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CASE DOCTRINES

CORPORATION LAW
ATTY. BUSMENTE (2013-2014)

CASE DOCTRINE
1. GOOD A corporation has a personality distinct and separate from its individual stockholders
EARTH EMPORIUM or members. As a consequence of the separate juridical personality of a corporation,
V. CA the corporate debt or credit is not the debt or credit of the stockholder, nor is the
stockholder's debt or credit that of the corporation

2. CRUZ V. The mere fact that one is president of the corporation does not render the property he
DALISAY owns or possesses the property of the corporation, since that president, as an
individual, and the corporation, are separate entities.

3. BANK OF Petitioners' argument that private respondents, being mere stockholders of the
AMERICA V. CA foreign corporations, have no personalities to sue, and therefore, the complaint
should be dismissed, is untenable. A case is dismissible for lack of personality to sue
upon proof that the plaintiff is not the real party-in-interest. Lack of personality to sue
can be used as a ground for a Motion to Dismiss based on the fact that the complaint,
on the face thereof, evidently states no cause of action.

In the case at bar, the complaint contains the three elements of a cause of action. It
alleges that: (1) plaintiffs, herein private respondents, have the right to demand for an
accounting from defendants (herein petitioners), as trustees by reason of the fiduciary
relationship that was created between the parties involving the vessels in question;
(2) petitioners have the obligation, as trustees, to render such an accounting; and (3)
petitioners failed to do the same.

4. AVON Thus, conformably with established jurisprudence, the two entities cannot be deemed
DALE GARMENTS, as separate and distinct where there is a showing that one is merely the continuation
INC. V. NLRC of the other. In fact, even a change in the corporate name does not make a new
corporation, whether effected by a special act or under a general law, it has no effect
on the identity of the corporation, or on its property, rights, or liabilities.

5. CONCEP The test in determining the applicability of the doctrine of piercing the veil of
T BUILDERS V. corporation fiction is as follows:
NLRC 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 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 plaintiff's legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
Note: The absence of any one of these elements prevent 'piercing the corporate veil.'
6. FIRST The corporate veil cannot be used to shield an otherwise blatant violation of the
PHIL. prohibition against forum-shopping. Shareholders, whether suing as the majority in
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INTERNATIONAL direct action or as the minority in a derivative suit, cannot be allowed to trifle with
BANK V. CA court processes, particularly where, as in this case, the corporation itself has not
been remiss in vigorously prosecuting or defending corporate causes and in using
and applying remedies available to it. To rule otherwise would be to encourage
corporate litigants to use their shareholders as fronts to circumvent the stringent rules
against forum shopping.

7. FRANCIS Instead of holding certain individuals or persons responsible for an alleged corporate
CO MOTORS CORP. act, the situation has been reversed. It is the corporation which is being ordered to
V. CA answer for the personal liabilities of certain individual directors, officers and
incorporators concerned. The doctrine has been turned upside down because of its
erroneous invocation. The personality of the corporation and those of its
incorporators, directors and officers in their personal capacities ought to be kept
separate. The claim for legal fees against the concerned individual incorporators,
officers and directors could not be properly directed against the corporation without
violating basic principles governing corporations.

8. REYNOS The defense of separateness will be disregarded where the business affairs of a
O V. CA subsidiary corporation are so controlled by the mother corporation to the extent that it
becomes an instrument or agent of its parent. But even where there is dominance
over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction
applies only when such fiction is used to defeat public convenience, justify wrong,
protect fraud or defend crime.

9. DE LEON The purported sale of the shares of the former stockholders to a new set of
V. NLRC stockholders who changed the name of the corporation to Magnum Integrated
Services, Inc. appears to be part of a scheme to terminate the services of FISI's
security guards posted at the premises of FTC and bust their newly-organized union
which was then beginning to become active in demanding the company's compliance
with Labor Standards laws. Under these circumstances, the Court cannot allow FTC
to use its separate corporate personality to shield itself from liability for illegal acts
committed against its employees.

10. PNB V. As a rule, a corporation that purchases the assets of another will not be liable for the
ANDRADA debts of the selling corporation, provided the former acted in good faith and paid
adequate consideration for such assets, EXCEPT when any of the following
circumstances is present:

(1) where the purchaser expressly or impliedly agrees to assume the debts,
(2) where the transaction amounts to a consolidation or merger of the corporations,
(3) where the purchasing corporation is merely a continuation of the selling
corporation, and
(4) where the transaction is fraudulently entered into in order to escape liability for
those debts.

11. LIPAT V. Where one corporation is so organized and controlled and its affairs are conducted so
PACIFIC BANKING that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the

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CORP. corporate entity of the 'instrumentality' may be disregarded. The control necessary to
invoke the rule is not majority or even complete stock control but such domination of
finances, policies and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but a conduit for its principal. . .

12. It is a settled principle in corporation law that any person acting or purporting to act on
INTERNATIONAL behalf of a corporation which has no valid existence assumes such privileges and
EXPRESS becomes personally liable for contract entered into or for other acts performed as
TRAVEL & TOURS such agent. As president of the Federation, Henri Kahn is presumed to have known
INC. V. CA about the corporate existence or non-existence of the Federation. We cannot
subscribe to the position taken by the appellate court that even assuming that the
Federation was defectively incorporated, the petitioner cannot deny the corporate
existence of the Federation because it had contracted and dealt with the Federation
in such a manner as to recognize and in effect admit its existence. The doctrine of
corporation by estoppel is mistakenly applied by the respondent court to the
petitioner. The application of the doctrine applies to a third party only when he tries to
escape liabilities on a contract from which he has benefited on the irrelevant ground
of defective incorporation. In the case at bar, the petitioner is not trying to escape
liability from the contract but rather is the one claiming from the contract.

13. LIM There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled
TONG LIM V. to be paid for the nets it sold. The only question here is whether petitioner should be
PHILIPPINE held jointly liable with Chua and Yao. Petitioner contests such liability, insisting that
FISHING GEARS only those who dealt in the name of the ostensible corporation should be held liable.
INC. Since his name does not appear on any of the contracts and since he never directly
transacted with the respondent corporation, ergo, he cannot be held liable.

Clearly, under the law on estoppel, those acting on behalf of a corporation and those
benefited by it, knowing it to be without valid existence, are held liable as general
partners. Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered into by
persons with whom he previously had an existing relationship, he is deemed to be
part of said association and is covered by the scope of the doctrine of corporation by
estoppel.

14. LOZANO The doctrine of corporation by estoppel advanced by private respondent cannot
V. JUDGE DELOS override jurisdictional requirements. Jurisdiction is fixed by law and is not subject to
SANTOS the agreement of the parties. It cannot be acquired through or waived, enlarged or
diminished by, any act or omission of the parties, neither can it be conferred by the
acquiescence of the court.

Corporation by estoppel 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.
15. LYCEUM We do not consider that the corporate names of private respondent institutions are
OF THE "identical with, or deceptively or confusingly similar" to that of the petitioner institution.
PHILIPPINES V. True enough, the corporate names of private respondent entities all carry the word
CA "Lyceum" but confusion and deception are effectively precluded by the appending of

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geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of
Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or
that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the
Philippines.

Under the doctrine of secondary meaning, a word or phrase originally incapable of


exclusive appropriation with reference to an article in the market, because
geographical or otherwise descriptive might nevertheless have been used so long
and so exclusively by one producer with reference to this article that, in that trade and
to that group of the purchasing public, the word or phrase has come to mean that the
article was his produce

while the appellant may have proved that it had been using the word 'Lyceum' for a
long period of time, this fact alone did not amount to mean that the said word had
acquired secondary meaning in its favor because the appellant failed to prove that it
had been using the same word all by itself to the exclusion of others. More so, there
was no evidence presented to prove that confusion will surely arise if the same word
were to be used by other educational institutions.

16. HALL V. An entity whose certificate of incorporation had not been obtained may be terminated
PICCIO in a private suit for its dissolution between stockholders, without the intervention of
the state. The question as to the right of minority stockholders to sue for dissolution
does not affect the court's jurisdiction, and is a matter for decision by the judge,
subject to review on appeal by the aggrieved party at the proper time.

Persons acting as corporation may not claim rights of "de facto" corporation if they
have not obtained certificate of incorporation.

17. INDUSTR Section 18 of the Corporation Code expressly prohibits the use of a corporate name
IAL which is "identical or deceptively or confusingly similar to that of any existing
REFRACTORIES corporation or to any other name already protected by law or is patently deceptive,
CORPORATION confusing or contrary to existing laws."
OF THE
PHILIPPINES V. To fall within the prohibition of the law, two requisites must be proven, to wit:
CA
(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.

As regards the first requisite, it has been held that the right to the exclusive use of a
corporate name with freedom from infringement by similarity is determined by priority
of adoption.

Anent the second requisite, in determining the existence of confusing similarity in


corporate names, the test is whether the similarity is such as to mislead a person
using ordinary care and discrimination and the Court must look to the record as well
as the names themselves.

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18. SEVENT The deed of donation was not in favor of any informal group of SDA members but a
H DAY supposed SPUM-SDA Bayugan (the local church) which, at the time, had neither
ADVENTIST V. juridical personality nor capacity to accept such gift.
NORTHEASTER Declaring themselves a de facto corporation, petitioners allege that they should
MINDANAO benefit from the donation.But there are stringent requirements before one can qualify
as a de facto corporation:
(a) the existence of a valid law under which it may be incorporated;
(b) an attempt in good faith to incorporate; and
(c) assumption of corporate powers.

19. GRACE Sections 28 and 29 of the Corporation Law require members of the boards of
CHRISTIAN HIGH directors of corporations to be elected. The board of directors of corporations must be
SCHOOL V. CA elected from among the stockholders or members.
There may be corporations in which there are unelected members in the board but it
is clear that in the examples cited by petitioner the unelected members sit as ex
officio members, i.e., by virtue of and for as long as they hold a particular office. But
in the case of petitioner, there is no reason at all for its representative to be given a
seat in the board. Nor does petitioner claim a right to such seat by virtue of an office
held.
For that matter the members of the association may have formally adopted the
provision in question, but their action would be of no avail because no provision of the
by-laws can be adopted if it is contrary to law.
It is more accurate to say that the members merely tolerated petitioner's
representative and tolerance cannot be considered ratification. Nor can petitioner
claim a vested right to sit in the board on the basis of "practice." Practice, no matter
how long continued, cannot give rise to any vested right if it is contrary to law.

20. JOHN Any person who buys stock in a corporation does so with the knowledge that its
GOKONGWEI JR. affairs are dominated by a majority of the stockholders and that he impliedly contracts
V. SEC that the will of the majority shall govern in all matters within the limits of the act of
incorporation and lawfully enacted by-laws and not forbidden by law. To this extent,
therefore, the stockholder may be considered to have parted with his personal right or
privilege to regulate the disposition of his property which he has invested in the
capital stock of the corporation, and surrendered it to the will of the majority of his
fellow incorporators.

DOCTRINE OF CORPORATE OPPORTUNITY - is precisely a recognition by the


courts that the fiduciary standards could not be upheld where the fiduciary was acting
for two entities with competing interests. This doctrine rests fundamentally on the
unfairness, in particular circumstances of an officer or director taking advantage of an
opportunity for his own personal profit when the interest of the corporation justly calls
for protection.

21. INTER- The general rule is that, in the absence of authority from the board of directors, no
ASIA person, not even its officers, can validly bind a corporation. (see sec. 23)
INVESTMENTS
INDUSTRIES, INC. An officer of a corporation who is authorized to purchase the stock of another

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V. CA corporation has the implied power to perform all other obligations arising therefrom,
such as payment of the shares of stock. By allowing its president to sign the
Agreement on its behalf, petitioner clothed him with apparent capacity to perform all
acts which are expressly, impliedly and inherently stated therein.

22. NACPIL As petitioner's appointment as comptroller required the approval and formal action of
V. the IBC's Board of Directors to become valid, it is clear therefore holds that petitioner
INTERNATIONAL is a corporate officer whose dismissal may be the subject of a controversy cognizable
BROADCASTING by the SEC under Section 5(c) of P.D. 902-A which includes controversies involving
CORP. both election and appointment of corporate directors, trustees, officers, and
managers. Had petitioner been an ordinary employee, such board action would not
have been required.

23. WESTER There is no argument that directors or trustees, as the case may be, are not entitled
N INSTITUTE OF to salary or other compensation when they perform nothing more than the usual and
TECHNOLOGY V. ordinary duties of their office. This rule is founded upon a presumption that
SALAS directors/trustees render service gratuitously, and that the return upon their shares
adequately furnishes the motives for service, without compensation. Under the
foregoing section, there are only two (2) ways by which members of the board can be
granted compensation apart from reasonable per diems: (1) when there is a provision
in the by-laws fixing their compensation; and (2) when the stockholders representing
a majority of the outstanding capital stock at a regular or special stockholders'
meeting agree to give it to them. (Sec. 30)

The unambiguous implication is that members of the board may receive


compensation, in addition to reasonable per diems; when they render services to the
corporation in a capacity other than as directors/ trustees. In the case at bench,
Resolution No. 48, s. 1986 granted monthly compensation to private respondents not
in their capacity as members of the board, but rather as officers of the corporation,
more particularly as Chairman, Vice Chairman, Treasurer and Secretary of Western
Institute of Technology. Thus, the prohibition with respect to granting compensation to
corporate directors/trustees as such under Section 30 is not violated in this particular
case.

24. SANTOS The Court has collated the settled instances when, without necessarily piercing the
V. NLRC veil of corporate fiction, personal civil liability can also be said to lawfully attach to a
corporate director, trustee or officer; to wit: When — "
(1) He assents
(a) to a patently unlawful act of the corporation, or
(b) for bad faith or gross negligence in directing its affairs, or
(c) for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons;

(2) He consents to the issuance of watered stocks or who, having knowledge


thereof, does not forthwith file with the corporate secretary his written objection
thereto;

(3) He agrees to hold himself personally and solidarily liable with the
corporation; or

(4) He is made, by a specific provision of law, to personally answer for his

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corporate action."

25. SPS. As a general rule, the officers of a corporation are not personally liable for their official
DAVID V. acts unless it is shown that they have exceeded their authority. However, the
CONSTRUCTION personal liability of a corporate director, trustee or officer, along with corporation, may
INDUSTRY AND so validly attach when he assents to a patently unlawful act of the corporation or for
ARBITRATION bad faith or gross negligence in directing its affairs.
COMMISSION
(CIAC)
26. MALAYA The rule is that obligations incurred by the corporation, acting through its directors,
NG SAMAHAN NG officers and employees, are its sole liabilities. True, solidary liabilities may at times be
MGA incurred but only when exceptional circumstances warrant such as, generally, in the
MANGGAGAWA following cases:
SA M. (1) When directors and trustees or, in appropriate cases, the officers of a
GREENFIELD V. corporation —
RAMOS (a) Vote for or assent to patently unlawful acts of the corporation;
(b) act in bad faith or with gross negligence in directing the corporate
affairs;
(c) are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons.
(2) When a director or officer has consented to the issuance of watered stocks
or who, having knowledge thereof, did not forthwith file with the corporate
secretary his written objection thereto.
(3) When a director, trustee or officer has contractually agreed or stipulated to
hold himself personally and solidarily liable with the Corporation.
(4) When a director, trustee or officer is made, by specific provision of law,
personally liable for his corporate action.

In labor cases, particularly, the Court has held corporate directors and officers
solidarily liable with the corporation for the termination of employment of corporate
employees done with malice or in bad faith. Bad faith or negligence is a question of
fact and is evidentiary. It has been held that bad faith does not connote bad judgment
or negligence; it imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it means breach of a known duty thru some motive or interest or ill
will; it partakes of the nature of fraud.

27. PRIME All corporate powers shall be exercised by the Board of Directors, except as
WHITE CEMENT otherwise provided by law. Although it cannot completely abdicate its power and
CORP. V. IAC responsibility to act for the juridical entity, the Board may expressly delegate specific
powers to its President or any of its officers. In the absence of such express
delegation, a contract entered into by its President, on behalf of the corporation, may
still bind the corporation if the board should ratify the same expressly or impliedly.
Implied ratification may take various forms - like silence or acquiescence; by acts
showing approval or adoption of the contract; or by acceptance and retention of
benefits flowing therefrom. Furthermore, even in the absence of express or implied
authority by ratification, the President as such may, as a general rule, bind the
corporation by a contract in the ordinary course of business, provided the same is
reasonable under the circumstances. These rules are basic, but are all general and
thus quite flexible. They apply where the President or other officer, purportedly acting
for the corporation, is dealing with a third person, i.e., person outside the corporation.

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28. DEE V. While the group of Luciano Maggay was in control of Natelco by virtue of the
SEC restraining order issued in G.R. NO. 50885, the Maggay Board issued 113,800
shares of stock to CSI. Petitioner said that the Maggay Board, in issuing said shares
without notifying Natelco stockholders, violated their right of pre-emption to the
unissued shares. The questioned issuance of the 113,800 stocks is not invalid even
assuming that it was made without notice to the stockholders as claimed by the
petitioner. The power to issue shares of stocks in a corporation is lodged in the board
of directors and no stockholders meeting is required to consider it because additional
issuance of shares of stocks does not need approval of the stockholders.
Consequently, no preemptive right of Natelco stockholders was violated by the
issuance of the 113,800 shares to CSI.

29. MCLEOD As a rule, a corporation that purchases the assets of another will not be liable for the
V. NLRC debts of the selling corporation, provided the former acted in good faith and paid
adequate consideration for such assets, except when any of the following
circumstances is present:
(1) where the purchaser expressly or impliedly agrees to assume the debts,
(2) where the transaction amounts to a consolidation or merger of the corporations,
(3) where the purchasing corporation is merely a continuation of the selling
corporation, and
(4) where the selling corporation fraudulently enters into the transaction to escape
liability for those debts.

None of the foregoing exceptions is present in this case.

At any rate, the existence of interlocking incorporators, directors, and officers is not
enough justification to pierce the veil of corporate fiction, in the absence of fraud or
other public policy considerations.

30. ISLAMIC The Carpizo Group-INC sale is further deemed null and void ab initio because of the
DIRECTORATE V. Carpizo Group's failure to comply with Section 40 of the Corporation Code pertaining
CA AND INC to the disposition of all or substantially all assets of the corporation:
"Sec. 40. Sale or other disposition of assets.
xxx
A sale or other disposition shall be deemed to cover substantially all the
corporate property and assets if thereby the corporation would be rendered
incapable of continuing the business or accomplishing the purpose for which it
was incorporated.

The Tandang Sora property, it appears from the records, constitutes the only property
of the IDP. Hence, its sale to a third-party is a sale or disposition of all the corporate
property and assets of IDP falling squarely within the contemplation of the foregoing
section. For the sale to be valid, the majority vote of the legitimate Board of Trustees,
concurred in by the vote of at least 2/3 of the bona fide members of the corporation
should have been obtained. These twin requirements were not met as the Carpizo
Group which voted to sell the Tandang Sora property was a fake Board of Trustees,
and those whose names and signatures were affixed by the Carpizo Group together
with the sham Board Resolution authorizing the negotiation for the sale were, from all
indications, not bona fide members of the IDP as they were made to appear to be.
Apparently, there are only fifteen (15) official members of the petitioner corporation
including the eight (8) members of the Board of Trustees.

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31. NIELSON Shares of stock are given the special name "stock dividends" only if they are issued
& COMPANY INC. in lieu of undistributed profits. If the shares of stocks are issued in exchange of cash
V. LEPANTO or Property then those shares do not fall under the category of "stock dividends". A
CONSOLIDATED corporation may legally issue shares of stock in consideration of services rendered to
MINING it by a person not a stockholder, or in payment of its indebtedness. A share of stock
COMPANY issued to pay for services rendered is equivalent to a stock issued in exchange of
property because services is equivalent to property. Likewise a share of stock issued
in payment of indebtedness is equivalent to issuing a stock in exchange for cash. But
a share of stock thus issued should be part of the original capital stock of the
corporation upon its organization, or part of the stocks issued when the increase of
the capitalization of a corporation is properly authorized.

So, a stock dividend is actually two things: (1) a dividend, and (2) the enforced use of
the dividend money to purchase additional shares of stock at par. When a corporation
issues stock dividends, it shows that the corporations' accumulated profits have been
capitalized instead of distributed to the stockholders or retained as surplus available
for distribution, in money or in kind, should opportunity offer. Far from being a
realization of profits for the stockholder, it tends rather to postpone said realization, in
that the fund represented by the new stock has been transferred from the surplus to
assets and no longer available for actual distribution.

32. PNB V. The question of whether a corporation is a mere alter ego is one of fact. Piercing the
ANDRADA veil of corporate fiction may be allowed only if the following elements concur:

(1) control — not mere stock control, but complete domination — not only of
finances, but of policy and business practice in respect to the transaction
attacked, must have been such that the corporate entity as to this transaction
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 a fraud or a
wrong to perpetuate the violation of a statutory or other positive legal duty, or a
dishonest and an unjust act in contravention of plaintiff's legal right; and

(3) the said control and breach of duty must have proximately caused the injury
or unjust loss complained of. We believe that the absence of the foregoing
elements in the present case precludes the piercing of the corporate veil.

33. HYDRO Even assuming for the sake of argument that the Administrator had no authority to
RESOURCES bind NIA, the latter is already estopped after repeatedly representing to Hydro that
CORP. V. NIA the Administrator had such authority. A corporation may be held in estoppel from
denying as against third persons the authority of its officers or agents who have been
clothed by it with ostensible or apparent authority.

The rule is of course settled that "[a]lthough an officer or agent acts without, or in
excess of, his actual authority if he acts within the scope of an apparent authority with
which the corporation has clothed him by holding him out or permitting him to appear
as having such authority, the corporation is bound thereby in favor of a person who
deals with him in good faith in reliance on such apparent authority, as where an
officer is allowed to exercise a particular authority with respect to the business, or a
particular branch of it, continuously and publicly, for a considerable time.". . .

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34. LOYOLA Although the Corporation Code requires the filing of by-laws, it does not expressly
GRAND VILLAS V. provide for the consequences of the non-filing of the same within the period provided
CA for in Section 46. However, such omission has been rectified by Presidential Decree
No. 902-A, the pertinent provisions on the jurisdiction of the SEC of which state:
"SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall
possess the following powers: . . . (1) to suspend, or revoke, after proper notice and
hearing, the franchise or certificate of registration of corporations, partnerships or
associations, upon any of the grounds provided by law, including the following: . . .
Failure to file by-laws within the required period

There can be no automatic corporate dissolution simply because the incorporators


failed to abide by the required filing of by-laws embodied in Section 46 of the
Corporation Code. There is no outright "demise" private of corporate existence.
Proper notice and hearing are cardinal components of due process in any democratic
institution, agency or society. In other words, the incorporators must be given the
chance to explain their neglect or omission and remedy the same.

35. CHINA In order to be bound, the third party must have acquired knowledge of the pertinent
BANK V. CA AND by-laws at the time the transaction or agreement between said third party and the
VGCCI shareholder was entered into, in this case, at the time the pledge agreement was
executed. VGCCI could have easily informed petitioner of its by-laws when it sent
notice formally recognizing petitioner as pledgee of one of its shares registered in
Calapatia's name. Petitioner's belated notice of said by-laws at the time of foreclosure
will not suffice.

Sec. 63 of the Corporation Code which provides that "no shares of stock against
which the corporation holds any unpaid claim shall be transferable in the books of the
corporation" cannot be utilized by VGCCI. The term "unpaid claim" refers to "any
unpaid claim arising from unpaid subscription, and not to any indebtedness which a
subscriber or stockholder may owe the corporation arising from any other
transaction." In the case at bar, the subscription for the share in question has been
fully paid as evidenced by the issuance of Membership Certificate No. 1219. What
Calapatia owed the corporation were merely the monthly dues. Hence, the
aforequoted provision does not apply.

36. SALAFR Admittedly, the right to amend the by-laws lies solely in the discretion of the employer,
ANCA V. this being in the exercise of management prerogative or business judgment. However
PHILAMLIFE this right, extensive as it may be, cannot impair the obligation of existing contracts or
rights. If private respondent wanted to make the petitioner's position co-terminus with
that of the Board of Directors, then the amendment must be effective after petitioner's
stay with the private respondent, not during his term. Obviously, the measure taken
by the private respondent in amending its by-laws is nothing but a devious, but crude,
attempt to circumvent petitioner's right to security of tenure as a regular employee
guaranteed under the Labor Code.
37. PCGG V. The general rule is that the sequestered shares are voted by the registered holders
COCOFED because voting is an act of dominion, and PCGG is only a conservator; the exception
is when the two tiered test has been complied with:
(1) prima facie evidence that said shares are ill-gotten wealth;
(2) imminent danger of dissipation - PCGG can instead vote

The general rule, apparently, does not find application in this case not because of the

By Ramon Munñ ez (Disclaimer: This material does not in any way guarantee that you will top the exam. So read at your own risk) Page 10
compliance to the two-tiered test, but because of the "public character" of these
shares. Public character means that:
(1) government shares are taken over by private persons and registered them in
their own names; and
(2) these shares, which were acquired with public funds, landed in private
hands.

The rationale: Legal fiction must yield to truth; prima facie beneficial owner should be
given privilege of enjoying the rights flowing from the prima facie fact of ownership

38. FRANCIS Private respondent asserts that she filed a derivative suit in behalf of the corporation.
CHUA V. CA This assertion is inaccurate. Not every suit filed in behalf of the corporation is a
derivative suit. For a derivative suit to prosper, it is required that the minority
stockholder suing for and on behalf of the corporation must allege in his complaint
that he is suing on a derivative cause of action on behalf of the corporation and all
other stockholders similarly situated who may wish to join him in the suit. It is a
condition sine qua non that the corporation be impleaded as a party because not only
is the corporation an indispensable party, but it is also the present rule that it must be
served with process. The judgment must be made binding upon the corporation in
order that the corporation may get the benefit of the suit and may not bring
subsequent suit against the same defendants for the same cause of action. In other
words, the corporation must be joined as party because it is its cause of action that is
being litigated and because judgment must be a res judicata against it.

39. EXPERT In a case where the plaintiff is a private corporation, the certification may be signed,
RAVEL & TOURS, for and on behalf of the said corporation, by a specifically authorized person,
INC. V. CA AND including its retained counsel, who has personal knowledge of the facts required to be
KOREAN established by the documents.
AIRLINES
Under the law, Atty. Aguinaldo was not specifically authorized to execute a certificate
of non-forum shopping as required by Section 5, Rule 7 of the Rules of Court. This is
because while a resident agent may be aware of actions filed against his principal (a
foreign corporation doing business in the Philippines), such resident may not be
aware of actions initiated by its principal, whether in the Philippines against a
domestic corporation or private individual, or in the country where such corporation
was organized and registered, against a Philippine registered corporation or a Filipino
citizen.

In the Philippines, teleconferencing and videoconferencing of members of board of


directors of private corporations is a reality, in light of Republic Act No. 8792. The
Securities and Exchange Commission issued SEC Memorandum Circular No. 15, on
November 30, 2001, providing the guidelines to be complied with related to such
conferences. Thus, the Court agrees with the RTC that persons in the Philippines
may have a teleconference with a group of persons in South Korea relating to
business transactions or corporate governance.

40. RAMON The most immediate effect of a voting trust agreement on the status of a stockholder
LEE V. CA who is a party to its execution — from legal title holder or owner of the shares subject
of the voting trust agreement, he becomes the equitable or beneficial owner.

By its very nature, a voting trust agreement results in the separation of the voting

By Ramon Munñ ez (Disclaimer: This material does not in any way guarantee that you will top the exam. So read at your own risk) Page 11
rights of a stockholder from his other rights such as the right to receive dividends, the
right to inspect the books of the corporation, the right to sell certain interests in the
assets of the corporation and other rights to which a stockholder may be entitled until
the liquidation of the corporation.

However, in order to distinguish a voting trust agreement from proxies and other
voting pools and agreements, it must pass three criteria or tests, namely:
(1) that the voting rights of the stock are separated from the other attributes of
ownership;
(2) that the voting rights granted are intended to be irrevocable for a definite
period of time; and
(3) that the principal purpose of the grant of voting rights is to acquire voting
control of the corporation.

Take note also that in order to be eligible as a director, what is material is the legal
title to, not beneficial ownership of, the stock as appearing on the books of the
corporation

41. ONG However, although the Tius were adversely affected by the Ongs' unwillingness to let
YONG V. TIU them assume their positions, rescission due to breach of contract is definitely the
wrong remedy for their personal grievances.

A contrary doctrine will tread on extremely dangerous ground because it will allow just
any stockholder, for just about any real or imagined offense, to demand rescission of
his subscription and call for the distribution of some part of the corporate assets to
him without complying with the requirements of the Corporation Code.

Contrary to the Tius' allegation, rescission will, in the final analysis, result in the
premature liquidation of the corporation without the benefit of prior dissolution in
accordance with Sections 117, 118, 119 and 120 of the Corporation Code.

The Trust Fund Doctrine is the underlying principle in the procedure for the
distribution of capital assets, embodied in the Corporation Code, which allows the
distribution of corporate capital only in three instances:
(1) amendment of the Articles of Incorporation to reduce the authorized capital
stock,
(2) purchase of redeemable shares by the corporation, regardless of the
existence of unrestricted retained earnings, and
(3) dissolution and eventual liquidation of the corporation.

MIDTERM EXAMS
42. NAVA VS. Peers Marketing Corp. cannot be compelled by mandamus to enter in its stock and
PEERS transfer book the sale made by Po to Nava because the transfer is not the "alienation,
MARKETING sale or transfer of stock" that is supposed to be recorded in the stock and transfer
book under Sec. 35. As a rule, the shares which may be alienated are those which
are covered by certificates of stock. No stock certificate was issued to Po. Without
stock certificate, which is the evidence of ownership of corporate stock, the
assignment of corporate shares is effective only between the parties to the
transaction.

By Ramon Munñ ez (Disclaimer: This material does not in any way guarantee that you will top the exam. So read at your own risk) Page 12
43. LIM TAY Mandamus will not issue to establish a legal right, but only to enforce one that is
VS. CA already clearly established. Moreover, the duty of a corporate secretary to record
transfers of stocks is ministerial. However, he cannot be compelled to do so when the
transferee's title to said shares has no prima facie validity or is uncertain. More
specifically, a pledgor, prior to foreclosure and sale, does not acquire ownership rights
over the pledged shares and thus cannot compel the corporate secretary to record
his alleged ownership of such shares on the basis merely of the contract of pledge.

Also, his possession as a pledgee cannot ripen into ownership by prescription.

44. RURAL We have uniformly held that for a valid transfer of stocks, there must be strict
BANK OF LIPA compliance with the mode of transfer prescribed by law. The requirements are:
CITY VS. CA (a) There must be delivery of the stock certificate;

(b) The certificate must be endorsed by the owner or his attorney-in-fact or other
persons legally authorized to make the transfer; and

(c) To be valid against third parties, the transfer must be recorded in the books
of the corporation.

While the assignment may be valid and binding on the petitioners and private
respondents, it does not necessarily make the transfer effective. Consequently, the
petitioners, as mere assignees, cannot enjoy the status of a stockholder, cannot vote
nor be voted for, and will not be entitled to dividends, insofar as the assigned shares
are concerned. Parenthetically, the private respondents cannot, as yet be deprived of
their rights as stockholders, until and unless the issue of ownership and transfer of
the shares in question is resolved with finality.

45. PONCE A transfer of shares of stock not recorded in the stock and transfer book of the
VS. ALSONS corporation is non-existent as far as the corporation is concerned. As between the
CEMENT CORP. corporation on the one hand, and its shareholders and third persons on the other, the
corporation looks only to its books for the purpose of determining who its
shareholders are. It is only when the transfer has been recorded in the stock and
transfer book that a corporation may rightfully regard the transferee as one of its
stockholders.

Hence, without such recording, the transferee may not be regarded by the
corporation as one among its stockholders and the corporation may legally refuse the
issuance of stock certificates in the name of the transferee even when there has been
compliance with the requirements of Sec. 64 of the Corporation code.

Consequently, the corporation cannot be compelled by the transferee to record the


transfer.The situation would be different if the petitioner was himself the registered
owner of the stock which he sought to transfer to a third party, for then he would be
entitled to the remedy of mandamus. (emphasized by sir during class)

46. GONZAL As may be noted, among the changes introduced in the new Code with respect to the
ES VS. PNB right of inspection granted to a stockholder are the following:

(1) the records must be kept at the principal office of the corporation;

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(2) the inspection must be made on business days;

(3) the stockholder may demand a copy of the excerpts of the records or
minutes; and

(4) the refusal to allow such inspection shall subject the erring officer or agent of
the corporation to civil and criminal liabilities.

However, while seemingly enlarging the right of inspection, the new Code has
prescribed limitations to the same. It is now expressly required as a condition for
such examination that the one requesting it:

(a) must not have been guilty of using improperly any information
secured through a prior examination, and that

(b) the person asking for such examinations must be "acting in good
faith and for a legitimate purpose in making his demand."

47. ASSOCIA Ordinarily, in the merger of two or more existing corporations, one of the combining
TED BANK VS. CA corporations survives and continues the combined business, while the rest are
dissolved and all their rights, properties and liabilities are acquired by the surviving
corporation. Although there is a dissolution of the absorbed corporations, there is no
winding up of their affairs or liquidation of their assets, because the surviving
corporation automatically acquires all their rights, privileges and powers, as well as
their liabilities.

48. MINDAN It is undisputed that the articles of merger between FISLAI and DSLAI were not
AO SAVINGS VS. registered with the SEC due to incomplete documentation. Consequently, the SEC
CA did not issue the required certificate of merger. Even if it is true that the Monetary
Board of the Central Bank of the Philippines recognized such merger, the fact
remains that no certificate was issued by the SEC. Such merger is still incomplete
without the certification.

The issuance of the certificate of merger is crucial because not only does it bear out
SEC's approval but it also marks the moment when the consequences of a merger
take place. By operation of law, upon the effectivity of the merger, the absorbed
corporation ceases to exist but its rights and properties, as well as liabilities, shall be
taken and deemed transferred to and vested in the surviving corporation.

The same rule applies to consolidation which becomes effective not upon mere
agreement of the members but only upon issuance of the certificate of consolidation
by the SEC. When the SEC, upon processing and examining the articles of
consolidation, is satisfied that the consolidation of the corporations is not inconsistent
with the provisions of the Corporation Code and existing laws, it issues a certificate of
consolidation which makes the reorganization official. The new consolidated
corporation comes into existence and the constituent corporations are dissolved and
cease to exist.

49. BABST At the outset, the preliminary issue of BPI's right of action must first be addressed.
VS. CA ELISCON and MULTI assail BPI's legal capacity to recover their obligation to CBTC.
However, there is no question that there was a valid merger between BPI and CBTC.

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It is settled that in the merger of two existing corporations, one of the corporations
survives and continues the business, while the other is dissolved and all its rights,
properties and liabilities are acquired by the surviving corporation. Hence, BPI has a
right to institute the case a quo.

(sinama ko na lang just in case)


BPI's conduct evinced a clear and unmistakable consent to the substitution of DBP
for ELISCON as debtor. Hence, there was a valid novation which resulted in the
release of ELISCON from its obligation to BPI, whose cause of action should be
directed against DBP as the new debtor. Novation, in its broad concept, may either be
extinctive or modificatory. It is extinctive when an old obligation is terminated by the
creation of a new obligation that takes the place of the former; it is merely
modificatory when the old obligation subsists to the extent it remains compatible with
the amendatory agreement. An extinctive novation results either by changing the
object or principal conditions (objective or real), or by substituting the person of the
debtor or subrogating a third person in the rights of the creditor (subjective or
personal). Under this mode, novation would have dual functions — one to extinguish
an existing obligation, the other to substitute a new one in its place — requiring a
conflux of four essential requisites, (1) a previous valid obligation; (2) an agreement
of all parties concerned to a new contract; (3) the extinguishment of the old obligation;
and (4) the birth of a valid new obligation. The original obligation having been
extinguished, the contracts of suretyship executed separately by Babst and MULTI,
being accessory obligations, are likewise extinguished.

50. TURNER No payment shall be made to any dissenting stockholder unless the corporation has
VS. LORENZO unrestricted retained earnings in its books to cover the payment. In case the
SHIPPING CORP. corporation has no available unrestricted retained earnings in its books, Section 83 of
the Corporation Code provides that if the dissenting stockholder is not paid the value
of his shares within 30 days after the award, his voting and dividend rights shall
immediately be restored.

Neither did the subsequent existence of unrestricted retained earnings after the filing
of the complaint cure the lack of cause of action in Civil Case No. 01-086. The
petitioners' right of action could only spring from an existing cause of action. Thus, a
complaint whose cause of action has not yet accrued cannot be cured by an
amended or supplemental pleading alleging the existence or accrual of a cause of
action during the pendency of the action. For, only when there is an invasion of
primary rights, not before, does the adjective or remedial law become operative.
Verily, a premature invocation of the court's intervention renders the complaint without
a cause of action and dismissible on such ground.

51. CUA JR. In effect, the (derivative) suit is an action for specific performance of an obligation,
VS. OCAMPO owed by the corporation to the stockholders, to assist its rights of action when the
corporation has been put in default by the wrongful refusal of the directors or
management to adopt suitable measures for its protection. The basis of a
stockholder's suit is always one of equity. However, it cannot prosper without first
complying with the legal requisites for its institution.

Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies


(IRPICC) lays down the following requirements which a stockholder must comply with
in filing a derivative suit:

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Sec. 1.Derivative action. — A stockholder or member may bring an action in the name
of a corporation or association, as the case may be, provided, that:

(1) He was a stockholder or member at the time the acts or transactions subject of
the action occurred and at the time the action was filed;

(2) He exerted all reasonable efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation, by-
laws, laws or rules governing the corporation or partnership to obtain the relief he
desires;

(3) No appraisal rights are available for the act or acts complained of; and

(4) The suit is not a nuisance or harassment suit.

52. PADCOM As lot owner, PADCOM is a regular member of the Association. No application for
CONOMINIUM VS. membership is necessary. If at all, acceptance by the Board of Directors is a
ORTIGAS ministerial function considering that PADCOM is deemed to be a regular member
CENTER upon the acquisition of the lot pursuant to the automatic membership clause
ASSOCIATION, annotated in the Certificate of Title of the property and the Deed of Transfer. Neither
INC. are we convinced by PADCOM's contention that the automatic membership clause is
a violation of its freedom of association. PADCOM was never forced to join the
association. It could have avoided such membership by not buying the land from
TDC. Nobody forced it to buy the land when it bought the building with the annotation
of the condition or lien on the Certificate of Title thereof and accepted the Deed.
PADCOM voluntarily agreed to be bound by and respect the condition, and thus to
join the Association.

53. STA. Private respondents cannot be compelled to become members of the SCHA by the
CLARA HOMES simple expedient of including them in its Articles of Incorporation and By-laws without
ASSOCIATIONVS. their express or implied consent. True, it may be to the mutual advantage of lot
GASTON owners in a subdivision to band themselves together to promote their common
welfare. But that is possible only if the owners voluntarily agree, directly or indirectly,
to become members of the association.

When private respondents purchased their property in 1974 and obtained Transfer
Certificates of Title Nos. T-126542 and T-127462 for Lots 11 and 12 of Block 37 along
San Jose Avenue in Sta. Clara Subdivision, there was no annotation showing their
automatic membership in the SCHA. Thus, no privity of contract arising from the title
certificate exists between petitioners and private respondents. Further, the records
are bereft of any evidence that would indicate that private respondents intended to
become members of the SCHA. Prior to the implementation of the aforesaid
Resolution, they and the other homeowners who were not members of the
association were issued non-member gate pass stickers for their vehicles. This fact
has not been disputed by petitioners. Thus, the SCHA recognized that there were
subdivision landowners who were not members thereof, notwithstanding the
provisions of its Articles of Incorporation and By-laws.

54. LONG The Church ("The Church In Quezon City") By-law provision on expulsion, as
VS. BASA phrased, may sound unusual and objectionable to petitioners as there is no
requirement of prior notice to be given to an erring member before he can be

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expelled. But that is how peculiar the nature of a religious corporation is vis-à-vis an
ordinary corporation organized for profit. It must be stressed that the basis of the
relationship between a religious corporation and its members is the latter's absolute
adherence to a common religious or spiritual belief. Once this basis ceases,
membership in the religious corporation must also cease. Thus, generally, there is no
room for dissension in a religious corporation. And where, as here, any member of a
religious corporation is expelled from the membership for espousing doctrines and
teachings contrary to that of his church, the established doctrine in this jurisdiction is
that such action from the church authorities is conclusive upon the civil courts.

55. TAN VS. Quorum in a members’ meeting is to be reckoned as the actual number of members
SYCIP of the corporation

In stock corporations, shareholders may generally transfer their shares. Thus, on the
death of a shareholder, the executor or administrator duly appointed by the Court is
vested with the legal title to the stock and entitled to vote it. Until a settlement and
division of the estate is effected, the stocks of the decedent are held by the
administrator or executor.

On the other hand, membership in and all rights arising from a nonstock corporation
are personal and non-transferable, unless the articles of incorporation or the bylaws
of the corporation provide otherwise. In other words, the determination of whether or
not "dead members" are entitled to exercise their voting rights (through their executor
or administrator), depends on those articles of incorporation or bylaws.

Applying Section 91 to the present case, we hold that dead members who are
dropped from the membership roster in the manner and for the cause provided for in
the By-Laws of GCHS are not to be counted in determining the requisite vote in
corporate matters or the requisite quorum for the annual members' meeting. With 11
remaining members, the quorum in the present case should be 6. Therefore, there
being a quorum, the annual members' meeting, conducted with six members present,
was valid.

56. SAN Petitioner claims that Motorich is a close corporation. We rule that it is not. (See Sec.
JUAN 96 for definition of a close corporation.)
STRUCTURAL
AND STEEL The articles of incorporation of Motorich Sales Corporation does not contain any
FABRICATION VS. provision stating that (1) the number of stockholders shall not exceed 20, or (2) a
CA preemption of shares is restricted in favor of any stockholder or of the corporation, or
(3) listing its stocks in any stock exchange or making a public offering of such stocks
is prohibited. From its articles, it is clear that Respondent Motorich is not a close
corporation. Motorich does not become one either, just because Spouses Reynaldo
and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The [m]ere
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 personalities." So, too, a narrow distribution of ownership does
not, by itself, make a close corporation.

57. MANUEL Petitioner corporation is classified as a close corporation and consequently a board
R. DULAY resolution authorizing the sale or mortgage of the subject property is not necessary to
ENTERPRISES bind the corporation for the action of its president. At any rate, a corporate action

By Ramon Munñ ez (Disclaimer: This material does not in any way guarantee that you will top the exam. So read at your own risk) Page 17
VS. CA taken at a board meeting without proper call or notice in a close corporation is
deemed ratified by the absent director unless the latter promptly files his written
objection with the secretary of the corporation after having knowledge of the meeting
which, in this case, petitioner Virgilio Dulay failed to do. Petitioners' claim that the sale
of the subject property by its president, Manuel Dulay, to private respondents
spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed
without the knowledge and consent of the other members of the board of directors
cannot be sustained. The sale of the subject property to private respondents by
Manuel Dulay is valid and binding.

58. IGLESIA There is no point to dissolving the corporation sole of one member to enable the
EVANGELICA corporation aggregate to emerge from it. Whether it is a non-stock corporation or a
METODISTA ET. corporation sole, the corporate being remains distinct from its members, whatever be
AL. VS. BISHOP their number. The increase in the number of its corporate membership does not
LAZARO ET. AL change the complexion of its corporate responsibility to third parties. The one
member, with the concurrence of two-thirds of the membership of the organization for
whom he acts as trustee, can self-will the amendment. He can, with membership
concurrence, increase the technical number of the members of the corporation from
"sole" or one to the greater number authorized by its amended articles.

59. ROMAN The Corporation Law and the Canon Law are explicit in their provisions that a
CATHOLIC corporation sole or "ordinary" is not the owner of the properties that he may acquire
APOSTOLIC but merely the administrator thereof and holds the same in trust for the church to
ADMINISTRATION which the corporation is an organized and constituents part. Being mere administrator
OF DAVAO VS. of the temporalities or properties titled in his name, the constitutional provision
LAND requiring 60 per centum Filipino ownership is not applicable. The said constitutional
REGISTRATION provision is limited by it terms to ownership alone and does not extend to control
COMMISSION unless the control over the property affected has been devised to circumvent the real
purpose of the constitution.

The corporation sole by reason of their peculiar constitution and form of operation
have no designed owner of its temporalities, although by the terms of the law it can
be safely implied that they ordinarily hold them in trust for the benefit of the Roman
Catholic faithful of their respective locality or diocese. They cannot be considered as
aliens because they have no nationality at all. In determining, therefore, whether the
constitutional provision requiring 60 per centum Filipino capital is applicable to
corporations sole, the nationality of the constituents of the diocese, and not the
nationality of the actual incumbent of the parish, must be taken into consideration. In
the present case, even if the question of nationality be considered, the aforesaid
constitutional requirement is fully met and satisfied, considering that the corporation
sole in question is composed of an overwhelming majority of Filipinos.

60. VESAGA The requirements (for dissolution) mandated by the Corporation Code should have
S VS. CA been strictly complied with by the members of the club. The records reveal that no
proof was offered by the petitioners with regard to the notice and publication
requirements. Similarly wanting is the proof of the board members' certification.
Lastly, and most important of all, the SEC Order of Dissolution was never submitted
as evidence.

We rule that the present dispute is intra-corporate in character. In the first place, the
parties here involved are officers and members of the club. Respondents claim to be

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members of good standing of the club until they were purportedly stripped of their
membership in illegal fashion. Petitioners, on the other hand, are its President and
Vice-President, respectively. More significantly, the present conflict relates to, and in
fact arose from, this relation between the parties. The subject of the complaint,
namely, the legality of the expulsion from membership of the respondents and the
validity of the amendments in the club's by-laws are, furthermore, within the
Commission's jurisdiction.

Note: The enactment of R.A. 8799, otherwise known as the Securities Regulation
Code, however, transferred the jurisdiction to resolve intra-corporate controversies to
courts of general jurisdiction or the appropriate Regional Trial Courts.

61. GELANO Can a corporation, whose corporate life had ceased by the expiration of its terms of
VS. CA existence, still continue prosecuting and defending suits after its dissolution and
beyond the period of three (3) years provided for under Act No. 1459, otherwise
known as the Corporation Law, to wind up its affairs, without having undertaken any
step to transfer its assets to a trustee or assignee.

YES. It is to be noted that the time during which the corporation, through its own
officers, may conduct the liquidation of its assets and sue and be sued as a
corporation is limited to three years from the time the period of dissolution
commences; but that there is no time limited within which the trustees must complete
a liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78) that the
conveyance in the trustees must he made within the three-year period. It may be
found impossible to complete the work of liquidation within the three-year period or to
reduce disputed claims to judgment. The authorities are to the effect that suits by or
against a corporation abate where it ceased to be an entity capable of suing or being
sued; but trustees to whom the corporate assets have been conveyed pursuant to the
authority of Section 78 may sue and be sued as such in all matters connected with
the liquidation. By the terms of the statute the effect of the conveyance is to make the
trustees the legal owners of the property conveyed, subject to the beneficial interest
therein of creditors and stockholders."

The trustee may commence a suit which can proceed to final judgment even beyond
the three-year period. No reason can be conceived why a suit already commenced by
the corporation itself during its existence, not by a mere trustee who, by fiction,
merely continues the legal personality of the dissolved corporation should not be
accorded similar treatment allowed — to proceed to final judgment and execution
thereof.

62. PHILIPPI Liquidation, in corporation law, connotes a winding up or settling with creditors and
NE VETERANS debtors. It is the winding up of a corporation so that assets are distributed to those
BANK entitled to receive them. It is the process of reducing assets to cash, discharging
EMPLOYEES liabilities and dividing surplus or loss. It is crystal clear that the concept of liquidation
UNION VS. VEGA is diametrically opposed or contrary to the concept of rehabilitation, such that both
cannot be undertaken at the same time. To allow the liquidation proceedings to
continue would seriously hinder the rehabilitation of the subject rank.

On the opposite end of the spectrum is rehabilitation which connotes a reopening or


reorganization. Rehabilitation contemplates a continuance of corporate life and
activities in an effort to restore and reinstate the corporation to its former position of
successful operation and solvency.

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63. TAN TION The creditor of a dissolved corporation may follow its assets once they passed into
VS. CIR the hands of the stockholders. The dissolution of a corporation does not extinguish
the debts due or owing to it. A creditor of a dissolved corporation may follow its
assets, as in the nature of a trust fund, into the hands of its stockholders. An
indebtedness of a corporation to the federal government for income and excess profit
taxes is not extinguished by the dissolution of the corporation.

That the hands of the government cannot, collects taxes from a defunct corporation, it
loses thereby none of its rights to assess taxes which had been due from the
corporation, and to collect them from persons who by reason of transaction with the
corporation hold property against which the tax can be enforced and that the legal
death of the corporation no more prevents such action than would the physical death
of an individual prevent the government from assessing taxes against him and
collecting them from his administrator who holds the property which the decedent had
formerly possessed.

64. REBOLLI The law provides that a corporation whose corporate term has ceased can still be
DO VS. CA made a party to suit. Under paragraph 1, Section 122 of the Corporation Code, a
dissolved corporation: . . . ". . . shall nevertheless be continued as a body corporate
for three (3) years after the time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against it and enabling it to settle
and close its affairs, to dispose of and convey its property and to distribute its assets,
but not for the purpose of continuing the business for which it was established." The
rationale for extending the period of existence of a dissolved corporation is explained
in Castle's Administrator v. Acrogen Coal, Co. as follows: "This continuance of its
legal existence for the purpose of enabling it to close up its business is necessary to
enable the corporation to collect the demands due it as well as to allow its creditors to
assert the demands against it. If this were not so, then a corporation that became
involved in liabilities might escape the payment of its just obligations by merely
surrendering its charter, and thus defeat its creditors or greatly hinder and delay them
in the collection of their demands. This course of conduct on the part of corporations
the law in justice to persons dealing with them does not permit. The person who has
a valid claim against a corporation, whether it arises in contract or tort should not be
deprived of the right to prosecute an action for the enforcement of his demands by
the action of the stockholders of the corporation in agreeing to its dissolution of a
corporation does not extinguish obligations or liabilities due by or to it."

(additional info) Although it maybe true that the service of summons was made on a
person not authorized to receive the same . . ., nevertheless since it appears that the
summons an complaint were in fact received by the corporation through its said clerk,
the Court finds that there was substantial compliance, with the rule on service of
summons. Indeed the purpose of said rule as above stated to assure service of
summons on the corporation had thereby been attained. The need for speedy justice
must prevail over a technicality.

65. FACILITI If a foreign corporation, not engaged in business in the Philippines is not barred from
ES MANAGEMENT seeking redress from courts in the Philippines, a fortiori, that same corporation cannot
CORP. VS. DELA claim exemption from being sued in the Philippine courts for acts done against a
OSA person or persons in the Philippines.

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The act by a non-resident foreign corporation of recruiting Filipino workers for its own
use abroad constitutes in the law doing business in the Philippines.

Test of "doing business": Whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another.

66. HOME On validity of contracts of unlicensed foreign corporations - Contract enforceable


INSURANCE VS. upon compliance with the law - "Where there is a prohibition with a penalty, with no
EASTERN express or implied declaration respecting the validity or enforceability of contracts
SHIPPING LINES made by qualified foreign corporations, the contracts are enforceable upon
compliance with the law.

It is not necessary to declare the contract null and void as against the erring foreign
corporation. The penal sanction for violation and the denial of access to our courts
and administrative bodies are sufficient from the viewpoint of legislative policy. The
lack of capacity at the time of the execution of the contracts is CURED by the
subsequent registration of the licensed foreign corporation. (emphasized by sir during
class) see also p. 806, of De Leon Corpo (2013)

67. ERIKS "Doing business" - The term implies a continuity of commercial dealings and
PTE. LTD. VS. CA arrangements, and contemplates, to that extent, the performance of acts or works or
the exercise of some of the functions normally incident to, and in progressive
prosecution of, the purpose and object of its organization.

What is determinative of "doing business" is not really the number or the quantity of
the transactions, but more importantly, the intention of an entity to continue the body
of its business in the country. The number and quantity are merely evidence of such
intention. The phrase "isolated transaction" has a definite and fixed meaning. i.e. a
transaction or series of transactions set apart from the common business of a foreign
enterprise in the sense that there is no intention to engage in a progressive pursuit of
the purpose and object of the business organization. Whether a foreign corporation is
"doing business" does not necessarily depend upon the frequency of its transactions,
but more upon the nature and character of the transactions.

By securing a license, the foreign entity would be giving assurance that it will abide by
the decisions of our courts, even if adverse to it. This Court has ruled that subsequent
acquisition of the license will cure the lack of capacity at the time of the execution of
the contract.

68. HUTCHIN Participating in the bidding process constitutes "doing business" because it shows the
SON PORTS foreign corporation's intention to engage in business here. The bidding for the
PHILS. VS. SBMA concession contract is but an exercise of the corporation's reason for creation or
existence. Thus, it has been held that "a foreign company invited to bid for IBRD and
ADB international projects in the Philippines will be considered as doing business in
the Philippines for which a license is required." In this regard, it is the performance by
a foreign corporation of the acts for which it was created, regardless of volume of
business, that determines whether a foreign corporation needs a license or not.

The primary purpose of the license requirement is to compel a foreign corporation


desiring to do business within the Philippines to submit itself to the jurisdiction of the

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courts of the state and to enable the government to exercise jurisdiction over them for
the regulation of their activities in this country. If a foreign corporation operates a
business in the Philippines without a license, and thus does not submit itself to
Philippine laws, it is only just that said foreign corporation be not allowed to invoke
them in our courts when the need arises. "While foreign investors are always
welcome in this land to collaborate with us for our mutual benefit, they must be
prepared as an indispensable condition to respect and be bound by Philippine law in
proper cases, as in the one at bar." The requirement of a license is not intended to
put foreign corporations at a disadvantage, for the doctrine of lack of capacity to sue
is based on considerations of sound public policy. Accordingly, petitioner HPPL must
be held to be incapacitated to bring this petition for injunction before this Court for it is
a foreign corporation doing business in the Philippines without the requisite license.

69. MR Where the corporation enters into a single agreement, or engaged in some other
HOLDINGS VS. isolated or causal business act or transaction within a particular State, with no
BEJAR intention to repeat the same or make such State a basis for the conduct of any part of
its corporate business, such corporation cannot be said to be doing business or
transacting business within the State, within the meaning of the usual statutory
provisions regulating the transaction of business by foreign corporations.

Mere ownership by a foreign corporation of a property in a certain state,


unaccompanied by its active use in furtherance of the business for which it was
formed, is insufficient in itself to constitute doing business. Thus, foreign corporation
which becomes the assignee of mining properties, facilities and equipment cannot
automatically be considered as doing business, nor presumed to have the intention
engaging in mining business.

70. SUMNDA The mere use of the phrase "in fraud of creditors" does not, ipso fact, throw the case
D VS. HARRIGAN within SEC's jurisdiction. The amended complaint filed by Harrigan does not
sufficiently allege acts amounting to fraud and misrepresentation committed by
respondent corporation.

Equally unavailing is petitioner's contention that the case involves an intra-corporate


controversy, or one between the corporation and its stockholder transposing it within
the domain of the SEC. It should be noted that the issue has become moot and
academic because with Republic Act No. 8799, Securities Regulation Code, it is now
the Regional Trial Court and no longer the SEC that has jurisdiction. Under Section
5.2 of Republic Act No. 8799, original and exclusive jurisdiction to hear and decide,
cases involving intra-corporate controversies have been transferred to a court of
general jurisdiction or the appropriate Regional Trial Court.

71. ORENDAI The issue central to this petition is: which has jurisdiction over the action for
N VS. BF HOMES reconveyance — the RTC or SEC.

Juxtaposing the jurisdiction of the RTC under RA 8799 and the powers that were
retained by the SEC, it is clear that the SEC retained its administrative, regulatory,
and oversight powers over all corporations, partnerships, and associations who are
grantees of primary franchises, and/or a license or permit issued by the Government.
However, the Securities Regulations Code (SRC) is clear that when there is a
controversy arising out of intra-corporate relations, between and among stockholders,
members or associates, and between, any, or all of them and the corporation, it is the

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RTC, not SEC, which has jurisdiction over the case.

Thus, when the complaint involves "an active antagonistic assertion of a legal right on
one side and a denial thereof on the other concerning a real, and not a mere
theoretical question or issue," a cause of action involving a delict or wrongful act or
omission committed by a party in violation of the primary right of another, or an actual
controversy involving rights which are legally demandable or enforceable, the
jurisdiction over this complaint is lodged with the RTC but not the SEC.

72. VELARD Section 5(c) of P.D. 902-A (as amended by R.A. 8799, the Securities Regulation
E VS. LOPEZ Code) applies to a corporate officer's dismissal. For a corporate officer's dismissal is
always a corporate act and/or an intra-corporate controversy and that its nature is not
altered by the reason or wisdom which the Board of Directors may have in taking
such action.

With regard to petitioner's claim for unpaid salaries, unpaid share in net income,
reasonable return on the stock ownership plan and other benefits for services
rendered to Sky Vision, jurisdiction thereon pertains to the Securities Exchange
Commission even if the complaint by a corporate officer includes money claims since
such claims are actually part of the prerequisite of his position and, therefore,
interlinked with his relations with the corporation. 25 The question of remuneration
involving a person who is not a mere employee but a stockholder and officer of the
corporation is not a simple labor problem but a matter that comes within the area of
corporate affairs and management, and is in fact a corporate controversy in
contemplation of the Corporation Code.

73. TIMESHA The provisions of B.P. Blg. 178 do not support the contention of petitioner that its
RE REALTY VS. mere registration as a corporation already authorizes it to deal with unregistered
CA timeshares. Corporate registration is just one of several requirements before it may
deal with timeshares:

Section 8.Procedure for registration. — (a) All securities required to be registered


under subsection (a) of Section four of this Act shall be registered through the filing by
the issuer or by any dealer or underwriter interested in the sale thereof, in the office of
the Commission, of a sworn registration statement with respect to such securities,
containing or having attached thereto, the following:

xxx xxx xxx

(36) Unless previously filed and registered with the Commission and brought up to
date:

(a) A copy of its articles of incorporation with all amendments thereof and its existing
by-laws or instruments corresponding thereto, whatever the name, if the issuer be a
corporation.

Prior to fulfillment of all the other requirements of Section 8, petitioner is absolutely


proscribed under Section 4 from dealing with unregistered timeshares, thus:

Section 4.Requirement of registration of securities. — (a) No securities, except of a


class exempt under any of the provisions of Section five hereof or unless sold in any
transaction exempt under any of the provisions of Section six hereof, shall be sold or

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offered for sale or distribution to the public within the Philippines unless such
securities shall have been registered and permitted to be sold as hereinafter
provided. (Emphasis supplied.)

74. UNION That petitioner is under the supervision of the Bangko Sentral ng Pilipinas (BSP) and
BANK OF THE the Philippine Stock Exchange (PSE) does not exempt it from complying with the
PHILIPPINES VS. continuing disclosure requirements embodied in the assailed Rules. Petitioner, as a
SEC bank, is primarily subject to the control of the BSP; and as a corporation trading its
securities in the stock market, it is under the supervision of the SEC. It must be
pointed out that even the PSE is under the control and supervision of respondent.
There is no over-supervision here. Each regulating authority operates within the
sphere of its powers. That stringent requirements are imposed is understandable,
considering the paramount importance given to the interests of the investing public.
Otherwise stated, the mere fact that in regard to its banking functions, petitioner is
already subject to the supervision of the BSP does not exempt the former from
reasonable disclosure regulations issued by the SEC. These regulations are meant to
assure full, fair and accurate disclosure of information for the protection of investors in
the stock market. Imposing such regulations is a function within the jurisdiction of the
SEC. Since petitioner opted to trade its shares in the exchange, then it must abide by
the reasonable rules imposed by the SEC.

75. ONAPAL The contract between the parties falls under the kind commonly called “futures”. The
VS. CA term “futures” has grown out of those purely speculative transactions in which there
are nominal contracts to sell for future delivery, but where in fact no delivery is
intended or executed.

In the realities of the transaction, the parties merely speculated on the rise or fall in
the price of the goods/commodity subject matter of the transaction. If private
respondent's speculation was correct, she would be the winner and the petitioner, the
loser, so petitioner would have to pay private respondent the "margin". But if private
respondent was wrong in her speculation then she would emerge as the loser and the
petitioner, the winner. The petitioner would keep the money or collect the difference
from the private respondent. This is clearly a form of gambling provided for with
unmistakable certainty under Article 2018 abovestated. It should thus be governed by
the New Civil Code and not by the Revised Securities Act nor the Rules and
Regulations on Commodity Futures Trading laid down by the SEC. Article 1462 of the
New Civil Code does not govern this case because the said provision contemplates a
contract of sale of specific goods where one of the contracting parties binds himself to
transfer the ownership of and deliver a determinate thing and the other to pay
therefore a price certain in money or its equivalent. The said article requires that there
be delivery of goods, actual or constructive, to be applicable. In the transaction in
question, there was no such delivery; neither was there any intention to deliver a
determinate thing.

76. CEMCO Petitioner asserts that the mandatory tender offer rule applies only to direct
HOLDINGS VS. acquisition of shares in the public company.
NATIONAL LIFE
INSURANCE This contention is not meritorious.

Tender offer is a publicly announced intention by a person acting alone or in concert


with other persons to acquire equity securities of a public company. A public

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company is defined as a corporation which is listed on an exchange, or a corporation
with assets exceeding P50,000,000.00 and with 200 or more stockholders, at least
200 of them holding not less than 100 shares of such company. Stated differently, a
tender offer is an offer by the acquiring person to stockholders of a public company
for them to tender their shares therein on the terms specified in the offer. Tender offer
is in place to protect minority shareholders against any scheme that dilutes the share
value of their investments. It gives the minority shareholders the chance to exit the
company under reasonable terms, giving them the opportunity to sell their shares at
the same price as those of the majority shareholders.

See Section 19 of Republic Act No. 8799 for your reference. Or better yet, read the
case.

Under existing SEC Rules, the 15% and 30% threshold acquisition of shares under
the foregoing provision was increased to thirty-five percent (35%). It is further
provided therein that mandatory tender offer is still applicable even if the acquisition is
less than 35% when the purchase would result in ownership of over 51% of the total
outstanding equity securities of the public company.

77. ABACUS Otherwise stated, the margin requirements set out in the RSA are primarily intended
SECURITIES VS. to achieve a macroeconomic purpose — the protection of the overall economy from
AMPIL excessive speculation in securities. Their recognized secondary purpose is to protect
small investors.

The law places the burden of compliance with margin requirements primarily upon the
brokers and dealers. Sections 23 and 25 and Rule 25-1, otherwise known as the
"mandatory close-out rule," clearly vest upon petitioner the obligation, not just the
right, to cancel or otherwise liquidate a customer's order, if payment is not received
within three days from the date of purchase. The word "shall" as opposed to the word
"may," is imperative and operates to impose a duty, which may be legally enforced.
For transactions subsequent to an unpaid order, the broker should require its
customer to deposit funds into the account sufficient to cover each purchase
transaction prior to its execution. These duties are imposed upon the broker to ensure
faithful compliance with the margin requirements of the law, which forbids a broker
from extending undue credit to a customer.

It will be noted that trading on credit (or "margin trading") allows investors to buy more
securities than their cash position would normally allow. Investors pay only a portion
of the purchase price of the securities; their broker advances for them the balance of
the purchase price and keeps the securities as collateral for the advance or loan.
Brokers take these securities/stocks to their bank and borrow the "balance" on it,
since they have to pay in full for the traded stock. Hence, increasing margins i.e.,
decreasing the amounts which brokers may lend for the speculative purchase and
carrying of stocks is the most direct and effective method of discouraging an
abnormal attraction of funds into the stock market and achieving a more balanced
use of such resources.

78. PHIL. The Bank reiterates that it is not a "public company" subject to the reportorial
VETERANS BANK requirements under Section 17.1 of the SRC because its shares can be owned only
VS. CALLANGAN by a specific group of people, namely, World War II veterans and their widows,
orphans and compulsory heirs, and is not open to the investing public in general.

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We DENY the motion for reconsideration for lack of merit.

A "public company" as

(1) any corporation with a class of equity securities listed on an Exchange or

(2) (a corporation) with assets in excess of Fifty Million Pesos (P50,000,000.00)


and having two hundred (200) or more holders, at least two hundred (200) of
which are holding at least one hundred (100) shares of a class of its equity
securities."

From these provisions, it is clear that a "public company," as contemplated by the


SRC, is not limited to a company whose shares of stock are publicly listed; even
companies like the Bank, whose shares are offered only to a specific group of
people, are considered a public company, provided they meet the requirements
enumerated above.

79. SEC VS. The provision (Sec. 30 of RSA) explains in simple terms that the insider's misuse of
INTERPORT nonpublic and undisclosed information is the gravamen of illegal conduct. The intent
RESOURCES ET. of the law is the protection of investors against fraud, committed when an insider,
AL. using secret information, takes advantage of an uninformed investor. Insiders are
obligated to disclose material information to the other party or abstain from trading the
shares of his corporation. This duty to disclose or abstain is based on two factors:
first, the existence of a relationship giving access, directly or indirectly, to information
intended to be available only for a corporate purpose and not for the personal benefit
of anyone; and second, the inherent unfairness involved when a party takes
advantage of such information knowing it is unavailable to those with whom he is
dealing.

(concurring opinion of Justice Tinga)


In its barest essence, insider trading involves the trading of securities based on
knowledge of material information not disclosed to the public at the time. Such activity
is generally prohibited in many jurisdictions, including our own, though the particular
scope and definition of "insider trading" depends on the legislation or case law of
each jurisdiction. In the United States, the rule has been stated as "that anyone who,
for trading for his own account in the securities of a corporation has 'access, directly
or indirectly, to information intended to be available only for a corporate purpose and
not for the personal benefit of anyone' may not take 'advantage of such information
knowing it is unavailable to those with whom he is dealing', i.e., the investing public."

FINAL EXAMS

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