CORPORATION LAW – ATTY. MARIANNE JOANNE K.
CO-PUA Lectures 2018
Stakeholder vs. Shareholders/Stockholders
STAKEHOLDERS – could act in any capacity; could be a
stockholder/shareholder, director, trustee, officer,
employee, or public in general.
 Those who has interest insofar as the corporation
is concerned;
 Those who stand to benefit or prejudice in any
action of the corporation.
Example: Employees are affected in case of merger or
consolidation.
STOCKHOLDERS/SHAREHOLDERS – from the words
“shares of stock”.
 Shareholders are the owners.
CORPORATION vs. PARTNERSHIP
Q: What would encourage persons to enter into
partnership?
A: In a corporation, it has to have at least 5 incorporators.
It is more tedious to have a corporation.
Q: What will encourage persons to enter into a
corporation?
A: It will shield one person to have a personal liability. In
a partnership, if the partnership as a separate juridical
entity, cannot pay with its assets, it extends to the
personal or own properties of the partners. In a
corporation, extent of liability depends on the subscription
because it is the extent of one’s commitment.
“By operation of law”
When we have the Corporation Code (CC), when its
provisions are applied, a corporation can be formed,
which has a separate entity.
Liabilities, responsibilities, all lie with the
corporation; Distinguish kinds of liability
 Liabilities insofar as finances are concerned, one
limits its exposure to whatever he subscribes.
But this is not absolute because of criminal
liability which is imposed upon the person who
caused the offense or crime to happen. It is
devolved upon such person because the
corporation, as an artificial being, acts through
such person; it acts through a natural person. It is
in accord with criminal law principle that a juridical
entity cannot be imprisoned.
(Ex: Trust Receipt Law, BP22 – whoever signs is
the one responsible.)
DY’NOTES
XPN: Civil liability - When one binds himself
personally liable such as being a surety or
guarantor.
 Liability to third person-creditors. The Board of
Directs (BoD) can collect from the stockholders
those unpaid subscription for payment of credits
of the corporation owed to third persons.
TRUST FUND DOCTRINE
Example: Capital stock structure:
 Authorized Capital Stock (ACS) – 400M
 Outstanding Capital Stock (OCS) also called as
Subscribed Capital Stock (SCS)– 100M
 Paid-in Capital (PIC) – 25M
OCS – is the committed money of the stockholders (SHs).
A creditor may ask for a copy of the articles of
incorporation (AoI) to see when the balance of the SCS
or OCS is payable. If there is no deadline for payment of
the OCS, then the creditor may impose upon a condition
to the loan, that there should be a specific date on when
the balance of the subscription would be called. The BoD
can compel the SHs to pay the full subscription.
If there is no specific date on when the balance of the
subscription will be paid, it is presumed that it is payable
upon being called or upon the discretion of the directors
on when the balance is needed. It is one of the powers of
BoD, i.e., to call upon the payment of the subscription. If
it is not paid upon being called, then it will become a
delinquent stock. Hence there will be restrictions on what
the SH can and cannot do such as:
 SH may be restricted to participate
 Dividends might be put on hold.
But as long as stocks are not yet delinquent because it is
not yet due, SH may still have all the rights of a SH, as
expressly provided for by law.
BALANCE SHEET vs. INCOME STATEMENT
Balance sheet is on the asset.
Income statement shows the following:
 Deductions:
 How much is the revenue
 Gross receipts: Cost of goods and services
 Operating expenses (not related to the goods
but is necessary for the manufacture of the
goods)
 Tax = 30%
 Net profit after tax
RETAINED EARNINGS
CORPORATION LAW – ATTY. MARIANNE JOANNE K. CO-PUA Lectures 2018
- Come from the operation of income statement. It
is the cumulated earnings every year. If it
cumulates there having an excess, a corporation
may have UNRESTRICTED RETAINED
EARNINGS (URE), which follows that dividends
may now be distributed. As long as there is still
no URE, there can be no distribution of dividends
yet. Otherwise, if there is no URE yet, it is in effect
a distribution of dividends from the paid-in capital,
which are held in trust for the creditors, and not to
the stockholders.
UNRESTRICTED RETAINED EARNINGS
When a corporation earns, and it has URE, then it would
have options:
1. Earmark a potion to expand the business; definite
expansion plans
If the URE is appropriated, it become RRE, for it cannot
be declared as divides because it is already earmarked
for a specific purpose.
If the URE is not allocated for dividends or expansion, if it
accumulates, it is subject to IAET of 10%.
Solution: Increase the SCS or OCS so that if there are
already excess in PIC, it can still be retained by the
corporation without having it declared as dividends or
without it having allocated for specific purpose.
If the URE is distributed as CASH DIVIDENDS, it can be
declared by BoD approval only because it can just a
return of capital. It is only up to BoD level because it is
only to determine whether there is a retained earnings or
unrestricted earnings.
If it would be as STOCK DIVIDENDS or PROPERTY
DIVIDENDS, as may be decided by the BoD it has to have
the SHs approval. It may only touch upon retained
earnings particularly URE. If it is in stock dividends, it
cannot be converted into cash but it will only become an
additional investment. It requires approval of the SHs
because had it been in cash, then the unpaid subscription
could be paid until the commitment is fully satisfied
whereas if it is in property or stock, the unpaid
subscription remains a commitment. In stock, it means
that on top of the subsisting, stock dividends will be added
thereto.
3 LAYERS OF MANAGEMENT
1. SHs – electing the BoDs because SHs want to be
represented on the Board level who can work for
their benefit;
2. BoDs – appointing the officers because they want
have people on the ground to manage the
corporation.
3. Officers
DY’NOTES
Q: Can a SH question the BoDs in restricting retained
earnings?
A: No. BoDs are the one restricting because they are the
ones who determine the needs of the corporation.
However, SHs can dictate indirectly by appoint BoDs to
represent them who can work for their benefit. They
cannot do it directly because it is within the prerogative of
the BoDs. How to declare it, whether cash or property or
stock, it depends on the directors.
EFFECT OF STOCKHOLDINGS
SHs’ approval is being secured because it might amount
to lower percentage. There is no such threat in stock
dividends because it is always proportionate (e.g., If one
is a 5% holder now, he will receive 5% of the dividends;
resulting or the stake in the corporation is the same). If
one is formerly a 20% holder and the base is not higher,
he will still get 20% of the dividends. Hence, there is no
dilution.
In other circumstances like increase of capital, consent of
the SHs is being secured because of possible dilution.
AMENDMENTS IN THE AOI; APPROVAL
Approval of the SHs is needed because it changes the
very nature of the company to which a SH invested, even
those who have shares whose voting rights are restricted,
can vote. (AASIIMID)
“ONCE AN INCORPORATOR, ALWAYS AN
INCORPORATOR”
Meaning: Everything can be amended in the AOI
except the portion where the incorporation is stated
because it is the history of the company. Original
SHs in the corporation cannot be changed.
- ACS may be increased.
INCORPORATORS:
1. Natural person
2. Filipino citizen (depends on the Negative List)
3. Resident
4. At least 5 incorporators
Directors have to be SHs to meet the requirements in
incorporation for the meantime.
SHs can be more than the directors.
At the time of incorporation, for example…
GENERAL INFORMATION SHEET (GIS)
- The document one can rely on to know who the
present directors.
- Submitted under oath by the corporate secretary.
CORPORATION LAW – ATTY. MARIANNE JOANNE K. CO-PUA Lectures 2018
- Contains the business address; (principal place
of business is contained in the AoI)
- It is mandated to be updated annually.
Effect of not updating: Incorporators who are no longer
connected may still be held liable. Diligence requires that
the incorporator makes sure that once he is no longer
connected, his name no longer appears to in the GIS, or
in case of a SH, when he has already divested his
interests.
Examples of additional requirements for incorporation:
 In Competition Law, any application for merger
with the SEC, it cannot be processed without
endorsement from the Philippine Competition
Commission so that they would know if it is within
their jurisdiction.
 If one is incorporating a bank, he cannot process
it to SEC without the BSP’s endorsement.
 In one is incorporating a hospital, he cannot
process it to SEC without the DOH’s
endorsement.
 In insurance company, endorsement of the
Insurance Commission is required.
Under CC, there is no requirement for the minimum
capitalization. But under special laws, there are stated
minimum capitalization. In corporation, there is no
minimum capitalization except for paid-in capital which
requires at least P5, 000.
VALUES
1. Par Value – stated value of the shares upon
issuance. For a stock corporation, (except
specific companies such as insurance companies
which are not entitled to have an unissued value)
this is the value stated in the AoI.
2. Book Value – (in relation to Balance Sheet and
Income Statement); that which dictates market
value.
3. Market Value – the amount which the willing
seller is willing to sell, and the willing buyer,
willing to give.
VOTINGS
1. Straight
2. Cumulative
3.
OBLIGATIONS OF A DIRECTOR
DY’NOTES
1. DILIGENCE
2. OBEDIENCE
3. LOYALTY
If one loses in the voting, his objections must be recorded
in the minutes which can be seen by the public or
stockholders. Hence, one must be diligent in objecting
because this could be a defense in case of liability.
CORPORATION BY ESTOPPEL
It can only be invoked by the person who relied to the
representation in good faith to be true and as to what is
represented. It cannot be invoked by the one who
misrepresented because he is the one who caused the
confusion in the first place.
FOUNDERS SHARE
REDEEMABLE SHARES – exception to the general
nature of shares. It may be allowed by the corporation but
it must be expressly provided for in the by-laws and in the
AoI. (Why? Trust Fund Doctrine)
GR: once a person has invested, it is his commitment and
it remains as his commitment to fully pay it. He cannot
simply surrender his shares.
XPN: One can simply surrender his shares if it is
expressly provided for in the by-laws or when it is sold to
the public in a secondary sale and chances are, it should
be sold in a lower price so it would be enticing to another
person to come in.
PREFERRED SHARES – usually redeemable because of
the guaranty of return.
 This cannot be demanded unless there is
available URE.
 Usually non-voting shares;
 Has nothing to do with day-to-day operations
 Passive income of corporations
MEMORIZE PREFERENCE OF SHARES
KINDS OF PREFERRED SHARES
1) Preferred Shares as to assets
2) Preferred Shares as to dividends
a) CUMULATIVE PREFERRED SHARE
b) NON-CUMULATIVE PREFERRED SHARE
c) PARTICIPATING PREFERRED SHARE
d) NON-PARTICIPATING PREFERRED SHARE
e) CUMULATIVE-PARTICIPATING
PREFERRED SHARE
NOTE: First in dividends, first in assets!
CORPORATION LAW – ATTY. MARIANNE JOANNE K. CO-PUA Lectures 2018
“Properties, Attributes, and Properties”
1. “Expressly attributed by law” (demanded by the
nature of existence) – implied powers, reasonably
necessary to carry out what it is expressly
conferred by law (either by CC or by special law)
or to carry out the purpose for which the
corporation is formed.
Example: Corporate funds can be used as an investment
to another corporation as a passive investment. It can be
invested in a preferred share so that one could have a
guaranteed rate; or with a company with a very good
retained earnings; or in redeemable shares which could
be either at the option of the corporation or of the investing
shareholder.
NOTE: Do not invest in a corporation where the
redeemable shares is at the option of the corporation
issuing it because it would discretionary on the part of the
latter on when the former can redeem it. It should be at
the option of the stockholder.
2. “Incident to its existence” – those which are
necessary to corporate existence. Example: to
have name; to have stockholders, etc.
- Implied is conferred from something that is existing
basically from express authority of the law.
- Incident, is when the very nature of its existence, it
demands or requires those powers.
Ownership in the shares is not ownership in the assets. It
cannot pertain into any asset of the corporation. He may
own the stocks that run the corporation, but he cannot
claim to own the properties and assets of the same.
CORPORATE OFFICERS
1. President – must be a stockholder; no director who
is not a stockholder at the same time; cannot be
CorSec and Treasurer.
2. Treasurer – need not be a citizen and a stockholder
but must be a resident.
3. Corporate Secretary – must be a Filipino citizen but
does not need to be a stockholder.
NOTE: Officers not mentioned in the by-laws, they are not
corporate officers. The significance is that, if an officer is
in the by-laws, and was removed, it is intra-corporate. If
he filed a case, it is a civil case before regular courts. If an
officer is not in the by-laws, and was removed, it is not a
termination of employment. If he will file a case, it should
be filed before the NLRC.
DY’NOTES
SECTION 2
“Right of Succession”
Corporation remains the same even the stockholders will
change. It is one of the advantages of having a
corporation. A stockholder may also transfers his shares
to another person and it does not affect the corporation. It
will still be the same corporation as it is known even it
would have different stockholders, different directors or
officers. It may still survive.
“Properties, Attributes, and Properties”; 2 Types
1. “Expressly attributed by law”
2. “Incident to its existence”
DOCTRINE OF PIERCING THE VEIL OF
CORPORATE FICTION
“A corporation’s separate and distinct legal personality
may be disregarded and the veil of corporate fiction
pierced when the notion of legal entity is used to:
1. defeat public convenience;
2. justify wrong;
3. protect fraud; or
4. defend crime.” (Siain Enterprise vs. Cupertino;
G.R. No. 170782, June 22, 2009)
It is elementary that a corporation has a personality,
separate and distinct from its officers, directors, or
persons composing it.
“While a share of stock represents a proportionate or
aliquot interest in the property of the corporation, it does
not vest the owner thereof with any legal right or title to
any of the property, his interest in the corporate property
being equitable or beneficial in nature. Shareholders are
in no legal sense the owners of corporate property, which
is owned by the corporation as a distinct legal person.”
(G.R. No. 90580; April 8, 1991)
NOTE: What would vest ownership would be the
dissolution and liquidation of the assets and properties of
the corporation. If the properties were sold prior to
dissolution, then aliquot interest or inchoate right ceases.
“It is basic that a corporation is invested by law with a
personality separate and distinct from those of the
persons composing it as well as from that of any other
legal entity to which it may be related. Mere ownership
by a single stockholder or by another corporation of
all or nearly all of the capital stock of a corporation is
not of itself sufficient ground for disregarding the
separate corporate personality.” (Alberto S. Sunio vs.
NLRC; G.R. No. L-57767; January 31, 1984)
CORPORATION LAW – ATTY. MARIANNE JOANNE K. CO-PUA Lectures 2018
Exceptions are strictly construed; elements must be
present.
“The attempt to make the two factories appear as two
separate businesses, when in reality they are but one, is
but a devise to defeat the ends of the law and should not
be permitted to prevail. Although the coffee factory is a
corporation and, by legal fiction, an entity existing
separate and apart from persons composing it, T and his
family, it is settled that this fiction of law, which had been
introduced as a matter of convenience and to subserve
the ends of justice cannot be invoked to further an end
subversive of that purpose. (13 Am. Jur. 160-162; Anno.
1 A.L.R. 612, s. 34 A.L.R. 599.)”
(20:00)
“Under the doctrine of piercing the veil of corporate entity,
when valid grounds therefore exist, the legal fiction that a
corporation is an entity with a juridical personality
separate and distinct from its members or stockholders
may be disregarded. In such cases, the corporation will
be considered as a mere association of persons. The
members or stockholders of the corporation will be
considered as the corporation, that is liability will attach
directly to the officers and stockholders. The doctrine
applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime,
or when it is made as a shield to confuse the legitimate
issues, or where a corporation is the mere alter ego or
business conduit of a person, or where the corporation is
so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.”
(INDOPHIL TEXTILE MILL WORKERS UNION-PTGWO
vs. VOLUNTARY ARBITRATOR TEODORICO P.
CALICA and INDOPHIL TEXTILE MILLS, INC.; G.R. No.
96490 February 3, 1992)
“But for the separate juridical personality of a corporation
to be disregarded, the wrongdoing must be clearly and
convincingly established. It cannot be presumed.” (Del
Rosario vs. NLRC; G.R. No. 85416; July 24, 1990)
“So, when the notion of separate juridical personality is
used to defeat public convenience, justify wrong, protect
fraud or defend crime, or is used as a device to defeat the
labor laws, this separate personality of the corporation
may be disregarded or the veil of corporate fiction pierced.
This is true likewise when the corporation is merely an
adjunct, a business conduit or an alter ego of another
corporation.” (Concept Builders vs. NLRC; G.R. No.
108734; May 29, 1996)
NATURE OF DOCTRINE
“Piercing the veil of corporate entity requires the court to
see through the protective shroud which exempts its
stockholders from liabilities that ordinarily, they could be
DY’NOTES
subject to, or distinguished one corporation from a
seemingly separate one, were it not for the existing
corporate fiction. But to do this, the court must be sure
that the corporate fiction was misused, to such an extent
that injustice, fraud, or crime was committed upon
another, disregarding, thus, his, her, or its rights. It is the
protection of the interests of innocent third persons
dealing with the corporate entity which the law aims to
protect by this doctrine.” General rule must be upheld.
(Traders Royal Bank vs. CA; G.R. No. 93397; March 3,
1997)
The rule is that “when the veil of corporate fiction is made
as a shield to perpetuate fraud and/or confuse legitimate
issues, the same should be pierced.” (Jacinto vs. CA; GR.
No. 80043; June 6, 1991)
The theory of corporate entity, in the first place, was not
meant to promote unfair objectives or otherwise, to shield
them. (Villanueva vs. Adre; G.R. No. 80863; April 27,
1989)
Likewise, where it appears that two business enterprises
are owned, conducted and controlled by the same parties,
both law and equity will, when necessary to protect the
rights of third persons, disregard the legal fiction that two
corporations are distinct entities, and treat them as
identical. (Philippine Veterans Investment Development
Corporation vs. CA; G.R. No. 85266; January 30, 1990)
WHEN NOT APPLICABLE
It is apparent, therefore, that the doctrine has no
application to this case where the purpose is not to hold
the individual stockholders liable for the obligations of the
corporation but, on the contrary, to hold the corporation
liable for the obligations of a stockholder or stockholders.
Piercing the veil of corporate entity means looking through
the corporate form to the individual stockholders
composing it. (Robledo vs. NLRC; G.R. No. 110358;
November 9, 1994)
RIGHTS AND LIABILITIES OF A CORPORATION
A corporation is liable, therefore, whenever a tortious act
is committed by an officer or agent under express
direction or authority from the stockholders or members
acting as a body, or, generally, from the directors as the
governing body. (PNB vs. CA; G.R. No. L-27155; May 18,
1978)
The test in determining the applicability of the
doctrine of piercing the veil of corporate fiction is as
follows:
1. Control, not mere majority or complete stock control,
but complete domination, not only of finances but of policy
and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction
CORPORATION LAW – ATTY. MARIANNE JOANNE K. CO-PUA Lectures 2018
had at the time no separate mind, will or existence of its
own;
2. Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents
piercing the corporate veil in applying the instrumentality
or alter ego doctrine, the courts are concerned with reality
and not form, with how the corporation operated and the
individual defendants relationship to that operation.
(Concept Builders vs. NLRC; G.R. No. 108734; May 29,
1996)
Section 4 of the Corporation Code renders the provisions
of that Code applicable in a supplementary manner to all
corporations, including those with special or individual
charters so long as those provisions are not inconsistent
with such charters. We find no provision in P.D. No. 269,
as amended, that would exclude expressly or by
necessary implication the applicability of Section 31 of the
Corporation Code in respect of members of the boards of
directors of electric cooperatives. (Benguet Electric
Cooperative, Inc. vs. NLRC; G.R. No. 89070; May 18,
1992)
CLASSIFICATION OF SHARES
1. Voting Shares
2. Non-voting Shares
KINDS OF MEETINGS
1. Regular
2. Special
“Shares of stock in corporations may be divided into
voting shares and non-voting shares, which are generally
issued as preferred or redeemable shares.
Voting rights are exercised during regular or special
meetings of stockholders; regular meetings to be held
annually on a fixed date, while special meetings may be
held at any time necessary or as provided in the by-laws,
upon due notice. (GSIS vs. CA; Gr. No. 183905 & SEC
vs. Rosete, GR. No. 184275)
MEMORIZE SEC. 6
ADVANTAGES ACCORDED TO PREFERRED
SHARES UPON CONVERSION
“The advantages accorded to the preferred shares are
undeniable, namely: the significant premium in the price
being offered; the preference enjoyed in the dividends as
well as in the liquidation of assets; and the voting rights
still retained by preferred shares in major corporate
DY’NOTES
actions. All things considered, conversion to preferred
shares would best serve the interests and rights of the
government or the eventual owner of the CIIF SMC
shares.” (Philippine Coconut Producers Federation, Inc.
(COCOFED); G.R. Nos. 177857-58)
“A preferred share of stock, on one hand, is one which
entitles the holder thereof to certain preferences over the
holders of common stock. The preferences are designed
to induce persons to subscribe for shares of a
corporation.9 Preferred shares take a multiplicity of forms.
The most common forms may be classified into two:
(1) preferred shares as to assets; and
(2) preferred shares as to dividends.
“The former is a share which gives the holder thereof
preference in the distribution of the assets of the
corporation in case of liquidation; the latter is a share the
holder of which is entitled to receive dividends on said
share to the extent agreed upon before any dividends at
all are paid to the holders of common stock. There is no
guaranty, however, that the share will receive any
dividends.” (Republic Planters Bank vs. Agana, Sr; G.R.
No. 51765; March 3, 1997)
“Redeemable shares, on the other hand, are shares
usually preferred, which by their terms are redeemable at
a fixed date, or at the option of either issuing corporation,
or the stockholder, or both at a certain redemption price.
A redemption by the corporation of its stock is, in a sense,
a repurchase of it for cancellation. The present Code
allows redemption of shares even if there are no
unrestricted retained earnings on the books of the
corporation. This is a new provision which in effect
qualifies the general rule that the corporation cannot
purchase its own shares except out of current retained
earnings. However, while redeemable shares may be
redeemed regardless of the existence of unrestricted
retained earnings, this is subject to the condition that the
corporation has, after such redemption, assets in its
books to cover debts and liabilities inclusive of capital
stock. Redemption, therefore, may not be made where
the corporation is insolvent or if such redemption will
cause insolvency or inability of the corporation to meet its
debts as they mature.” (Republic Planters Bank vs.
Agana, Sr; G.R. No. 51765; March 3, 1997) – (Note:
Relate to Trust Fund Doctrine)
“A treasury share or stock, which may be common or
preferred, may be used for a variety of corporate
purposes, such as for a stock bonus plan for management
and employees or for acquiring another company. It may
be held indefinitely, resold or retired. While held in the
companys treasury, the stock earns no dividends and has
no vote in company affairs. Thus, the CIIF common
shares that would become treasury shares are not entitled
to voting rights.” (Philippine Coconut Producers
Federation, Inc. (COCOFED); G.R. Nos. 177857-58) –
(Note: Example: Stock Bous)
CORPORATION LAW – ATTY. MARIANNE JOANNE K. CO-PUA Lectures 2018
“The charter of a corporation is a contract between three
parties: (a) it is a contract between the state and the
corporation to which the charter is granted; (b) it is a
contact between the stockholders and the state and (c) it
is also a contract between the corporation and its
stockholders.” (The Governtment of the Philippines
Islands vs. The Manila Railroad Company & Paez; GR.
No. L-30646; January 30, 1929)
“SEC. 17, CC; The amendment of the articles of
incorporation requires merely that:
a) the amendment is not contrary to any provision or
requirement under the Corporation Code, and
that
b) it is for a legitimate purpose.”
(Iglesia Evangelica Metodista En Las Islas Filipinas
(IEMELIF) (Corporation Sole), INC. vs. Bishop Nathanael
Lazaro; G.R. No: 184088; July 6, 2010)
CORPORATE NAME
“Parties organizing a corporation must choose a name at
their peril; and the use of a name similar to one adopted
by another corporation, whether a business or a nonprofit
organization, if misleading or likely to injure in the exercise
of its corporate functions, regardless of intent, may be
prevented by the corporation having a prior right, by a suit
for injunction against the new corporation to prevent the
use of the name.” (Ang Mga Kaanib Sa Iglesia Ng Dios
Kay Kristo Hesus, H.S.K. Sa Bansang Pilipinas, Inc. Vs.
Iglesia Ng Dios Kay Cristo Jesus, Haligi At Suhay Ng
Katotohanan; G.R. No. 137592. December 12, 2001)
“A change in the corporate name does not make a new
corporation, and whether effected by special act or under
a general law, has no effect on the identity of the
corporation, or on its property, rights, or liabilities.
The corporation continues, as before, responsible in its
new name for all debts or other liabilities which it had
previously contracted or incurred.” (Republic Planters
Bank vs. CA; G.R. No. 93073; December 21, 1992)
“SEC. 18, CC; The statutory prohibition cannot be any
clearer. To come within its scope, two requisites must be
proven, namely:
(1) that the complainant corporation acquired a prior right
over the use of such corporate name; and
(2) the proposed name is either:
(a) identical; or
(b) deceptively or confusingly similar to that of any
existing corporation or to any other name already
protected by law; or
(c) patently deceptive, confusing or contrary to
existing law.
DY’NOTES
The right to the exclusive use of a corporate name with
freedom from infringement by similarity is determined by
priority of adoption.
As early as Western Equipment and Supply Co. v. Reyes,
51 Phil. 115 (1927), the Court declared that a
corporation's right to use its corporate and trade name is
a property right, a right in rem, which it may assert and
protect against the world in the same manner as it may
protect its tangible property, real or personal, against
trespass or conversion. It is regarded, to a certain extent,
as a property right and one which cannot be impaired or
defeated by subsequent appropriation by another
corporation in the same field.” (PHILIPS EXPORT B.V.,
vs. CA; GR. No. 96161; February 21, 1992)
“The name of a corporation is therefore essential to its
existence. It cannot change its name except in the
manner provided by the statute. By that name alone is it
authorized to transact business. The law gives a
corporation no express or implied authority to assume
another name that is unappropriated: still less that of
another corporation, which is expressly set apart for it and
protected by the law. If any corporation could assume at
pleasure as an unregistered trade name the name of
another corporation, this practice would result in
confusion and open the door to frauds and evasions and
difficulties of administration and supervision.” (RED LINE
TRANSPORTATION CO. vs. RURAL TRANSIT CO.,
LTD.; G.R. No. 41570; September 6, 1934)\
IMPORTANCE OF CORPORATE NAME
A name is peculiarly important as necessary to the very
existence of a corporation. Its name is one of its attributes,
an element of its existence, and essential to its identity.
The general rule as to corporations is that each
corporation must have a name by which it is to sue and
be sued and do all legal acts. The name of a corporation
in this respect designates the corporation in the same
manner as the name of an individual designates the
person; and the right to use its corporate name is as much
a part of the corporate franchise as any other privilege
granted.
A corporation has an exclusive right to the use of its name,
which may be protected by injunction upon a principle
similar to that upon which persons are protected in the
use of trademarks and tradenames. Such principle
proceeds upon the theory that it is a fraud on the
corporation which has acquired a right to that name and
perhaps carried on its business thereunder, that another
should attempt to use the same name, or the same name
with a slight variation in such a way as to induce persons
to deal with it in the belief that they are dealing with the
corporation which has given a reputation to the name.”
(PHILIPS EXPORT B.V., vs. CA; GR. No. 96161;
February 21, 1992)
CORPORATION LAW – ATTY. MARIANNE JOANNE K. CO-PUA Lectures 2018
CORPORATE NAME vs. TRADE NAME
CORPORATE NAME
TRADE NAME
COMMENCEMENT OF CORPORATE EXISTENCE
“Substantial compliance with conditions subsequent will
suffice to perfect corporate personality.
Organization and commencement of transaction of
corporate business are but conditions subsequent and not
prerequisites for acquisition of corporate personality. The
adoption and filing of by-laws is also a condition
subsequent. Under Section 19 of the Corporation Code,
a corporation commences its corporate existence and
juridical personality and is deemed incorporated from the
date the Securities and Exchange Commission issues
certificate of incorporation under its official seal. This may
be done even before the filing of the by-laws, which under
Section 46 of the Corporation Code, must be adopted
"within one month after receipt of official notice of the
issuance of its certificate of incorporation." (CHUNG KA
BIO vs. IAC; G.R. No. L- 71837; July 26, 1988) (Note: 30
days from receipt of Certificate of Incorporation from SEC,
must file by-laws.)
CORPORATION BY ESTOPPEL
When a third person has entered into a contract with an
association which represented itself to be a corporation,
the association will be estopped from denying its
corporate capacity in a suit against it by such third person.
It cannot allege lack of capacity to be sued to evade
responsibility on a contract it had entered into and by
virtue of which it received advantages and benefits.
(Christian Child’s Fund vs. NLRC; G.R. No. L-84502;
June 30, 1989)
“Corporation by estoppel doctrine is founded on principles
of equity and is designed to prevent injustice and
unfairness. It applies when persons assume to form a
corporation and exercise corporate functions and enter
into business relations with third persons. Where there is
no third person involved and the conflict arises only
among those assuming the form of a corporation, who
therefore know that it has not been registered, there is no
corporation by estoppel.” (Lozano v. De Los Santos, 274
SCRA 452 (1997)
“TERM” OF OFFICE, defined; Distinguished from
tenure
The word term has acquired a definite meaning in
jurisprudence. In several cases, we have defined term as
the time during which the officer may claim to hold the
office as of right, and fixes the interval after which the
several incumbents shall succeed one another. The term
of office is not affected by the holdover. The term is fixed
by statute and it does not change simply because the
DY’NOTES
office may have become vacant, nor because the
incumbent holds over in office beyond the end of the term
due to the fact that a successor has not been elected and
has failed to qualify.
Term is distinguished from tenure in that an officers
tenure represents the term during which the incumbent
actually holds office. The tenure may be shorter (or, in
case of holdover, longer) than the term for reasons within
or beyond the power of the incumbent.
The holdover period that time from the lapse of one year
from a members election to the Board and until his
successors election and qualification is not part of the
directors original term of office, nor is it a new term; the
holdover period, however, constitutes part of his tenure.
Corollary, when an incumbent member of the board of
directors continues to serve in a holdover capacity, it
implies that the office has a fixed term, which has
expired, and the incumbent is holding the succeeding
term.” (Valle Verde Country Club, Inc., vs. Africa; G.R. No.
151969; September 4, 2009)
“As a general rule, officers and directors of a corporation
hold over after the expiration of their terms until such time
as their successors are elected or appointed.
The holdover doctrine has, to be sure, a purpose which is
at once legal as it is practical. It accords validity to what
would otherwise be deemed as dubious corporate acts
and gives continuity to a corporate enterprise in its
relation to outsiders.” (Seeres vs. COMELEC; G.R. No.
178678; April 16, 2009)
THE BOARD OF DIRECTORS MAY VALIDLY
DELEGATE SOME OF ITS FUNCTIONS AND POWERS
TO OFFICERS COMMITTEE OR AGENTS
Under Section 23, the power and the responsibility to
decide whether the corporation should enter into a
contract that will bind the corporation are lodged in the
board of directors, subject to the articles of incorporation,
by-laws, or relevant provisions of law. However, just as a
natural person may authorize another to do certain
acts for and on his behalf, the board of directors may
validly delegate some of its functions and powers to
officers, committees or agents. The authority of such
individuals to bind the corporation is generally derived
from law, corporate by-laws or authorization from the
board, either expressly or impliedly by habit, custom or
acquiescence in the general course of business. (CEBU
MACTAN MEMBERS CENTER, INC. vs. MASAHIRO
TSUKAHARA; G.R. No. 159624; July 17, 2009) (NOTE:
“authorize another to do certain acts for and on his behalf”
– ATTORNEY-IN-FACT; “authorization from the board” –
BOARD RESOLUTION)
CORPORATION LAW – ATTY. MARIANNE JOANNE K. CO-PUA Lectures 2018 DY’NOTES

CORPORATION MAY DELEGATE POWERS AND

FUNCTIONS TO OFFICERS, COMMITTEES OR
AGENTS

“A corporation, like a natural person who may authorize

another to do certain acts for and in his behalf, through its
board of directors, may legally delegate some of its
functions and powers to its officers, committees or agents
appointed by it. In the absence of an authority from the
board of directors, no person, not even the officers of the
corporation, can validly bind the corporation.”
(Luzviminda Visayan vs. NLRC; G.R. No. 69999; April 30,
1991)

TAKE NOTE ON HOW EXECUTIVE COMMITTEE IS

CONSTITUTED!!!

LIMITATATIONS:
The things that they cannot do are:
1. those which are reserved for action of the BoD; If they
come across things they cannot do because it is only
within the power of the BoD, they are only
RECOMMENDARY. They will discuss and when they
present it to the BoD, there would already be a clear
recommendation, but they cannot approve the action.
They will present it to the BoD, and the Board will be the
one to officially approve it.

SELF-ASSESSMENT EXAM DAY!!!

CORPORATION LAW – ATTY. MARIANNE JOANNE K. CO-PUA Lectures 2018
CORPORATE POWERS
The corporate powers of a corporation, including the
power to sue and be sued in its corporate name, are
exercised by the board of directors. The physical acts of
the corporation, like the signing of documents such as
verification and certification of non-forum shopping, can
only be performed by natural persons duly authorized for
the purpose by corporate by-laws or by a specific act of
the board of directors. (G.R. No. 179652)
NOTE:
If a counsel is representing a corporation, there should
always be a Board Resolution appointing the former as
counsel. If the name of the counsel is not indicated in the
Board Resolution, it is still acceptable provided the
president or other officer was empowered to hire counsel,
which is the alternative. The authority of the counsel
would be derived from the authority given to the
authorized President or other officer. It cannot be simply
be argued that just because the power to sue is expressly
provided in the CC, then it would no longer require any
authority from the Board, and can just sue for and in
behalf of the corporation. It is not part of the function of
the president or other officers. If the act is not in the by-
laws, then a Board Resolution regarding such act is
required.
Physical acts of the corporation such as signing of a
document or verification of a non-forum shopping, can
only be performed by natural persons duly authorized for
the purpose by the corporate by-laws, or a specific act of
the Board of Directs.
Corporate authority is necessary, either the by-laws would
specifically provide for example that the Vice-President
for legal affairs shall take charge to pursue an action for
and in behalf of the corporation. Otherwise, there should
be a resolution specifically pointing in that representative.
EXERCISE OF CORPORATE POWERS
Corporate powers exercised through board of
directors. It must be borne in mind that Sec. 23, in
relation to Sec. 25 of the Corporation Code, clearly
enunciates that:
1. All corporate powers are exercised,
2. All business conducted, and
3. All properties controlled by the board of directors.
A corporation has a separate and distinct personality from
its directors and officers and can only exercise its
corporate powers through the board of directors. Thus, it
is clear that an individual corporate officer cannot solely
exercise any corporate power pertaining to the
corporation without authority from the board of directors.
This has been our constant holding in cases instituted by
a corporation. (Cagayan Valley Drug Corporation vs.
DY’NOTES
Commissioner of Internal Revenue; G.R. No. 151413;
February 13, 2008)
“Indubitably, a corporation may act only through its board
of directors, or, when authorized either by its bylaws or by
its board resolution, through its officers or agents in the
normal course of business. The general principles of
agency govern the relation between the corporation and
its officers or agents, subject to the articles of
incorporation, bylaws, or relevant provisions of law. Thus,
this Court has held that a corporate officer or agent may
represent and bind the corporation in transactions with
third persons to the extent that the authority to do so has
been conferred upon him, and this includes:
 powers which have been intentionally conferred,
and also such powers as, in the usual course of
the particular business, are incidental to, or may
be implied from,
 the powers intentionally conferred,
 powers added by custom and usage, as usually
pertaining to the particular officer or agent, and
 such apparent powers as the corporation has
caused persons dealing with the officer or agent
to believe that it has conferred.” (San Juan
Structural and Steel Fabricators, Inc. vs. CA; G.R.
No. 129459. September 29, 1998)
o Estoppel is possible the effect of an act
of an officer which was not authorized.
“Since a corporation, such as the private respondent, can
act only through its officers and agents, all acts within the
powers of said corporation may be performed by agents
of its selection; and, except so far as limitations or
restrictions may be imposed by special charter, by-law, or
statutory provisions, the same general principles of law
which govern the relation of agency for a natural
person govern the officer or agent of a corporation,
of whatever status or rank, in respect to his power to
act for the corporation; and agents when once
appointed, or members acting in their stead, are
subject to the same rules, liabilities, and incapacities
as are agents of individuals and private persons.” (AF
REALTY & DEVELOPMENT, INC. vs. DIESELMAN
FREIGHT SERVICES, CO.; G.R. No. 111448. January
16, 2002)
NOTE:
-Legal capacity
-When you authorize someone as your attorney-in-fact,
you also impliedly confer with him to act all other things.
This is when you authorize someone with SPA, by
enumerating powers including those which are necessary
and incidental for him to discharge those functions. It is
the same as in this case but those which are not expressly
conferred are considered as beyond the scope of the
agency. It must be strictly construed. If it is not in the
resolution, then the third party can say that the agent has
no authority.
CORPORATION LAW – ATTY. MARIANNE JOANNE K. CO-PUA Lectures 2018
-President can be given power to engage counsel but the
counsel was not yet named. So the Board Resolution
would specifically state that parameters under which the
President may appoint counsel.
“Moreover, " . . . a corporate officer or agent may
represent and bind the corporation in transactions with
third persons to the extent that authority to do so has been
conferred upon him, and this includes powers which have
been intentionally conferred, and also such powers as, in
the usual course of the particular business, are:
1. incidental to the powers intentionally conferred;
2. implied from the powers intentionally conferred;
3. powers added by custom and usage, as usually
pertaining to the particular officer or agent, and
such apparent powers as the corporation has
caused persons dealing with the officer or agent
to believe that it has conferred.” (Yao Ka Sin
Trading vs. CA; G.R. No. L-53820; June 15,
1992)
NOTE: Customarily, a corporate secretary is in charged
with the records. There is already customary that he also
certifies the records because he is the custodian. He need
not be authorized by the Board to certify records. It may
also be incidental to his power as a corporate secretary.
Powers to be exercised need not all be enumerated as
long as the 3 parameters above are observed.
BUSINESS JUDGMENT RULE
“This is in accord with the business judgment rule
whereby the SEC and the courts are barred from
intruding into business judgments of corporations,
when the same are made in good faith. The said rule
precludes the reversal of the decision of the PSE to deny
PALIs listing application, absent a showing a bad faith on
the part of the PSE.” (Philippine Stock Exchange, Inc. vs.
CA; G.R. No. 125469, October 27, 1997)
NOTES: As long as the business judgment is not one of
those excepted such as bad faith and fraud, then the SEC
and he courts cannot encroach upon the business
judgment of a corporation.
Example: When one of the departments in a corporation
was closed, it would have an effect of retrenchment or
redundancy. Even if the business is not losing, as long as
it is made in good faith, the SEC and the courts cannot
encroach upon the business judgment.
DOCTRINE OF APPARENT AUTHORITY
FIRST PHILIPPINE INTERNATIONAL BANK vs. CA;
G.R. No. 115849; January 24, 1996
The authority of a corporate officer in dealing with third
persons may be actual or apparent. The doctrine of
DY’NOTES
"apparent authority", with special reference to banks, was
laid out in Prudential Bank vs. Court of Appeals31 , where
it was held that:
Conformably, we have declared in countless
decisions that the principal is liable for obligations
contracted by the agent. The agent's apparent
representation yields to the principal's true
representation and the contract is considered as
entered into between the principal and the third
person (citing National Food Authority vs.
Intermediate Appellate Court, 184 SCRA 166).
A bank is liable for wrongful acts of its officers done
in the interests of the bank or in the course of
dealings of the officers in their representative
capacity but not for acts outside the scope of their
authority (9 C.J.S., p. 417). A bank holding out its
officers and agents as worthy of confidence will not
be permitted to profit by the frauds they may thus
be enabled to perpetrate in the apparent scope of
their employment; nor will it be permitted to shirk its
responsibility for such frauds even though no
benefit may accrue to the bank therefrom. (10 Am
Jur 2d, p. 114).
Accordingly, a banking corporation is liable to
innocent third persons where the representation is
made in the course of its business by an agent
acting within the general scope of his authority even
though, in the particular case, the agent is secretly
abusing his authority and attempting to perpetrate
a fraud upon his principal or some other person, for
his own ultimate benefit (McIntosh v. Dakota Trust
Co., 52 ND 752, 204 NW 818, 40 ALR 1021).
NOTES: Even if the agent has acted beyond the scope of
his authority, the corporation cannot deny such authority
if has made the third person believe that such agent has
an authority.
Example: A corporation has given the broker a contact
which provides 2 months deposit, 2 months advance, and
10 postdated checks. The broker delivered it to the lessee
but he delivered different contract, which provides 12
months advance payment and 2 months deposit. What
the lessee delivered then, are postdated checks of his
friend who is unknown. Hence, it was complied insofar as
the corporation is concerned.
But if the corporation has only told the client that the
broker will only show the unity and that he must come to
the office of the corporation if he is willing to transact, then
there would be no apparent authority given to the broker
because the latter was never authorized in the first place
to deliver documents or get document in behalf of the
corporation. What he is authorized is just to show the unit.
If within the scope and it was abused by the agent to
something related to that, the representations and
CORPORATION LAW – ATTY. MARIANNE JOANNE K. CO-PUA Lectures 2018
actuations or acquiescence of the corporation would give
apparent authority to the agent to act in its behalf.
DOCTRINE OF APPARENT AUTHORITY, NOT
APPLICABLE
“Contracts entered into by a corporate president without
express prior board approval bind the corporation, when
such officers apparent authority is established and when
these contracts are ratified by the corporation.
Apparent authority is derived not merely from practice. Its
existence may be ascertained through:
(1) the general manner in which the corporation
holds out an officer or agent as having the power
to act or, in other words, the apparent authority to
act in general, with which it clothes him; or
(2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge
thereof, whether within or beyond the scope of his
ordinary powers.
It requires presentation of evidence of similar act(s)
executed either in its favor or in favor of other parties. It
is not the quantity of similar acts which establishes
apparent authority, but the vesting of a corporate
officer with the power to bind the corporation.”
(PEOPLES AIRCARGO AND WAREHOUSING CO.
INC., vs. CA; G.R. No. 117847. October 7, 1998)
A CORPORATION CAN ACT ONLY THROUGH ITS
BOARD OF DIRECTORS
"The law is settled that contracts between a corporation
and third persons must be made by or under the authority
of its board of directors and not by its stockholders.
Hence, the action of the stockholders in such matters is
only advisory and not in any wise binding on the
corporation." (Luzviminda Visayan vs. NLRC; G.R. No.
69999; April 30, 1991)
“A corporation is bound by the act of an officer or agent
only to the extent that the power to do the act has been
conferred upon him expressly by the charter, by-laws or
action of the stockholders or directors, or can be implied
from powers expressly conferred, or which are incidental
thereto, or where the act is within the apparent powers
which the corporation has caused third persons to believe
it has conferred upon the officer or agent.
Whatever authority the officers or agents of a corporation
may have is derived from the board of directors, or other
governing body, unless conferred by the charter of the
corporation. A corporate officer’s power as an agent of the
corporation must therefore be sought from the statute,
the charter, the by-laws, or in a delegation of authority
to such officer, from the acts of the board of directors,
formally expressed or implied from a habit or custom
DY’NOTES
of doing business.” (Vicente vs. Geraldez; G.R. No. L-
32473. July 31, 1973)
“The power and the responsibility to decide whether the
corporation should enter into a contract that will bind the
corporation are lodged in the board, subject to the articles
of incorporation, bylaws, or relevant provisions of law. In
the absence of authority from the board of directors, no
person, not even its officers, can validly bind a
corporation.
However, just as a natural person may authorize
another to do certain acts for and on his behalf, the
board of directors may validly delegate some of its
functions and powers to its officers, committees or agents.
The authority of these individuals to bind the corporation
is generally derived from law, corporate bylaws or
authorization from the board, either expressly or impliedly
by habit, custom or acquiescence in the general course of
business.”
The existence of apparent authority may be ascertained
through:
1) the general manner in which the corporation holds
out an officer or agent as having the power to act, or in
other words, the apparent authority to act in general,
with which it clothes him; or
2) the acquiescence in his acts of a particular nature,
with actual or constructive knowledge thereof, within or
beyond the scope of his ordinary powers.
Accordingly, the authority to act for and to bind a
corporation may be presumed from acts of recognition in
other instances when the power was exercised without
any objection from its board or shareholders.” (Banate vs.
Philippine Countryside Rural Bank; G.R. No. 163825; July
13, 2010) (NOTE: If no intention of giving apparent
authority, do not keep quiet if you have actual/constructive
knowledge.)
“The board of directors of a corporation is a creation of the
stockholders and controls and directs the affairs of the
corporation by allegation of the stockholders. But the
board of directors, or the majority thereof, in drawing to
themselves the power of the corporation, occupies a
position of trusteeship in relation to the minority of the
stock in the sense that the board should exercise good
faith, care and diligence in the administration of the affairs
of the corporation and should protect not only the interest
of the majority but also those of the minority of the stock.
Where a majority of the board of directors wastes or
dissipates the funds of the corporation or fraudulently
disposes of its properties, or performs ultra vires acts, the
court, in the exercise of its equity jurisdiction, and upon
showing that intracorporate remedy is unavailing, will
entertain a suit filed by the minority members of the board
of directors, for and in behalf of the corporation, to prevent
waste and dissipation and the commission of illegal acts
CORPORATION LAW – ATTY. MARIANNE JOANNE K. CO-PUA Lectures 2018
and otherwise redress the injuries of the minority
stockholders against the wrongdoing of the majority. The
action in such a case is said to be brought derivatively in
behalf of the corporation to protect the rights of the
minority stockholders thereof.” (Angeles vs. Santos; G.R.
No. L-43413; August 31, 1937)
“Where the majority of the board of directors wastes or
dissipates the funds of the corporation or fraudulently
disposes of its properties, or performs ultra vires acts, the
court, in the exercise of its equity jurisdiction, and upon
showing that intracorporate remedy is unavailing, will
entertain a suit filed by the minority members of the board
of directors, for and in behalf of the corporation, to prevent
waste and dissipation and the commission of illegal acts
and otherwise redress the injuries of the minority
stockholders against the wrongdoing of the majority. The
action in such a case is said to be brought derivatively in
behalf of the corporation to protect the rights of the
minority stockholders thereof.” (Cua, Jr. vs. Tan; G.R. No.
181455-56; December 4, 2009)
DERIVATIVE SUIT
It is well settled in this jurisdiction that where corporate
directors are guilty of a breach of trust not of mere
error of judgment or abuse of discretion and
intracorporate remedy is futile or useless, a
stockholder may institute a suit in behalf of himself and
other stockholders and for the benefit of the corporation,
to bring about a redress of the wrong inflicted directly
upon the corporation and indirectly upon the stockholders.
NOTE: Best Judgment Rule may justify why they sell
properties or assets at a loss.
A DERIVATIVE SUIT MUST BE DIFFERENTIATED
FROM INDIVIDUAL AND REPRESENTATIVE OR
CLASS SUIT, thus,
“Suits by stockholders or members of a corporation based
on wrongful or fraudulent acts of directors or other
persons may be classified into:
1. individual suits
2. class suits, and
3. derivative suits.
Where a stockholder or member is denied the right of
inspection, his suit would be individual because the wrong
is done to him personally and not to the other
stockholders or the corporation. Where the wrong is done
to a group of stockholders, as where preferred
stockholders rights are violated, a class or representative
suit will be proper for the protection of all stockholders
belonging to the same group.
But where the acts complained of constitute a wrong to
the corporation itself, the cause of action belongs to the
corporation and not to the individual stockholder or
member. Although in most every case of wrong to the
DY’NOTES
corporation, each stockholder is necessarily affected
because the value of his interest therein would be
impaired, this fact of itself is not sufficient to give him an
individual cause of action since the corporation is a
person distinct and separate from him, and can and
should itself sue the wrongdoer. Otherwise, not only
would the theory of separate entity be violated, but there
would be multiplicity of suits as well as a violation of the
priority rights of creditors. Furthermore, there is the
difficulty of determining the amount of damages that
should be paid to each individual stockholder.
However, in cases of mismanagement where the wrongful
acts are committed by the directors or trustees
themselves, a stockholder or member may find that he
has no redress because the former are vested by law with
the right to decide whether or not the corporation should
sue, and they will never be willing to sue themselves. The
corporation would thus be helpless to seek remedy.
Because of the frequent occurrence of such a situation,
the common law gradually recognized the right of a
stockholder to sue on behalf of a corporation in what
eventually became known as a derivative suit. It has been
proven to be an effective remedy of the minority against
the abuses of management.
Thus, an individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he
holds stock in order to protect or vindicate corporate
rights, whenever officials of the corporation refuse to sue
or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is
regarded as the nominal party, with the corporation as the
party in interest.” (Cua, Jr. vs. Tan; G.R. No. 181455-56;
December 4, 2009)
(57:41)
ELECTION OF DIRECTORS OR TRUSTEES
“…the distinction between proxy solicitation and proxy
validation cannot be dismissed offhand. The right of a
stockholder to vote by proxy is generally established by
the Corporation Code, but it is the SRC which specifically
regulates the form and use of proxies, more particularly
the procedure of proxy solicitation, primarily through
Section 20.
It is plain that proxy solicitation is a procedure that
antecedes proxy validation. The former involves the
securing and submission of proxies, while the latter
concerns the validation of such secured and submitted
proxies (proxy forms).
NOTE: Proxy Solicitation – cannot be done without
approval by SEC; it would in effect tarnish the right of the
SHs.
Under Section 5(c) of Presidential Decree No. 902-A, in
relation to the SRC, the jurisdiction of the regular trial
CORPORATION LAW – ATTY. MARIANNE JOANNE K. CO-PUA Lectures 2018 DY’NOTES

courts with respect to election-related controversies is “To be eligible as a director, what is material is the legal
specifically confined to controversies in the election or title to, not beneficial ownership of, the stock as appearing
appointment of directors, trustees, officers or managers on the books of the corporation.” (Lee vs. CA; G.R. No.
of corporations, partnerships, or associations. Evidently, 93695; February 4, 1992)
the jurisdiction of the regular courts over so-called
election contests or controversies under Section 5(c) Under Section 25 of the Corporation Code of the
does not extend to every potential subject that may be Philippines, the articles of incorporation or by-laws of the
voted on by shareholders, but only to the election of corporation may fix a greater number than the majority of
directors or trustees, in which stockholders are authorized the number of board members to constitute the quorum
to participate under Section 24 of the Corporation necessary for the valid transaction of business. Any
Code.[49] number less than the number provided in the articles or
by-laws therein cannot constitute a quorum and any act
This qualification allows for a useful distinction that gives therein would not bind the corporation; all that the
due effect to the statutory right of the SEC to regulate attending directors could do is to adjourn. (Pena vs. CA;
proxy solicitation, and the statutory jurisdiction of regular G.R. No. 91478; February 7, 1991)
courts over election contests or controversies. The power
of the SEC to investigate violations of its rules on proxy
solicitation is unquestioned when proxies are obtained to
vote on matters unrelated to the cases enumerated under
Section 5 of Presidential Decree No. 902-A. However,
when proxies are solicited in relation to the election of
corporate directors, the resulting controversy, even if it
ostensibly raised the violation of the SEC rules on proxy
solicitation, should be properly seen as an election
controversy within the original and exclusive jurisdiction
of the trial courts by virtue of Section 5.2 of the SRC in
relation to Section 5(c) of Presidential Decree No. 902-A.

The conferment of original and exclusive jurisdiction on

the regular courts over such controversies in the election
of corporate directors must be seen as intended to confine
to one body the adjudication of all related claims and
controversy arising from the election of such directors. For
that reason, the aforequoted Section 2, Rule 6 of the
Interim Rules broadly defines the term election contest as
encompassing all plausible incidents arising from the
election of corporate directors, including:
(1) any controversy or dispute involving title or claim
to any elective office in a stock or nonstock
corporation,
(2) the validation of proxies,
(3) the manner and validity of elections and
(4) the qualifications of candidates, including the
proclamation of winners.
If all matters anteceding the holding of such election
which affect its manner and conduct, such as the proxy
solicitation process, are deemed within the original and
exclusive jurisdiction of the SEC, then the prospect of
overlapping and competing jurisdictions between that
body and the regular courts becomes frighteningly real.
From the language of Section 5(c) of Presidential Decree
No. 902-A, it is indubitable that controversies as to the
qualification of voting shares, or the validity of votes cast
in favor of a candidate for election to the board of directors
are properly cognizable and adjudicable by the regular
courts exercising original and exclusive jurisdiction over
election cases.” (GSIS vs. CA; G.R. No. 183905; April 16,
2009)