   corporation   to   relationship   between   and   among   the   members   of   the   corporate  
borrow   or   to   incur   loan   obligations.   Ordinarily,   this   family.   However,   when   it   comes   to   bonded   indebtedness,  
exercise   to   borrow   falls   within   the   business   judgment   Section   38   imposes   the   same   procedural   requisites   as   the  
increase   or   decrease   of   capital   stock,   since   they   create   special  
                                                                                                               
1
 Section   1,   Rules   Requiring   Definite   Dates   for   the   Exercise   of   Pre-­‐Emptive   or                                                                                                                  
3
Other  Rights  or  For  the  Issuance  of  Stock  Dividends  (1973).    SEC   Opinion,   29   April   1987,   XXI   SEC   QUARTERLY   BULLETIN   21-­‐22   (No.   3,   Sept.  
2
 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   1987).   See   also   SEC   Opinion,   6   April   1990,   XXIV   SEC   QUARTERLY   BULLETIN   28-­‐29  
(2013  ed.).  Manila,  Philippines:  Rex  Book  Store.   (No.  3,  Sept.  1990).  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)