Corporation Law (Finals)

Q: What is appraisal rights?

A: It is the right of any stockholder of a corporation to dissent on certain corporate or
business decisions to demand payment of the fair market value of his shares.
Q: Enumerate three (3) specific instances when this right may be exercised?
A: 1) In case any amendment to the articles of incorporation has the effect of changing
or restricting the rights of any stockholder or class of shares, or of authorizing
preferences in any respect superior to those of outstanding shares of any class, or of
extending or shortening the term of corporate existence;
2) In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all
or substantially all of the corporate property and assets as provided in this Code; and
3) In case of merger or consolidation.
4) Investment of corporate funds
Q: Compare the right of a stockholder in a close corporation to compel the
company that he be paid the value of his shares as against the stockholder in an
ordinary stock corporation?
A: In close corporation, a stockholder has the unbridled right to compel the
corporation "for any reason" to purchase his shares at their fair value which shall not
be less than the par or issued value, when the corporation has sufficient assets to
cover its debts and liabilities, exclusive of capital stocks.
In an ordinary stock corporation, unless a stockholder sells his shares, a stockholder
cannot get back his investment nor compel the corporation to buy his shares except in
the exercise of his appraisal right.
EXPLAIN: a) The distinction of the extent of the right of stockholders to
examine/inspect corporate books and records as against those of the directors.
A: The right of the stockholders to examine corporate books extends to a wholly owned
subsidiary which is completely under the control and management of the parent
company where he is such a stockholder. But if the two entities are legally being
operated as separate and distinct entities, there is no such right of inspection on the
part of the stockholder of the parent company.
THEY HAVE LIMITED RIGHT SUCH AS THEY MAY NOT GAIN ACCESS TO HIGHLY
SENSITIVE AND CONFIDENTIAL INFORMATION.
The right of the directors is absolute and unqualified and without regard to motive.
This is because a director supervises, directs and manages corporate business and it
is necessary that he be equipped with all the information and data with regard to the
affairs of the company in order that he may manage and direct its operations
intelligently.
b) The statement that the mere appointment of a distributor/representative
domiciled in the Philippines made by a foreign corporation does not necessarily
imply doing business in the country. 
A: If the foreign corporation maintained an independent status during the existence of
the contract, which means it transacts and does business in its own name and for its
own account and not of the foreign corporation, then its appointment of a distributor
or representative will necessarily imply that it is doing business in the country.
c) The statement that subscriptions to shares of stock are indivisible. 
A: Sec. 64 of the Corporation Code provides that "no certificate of stock shall be issued
to a subscriber until the full amount of his subscription together with interest and
expenses, if any is due, has been paid." 
d) The statement that certificates of stock are merely quasi-negotiable and are
not negotiable instruments.
A: While it may be transferred by endorsement coupled with delivery, and therefore
merely quasi-negotiable, it is nonetheless non-negotiable in that the transferee takes it
without prejudice to all the rights and defenses which the true and lawful owner may
have except in so far as the principles governing estoppel may apply.
e) A director/stockholder whose shares are declared delinquent is not
automatically disqualified to be and act as director.
A: Section 23 of the Corporation Code requires that the director must own at least one
(1) share which shall stand in his name in the books of the corporation. Delinquency
does not deprive the director of ownership of shares. 
f) The effects of declaration of delinquency vis-à-vis the right of the stockholder.
i) To be voted and be voted upon.        
A: The holder of delinquent shares loses the right to vote and be voted upon or
represented in any stockholders' meeting. He also loses to be entitled to any of the
rights of a stockholder except the right to receive dividends.
    ii) To receive cash and stock dividends.      
A: The holder of delinquent shares shall have the right to receive dividends which shall
first be applied to the unpaid balance on his subscription plus cost and expenses,
while stock dividends shall be withheld until his unpaid subscription is paid in full.
g) In cases of deadlocks in a close corporation, the courts can interfere in the
management of the corporate affairs.
A: The court has a wide discretion in the management of the corporation in cases of
deadlocks. The court can interfere because the directors/stockholders are so divided
respecting the management of the corporate business and affairs. The votes required
for any corporate action cannot be obtained. As a consequence, the business and
affairs of the corporation no longer be conducted to the advantage of the stockholders.
The "business judgment rule" cannot be applied here.
ENUMERATE: a) The twin requirements before a stockholder may validly
institute an action to question the validity of the sale of his delinquent stocks.
A: 1) The party seeking to maintain such action first pays or tenders to the party
holding the stock the sum for which the same was sold, with interest from the date of
the sale at the legal rate; and
2) The action shall be commenced by the filing of a complaint within six (6) months
from the date of the sale.
Two possible remedies available to the corporation to enforce payment of unpaid
subscription.
A: 1) By board action in accordance with procedure laid down in sections 67 to 69 of
the Code;
2) By a collection case in court as provided for in section 70.
b) The three (3) requisites before a foreign corporation licensed to do business in
the Philippines may validly withdraw its license. (A-A-P)
A: 1) All claims which have accrued in the Philippines have been paid, compromised or
settled;
2) All taxes, imposts, assessments, and penalties, if any, lawfully due to the Philippine
Government or any of its agencies or political subdivisions have been paid; and
3) The petition for withdrawal of license has been published once a week for three (3)
consecutive weeks in a newspaper of general circulation in the Philippines.
c) The three (3) methods of liquidation and their effects on the 3-year period to
liquidate the corporate affairs. (C-A-T)
A: Liquidation may be undertaken in either of three (3) ways:
i) By the corporation itself through the Board of Directors - The Board will only
have three (3) years to finish its task of liquidation. Claims for or against the
corporation not filed within the period will become unenforceable as there exist no
corporate entity against which they can be enforced.
        Actions pending for or against the corporation when the three year period expires
are abated.
    ii) By a trustee appointed by the corporation - The three year period limitation
will not apply provided the designation of the trustee is made within that period. A
dissolved corporation is still liable for all its debts and liabilities in an action filed
against it, even if the case is filed beyond the three year period.
   iii) By appointment of a receiver - The three year period limitation will not apply
because the dissolved corporation is substituted by the receiver who may sue or be
sued even after that period. 
d) The general requirements for a valid stockholders' meetings. (Q-P-I3)
A: 1) It must be held on the date fixed in the by-laws or in accordance with law.
2) Prior notice must be given.
3) It must be held at the proper place.
4) It must be called by the proper party.
5) Quorum and voting requirements must be met.
e) Elements of a valid by-laws. (C-I-G-I-R)
A: 1) It must not be contrary to law, public policy, or morals.
2) It must not be inconsistent with the Articles of Incorporation.
3) It must be general and uniform in its effect.
4) It must not impair obligations and contracts or vested rights.
5) It must be reasonable.
f) Remedies of a stockholder who is denied inspection of corporate books. (M-D-
C)
A: 1) Mandamus
2) Damages either against the corporate or the responsible officer, or
3) Criminal complaint based on Sec. 144 of the Code.
g) Instances when the stockholder cannot avail of its voting rights. (S-T-U-N)
A: 1) Shares of stock which are declared delinquent
2) Treasury Shares have no voting rights while they remain in the treasury
3) Unregistered transfers of shares of stock
4) Non-voting shares except in those instances under Sec. 6 of the Code
h) Grounds for revocation of license (foreign corporation) (5F-M-A-T-T)
A: 1) Failure to file its annual report or pay any fees as required by the Code;
2) Failure to appoint and maintain a resident agent in the PH;
3) Failure, after change of its resident agent or of his address, to submit to the SEC a
statement of such change;
4) Failure to submit to the SEC an authenticated copy of any amendment to its
articles of incorporation or by-laws or if any articles of merger or consolidation within
the time prescribed by the Code;
5) Misrepresentation of any material matter in any application, report, affidavit, or
other document submitted;
6) Failure to pay any and all taxes, impost, assessment or penalties, if any, lawful due
to the Phil. Government or any of its agencies or political subdivisions;
7) Transacting business in the Philippines outside of the purpose for which such
corporation is authorized under its license;
8) Transacting business in the Philippines, as agent of or acting for and in behalf of
any foreign corporation or entity not duly licensed to do business in the Philippines;
9) Any other grounds as would render it unfit to transact business in the Philippines.
i) Instances when a foreign corporation with no license to do business in the
Philippines can sue: (A-F-P-S-F-P)
A: 1) The act or transaction involved is an "isolated transaction;"
2) The foreign corporation is not seeking to enforce any legal or contractual rights
arising from, or growing out of any business which it has transacted in the
Philippines;
3) The purpose of the suit is to protect its trademark, trade name, reputation or good
will;
4) The suit is based on violation of the RPC;
5) The foreign corporation is merely defending a suit filed against it.
6) The party is estopped to challenge the personality of the corporation by entering
into a contract with it.
j) Three (3) methods of dissolution. (E-V-R)
A: 1) By expiration of the term;
2) By voluntary surrender of its primary franchise (VOLUNTARY DISSOLUTION);
3) By the revocation of its corporate franchise (INVOLUNTARY DISSOLUTION).
k) Three (3) methods of voluntary dissolution. (V-V-S)
A: 1) Voluntary dissolution where no creditors are affected; -The dissolution may be
effected by majority vote of the board of directors or trustees, and by a resolution duly
adopted by the affirmative vote of the stockholders owning at least 2/3 of the OCS or
of at least 2/3 of the members of a meeting
2) Voluntary dissolution where creditors are affected; and - The petition for dissolution
shall be filed with the SEC. It shall be signed by a majority of its board of directors or
trustees or other officers having the management of its affairs, verified by its president
or secretary or one of its directors or trustees.
3) Shortening of corporate term.
l) Grounds for involuntary dissolution. (F-S-R-C-F-F)
A: 1) Fraud in procuring its certificate of registration; 2) Serious misrepresentation as
to what the corporation can do or is doing to the great prejudice of or damage to the
general public;
3) Refusal to comply or defiance of any lawful order of the Commission restraining
commission of acts which would amount to a grave violation of its franchise;
4) Continuous inoperation for a period of at least five (5) years;
5) Failure to file by-laws within the required period; 6) Failure to file required reports
in appropriate forms as determined by the Commission within the prescribed period.
m) Distinguish between voting rights of stockholders in a stock corporation and
members in a non-stock corporation.
A: Cumulative voting is a matter of right granted by law to each stockholder with
voting rights. However, in a non-stock corporation, cumulative voting is generally, not
available, unless allowed by the articles of incorporation or by-laws.
Under Sec. 89 of the Code, the voting rights of the members in non-stock corporations
may be "limited, broadened, or denied" by specific provision in the articles of
incorporation or by-laws. Thus, they may provide for a classification of members with
voting or non-voting rights.
n) Watered stock may be issued in either of the following ways: (F2-G-I)
A: 1) For a monetary consideration less than its par or issued value;
2) For a consideration in property, tangible or intangible, valued in excess of its fair
market value;
3) Gratuitously or under an agreement that nothing shall be paid at all; or
4) In the guise of stock dividends when there are no surplus profits of the corporation.
o) The person or persons who may call the meeting are the following: (P-A-B-O)
A: 1) The person or persons authorized under a by-law provision;
2) Absent of any provision in the by-laws, it may be called by the president;
3) By the secretary on order of the president or on written demand of the stockholders
representing or holding at least a majority of the OCS or majority of the members
entitled to vote in a non-stock corporation, or the stockholder or member making the
demand if there is or secretary on he refuses to do so, under section 28; and
4) On order of the proper forum pursuant to Section 50 of the Code.
p) The three (3) tests in order to distinguish a VTA from proxies and other voting
pools and agreements: (V-V-P)
A: 1) That the voting rights of the stock are separated from the other attributes of
ownership;
2) That the voting rights granted are intended to be irrevocable for a definite period of
time; and
3) That the principal purpose of the grant of voting rights is to acquire voting control of
the corporation.
q) Consideration for stocks (Sec. 62, page 343) (A-P-L-P-A-O)
A: 1) Actual cash paid to the corporation;
2) Property, tangible or intangible, actually received by the corporation;
3) Labor performed for or services actually rendered to the corporation;
4) Previously incurred indebtedness of the corporation;
5) Amounts transferred from unrestricted retained earnings to stated capital; and
6) Outstanding shares exchanged for stocks in the event of reclassification or
conversion.
r) Requirements for a valid transfer of stocks: (D-C-T)
A: 1) There must be delivery of the stock certificate;
2) The certificate must be endorsed by the owner or his attorney-in-fact or other
persons legally authorized to make the transfer;
3) To be valid against third parties, the transfer must be recorded in the books of the
corporation.
s) Effects of merger or consolidation: (C-S-Surviving3)
A: 1) The constituent corporations shall become a single corporation which, in case of
merger, shall be the surviving corporation; and, in case of consolidation, shall be the
consolidated corporation;
2) The separate existence of the constituent corporations shall cease, except that of
the surviving or the consolidated corporation;
3) 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;
4) The surviving or the consolidated corporation shall thereupon and thereafter
possess all the rights, privileges, immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all receivables due on whatever
account shall be deemed transferred to such surviving or consolidated corporation
without further act and deed; and
5) The surviving or consolidated corporation shall be responsible and liable for all the
liabilities and obligations of each of the constituent corporations in the same manner
as if such surviving or consolidated corporation had itself incurred such liabilities or
obligations.
t) Distribution of assets upon dissolution: (A-H-R-O-D)
A: 1) All liabilities and obligations of the corporations shall be paid, satisfied and
discharged.
2) Assets held by the corporation shall be returned, transferred or conveyed in
accordance with such requirements;
3) Assets received and held by the corporation subject to limitations permitting their
use only for charitable, religious, benevolent, educational or similar purposes.
4) Assets other than those mentioned in the preceding paragraphs, if any, shall be
distributed in accordance with the provisions of the articles of incorporation or the by-
laws; and
5) Assets may be distributed to such persons, societies, organizations or corporations,
whether or not organized for profit, as may be specified in a plan of distribution
adopted pursuant to this Chapter.
u) What is a close corporation?
A: One whose articles of incorporation provide that: (20-R-C)
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.
4) The identity of stock ownership and active management of the corporate affairs.
DEFINE: 1) Wash Sale
A: Any transaction in a security which involves no change in the beneficial ownership
thereof. Thus, a series of buy and sale transaction may be placed by one and the same
beneficial owner in the Exchange which would not affect any change of ownership of
the shares transacted.
2) Matched Order
A: An order or orders for the purchase or sale of security with the knowledge that a
simultaneous order or orders of substantially the same size, time and price, for the
sale or purchase of such security has, or will be entered by or for the same or different
parties.
NOTE: Wash sale and matched orders are not by themselves illegal. To be illegal, they
must be used as a means "to create a false or misleading appearance of active trading"
in the security concerned.
3) Short Sale
A: It is selling security which the vendor does not own, unless it is done in accordance
with the rules and regulations of the SEC.
NOTE: It is illegal per se. It shall be legal, only if it is in accordance with the rules and
regulations of the SEC.
4) Insider Trading
A: The act of an "insider" to buy or sell security of the issuer while in possession of
material information with respect thereto that is not generally available to the public is
illegal unless the conditions set forth in Section 27 of the SRC are present.
5) Marking the Close
A: The placing of purchase or sale order, at or near the close of the trading period. The
person making the order would post a higher or lower price for the security just barely
before the close of the market thereby increasing or lowering the closing price. The
price of the security on the following trading day will be the same price as marked on
the close the day before.

MULTIPLE CHOICE
1. A stockholder whose shares are declared delinquent will have
a. No voting and dividend rights
b. No voting rights at any meeting
c. Voting and dividend rights
d. Voting rights but no dividend rights

2. Which of the following meetings is not valid?

a. Members’ meeting held in Tagaytay City where the principal office is located in Makati
but the by-laws provide that meetings of the members may be held anywhere in the
Philippines
b. Stockholders’ meeting held in Tagaytay City where the principal office is located in
Makati but the by-laws provide that stockholders’ meetings may be held anywhere in
the Philippines
c. Trustees’ meeting held in Baguio City where the principal office is located in Makati
d. Directors’ meeting held in Macau where the principal office is located in Makati.

3. A fraudulent transaction in the trading of securities that involves no change in the

beneficial ownership of the shares is called
 a. Matched order
b. Squeezing the float
c. Painting the tape
d. Wash sale

4. The fair market value of the shares of a stockholder exercising his appraisal right
should be determined on the date
a. Of the meeting where he interposed his objection
b. Of receipt of his written demand that he paid the value of his shares
c. Prior to the meeting where the matter was taken up
d. Of the payment of his shares

5. A close corporation may validly provide in its AOI or by-laws that

a. Cumulative voting shall be denied to the stockholders
b. Proxy voting shall be denied to the stockholders
c. Quorum and voting requirements in stockholders’ meeting imposed by the code shall be
more than that required by law
d. Meetings of stockholders may be held anywhere in the Philippines

TRUE OR FALSE. If your answer is FALSE state your reason/s. If TRUE no need to
explain

1. In cases of merger, the employees of the absorbed/dissolved corporation are

automatically absorbed by the absorbing/surviving corporation

True
2. A corporation sole may validly sell/transfer its old van for purposes of acquiring
a new one without court intervention

True

3. A stockholder issued no par value shares below their determined issued value as
indicated in AOI is solidarily liable with the responsible directors/officers for the
water in the stocks

False, no par value shares once issued are deemed fully paid and non-
assessable.

4. Pending the issuance of the replacement certificate, the owner of a lost

certificate of stock may validly transfer his shares by a mere notarized deed
False, if a certificate of stock has been issued a mere notarized deed will not
suffice. It must be coupled with endorsement and delivery of stock certificate.
5. A transferee of a certificate of stock in a non-stock corporation, if they are
transferable by virtue of a by-law provision, has the same right, power and
authority to compel the corporation to register the said transfer in the corporate
books in his name, in order that he may be considered as a shareholder, in the
same manner that the transferee of a certificate of stock in a stock corporation
may do so.

True
 6. Absent any rules and regulations of SEC regarding short sale, any person
engaging thereto may be subjected to the penal sanctions of section 73 of SRC

True

7. Absent any by-law provision authorizing t holding of a meetings of members in a

non-stock corporation, members’ meetings may nonetheless be validly held
anywhere in the Philippines

False, in the absence of any by-law provision, members’ meeting of a non-stock

corporation should be held in the city or municipality where the principal office
of the corporation is located.

8. The appointment of a distributor/representative in the Philippines made by a

foreign corporation necessarily results to doing/transacting business in the
country

False, the foreign corporation is not doing business in the Philippines if the
representative is an independent entity acting in his own name for in its account
not for account of foreign corporation.

9. The winning bidder in a delinquency sale is the highest bidder

False, the winning bidder is the lowest bidder from the wordings of statute. The
bidder who tenders to pay the full amount of delinquency plus cost and
expenses for the least number of shares.

10. The beneficial owner of a voting trust agreement may validly transfer his shares
by a mere notarized deed.

False, to effectively transfer the shares covered by voting trust agreement, the
certificate of voting trust agreement must be presented.

OBJECTIVES
1.
a. Four instances when a stockholder may be able to exercise his appraisal right
(4pts)

1.) In case of any amendment to the articles of incorporation has the effect of changing
or restricting the rights of any stockholder or class of shares or of authorizing
preferences in any respect superiors to those of outstanding shares of any class, or
of extending or shortening the term of corporate existence.
2.) In case of sale, lease, mortgage, pledge or disposition of all or substantially all of the
corporate property and assets as provided in the code.
3.) In case of merger or consolidation
b. The twin requirement in order that the Special Commercial Court may be justified
in appointing a management committee, board or body in a corporation (4pts)

1.) Dissipation, loss, wastage or destruction of assets or other properties and;

2.) Paralyzation of its business operations which maybe prejudicial to the interest of the
minority stockholders, parties litigant or the general public.

2. All of the following statements are correct. Why it is said that:

a. If not denied by a provision in AOI, the pre-emptive right of a stockholder in a
close corporation is absolute (3pts)

The pre-emptive right of a stockholder in a close corporation is broadened to include all

stock to be issued including reissuance of treasury shares, whether for money, property
or personal services or in payment of corporate debts, unless the articles of
incorporation provides otherwise.

b. The ruling of the High Court in EB Villarosa v. Benito that service of summons
upon a corporation must be made to a person named in the statute, i.e.,
president, general manager, treasurer, corporate secretary or in-house counsel,
does not apply if the action brought against the corporation is an intra-corporate
controversy. (3pts)
In case of intra-corporate controversy, Rule 2 Section 5 of the Interim Rules of
Procedure on Intra-Corporate controversy, service of summons shall be deemed
adequate if made upon any of the statutory or corporate officers as fixed in the by laws
or their respective secretary.

c. Wash sale and matched order are not illegal per se (3pts)

They must be used to create a false or misleading appearance of active trading in the
security concerned.

d. The three (3) year period of liquidation will not apply if a trustee/assignee/
receiver is appointed to undertake the same (3pts)

The three year period of liquidation will not apply if a trustee is appointed to undertake
the same because from and after any such conveyance by the corporation of its
property in trust for benefit of stockholder, members, creditors and others in interest
which the corporation had in property terminates, the legal interests vest in trustee
and beneficial interest in stockholders, members, creditors or other persons in interest.

e. Certificate of stock are merely quasi-negotiable but non-negotiable (3pts)

 Certificate of stock is quasi negotiable because it maybe transferred by endorsement
coupled with delivery thereof. It is nonetheless non-negotiable in the sense that the
transferee takes it without prejudice to all the rights and defenses which the true and
lawful owner may have except insofar as the principles governing estoppel may apply.

3. What are the three (3) qualifying conditions required to be indicated in AOI in
order that the corporation may be considered as a close one (6pts)

1.) All the corporation’s issued stock of all classes exclusive of treasury shares, shall be
held of record by not more than specified number of persons not exceeding (20)
2.) All the issued stock of all classes shall be subject to one or more specified restriction on
transfer permitted by this title.
3.) The corporation shall not list in any stock exchange or make any public offering of any
of its stock of any class.

CASE ANALYSIS
1. X Co., Inc., engaged in the manufacturing concern. It leased a parcel of land
where it erected its plant warehouse and offices. It has an authorized capital
stock of Php100M divided into 100M shares with a par value of Php1.00 per
share. Php50M has been subscribed. One of the stockholders thereof is “A”
who subscribed to Php5M and has paid Php2.5M out of his subscription.
a.) May “A” be issued a stock certificate covering 2.5M shares? Why or why
not? (3pts)

No section 64 of the corporation code provides that no certificate of stock shall be

issued to a subscriber until the full amount of his subscription together with interest
and expenses ( in case of delinquent shares) if any has been paid.
 Assume that the corporation has been incurring loses to the tune of php5M
and to raise much needed funds to pay its liabilities, the BOD decided to
make a call for the unpaid portion of the subscriptions of its stockholders
including “A” who did not pay the same on the date specified in the call.
The Corporation this decided to sell his shares at public auction but no
bidders appeared.
b.) May the corporation bid? Why or why not? (3pts)

No. The corporation may bid subject to the provisions of the corporation code. Section
41 provides that the corporation shall have the power to acquire its own shares
provided that it has unrestricted retained earnings. In this case, the corporation has no
unrestricted retained earnings because it is incurring loses.

Assume that the corporation and “Y” entered into a contract of sale in
January 2016 for the latter to acquire 10M of the remaining unissued
stocks of the corporation with a stipulation that “Y” shall pay a down
payment of Php5M, the balance to be paid on or before the end of June
2016, and that until and unless he shall have paid the balance of his
acquisition cost he shall have paid the balance of his acquisition cost he
shall not be considered as a stockholder. A meeting of the acquisition of
the stockholders is called to be held in June 7, 2016 to elect a new set of
directors, at a point in time when he has not yet paid his full acquisition
cost.

c.) Is “Y” qualified to vote and be voted for as a director? Why or why not?
(3pts)

Yes. The moment his subscription becomes effective, he becomes a stockholder for all
intents and purposes and the only requirement to be qualified as a director is that he
must have at least one share in his own name.
d.) Assume that on June 10, 2016, the entire compound of the corporation
was ravaged by fire, turning everything into ashes. May “Y” be
compelled to pay the balance of his acquisition cost? Why or why not?
(5pts)

Yes. The corporation code provides that any contract for the acquisition of unissued
stock in an existing corporation or a corporation still to be formed shall be deemed a
subscription, nowithstanding the fact that the parties refer to is as a purchase or some
other contract. Thus, a person whether deemed a purchaser or subscriber of the
unissued stocks of an existing corporation or a corporation still to be formed becomes
entitled to all the rights and of stockholder and subjected to all liabilities that attach
thereunder upon execution and effectivity of the contract, and the corporation can
compel the payment of the balance of the unpaid portion of the subscription.

e.) Assume further that the by-laws of the corporation provided for the
election of an Assistant Finance Manager to be elected by the board.
Pursuant thereto, the board elected “Z” as such. He is not a stockholder
 of the corporation. Later, however, he was removed/ousted as such
Assistant Finance Manager. He files a case before the Special
Commercial Court questioning the validity of his removal therefrom.
The corporation moves for the dismissal of the case in that it is the
NLRC that is possessed with jurisdiction and case in that it is the NLRC
that there is no-intra corporate relationship between the parties. Rule
and explain (5pts)

The Special Commercial Court has exclusive and original jurisdiction to hear and decide
cases involving controversies in the election or appointment of directors, trustees,
officers or managers of such corporation as provided under Section 5 (c) of PD902-A in
this case, the officer asserts his right as such officer and questions his removal or
outster. A corporate officer’s dismissal is always a corporate act and/ or an
intracorporate controversy. ( Lozon vs. NLRC and PAL)

f.) Disregarding letter D., and assume that 3 of the 5-man member board
reconstituted the AOI falsely adding new purposes not originally
included thereat such as lumber concession, cattle ranch, mining and
agriculture, thereby misapplying and misusing corporate funds and
assets. May a stockholder file a dissolution proceedings against the
corporation? Why or why not? (3pts)

No. Dissolution of the corporation is warranted only when the acts of the directors
constitute or threaten a substantial injury to the public or such as to amount to a
violation of the fundamental conditions of its charter, or its conduct is characterized by
obduracy or pertinacity in contempt of law.

g.) If a case is instituted and you were the Judge, will you grant the prayer
for dissolution? Why or why not? (3pts)
No.

h.) Will your answer be the same if the corporation is a close one? Why or
why not? (3pts)

No my answer will not be the same if the corporation is a close one. Even mere
dishonesty, any act that maybe detrimental to any of the stockholder or corporation
itself is a ground for dissolution in a close corporation.

i.) Assume that the corporation is engaged in the discovery of natural gas
and its shares are being traded in stock exchange. It was able to
discover natural gas of commercial quantity. The Board, instead of
disclosing the matter immediately to the SEC and the Philippine Stock
Exchange, called their respective brokers for the acquisition of shares
of the corporation before proceeding to a printer for the publication of
the discovery. The printer, however, before doing his job, also called his
broker to acquire shares of the corporation. What violation of the
provisions of SRC is committed by a.) Directors? (3pts) b.) Did the
printer committed the same violation? Why or why not? (3pts)
 a.) Director committed an insider trading. An act of an insider to buy or sell security of the
issuer while in possession of material information with respect thereto that is not
generally available to the public is illegal. In this case, the director acquired or
purchased the shares of the corporation while in possession of material non public
information.

b.) Yes the printer committed the same violation. His relationship to the issuer gives him
material access to material information about the issuer or the security that is not
generally available to the public. In this case, he had access to material information.
2. Give your comment of the decision of the High Court in Clemente v. CA
regarding a juridical entity, long dissolved (40 years) that did not undertake
liquidation and winding to the effect that:
“The termination of the life of a juridical entity does not by itself cause the
extinction or diminution of rights and liabilities of such entity (citing
Gonzales v. Sugar Regulatory Administration) nor those of its owners and
directors. If the three year period extended life has expired without a
trustee or receiver having been expressly designated by the corporation
within that period. The BOD or trustee itself, following the rationale of
SC’s decision in Gelano v. CA may be permitted to so continue as “trustee”
by legal implication to complete the liquidation. Still in the absence of a
BOD or trustees, those having any pecuniary interest in the assets,
including not only the stockholders but likewise the creditors of the
corporation, acting for and in its behalf, might make proper
representations with the (proper forum), which has primary and sufficiently
board jurisdiction in matters of this nature, for working out a final
settlement of the corporate concern.” (5pts)

PART I

1. A, B, C, D and E organized/formed X CO., INC. and was issued a certificate of registration

by the appropriate government agency. It turned out, however, that C,D, and E are not
residents of the Philippines. What type/kind of corporation is X CP., INC.?

a. De Facto
b. De Jure
c. Corporation by Estoppel
d. It does not exist as a Corporation at all.

2. A director who was compensated and paid 15% of the net income before tax of the
corporation for the preceding year for the services rendered by him as corporate secretary
by a mere Board resolution is

a. Valid since he is acting in a capacity other than as such director

b. Invalid since only 10% of the net income before tax is allowed by law
c. Invalid because it requires stockholders’ approval or a by-law provision authorizing it
d. Valid because all corporate powers, all businesses are conducted and all properties are
controlled by the Board of Directors

3. The declaration of stock dividends will generally have

a. the effect of decreasing the total assets of the corporation

b. the effect of an increase in the proportionate interest of the stockholders
c. no effect in the proportionate interest of the stockholders
 d. the effect of increasing the authorized capital stock notwithstanding the fact that the
corporation has a free portion of its capital stock to cover the declaration/distribution

4. A contract between a corporation and its president is

a. valid id not tainted with fraud and the contract is fair and reasonable
b. valid if previously approved by the Board of Directors
c. voidable is the president holds a substantial interest in the corporation
d. voidable at the option of the corporation

5. It is common practice in X CO., INC. for the general manager to enter into contracts for an
in behalf of the corporation without prior approval of the Board of Directors. Said contracts
are

a. invalid since the power and authority is lodged to that of the Board of Directors
b. valid because approval of the Board is not required for its validity
c. invalid because the general manager is not authorized by law to enter into contracts for
and in behalf of the corporation
d. valid because similar acts were approved and allowed by the Board as a matter of
practice, custom and policy and thus binding on the corporation even without formal
Board resolution

6. Non-voting shares are not included in determining the voting requirements imposed by the
code in cases of

a. removal of a member of the Board of Directors

b. providing for additional diqualifications of directors in the by-laws
c. shortening of the corporate terms
d. changing the principal office of the corporation

7. X CO., INC. declared cash dividends of P1.00 per share on January 18, 2011 to be paid to
the stockholders of record on January 31, 2011. Said declaration was duly announced to
the stockholders. On January 20, 2011, “A”, one of the stockholders holding 100,000
shares valued at P100,000 sold his shares for the same amount to “B”, who is not a
stockholder of the same corporation, and on January 25, 2011 the transfer in favor of “B”
was duly recorded in the books of the corporation. Absent any agreement to the contrary,
as between “A” and “B” who has better right to the dividends?
a. “A” because the transfer of his share was in violation of a by-law provision granting
existing stockholders the preferential right to buy the shares of a selling stockholders
b. “A” because he was the owner of the shares at the time of the declaration of the
dividend
c. “B” because he was the recorded owner of the share even before payment of the
dividend
d. “B” because he was the owner of the share at the time/date of payment

8. A stock corporation shall have the power to reacquire its own shares irrespective of the
existence of unrestricted retained earnings

a. to eliminate fractional shares arising out of stock dividends.

b. to pay dissenting stockholders in the exercise of their appraisal rights
c. to pay a stockholder in a close corporation who compels the latter that he be paid the
value of his shares
d. to collect/compromise an indebtedness to the corporation arising out of unpaid
subscription in a delinquency sale
9. Only the stockholders/members can fill up a vacancy created in the office of a director if
the said vacancy occurs

a. by virtue of the resignation of a hold-over director

b. by virtue of the death of a director
c. if the director ceases to be a stockholder
d. if the director is subsequently disqualified by a by-law provision

10. The Articles of Incorporation of X CO., INC. provides for a nine (9) man member Board of
Directors. Two of them died. On January 15, 2011, the corporate secretary of the company
resigned such that at a Director’s meeting was held and conducted to elect an0ther
corporate secretary. Five (5) if the directors attended the meeting and four (4) of them
elected “A” to replace the resigned corporate secretary. Is the election valid?

a. Yes, because there are only seven (7) living members of the Board and the vote of four
(4) constitutes a majority
b. No, because the vote required is majority of the Board as fixed in the Articles of
Incorporation
c. No, because the quorum requirement was not complied with
d. Yes, because the vote required is only a majority of those present at which there is a
quorum

11. X CO., INC. paid A CO., INC. 10% of the property dividend declared by the Board of
Directors of the former pursuant and in consideration of messengerial services actually
rendered by the later. Is the payment valid?

a. Yes because it is a valid contractual arrangement between the parties

b. No because stockholders’ approval is required for its validity
c. No because it would result to a dilution of dividend rights of the stockholder
d. Yes because labor or services actually rendered may be paid by way of property

12. All persons who assume to act as a corporation knowing it without authority to do so shall
be liable

a. only to the extent of their subscription to the capital stock of the corporation
b. only to the extent of the corporate assets
c. as limited partners for all debts, liabilities and damages arising therefrom
d. as general partners for all debts, liabilities and damages arising therefrom

13. A, B, C, D and E are the 5-man member of the Board of Directors of X CO., INC. On
January 15, 2011, the remaining members of the Board of Directors consisting of A, B and
C conducted a meeting to fill up two (2) vacancies in the Board cause by the removal of D
by the stockholders and by the death of E. D was unanimously replaced by F, and E by G.
The election of F and G is

a. valid for both

b. not valid for both
c. not valid for G but valid for F
d. valid for G but not valid for F

14. X CO., INC. filed/submitted an amendment of its Articles of Incorporation with the SEC. If
the latter does not act on it within 6 months without fault attributable to the corporation,
the amendment takes effect on the date of its filing except

a. when the amendment consists of a decrease in the capital stock

 b. when the amendment consists of a decrease in the number of directors
c. when the amendment consists of including reasonable restrictions on transfer of shares
d. when the amendment consists of a change in the principal office of the corporation

15. The Board of Directors cannot, without stockholders’ approval, pass a valid corporate act

a. to sell/dispose of its only property in the usual course of its business

b. to invest its corporate funds necessary to carry out the secondary purpose indicated in
the articles of incorporation
c. to declare property dividends
d. to reacquire its own shares

16. A contract between corporations with interlocking directors will be subject to the provisions
of section 32 of the Code (voidable) when

a. the interlocking director owns 20% of the outstanding capital stock in one corporation
while 18% in the other
b. the interlocking director owns 22% in one corporation while 25% in the other
c. the interlocking director owns 20% in one corporation while 22% in the other
d. the interlocking director owns 22% in both corporation

17. A director who ceases to be a stockholder shall

a. automatically cease to be a director

b. continue to serve in a hold-over capacity until his successor has been duly elected and
qualified
c. continue to serve as such until the expiration of his term.
d. continue to serve as such until the expiration of his term if authorized by the Board of
Directors

18. X CO., INC. is engaged in the realty business with no other purpose indicated in the article
of incorporation. It entered into a catering service with Y CO., INC. for the retirement of the
latter’s president for a consideration of Php150,000. X CO. fully complied with its obligation
but Y CO., later refused to pay the agreed amount claiming that X CO., is not
empowered/authorized to engage in the food catering business. In an action brought before
the Court, may Y CO., INC. be compelled to pay?

a. No, because the actuation of X CO., INC. is beyond its corporate powers and authority.
(Doctrine of Limited Capacity)
b. Yes, because the party who has received the benefits of the contract is estopped to set
up that contract is beyond the corporate powers of X CO., to defeat an action on the
same.
c. Yes, because the contract is valid per se
d. No, because the court cannot interfere with the business judgment of the Board of
Directors

19. A provision in the by-laws of a regulatory/ordinary stock corporation may validly provide

a. for a greater quorum and voting requirement in stockholders’ meeting

b. for a denial of cumulative voting of the stockholders
c. for a greater quorum and voting requirements in directors’ meeting
d. for the holding of stockholders’meeting anywhere in the Philippines

20. “A”, the President of X CO., INC. which is engaged in the realty business, bought (in his
personal and individual capacity) from his friend a parcel of land for Php5M and later sold
 it at Php5.5M thereby making a profit of Php.5M. May his act be validly ratified by the
stockholders at the objection of any one single stockholder?

a. Yes, because he acted as a natural person separate and distinct of the corporation
which he is the President
b. No, because he acquired a personal interest in conflict with his duty as a director
c. No, because he serves in a fiduciary position and should not advance his selfish motives
to the damage and prejudice of the corporation
d. Yes, because he merely acquired a business opportunity rightfully belonging to the
corporation

PART II
1. What is the test in determining whether a corporation has the implied power to do a certain
act? log.rel. b/w act done direct and immediate furtherance corp biz, fairly incident to its
express powers, reasonably necessary to their exercise

2. What is the limitation imposed by law on the right of a corporation to decrease its capital
stock? Trust fund doc

3. What is the Business Judgment Rule? Define

4. Explain the statement that if not denied by a provision in the articles of incorporation, the
pre-emptive right of a stockholder in a close corporation is absolute. (i.e. the exceptions
when a stockholder in an ordinary/regular corporation may not be able to exercise it even if
not denied by a provision in the articles of incorporation under section 39 will not apply to
the former) apo notes

5. Explain the statement that the failure of a corporation to adopt/file its by-laws within the
time frame provided for by law does not result to the automatic dissolution of the
corporation.

6. Enumerate four (4) instances when the purchaser of all or substantially all of the corporate
assets/properties may be held liable for the debts and liabilities of the selling corporation.
Apo notes

7. Enumerate the defenses available to the directors for their failure or refusal to declare
dividends.

PART III

X CO., INC. which is engaged in land transportation business has an authorized capital stock
of Php100M divided into 100M shares with a par value of Php1.00 per share. 50M has been
subscribed and 25M was duly paid up. The Board of Directors consist of 10 members as fixed
in the Articles of Incorporation. The by-laws are silent as to whether or not the company may
create an Executive Committee. One of its stockholders, “A”, recently graduated Magna Cum
Laude in Business Administration from Yale University and the Board firmly believes that he
(A) will be able to help bring the company to its highest level of competence. The company
approaches you if

1. The Board of Directors may create an executive committee. If yes, why and if not, why not,
and what should be done in order that one may be created? No.sec.35

2. If such an executive committee may be created, may it be composed of 5 members

consisting of 4 directors and “A” who is not a director? Why or why not? No.director only
3. May the company validly engage in water transportation without amending the articles of
incorporation to include such an activity in the purpose clause? Explain. No.entirely diff
line of biz

4. May the company put up a 12 story building, occupy 3 stories for its offices and rent out
the rest to the public? Why or Why not? Yes. Power to invest other than its primary
purpose

5. If the company made Php30M surplus profits (unrestricted retained earnings) may the
Board be compelled to declare dividends even if there are no preferred shareholders? If Yes,
to what extent or how much may they be compelled to declared? If no, why not?
No.discretionary of the board. Unless. Apo notes

6. If X CO., INC. earlier entered into a contract with Z CO., which represented itself as a
corporation for the lease/rental of 5 of the buses of the former who was aware that Z CO.,
INC. is not in fact registered as a corporation, and X CO., INC., fully complied with its
obligation, on a suit brought to by it (X CO., INC.) directly against the person/s who
assumed to act as such corporation, may the latter interpose that X CO., INC. has no cause
of action against them because he dealt with Z CO., INC. as a corporation and thus
admitted its legal existence as a corporate body? May claim. Transaction with fraud. Doc.
Of estoppel

7. Assuming that Z CO., INC., (as stated in no. 6) is a de facto corporation, may the
stockholder who made representation of the existence of the corporation be sued in their
personal/individual capacities? No. Defacto corp..corporate entity applies

8. If a stockholder is denied to exercise his pre-emptive right by the board of directors and the
former intends to sue the latter, what type of suit may he institute/bring? Personal suit

9. In relation to item 8, may service of summons be validly served upon a director who is
neither the president, managing director, in house counsel, corporate secretary or
treasurer. Explain.provided in the by-laws.

10. If the president X CO., issues a corporate check to pay corporate liabilities and the check
bounced for insufficiency of funds, may he successfully advance the Corporate Entity
Theory to evade liability in an action filed against his person? Why or why not? B.p.22. No.

I. TRUE OR FALSE: If your answer is FALSE explain your answer. (20pts)

1. A corporation sole can acquire, alienate and/or dispose of its real properties in the same way
and manner as any other ordinary corporation.
FALSE. The extent of its power to sell or mortgage real properties is however, subject to a
certain restriction not otherwise imposed in any other corporation. That is, a proper court
order must be first be secured for that purpose. Sec. 113.
2. The by-laws of a stock corporation can validly provide that meetings of the stockholders may
be held anywhere in the Philippines.
FALSE. Only in the non-stock corporation may hold their regular or special meetings at any
place even outside the place where the principal office of the corporation is located and not in
stock corporation. Sec. 93.
3. Cumulative voting is generally not allowed in non-stock corporations.
TRUE. p.161,436
4. It is not the lack of the requisite license but doing business without a license that bars a
foreign corporation from access to ours courts.
TRUE. p.537
5. All corporations dissolved necessarily undertake liquidation and winding up of their
corporate affairs.
FALSE daw. Not sure …………
6. The mere appointment by a foreign corporation of a distributor domiciled in the Philippines
necessarily implies doing business in the country.
FALSE. The distributor appointed must transacts business in the name or for the account of a
principal or foreign corporation in order to imply that foreign corporation is doing business.
p.570
7. There is no distinction between a purchase/sale and subscription of the unissued stocks of a
corporation.
TRUE daw. not sure…
8. In a corporate controversy, service of summons upon a corporation is valid if made upon any
of its directors/trustees.
TRUE daw. not sure.. see Sec. 11 Rule 14 of Rules of Court and Sec. 5 Rule 1 p.679
9. All religious corporations commence to exist and are vested with juridical personality upon
filing of the Articles of Incorporation with the Securities and Exchange Commission.
FALSE. Only in corporation sole and not in religious societies. p.470,480
10. Any meeting of stockholders/members irregularly held or called is necessarily without force
and effect.
FALSE. Even if the meeting be improperly held or called, provided all the stockholders or
members of the corporation are present or duly represented at the meeting the same shall be
valid. Sec. 51.

II. WHICH OF THE FOLLOWING STATEMENTS ARE CORRECT? Write down the letters in
your test booklet. (Right minus wrong)
Shares of stock may be validly and effectively transferred by: p.436,361
a. A duly notarized deed of transfer without endorsement and delivery of the stock certificate
which had earlier been issued. wrong
b. Endorsement of the stock certificate coupled with delivery to the transferee. correct
c. A mere notarized deed if no certificate of stock has been issued. correct
d. A duly notarized deed coupled with the delivery of the already issued stock certificate.
correct
e. Endorsement coupled with the delivery of the stock certificate even without a notarized deed.
correct
f. Even if without endorsement and/or delivery of the issued stock certificate if the person
sought to be a stockholder is an officer of the corporation and has custody of the books of the
corporation. Correct

III. OBJECTIVE:
1. Explain the following statements:
a. Subscriptions to shares of stock of a corporation are indivisible. (5pts.)
Subscriptions to shares of stock are indivisible such that a subscriber to such shares will not be
entitled to the issuance of a stock certificate until he has paid the full amount of his
subscription. This is clear intent of the law when it provides in “Section 64. Issuance of stock
certificate- no certificate of stock shall be issued to a subscriber until the full amount of his
subscription together with interest and expenses (in case of delinquent shares), if any is due,
has been paid.”
b. Certificates of stock are merely quasi-negotiable and are non-negotiable. (5pts.)
Certificate of stock may be transferred by endorsement coupled with delivery thereof, and
therefore merely quasi-negotiable, it is nonetheless non-negotiable in that the transferee takes
it without prejudice to all the rights and defenses which the true and lawful owner may have
except in so far as the principle governing estoppel may apply.
c. A director/stockholder whose shares are declared delinquent is not automatically
disqualified to be and act as a director. (5pts.)
A director/stockholder whose shares are declared delinquent is not automatically disqualified
to be and act as director in a sense that we should wait first if there are remaining shares, if
any, that shall be credited in favor of the delinquent director/stockholder who shall likewise be
entitled to the issuance of a certificate of stock covering shares that are sold at public option.
Sec. 68 par. 3.
Under Section 71 provides that, no delinquent stock shall be voted for or be entitled to vote or
to representation at any stockholder’s meeting, nor shall the holder thereof be entitled to any of
the rights of a stockholder except the right to dividends in accordance with the provision of
this code, until and unless he pays the amount due on his subscription with accrued interest,
and the cost and expenses of advertisement, if any.
2. Define: a) Wash Sale, b) Matched Order, and c) Short Sale. State whether they are illegal per
se or when they may become illegal. (6pts.)
a) Wash Sale is any transaction in a security which involves no change in the beneficial
ownership.
b) Matched Order refers to an order or orders for the purchase or sale of security with the
knowledge that a simultaneous orders of substantially the same size, time and price for the
sale or purchase of such security has, or will be entered by or for the same or different parties.
Wash sale and matched orders are not by themselves illegal. To be illegal, thus subject to the
penal sanctions provided for in section 73, they must be used as a means “to create a false or
misleading appearance of active trading” in the security concerned.
c) Short Sale or selling security which the vendor does not own is now illegal per se under
section 24.2, unless of course, it is done in accordance with the rules and regulations of the SEC
may prescribe as necessary or appropriate in the public interest for the protection of investors.
TRUE OR FALSE
3. An educational institution can have nine (9) members.
FALSE. For educational institutions organized as non-stock corporations the number
of trustee shall be in multiples of 5. Nine members may only be allowed in educational
institution organized as stock corporations. Sec. 108
2. In all cases, dissolution is followed by liquidation and winding up.
3. A corporation is a close corporation if 2/3 of voting rights is owned by another
corporation.
FALSE. 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. Sec. 96
4. Purchase of treasury shares is equivalent to subscription.
FALSE. Purchase of treasury shares is considered sales and not subscription. Thus, the
purchasers in this case may not be liable to unpaid balance because it is consider sales.

1. Popeye subscribed to shares of stock and paid it. He did not however register it. On
February 14, 2000, he assigned said shares of stock to his girlfriend Olive through a duly
notarized deed. Olive asked the corporate secretary to register it but refused to do so. So
Olive filed mandamus. The corporate secretary filed a motion to dismiss contending
that there is no cause of action because there is no proper party.
a. Decide the case (Rural Bank of Salinas vs. CA)
The contention of corporate secretary is untenable. Under Section 63 of the
Corporation Code provides that, Shares of stock so issued are personal property and
may be transferred by delivery of the certificate or certificates indorsed by the owner or
his attorney-in-fact or other person legally authorized to make the transfer. No
transfer, however, shall be valid, except between the parties, until the transfer is
recorded in the books of the corporation.
Under this Section the owner of shares, as owner of personal property, is liberty
to dispose them in favor of whomever he pleases, without limitation in this respect,
than the general provisions of law.
The only limitation imposed by law is when the corporation holds any unpaid
claim against the shares intended to be transferred, which is absent here.
The duty of the corporation to transfer is ministerial one and if it refuses to make
such transaction without good cause, it may be compelled to do so by mandamus.

What if it was transferred to Olive through a pledge where it was provided that in case
of failure to pay Popeye was authorized to foreclose said mortgage.
b. Will mandamus lie? (Tay vs. CA)
No, mandamus will not lie. In order that a writ of mandamus may issue, it is
essential that the person petitioning for the same has a clear legal right to the thing
demanded and that it is the imperative duty of the respondent to perform the act
required. It neither confers powers nor imposes duties and is never issued in doubtful
cases. It is simply a command to exercise a power already possessed and to perform a
duty already imposed.
In the case at bar, petitioner has failed to establish a clear legal right. He does
not have any ownership rights at all by mere being ledge of the property
Hence mandamus will not lie.

What if Olive stole it from Popeye and forged his signature and sold it to her other
boyfriend Brutus (in good faith and for value).
c. Who has better right/title to the shares of stock? (forged and unauthorized transfer of
stocks)
Popeye has the better right/title to the shares of stock. In forged or unauthorized
transfer, it is settled that the purchaser or purchasers thereof, no matter how innocent
they may have been, will acquire no title as against the lawful owner thereof by virtue
of the doctrine of non-negotiability of certificates of stock. The purchaser of shares of
stock, in such a case, will have no right or remedy against the corporation because he
took the shares not by virtue of misrepresentation made by the corporation but on the
faith of a forged endorsement or unauthorized transfer. Thus, the corporation incurs no
liability to the person in whose favor the certificates is endorsed or issued. If the old
certificate is cancelled and new one is issued by the corporation, the holder thereof may
be required to return the same for its cancellation.
In forged and unauthorized transfer, what is forged or unauthorized is the
transfer of the certificate from the true and lawful owner to another person.

What if Olive after stealing and forging signature asked to corporation to register it in
her name? The corporation thinking that the signature was genuine cancelled the
certificate of Popeye and issued a new certificate to Olive. Olive then sold it to Brutus.
d. Who is the owner? Who has better title? (unauthorized issuance of stock)
Brutus has the better title to the shares of stock. This falls under the
unauthorized issuance of certificate of stock which refers to the act of the corporation
in issuing the certificate, either fraudulently or by mistake.
If the new certificate issued by the corporation, either by a virtue of a forged or
unauthorized transfer, however, passes into the hands of a subsequent bona fide
purchaser, the latter may rightfully acquire title thereto since the corporation will be
estopped to deny the validity thereof. The subsequent purchaser in good faith took the
shares, not by virtue of a forged or unauthorized transfer but on reliance of the
genuineness of the certificate issued by the corporation or by virtue of the
representation made by the corporation that the same is valid and subsisting and that
the person named therein is the stockholder of the corporation. He may, therefore,
compel the corporation to recognize him as a stockholder or claim reimbursement and
damages against the latter.

Exceptions to the inherent right to vote are the following

1. Non-voting shares are not entitled to vote except in those instances provided for in
the penultimate paragraph of section 6 of the Code; (It is to be observed, however, that
only preferred and redeemable shares may be deprived of the right to vote);
2. Treasury shares have no voting rights while they remain in the treasury;
3. Shares of stock declare delinquent are not entitled to vote at any meeting; and,
4. Unregistered transferees of shares of stock.

Consideration for the issuance of stock may be any or a combination of any two or more
of the following:
1. Actual paid to the corporation;
2. Property, tangible or intangible, actually received by the corporation and necessary
or convenient for its use and lawful purposes at a fair valuation equal to the par or
issued value of the stock issued;
3. Labor performed for or services actually rendered to the corporation;
4. Previously incurred indebtedness of the corporation;
5. Amounts transferred from unrestricted retained earnings to stated capital; and
6. Outstanding shares exchanged for stocks in the event of reclassification or
conversion. SEC.62

*Registration is necessary for the following reasons:

1. To enable the corporation to know who its stockholders are;
2. To enable the transferee to exercise his rights as stockholder;
3. To afford the corporation an opportunity to object or refuse registration of the
transfer in case allowed by law (as when it has unpaid claims on the shares
transferred);
4. To avoid fictitious and fraudulent transfers; and
5. To protect creditors who have the right to look upon stockholders, in case of non-
payment or watered shares, for the satisfaction of their clams.

***Watered stock may be issued in either of the following ways:

1. For a monetary consideration less than its par or issued value;
2. For a consideration in property, tangible or intangible, valued in excess of its fair
market value;
3. Gratuitously or under an agreement that nothing shall be paid at all; or
4. In the guise of stock dividends when there are no surplus profits of the corporation.

Stock watering is proscribed in view of its evil effects. Among them are:
1. The corporation is deprived of its capital thereby hurting its business prospects,
financial capability and responsibility;
2. Stockholders who paid their subscription in full, or promised to pay the same, are
injured and prejudices by the reduction of their proportionate interest in the
corporation; and
3. Present and future creditors are deprived of the corporate assets for the protection of
their interest.

Call is not necessary in the following:

1. The contract of subscription provides for the date or dates when payment is due
2. When the corporation become insolvent.

Section 80 provides for the effects of a merger or consolidation. These are:

1. There will only be a single corporation. In case of merger the surviving corporation
or the consolidated corporation in case of consolidation;
2. The termination of corporate existence of the constituent corporation, except that of
the surviving corporation or the consolidated corporation;
3. The surviving corporation or consolidated corporation will posses all the rights,
privileges, immunities and powers and shall be subject to all the duties and liabilities
of a corporation organized under the Code;
4. The surviving or consolidated corporation shall possess all the rights, privileges,
immunities and franchises of the constituent corporations, and all property and all
receivables due, including subscriptions to shares and other chose in action, and every
other interest of, or belonging to or due to the constituent corporations shall be deemed
transferred to and vested in such surviving or consolidated corporation without further
act and deed; and,
5. The rights of creditors or any lien on the property of the constituent corporations
shall not be impaired by the merger or consolidation.

**Instances when appraisal right may be exercised:

1. In case any amendment to the articles of incorporation has the effect of changing or
restricting the rights of any stockholder or class of shares, or of authorizing preferences
in any respect superior to those of outstanding shares of any class, or of extending or
shortening the term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all
or substantially all of the corporate property and assets as provided in the Code; and
3. In case of merger or consolidation. Sec.81
4. Investment of funds in another corporation or business or for any purpose other than
its primary purpose.

Instances when the right of a dissenting stockholder to be paid the fair value of his
shares ceases:
1. When he withdraws his demand for payment and the corporation consent thereto;
2. When the proposed action is abandoned or restrained by the corporation;
3. When the proposed action is disapproved by the SEC where such approval is
necessary;
4. When the SEC determines that he is not entitled to exercise his appraisal right.
5. When he fails to submit the stock certificate within 10 days from demand to the
corporation for notation that such shares are dissenting shares; and
6. If shares are transferred and the certificates subsequently cancelled. Sec. 84