HO 1 - Commercial Law - Corporation Law PDF

2020 BAR REVIEW COMMERCIAL LAW
Handout No. 1
CORPORATION LAW
Corporate term
A corporation shall have perpetual existence unless its articles of incorporation provides
otherwise.
Corporations with certificates of incorporation issued prior to the effectivity of this Code and
which continue to exist shall have perpetual existence, unless the corporation, upon a vote of its
stockholders representing a majority of its outstanding capital stock, notifies the Commission
that it elects to retain its specific corporate term pursuant to its articles of incorporation:
Provided, That any change in the corporate term under this section is without prejudice to the
appraisal right of dissenting stockholders in accordance with the provisions of this Code. Sec. 11,
RCC
Amendment of term of existence
A corporate term for a specific period may be extended or shortened by amending the articles of
incorporation: Provided, That no extension may be made earlier than three (3) years prior to the
original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension
as may be determined by the Commission: Provided, further, That such extension of the
corporate term shall take effect only on the day following the original or subsequent expiry
date(s). Sec. 11, RCC
Revival of corporate term
A corporation whose term has expired may apply for revival of its corporate existence, together
with all the rights and privileges under its certificate of incorporation and subject to all of its
duties, debts and liabilities existing prior to its revival. Upon approval by the Commission, the
corporation shall be deemed revived and a certificate of revival of corporate existence shall be
issued, giving it perpetual existence, unless its application for revival provides otherwise. Sec. 11,
RCC
Minimum capital stock not required of stock corporations
Stock corporations shall not be required to have minimum capital stock, except as otherwise
specially provided by special law. Sec. 12, RCC
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Summary order to stop use of corporate name
The Commission (SEC) upon determination that the corporate name is:
1) not distinguishable from a name already reserved or registered for the use of another
corporation;
2) already protected by law; or
3) contrary to law, rules and regulations,
may summarily order the corporation to immediately cease and desist from using such name and
require the corporation to register a new one. The Commission shall also cause the removal of
all visible signages, marks, advertisements, labels prints and other effects bearing such
coroporate name. Upon the approval of the new corporate name, the Commission shall issue a
certificate of incorporation under the amended name. Sec. 17, RCC
It is basic in corporation law that a corporation is an artificial being invested by law with a
personality separate and distinct from its stockholders and from other corporations to which it
may be connected. Inferred from a corporation's separate personality is that "consent by a
corporation through its representatives is not consent of the representative, personally."
The corporate obligations, incurred through official acts of its representatives, are its own.
Corollarily, a stockholder, director, or representative does not become a party to a contract just
because a corporation executed a contract through that stockholder, director, or representative.
Spouses Fernandez vs. Smart Communications, Inc., G.R. No. 212885, July 17, 2019
As a general rule, a corporation's representatives are not bound by the terms of the contract
executed by the corporation. "They are not personally liable for obligations and liabilities
incurred on or in behalf of the corporation."
There are instances, however, when the distinction between personalities of directors, officers,
and representatives, and of the corporation, are disregarded. This is piercing the veil of corporate
fiction. The doctrine of piercing the veil of corporate fiction is a legal precept that allows a
corporation's separate personality to be disregarded under certain circumstances, so that a
corporation and its stockholders or members, or a corporation and another related corporation
could be treated as a single entity. It is meant to apply only in situations where the separate
corporate personality of a corporation is being abused or being used for wrongful purposes.

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The piercing of the corporate veil must be done with caution. To justify the piercing of the veil
of corporate fiction, "it must be shown by clear and convincing proof that the separate: and
distinct personality of the corporation was purposefully employed to evade a legitimate and
binding commitment and perpetuate a fraud or like wrongdoings." Spouses Fernandez vs. Smart
Communications, Inc., G.R. No. 212885, July 17, 2019
Jurisprudence settled that "[t]he filing of articles of incorporation and the issuance of the
certificate of incorporation are essential for the existence of a de facto corporation." In fine, it
is the act of registration with SEC through the issuance of a certificate of incorporation that
marks the beginning of an entity's corporate existence.
Petitioner filed its Articles of Incorporation and by-laws on August 28, 2001. However, the SEC
issued the corresponding Certificate of Incorporation only on August 31, 2001, two (2) days after
Purificacion executed a Deed of Donation on August 29, 2001. Clearly, at the time the donation
was made, the Petitioner cannot be considered a corporation de facto. The Missionary Sisters of
Our Lady of Fatima (Peach Sisters of Laguna), represented by Rev. Mother Ma. Concepcion R.
Realon, et al. vs Amando V. Alzona, et al., August 6, 2018, G.R. No. 224307
One who assumes an obligation to an ostensible corporation as such, cannot resist performance
thereof on the ground that there was in fact no corporation.
The doctrine of corporation by estoppel is founded on principles of equity and is designed to

prevent injustice and unfairness. It applies when a non-existent corporation enters into contracts
or dealings with third persons. In which case, the person who has contracted or otherwise dealt
with the non-existent corporation is estopped to deny the latter's legal existence in any action
leading out of or involving such contract or dealing. While the doctrine is generally applied to
protect the sanctity of dealings with the public, nothing prevents its application in the reverse, in
fact the very wording of the law which sets forth the doctrine of corporation by estoppel permits
such interpretation. Such that a person who has assumed an obligation in favor of a non-existent
corporation, having transacted with the latter as if it was duly incorporated, is prevented from
denying the existence of the latter to avoid the enforcement of the contract. The Missionary
Sisters of Our Lady of Fatima (Peach Sisters of Laguna), represented by Rev. Mother Ma.
Concepcion R. Realon, et al. vs Amando V. Alzona, et al., August 6, 2018, G.R. No. 224307

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The doctrine of corporation by estoppel applies for as long as there is no fraud and when the
existence of the association is attacked for causes attendant at the time the contract or dealing
sought to be enforced was entered into, and not thereafter.
In this controversy, Purificacion dealt with the petitioner as if it were a corporation. This is evident
from the fact that Purificacion executed two (2) documents conveying her properties in favor of
the petitioner – first, on October 11, 1999 via handwritten letter, and second, on August 29, 2001
through a Deed; the latter having been executed the day after the petitioner filed its application
for registration with the SEC.
The doctrine of corporation by estoppel rests on the idea that if the Court were to disregard the
existence of an entity which entered into a transaction with a third party, unjust enrichment
would result as some form of benefit have already accrued on the part of one of the parties. Thus,
in that instance, the Court affords upon the unorganized entity corporate fiction and juridical
personality for the sole purpose of upholding the contract or transaction. The Missionary Sisters
of Our Lady of Fatima (Peach Sisters of Laguna), represented by Rev. Mother Ma. Concepcion
R. Realon, et al. vs Amando V. Alzona, et al., August 6, 2018, G.R. No. 224307
Beneficial owner of shares
As defined in the SRC-IRR, “[b]eneficial owner or beneficial ownership means any person who,
directly or indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares voting power (which includes the power to vote or direct the voting of
such security) and/or investment returns or power (which includes the power to dispose of, or
direct the disposition of such security).” Roy III vs. Herbosa, 810 SCRA 1, G.R. No. 207246
November 22, 2016
The term “full beneficial ownership” found in the Foreign Investment Act-Implementing Rules
and Regulations (FIA-IRR) is to be understood in the context of the entire paragraph defining
the term “Philippine national.” Mere legal title is not enough to meet the required Filipino
equity, which means that it is not sufficient that a share is registered in the name of a Filipino
citizen or national, i.e., he should also have full beneficial ownership of the share.
If the voting right of a share held in the name of a Filipino citizen or national is assigned or
transferred to an alien, that share is not to be counted in the determination of the required
Filipino equity. In the same vein, if the dividends and other fruits and accessions of the share do
not accrue to a Filipino citizen or national, then that share is also to be excluded or not counted.

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Given that beneficial ownership of the outstanding capital stock of the public utility corporation
has to be determined for purposes of compliance with the 60% Filipino ownership requirement,
the definition in the SRC-IRR can now be applied to resolve only the question of who is the
beneficial owner or who has beneficial ownership of each “specific stock” of the said corporation.
Thus, if a “specific stock” is owned by a Filipino in the books of the corporation, but the stock’s
voting power or disposing power belongs to a foreigner, then that “specific stock” will not be
deemed as “beneficially owned” by a Filipino. Roy III vs. Herbosa, 810 SCRA 1, G.R. No. 207246
November 22, 2016
Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling interest
requirement. In fact, Section 2 goes beyond requiring a 60-40 ratio in favor of Filipino nationals
in the voting stocks; it moreover requires the 60-40 percentage ownership in the total number
of outstanding shares of stock, whether voting or not.
The SEC formulated SEC-MC No. 8 to adhere to the Court’s unambiguous pronouncement that
“[f]ull beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60
percent of the voting rights is required.” Clearly, SEC-MC No. 8 cannot be said to have been issued
with grave abuse of discretion.
A simple illustration involving Company X with three kinds of shares of stock, easily shows how
compliance with the requirements of SEC-MC No. 8 will necessarily result to full and faithful
compliance with the Gamboa Decision as well as the Gamboa Resolution.
The following is the composition of the outstanding capital stock of Company X:
100 common shares
100 Class A preferred shares (with right to elect directors)
100 Class B preferred shares (without right to elect directors)
If at least a total of 120 of common shares and Class A preferred shares (in any combination) are
owned and controlled by Filipinos, Company X is compliant with the 60% of the voting rights in
favor of Filipinos requirement of both SEC-MC No. 8 and the Gamboa Decision. Roy III vs.
Herbosa, 810 SCRA 1, G.R. No. 207246 November 22, 2016

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It is the Securities and Exchange Commission’s (SEC) duty to prevent confusion in the use of
corporate names not only for the protection of the corporation involved, but more so for the
protection of the public.
By express mandate of law, the SEC has absolute jurisdiction, supervision and control over all
corporations. It is the SEC’s duty to prevent confusion in the use of corporate names not only for
the protection of the corporation involved, but more so for the protection of the public. It has
the authority to de-register at all times, and under all circumstances corporate names which in
its estimation are likely to generate confusion. Indian Chamber of Commerce Phils., Inc. vs.
Filipino Indian Chamber of Commerce in the Philippines, Inc., 799 SCRA 278, G.R. No. 184008
August 3, 2016
ICCPI’s name is identical and deceptively or confusingly similar to that of FICCPI.
On the first point, ICCPI’s name is identical to that of FICCPI. ICCPI’s and FICCPI’s corporate names
both contain the same words “Indian Chamber of Commerce.” ICCPI argues that the word
“Filipino” in FICCPI’s corporate name makes it easily distinguishable from ICCPI. It adds that
confusion and deception are effectively precluded by appending the word “Filipino” to the phrase
“Indian Chamber of Commerce.” Further, ICCPI claims that the corporate name of FICCPI uses
the words “in the Philippines” while ICCPI uses only “Phils., Inc.”
ICCPI’s arguments are without merit. These words do not effectively distinguish the corporate
names. On the one hand, the word “Filipino” is merely a description, referring to a Filipino citizen
or one living in the Philippines, to describe the corporation’s members. On the other, the words
“in the Philippines” and “Phils., Inc.” are simply geographical locations of the corporations which,
even if appended to both the corporate names, will not make one distinct from the other. Under
the facts of this case, these words cannot be separated from each other such that each word can
be considered to add distinction to the corporate names. Taken together, the words in the phrase
“in the Philippines” and in the phrase “Phils., Inc.” are synonymous — they both mean the
location of the corporation. Indian Chamber of Commerce Phils., Inc. vs. Filipino Indian Chamber
of Commerce in the Philippines, Inc., 799 SCRA 278, G.R. No. 184008 August 3, 2016

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Directors and Officers; When personally liable
A corporate director, trustee, or officer is to be held solidarily liable with the corporation in the
following instances:
1) When directors and trustees or, in appropriate cases, the officers of a corporation: (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; or
4) When a director, trustee or officer is made, by specific provision of law, personally liable
for his corporate action. Spouses Fernandez vs. Smart Communications, Inc., G.R. No.
212885, July 17, 2019
These instances have not been shown in the case of petitioner Maricris. While the Amended
Complaint alleged that EOL fraudulently refused to pay the amount due, nothing in the said
pleading or its annexes would show the basis of Maricris' alleged fraudulent act that warrants
piercing the corporate veil.
No explanation or narration of facts was presented pointing to the circumstances constituting

fraud which must be stated with particularity, thus rendering the allegation of fraud simply an
unfounded conclusion of law. Without specific averments, "the complaint presents no basis upon
which the court should act, or for the defendant to meet it with an intelligent answer and must,
perforce, be dismissed for failure to state a cause of action." Spouses Fernandez vs. Smart
Communications, Inc., G.R. No. 212885, July 17, 2019
For reasons of public policy and in the interest of justice, the corporate veil will justifiably be
impaled only when it becomes a shield for fraud, illegality or inequity committed against third
persons. Hence, any application of the doctrine of piercing the corporate veil should be done
with caution.
A court should be mindful of the milieu where it is to be applied. It must be certain that the
corporate fiction was misused to such an extent that injustice, fraud, or crime was committed

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against another, in disregard of rights. The wrongdoing must be clearly and convincingly
established; it cannot be presumed. Otherwise, an injustice that was never unintended may
result from an erroneous application. Zambrano vs. Philippine Carpet Manufacturing
Corporation, 828 SCRA 144, G.R. No. 224099 June 21, 2017
The Court is not unmindful of the basic tenet that a corporation has a separate and distinct
personality from its stockholders, and from other corporations it may be connected with.
However, such personality may be disregarded, or the veil of corporate fiction may be pierced
attaching personal liability against responsible person if the corporation’s personality “is used
to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as a device
to defeat the labor laws x x x.”
By responsible person, we refer to an individual or entity responsible for, and who acted in bad
faith in committing illegal dismissal or in violation of the Labor Code; or one who actively
participated in the management of the corporation. Also, piercing the veil of corporate fiction is
allowed where a corporation is a mere alter ego or a conduit of a person, or another corporation.
Piercing the veil of corporate fiction is allowed, and responsible persons may be impleaded, and
be held solidarily liable even after final judgment and on execution, provided that such persons
deliberately used the corporate vehicle to unjustly evade the judgment obligation, or resorted to
fraud, bad faith, or malice in evading their obligation.
Here, the veil of corporate fiction must be pierced and accordingly, petitioners should be held
personally liable for judgment awards because the peculiarity of the situation shows that they
controlled DMI; they actively participated in its operation such that DMI existed not as a separate
entity but only as business conduit of petitioners. xxx Petitioners controlled DMI by making it
appear to have no mind of its own, and used DMI as shield in evading legal liabilities, including
payment of the judgment awards in favor of respondents. Dutch Movers, Inc. vs. Lequin, 824
SCRA 310, G.R. No. 210032 April 25, 2017
Any piercing of the corporate veil must be done with caution. As the CA had correctly observed,
it must be certain that the corporate fiction was misused to such an extent that injustice, fraud,
or crime was committed against another, in disregard of rights. Moreover, the wrongdoing
must be clearly and convincingly established.
Sarona v. NLRC, 663 SCRA 394 (2012), instructs, thus: Whether the separate personality of the
corporation should be pierced hinges on obtaining facts appropriately pleaded or proved.

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However, any piercing of the corporate veil has to be done with caution, albeit the Court will not
hesitate to disregard the corporate veil when it is misused or when necessary in the interest of
justice. After all the concept of corporate entity was not meant to promote unfair objectives.
The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: (1) defeat
of public convenience as when the corporate fiction is used as a vehicle for the evasion of an
existing obligation; (2) fraud cases or when the corporate entity is used to justify a wrong, protect
fraud, or defend a crime; or (3) alter ego cases, where a corporation is merely a farce since it is a
mere alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation. California Manufacturing Company, Inc. vs.
Advanced Technology System, Inc., 824 SCRA 295, G.R. No. 202454 April 25, 2017
Case law lays down a three-pronged test to determine the application of the alter ego theory,
which is also known as the instrumentality theory
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 plaintiffs legal right; and
3) The aforesaid control and breach of duty must have proximately caused the injury or
unjust loss complained of.
To summarize, piercing the corporate veil based on the alter ego theory requires the concurrence
of three elements: control of the corporation by the stockholder or parent corporation, fraud or
fundamental unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by
the fraudulent or unfair act of the corporation. The absence of any of these elements prevents
piercing the corporate veil. Philippine National Bank vs. Hydro Resources Contractors
Corporation, 693 SCRA 294, March 13, 2013
The first prong is the "instrumentality" or "control" test.
This test requires that the subsidiary be completely under the control and domination of the
parent. It examines the parent corporation's relationship with the subsidiary. It inquires whether

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a subsidiary corporation is so organized and controlled and its affairs are so conducted as to make
it a mere instrumentality or agent of the parent corporation such that its separate existence as a
distinct corporate entity will be ignored. It seeks to establish whether the subsidiary corporation
has no autonomy and the parent corporation, though acting through the subsidiary in form and
appearance, "is operating the business directly for itself." Philippine National Bank vs. Hydro
Resources Contractors Corporation, 693 SCRA 294, March 13, 2013
The second prong is the "fraud" test.
This test requires that the parent corporation's conduct in using the subsidiary corporation be
unjust, fraudulent or wrongful.1âwphi1 It examines the relationship of the plaintiff to the
corporation. It recognizes that piercing is appropriate only if the parent corporation uses the
subsidiary in a way that harms the plaintiff creditor. As such, it requires a showing of "an element
of injustice or fundamental unfairness." Philippine National Bank vs. Hydro Resources
Contractors Corporation, 693 SCRA 294, March 13, 2013
The third prong is the "harm" test.
This test requires the plaintiff to show that the defendant's control, exerted in a fraudulent, illegal
or otherwise unfair manner toward it, caused the harm suffered. A causal connection between
the fraudulent conduct committed through the instrumentality of the subsidiary and the injury
suffered or the damage incurred by the plaintiff should be established. The plaintiff must prove
that, unless the corporate veil is pierced, it will have been treated unjustly by the defendant's
exercise of control and improper use of the corporate form and, thereby, suffer damages.
Philippine National Bank vs. Hydro Resources Contractors Corporation, 693 SCRA 294, March
13, 2013
"The corporate mask may be removed or the corporate veil pierced when the corporation is just
an alter ego of a person or of another corporation." By looking at the circumstances
surrounding the creation, incorporation, management and closure and cessation of business
operations of CCI, it cannot be denied that CCJ's existence was dependent upon Ty and
petitioner.
First, the internal Scenic Department which initially handled the props and set designs of
petitioner was abolished and shut down and CCI was incorporated to cater to the props and set

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design requirements of petitioner, thereby transferring most of its personnel to CCI. Notably, CCI
was a subsidiary of petitioner and was incorporated through the collaboration of Ty and the other
major stockholders and officers of petitioner. CCI provided services mainly to petitioner and its
other subsidiaries. When Edmund Ty organized his own company, petitioner hired him as
consultant and eventually engaged the services of his company DWVEI. As a result of which CCI
decided to close its business operations as it no longer carried out services for the design and
construction of sets and props for use in the programs and shows of petitioner, thereby
terminating respondents and other employees of CCI. Petitioner clearly exercised control and
influence in the management and closure of CCI's operations, which justifies the ruling of the
appellate court and labor tribunals of disregarding their separate corporate personalities and
treating them as a single entity.
Another notable fact is that in the Certification dated August 22, 2011 issued by petitioner as to
the employment status of Ty, it was stated that the latter was holding the position of Vice-
President and Managing Director of its Division, CCI, from February 1, 1996 up to October 5, 2003,
the date of effectivity of CCI's closure. This shows that Ty was in fact considered a regular
employee of petitioner and CCI was considered a division of petitioner which bolster the
conclusion that petitioner should be held jointly and severally liable with CCI for the illegal
dismissal of respondents. ABS-CBN Broadcasting Corporation vs. Hilario, G.R. No. 193136, July
10, 2019
Quorum for board meetings
Unless the articles of incorporation or the bylaws provides for a greater majority, a majority of
the directors or trustees as stated in the articles of incorporation shall constitute a quorum to
transact corporate business, and every decision reached by at least a majority of the directors or
trustees constituting a quorum, except for the election of officers which shall require the vote of
a majority of all the members of the board, shall be valid as a corporate act. Sec. 52, RCC
Independent directors
The board of the following corporations vested with public interest shall have independent
directors constituting at least twenty percent (20%) of such board:
a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as "The
Securities Regulation Code", namely those whose securities are registered with the
Commission, corporations listed with an exchange or with assets of at least Fifty million

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pesos (50,000,000.00) and having two hundred (200) or more holders of shares, each
holding at least one hundred (100) shares of a class of its equity shares;
b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service
business, preneed, trust and insurance companies and other financial intermediaries; and
c) Other corporations engaged in businesses vested with public interest similar to the above,
as may be determined by the Commission, after taking into account relevant factors
which are germane to the objective and purpose of requiring the election of an
independent director, such as the extent of minority ownership, type of financial products
or securities issued or offered to investors, public interest involved in the nature of
business operations, and other analogous factors.
An independent director is a person who apart from shareholdings and fees received from any
business or other relationship which could, or could reasonably be received to materially
interfere with the exercise of independent judgment in carrying out the responsibilities as a
director. Sec. 22, RCC
Emergency Board
However, when the vacancy prevents the remaining directors from constituting a quorum and
emergency action is required to prevent grave, substantial, and irreparable loss or damage to the
corporation, the vacancy may be temporarily filled from among the officers of the corporation
by unanimous vote of the remaining directors or trustees. The action by the designated director
or trustee shall be limited to the emergency action necessary, and the term shall cease within a
reasonable time form the termination of the emergency or upon election of the replacement
director or trustee, whichever comes earlier. The corporation must notify the Commission within
three (3) days from the creation of the emergency board, stating therein the reason for its
creation. Sec. 28, RCC
To hold a director or officer personally liable for corporate obligation is the exception and it
only occurs when the following requisites are present: (1) the complaint must allege that the
director or officer assented to the patently unlawful acts of the corporation, or that the director
or officer was guilty of gross negligence or bad faith; and (2) there must be proof that the
director or officer acted in bad faith.
Here, the two requisites are wanting. Servandil's complaint failed to allege or impute bad faith
or malice on the part of respondent Abraham De Vera. There was likewise nothing in the
November 27, 2003 LA Decision that would establish that respondent Abraham De Vera acted in

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bad faith when Servandil was dismissed from the service. There was likewise no invocation of
bad faith on the part of respondent Abraham De Vera to evade any judgment against the
corporation. Montealegre vs. Spouses De Vera, G.R. No. 208920, July 10, 2019
Under this doctrine (of apparent authority), acts and contracts of the agent, as are within the
apparent scope of the authority conferred on him, although no actual authority to do such acts
or to make such contracts has been conferred, bind the principal. Furthermore, the principal's
liability is limited only to third persons who have been led reasonably to believe by the conduct
of the principal that such actual authority exists, although none was actually given. Apparent
authority is determined only by the acts of the principal and not by the acts of the agent.
EGI does not repudiate the act of Santos in signing the Promissory Notes; in fact, EGI made partial
payments, offering the authority of Santos to borrow and sign the Promissory Notes. EGI,
however, repudiates the act of Santos in entering into the Compromise Agreement extending the
repayment of the loan under the Promissory Notes, which extension is actually beneficial to EGL
In fact, the Compromise Agreement bought time for EGI to pay the loan under the Promissory
Notes but EGI still failed to pay. Having availed of benefits under the Compromise Agreement,
EGI is estopped from repudiating it. Since EGI's Board of Directors questioned Santos' authority
to enter into a Compromise Agreement only after 12 years, laches had already set in. Engineering
Geoscience, Inc. vs. Philippine Savings Bank, G.R. No. 187262, January 10, 2019
The general rule is that, “[i]n the absence of an authority from the board of directors, no person,
not even the officers of the corporation, can validly bind the corporation.”
A corporation is a juridical person, separate and distinct from its stockholders and members,
having “powers, attributes and properties expressly authorized by law or incident to its
existence.” Section 23 of the Corporation Code provides that “the corporate powers of all
corporations . . . shall be exercised, all business conducted and all property of such corporations
[shall] be controlled and held by the board of directors[.]” Development Bank of the Philippines
vs. Sta. Ines Melale Forest Products Corporation, 816 SCRA 425, G.R. No. 193068, G.R. No.
193099 February 1, 2017

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A corporation has no power, except those expressly conferred on it by the Corporation Code
and those that are implied or incidental to its existence. In turn, a corporation exercises said
powers through its board of directors and/or its duly-authorized officers and agents.
Thus, it has been observed that the power of a corporation to sue and be sued in any court is
lodged with the board of directors that exercises its corporate powers. In turn, physical acts of
the corporation, like the signing of documents, can be performed only by natural persons duly
authorized for the purpose by corporate bylaws or by a specific act of the board of directors. It
necessarily follows that “an individual corporate officer cannot solely exercise any corporate
power pertaining to the corporation without authority from the board of directors.” Philippine
Numismatic and Antiquarian Society vs. Aquino, 816 SCRA 161, G.R. No. 206617 January 30,
2017
Section 23, in relation to Section 25 of the Corporation Code, clearly enunciates that all
corporate powers are exercised, all business conducted, and all properties controlled by the
board of directors.
Thus, it is clear that an individual corporate officer cannot solely exercise any corporate power
pertaining to the corporation without authority from the board of directors. Absent the said
board resolution, a petition may not be given due course. The application of the rules must be
the general rule, and the suspension or even mere relaxation of its application, is the exception.
This Court may go beyond the strict application of the rules only on exceptional cases when there
is truly substantial compliance with the rule. Philippine Numismatic and Antiquarian Society vs.
Aquino, 816 SCRA 161, G.R. No. 206617 January 30, 2017
The president, vice president, secretary and treasurer are commonly regarded as the principal
or executive officers of a corporation, and they are usually designated as the officers of the
corporation. However, other officers are sometimes created by the charter or bylaws of a
corporation, or the board of directors may be empowered under the bylaws of a corporation to
create additional offices as may be necessary.
This Court expounded that an “office” is created by the charter of the corporation and the officer
is elected by the directors or stockholders, while an “employee” usually occupies no office and
generally is employed not by action of the directors or stockholders but by the managing officer
of the corporation who also determines the compensation to be paid to such employee.
Wesleyan University-Philippines vs. Maglaya, Sr., 815 SCRA 171, G.R. No. 212774 January 23,
2017

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One who is included in the bylaws of a corporation in its roster of corporate officers is an officer
of said corporation and not a mere employee.
It is apparent from the bylaws of WUP that the president was one of the officers of the
corporation, and was an honorary member of the Board. He was appointed by the Board and not
by a managing officer of the corporation. We held that one who is included in the bylaws of a
corporation in its roster of corporate officers is an officer of said corporation and not a mere
employee. The alleged “appointment” of Maglaya instead of “election” as provided by the bylaws
neither convert the president of university as a mere employee, nor amend its nature as a
corporate officer. With the office specifically mentioned in the bylaws, the NLRC erred in taking
cognizance of the case, and in concluding that Maglaya was a mere employee and subordinate
official because of the manner of his appointment, his duties and responsibilities, salaries and
allowances, and considering the Identification Card, the Administration and Personnel Policy
Manual which specified the retirement of the university president, and the check disbursement
as pieces of evidence supporting such finding. Wesleyan University-Philippines vs. Maglaya, Sr.,
815 SCRA 171, G.R. No. 212774 January 23, 2017
Section 25 of the Corporation Code mandates that the President shall be a director.
Following Section 25 of the Corporation Code, the election of individual respondents, as

corporate officers, was likewise invalid. Section 25 of the Corporation Code mandates that the
President shall be a director. As previously discussed, Jaminola could not be elected as a director.
Consequently, Jaminola’s election as President was null and void.
The same provision allows the election of such other officers as may be provided for in the
bylaws. Condocor’s By-Laws, however, require that the Vice President shall be elected by the
Board from among its member directors in good standing, and the Secretary may be appointed
by the Board under the same circumstance. Like Jaminola, Milanes and Macalintal were not
directors and, thus, could not be elected and appointed as Vice President and Secretary,
respectively. Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R. No. 206038 January 25, 2017
People’s Aircargo and Warehousing Co. Inc. v. Court of Appeals (357 Phil. 850; 297 SCRA 170)
explains that under Section 23 of the Corporation Code, the power and responsibility to bind a
corporation can be delegated to its officers, committees, or agents.
Such delegated authority is derived from law, corporate bylaws, or authorization from the board:
Under this provision, the power and the responsibility to decide whether the corporation should

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enter into a contract that will bind the corporation is lodged in the board, subject to the articles
of incorporation, bylaws, or relevant provisions of law. However, just as a natural person may
authorize another to do certain acts for and on his behalf, the board of directors may validly
delegate some of its functions and powers to officers, committees or agents. The authority of
such individuals to bind the corporation is generally derived from law, corporate bylaws or
authorization from the board, either expressly or impliedly by habit, custom or acquiescence in
the general course of business, viz:
“A corporate officer or agent may represent and bind the corporation in transactions with third
persons to the extent that [the] authority to do so has been conferred upon him, and this includes
powers which have been intentionally conferred, and also such powers as, in the usual course of
the particular business, are incidental to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as usually pertaining to the particular officer or
agent, and such apparent powers as the corporation has caused persons dealing with the officer
or agent to believe that it has conferred.” Development Bank of the Philippines vs. Sta. Ines
Melale Forest Products Corporation, 816 SCRA 425, G.R. No. 193068, G.R. No. 193099 February
1, 2017
When board meeting is unnecessary for close corporations
Unless the bylaws provide otherwise, any action taken by the directors of a close corporation
without a meeting called properly and with due notice shall nevertheless be deemed valid if:
a) Before or after such action is taken, a written consent thereto is signed by all the
directors; or
b) All the stockholders have actual or implied knowledge of the action and make no prompt
objection in writing; or
c) The directors are accustomed to take informal action with the express or implied
acquiescence of all the stockholders; or
d) All the directors have express or implied knowledge of the action in question and none of
them makes prompt objection in writing. Sec. 100, RCC

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The issuance of the demand letter dated March 5, 2008 to collect the payment of unpaid rentals
from respondent and to demand the latter to vacate the subject property was done in the
ordinary course of business, and thus, within the scope of the powers of Del Castillo.
In fact, it was his duty as President to manage the affairs of petitioner, which included the
collection of receivables. Article IV, Section 2 of the Bylaws of petitioner expressly states that the
President has the power to: xxx b. Exercise general [supervision], control and direction of the
business and affairs of the Colegio; xxx e. Execute in behalf of the Colegio, bonds, mortgages, and
all other contracts and agreements which the Colegio may enter into; xxx j. Exercise or perform
such other duties as are incident to his office or such powers and duties as the Board may from
time to time [prescribe].
In any case, even if, for the sake of argument, Del Castillo acted beyond the scope of his authority
in issuing the demand letter dated March 5, 2008, the subsequent issuance of the Board
Resolution dated May 13, 2008 cured any defect possibly arising therefrom as it was a clear
indication that the Board agreed to, consented to, acquiesced in, or ratified the issuance of the
said demand letter. Colegio Medico-Farmaceutico de Filipinas, Inc. vs. Lim, 869 SCRA 298, G.R.
No. 212034 July 2, 2018
The civil liability of the corporate officer for the issuance of a bouncing corporate check attaches
only if he is convicted.
Conversely, therefore, it will follow that once acquitted of the offense of violating BP 22, a
corporate officer is discharged from any civil liability arising from the issuance of the worthless
check in the name of the corporation he represents. This is without regard as to whether his
acquittal was based on reasonable doubt or that there was a pronouncement by the trial court
that the act or omission from which the civil liability might arise did not exist. Pilipinas Shell
Petroleum Corporation vs. Duque, 818 SCRA 57, G.R. No. 216467 February 15, 2017
Generally, the stockholders and officers are not personally liable for the obligations of the
corporation except only when the veil of corporate fiction is being used as a cloak or cover for
fraud or illegality, or to work injustice.
In the present case, nothing in the records at hand would show that respondents made
themselves personally nor solidarily liable for the corporate obligations either as accommodation
parties or sureties. On the contrary, there is no dispute that respondents signed the subject check
in their capacity as corporate officers and that the check was drawn in the name of FCI as

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payment for the obligation of the corporation and not for the personal indebtedness of
respondents.
Neither is there allegation nor proof that the veil of corporate fiction is being used by respondents
for fraudulent purposes. The rule is that juridical entities have personalities separate and distinct
from its officers and the persons composing it. Pilipinas Shell Petroleum Corporation vs. Duque,
818 SCRA 57, G.R. No. 216467 February 15, 2017
Failure to allege the specific acts of respondent-officers, which could be interpreted as

participation in the alleged violations, will prevent personal liability on their part.
There was also no showing, based on the complaints, that they were deemed responsible for
Price Richardson’s violations. As the State Prosecutor found: “The evidence at hand merely
proves that the respondent-officers were not licensed to act as broker, salesman or associated
person. No further proof, however, was presented showing that said respondents have indeed
acted as such in trading securities.” Securities and Exchange Commission vs. Price Richardson
Corporation, 832 SCRA 560, G.R. No. 197032 July 26, 2017
Section 74 of the Corporation Code provides for the liability for damages of any officer or agent
of the corporation for refusing to allow any director, trustee, stockholder or member of the
corporation to examine and copy excerpts from its records or minutes.
Section 144 of the same Code further provides for other applicable penalties in case of violation
of any provision of the Corporation Code. Hence, to prove any violation under the
aforementioned provisions, it is necessary that:
1) a director, trustee, stockholder or member has made a prior demand in writing for a copy
of excerpts from the corporations records or minutes;
2) any officer or agent of the concerned corporation shall refuse to allow the said director,
trustee, stockholder or member of the corporation to examine and copy said excerpts;
3) if such refusal is made pursuant to a resolution or order of the board of directors or
trustees, the liability under this section for such action shall be imposed upon the
directors or trustees who voted for such refusal; and
4) where the officer or agent of the corporation sets up the defense that the person
demanding to examine and copy excerpts from the corporation’s records and minutes
has improperly used any information secured through any prior examination of the
records or minutes of such corporation or of any other corporation, or was not acting in

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good faith or for a legitimate purpose in making his demand, the contrary must be shown
or proved. Roque vs. People, 826 SCRA 618, G.R. No. 211108 June 7, 2017
The “existence of interlocking directors, corporate officers and shareholders is not enough
justification to pierce the veil of corporate fiction in the absence of fraud or other public policy
considerations.”
Although ownership by one corporation of all or a great majority of stocks of another corporation
and their interlocking directorates may serve as indicia of control, by themselves and without
more, these circumstances are insufficient to establish an alter ego relationship or connection
between Phil Carpet on the one hand and Pacific Carpet on the other hand, that will justify the
puncturing of the latter’s corporate cover. This Court has declared that “mere ownership by a
single stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the separate corporate personality.”
It has likewise ruled that the “existence of interlocking directors, corporate officers and
shareholders is not enough justification to pierce the veil of corporate fiction in the absence of
fraud or other public policy considerations.” Zambrano vs. Philippine Carpet Manufacturing
Settled is the rule that “where one corporation sells or otherwise transfers all its assets to
another corporation for value, the latter is not, by that fact alone, liable for the debts and
liabilities of the transferor.”
It must be noted that Pacific Carpet was registered with the Securities and Exchange Commission
on January 29, 1999, such that it could not be said that Pacific Carpet was set up to evade Phil
Carpet’s liabilities. As to the transfer of Phil Carpet’s machines to Pacific Carpet, settled is the
rule that “where one corporation sells or otherwise transfers all its assets to another corporation
for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor.”
All told, the petitioners failed to present substantial evidence to prove their allegation that Pacific
Carpet is a mere alter ego of Phil Carpet. Zambrano vs. Philippine Carpet Manufacturing

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Corporate Records
Every corporation shall keep and carefully preserve at its principal office all information relating
to the corporation including, but not limited to:
a) The articles of incorporation and bylaws of the corporation and all their amendments;
b) The current ownership structure and voting rights of the corporation, including lists of
stockholders or members group structures, intra-group relations, ownership data, and
beneficial ownership.
c) The names and addresses of all the members of the board of directors or trustees and the
executive officers;
d) A record of all business transactions;
e) A record of the resolutions of the board of directors or trustees and of the stockholders
or members;
f) Copies of the latest reportorial requirements submitted to the Commission; and
g) The minutes of all meetings of stockholders or members, or of the board of directors or
trustees. Sec. 73, RCC
Right to inspect corporate books
Corporate records, regardless of the form in which they are stored, shall be open to inspection
by any director, trustee, stockholder or member of the corporation in person or by a
representative at reasonable hours on business days, and a demand in writing may be made by
such director, trustee or stockholder at their expense, for copies of such records or excerpts from
said records. The inspecting or reproducing party shall remain bound by confidentiality rules
under prevailing laws, such as the rules on trade secrets or processes under Republic Act No.
8293, otherwise known as the "Intellectual Property Code of the Philippines", as amended,
Republic Act No. 10173, otherwise known as the "Data Privacy Act of 2012" Republic Act No.
8799, otherwise known as "The Securities Regulation Code", and the Rules of Court.
A requesting party who is not a stockholder or member of record, or is a competitor, director,

officer, controlling stockholder or otherwise represents the interests of a competitor shall have
no right to inspect or demand reproduction of corporate records. Sec. 73, RCC

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Effects of Merger or Consolidation
The merger of consolidation shall have the following effects:
a) The constituent corporations shall become a single corporation which, in case of merger,
shall be the surviving corporation designated in the plan of merger; and in case of
consolidation, shall be the consolidated corporation designated in the plan of
consolidation;
b) The separate existence of the constituent corporations shall cease, except that of the
surviving or the consolidated corporation;
c) The surviving or the consolidated corporation shall possess all the rights, privileges,
immunities, and powers and shall be subject to all the duties and liabilities of a
corporation organized under this Code;
d) The surviving or the consolidated corporation shall possess all the rights, privileges,
immunities and franchises of each constituent corporation; and all real or personal
property, all receivables due on whatever account, including subscriptions to shares and
other choses in action, and every other interest of, belonging to, or due to each
constituent corporation, shall be deemed transferred to and vested in such surviving or
consolidated corporation without further act or deed; and
e) The surviving or consolidated corporation shall be responsible for all the liabilities and
obligations of each constituent corporation as though such surviving or consolidated
corporation had itself incurred such liabilities or obligations; and any pending claim,
action or proceeding brought by or against any constituent corporation may be
prosecuted by or against the surviving or consolidated corporation. The rights of creditors
or liens upon the property of such constituent corporations shall not be impaired by the
merger or consolidation. Sec. 79, RCC
To determine whether or not a case involves an intra-corporate dispute, two tests are applied
— the relationship test and the nature of the controversy test.
Under the relationship test, there is an intra-corporate controversy when the conflict is (1)
between the corporation, partnership, or association and the public; (2) between the
corporation, partnership, or association and the State insofar as its franchise, permit, or license
to operate is concerned; (3) between the corporation, partnership, or association and its
stockholders, partners, members, or officers; and (4) among the stockholders, partners, or
associates themselves.
On the other hand, in accordance with the nature of controversy test, an intra-corporate
controversy arises when the controversy is not only rooted in the existence of an intra-corporate

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relationship, but also in the enforcement of the parties’ correlative rights and obligations under
the Corporation Code and the internal and intra-corporate regulatory rules of the corporation.
Based on the foregoing tests, it is clear that this case involves an intra-corporate dispute. It is a
conflict between a stockholder and the corporation, which satisfies the relationship test, and it
involves the enforcement of the right of Ozamiz, as a stockholder, to inspect the books of PHC
and the obligation of the latter to allow its stockholder to inspect its books. San Jose vs. Ozamiz,
831 SCRA 51, G.R. No. 190590 July 12, 2017
Applying the relationship test, the Supreme Court (SC) notes that both Belo and Santos are
named shareholders in Belo Medical Group’s Articles of Incorporation and General Information
Sheet for 2007. The conflict is clearly intra-corporate as it involves two (2) shareholders,
although the ownership of stocks of one (1) stockholder is questioned.
Unless Santos is adjudged as a stranger to the corporation because he holds his shares only in
trust for Belo, then both he and Belo, based on official records, are stockholders of the
corporation. Belo Medical Group argues that the case should not have been characterized as
intra-corporate because it is not between two shareholders as only Santos or Belo can be the
rightful stockholder of the 25 shares of stock. This may be true. But this finding can only be made
after trial where ownership of the shares of stock is decided. The trial court cannot classify the
case based on potentialities. The two defendants in that case are both stockholders on record.
They continue to be stockholders until a decision is rendered on the true ownership of the 25
shares of stock in Santos’ name. If Santos’ subscription is declared fictitious and he still insists on
inspecting corporate books and exercising rights incidental to being a stockholder, then, and only
then, shall the case cease to be intra-corporate. Belo Medical Group, Inc. vs. Santos, 838 SCRA
142, G.R. No. 185894 August 30, 2017
Applying the nature of the controversy test, this is still an intra-corporate dispute. The
Complaint for interpleader seeks a determination of the true owner of the shares of stock
registered in Santos’ name.
Ultimately, however, the goal is to stop Santos from inspecting corporate books. This goal is so
apparent that, even if Santos is declared the true owner of the shares of stock upon completion
of the interpleader case, Belo Medical Group still seeks his disqualification from inspecting the
corporate books based on bad faith. Therefore, the controversy shifts from a mere question of
ownership over movable property to the exercise of a registered stockholder’s proprietary right
to inspect corporate books. Belo Medical Group, Inc. vs. Santos, 838 SCRA 142, G.R. No. 185894
August 30, 2017

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Refusal to allow inspection of corporate books involves intra-corporate dispute.
The dispute at hand, which involves the stockholder, Ozamiz, demanding to inspect the books of
Philcomsat Holdings Corporation (PHC) and the consequent refusal of the corporation to show
its books, is simply an intra-corporate dispute. San Jose vs. Ozamiz, 831 SCRA 51, G.R. No. 190590
July 12, 2017
Intra-corporate cases involving sequestered companies are also within the RTC jurisdiction.
The mere fact that a corporation’s shares of stocks are owned by a sequestered corporation does
not, by itself, automatically categorize the matter as one involving sequestered assets, or matters
incidental to or related to transactions involving sequestered corporations and/or their assets.
San Jose vs. Ozamiz, 831 SCRA 51, G.R. No. 190590 July 12, 2017
A corporate officer’s dismissal is always a corporate act, or an intra-corporate controversy

which arises between a stockholder and a corporation, and the nature is not altered by the
reason or wisdom with which the Board of Directors may have in taking such action.
The issue of the alleged termination involving a corporate officer, not a mere employee, is not a
simple labor problem but a matter that comes within the area of corporate affairs and
management and is a corporate controversy in contemplation of the Corporation Code.
To emphasize, the determination of the rights of a corporate officer dismissed from his
employment, as well as the corresponding liability of a corporation, if any, is an intra-corporate
dispute subject to the jurisdiction of the regular courts. Wesleyan University-Philippines vs.
Maglaya, Sr., 815 SCRA 171, G.R. No. 212774 January 23, 2017
The revocation of a corporation’s Certificate of Registration does not automatically warrant

the extinction of the corporation itself such that its rights and liabilities are likewise altogether
extinguished.
In the case of Clemente v. Court of Appeals, 242 SCRA 717 (1995), the Court explained that the
termination of the life of a juridical entity does not, by itself, cause the extinction or diminution
of the rights and liabilities of such entity nor those of its owners and creditors. Thus, the
revocation of BMTODA’s registration does not automatically strip off Ongjoco of his right to

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examine pertinent documents and records relating to such association. Roque vs. People, 826
SCRA 618, G.R. No. 211108 June 7, 2017
The registration of a transfer of shares of stock is a ministerial duty on the part of the
corporation.
It is already settled jurisprudence that the registration of a transfer of shares of stock is a

ministerial duty on the part of the corporation. Aggrieved parties may then resort to the remedy
of mandamus to compel corporations that wrongfully or unjustifiably refuse to record the
transfer or to issue new certificates of stock.
At the crux of this petition are the registration of the transfer and the issuance of the
corresponding stock certificates. Requiring petitioner to register the transaction before he could
institute a mandamus suit in supposed abidance by the ruling in Ponce was a palpable error. It
led to an absurd, circuitous situation in which Andaya was prevented from causing the
registration of the transfer, ironically because the shares had not been registered. With the logic
resorted to by the RTC, transferees of shares of stock would never be able to compel the
registration of the transfer and the issuance of new stock certificates in their favor. They would
first be required to show the registration of the transfer in their names — the ministerial act that
is the subject of the mandamus suit in the first place. Andaya vs. Rural Bank of Cabadbaran, Inc.,
799 SCRA 325, G.R. No. 188769 August 3, 2016
Under Section 4, Rule 1 of the Interim Rules of Procedure Governing Intra-Corporate

Controversies under Republic Act No. 8799, the prevailing party has the right to file a motion
for the immediate execution of a decision or judgment.
The law explicitly provides: Section 4. Executory nature of decisions and orders.—All decisions
and orders issued under these Rules shall immediately be executory. No appeal or petition taken
therefrom shall stay the enforcement or implementation of the decision or order, unless
restrained by an appellate court. Interlocutory orders shall not be subject to appeal. Lao vs. King,
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A merger is the union of two (2) or more existing corporations in which the surviving
corporation absorbs the others and continues the combined business.
The merger dissolves the non-surviving corporations, and the surviving corporation acquires all
the rights, properties and liabilities of the dissolved corporations. Considering that the merger
involves fundamental changes in the corporation, as well as in the rights of the stockholders and
the creditors, there must be an express provision of law authorizing the merger.
The merger does not become effective upon the mere agreement of the constituent
corporations, but upon the approval of the articles of merger by the Securities and Exchange
Commission issuing the certificate of merger as required by Section 79 of the Corporation Code.
Should any party in the merger be a special corporation governed by its own charter, the
Corporation Code particularly mandates that a favorable recommendation of the appropriate
government agency should first be obtained. Bank of Commerce vs. Heirs of Rodolfo Dela Cruz,
837 SCRA 112, G.R. No. 211519 August 14, 2017
Section 80 of the Corporation Code of the Philippines clearly states that one of the effects of a
merger is that the surviving company shall inherit not only the assets, but also the liabilities of
the corporation it merged with.
Sumifru’s contention that it should only be held liable for the period when Baya stayed with DFC
as it only merged with the latter and not with AMSFC is untenable. Section 80 of the Corporation
Code of the Philippines clearly states that one of the effects of a merger is that the surviving
company shall inherit not only the assets, but also the liabilities of the corporation it merged
with. xxx
In this case, it is worthy to stress that both AMSFC and DFC are guilty of acts constitutive of
constructive dismissal performed against Baya. As such, they should be deemed as solidarily
liable for the monetary awards in favor of Baya. Meanwhile, Sumifru, as the surviving entity in its
merger with DFC, must be held answerable for the latter’s liabilities, including its solidary liability
with AMSFC arising herein. Verily, jurisprudence states 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,”
as in this case. Sumifru (Philippines) Corporation vs. Baya, 822 SCRA 564, G.R. No. 188269 April
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The rule of lenity applies when the court is faced with two (2) possible interpretations of a penal
statute, one that is prejudicial to the accused and another that is favorable to him. The rule
calls for the adoption of an interpretation which is more lenient to the accused.
As Section 144 speaks, among others, of the imposition of criminal penalties, the Court is guided
by the elementary rules of statutory construction of penal provisions. First, in all criminal
prosecutions, the existence of criminal liability for which the accused is made answerable must
be clear and certain. We have consistently held that “penal statutes are construed strictly against
the State and liberally in favor of the accused. When there is doubt on the interpretation of
criminal laws, all must be resolved in favor of the accused. Since penal laws should not be applied
mechanically, the Court must determine whether their application is consistent with the purpose
and reason of the law.” Intimately related to the in dubio pro reo principle is the rule of lenity.
The rule applies when the court is faced with two possible interpretations of a penal statute, one
that is prejudicial to the ac cused and another that is favorable to him. The rule calls for the
adoption of an interpretation which is more lenient to the accused. Ient vs. Tullett Prebon
(Philippines), Inc., 814 SCRA 184, G.R. No. 189158, G.R. No. 189530 January 11, 2017
There is no compelling reason for the Supreme Court (SC) to construe Section 144 as similarly
employing the term “penalized” or “penalty” solely in terms of criminal liability.
The crux of the Court’s ruling in Romualdez v. Commission on Elections, 553 SCRA 370 (2008), is
that, from the wording of Section 450(j), there is a clear legislative intent to treat as an election
offense any violation of the provisions of Republic Act No. 8189. For this reason, we do not doubt
that Section 46 contemplates the term “penalty” primarily in the criminal law or punitive concept
of the term. There is no provision in the Corporation Code using similarly emphatic language that
evinces a categorical legislative intent to treat as a criminal offense each and every violation of
that law. Consequently, there is no compelling reason for the Court to construe Section 144 as
similarly employing the term “penalized” or “penalty” solely in terms of criminal liability. In
People v. Temporada, 574 SCRA 258 (2008), we held that in interpreting penal laws, “words are
given their ordinary meaning and that any reasonable doubt about the meaning is decided in
favor of anyone subjected to a criminal statute.” Black’s Law Dictionary recognizes the numerous
conceptions of the term penalty and discusses in part that it is “[a]n elastic term with many
different shades of meaning; it involves idea of punishment, corporeal or pecuniary, or civil or
criminal, although its meaning is generally confined to pecuniary punishment.” Ient vs. Tullett
Prebon (Philippines), Inc., 814 SCRA 184, G.R. No. 189158, G.R. No. 189530 January 11, 2017

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The Corporation Code was intended as a regulatory measure, not primarily as a penal statute.
Sections 31 to 34 in particular were intended to impose exacting standards of fidelity on
corporate officers and directors but without unduly impeding them in the discharge of their
work with concerns of litigation.
Considering the object and policy of the Corporation Code to encourage the use of the corporate
entity as a vehicle for economic growth, we cannot espouse a strict construction of Sections 31
and 34 as penal offenses in relation to Section 144 in the absence of unambiguous statutory
language and legislative intent to that effect. When Congress intends to criminalize certain acts
it does so in plain, categorical language, otherwise such a statute would be susceptible to
constitutional attack. As earlier discussed, this can be readily seen from the text of Section 45(j)
of Republic Act No. 8189 and Section 74 of the Corporation Code. We stress that had the
Legislature intended to attach penal sanctions to Sections 31 and 34 of the Corporation Code it
could have expressly stated such intent in the same manner that it did for Section 74 of the same
Code. Ient vs. Tullett Prebon (Philippines), Inc., 814 SCRA 184, G.R. No. 189158, G.R. No. 189530
January 11, 2017
Membership in a non-stock corporation
Section 90 of the Corporation Code states that membership in a nonstock corporation and all
rights arising therefrom are personal and nontransferable, unless the articles of incorporation or
the bylaws otherwise provide. Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R. No. 206038 January
25, 2017
In corporate parlance, the term “meeting” applies to every duly convened assembly either of
stockholders, members, directors, trustees, or managers for any legal purpose, or the
transaction of business of a common interest.
Under Philippine corporate laws, meetings may either be regular or special. A stockholders’ or
members’ meeting must comply with the following requisites to be valid: 1. The meeting must
be held on the date fixed in the By-Laws or in accordance with law; 2. Prior written notice of such
meeting must be sent to all stockholders/members of record; 3. It must be called by the proper
party; 4. It must be held at the proper place; and 5. Quorum and voting requirements must be
met. Of these five (5) requirements, the existence of a quorum is crucial. Any act or transaction
made during a meeting without quorum is rendered of no force and effect, thus, not binding on

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the corporation or parties concerned. Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R. No. 206038
January 25, 2017
Quorum in non-stock corporations for members meeting
For stock corporations, the quorum is based on the number of outstanding voting stocks while
for nonstock corporations, only those who are actual, living members with voting rights shall be
counted in determining the existence of a quorum. Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R.
No. 206038 January 25, 2017
The basis in determining the presence of quorum in nonstock corporations is the numerical
equivalent of all members who are entitled to vote, unless some other basis is provided by the
By-Laws of the corporation.
To be clear, the basis in determining the presence of quorum in nonstock corporations is the
numerical equivalent of all members who are entitled to vote, unless some other basis is provided
by the By-Laws of the corporation. The qualification “with voting rights” simply recognizes the
power of a nonstock corporation to limit or deny the right to vote of any of its members. To
include these members without voting rights in the total number of members for purposes of
quorum would be superfluous for although they may attend a particular meeting, they cannot
cast their vote on any matter discussed therein. Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R.
No. 206038 January 25, 2017
Membership in a condominium corporation is limited only to the unit owners of the

condominium project.
Matters involving a condominium are governed by Republic Act No. 4726 (Condominium Act).
Said law sanctions the creation of a condominium corporation which is especially formed for the
purpose of holding title to the common areas, including the land, or the appurtenant interests in
such areas, in which the holders of separate interest shall automatically be members or
shareholders, to the exclusion of others, in proportion to the appurtenant interest of their
respective units in the common areas. In relation thereto, Section 10 of the same law clearly
provides that the condominium corporation shall constitute the management body of the
project. Membership in a condominium corporation is limited only to the unit owners of the

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condominium project. This is provided in Section 10 of the Condominium Act. Lim vs. Moldex
Land, Inc., 815 SCRA 619, G.R. No. 206038 January 25, 2017
There is no provision in P.D. No. 957 which states that an owner-developer of a condominium
project cannot be a member of a condominium corporation. Section 30 of P.D. No. 957
determines the purposes of a homeowners association — to promote and protect the mutual
interest of the buyers and residents, and to assist in their community development.
A condominium corporation, however, is not just a management body of the condominium

project. It also holds title to the common areas, including the land, or the appurtenant interests
in such areas. Hence, it is especially governed by the Condominium Act. Clearly, a homeowners
association is different from a condominium corporation. P.D. No. 957 does not regulate
condominium corporations and, thus, cannot be applied in this case. Lim vs. Moldex Land, Inc.,
815 SCRA 619, G.R. No. 206038 January 25, 2017
The Condominium Act does not provide a specific mode of acquiring ownership. Thus, whether
one becomes an owner of a condominium unit by virtue of sale or donation is of no moment.
It is erroneous to argue that the ownership must result from a sale transaction between the
owner-developer and the purchaser. Such interpretation would mean that persons who inherited
a unit, or have been donated one, and properly transferred title in their names cannot become
members of a condominium corporation. Lim vs. Moldex Land, Inc., 815 SCRA 619, G.R. No.
206038 January 25, 2017
A corporation can act only through natural persons duly authorized for the purpose or by a
specific act of its board of directors. Thus, in order for Moldex to exercise its membership rights
and privileges, it necessarily has to appoint its representatives.
Section 58 of the Corporation Code mandates: Section 58. Proxies.—Stockholders and members
may vote in person or by proxy in all meetings of stockholders or members. Proxies shall in
writing, signed by the stockholder or member and filed before the scheduled meeting with the
corporate secretary. Unless otherwise provided in the proxy, it shall be valid only for the meeting
for which it is intended. No proxy shall be valid and effective for a period longer than five (5)
years at any one time.

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Relative to the above provision is Section 1, Article II of Condocor’s By-Laws, which grants
registered owners the right to designate any person or entity to represent them in Condocor,
subject to the submission of a written notification to the Secretary of such designation. Further,
the owner’s representative is entitled to enjoy and avail himself of all the rights and privileges,
and perform all the duties and responsibilities of a member of the corporation. The law and
Condocor’s By-Laws evidently allow proxies in members’ meeting. Lim vs. Moldex Land, Inc., 815
SCRA 619, G.R. No. 206038 January 25, 2017
Close Corporation
To be considered a close corporation, an entity must abide by the requirements laid out in Section
96 of the Corporation Code, which reads: Sec. 96. Definition and applicability of Title. A close
corporation, within the meaning of this Code, is one whose articles of incorporation provide that:
(1) All the corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of
record by not more than a specified number of persons, not exceeding twenty (20); (2) all the
issued stock of all classes shall be subject to one or more specified restrictions on transfer
permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any
public offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall
not be deemed a close corporation when at least two-thirds (2/3) of its voting stock or voting
rights is owned or controlled by another corporation which is not a close corporation within the
meaning of this Code. Bustos vs. Millians Shoe, Inc., 824 SCRA 67, G.R. No. 185024 April 24, 2017
Section 97 of the Corporation Code only specifies that “the stockholders of the corporation shall
be subject to all liabilities of directors.” Nowhere in that provision do we find any inference that
stockholders of a close corporation are automatically liable for corporate debts and
obligations.
Parenthetically, only Section 100, paragraph 5, of the Corporation Code explicitly provides for
personal liability of stockholders of close corporation, viz.: Sec. 100. Agreements by
stockholders.— xxx 5. To the extent that the stockholders are actively engaged in the
management or operation of the business and affairs of a close corporation, the stockholders
shall be held to strict fiduciary duties to each other and among themselves. Said stockholders
shall be personally liable for corporate torts unless the corporation has obtained reasonably
adequate liability insurance. (Emphasis supplied) As can be read in that provision, several
requisites must be present for its applicability. None of these were alleged in the case of Spouses
Cruz. Neither did the RTC or the CA explain the factual circumstances for this Court to discuss the
personally liability of respondents to their creditors because of “corporate torts.” We thus apply

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the general doctrine of separate juridical personality, which provides that a corporation has a
legal personality separate and distinct from that of people comprising it. By virtue of that
doctrine, stockholders of a corporation enjoy the principle of limited liability: the corporate debt
is not the debt of the stockholder. Thus, being an officer or a stockholder of a corporation does
not make one’s property the property also of the corporation. Bustos vs. Millians Shoe, Inc., 824
SCRA 67, G.R. No. 185024 April 24, 2017
In order that the Securities Exchange Commission (SEC) (now the Regional Trial Court [RTC])
can take cognizance of a case, the controversy must pertain to any of the following
relationships: (a) between the corporation, partnership, or association and the public; (b)
between the corporation, partnership, or association and its stockholders, partners, members,
or officers; (c) between the corporation, partnership, or association and the State as far as its
franchise, permit, or license to operate is concerned; and (d) among the stockholders, partners,
or associates themselves.
However, not every conflict between a corporation and its stockholders involves corporate
matters. Concurrent factors, such as the status or relationship of the parties, or the nature of the
question that is the subject of their controversy, must be considered in determining whether the
SEC (now the RTC) has jurisdiction over the controversy. Tumagan vs. Kairuz, 880 SCRA 93, G.R.
No. 198124 September 12, 2018
The parties involved in the controversy are respondent Mariam (a shareholder of BIRI and
successor to her late husband’s position on the ManCom), petitioner John (then the branch
manager, shareholder, and part of the BIRI ManCom), and petitioners Bot and Alam (licensed
geodetic engineers engaged by BIRI for a contract to survey the property subject of the dispute).
The controversy also involves BIRI itself, the corporation of which Mariam is a shareholder, and
which through Board Resolutions No. 2006-0001,39 2007-000440 and 2007-000541 authorized
John, its branch manager, to do all acts fit and necessary to enforce its corporate rights against
the Kairuz family, including the posting of guards to secure the property. The controversy is thus
one between corporation and one of its shareholders. Tumagan vs. Kairuz, 880 SCRA 93, G.R.
No. 198124 September 12, 2018

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What appears on record as the true nature of the controversy is that of a shareholder seeking
relief from the court to contest the management’s decision to: (1) post guards to secure the
premises of the corporate property; (2) padlock the premises; and (3) deny her access to the
same on May 28, 2007 due to her alleged default on the provisions of the MOA.
Thus, we agree with petitioners that while the case purports to be one for forcible entry filed by
Mariam against BIRI’s employees and contractors in their individual capacities, the true nature
of the controversy is an intra-corporate dispute between BIRI and its shareholder, Mariam,
regarding the management of, and access to, the corporate property subject of the MOA. We
therefore find that the MCTC never acquired jurisdiction over the ejectment case filed by
Mariam. Tumagan vs. Kairuz, 880 SCRA 93, G.R. No. 198124 September 12, 2018
Fernandez's complaint disputes the election of petitioners as members of the BOD of VVCCI on
the ground of lack of quorum during the February 23, 2013 annual meeting.
Verily, his complaint is partly an "election contest" as defined under Section 2, Rule 6 of the
Interim Rules, which refers to "any controversy or dispute involving title or claim to any elective
office in a stock or non-stock corporation, the validation of proxies, the manner and validity of
elections, and the qualifications of candidates, including proclamation of winners, to the office
of director, trustees or other officer directly elected by the stockholders in a close corporation or
by members of a non-stock corporation where the article of incorporation so provide."
The CA gravely erred in allowing Fernandez in Commercial Case No. 13-190 to present evidence
in connection with the election of the individual petitioners as members of the BOD of VVCCI
conducted on February 23, 2013 to invalidate their claims to the office of director, because that
is akin to entertaining an election contest filed beyond the 15-day period under the Interim Rules.
Eizmendi, Jr. vs. Fernandez, September 5, 2018, G.R. No. 215280
Foreign corporations doing business without license
Section 133 of the Corporation Code provides: SEC. 133. Doing business without a license. — No
foreign corporation transacting business in the Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court
or administrative agency of the Philippines; but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws.

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The aforementioned provision bars a foreign corporation "transacting business" in the

Philippines without a license access to our courts. Thus, in order for a foreign corporation to sue
in Philippine courts, a license is necessary only if it is "transacting or doing business" in the
country. Conversely, if an unlicensed foreign corporation is not transacting or doing business in
the Philippines, it can be permitted to bring an action even without such license.
Apparently, it is not the absence of the prescribed license, but the "doing of business" in the
Philippines without such license which debars the foreign corporation from access to our courts.
The operative phrase is "transacting or doing business." Commissioner of Internal Revenue vs.
Interpublic Group of Companies, Inc., G.R. No. 207039, August 14, 2019
Mere investment as a shareholder by a foreign corporation in a duly registered domestic

corporation shall not be deemed "doing business" in the Philippines.
It is clear then that the IGC's act of subscribing shares of stocks from McCann, a duly registered
domestic corporation, maintaining investments therein, and deriving dividend income
therefrom, does not qualify as "doing business" contemplated under R.A. No. 7042. Hence, the
IGC is not required to secure a license before it can file a claim for tax refund. Commissioner of
Internal Revenue vs. Interpublic Group of Companies, Inc., G.R. No. 207039, August 14, 2019
One Person Corporation
A One Person Corporation is a corporation with a single stockholder: Provided, That only a natural
person, trust, or an estate may form a One Person Corporation. Sec. 116, RCC
Companies not allowed to register as One Person Corporation
Banks and quasi-banks, preneed, trust, insurance, public and publicly-listed companies, and non-
chartered government-owned and -controlled corporations may not incorporate as One Person
Corporations: Provided, further, That a natural person who is licensed to exercise a profession
may not organize as a One Person Corporation for the purpose of exercising such profession
except as otherwise provided under special laws. Sec. 116, RCC

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Officers of One Person Corporation
The single stockholder shall be the sole director and president of the One Person Corporation.
Sec. 121, RCC
Within fifteen (15) days from the issuance of its certificate or incorporation, the One Person
Corporation shall appoint a treasurer, corporate secretary, and other officers as it may deem
necessary, and notify the Commission thereof within five (5) days from appointment.
The single stockholder may not be appointed as the corporate secretary. Sec. 122, RCC
Nominee and Alternate Nominee
The single stockholder shall designate a nominee and an alternate nominee who shall, in the
event of the single stockholder's death or incapacity, take the place of the single stockholder as
director and shall manage the corporation's affairs.
The articles of incorporation shall state the names, residence addresses and contact details of
the nominee and alternate nominee, as well as the extent and limitations of their authority in
managing the affairs of the One Person Corporation.
The written consent of the nominee and alternate nominee shall be attached to the application
for incorporation. Such consent may be withdrawn in writing any time before the death or
incapacity of the single stockholder. Sec. 122, RCC
In case of death or permanent incapacity of the single stockholder, the nominee shall sit as
director and manage the affairs of the One Person Corporation until the legal heirs of the single
stockholder have been lawfully determined, and the heirs have designated one of them or have
agreed that the estate shall be the single stockholder of the One Person Corporation.
The alternate nominee shall sit as director and manage the One Person Corporation in case of
the nominee's inability, incapacity, death, or refusal to discharge the functions as director and
manager of the corporation, and only for the same term and under the same conditions
applicable to the nominee. Sec. 125, RCC

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Liability of Single Shareholder
A sole shareholder claiming limited liability has the burden of affirmatively showing that the
corporation was adequately financed.
Where the single stockholder cannot prove that the property of the One Person Corporation is
independent of the stockholder's personal property, the stockholder shall be jointly and severally
liable for the debts and other liabilities of the One Person Corporation.
The principles of piercing the corporate veil applies with equal force to One Person Corporations
as with other corporations. Sec. 130, RCC

0917 – 894 53 56
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2020 BAR REVIEW COMMERCIAL LAW

Amendment of term of existence

Revival of corporate term

Minimum capital stock not required of stock corporations

Legal Edge Bar Review 0942 – 949 91 76

Summary order to stop use of corporate name

Legal Edge Bar Review 0942 – 949 91 76

The doctrine of corporation by estoppel is founded on principles of equity and is designed to

Legal Edge Bar Review 0942 – 949 91 76

Beneficial owner of shares

Legal Edge Bar Review 0942 – 949 91 76

The following is the composition of the outstanding capital stock of Company X:

100 common shares

100 Class A preferred shares (with right to elect directors)

100 Class B preferred shares (without right to elect directors)

Legal Edge Bar Review 0942 – 949 91 76

ICCPI’s name is identical and deceptively or confusingly similar to that of FICCPI.

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Directors and Officers; When personally liable

No explanation or narration of facts was presented pointing to the circumstances constituting

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

The first prong is the "instrumentality" or "control" test.

Legal Edge Bar Review 0942 – 949 91 76

The second prong is the "fraud" test.

The third prong is the "harm" test.

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Quorum for board meetings

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Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Following Section 25 of the Corporation Code, the election of individual respondents, as

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When board meeting is unnecessary for close corporations

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Legal Edge Bar Review 0942 – 949 91 76

Failure to allege the specific acts of respondent-officers, which could be interpreted as

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Right to inspect corporate books

A requesting party who is not a stockholder or member of record, or is a competitor, director,

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Effects of Merger or Consolidation

The merger of consolidation shall have the following effects:

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Refusal to allow inspection of corporate books involves intra-corporate dispute.

A corporate officer’s dismissal is always a corporate act, or an intra-corporate controversy

The revocation of a corporation’s Certificate of Registration does not automatically warrant

Legal Edge Bar Review 0942 – 949 91 76

It is already settled jurisprudence that the registration of a transfer of shares of stock is a

Under Section 4, Rule 1 of the Interim Rules of Procedure Governing Intra-Corporate

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Legal Edge Bar Review 0942 – 949 91 76

Membership in a non-stock corporation

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Quorum in non-stock corporations for members meeting

Membership in a condominium corporation is limited only to the unit owners of the

Legal Edge Bar Review 0942 – 949 91 76

A condominium corporation, however, is not just a management body of the condominium