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This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
2 CORPORATION LAW
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
3 CORPORATION LAW
Should be in writing, signed by the SH and filed before 4. It shall be noted in the books of the corporation that
the scheduled meeting with the corporate secretary the transfer in the name of trustee is made in
Shall be valid only for the meeting which it is intended pursuance to said VTA
unless otherwise provided in the proxy
No proxy shall be valid and effective for a period longer Please know the difference of Voting trust vs. Proxy (it
than 5 years at any one time is asked in the recitation and exam)
2 TYPES OF PROXY
1. General – gives a general discretionary power-of- Chapter 10: Stocks and Stockholders
attorney to vote for directors and all ordinary matters
3 ways in which a person may become a stockholder:
that may properly come before the meeti ng
1. By a contract of subscription with the corporation;
2. Limited – restricts the authority to vote on specified
2. By the purchase of treasury shares from the corporation; and
matters only and may direct the manner in which the 3. By purchase or acquisition of shares from existing
vote will be cast stockholders (includes purchase from the stock exchange).
Revocable unless coupled with an interest and
revocation need not be made by formal notice in writing. Subscription Contract
May be express to the proxy holder by subsequent proxy
Subscription – the mutual agreement of the subscribers to take
to another or by sale of the shares.
and pay for the stocks of a corporation.
Need not be notarized
If executed by the corporation, it shall be in the form of a Subscription contract – any contract for the acquisition of
board reso duly certified by the corpo sec or in a proxy unissued stock in an existing corporation or a corporation still to
form executed by a duly authorized corpo officer be formed, not withstanding the fact that the parties refer to it
accompanied by a corpo sec’s certificate quoting the as a purchase or some other contract.
A subscription contract is not required to be written; an
board reso authorizing the proxy.
oral contract for subscription is valid and enforceable. The
statutes of fraud do not apply to a subscription contract
VOTING TRUST because such subscription does not fall under the statutory
one created by an agreement between a group of SH and a definition of a sale.
trustee whereby it is provided that for a term of years, or
period contingent upon certain event or until agreement is Conditional subscription – one made upon a condition
precedent, does not make the subscriber a stockholder, or
terminated, control over the stock owned by such SH, shall
render him to pay the amount of his subscription, until the
be lodged in the trustee, either with or without reservation
performance or fulfillment of the condition.
to the owners or persons designated by them the power to
direct how such control shall be iss ued. Subscription upon special terms – an absolute subscription,
VTA results in the separation of the VR of a SH from his making the subscriber a stockholder, and rendering hi m liable as
other rights such as right to receive dividend, inspect the such, as soon as the subscription is accepted, the special term
books, sell certain interests and other rights to which a SH being an independent stipulation.
may be entitled until the liquidation of the corporation.
In case of doubt, a subscription shall be considered one
upon special terms in order to protect the creditors and
REQUISITES: other subscribers.
1. Must be in writing, notarized and specify the terms and
conditions thereof General rule: Conditional subscriptions are valid.
2. Certified copy must be filed with SEC and corporation Exceptions:
otherwise such agreement is ineffective and 1. The charter or enabling act prohibits the same; or
2. The conditions are such as to render their performance
unenforceable
beyond the powers of the corporation or in violation of law
3. The certificate of stocks covered by VTA shall be or contrary to public policy.
cancelled and new ones shall be issued in the name of
the trustee An application for subscription which is at variance with the
terms evidenced in a general form of subscription must be
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
4 CORPORATION LAW
accepted by the corporation to create a binding contract. A condition facultative as to the debtor renders the whole
(Trillana vs. Quezon College, Inc.) obligation void. (Trillana vs. Quezon College, Inc.)
corporation; 2. Necessary and convenient for its Transferability of shares of stock in the
use and lawful purposes; 3. The value of the corporate form of business. The CS may be
property should be at least equal to the par or transferred by the delivery of the stock
issued value of the stocks. certificates endorsed by the owner/atty-in-
fact.
Valuation of properties given as a consideration for No transfer shall be valid except as between
issuance of stock:
the parties, until the transfer is recorded in
1. Tangible properties (particularly real properties):
the books of the corporation. If not
a. Appraisal report of an independent appraiser;
b. Zonal valuation as certified by the BIR; or recorded, insofar as the parties are
c. Market value indicated in the Real Estate Tax concerned, the transfer shall be valid
Declaration. For a valid transfer of shares of stocks may
2. Intangible properties (such as patents or copyrights): transferred when endorsed and delivery of the
a. Initial determination by the incorporators or the certificate of stocks.
board of directors subject to the approval of the
Endorsement without delivery is not a valid
SEC; or
b. Appraisal report of an independent appraiser. and effective mode of the transfer of stocks
(embassy farms vs ca)
Labor performed or services actually rendered to the Delivery alone without endorsement is also
corporation must be capable of valuation and in fact fairly ineffective mode of transferring shares.
valued. (Razon vs IAC)
endorsement/delivery is not essential (Rural bank of Salinas vs. CA) the right of
where the person sought to be the assignee/transferee to have the
considered as a SH is an officer of the stocks transferred in his name in the
corporation and has the custody of the books of the corporation is his inherit
stock and transfer book. He is right flowing from his ownership of
considered as an estoppel. shares of stock. The court ruled that
when a corpo refuses the transfer,
Are certificates of stocks negotiable instruments? mandamus will issue to compel the
NO. they are merely quasi -negotiable but non- officer to transfer the said stocks in the
negotiable. The transferee takes it without books of the corporation. The duty of
prejudice to all the rights and defenses which the the corporation to record the transfer of
true and lawful owner may have and obtaining in shares of stock in the stock and transfer
a particular set of circumstances subject to the book is ministerial. If refused without
rules governing estoppel. (delos santos vs good cause, may be compelled to do so
mcgruise) by mandamus.
No matter how innocent the purchaser Exception: in order that mandamus may
may be, if there is no endorsement and issue, the alleged transferee must have a
delivery, no valid and effective transfer, clear and legal right to the thing
because it is subject to all defenses and demanded. It is the imperative duty of
rights in which the true owner may the Corporation to perform the act
have. required. It neither confers nor imposes
duties and never issued in doubtful
General rule: A certificate of stock is not a negotiable cases.
instrument. A bona-fide purchaser of a certificate of stock TAY vs CA – creditor sought to compel
will acquire no better title to the shares than his the corporation to record the transfer,
transferor had and will be subject to all rights, remedies
the debtor SH pledged his share to the
and defenses which the true and lawful owner may have.
creditor certain amount of money. SH
Exception: When the general principles of estoppel apply. failed to pay, the creditor sought the
Thus, if the legal owner thereof, by his act or negligence, is recording of the shares of stocks in his
estopped from claiming ownership, (as when he clothes name in the books by failure of the SH to
another with apparent title or authority to dispose of the pay pursuant to contract of pledged.
same) a purchaser in good faith and without notice will Corporation refused. The Court denied
acquire a better title as against the owner so estopped.
the mandamus because the owner of
Shares of stock are personal properties and the the thing pledged remains to be the
owners thereof have the unbridled right to owner thereof until a sale of public
transfer the same to anyone they please subject auction has made under the Civil Code.
only to reasonable charter provisions. The creditor never failed to do so, thus
he has no clear and legal right. The
Registration of the transfer in the stock and pledgor remains the owner of the thing
transfer book must be had in order to be valid unless sold in public auction
and binding to third parties even to corporation
and even subsequent creditors. Reasons for the necessity of the registration of transfers
No transfer shall be valid, except as between of stock:
the parties, until the transfer is recorded in 1. To enable the corporation to know who its
the books of the corporation. stockholders are;
Failure or refusal to record such transfer, 2. To enable the transferee to exercise his rights as a
the remedy is mandamus. stockholder;
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
7 CORPORATION LAW
However, the right Transfer shares of stock may “Trust Fund Doctrine” – subscriptions to the capital of a
be restricted or regulated by law or agreement of corporation constitute a fund to which creditors have the
the parties. right to look up to for the satisfaction of their claims.
Restrictions:
1. The corporation cannot be The minimum requirement of capital structure is
compelled to record transfers of at least 25 % of the ACS must be subscribed and
shares if it has unpaid claims over 25% of the subscription must be paid.
the shares sought to be transferred (remedies to enforce payment):
in the books. (S63) a. By way of a delinquency sale (S67-
Unpaid Claim is the unpaid 68)
portion of the subscriptions b. Direct action in court (S70)
(CBC case)
2. May be imposed by Special Laws (S67-70) The unpaid portion of the subscription
(Nationalization laws) may be payable or demandable upon call made
3. Imposed by the Corporation Code, by the board of directors for the payment of the
63, 96 (close corporation) unpaid portions thereof fixing the date when
Close corporation, it must they are to pay the same, failure to do so, the
contain all the three shares will become delinquent and would subject
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
8 CORPORATION LAW
the shares to a delinquency sale. The shares will If the corporation has losses, it has no
be subjected to an auction sale not earlier 30 URE, thus corporation cannot bid its own
days and not later than 60 days. shares
It will be sold to the bidder who tenders But the corporation may still file a
to pay the full amount of the balance of collection case to recover payment from
the subscription + cost and expenses the unpaid portions of the SH because
FOR THE LEAST NUMBER OF SHARES. the unpaid portions is considered debt
X subscribed 1M shares, 500k of the SH.
paid out of subscriptions, the
corpo incurs loses and needs Redeemable shares, in case of close corporation.
money, in order to raise money, If the auction sale was irregularly held, the
it calls to the unpaid portions of validity of the sale may be questioned by the SH
the subscribers and specified subject to the provision of S69.
the date when they are due. X If SH tenders payment of the acquisition
did not pay on the date cost to the winning bidder, and he must
specified on the call. The institute the complaint within 6 months
corporation may now proceed from the date of the sale. Failure to do
to sell the same at a so, SH cannot validly question the sale.
delinquency sale (30-60 days) (was inserted for the purpose of the
The winning bidder shall be the stability of shares)
one who pays all balance of the
subscription plus cost and If the shares are declared delinquent/due and
expenses, if any, for the least demandable, and corporation made a call, it will
number of shares. (3 bidders, A- be the bound duty of the subscriber to pay when
505k for 990k shares; B-505k they became due and demandable as provided in
for 980k shares; C-505k for the contract, failure to do so may still be subject
970k shares. The winning to delinquency sale.
bidder will be C because he Effect of delinquent SH. The delinquent
tendered the full amount of the SH loses his right to vote and be voted
unpaid subscription + cost and upon and will not be entitled to any
expenses for the least number rights of a SH except the right to receive
of shares) (970k shares will be dividend. (S71)
listed under the name of C in Delinquent SH may still be entitled
the books of the Corporation. X to cash dividends. But must be first
will still be a SH to the extent of be applied to his delinquency + cost
the difference between the bid and expenses due him
of C and 1M subscription of X, If it is by way of stock dividend, it
30k shares left in his name. the shall be withheld from him
effect, X paid 505k for only 30k
shares, and C paid 505k for If the SH is also a director, who is
970k shares) delinquent, he will likewise loses his
right to vote and be voted upon and
If no bidders, the corporation may also bid shall not be entitled to any of the rights
subject to the provisions of the code. Through of the SH except the ri ghts to receive
the power of the corporation to reacquire shares dividends. But he shall not be
and it should have URE in order that i t may disqualified to be a director as long as he
reacquire its shares. owns at least one share of the stock.
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
9 CORPORATION LAW
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
10 CORPORATION LAW
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
11 CORPORATION LAW
5. Submission of articles of merger or consolidation and obligations of the constituent in the same
in quadruplicate to the SEC subject to the manner as if the surviving/consolidated
requirement of Sec. 79 that if it involve corporation have itself incurred such liabilities
corporations under the direct supervision of any and obligations; and any pending claim brought
other gov’t agency or governed by special laws, by or against any of the constituent corporation
the favourable recommendation of the said gov’t may be prosecuted against the
agency shall be first be secured; and surviving/consolidated corporation.
6. Issuance of the certificate of merger or
consolidation by the SEC at which it shall be Merger – union effected by absorbing one or more
effective. If the plan is contrary to law, the SEC existing corporations by another which survives and
shall set a hearing to give the corporations an continues the combined business.
opportunity to be heard upon proper notice and Consolidation – the uniting or amalgamation of two
the SEC shall proceed as provided. or more existing corporations to form a new
corporation.
S80: Effects of Mergers
1. The constituent corporation or the parties to the Associated Bank vs CA
mergers and consolidation shall become a single F: Associated Bank Corporation and Citizens Bank and
corporation, in the case of merger would be the Trust Company merged to form just one banking
surviving or absorbing corporation; in corporation by virtue of the Amended AOI. The defendant
consolidation, the consolidated corporation. Lorenzo Sarmiento executed in favor of AB a promissory
2. The separate existence of the corporation shall note undertaking to pay the latter P2.5M on or before
cease except that of the surviving or March 6, 1978. However, due to failure of Sarmiento to
consolidated. pay, AB filed this complaint. The defendant denied all the
3. The surviving or consolidated corporation shall allegations and alleged as affirmative and special defenses
possess all the rights, immunities and powers and that the complaint states no valid cause of action and AB
shall be subjected to all the duties and liabilities is not the proper party in interest because the prom note
of the corporation organized under the code. was executed in favor of CBTC.
4. The surviving or consolidated shall thereupon
and thereafter possess all the rights, privileges, The court ruled in favor of AB and ordered Sarmiento to
immunities and franchises of each of the pay AB his remaining balance + interest and atty’s fees.
constituent corporations and any and all CA set aside the decision of the tc and dismissed the
properties and all receivables due and whatever complaint. Hence, this appeal.
account including subscriptions to shares and
other choses in action and all and any other I: W/N the AB may enforce the prom note made by
interest of, or belonging to or due to each of the provate respondent in favor of CBTC, the absorbed
constituent corporations shall be transferred to company after merger?
surviving or consolidated corporation without
any further act or deed. R: Yes. In the merger of two or more existing corporations,
No need to indicate in the contract to one of the combining corporations survives and continues
the effect that all rights, properties, or the combined business, while the rest are dissolved and all
remedies shall be vested to the their rights, properties and liabilities are acquired by the
surviving/consolidated corporation. The surviving corporation. Although there is a dissolution of
law provides for its effect and it is the absorbed corporations, there is no winding up of their
automatic. affairs or liquidation of their assets because the surviving
corporation automatically acquires all their rights,
5. The surviving and the consolidated corporations privileges and powers, as well as their liabilities.
shall be responsible and liable to all the liabilities
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
12 CORPORATION LAW
The merger, however, does not become effective upon decisions and demand the payment of the fair
the mere agreement of the constituent corporati ons. value of his share.
There should be approval by the SEC of the articles of Not available in any or all instances
merger which, in turn, must have been duly approved by a when a SH objects on a particular
majority of the respective SH of the constituent corporate act or transactions. Only
corporations. available as provided for the corporation
code.
In this case, an agreement of merger with AB and CBTC
was entered on September 16, 1975 and provided that its Instances of appraisal right – any SH of a
effectivity shall be the date when the necessary papers to corporation shall have the right to dissent and
carry out this merger shall have been approved by the demand payment of the fair value of his shares in
SEC. the agreement likewise provided for the transfer of the following instances:
the properties, rights, privileges, powers, franchi ses, 1. In case of any amendment of AOI that has
assets, including goodwill and tradename, and all debts the effect of changing or restricting the
due to CBTC and all other actions belonging to CBTC shall rights of any SH; or class of shares or
be vested in AB as the surviving bank without need of authorizing preferences in any respect
further act or deed. superior to those outstanding shares of any
class; or shortening or extending the
The records do not show when the SEC approved the corporate term or existence
merger, however, assuming that the effectivity date of the It is not available in all
merger was the date of execution, the Court cannot agree instances where there
that petitioner no longer has any interest in the is an amendment of
promissory note. The fact that the promissory note was AOI under S16 subject
executed after the effectivity date of merger does not to the appraisal right
militate against petitioner. The agreement itself clearly or provisions
provides that all contracts irrespective of the date of governing general
execution entered in the name of CBTC shall be amendment. Unless
understood as pertaining to the surviving bank AB. such appraisal right is
Although the promissory note names CBTC as the payee, subject to the
the reference to CBTC in the note shall be construed as a preceding paragraph.
reference to petitioner bank. The Court holds that 2. In case of the sale, lease, transfer, mortgage,
petitioner has a valid cause of action against Sarmiento. exchange, pledge or other disposition of the
corporate assets
- Consolidated/surviving corporation will not 3. In cases of mergers and consolidation
absorb the employees of constituent corporation 4. May be exercised by dissenting SH in cases
absent specific provision in the merger falling under S42
agreement because the employees are not 5. However, a SH in closed corporation may for
considered “assets” nor “liabilities” of the any reason under S105 compel the
corporation. Management of the corporation to purchase his share at the fair
surviving/consolidated corporation has the value effectively granting the SH absolute
discretion to deny or absorb the employees, right of appraisal, if not denied by AOI and
while the employees may likewise refuse to be provided only that the corporation has
absorbed otherwise there will be forced labor. sufficient assets to cover debts and liabilities
exclusive of capital. This rule does not apply
S81 APPRAISAL RIGHT vs Pre-emptive right in ordinary corporation.
Appraisal – right granted to dissenting or The effect of appraisal right from the time the
objecting SH uncertain corporate or business demand of payment until the abandonment of
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
13 CORPORATION LAW
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
14 CORPORATION LAW
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
16 CORPORATION LAW
knowledge of Manuel Dulay, mortgaged the subject Pasay in Civil Case 2880-P. Thereafter, the 3 cases were
property to Manuel A. Torres for a loan of P250,000.00 jointly tried and the trial court rendered a decision in favor
which was duly annotated as Entry 68139 in TCT 23225. of Pabalan and Torres. Not satisfied with said decision, the
Upon the failure of Maria Veloso to pay Torres, the corporation, et al. appealed to the Court of Appeals which
subject property was sold on 5 April 1978 to Torres as the rendered a decision on 23 October 1989, affirming the
highest bidder in an extrajudicial foreclosure sale as trial court decision. On 8 November 1989, the corporation,
evidenced by the Certificate of Sheriff's Sale issued on 20 et al. filed a Motion for Reconsideration which was denied
April 1978. On 20 July 1978, Maria Veloso executed a on 26 January 1990. The corporation, et al. filed the
Deed of Absolute Assignment of the Right to Redeem in petition for review on certiorari. During the pendency of
favor of Manuel Dulay assigning her right to repurchase the petition, Torres died on 3 April 1991 as shown in his
the subject property from Torres as a result of the death certificate and named Torres-Pabalan Realty &
extrajudicial sale. As neither Maria Veloso nor her Development Corporation as his heir in his holographic
assignee Manuel Dulay was able to redeem the subject will dated 31 October 1986.
property within the one year statutory period for
redemption, Torres filed an Affidavit of Consolidation of I: Whether the sale of the subject property between
Ownership 13 with the Registry of Deeds of Pasay City and spouses Veloso and Manuel Dulay has no binding effect on
TCT 24799 was subsequently issued to Torres on 23 April the corporation as Board Resolution 18 which authorized
1979. On 1 October 1979, Torres filed a petition for the the sale of the subject property was resolved without the
issuance of a writ of possession against spouses Veloso approval of all the members of the board of directors and
and Manuel Dulay in LRC Case 1742-P. However, when said Board Resolution was prepared by a person not
Virgilio Dulay appeared in court to intervene in said case designated by the corporation to be its secretary.
alleging that Manuel Dulay was never authorized by the
corporation to sell or mortgage the subject property, the R: Section 101 of the Corporation Code of the Philippines
trial court ordered Torres to implead the corporation as an provides that "When board meeting is unnecessary or
indispensable party but the latter moved for the dismissal improperly held. Unless the by-laws provide otherwise,
of his petition which was granted in an Order dated 8 April any action by the directors of a close corporation without
1980. On 20 June 1980, Torres and Edgardo Pabalan, real a meeting shall nevertheless be deemed valid i f: (1) Before
estate administrator of Torres, filed an action a gainst the or after such action is taken, written consent thereto is
corporation, Virgilio Dulay and Nepomuceno Redovan, a signed by all the directors; or (2) All the stockholders have
tenant of Dulay Apartment Unit No. 8-A for the recovery actual or implied knowledge of the action and make no
of possession, sum of money and damages with prompt objection thereto in writing; or (3) The directors
preliminary injunction in Civil Case 8198-P with the then are accustomed to take informal action with the express
Court of First Instance of Rizal . On 21 July 1980, the or implied acquiesce of all the stockholders; or (4) All the
corporation filed an action against spouses Veloso and directors have express or implied knowledge of the action
Torres for the cancellation of the Certificate of Sheriff's in question and none of them makes prompt objection
Sale and TCT 24799 in Civil Case 8278-P with the then thereto in writing. If a directors' meeting is held without
Court of First Instance of Rizal. On 29 January 1981, proper call or notice, an action taken therein within the
Pabalan and Torres filed an action against spouses corporate powers is deemed ratified by a director who
Florentino and Elvira Manalastas, a tenant of Dulay failed to attend, unless he promptly files his written
Apartment Unit No. 7-B, with the corporation as objection with the secretary of the corporation after
intervenor for ejectment in Civil Case 38-81 with the having knowledge thereof." Herein, the corporation is
Metropolitan Trial Court of Pasay City which rendered a classified as a close corporation and consequently a board
decision on 25 April 1985, in favor of Pabalan, et al., resolution authorizing the sale or mortgage of the subject
ordering the spouses Manalastas and all persons claiming property is not necessary to bind the corporation for the
possession under them to vacate the premises; and to pay action of its president. At any rate, a corporate action
the rents in the sum of P500.00 a month from May 1979 taken at a board meeting without proper call or notice in a
until they shall have vacated the premises with interest at close corporation is deemed ratified by the absent
the legal rate; and to pay attorney's fees in the sum of director unless the latter promptly files his written
P2,000.00 and P1,000.00 as other expenses of litigation objection with the secretary of the corporation after
and for them to pay the costs of the suit. Thereafter or on having knowledge of the meeting which, in this case,
17 May 1985, the corporation and Virgilio Dulay filed an Virgilio Dulay failed to do. The corporation's claim that the
action against the presiding judge of the Metropolitan sale of the subject property by its president, Manuel
Trial Court of Pasay City, Pabalan and Torres for the Dulay, to spouses Veloso is null and void as the alleged
annulment of said decision with the Regional Trial Court of Board Resolution 18 was passed without the knowledge
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
18 CORPORATION LAW
and consent of the other members of the board of that the drivers are entitled to $120.00 per every year of
directors cannot be sustained. Virgilio E. Dulay's service subject to exchange rates prevailing that time.
protestations of complete innocence to the effect that he
never participated nor was even aware of any meeting or The NLRC likewise ruled that SFNEI as well as CFTI’s
resolution authorizing the mortgage or sale of the subject president and vice president Sergio Naguiat and Antolin
premises is difficult to believe. On the contrary, he is very Naguiat should be held jointly and severally liable to pay
much privy to the transactions involved. To begin with, he the drivers. The NLRC ruled that SFNEI actively managed
is an incorporator and one of the board of directors CFTI and its business affairs hence it acted as the
designated at the time of the organization of Manuel R. employer of the drivers.
Dulay Enterprises, Inc. In ordinary parlance, the said entity
is loosely referred to as a "family corporation." The ISSUE: Whether or not the ruling of the NLRC is correct.
nomenclature, if imprecise, however, fairly reflects the
cohesiveness of a group and the parochial instincts of the
HELD: It is only partially correct.
individual members of such an aggrupation of which
Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of
1. It is correct when it ruled that the Sergio Naguiat
its incorporators being close relatives namely, 3 children
and their father whose name identifies their corporation. is jointly and severally liable to pay the drivers
the award of separation pay in the amount so
Besides, the fact that Virgilio Dulay on 24 June 1975
determined. As president of CFTI, Sergio Naguiat
executed an affidavit that he was a signatory witness to
the execution of the post-dated Deed of Absolute Sale of is considered an “employer” of the dismiss ed
employees who is therefore liable for the
the subject property in favor of Torres indicates that he
obligations of the corporation to its dismissed
was aware of the transaction executed between his father
employees. Moreover, CFTI, being a close family
and Torres and had, therefore, adequate knowledge about
the sale of the subject property to Torres. Consequently, corporation, is liable for corporate torts and
stockholders thereof shall be personally liable for
the corporation is liable for the act of Manuel Dulay and
corporate torts unless the corporation has
the sale of the subject property to Torres by Manuel Dulay
is valid and binding. obtained reasonably adequate liability insurance
(par. 5, Section 100, “Close Corporations”,
Corporation Code). Antolin Naguiat is absolved
NAGUIAT vs. NLRC
because there was insufficient evidence as
against him.
F: Sergio Naguiat was the president of Clark Field Taxi, Inc. 2. SFNEI is not liable jointly or s everally with CFTI.
(CFTI) which supplied taxi services to Clark Air Base. At the SFNEI has nothing to do with CFTI. There is no
same time, Naguiat was a director of the Sergio F. Naguiat sufficient evidence to prove that it actively
Enterprises, Inc. (SFNEI), their family owned corporation managed CFTI especially so when even the
along with CFTI. drivers testified that their employer is CFTI and
that their payroll comes from CFTI. Further, SFNEI
In 1991, CFTI had to close due to “great financial losses was into trading business while CFTI was into taxi
and lost business opportunity” resulting from the phase- services.
out of Clark Air Base brought about by the Mt. Pinatubo
eruption and the expiration of the RP-US military bases
agreement. SPECIAL CORPORATIONS
2 types:
CFTI then came up with an agreement with the drivers
1. Education corporations – governed by
that the latter be entitled to a separation pay in the
amount of P500.00 per every year of service. Most of the special law (education act) and general
drivers accepted this but some drivers did not. The drivers provisions of the corporation code.
who refused to accept the separation pay offered by CFTI 2. Religious corporations
instead sued the latter before the labor arbiter.
Education corporations – governed by special law
The labor arbiter ruled in favor of the taxi drivers. The (education act) and general provisions of the
National Labor Relations Commission affirmed the labor corporation code. These institutions of learning, once
arbiter. It was established that when CFTI closed, it was in
recognized by the government as such are mandated
profitable standing and was not incurri ng losses. It ruled
by law to be incorporated within 90 days under the
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
19 CORPORATION LAW
provisions of the corporation code, and must, comply or own properties but no powers to dispose
with the requirements and procedure laid down or alienate its real properties. Unless it
thereunder. Their failure to do so will not immune the obtains an order by application for leave
education institution from suit as a corporation. The from RTC where the property is located for
SEC, however, shall not act on the incorporation of purposes of disposition and encumberance.
any educational corporation unless the provisions of If there is rules to dispose or alienate in the
S107 is complied with. rules of discipline provides for manner in
The governing board shall not be less that 5 but not how it may dispose or alienated, no need for
more than 15; in case of a non-stock educational court intervention.
institution, the governing board must be divisible by 5 2. Religious society – organized by not less than 5
only. (5, 10, or 15 only) and not more than 15.
Term of office can be 5 years unless otherwise
provided in the AOI. They shall classify themselves - The AOI of a corporation sole must be verified
that at least 1/5 of their membership shall expire setting forth the following:
every year. 1. The he is the chief archbishop, bishop, priest,
(Art. 14, sec. 4 of the Constitution) educational minister, rabbi or presiding elder of his
institutions other than those established by religious religious denomination, sec or church and
order, etc. shall be owned solely by Filipino citizens or that he desires to become a corporation
60% owned. The control or administration shall be sole;
vested in Filipino citizen. A foreign cannot qualify and 2. That the rules, regulations and discipline of
act as a governing board in educational institution. his religious denomination, sect or church
Except: educational institutions established by are not inconsistent with his becoming a
religious order, mission board or charitable corporation sole and do not forbid it
institutions or those that are created for the 3. That as such chief archbishop, bishop, etc., is
dependence of other countries, i.e international charged with the administration of the
school, brent school, etc. temporalities and the management of the
Does this mean that an educational affairs, estate and properties of his religious
institution may be formed as stock or NS denomination, sect or church within his
educational corporation? No. they can only territorial jurisdiction, describing such
be organized under bp 232 as non-stock territorial jurisdiction
corporations and those organized as stock 4. The manner in which any vacancy occurring
corporations are being urged to convert itself in the office of the chief archbishop, bishop,
as NS corporation. etc., is required to be filled, according to the
rules, regulations or discipline of the
RELIGIOUS INSTITUTION religious denomination, sect or church to
1. Corporation sole (110) those formed or organized which he belongs; and
by one single individual. But should be organized 5. The place where the principal office of the
by bishop, rabbi, priest or residing elder or head corporation sole is to be established and
of any religious denomination, sect or church. located, which place must be within the
Compare to corporation sole under Sec. 19. Philippines
Exception is the corporation sole of religious
institution - Upon filing the verified AOI along with the
Under 112, it commences to exist and vested documents required in Sec. 112 wi th the SEC
with juridical personality upon the filing of immediately becomes endowed with corporate
the verified AOI with SEC. personality. This is an exception to the rule that a
The corporation sole has the same powers, corporation acquires juridical personality only
rights power and authority to acquire, hold
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
20 CORPORATION LAW
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
22 CORPORATION LAW
W/N the lots are part of the public domain. PNB vs CFI – when the period of the
corporate life expires, the corporation ceases
RULING: The parties do not dispute that since the to be a body politic for the purpose of
acquisition of the four lots by the applicant, it has been in
continuing the business for which it was
continuous possession and enjoyment thereof, and such
possession, together with its predecessors -in-interest, organized. There is no need for the
covering a period of more than 52 years with respect to institution of a quo warranto proceeding to
lots 1 and 2 and about 62 years with respect to lot 3 and determine the time and date of the
more than 39 years with lot 4. dissolution of the corporation because the
period is provided in the AOI. When such
In 1980, which developed, affirmed and reaffirmed the period expires without any extension
doctrine that open, exclusive and undisputed possession
provided in the law, the corporation is
of alienable public land for the period prescribed by law
creates the legal fiction whereby the land, upon dissolved automatically insofar as the
completion of the requisite period ipso jure and without the continuation of its business is concerned.
need of judicial or other sanction, ceases to be public land
and becomes' private property. (DIRECTOR OF LANDS vs. Voluntary Dissolution; 3 modes:
IAC, supra, p.518).No proof being admissable to overcome 1. Voluntary Dissolution where no creditors are
a conclusive presumption, confirmation proceedings
affected (S118)
would, intruth be little more than a formality, at the most
2. VD where creditors would be affected (S119)
limited to ascertaining whether the possession claimedis
of the required character and length of time, and 3. Shortening of corporate term [which would
registration thereunder would not confer title, butsimply partake an amendment of the corporation]
recognize a title already vested.We can say the following: (S120 in relation to S27)
A corporation sole is a special form of corporation usually In S120, shortening corporate term which
associated with theclergy.A corporation sole consists of results to the dissolution of the corporation
one person only, and his successors (who will always be
requires approval of the SEC.
one at atime), Pertinent to this case is the provision of
The vote or the written assent of the SH or
Sec. 113 Batas Pambansa Blg. 68 which reads as
follows:Sec. 113. representing at least 2/3 of the OCS or 2/3 of
Acquisition and alienation of property the voting members will be required. But not
. sufficient in cases of special amendment (as
— provided in S37), must be cast for the
Any corporation sole may purchase and hold real estate meeting duly called for that purpose either
and personal property for its church, charitable,
by the SH themselves or duly representative
benevolent or educational purposes, and may receive
bequests or gifts for such purposes or proxy.
…
Involuntary Dissolution – by way of verified
DISSOLUTION, LIQUIDATION AND WINDING UP petition either by complaint or motu proprio
upon the grounds provided for by the law. Such
DISSOLUTION – extinguishment of corporation franchise as:
and termination of its corporate existence. a. Non-user of corporate franchise
b. Continuous inoperation for at least 5 years
3 modes c. Failure to file by-laws
1. Expiration of corporate term d. Fraud in procuring representation under PD 902-
2. Voluntary surrender of corporate franchise A
3. Involuntary dissolution e. Serious misrepresentation
f. Refusal to comply with the lawful orders of the
In expiration of corporate term, there is SEC
automatic dissolution of the corporation. g. Violation of the provision of Corporation Code
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
23 CORPORATION LAW
h. Under certain circumstances in cases of gross remaining assets, if any after payment of debts
mismanagement or fraudulent conduct of its and liabilities, to the SH in proportion to their
affairs; or respective stock holdings.
i. Any other ground that may be provided for by The dissolved corporation is granted 3 years and
other laws or special laws. still vested with body politic for another 3 years
as a corporate body but only for the purpose of
Involuntary dissolution should be by a liquidation and winding up of all corporate
judicial decree and it is an extreme remedy affairs; or for the purpose of prosecuting or
so that the court may proceed with extreme defending suit for or against it and enabling it to
caution for forfeiture of corporate franchise settle and close its affairs to dispose of or convey
and forfeiture will not be allowed except for its properties to the SH in proportion to their
express limitation or abuse of corporate stock holding
power. Upon the expiration of 3 year period, the juridical
The relief of dissolution will be awarded only personality of the dissolved corporation ceases to
where the SH are not protected in some exist for all intent and purpose and cannot sue or
other way. be sued. No more valid existence.
Once dissolved, the dissolved corporation, not
only terminates its primary franchise to be and 3 modes:
act as corporation, but also prevents it from 1. By the BOD themselves;
exercising other or secondary franchises which 2. By appointment of assignee/trustee
was conferred to it. It terminates to enter into 3. By appointment of receiver/liquidating trustee
contracts or continue its business as a going
concern. If the liquidation through BOD, it will only have a
A corporation whose corporate life expires, period for 3 years. Claims not filed within 3 years,
cannot purse its business in which it was become unenforceable as it has no more
organized and cannot apply a certificate for corporate entity existing against which they can
secondary franchise for it is not capable of be enforce. Actions pending for or against the
receiving any grant for the purpose of continuing corporation when the 3 years expires are abated.
its business If the liquidation is through trustee, assignee,
Buenaflor vs. CAMSUR INDUSTRY – it is no longer receiver, or liquidator, the 3 year period imposed
possessed with a juridical personality to continue by law will not apply. If they are appointed, the
its business and neither can enforce a contracts assets, properties or rights of the dissolved
executed prior of its dissolution for the purpose corporation will be conveyed to them, and as
of continuing its business organization. Debts due effect, the said appointed person wil l be the legal
to or by the corporation is not extinguished from owner of the assets, properties or rights
its dissolution as provided in Sec. 145 of the code. conveyed to it subject to the beneficial interest of
No rights or remedy in favor of or against any the SH and creditors alike. Thus, he can continue
corporation, SH, members, BOD, trustees or suing or prosecuting any case even beyond the 3
officers nor any liability incurred from them shall year period for the benefit of the SH and
be removed or impaired either by dissolution of creditors alike. The appointed person has now
the said corporation or subsequent amendment the legal personality for the dissolved
or repeal of the AOI or by-laws. corporation.
business of the dissolved one? Yes. Chiongavio vs. created or over its creation and cannot do
IAC, the BOD is not normally permitted to business in any other state or forum
undertake activity outside the normal business of Exception: By virtue of state comity, a foreign
the dissolved corporation but nothing will corporation may be able to transact business in
prevent the SH from conveying the stock holdings another forum subject to the law, rules and
toward the creation of a new corporation to regulations of the foreign state.
continue the business of the old one. The SC Under S123, no corporation transacting business
ruled that winding up is the sole activity of the in the Philippines without a license shall be
dissolved corporation. It does not intend to permitted to maintain or intervene in any action,
incorporate a new. However, if it does, it is not suit or proceeding in any court or administrative
unlawful for the old BOD to negotiate or transfer agency in the Philippines.
the assets to the new corporation intended to be GR: (Universal Shipping vs IAC) it is not the lack of
created as long as the SH gave their consent. the required license but doing business without
the license which bars the foreign corporation
(S122[3]) Upon winding up of the corporate from access of our courts.
affairs, any assets distributable to the creditors, What constitutes doing or transacting business as
SH or member who are unknown or cannot be to bar a foreign corporation from access to our
found are to be escheated to the courts if it does so without the requisite license?
city/municipality where the assets are located. (Agilant Tech vs. Integrated Silicone) the term
“doing or transacting” business implies a
FOREIGN CORPORATION (S123) – one that is continuity of commercial dealings and
formed/organized or existing under any laws arrangements contemplates the performance of
other than those of the Philippines and whose acts or works incident and/or to the progressive
laws allows Filipinos or Philippine Corporation to prosecution of the purpose and objects of its
do business in its own country or state of organization. A foreign corporation can sue or
corporation. gain access to Philippine courts if it is not doing
GR: Test: INCORPORATION TEST is applied in business in the Philippines. i.e isolated
determining whether a corporation is domestic transaction or one single act does not constitute
or foreign. If it is incorporated under the laws continuing commercial dealing or transaction; or
other than the Philippines, thus it is a foreign corporation does not enforce any legal or
corporation. If incorporated under the Philippine contractual rights arising from or growing out any
laws, it is Domestic Corporation. business transaction which has transacted in the
EXCEPTION: CONTROLLING TEST IN CASES OF Philippines; or the purpose of the suit is to
WAR: in times of war or purpose of national protect corporate name, trademark or goodwill.
security, the citizenship of the controlling SH will (Paris Convention); or based on the violation of
determine the nationality of the corporation. A RPC (Lacoste vs. Fernandez); or if it is not
corporation former organized under the maintaining a suit but rather defending a case
Philippine laws (Trade Liberization of the filed against it; or if the party is estopped to
Philippines) composed of the foreign SH is challenge the personality by merely entering into
considered a domestic corporation because it a transaction or contract
was created under TLP in relation to the
Corporation Code. Requisites for a foreign corporation to transact business
in the Philippines:
General Rule: The existence of the Corporation
1. A license or permit to do so; and
remains within the territorial boundaries of the 2. A certificate of authority from the appropriate
state creating it and may have no existence government agency.
beyond the boundaries of the State in which it is
Procedure for application of a license:
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
25 CORPORATION LAW
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
26 CORPORATION LAW
Modes of entry of foreign corporations: Philippines or has no resident agent in the Philippines;
1. Branch office; - one which carries out the business or
activities of the foreign corporation itself and derives 3. Service upon any of its officers or agents within the
income from the Philippines. Philippines.
2. Representative or liaison office – one which deals
directly with the clients of the parent company but
does not derive income from the host country and is S129 Any foreign corporation lawfully doing
fully subsidized by its head office. business in the Philippines shall be bound by all
3. Local subsidiary – a foreign corporation may form or
laws, rules and regulations applicable to a
organize a separate corporation under the Foreign
domestic corporation to the same class except
Investment Act by making at least a majority of the
investments therein. The local subsidiary of the only if it may provide for the creation, formation,
investing foreign corporation becomes a legally organization or dissolution of the corporation or
independent unit governed by the laws of the those which involves intra-corporate relationship
Philippines which is subject to the law in which they are
4. Regional or area headquarters – an office whose incorporated
purpose is to act as an administrative branch of a
multinational company engaged in international trade
which principally serves as a supervision, S136 Foreign corporation may withdraw its
communications and coordinating center for its license to do business in the Philippines subject
subsidiaries, branches or affiliates in the Asia -Pacific to the 3 requirement imposed: (must go hand in
Region and other foreign markets and which does not hand before SEC allows withdrawal of license)
earn or derive income in the Philippines 1. All claims which have been accrued in the
5. Regional operating headquarters – it is a foreign
Philippines have been paid, compromised or
business entity which is allowed to derive income in
settled
the Philippines by performing qualifying
6. Regional warehouse; or 2. All taxes, impost, assessment, and penalties
7. Joint venture. lawfully due to the government have been
settled and paid
Resident Agent 3. The petition for withdrawal of license have been
published once a week for 3 consecutive week of
The appointment of a resident agent is a condition
newspaper of general circulation
precedent to the issuance of a license to transact business
in the Philippines by a foreign corporation.
Doing Business Without A License
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
27 CORPORATION LAW
shall constitute doing business even in the enterprise noncompliance with the statutes chiefly in cases
has no office or fixed place of business in the where such person has received the benefits of the
Philippines. contract. (Communication Materials and Design, Inc.
2. Appointing a representative or distributor who is vs. CA)
domiciled in the Philippines unless said representative The right of a corporation to use its corporate and
or distributor has an independent status, i.e., it trade name is a property right, a right in rem, which it
transacts business in its name and for its own may assert and protect against all the world, in any of
account, and not in the name or for the account of the courts of the world – even in jurisdictions where it
the pricipal. does not transact business – just the same as it may
3. Opening offices, whether called „liaison‟ offices, protect its tangible property, real or personal, against
agencies or branches, unless provided otherwise. trespass, or conversion. Since it is the trade and not
4. Any other act or acts that imply a continuity of the make that is to be protected, a trademark
commercial dealings or arrangements, and acknowledges no territorial boundaries or
contemplate to that extent the performance of acts municipalities or states or nations, but extends to
or works, or the exercise of some of the functions every market where the trader‟s goods have become
normally incident to, or in the progressive known and identified by the use of the mark.
prosecution of, commercial gain or of the purpose (Western Equipment and Supply Co. vs. Reyes)
and objective of the business organization. (Facilities A foreign corporation which has never done business
Management Corp. vs. De La Rosa) in the Philippine Islands and which is unlicensed and
unregistered to do business here, but is widely and
A single act may bring the corporation within the favorably known in the Islands through the use
purview of the statute where it is an act of the therein of its products bearing its corporate and trade
ordinary business of the corpora tion. In such a case, name has a legal right to maintain an action in the
the single act of transaction is not merely incidental Islands. Parenthetically the Trademark Law allows a
or casual, but is of such character as distinctly to foreign corporation or juristic person to bring an
indicate a purpose on the part of the operations for action in Philippine courts for infringement of a mark
the conduct of a part of the corporation‟s ordinary or trade-name, for unfair competition, or false
business. (Far East Int‟l Import vs. Nankai) designation of origin and false description, whether or
ITEC’s arrangement with its various business contacts not it has been licensed to do business in the
in the country indicate its purpose to bring about the Philippines. (General Garments Corporation vs.
situation among its customers and the general public Director of Patents)
that they are dealing directly with ITEC and that ITEC Article 8 of the Paris Convention to which the
is actively engage in business in the country. I n Philippines became a party provides that a trade
determining whether a corporation does business in name shall be protected in all the countries of the
the Philippines or not, aside from their activities Union without the obligation of filing or registration,
within the forum, reference may be made to the whether or not it forms part of the trademark. (Puma
contractual agreements entered into by it with other vs. IAC)
entities in the country. (Communication Materials and A foreign corporation not doing business not doing
Design, Inc. vs. CA) business in the Philippines needs no license to sue
A foreign corporation doing business in the before Philippine courts for infringement of
Philippines may sue in Philippine courts although no trademark and unfair competition. (Le Chemise
authorized to do business here against a Philippine Lacoste vs. Fernandez)
citizen or entity who had contracted with and In a suit involving the violation of the Revised Penal
benefited by said corporation. To put it another way, Code the complainant foreign corporation‟s capacity
a party is estopped to challenge the personality of a to sue is not significant. (Le Chemise Lacoste vs.
corporation after having acknowledged the same by Fernandez)
entering into a contract with it. An the doctrine of
estoppel to deny corporate existence applies to a Capacity To Sue
foreign as well as to domestic corporations. One who
has dealt with a corporation of foreign origin as a General rule: A foreign corporation must affirmatively
corporate entity is estopped to deny its corporate plead its capacity to sue in order that it may proceed and
existence and capacity. The principle will be applied effectively institute a case in Philippine courts.
to prevent a person contracting with a foreign Exceptions:
corporation from later taking advantage of its
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
29 CORPORATION LAW
1. The action involves a complaint for violation of the A foreign corporation authorized to transact business
Revised Penal Code. in the Philippines which amends its articles of
2. The foreign corporation is not suing or maintaining a incorporation or by-laws must file a copy of such
suit but is merely defending itself from one filed amended articles of incorporation or by-laws with the
against it. SEC or the appropriate government agency within 60
days from the effectivity of such amendment.
The qualifying circumstance of whether or not a
foreign corporation has engaged in business in the Instances when a foreign corporation authorized to
Philippines is an essential part of the element of a transact business in the Philippines must obtain an
foreign corporation‟s capacity to sue and must be amended license:
affirmatively pleaded. (Atlantic Mutual Insurance Co. 1. The foreign corporation changes its corporate name;
vs. Cebu Stevedoring Co., Inc.) or
If the dismissal of the case, based on failure of the 2. The foreign corporation desires to pursue other or
foreign corporation to aver its capacity to sue, would additional purposes in the Philippines.
not, however, bar the institution of the same action,
dismissal should not be allowed, especially so if it Requirements in a merger or consolidation of a foreign
would be an idle, circuitous ceremony considering the corporation licensed in the Philippines:
absence of any meritorious substantial defense of the
defense of the defendant. Technical rules should not With a domestic corporation:
be accorded undue importance to frustrate and 1. Such must be permitted under Philippines laws and
defeat a plainly valid claim. (Olympia Business by the law of its incorporation; and
Machines Co. vs. Razon, Inc.) 2. The requirements on merger or consolidation
Since petitioner is not maintaini ng any suit but is provided by the Code must be followed.
merely defending one against itself (it did not file any
complaint but only a corollary defensive petition to With a foreign corporation:
prohibit the lower court from further proceeding with 1. Such must be permitted by the law of its
a suit that it had no jurisdiction to entertain), its incorporation;
failure to aver its legal capacity to institute the 2. A duly authenticated articles of merger or
present petition is not fatal. (Time, Inc. vs. Reyes) consolidation must be filed with the SEC or the
appropriate government agency within 60 days from
Laws Governing Foreign Corporations the effectivity of the merger or consolidation; and
3. If the absorbed corporation is the foreign corporation
General rule: Any foreign corporation lawfully doing doing business in the Philippines, a petition for
business in the Philippines shall be bound by all laws, rules withdrawal of its license must also be filed.
and regulations applicable to domestic corporations of the
same class. Requirements and procedure for the withdrawal of
Exceptions: foreign corporations:
1. Laws which provide for the creation, formati on, 1. Filing of a petition for withdrawal of license;
organization or dissolution of corporations; or 2. All claims which have accrued in the Philippines have
2. Laws which fix the relations, liabilities, been paid, compromised or settled;
responsibilities, or duties of stockholders, members 3. All taxes, imposts, assessments and penalties, if any,
or officers of a corporation to each other or to the lawfully due to the Philippine Government or any of
corporation. its agencies or political subdivisions have been paid;
4. Publication of the petition for withdrawal once a
Intra-corporate or internal matters not affecting week for 3 consecutive weeks in a newspaper of
creditors or the public in general are governed not by general circulation in the Philippines; and
Philippine laws but the law under which the foreign 5. Issuance of the certificate of withdrawal by the SEC.
corporation was formed or organized.
Special laws may provide or grant certain restrictions, Grounds for the revocation or suspension of license:
limitations, privileges or incentives to a foreign 1. Failure to file its annual report or pay any fees as
corporation not otherwise applicable or granted to required by the Code;
domestic corporations (e.g. import duties and tax 2. Failure to appoint and maintain a resident agent in
incentives under the Omnibus Investments Code). the Philippines;
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
30 CORPORATION LAW
3. Failure, after change of its resident agent or of his Non-stock or special corporati ons may, through their
address, to submit to the SEC a statement of such articles of incorporation or their by-laws, designate
change; their governing boards by any name other than as
4. Failure to submit to the SEC an authenticated copy of board of trustees.
any amendment to its articles of incorporation or by- The NEDA shall, from time to time, make a
laws or of any articles of merger or consolidation determination of whether the corporate vehicle has
within the time prescribed by the Code; been used by any corporation or by business or
5. Misrepresentation of any material matter in any industry to frustrate the provisions thereof or of
application, report, affidavit or other document applicable laws, and shall submit to Congress,
submitted; whenever deemed necessary, a report of its findings,
6. Failure to pay any and all taxes, imposts, assessments including recommendations for their prevention or
or penalties, if any, lawfully due to the Philippine correction.
Government or any of its agencies or political Maximum limits may be set by Congress for
subdivisions; stockholdings in corporations declared by it to be
7. Transacting business in the Philippines outside of the vested with a public interest pursuant to the
purpose or purposes for which such corporation is provisions of this section, belonging to individuals or
authorized under its license; groups of individuals related to each other by
8. Transacting business in the Philippines as agent of or consanguinity or affinity or by close business
acting for and in behalf of any foreign corporation or interests, or whenever it is necessary to achieve
entity not duly licensed to do business in the national objectives, prevent illegal monopolies or
Philippines; or combinations in restraint or trade, or to implement
9. Any other ground as would render it unfit to transact national economic policies declared in laws, rules and
business in the Philippines. regulations designed to promote the general welfare
and foster economic development.
Other grounds for revocation of license under special In recommending to Congress corporations, business
laws: or industries to be declared vested with a public
1. General Banking Act – imminent danger of insolvency; interest and in formulating proposals for limitations
2. Insurance Code – unsound condition, failure to on stock ownership, the NEDA shall consider the type
comply with the provisions of law or regulation and nature of the industry, the size of the enterprise,
obligatory upon it, a condition or method of business the economies of scale, the geographic location, the
hazardous to the public or its policy holders, extent of Filipino ownership, the labor intensity of the
impairment of its security deposit, or deficiency i n the activity, the export potential, as well as other factors
margin of solvency. which are germane to the realization and promotion
3. Omnibus Investments Code – willful violation of the of business and industry.
provisions of existing laws and implementing Every corporation, domestic or foreign, lawfully doing
guidelines or violation of the terms and conditions of business in the Philippines shall submit to the SEC an
its license. annual report of its operations, together with a
financial statement of its assets and liabilities,
In case the revocation is warranted the SEC shall: certified by any independent certified public
1. Issue a certificate of revocation; accountant in appropriate cases, covering the
2. Furnish a copy thereof to the appropriate government preceding fiscal year and such other requirements as
agency; and the SEC may require. Such report shall be submitted
3. Mail a notice of such revocation accompanied by a within such period as may be prescribed by the SEC.
copy of the certificate of revocation to the All interrogatories propounded by the SEC and the
corporation at its registered office in the Philippines. answers thereto, as well as the results of any
examination made by the Commission or by any other
Chapter 19: Miscellaneous Provisions official authorized by law to make an examination of
the operations, books and records of any corporation,
Outstanding capital stock – the total shares of stock shall be kept strictly confidential, except insofar as
issued under binding subscription agreements to the law may require the same to be made public or
subscribers or stockholders, whether or not fully or where such interrogatories, answers or results are
partially paid, except treasury shares. necessary to be presented as evidence before any
court.
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
31 CORPORATION LAW
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
32 CORPORATION LAW
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
33 CORPORATION LAW
2. Suspension of payments with the appointment of a but pending execution, the execution of the decision
receiver with or without a rehabilitation plan. The is likewise suspended. (Filinvest vs. Ejercito)
rehabilitation plan is a plan under which the Note the words “against the corporation.”
corporation will reschedule the payment of its debts If a corporation secures a loan, and one of its key
and liabilities. Either the petitioner corporation will officers uses his private properties to guarantee the
propose the plan or ask for the appointment of a loan, corporation files for suspension, the bank want
receiver who will study and make the plan. to foreclose on the prop, may the bank foreclose?
3. Suspension of payments where the corporation has Yes. It is not an action for ac claim against the
no sufficient assets to cover its debts and liabilities corporation. Union bank case.
with or without the appointment of a management Properties of an individual stockholder, director or
committee with or without a rehabilitation plan. officer, as surety of corporate liabilities, are not, and
will not be covered by the suspension of payments
Effects Of Suspension Of Payments order issued by the court pursuant to PD 902-A.
The proper court may issue an order suspending Same with regard to criminal proceedings, personal to
payments of claims due from a distress corporation. corporate officer concerned.
Upon the appointment of a management committee, Despite the appointment of a receiver for a
rehabilitation receiver, board or body all actions for corporation under PD 902-A, an action against a
claims against the corporation, partnership or corporation seeking the nullification of corporate
association under management or receivership documents cannot be suspended by reason thereof,
pending before any court, tribunal, board or body since the civil action does not present a monetary
shall be suspended accordingly. claim against the corporation. (Finasia Investment and
The reason for suspension of payments for claims Finance Corporation vs. CA)
against a distressed corporation is to enable the The SEC does not have jurisdiction to entertain
management committee to effectively exercis e its petitions for suspension of payments filed by parties
powers free from judicial or extrajudicial interference other than corporations, partnerships or associations.
that might unduly hinder or prevent the „rescue‟ of (Union Bank vs. CA)
the debtor company. (PAL vs. Sps. Sadic and Equality is Equity – during suspension the assets are
Kurangking) held in trust for the equal benefit of all creditors to
The suspension of all actions for claims against a preclude one from obtaining an advantage or
corporation embraces all phases of the suit, be it preference over another by the expediency of an
before the trial court or any tribunal or before this attachment, execution or otherwise. The creditors
Court. No other action may be taken, i ncluding the should stand on equal footing. Not anyone of them
rendition of judgment during the state of suspension. should be given any preference by paying one of
It must be stressed that what are automatically them ahead of the others. (Alemars Sibal and Son, Inc.
stayed or suspended are the proceedings of a suit and vs. Elibenas)
not just the payment of claims during the execution The issue of whether or not preferred creditors of
stage after the case had become final and executory. distressed corporations stand on equal footing with
Once the process of rehabilitation, however, is all other creditors gains relevance and materiality
completed, this Court will proceed to complete the only upon the appointment of a management
proceedings on the suspended actions. Furthermore, committee, rehabilitation receiver, board or body.
the actions that are suspended cover all claims Suspension of claims against the corporation under
against the corporation whether for dama ges rehabilitation is counted or figured up only upon the
founded on a breach of contract of carriage, labor appointment of a management committee or a
cases, collection suits or any other claims of a rehabilitation receiver. (RCBC vs. IAC)
pecuniary nature. No exception in favor of labor
claims is mentioned in the law. (PAL vs. Zamora)
Claims – refers to debts or demands of pecuniary
nature; the assertion of right to have money paid. VERY IMPORTANT!!!
Suspended proceedings include extra judicial 1. All claims against corporations, partnerships or
foreclosures. You cannot even consolidate. All associations that are pending before any court,
proceedings at whatever stage are suspended. tribunal or board, without distinction as to whether or
Even if the suspension order is issued after a not a creditor is secured or unsecured, shall be
creditor‟s action in court has already become final suspended effective upon the appointment of a
management committee, rehabilitation receiver,
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
34 CORPORATION LAW
board or body in accordance with the provisions of PD In the absence of a strong showing of an imminent
902-A. danger of dissipation, loss, wastage or destruction of
2. Secured creditors retain their preference over assets or other properties of a corporation and
unsecured creditors, but enforcement of such paralysis of its business operations, the mere
preferences is equally suspended upon the apprehension of future misconduct based upon prior
appointment of a management committee, mismanagement will not authorize the appointment
rehabilitation receiver, board or body. In the event of a management committee/receiver. (Sy Chim vs. Sy
that the assets of the corporation, partnership or Siy Ho & Sons, Inc.)
association are finally liquidated, however, secured or Mere disagreement among stockholder as to the
preferred credits under the applicable provisions of fairness of the corporation would not in itself suffice
the Civil Code will definitely have preference over as a ground for the appointment of a management
unsecured ones. committee. However, where the dissention among
the stockholders is such that the corporation cannot
If the rehabilitation of the corporation is not feasible, the successfully carry on its corpora te functions, the
court muto propio or the management committee may appointment of a management committee becomes
petition the lifting and the preferences will be there again. imperative. (Jacinto vs. First Women‟s Credit
Corporation)
Appointment Of Management Committee, Board Or A management committee shall have the power to
Body (Sec. 6 [D]) take custody of and control all assets and properties
Special Commercial Courts may create or appoint a owned and possessed by the enti ty under
management committee, board or body upon petition or management. It shall take the place of the
muto propio to undertake the management of management and board of directors of the entity
corporations, partnerships or association not supervised under management, assume their rights and
or regulated by other government agencies in appropriate responsibilities, and preserve the entity‟s assets and
cases where there is imminent danger of dissipation, loss properties in its possession.
or wastage or destruction of assets or other properties or The rehabilitation receiver shall not take over the
paralyzation of business operations of such corporation or management and control of the debtor but shall
entities which may be prejudicial to the interest of closely oversee and monitor the operations of the
minority stockholders, parties -litigant or the general debtor during the pendency of the proceedings. He
public. shall be primarily tasked to study the best way to
rehabilitate the debtor and to ens ure that the value
It may also create or appoint a management committee, of the debtor‟s property is reasonably maintained
board or body to undertake the management of pending the determination of whether or not the
corporations, partnerships or other associations debtor should be rehabilitated, as well as implement
supervised or regulated by other government agencies the rehabilitation plan after its approval.
such as banks and insurance companies, upon the request Venue of actions in intra-corporate controversies –
of the government agency concerned. Special Commercial Court which has jurisdiction over
the principal office of the corporation, partners hip or
Requisites before a management committee, board or association.
body may be appointed or created: Nature of proceedings is in rem. Jurisdiction acquired
1. Dissipation, loss, wastage or destruction of assets or upon publication of the proceeding.
other properties; and Creditors have the personality (at least 25% of the
2. Paralyzation of its business operations which may be total outstanding liablitities) may file, ex. Bayantel.
prejudicial to the interest of the minority Their compensation is subject to agreement of the
stockholders, parties-litigants or the general public. parties.
(Sy Chim vs. Sy Siy Ho & Sons, Inc.)
Actuations of the board, body, committee subject to:
Danger – a general term, including peril, jeopardy, 1. Service of pleadings . Sec. 6 rule 1. may be by fax or
hazard and risk; refers to exposure or liability to email. When authorized by the court.
injury. 2. Service of summons. Sec. 5 rule 2. made upon any of
Imminent – something which is threatening to the statutory or corporate officers or their respective
happen at once, something close at hand, something secretaries. vs. Eb Villarosa case. (Rule of Court)
to happen upon the instant, close although not yet
happening, and on the verge of happening.
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
35 CORPORATION LAW
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
36 CORPORATION LAW
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
37 CORPORATION LAW
Intentionally increasing or decreasing the value of investigated and/or charged may propose in writing
the shares or causing fictitious reports to appear an offer of settlement with the Commission. Upon
on the ticker tape. receipt of such offer of settlement, the Commission
6. Short sale – the selling of security which the may consider the offer based on timing, the nature of
vendor does not own, possess or hold. It is illegal the investigation or proceeding, and the public
unless in accordance with the rules prescribed by interest. The Commission may only agree to a
the SEC. settlement offer based on its findings that such
T3/T4 rule: Trading day + 3 – if you entered settlement is in the public interest. Any agreement to
into a contract/transaction, either for sale or settle shall have no legal effect until publicly
purchase of security, 3 days therefrom, you disclosed. Such decision may be made without a
have to comply with your part or obligation. determination of guilt on the part of the person
7. Boiler room operations – involves an intensive making the offer.
selling campaign through numerous salesmen by
telephone or through direct mail offerings for
securities of either a certain type of from a
specific issuer. Securities Regulation Code (SRC)
8. Squeezing the float – the part or portion of the
issue/security which is outstanding but Full disclosure rule – as long as there is full and
intentionally held by dealers or other persons complete disclosure relative to the issue of securities
with a view of reselling them later for profit. the investing public should determine for themselves
9. Hype and dump – the act employed by a person whether or not to invest.
or group of persons of purchasing the Doctrine of primary jurisdiction – courts will not
outstanding capital stock of a dormant public determine a controversy involving a question within
shell company for a nominal amount and merge the jurisdiction of the administrative tribunal, where
it with their privately held company. They would the question demands the exercise of sound
then gain control of the majority of the stocks of administrative discretion requiring the specialized
the merged entity. The shares of the Shell knowledge and expertise of said administrative
Company are often reverse-split four to one or tribunal to determine technical and intricate matters
more to reduce the number of shares. Stock of fact.
certificates are often re-issued in the name of the A criminal charge for violation of the SRC is a
merged entity to relatives and associates who act specialized dispute. Hence, it must first be referred to
as nominees of the person or group of persons an administrative agency of special competence, i.e.,
employing the device. They would then look for a the SEC… The SRC is a special law. Its enforcement is
broker-dealer who would be willing to make a particularly vested in the SEC. Hence, all complaints
market relative to the stocks of the newly for any violation of the Code and its implementing
merged company; then hire a promoter who rules and regulations should be filed with the SEC.
would “hype” the virtues of the company, its Where the complaint is criminal in nature, the SEC
products and stocks. The broker-dealer then shall indorse the complaint to the DOJ for preliminary
generates volume and advance bid price. When investigation and prosecution as provi ded in Section
the market reaches a high price, they would 53.1. (Baviera vs. Paglinawan)
“dump” their shareholdings and bail out.
10. Securities
Any violation of the provision of the code would Securities – are shares, participation or interests in a
subject the offender with penal sanction under S73 or corporation or in a commercial enterprise or profit-making
venture and evidenced by a certificate, contract,
even under RPC or special penal laws.
instrument, whether written or electronic in character. It
includes:
Settlement offers in any violations of the SEC Code 1. Shares of stock, bonds, debentures, notes, evidences
under S25. (s55.3) At any time, during an investigation of indebtedness, asset-backed securities;
or proceeding under this Code, parties being
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
38 CORPORATION LAW
5. The sale of capital stock of a corporation to its own d. Pension fund or retirement plan maintained by
stockholders exclusively, where no commission or the Government of the Philippines or any political
other remuneration is paid or given directly or subdivision thereof or managed by a bank or
indirectly in connection with the sale of such capital other persons authorized by the Bangko Sentral
stock. to engage in trust functions;
6. The issuance of bonds or notes secured by mortgage e. Investment company; or
upon real estate or tangible personal property, where f. Such other person as the Commission may by
the entire mortgage together with all the bonds or rule determine as qualified buyers, on the basis
notes secured thereby are sold to a single purchaser of such factors as financial sophistication, net
at a single sale. worth, knowledge, and experience in financial
7. The issue and delivery of any security in exchange for and business matters, or amount of assets under
any other security of the same issuer pursuant to a management.
right of conversion entitling the holder of the security
surrendered in exchange to make such conversion: Tender Offer
Provided, That the security so surrendered has been
registered under the SRC or was, when sold, exempt Tender Offers – a publicly announced intention by the
from the provisions of the SRC, and that the security purchaser to acquire a certain block of equities of a
issued and delivered in exchange, if sold at the company through open market purchases or private
conversion price, would at the time of such negotiations.
conversion fall within the class of securities entitled
to registration under the SRC. Upon such conversion A tender offer is required of any person or group of
the par value of the security surrendered in such persons acting in concert who intend to acquire:
exchange shall be deemed the price at which the 1. At least 15% of any class of any equity security of a
securities issued and delivered in such exchange are listed corporation or of any class of any equity
sold. security of a corporation with assets of at least P50M
8. Broker‟s transactions, executed upon customer‟s and having 200 or more stockholders with at least 100
orders, on any registered Exchange or other trading shares each; or
market. 2. At least 30% of such equity over a period of 12
9. Subscriptions for shares of the capital stock of a months.
corporation prior to the incorporation thereof or in
pursuance of an increase in its authorized capital Proxies
stock under the Corporation Code, when no expense Proxies must be issued and proxy solicitation must be
is incurred, or no commission, compensation or made in accordance with rules and regulations to be
remuneration is paid or given in connection with the issued by the Commission.
sale or disposition of such securities, and only when
the purpose for soliciting, giving or taking of such Requisites for proxies:
subscriptions is to comply with the requirements of 1. In writing;
such law as to the percentage of the capital stock of a 2. Signed by the stockholder or his duly authorized
corporation which should be subscribed before it can representative; and
be registered and duly incorporated, or its authorized 3. Filed before the scheduled meeting with the
capital increased. corporate secretary.
10. The exchange of securities by the issuer with its
existing security holders exclusively, where no General rule: A proxy shall be valid only for the meeting
commission or other remuneration is paid or given for which it is intended.
directly or indirectly for soliciting such exchange. Exception: It is otherwise provided in the proxy.
11. The sale of securities by an issuer to fewer than 20
persons in the Philippines during any twelve-month No proxy shall be valid and effective for a period
period. longer than 5 years at one time.
12. The sale of securities to any number of the following No broker or dealer shall give any proxy, consent or
qualified buyers: authorization, in respect of any security carried for
a. Bank; the account of a customer, to a person other than the
b. Registered investment house; customer, without the express written authorization
c. Insurance company; of such customer.
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
40 CORPORATION LAW
A broker or dealer who holds or acquires the proxy respect to the issuer or the security that is not generally
for at least 10% or such percentage as the available to the public.
Commission may prescribe of the outstanding share Exceptions:
of the issuer, shall submit a report identifying the 1. The insider proves that the information was not
beneficial owner within 10 days after such acquisition, gained from such relationship; or
for its own account or customer, to the issuer of the 2. The insider disclosed the information to a party
security, to the Exchange where the security is traded reasonably believed by the insider to possess the
and to the Commission. information.
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.
41 CORPORATION LAW
2. Making false or misleading statements with respect to propose in writing an offer of settlement with the
any material fact, which he knew or had reasonable Commission.
ground to believe was so false or misleading for the
purpose of inducing the purchase or sale of any Upon receipt of such offer of settlement, the
security (illegal). Commission may consider the offer based on timing,
3. Pegging or fixing or stabilizing the price of security the nature of the investigation or proceeding, and the
effected either alone or with others through any public interest.
series of transactions for the purchase or sale thereof The Commission may only agree to a settlement offer
(illegal) based on its findings that such settlement is in the
4. Short sale – sale of securities which the vendor does public interest. Any agreement to settle shall have no
not own (illegal unless done in accordance with the legal effect until publicly disclosed. Such decision may
rules and regulations of the SEC) (T3 rule). be made without a determination of guilt on the part
5. Insider trading – the act of an insider of buying or of the person making the offer.
selling securities of the issuer while in possession of
material information with respect thereto that is not Limitation of Actions
generally available to the public (illegal unless
exempted). 62.1. No action shall be maintained to enforce any liability
created under Section 56 or 57 of this Code unless
Wash sale and matched order is il legal when used as a brought within two (2) years after the discovery of the
means to create a false or misleading appearance of active untrue statement or the omission, or, if the action is to
trading in the security concerned. enforce a liability created under Subsection 57.1(a), unless
brought within two (2) years after the violation upon
Marking the close, painting the tape, squeezing the float, which it is based. In no event shall any such action be
hype and dump, and boiler room operations are illegal brought to enforce a liability created under Section 56 or
when they are effected to: Subsection 57.1 (a) more than five (5) yea rs after the
1. Raise the price or induce the purchase of a security or security was bona fide offered to the public, or under
of a controlling, controlled or commonly controlled Subsection 57.1 (b) more than five (5) years after the sale.
company by others; 62.2. No action shall be maintained to enforce any liability
2. Depress their price to induce the sale of a security, created under any other provision of this Code unless
whether of the same or of a different class, of the brought within two (2) years after the discovery of the
same issuer or of a controlling, controlled company, facts constituting the cause of action and within five (5)
or common controlled company of others; and years after such cause of action accrued.
3. Creates active trading to induce such purchase or sale
through said devices or schemes. False registration statement - liable civily - sec. 56
Ceiling as to amount of damages - triple of the amount
Other fraudulent transactions: involved
1. Employing any device, scheme, or artifice to defraud; Limitation of actions - not later than 5 years after the
2. Obtaining money or property by means of any untrue cause of action accrues
statement of a material fact of any omission to state a
material fact necessary in order to make the
statements made, in the light of the circumstances
under which they were made, not misleading; or
3. Engaging in any act, transaction, practice or course of
business which operates or would operate as a fraud
or deceit upon any person.
Settlement Offer
At any time, during an investigation or proceeding under
this Code, parties being investigated and/or charged may
This is a modified transcript of Atty. Ladia’s Audio Lecture in Corporation Law covering only the finals part.
Transcribed and modified by Duke Sucgang. For educational purposes only.