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COMMERCIAL LAW REVIEW

Course Outline
Atty. Maria Zarah R. Villanueva-Castro

CORPORATION LAW

I. INTRODUCTION

Historical Background of Phillippine Corporate Law

II. CONCEPT AND ATTRIBUTES OF A CORPORATION

A. Statutory definition of a corporation (Section 2, CC)

B. Attributes of a corporation

1. Artificial being
a. Doctrine of Corporate Entity
(i) residence and nationality
(ii) constitutional rights
(iii) criminal liability
(iv) right to recover moral damages

b. Doctrine of Piercing the Veil of Corporate Entity


(i) alter ego principle and instrumentality rule
(ii) probative factors of identity

2. Creature of Law (See constitutional limitations on the creation


of a private corporation, Article 12, Section 16, Constitution;
Concession theory)

3. Right of Succession

4. Creature of Enumerated Powers, Attributes and Properties


a. Doctrine of limited capacities as compared to the
Doctrine of general capacities)
b. Ultra vires doctrine

Classification of Private Corporations

1. stock and non-stock


2. domestic and foreign
3. dejure and de facto (Sec. 20, CC)

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(See: doctrine of corporation by estoppel [Sec. 21, CC])
4. holding, affiliate and subsidiary
5. open and close

CASES: Feliciano vs. COA, January 14, 2004; Manila International Airport
Authority vs. CA, 20 July 2006; Magsaysay-Labrador vs. CA, 180 SCRA 266;
Sulo ng Bayan vs. Araneta, 72 SCRA 247; Bataan Shipyard vs. PCGG, 150
SCRA 181; Luxuria Homes vs. CA, 302 SCRA 315; Concept Builders vs.
NLRC, 257 SCRA 149; Villarey Transit vs. Ferrer, 25 SCRA 845; Francisco
Motors vs. CA, 309 SCRA 72; Lipat, et al. vs. Pacific Banking Corp., GR No.
142435, April 30, 2003; Times Transportation Company vs. Santos Sotelo,
et. al., GR No. 163786. February 16, 2005; Yao, Sr. vs. People, et al., 19
June 2007; Hall vs. Piccio, 86 Phil 603; Seventh Day Adventist vs.
Northeastern Mindanao Mission, 21 July 2006; Lim Tong Lim vs. CA, 317
SCRA 728; International Express Travel and Tour Services vs. CA, October
19, 2000; Filipinas Broadcasting Network, Inc. vs. Ago Medical and
Educational Center-Bicol Christian College of Medicine, G.R. No. 141994,
January 17, 2005; Coastal Pacific Trading, Inc. vs. Southern Rolling Mills Co.,
Inc. 497 SCRA 11, 28 July 2006

III. FORMATION AND ORGANIZATION OF A PRIVATE CORPORATION

Submission of articles of incorporation; contractual significance


Contents and form of the Articles of Incorporation (Sec. 14 &
15, CC)
1. corporate name
a. statutory limitations on the use of corporate name (Sec.
18, CC)
b. SEC guidelines on the use of corporate name
c. Doctrine of secondary meaning
d. Change of corporate name
2. purpose clause
3. principal office
4. term of existence
a. doctrine of relation
5. incorporators
6. directors and trustees
7. capitalization
8. shares of stock (Sec. 6, CC)
a. doctrine of equality of shares
b. classes of shares
(i) par and no par
(ii) voting and non-voting
(iii) common and preferred
(iv) redeemable, treasury and founder's shares
9. treasurer's affidavit

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Grounds for rejection of the Articles of Incorporation (Sec. 17,
CC)
Commencement of corporate existence (Sec. 19, CC)
Amendment of the articles of incorporation (Sec. 16, CC)
Effects of non-use of corporate charter (Sec. 22, CC)

CASES: Lyceum of the Philippines vs. CA, 219 SCRA 612; Ang Mga Kaanib sa
Iglesia ng Dios vs. Iglesia ng Dios Kay Kristo Jesus, December 12, 2001;
Industrial Refractories Corporation of the Phils. vs. Refractories Corp. of the
Phils., Oct. 3, 2002; JG Summit Holdings vs. CA, September 24, 2003; Young
Auto Supply vs. CA, 223 SCRA 670; Republic Planters Bank vs. Agana, 269
SCRA 1; Castillo, et. al. vs. Balinghasay, et. al. G.R. No. 150976, October
18, 2004

IV. CONTROL AND MANAGEMENT OF A CORPORATION

Levels of corporate control


Board of Directors/Trustees
1. general powers of the board (Sec. 23, CC)
2. business judgment rule
3. qualifications of the board members (Sec. 23 & 27, CC)
4. election of the board members (Sec. 24 & 26, CC); See
cumulative voting procedure
5. term of office
6. quorum requirement in board meetings (Sec. 25, CC)
7. removal of board members (Sec. 28, CC)
8. vacancies in the board (Sec. 29, CC)
9. compensation of board members (Sec. 30, CC)

Corporate Officers
1. concept of corporate officers
2. validity and binding effect of acts of corporate officers
3. doctrine of apparent authority

Liability of directors, trustees and officers


1. instances when corporate officers/directors are held solidarily
liable (Sec. 31, CC)
2. self-dealing directors/officers (Sec. 32, CC)
3. contracts involving inter-locking directors (Sec. 33, CC)
4. doctrine of corporate opportunity (Sec. 34, CC)

Executive committee (Sec. 33, CC)

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CASES: Grace Christian Highschool vs. CA, 281 SCRA 133; Gokongwei vs.
SEC, 89 SCRA 336; Western Institute of Technology vs. Salas, 278 SCRA
216; Nacpil vs. International Broadcasting Corp., March 21, 2002; People's
Aircargo vs. CA, Oct. 7, 1998; Prime White Cement vs. IAC, 220 SCRA 103;
Santos vs. NLRC, 254 SCRA 673; Sps. David, et al vs. Construction Industry
and Arbitration Commission, G.R. No. 159795, July 30, 2004; Malayang
Samahan ng mga Manggagawa vs. Ramos, April 20, 2001; Inter-Asia
Investments Industries vs. CA, GR 125778, June 10, 2003; Lapu-lapu
Foundation, Inc. vs. CA, GR 126006, January 29, 2004; Hydro Resources
Contractors Corporation vs. National Irrigation Administration, G.R. No.
160215 November 10, 2004; Monfort Hermanos Agricultural Development
Corp. vs. Monfort, III, et.al., G.R. No. 152542, July 8, 2004; McLeod vs.
NLRC, et al., 23 January 2007; Carag vs. NLRC, 02 April 2007

V. CORPORATE POWERS

Doctrine of limited capacity; concept of ultra vires act (Sec. 45,


CC)
Classes of corporate powers (express, implied and incidental)
Statutory powers of a corporation and the limitations on their
exercise (Sec. 36, CC)
1. amendment of articles of incorporation (Sec. 16, CC)
2. extension/shortening of corporate term (Sec. 37, CC)
3. increase or decrease of capital stock (Sec. 38, CC)
4. incurrence, creation or increase of bonded indebtedness
(Sec. 38, CC)
5. denial of pre-emptive right (Sec. 39, CC)
6. sale or disposition of assets (Sec. 40, CC)
7. acquisition of corporate shares (Sec. 41, CC) (See Trust
Fund Doctrine)
8. investment of corporate funds (Sec. 42, CC)
9. declaration of dividends (Sec. 43, CC)
10. management contract (Sec. 44, CC)
11. other corporate powers

CASES: Nielson & Co. vs. Lepanto Consolidated Mining Co., 26 SCRA 540;
Islamic Directorate vs. CA, 272 SCRA 454; Dee vs. SEC, 199 SCRA 238; PNB
vs. Andrada Electric, April 17, 2002

VI. CORPORATE BY-LAWS

Concept, use and nature of by-laws


By-laws in relation to articles of incorporation
Adoption of by-laws (Sec. 46, CC); effect of non-filing within the
prescribed period

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Contents of by-laws; requisites of a valid by-law provision
Amendment to by-laws (Sec. 48, CC)
By-laws in relation to third parties

CASES: Loyola Grandvillas Homeowners Association vs. CA, 276 SCRA 681;
China Banking Corporation vs. CA, 270 SCRA 503

VII. CORPORATE MEETINGS

Kinds of corporate meetings


Requirements of a meeting
Right to vote of stockholders
1. instances when voting right not available
2. rules on:
a. delinquent shares; (Sec. 71, CC)
b. escrow shares;
c. unpaid shares; (Sec. 72, CC)
d. sequestered shares;
e. pledgor, mortgagor, or administrator of shares (Sec. 55,
CC)
f. shares jointly owned (Sec. 56, CC)

Concept of proxy and voting trust agreement (Sec. 58 & 59, CC)
Derivative suit; concept and requisites

CASES: Lee vs. CA 205 SCRA 725; Republic vs. Sandiganbayan, April 30,
2003; Republic vs. Cocofed, December 12, 2001; Evangelista vs. Santos, 86
SCRA 387; Chua vs. CA, GR No. 150793, November 19, 2004; Expert Travel
& Tours, Inc. vs. Court of Appeals and Korean Airlines GR No. 152392, May
26, 2005

VIII. SUBSCRIPTION CONTRACT

Ways to become a stockholder of a corporation


Concept of subscription contract
Kinds of subscription (pre and post incorporation subscription,
Sec. 61, CC)
Consideration for the issuance of shares (Sec. 62, CC)
Payment of subscription
1. remedies to enforce payment of subscription (Sec. 68, 69 &
70, CC)
2. when shares are considered delinquent (Sec. 67, CC)

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Certificate of Stock (Sec. 63, CC)
1. doctrine of indivisibility of subscription contract
2. certificate of stock, quasi-negotiable
Transfer of shares
Lost and destroyed certificate of stock (Sec. 73, CC)

CASES: Nava vs. Peers Marketing, 74 SCRA 65; Lim Tay vs. CA, August 5,
1998; Rural Bank of Lipa vs. CA, Sept. 28, 2001; Ponce vs. Alsons Cement,
Dec. 10, 2002; Ong Yong, et al. vs. Tiu, et al., G.R. Nos. 144476 & 144629,
April 8, 2003

IX. CORPORATE BOOKS AND RECORDS

Books required to be kept by a corporation (Sec. 74, CC)

Right to inspect corporate books


1. Basis and extent of the right of inspection
2. Limitations on the right of inspection
3. Remedies to enforce right of inspection

CASE: Gonzales vs. PNB, 122 SCRA 489

X. MERGER AND CONSOLIDATION

Concept of merger and consolidation


Requisites of and procedure for merger and consolidation (Sec.
77, CC)
Effects of merger or consolidation (Sec. 80, CC)

CASES: Associated Bank vs. CA, 291 SCRA 511; Babst vs. CA, January 26,
2001

XI. RIGHT OF APPRAISAL

Concept of appraisal right


Instances of appraisal right (Sec. 81, Sec. 77, Sec. 42, CC)
Requirements for a valid exercise of appraisal right (Sec. 82,
CC)

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Effects of exercising appraisal right (Sec. 83, CC)

XII. NON-STOCK CORPORATIONS

Definition and purposes of a non-stock corporation (Sec. 87 &


88, CC)
Distinguished from stock corporation
Membership in a non-stock corporation
Rule on distribution of assets (Sec. 94, CC)

CASES: Long vs. Basa, et al. , Sept. 27, 2001; Sta. Clara Homeowners'
Association vs. Sps. Gaston, Jan. 23, 2002; Padcom vs. Ortigas Center, May
9, 2002; Tan vs. Sycip 17 August 2006

XIII. CLOSE CORPORATIONS

Concept; distinguished from open corporations (Sec. 96, 97,


101, & 102, CC)
Permissive provisions in the articles of incorporation (Sec. 97,
CC)
Restrictions on transfer of shares (Sec. 98 & 99 CC)

CASES: Dulay Enterprises vs. CA, 225 SCRA 678; San Juan Structural Steel
Fabricators, 296 SCRA 632

XIV. CORPORATE DISSOLUTION/LIQUIDATION

Methods of voluntary corporate dissolution and the requirements


therefor
Concept of involuntary dissolution and the grounds therefor
(Sec. 121, CC)
Corporate liquidation (Sec. 122, CC)
Methods of liquidation or winding up
Concept of Rehabilitation; Effects of appointment of
management committee or receiver

CASES: Gelano vs. CA, 103 SCRA 90; Vesagas vs. CA, Dec. 5, 2002; Phil.
Veterans vs. Vega, June 28, 2001; Tan Tiong Bio vs. CIR, 4 SCRA 986;
Rebollido vs. CA, 170 SCRA 800; Clarion Printing House, Inc. vs. NLRC, GR

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No. 148372, June 27, 2005; Lingkod Manggagawa sa Rubberworld vs.
Rubberworld Phils., Inc. 29 January 2007; Garcia, et al vs. PAL, 29 August
2007; Sobrejuanite vs. ASB, 30 September 2005; RCBC vs. IAC, 09
December 1999;

XV. FOREIGN CORPORATIONS

A. Concept of foreign corporation


B. Tests to determine nationality of a corporation
C. Concept of "doing business" and the license requirement
therefor; See also Sec. 3(d), RA 7042
D. Effects of being issued a license
E. Revocation and withdrawal of license

CASES: Facilities Management vs. De la Osa, 89 SCRA 131; Home


Insurance vs. Eastern Shipping Lines, 123 SCRA 424; Mentholatum, Inc. vs.
Mangaliman, 73 Phil 524; Eriks vs. CA, 267 SCRA 567; MR Holdings vs.
Sheriff Bajar, April 11, 2002; Hutchison Ports vs. SBMA, August 31, 2000;
Antam Consolidated vs. CA, 143 SCRA 288; Mentholatum vs. Mangaliman, 72
Phil 524; Merrill Lynch Futures, Inc. vs. CA, 211 SCRA 824; Agilent
Technologies Singapore vs. Integrated Silicon Technology Philippines
Corporation, G.R. No. 154618, April 14, 2004; Expertravel & Tours, Inc. vs.
Court of Appeals and Korean Airlines GR No. 152392, May 26, 2005; B. Van
Zuiden vs. GTVL, 28 May 2007

XVI. SEC JURISDICTION

A. Powers and functions of the SEC


B. Cases transferred to the RTC

CASES: Yujuico vs. Quiambao, 29 January 2006; Baviera vs. Paglinawan, 08


February 2007; SEC vs. Performance Foreign Exchange Corp., 20 July 2006