Corpo and Foreign Investments Act by Atty. Anselmo S.

Rodiel IV
Corpo and FIA

Definition of corporation (Sec. 2)

1. Already in the codal.

Classes of corporations (Sec. 3)

1. Already in the codal.
2. Existence of stocks
1. Stock
2. Non-Stock
1. QUESTION:
1. “XY” is a mobile application development company with an
original authorized capital of P10 Million. It employs 3 teams of 5
engineers and designers who develop mobile applications for third
party clients. Neither the articles of incorporation nor the by-laws
of XY provide for any rule on the distribution of dividends
although there is a provision that after its dissolution, the assets
shall be given to a scientific research institution. Is “XY” a stock
corporation? Give reasons for your answer.
1. No, “XY” is a non-stock corporation. For a corporation to be a
stock corporation, two requisites must concur. First, it must
have capital stock divided into shares; second, it must be
authorized by its charter, its articles of incorporation, to
distribute dividends or allotments of the surplus profits on the
basis of the shares held (REVISED CORPORATION CODE, Sec.
3). Even if a corporation’s capital stock is divided into shares,
if it is not authorized to distribute dividends, surplus
allotments, or profits to stockholders, it cannot be properly
classified as a stock corporation (Republic v. City of
Paranaque, G.R. No. 191109, July 18, 2012). In such cases,
Section 3 of the Revised Corporation Code provides that “all
other corporations are non-stock corporations.” Thus, a
corporation organized under the Revised Corporation Code is
deemed to be a non-stock corporation if it cannot be
classified as a stock corporation. It follows that “XY” must be
classified as a non-stock corporation.
3. Manner of creation
1. Corporation created by special law
2. Corporation created by general law
 3. Corporation by prescription
1. QUESTION:
1. Assume that you are the BSP and the GSIS Family Bank President
sought your opinion as to whether GSIS Family Bank should be
considered as a government-owned and controlled corporation or
government bank under R.A. No. 10149 or the GOCC Governance
Act of 2011. Taking into consideration that Government Service
Insurance System (GSIS) owns 99.55% of the outstanding capital
stock of GSIS Family Bank, will you consider the latter as a
government-owned and controlled corporation?
1. Yes, GSIS Family Bank shall be considered as a government-
owned and controlled corporation. A government-owned or
controlled corporation is: (1) established by original charter or
through the general corporation law; (2) vested with functions
relating to public need whether governmental or proprietary in
nature; and (3) directly owned by the government or by its
instrumentality, or where the government owns a majority of
the outstanding capital stock. Possessing all three (3)
attributes is necessary to be classified as a government-
owned or controlled corporation. There is no doubt that GSIS
Family Bank is a government-owned or controlled corporation
since 99.55% of its outstanding capital stock is owned and
controlled by the GSIS (GSIS Family Bank Employees Union v.
Villanueva, G.R. No. 210773, January 23, 2019, Leonen Case).
4. Corporate existence
1. De jure - A corporation created in strict or substantial compliance with
the mandatory requirements for incorporation
2. De facto - An association of persons existing under a valid law under
which it may be incorporated after having attempted in good faith to
incorporate, and assuming corporate powers. (Seventh Day Adventist v.
Northeastern Mindanao Mission)
5. Place of incorporation
1. Foreign
2. Domestic
6. Relationship and control
1. Parent/Holding - a corporation which owns or is organized to own a
substantial portion of another company's voting shares sufficient to
control or influence the latter's management, policies or affairs thru
election of the latter's board of directors. In other words, a "holding
company" is organized and is basically conducting its business by
investing substantially in the equity securities of another company for
the purposes of controlling their policies (as opposed to directly engaging
in operating activities) and "holding" them in a conglomerate or umbrella
 structure along with other subsidiaries. (Maricalum Mining vs. Florentino,
G.R. No. 221813, July 23, 2018)
2. Subsidiary - It is one which is so related to another corporation that the
majority of its directors can be elected by the holding corporation.
3. Affiliate - It is one related to another by owning or being owned by
common management or by a long-term lease of its properties or other
control device. It may be the controlled or controlling corporation, or
under common control.
7. Number of corporations
1. Corporation aggregate - A corporation consisting of more than one person
or member.
2. Corporation sole - A corporation consisting of only one person or member,
for the purpose of administering and managing, as trustee, the affairs,
property and temporalities of any religious denomination, sect or church, a
corporation sole may be formed by the chief archbishop, bishop, priest,
minister, rabbi or other presiding elder of such religious denomination,
sect or church (Sec. 108, RCC).
3. OPC - A corporation with a single stockholder, who may be a natural
person, trust, or an estate (Sec. 116, RCC)
8. Function
1. Public/government-owned or -controlled corporation - one that is:
1. established by original charter or through the general corporation law;
2. vested with functions relating to public need whether governmental or
proprietary in nature; and
3. directly owned by the government or by its instrumentality, or where
the government owns a majority of the outstanding capital stock.
Possessing all three (3) attributes is necessary to be classified as a
government-owned or - controlled corporation. (GSIS Family Bank v
Villanueva, 2019, Leonen)
1. It is primarily governed by their charter. The RCC is merely
suppletory.
2. Private
9. Other
1. Close
2. Open
3. Ecclesiastical - Corporations composing entirely of spiritual persons and
are established for the furtherance of religion and for perpetuating the
rights of a church.
4. Lay - All corporations other than ecclesiastical.
5. Eleemosynary/Charitable - A corporation created not for private gain or
profit but for charitable purposes for the administration of charitable trust.

Nationality of corporations
1. Place of Incorporation test; Entity test
1. It provides that the nationality of the corporation is determined by the
country where it was incorporated.
2. This is the general rule.
2. Control test; Aggregate test
1. It provides that the nationality of the corporation is determined by the
nationality of its stockholders.
2. This is the exception, which applies:
1. In times of war, as regards the public enemy
2. For investment purposes, as defined in FIA of 1991. This means the
business is strictly reserved to Filipinos. (nationalized or partly
nationalized industry)
3. The control test is complied with by determining the legal ownership over
EACH class of shares, regardless if voting or non-voting. (Gamboa v
Teves, 2012)
1. Hence, the 60-40 ownership requirement must apply separately to
each class of shares, i.e., at least 60% of the non-voting stocks must
be owned by Filipinos, and at least 60% of the voting stocks must also
be owned by Filipinos.
2. This uniform application of the nationality requirement insures that
the "controlling interest" in public utilities always lies in the hands of
Filipino citizens.
3. Leonen disagreed with the ruling in Roy III v Herbosa, 2016.
1. In the case, the Court upheld the validity of SEC-MC No. 8, which
provides that “the required percentage of Filipino ownership shall
be applied to BOTH: 1) the total number of voting shares, and 2)
the total number of ALL shares, whether voting or non-voting.”
2. The criticism, however, is that SEC-MC No. 8 permits the
corporation to have Filipino citizens owning less than 60% of the
non-voting shares, as long as at least 60% of the total shares are
owned by Filipinos.
3. Grandfather rule; Beneficial Ownership test
1. The grandfather rule applies only when the Control Test is first
complied with. (Narra Nickel Mining v Redmont Consolidated Mines,
2015)
1. If the corporation’s Filipino equity falls below the threshold 60%
requirement, the corporation is immediately considered foreign-
owned. There is no need to resort to the grandfather rule.
2. On the other hand, a corporation that complies with the 60%
requirement can still be considered foreign-owned if there is a doubt
as to who has the beneficial ownership and control of the corporation.
3. In that instance, there is a need to further inquire into the ownership
of the corporate shareholders in both the investing and investee
 3.

corporation.
2. Hence, the grandfather rule applies when there is DOUBT as to the
BENEFICIAL OWNERSHIP AND CONTROL of the capital of the
corporation.
3. “Doubt” refers to various indicia that the “beneficial ownership and
control” of the corporation do not in fact reside in Filipino shareholders
but in foreign stakeholders.
1. The following are indicators of doubt:
1. Foreign investors provide practically all the funds;
2. Foreign investors undertake to provide practically all the
technological support for the joint venture;
3. Foreign investors, while being minority stockholders, manage the
company and prepare all economic viability studies.
4. “Beneficial owner” means any person who, directly or indirectly, through
any contract, arrangement, understanding, relationship, or otherwise, has
or shares voting power and/or investment returns or power. (Roy III v
Herbosa, 2016)
5. COMMENT: If the facts do NOT show any “doubt,” just apply the control
test for nationalized/partly-nationalized industries.
6. NOTE: Memorize the negative list to determine which corporations
required 60% Philippine citizenship.
4. Corporate juridical personality
1. Doctrine of separate juridical personality
1. Meaning
1. A corporation has a separate and distinct personality from its
stockholders.
2. Hence, it is not affected by the personal rights, obligations, and
transactions of the stockholders. (Sulo ng Bayan v Araneta, 1976)
3. The interest of the stockholders to the corporate assets, if any, is
indirect/inchoate/expectant/contingent/remote/conjectural/
consequential/collateral.
2. A sole proprietorship does not possess a juridical personality
separate and distinct from the personality of the owner of the
enterprise.
1. The law merely recognizes the existence of a sole proprietorship
as a form of business organization conducted for profit by a single
individual and requires its proprietor or owner to secure licenses
and permits, register its business name, and pay taxes to the
national government. The law does not vest a separate legal
personality on the sole proprietorship or empower it to file or
defend an action in court. Thus, Stanley Fine, being a sole
proprietorship, does not have a personality separate and distinct
from its owner, Elena Briones. Elena, being the proprietress of
 Stanley Fine, can be considered as a real party-in-interest and has
standing to file this petition for review. Stanley Fine Furniture vs.
Gallano, 743 SCRA 306, G.R. No. 190486 November 26, 2014,
Leonen
3. It is basic that a corporation has a personality separate and
distinct from that of its individual stockholders. Thus, a
stockholder does not automatically assume the liabilities of the
corporation of which he is a stockholder.
1. In fact, even the ownership by a single stockholder of all or nearly
all the capital stock of a corporation is not, in and of itself, a
ground for disregarding a corporation’s separate personality.
AEV’s status as ATSC’s stockholder is, in and of itself, insufficient
to make AEV liable for ATSC’s obligations. Moreover, the SPA does
not contain any stipulation which makes AEV assume ATSC’s
obligations. It is true that Section 6.8 of the SPA stipulates that
the rights and obligations arising from Annex SL-V are not
terminated. But all that Section 6.8 does is recognize that the
obligations under Annex SL-V subsist despite the termination of
the January 8, 1996 Agreement. At no point does the text of
Section 6.8 support the position that AEV steps into the shoes of
the obligor under Annex SL-V and assumes its obligations. Aboitiz
Equity Ventures, Inc. vs. Chiongbian, 729 SCRA 580, G.R. No.
197530 July 9, 2014, Leonen
4. A consequence of a corporation’s separate personality is that
consent by a corporation through its representatives is not
consent of the representative, personally.
1. Its obligations, incurred through official acts of its representatives,
are its own. 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.
Hence, a corporation’s representatives are generally 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. Lanuza, Jr. vs. BF Corporation, 737
SCRA 275, G.R. No. 174938 October 1, 2014, Leonen
2. Respondent Riza A. Moises may not be held personally liable for
the illegal termination of petitioner’s employment. As we explained
in Saudi Arabian Airlines v. Rebesencio, 746 SCRA 140 (2015): A
corporation has a personality separate and distinct from those of
the persons composing it. Thus, as a rule, corporate directors and
officers are not liable for the illegal termination of a corporation’s
employees. It is only when they acted in bad faith or with malice
that they become solidarily liable with the corporation. In Ever
 Electrical Manufacturing, Inc. (EEMI) v. Samahang Manggagawa
ng Ever Electrical, this court clarified that “[b]ad faith does not
connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong; it
means breach of a known duty through some motive or interest or
ill will; it partakes of the nature of fraud.” Petitioner has not
produced proof to show that respondent Riza A. Moises acted in
bad faith or with malice as regards the termination of his
employment. Thus, she did not incur any personal liability. Rivera
vs. Genesis Transport Service, Inc., 764 SCRA 653, G.R. No.
215568 August 3, 2015, Leonen
3. Although these pieces of evidence show that respondent signed
the Trust Receipt Agreements, they do not show that he signed
them in his personal capacity. On the bottom right corner of the
agreements are two (2) lines: one for the "NAME OF
CORPORATION," and the other for "AUTHORIZED SIGNATURE." In
all agreements, "Camden Inds." was handwritten as the name of
the corporation, while respondent's signature appeared as the
authorized signature. Clearly, respondent affixed his signature
only as Camden's representative. Moreover, there was no
guaranty clause or a similar clause on the page that he signed
that would have made him personally liable in case of default of
the company. In Tupaz IV v. Court of Appeals: “A corporation,
being a juridical entity, may act only through its directors, officers,
and employees. Debts incurred by these individuals, acting as
such corporate agents, are not theirs but the direct liability of the
corporation they represent. As an exception, directors or officers
are personally liable for the corporation's debts only if they so
contractually agree or stipulate.” (Citations omitted) Without any
evidence that respondent personally bound himself to the debts
of the company he represented, this Court cannot hold him civilly
liable under the Trust Receipt Agreements. BDO Unibank, Inc. vs.
Ochoa, G.R. No. 237553, July 10, 2019, Leonen
5. Liability for tort and crimes
1. Being an entity with a separate juridical personality, a corporation
can be held liable for torts committed by its officers under express
direction from the stockholders or directors, acting as a body.
(PNB v. CA, 1978)
2. The corporation itself cannot be arrested and imprisoned; thus, it
cannot be penalized for a crime punishable by imprisonment. The
criminal action is limited to corporate agents guilty of the act
amounting to crime. (Time Inc. v Reyes, 1971)
3. Corporate officers and/or agents may be held individually liable
 3.
for a crime committed under the Intellectual Property Code:
Petitioners, being corporate officers and/or directors, through
whose act, default or omission the corporation commits a crime,
may themselves be individually held answerable for the crime.
Mere membership in the Board or being President per se does
not mean knowledge, approval, and participation in the act
alleged as criminal. There must be a showing of active
participation, not simply a constructive one. ABS-CBN
Corporation vs. Gozon, 753 SCRA 1, G.R. No. 195956 March
11, 2015, Leonen
4. To be held criminally liable for the acts of a corporation, there
must be a showing that its officers, directors, and shareholders
actively participated in or had the power to prevent the
wrongful act.
1. Petitioner failed to allege the specific acts of respondents
Velarde-Albert and Resnick that could be interpreted as
participation in the alleged violations. There was also no
showing, based on the complaints, that they were deemed
responsible for Price Richardson's violations. As found by
State Prosecutor Reyes in his March 13, 2002 Resolution:
[T]here is no sufficient evidence to substantiate SEC's
allegation that individual respondents, Connie Albert and
Gordon Resnick, acted as broker, salesman or associated
person without prior registration with the Commission. The
evidence at hand merely proves that the above-named
respondents 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. Although complainant SEC presented
several confirmation of trade receipts and documents
intended to establish respondents Albert and Resnick illegal
activities, the said documents, standing alone as heretofore
stated, could not warrant the indictment of the two
respondents for the offense charged.”(SEC v Price
Richardson, 2017, Leonen)
5. However, a corporation may be charged and prosecuted for a
crime if the imposable penalty is a fine. (Ching v. Secretary of
Justice, ̧ 2006)
1. NOTE: Sec. 170 of the RCC provides that for violations of the
Code, if it is committed by a corporation, the same may, after
notice and hearing, be dissolved in appropriate proceedings
before the Commission.
6. Recovery of damages
 1. General Rule:
1. A corporation, being an artificial person, has no feelings,
emotions nor senses; therefore, it cannot experience physical
suffering and mental anguish, which are bases for moral
damages under Art. 2217 of Civil Code. [Manila Electric Co. v.
Nordec Philippines, 861 SCRA 515 (2018), Leonen].
2. Exceptions:
1. Exception to this rule is when the corporation has a
reputation that is debased, resulting in its humiliation in
the business realm.
1. In such a case, it is imperative for the claimant to present
proof to justify the award. It is essential to prove the
existence of the factual basis of the damage and its
causal relation to petitioner’s acts. In the present case,
the records are bereft of any evidence that the name or
reputation of T.E.A.M. Electronics Corporation/Technology
Electronics Assembly and Management Pacific
Corporation] has been debased as a result of petitioner’s
acts. Besides, the trial court simply awarded moral
damages in the dispositive portion of its decision without
stating the basis thereof. Manila Electric Co. v. Nordec
Philippines, 861 SCRA 515 (2018), Leonen].
2. Art. 2219 of the NCC expressly authorizes the recovery of
moral damages in cases of libel, slander, or any other form of
defamation. It does not qualify whether the plaintiff is a
natural or juridical person. (Filipinas Broadcasting Network v
Ago Medical and Educational Center, 2005)
2. Doctrine of piercing the corporate veil
1. Meaning
1. It is the legal fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or
stockholders may be disregarded and the corporation will be
considered as a mere association of persons, such that liability
will attach directly to the officers and the stockholders. (2006 Bar
exams)
2. Grounds for application of doctrine
1. Fraud cases - These are cases when the corporate identity is
used to defeat public convenience, justify wrong, protect fraud, or
defend crime. (PWFC)
2. Alter ego cases - These are cases when the corporate entity is a
mere alter ego, business conduit or instrumentality of a person or
another corporation. Here, the corporate entity does not act on its
own, but acts through another person or corporation.
 3. Equity cases - These are cases when piercing the corporate veil is
necessary to achieve justice or equity.
3. Test in determining applicability
1. Three-pronged test for alter ego cases: (Complete domination;
Fraud; Proximate cause of injury)
1. Control, not merely majority or complete stock control, but
Complete domination, as to the finances, policy, and
business practice, with respect to the transaction attacked, so
that the corporate entity as to this transaction had, at the
time, no separate mind, will, or existence of its own;
2. Such control must have been used by the defendant to
commit Fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and unjust
act in contravention of plaintiff’s legal right; and
3. The aforesaid control and breach of duty must have
Proximately caused the injury, harm or unjust loss
complained of. (PNB v Hydro Resources Contractors, 2013)
2. “Control”; “Complete domination”
1. The plaintiff must show “complete domination as to the
finances, policy, and business practices.”
1. Ownership by one corporation of all or a complete
majority of stocks of another corporation and their
existence of interlocking directors merely serve as indicia
of control, but by themselves and without more, these
circumstances are insufficient to establish the alter ego
relationship or connection between the two corporations.
(Zambrano v Philippine Carpet, 2017)
2. Further, mere showing of interlocking directors does not
shoe complete domination.
3. Due process and Piercing the Corporate Veil
1. General Rule:
1. In a case, the Court held that the piercing cannot apply to
one who is not a party to the case. It would offend due
process rights if what petitioner ultimately seeks in its
allegation is to hold a corporation responsible for the
respondent’s liability. (Pioneer Insurance v Morning Star
Travel, 2015)
2. Exception: (Fraud cases; To evade committed and
perpetuate fraud)
1. However, if it is shown by clear and convincing proof that
the separate and distinct personality of the corporation
was purposely employed to evade a legitimate and
binding commitment and perpetuate a fraud or like
 1.

wrongdoings, the corporate veil may be pierced. (I/AME

Academy v Litton and Company, 2017)
2. This is a “fraud” case and not an “alter ego” case,
because corporate veil was pierced despite not showing
complete domination.
4. Traditional Piercing v Reverse Piercing
1. TP - the court disregards the existence of a corporate entity
so a claimant can reach the assets of a corporate insider.
Corporation->CI
2. RP - the plaintiff seeks to reach the assets of a corporation to
satisfy claims against a corporate insider.
CI->Corporation
5. Consequence of Corporate Veil Piercing
1. When a corporate veil is pierced, the corporation and persons
who are normally treated as distinct from the corporation are
treated as one person, such that when the corporation is
adjudged liable, these persons, too, become liable as if they
were the corporation. (Lanuza v BF Corporation, 2014,
Leonen)
2. However, the doctrine does not deny the corporation of legal
personality for any and all purpose. It only denies such
corporation of legal personality for the “particular”
transaction or instance for which the doctrine was applied. It
does not result in the abrogation of the corporation.
(Pamplona Plantation v Tinghil, 2005)
3. When the courts disregard the corporation’s distinct and
separate personality from its directors or officers, the
courts do not say that the corporation, in all instances and
for all purposes, is the same as its directors,
stockholders, officers, and agents.
1. It does not result in an absolute confusion of personalities
of the corporation and the persons composing or
representing it. Courts merely discount the distinction and
treat them as one, in relation to a specific act, in order to
extend the terms of the contract and the liabilities for all
damages to erring corporate officials who participated in
the corporation’s illegal acts. This is done so that the legal
fiction cannot be used to perpetrate illegalities and
injustices. Lanuza, Jr. vs. BF Corporation, 737 SCRA
275, G.R. No. 174938 October 1, 2014, Leonen
6. QUESTION: A Corp., owned by Z, had financial obligations against
its employees. On December 1, 2019, it ceased operations. The
next day, it was immediately succeeded and its assets were
 6.

turned over to B Corp. 90% of B Corp. is owned by Z. Can the

employees of A Corp sue B Corp?
1. Yes.
2. Under the doctrine of piercing the corporate veil, the separate
and distinct personality of the corporation shall be
disregarded when the corporate identity is used to defeat
public convenience, defend crime, protect fraud, or justify a
wrong.
3. Here, the separate and distinct personality of B Corp. from A
Corp. was used by Z to fraudulently evade the financial
obligations due to the employees. Hence, the separate
personalities of A and B must be disregarded, allowing the
employees to sue B.
7. Granada v People, 2017, Leonen
1. When the separate juridical personality of a corporation is
used “to defeat public convenience, justify wrong, protect
fraud, or defend crime, the law will regard the corporation as
an association of persons.” The Sandiganbayan has proven
beyond reasonable doubt that petitioners conspired with each
other to forego the required bidding process and to purchase
grossly overpriced construction materials from Geomiche.
There is sufficient basis to pierce the corporate veil, and Dela
Cruz, as Geomiche’s president, should be held equally liable
as her coconspirators.
Capital structure
1. Number and qualifications of incorporators (Sec. 10)
1. Already in the codal.
2. Subscription requirements (Sec. 12)
1. Not required to have ANY MINIMUM ACS.
3. Corporate term (Sec. 11)
1. Already in the codal.
4. Classification of shares
1. Preferred shares versus common shares (Sec. 6)
2. Scope of voting rights subject to classification (Sec. 6)
3. Founder's shares (Sec. 7)
4. Redeemable shares (Sec. 8)
5. Treasury shares (Sec. 9)
1. Already in the codal.
2. When shares do not have the right to vote:
1. Where the Articles of incorporation provides for classification of
shares, non-voting shares are not entitled to one except for (AAC-
BC-MID). (Sec. 6)
2. Preferred or Redeemable shares may be deprived of the right to
2.
vote unless otherwise provided in the Corporation Code. (Sec. 6)
3. When the Founder shares have exclusive right to vote and be
voted for.
4. Fractional shares cannot vote as they do not constitute at least
one full share.
5. Treasury shares have no voting rights as long as they remain in
the treasury. (Sec. 56)
6. Holders of stock declared Delinquent by the Board for paid
subscription are not entitled to vote or be represented in the
meeting. (Secs. 25 and 70)
7. A Transferee of stock cannot vote if his transfer is not registered
in the stock and transfer book of the corporation. (Sec. 60)
8. Holders of Escrow or Sequestered shares are not entitled to vote,
as a rule. (Republic v COCOFED, 2001)
1. Escrow
1. Those which are subject to an agreement by virtue of
which the shares are deposited by the grantor or his
agent with a third person to be held by the latter until the
performance of a certain condition or the happening of
certain event contained in the agreement. Escrow shares
are not entitled to vote before the fulfillment of the
condition imposed therein.
2. Sequestered
1. As a general rule, the registered owner of the shares of a
corporation, even if they are sequestered by the
government through the PCGG, exercises the right and
the privilege of voting on them. The PCGG as a mere
conservator cannot, as a rule, exercise acts of dominion
by voting these shares.
2. However, the registered owner of a sequestered share
may be deprived of these voting rights, and the PCGG
shall be authorized to exercise the same, if it is able to
comply with the two(2)-tiered test:
1. There is prima facie evidence showing that the said
shares are ill-gotten and thus belong to the State;
and
2. There is an imminent danger of dissipation, thus
necessitating the continued sequestration of the
shares and authority to vote thereupon by the PCGG
while the main issue is pending before the
Sandiganbayan. (Transmiddle East v Sandiganbayan,
2006)
3. Public character exception; The two-tiered test does not
 3.
apply in cases involving funds of “public character.”
1. In such cases, the government is granted the authority to
vote said shares; namely:
1. Where government shares are taken over by private
persons who registered said shares in their own
name; or
2. Where the capitalization or shares that were
acquired with public funds somehow landed in the
hands of a private persons. (Republic v
Sandiganbayan, 2003)
2. In short, when the sequestered shares, registered in the
names of private individuals, are alleged to have been
acquired by “ill-gotten wealth” as defined in EO. 1, then
the two(2)-tiered test applies.
3. However, when the sequestered shares, in the name of
private individuals, are shown, prima facie, to have been 1)
originally government shares, or 2) purchased with public
funds, then the two(2)-tiered test does not apply. Rather
the “public character” exception prevails, that is, the
government shall vote the shares. This is because the
government is the prima facie beneficial owner of the
same. (Republic v Sandiganbayan, 2003)
Incorporation and organization
1. Promoter
1. Definition
1. They are persons who, acting alone or with others, take initiative in
founding and organizing the business or enterprise of the issuer and
receives consideration therefor. (Sec. 3.10, SRC)
2. Liability of promoter
1. General rule:
1. The promoter binds himself personally for the obligations he
contracted. As his remedy, he has the responsibility to collect the
reimbursement from the proposed corporation, once organized.
1. The promoter binds himself to ensure that the corporation,
once formed, will ratify the contract entered into in its name.
2. If the corporation ratifies, both the promoter and the
corporation are liable. If the corporation does not ratify the
contract, he is personally liable.
2. Exceptions: Non-liability of the promoter (AN)
1. Agreement to the contrary (express or implied)
2. Novation by the corporation, not merely adoption or ratification, of
the contract.
3. Liability of corporation for promoter's contracts
 1. General rule:
1. A corporation is NOT bound by the contract.
1. Why? Before a corporation is organized, it has no legal
existence. Hence, it could not have an agent that could legally
bind it, such as a promoter. (Cagayan Fishing Development
Co., Inc. v. Sandiko, 1937)
2. Exceptions: (RNAP)
1. Ratification of the ENTIRE contract after incorporation.
2. Novation or the intent to novate the original contract is required to
adopt or ratify the pre-incorporation contract.
3. Acceptance of benefits under the contract with knowledge of the
terms thereof. (ESTOPPEL)
4. Performance of its obligation under the contract. (ESTOPPEL)
2. Subscription contract (Sec. 59)
3. Pre-incorporation subscription agreements (Sec. 60)
4. Consideration for stocks (Sec. 61)
1. Labor PERFORMED
2. PREVIOUSLY incurred debt
5. Articles of Incorporation (Sec. 13-16)
1. Concept
1. Deemed as the constitution of the corporation, contents of the
articles of Incorporation are binding not only on the corporation but
also on its shareholders. (Lanuza vs. Court of Appeals, G.R. No.
131394, March 28, 2005)
2. Jurisprudence provides for the articles’ three (3)-fold nature:
1. A contract between the State and the corporation;
2. A contract between the corporation and its stockholders; and
3. A contract between the stockholders inter se. (Government of
Philippine Islands vs. Manila Railroad Company, G.R. No. L-30646,
January 30, 1929)
2. Contents
3. Non-amendable items
1. The following items state accomplished facts (fait accompli),
therefore, cannot be amended:
1. The names, nationalities and residences of the incorporators.
2. Treasurer-in-trust
3. First set of directors or trustees
4. Original stock subscriptions and paid-in capital
5. Place and date of execution
6. Witnesses
6. Corporate name; limitations on use of corporate name (Sec. 17)
1. Distinguishability test
1. No corporate name shall be allowed by the Commission
 1. if it is not distinguishable from that already reserved or
registered for the use of another corporation, or
2. If such name is already protected by law, rules and regulations,
or
3. If the use is contrary to existing law, rules, and regulations.
2. Confusing similarity
1. In determining the existence of confusing similarity in corporate
names, the test is whether the similarity is such as to mislead a
person using ordinary care and discrimination.
2. Petitioner's assertion that the words "Montessori International of
Malolos, Inc." are four distinctive words that are not found in
respondents' corporate names so that their corporate name is not
identical, confusingly similar, patently deceptive or contrary to
existing laws, does not avail. As correctly held by the SEC OGC, all
these words, when used with the name "De La Salle," can reasonably
mislead a person using ordinary care and discretion into thinking that
petitioner is an affiliate or a branch of, or is likewise founded by, any or
all of the respondents, thereby causing confusion.
3. Coined or unique name
1. If the name applied for is similar to that of a registered corporation or
partnership, the applicant shall add one or more distinctive words to
the proposed name to remove the similarity or differentiate it from the
registered name;
1. However, the addition of one or more distinctive words shall not
be allowed if the registered name is COINED OR UNIQUE, unless
the board of the subject corporation or the majority of the
partners gives its CONSENT to the applied name.
2. NOTE: Hence, including distinctive words will not make the
corporate name distinguishable.
3. As example, Jollibee Books Inc. is not allowed, since Jollibee
Foods Inc. is a coined or unique name.
4. Priority Right or Priority of Adoption
1. The statutory prohibition cannot be any clearer. To come within its
scope, two requisites must be proven, namely: (PDPC)
1. that the complainant corporation acquired a Prior right over the
use of such corporate name; and
2. the proposed name is either: (a) identical; or (b) Deceptively or
confusingly similar to that of any existing corporation or to any
other name already Protected by law; or (c) patently deceptive,
confusing or Contrary to existing law.
5. Generic words
1. Generic, descriptive and geographic words can be used, but there is
NO exclusivity.
 6. Doctrine of Secondary Meaning
1. Generic terms are those which constitute "the common descriptive
name of an article or substance," or comprise the "genus of which the
particular product is a species," or are "commonly used as the name
or description of a kind of goods," or "characters," or "refer to the
basic nature of the wares or services provided rather than to the more
idiosyncratic characteristics of a particular product," and are not
legally protectable. (De La Salle Montessori v De La Salle Brothers,
2018)
2. The doctrine of secondary meaning originated in the field of
trademark law. Its application has, however, been extended to
corporate names sine the right to use a corporate name to the
exclusion of others is based upon the same principle. Under this
doctrine, a word or phrase originally incapable of exclusive
appropriation with reference to an article on the market, because
geographically or otherwise descriptive, might nevertheless have
been used so long and so exclusively by one producer with reference
to his article that, in that trade and to that branch of the purchasing
public, the word or phrase has come to mean that the article was his
product. (Lyceum of the Philippines v CA, 1993)
1. De La Salle is not a generic term. It is suggestive, since it merely
means “the room.”
1. A suggestive mark is therefore a word, picture, or other
symbol that suggests, but does not directly describe
something about the goods or services in connection with
which it is used as a mark and gives a hint as to the quality or
nature of the product. Suggestive trademarks therefore can
be distinctive and are registrable.
2. Hence, it is protected by law.
2. Lyceum is generic, since it is synonymous to “school.”
7. Name of a dissolved corporation
1. The name of the dissolved corporation shall NOT be used by another
corporation within 5 years from the approval dissolution, unless its use
has been allowed by the stockholders who represent a majority of the
outstanding capital stock. (SEC-MC 13, 209)
7. De facto corporation (Sec. 19)
1. Requisites of a de facto corporation (LGA)
1. Valid Law under which it may be incorporated
2. Attempt in Good faith to incorporate; and
3. Assumption of corporation powers. (Seventh Day Adventist v
Northeastern Mindanao Mission, 2006)
2. Hence, the filing of AOI and the issuance of certificate of incorporation are
essential for the existence of a “de facto” corporation.
 1. Jurisprudence settled that "the 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. (The
Missionary Sisters of Our Lady of Fatima et al. vs Amando V. Alzona, et
al., August 6, 2018, G.R. No. 224307)
8. Corporation by estoppel (Sec. 20)
1. The liability for a contract entered into on behalf of an unincorporated
association or ostensible corporation may lie in a person who may not
have directly transacted on its behalf, but reaped benefits from that
contract. (Lim Tong Lim v Philippine Fishing Gear, 1999)
1. Hence, even though the person did not deal in the name of the
ostensible corporation, he is still liable because he benefited from the
transaction.
2. Further, “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.” (Sec. 21, RCC)
1. In a case, 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.
2. Hence, Purificacion and/or her heirs cannot resist performance of the
contract of donation, on the ground that Peach Sisters was not a
corporation. (The Missionary Sisters of Our Lady of Fatima et al. vs
Amando V. Alzona, et al., August 6, 2018, G.R. No. 224307)
9. Registration, incorporation and commencement of corporate existence
(Sec. 18)
10. Election of directors or trustees (Sec. 23)
1. Period for election contest
1. The Court agrees with Fernandez that the 15-day reglementary period
within which to file an election contest under the Interim Rules is
meant to hasten the submission and resolution of corporate election
controversies, so that the state of uncertainty in the corporate
leadership is settled. (Eizmendi Jr. v Fernandez, 2018)
2. Quorum in election of board; Only those entitled to vote
1. Delinquent stockholders shall not be included in the determination of
existence of the required quorum. It is clear that the required quorum
is the majority of those entitled to vote. Thus, stockholders who are
NOT entitled to vote because of delinquency should not be included in
 1.

the determination of quorum.

11. Adoption of by-laws (Sec. 45-47)
1. Requisites of valid by-laws
1. Required votes for its adoption or amendment is mustered;
2. Signed by all of the incorporators or the stockholders or members
voting for them, as the case may be;
3. Favorable recommendation of the appropriate government agency, if
necessary;
4. SEC Certification that the by-laws are in accordance with the Code;
and
5. In consonance with the Revised Corporation Code, the articles of
incorporation, other laws, rules and regulation. (Secs. 45 & 47, RCC)
2. Contents of by-laws
3. Binding effects
1. Effect of failure to file the by-laws
1. Does NOT imply the "demise" of the corporation. Failure to file
them within the period required by law by no means tolls the
automatic dissolution of a corporation. (Loyola Grand Villas
Homeowners Association v. CA, 1997)
2. NOTE: Sec. 21 on the effect of failure to formally organize within
5 years from incorporation, the corporation’s corporate powers
cease and the corporation is deemed dissolved.
1. Organization includes a) the filing and approval of by-laws
with the SEC and b) the election of directors and officers.
2. When binding
1. ONLY from date of issuance of SEC of a certification that the by-
laws are not inconsistent with the Code (Sec. 45)
2. Pending such approval, they cannot bind stockholders or
corporation.
3. Effect of third parties
1. Mere internal rules among stockholders cannot affect or prejudice
3rd persons who deal with the corporation unless they have
knowledge of the same. (China Banking Corp v CA, 1997)
4. Amendments
12. Effects of non-use of corporate charter (Sec. 21)
AOI By-laws
Corporate existence Condition precedent in Not essential to corporate
the acquisition of existence. But its
corporate existence. absence serves as a
ground to revoke the
franchise.
Nature of the document Constitutes the charter Rules and regulations
or fundamental law of the adopted by the
corporation corporation for internal
governance
How to amend Amended by May by amended by a
 the acquisition of existence. But its
corporate existence. absence serves as a
ground to revoke the
franchise.
Nature of the document Constitutes the charter Rules and regulations
or fundamental law of the adopted by the
corporation corporation for internal
governance
How to amend Amended by May by amended by a
1. Majority of the Board; majority of the Board and
and at least majority of
2. Written Assent of outstanding capital stock
stockholders or majority of members.
representing 2/3 of
outstanding capital stock
or 2/3 of members
Can the adoption be Power to adopt the AOI Can be delegated to the
delegated Cannot be delegated Board by a vote of 2/3 of
the outstanding capital
stock or 2/3 of members
in a meeting called for
such purpose (Sec. 47,
RCC).
The delegation may be
revoked by a vote of the
majority of the
outstanding capital stock
or majority of members in
a meeting called for such
purpose.
Corporate powers
1. General powers; theory of general capacity (Sec. 35)
1. The Theory of General Capacity states that a corporation is said to hold
such powers as are not prohibited or withheld from it by general law.
1. Express - such powers as are expressly granted by law and its articles
of incorporation
2. Implied - such powers as are essential or necessary to carry out its
purpose or purposes as stated in the Articles of Incorporation. (Sec.
35(k))
3. Incidental - those which may be incident to its existence as a juridical
entity. (Pilipinas Loan v SEC, 2001)
2. Specific powers; theory of specific capacity (Sec. 36-43)
1. The Theory of Specific Capacity states that the corporation cannot
exercise powers except those expressly/impliedly given.
2. Power to extend or shorten corporate term
3. Power to increase or decrease capital stock or incur, create,
increase bonded indebtedness
4. Power to deny pre-emptive right
1. REMEMBER: The ruling in Dee v SEC and Benito v SEC are no longer
valid. They only apply in the old Corporation Code.
2. Currently, the pre-emptive right applies to ADDITIONAL ISSUANCES
of shares from the ACS.
5. Power to sell or dispose corporate assets
1. “Substantially all of its assets” means the corporation would be
incapable of continuing its business and accomplishing its purpose.
2. Nell Doctrine
1. Generally, where one corporation sells or otherwise transfers all of
its assets to another corporation, the latter is not liable for the
debts and liabilities of the transferor. (Sec. 39)
2. The exceptions are: (AMBF)
1. Where the purchaser expressly or impliedly agrees to assume
such debts
2. Where the transaction amounts to a consolidation or merger
of the corporation
3. Where the purchasing corporation is merely a continuation of
the selling corporation (Business-Enterprise Transfer); or
4. Where the transaction is entered into fraudulently in order to
escape liability for such debts. (Edward Nell v Pacific Farms,
1965)
3. Business-Enterprise Transfer
1. In such transfer, the transferee corporation’s interest goes beyond
the assets of the transferor’s assets. Here, the transferee
purchases not only the assets of the transfer, but also its
business. As a result of the sale, the transferor is merely left with
its juridical existence, devoid of its industry or earning capacity.
(Y-I Leisure Philippines v Yu)
2. Thus, the transferee is liable for the debts and liabilities of his
transferor arising from the business enterprise conveyed and
does NOT require the existence of fraud against the creditors
before it takes full force and effect. (Y-I Leisure Philippines v Yu)
4. “Fraudulently”
1. This is where piercing the corporate veil comes in.
6. Power to acquire own shares
1. The general rule is the corporation must have unrestricted retained
earnings before it can acquire its own shares.
1. Otherwise, the trust fund doctrine would be violated. (Later
discussed)
2. Instances when unrestricted retained earnings are not needed to
redeem shares:
1. Redeemable shares
 2. Deadlocks in close corporation, as ordered by the SEC-arbiter.
3. Withdrawal of stockholders in close corporations.
1. However, in all of these instances, the corporation must NOT
be insolvent.
2. Otherwise, the trust fund doctrine would be violated.
7. Power to invest corporate funds in another corporation or business
8. Power to declare dividends
1. The board may declare dividends “out of the unrestricted retained
earnings.”
9. Power to enter into management contract
10. Power to amend the Articles of Incorporation
1. AQUINO: “Written assent of majority of the board” means majority of
ALL the directors/trustees, not merely majority of the directors/
trustees constituting a quorum.
3. Limitations
1. Ultra vires acts (Sec. 44)
1. Applicability (corporation; officers; per se illegal)
1. Acts of the corporation done beyond the powers of the
corporation as provided in the law or its articles of incorporation;
2. Ultra Vires acts of officers and not of the corporation, such as
when the authority of the Board was not obtained
3. Ultra Vires acts of the Board in an activity without the act being
ratified by the stockholders where ratification is required by the
Revised Corporation Code.
4. Acts or contracts, which are per se illegal as being contrary to
law. (Villanueva)
2. Consequences
1. The first three are voidable. Hence, they are ratifiable.
1. In Motelibano v Bacolod-Murcia Milling, 1962, while ultra vires
acts which are not illegal but are outside the scope of the
articles of incorporation, are merely voidable and may become
binding and enforceable when ratified by stockholders.
2. The acts of a corporation without authority can bind the
corporation as long as:
1. it is ratified by the corporation, or
2. the contract has been wholly or partly executed.
3. The acts of an officer that are not authorized by the board of
directors/trustees do not bind the corporation unless:
1. the corporation ratifies the acts or
2. holds the officer out as a person with authority to
transact on its behalf (apparent authority). (University of
Mindanao v BSP, 2016, Leonen)
1. Hence, petitioner does not have the power to
 1.
mortgage its properties in order to secure loans of
other persons. As an educational institution, it is
limited to developing human capital through formal
instruction. It is not a corporation engaged in the
business of securing loans of others. (University of
Mindanao v BSP, 2016, Leonen)
4. To recall, ratification for investment of funds other than for
primary purpose requires a 2/3 vote by the stockholders/
members.
2. The last one is void act. Hence, it cannot be ratified.
1. NOTE: According to Dean Riano, we must check if the act is
merely void or voidable.
2. Some acts are void. It is directly in contravention of the law
and it cannot be ratified by the agreement of the board and/or
stockholders. As example, the nationality requirement of
corporations in nationalized industries is strict. Another
example is foreign corporations making donations to any
political party.
3. There are also acts which are voidable. They can be ratified
by the board and/or the stockholders and the doctrine of
apparent authority may apply. As example, investment of
corporate funds other than for primary purpose of the
corporation is ultra vires if the authority of the board and/or
2/3 of the shareholders were not obtained. However, they can
be ratified by them later on, making the act valid.
3. The rule that knowledge of an officer is considered knowledge of
the corporation applies only when the officer is acting within the
authority given to him or her by the corporation.
1. In Francisco v. Government Service Insurance System, 7 SCRA
577 (1963): Knowledge of facts acquired or possessed by an
officer or agent of a corporation in the course of his employment,
and in relation to matters within the scope of his authority, is
notice to the corporation, whether he communicates such
knowledge or not. The public should be able to rely on and be
protected from the representations of a corporate representative
acting within the scope of his or her authority. This is why an
authorized officer’s knowledge is considered knowledge of
corporation. However, just as the public should be able to rely on
and be protected from corporate representations, corporations
should also be able to expect that they will not be bound by
unauthorized actions made on their account.
4. The doctrine of apparent authority does not go into the question
of the corporation’s competence or power to do a particular act. It
4.

involves the question of whether the officer has the power or is

clothed with the appearance of having the power to act for the
corporation.
1. A finding that there is apparent authority is not the same as a
finding that the corporate act in question is within the
corporation’s limited powers. The rule on apparent authority is
based on the principle of estoppel. A corporation is estopped by
its silence and acts of recognition because we recognize that
there is information asymmetry between third persons who have
little to no information as to what happens during corporate
meetings, and the corporate officers, directors, and
representatives who are insiders to corporate affairs.
5. A corporation may exercise its powers only within those
definitions. Corporate acts that are outside those express
definitions under the law or articles of incorporation or those
“committed outside the object for which a corporation is created”
are ultra vires.
1. Corporations are artificial entities granted legal personalities upon
their creation by their incorporators in accordance with law. Unlike
natural persons, they have no inherent powers. Third persons
dealing with corporations cannot assume that corporations have
powers. It is up to those persons dealing with corporations to
determine their competence as expressly defined by the law and
their articles of incorporation.
2. The only exception to this rule is when acts are necessary and
incidental to carry out a corporation’s purposes, and to the
exercise of powers conferred by the Corporation Code and under
a corporation’s articles of incorporation.
6. Securing loans is not an adjunct of the educational institution’s
conduct of business.
1. Petitioner does not have the power to mortgage its properties in
order to secure loans of other persons. As an educational
institution, it is limited to developing human capital through formal
instruction. It is not a corporation engaged in the business of
securing loans of others. Hiring professors, instructors, and
personnel; acquiring equipment and real estate; establishing
housing facilities for personnel and students; hiring a
concessionaire; and other activities that can be directly
connected to the operations and conduct of the education
business may constitute the necessary and incidental acts of an
educational institution.
2. Securing FISLAI’s loans by mortgaging petitioner’s properties
does not appear to have even the remotest connection to the
 2.

operations of petitioner as an educational institution. Securing

loans is not an adjunct of the educational institution’s conduct of
business. It does not appear that securing third party loans was
necessary to maintain petitioner’s business of providing
instruction to individuals. University of Mindanao, Inc. vs.
Bangko Sentral ng Pilipinas, 778 SCRA 458, G.R. Nos.
194964-65 January 11, 2016, Leonen
4. Doctrine of individuality/indivisible of subscription
1. The Doctrine of Individuality of Subscription states that:
1. A subscription is one entire and indivisible whole contract.
2. It cannot be divided into portions.
2. Hence, no certificate of stock shall be issued to a subscriber, until the
full amount of subscription together with interest and expenses, if any is
due, has been paid. (Sec. 63)]
1. Otherwise, there will be watered stocks. (Sec. 64)
3. Further, if NO payment is made within 30 days from due date, ALL of the
stocks covered by the subscription shall become delinquent. (Sec. 66)
1. Delinquency is not limited to the shares which correspond to the
amount not paid.
4. However, holders of subscribed shares NOT fully paid but are NOT
delinquent shall have ALL the rights of a stockholder. (Sec. 71)
5. Doctrine of equality of shares
1. It provides that each share shall be EQUAL IN ALL RESPECTS to every
other share, except as otherwise provided in the AOI and CERTIFICATE OF
STOCK. (Sec. 6)
6. Intra-corporate dispute,
1. There is the Relationship test. Under this test, a dispute is intra-
corporate if it is:
1. between the corporation, partnership, association, and the Public;
2. between the corporation, partnership, association, and the State
insofar as the franchise, permit, or license to operate is concerned;
3. between the corporation, partnership, or association, and the
Stockholders, partners, members, or officers; and
4. Among the stockholders, partners, members, or officers themselves.
2. There is the Nature of Controversy test. Under this test, a dispute is
intra-corporate if it is intrinsically connected with:
1. the Regulation of the corporation, or
2. the Enforcement of the parties’ rights and obligations under the
Corporation Code and the internal regulatory rules of the corporation.
3. Not intra-corporate dispute because the relationship test was not met
1. No corporate relationship. While Wise Holdings assets ownerships of
the shares, the shares were not under its name. Hence, this is a mere
reconveyance of ownership of property. (Wise Holdings v Garcia,
 1.

2019)
4. Not intra-corporate if the demand is only for civil indemnity
1. There were no allegations assailing the petitioners’ rights or
obligations on the basis of the association’s rules and bylaws, or
regarding the petitioners’ relationships with the association. What
were alleged were only demands for civil indemnity and damages.
Hence, the controversy being not corporate in nature, and which
merely involves a simple civil action, the case does not involve an
intra-corporate dispute. (Gulfo v Ancheta, 2012)
5. Not intra-corporate where the issue arose from vendor-vendee
relationship
1. The relationship of private respondent when he sold his shares of
stock to his son was one of vendor and vendee, and nothing else. The
question raised in the complaints is whether or not there was indeed a
sale in the absence of cause or consideration. The proper forum for
such a dispute is the regular courts. No special corporate skill is
necessary to resolve the issue of the validity of the transfer of shares
from one stockholder to another of the same corporation. The
determination whether a contract is simulated or not is an issue that
could be resolved by applying pertinent provisions of the Civil Code,
particularly those relative to obligations and contracts. (Intestate
Estate of Ty v CA, 2001)
6. Illustrations of intra-corporate dispute
1. Dispute as to the proper association dues in a condominium
corporation AND extrajudicial sale
1. The case before the RTC involved an intra-corporate dispute – the
Moreno spouses were asking for an accounting of the
association dues and were questioning the manner the
petitioner calculated the dues assessed against them. These
issues are alien to the first case that was initiated by Salvacion – a
third party to the petitioner-Moreno relationship – to stop the
extrajudicial sale on the basis of the lack of the requirements for a
valid foreclosure sale. Although the extrajudicial sale of the
Moreno properties to the petitioner has been fully effected and
the Salvacion petition has been dismissed with finality, the
completion of the sale does not bar the Moreno spouses from
questioning the amount of the unpaid dues that gave rise to the
foreclosure and to the subsequent sale of their properties. The
propriety and legality of the sale of the condominium unit and the
parking spaces questioned by Salvacion are different from the
propriety and legality of the unpaid assessment dues that the
Moreno spouses are questioning in the present case.
2. The facts of this case are similar to the facts in Wack Wack
 2.
Condominium Corporation, et al. v. Court of Appeals, et al., where
we held that the dispute as to the validity of the assessments is
purely an intra-corporate matter between Wack Wack
Condominium Corporation and its stockholder, Bayot, and is, thus,
within the exclusive original jurisdiction of the Securities and
Exchange Commission (SEC). We ruled in that case that since the
extrajudicial sale was authorized by Wack Wack Condominium
Corporation’s by-laws and was the result of the nonpayment of
the assessments, the legality of the foreclosure was necessarily
an issue within the exclusive original jurisdiction of the SEC. We
added that:
3. Just because the property has already been sold
extrajudicially does not mean that the questioned
assessments have now become legal and valid or that they
have become immaterial. In fact, the validity of the
foreclosure depends on the legality of the assessments and
the issue must be determined by the SEC if only to insure that the
private respondent was not deprived of her property without
having been heard. If there were no valid assessments, then there
was no lien on the property, and if there was no lien, what was
there to foreclose? Thus, SEC Case No. 2675 has not become
moot and academic and the SEC retains its jurisdiction to hear
and decide the case despite the extrajudicial sale. (Chateau De
Baie v Sps. Moreno, 2011)
2. Dispute as to management of corporate property AND forcible
entry
1. 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.
2. In sum, 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. (Tumangan v
Kairuz, 2018)
3. Termination of corporate officers, i.e., President of the
3.
corporation
1. This is an intra-corporate dispute. Hence, the proper body is the
RTC and not the NLRC.
2. A corporate officer's dismissal is always a corporate act, or an
intracorporate 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. (Wesleyan University v Maglaya, 2017)
3. Under Section 25 of the Corporation Code, the President of a
corporation is considered a corporate officer. The dismissal of a
corporate officer is considered an intra-corporate dispute, not a
labor dispute.
1. Thus, in Tabang v. National Labor Relations Commission, 266
SCRA 462 (1997): A corporate officer’s dismissal is always a
corporate act, or an intra-corporate controversy, and the
nature is not altered by the reason or wisdom with which the
Board of Directors may have in taking such action.
2. Also, an intra-corporate controversy is one which arises
between a stockholder and the corporation. There is no
distinction, qualification, nor any exemption whatsoever. The
provision is broad and covers all kinds of controversies
between stockholders and corporations. Malcaba vs.
ProHealth Pharma Philippines, Inc., 864 SCRA 518, G.R.
No. 209085 June 6, 2018
4. The by-laws may even be silent, since the RCC states that a
President is a corporate officer.
4. Inspection of corporate books/records
1. Even though Belo Medical Group filed a case for interpleader, i.e.,
who owns the stocks in the name of Jose Santos, the controversy
was actually an intra-corporate dispute.
2. Applying the relationship test, this Court 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
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. (Precisely,
it must be heard in an intra-corporate case)
3. 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.
4. Applying the nature of the controversy test, this is still an intra--
corporate dispute.
5. 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 v Jose Santos and Vicky Belo, 2017,
Leonen)
5. Refund of price paid for stock ownership
1. This case is an intra-corporate dispute, over which the Regional
Trial Court has jurisdiction. It involves a dispute between the
corporation, SBGCCI, and its shareholders, Villareal and Filart.
2. Villareal and Filart's right to a refund of the value of their
shares was based on SBGCCI and UIGDC's alleged failure to
abide by their representations in their prospectus. Specifically,
Villareal and Filart alleged in their letter-complaint that the world-
class golf course that was promised to them when they purchased
shares did not materialize. This is an intra-corporate matter that is
under the designated Regional Trial Court's jurisdiction. It involves
the determination of a shareholder's rights under the Corporation
Code or other intra-corporate rules when the corporation or
association fails to fulfill its obligations.
3. However, even though the Complaint filed before the
 3.
Securities and Exchange Commission contains allegations
that are intra-corporate in nature, it does not necessarily oust
the Securities and Exchange Commission of its regulatory and
administrative jurisdiction to determine and act if there were
administrative violations committed.
4. In relation to securities, the Securities and Exchange
Commission's regulatory power pertains to the approval and
rejection, and suspension or revocation, of applications for
registration of securities79 for, among others, violations of the law,
fraud, and misrepresentations.
5. To ensure compliance with the law and the rules, the Securities
and Exchange Commission is also given the power to impose fines
and penalties.
6. Thus, when Villareal and Filart alleged in their letter-complaint
that SBGCCI and UIGDC committed misrepresentations in the sale
of their shares, nothing prevented the Securities and Exchange
Commission from taking cognizance of it to determine if SBGCCI
and UIGDC committed administrative violations and were liable
under the Securities Regulation Code. The Securities and
Exchange Commission may investigate activities of corporations
under its jurisdiction to ensure compliance with the law.
7. However, the Securities and Exchange Commission's
regulatory power does not include the authority to order the
refund of the purchase price of Villareal's and Filart's shares
in the golf club. The issue of refund is intra-corporate or civil
in nature. Similar to issues such as the existence or inexistence of
appraisal rights, pre-emptive rights, and the right to inspect books
and corporate records, the issue of refund is an intra-corporate
dispute that requires the court to determine and adjudicate the
parties' rights based on law or contract. Injuries, rights, and
obligations involved in intra-corporate disputes are specific to the
parties involved. They do not affect the Securities and Exchange
Commission or the public directly. (SEC v Subic Bay Golf, 2015,
Leonen)
6. QUESTION:
1. B was the Executive Vice President/Chief Executive Officer of
NSIT Incorporated. After several years of service, B was placed in
preventive suspension due to some questionable transactions.
She was then prevented from reassuming her position. B filed a
complaint before the Labor Arbiter contending that she was
illegally dismissed. NSIT Inc., on the other hand, prayed that the
complaint be dismissed for lack of jurisdiction of the LA as the
case involves an intra-corporate dispute. What are the tests to
 determine whether a case is an intra-corporate controversy? Is
the matter of B’s dismissal an intra- corporate dispute?
1. Yes. To determine whether a case is an intra-corporate
controversy, a two-tiered test must be employed: (a) the
relationship test, and (b) the nature of the controversy test.
Under the relationship test, a dispute is considered an intra-
corporate controversy when, among others, it is one between
the corporation and its stockholders, partners, members, or
officers. Moreover, under the nature of the controversy test,
the disagreement must not only be rooted in the existence of
an intra-corporate relationship but must as well pertain to the
enforcement of the parties' correlative rights and obligations
under the [Revised] Corporation Code and the internal and
intra-corporate regulatory rules of the corporation.
2. Incidents and issues that are adjuncts of a dismissed officer’s
corporate office make a controversy an intra-corporate
controversy (Norma D. Cacho and North Star International
Travel, Inc. v. Virginia D. Balagtas, G.R. No. 202974, February
7, 2018; Belo Medical Group, Inc. v. Santos, G.R. No. 185894,
August 30, 2017, Leonen Case). 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 [Revised] Corporation Code (Wesleyan
University-Philippines v. Maglaya, Sr., G.R. No. 212774,
January 23, 2017).
2. BMG received a request from AB for inspection of corporate
records. AB claims that he was a registered shareholder and co-
owner of CB’s shares. The request for corporate records arose
when AB was not notified of the annual meetings and AB’s
concern over the corporate operations arose from the alleged
death of a client in BMG premises. CB wrote BMG to object to the
inspection by AB of corporate records claiming that AB held the
shares in his name merely in trust for CB. Based on BMG’s Articles
of Incorporation and General information Sheet, both AB and CB
are shareholders of BMG. BMG filed a complaint for interpleader in
RTC to compel AB and CB to interplead and litigate their
conflicting claims of ownership which ultimately seeks to
 determine the true owner of the shares of stock and also to
prevent AB from inspecting the corporate books or records based
on bad faith. Is the dispute between AB and CB who claim to be
the real owners of the same shares of stock an intra-corporate
dispute?
1. Yes. Applying the relationship test, both AB and CD are named
shareholders in BMG's Articles of Incorporation and General
Information Sheet. The conflict is clearly intra-corporate as it
involves two (2) shareholders although the ownership of
stocks of one stockholder is questioned. Unless AB is
adjudged as a stranger to the corporation because he holds
his shares only in trust for CD, then both AB and CD, based on
official records, are stockholders of the corporation. 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 AB's name. Even if AB is declared the true owner
of the shares of stock upon completion of the interpleader
case, BMG 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. v. Santos, G.R. No. 185894, August 30, 2017,
Leonen Case).
3. PH Corporation was owned by PCS Corporation which is subject
of a standing sequestration order issued by the PCGG. OD, a
stockholder of PH Corporation, requested for a copy of all the
minutes of the meetings of the board of directors and executive
committee of PH Corporation. Despite several follow- ups made
by OD, nothing happened. Hence, OD filed a complaint for
inspection of books with the RTC. The officers of PH Corporations
prayed that the complaint be dismissed for lack of jurisdiction of
the RTC as special commercial court since PH Corporation is
under sequestration and thus any issue must be resolved by the
PCGG. The RTC however denied the prayer for dismissal.
1. Was the RTC correct?
2. Assuming that the RTC issued an order, directing PH
Corporation to furnish OD a copy of the minutes of the
meetings as requested, may PH Corporation refuse to comply
with the order on the ground that the decision has been
appealed?
1. Yes. Cases involving intra-corporate disputes are within
 1.
the original and exclusive jurisdiction of the Regional Trial
Courts. 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 v. Ozamiz, G.R. No. 190590,
July 12, 2017).
2. No. In intra-corporate controversies, all orders of the trial
court are immediately executory as provided for by
Section 4 of the Interim Rules of Procedure Governing
Intra-Corporate Controversies, as amended. It is not for
the parties to decide whether they should or should not
comply with a court order. There was no injunction to stop
the implementation of the trial court’s orders (Oca v.
Custodio, G.R. No. 199825, July 26, 2017, Leonen Case).
PH Corporation cannot refuse to comply with the order of
the RTC in absence of any injunction pertaining thereto.
4. Stockholders Kiko and Kikay ask for the refund of the shares they
bought from A Corporation on the ground that said Corporation
failed to deliver the promised amenities to be built on the
premises. The Corporation Finance Department (CFD) conducted
an ocular inspection of the project and found out that they failed
to comply substantially with their commitment to complete the
project and ordered the refund of Kiko and Kikay’s share. The SEC
affirmed the CFD’s decision stating that the latter conducted such
inspection to determine if A Corporation violated SEC’s rules and
regulations. The Court of Appeals found that the case involved an
intra corporate controversy, thus must be within the jurisdiction of
the RTC. Did the SEC act in excess of its jurisdiction when it
ordered the refund of the shares?
1. No. This case is an intra-corporate dispute, over which the
RTC has jurisdiction. It involves a dispute between the
corporation, A Corporation, and its stockholders, Kiko and
Kikay. This also involves corporate rights and obligations. It
involves the determination of a stockholder's rights under the
Revised Corporation Code or other intra-corporate rules when
the corporation or association fails to fulfill its obligations.
However, even though the complaint filed before SEC contains
allegations that are intra-corporate in nature, it does not
necessarily oust the SEC of its regulatory and administrative
jurisdiction to determine and act if there were administrative
violations committed. The SEC may investigate activities of
 corporations under its jurisdiction to ensure compliance with
the law. However, its regulatory power does not include the
authority to order the refund of the purchase price of Kiko’s
and Kikay’s shares in A Corporation (Securities and Exchange
Commission v. Subic Bay Golf and Country Club, Inc., G.R. No.
179047, March 11, 2015, Leonen Case).
7. In intra-corporate controversies, all orders of the trial court are
immediately executory.
1. Section 4. Executory nature of decisions and orders. All decisions and
orders issued under these Rules shall immediately be executory
except the awards for moral damages, exemplary damages and
attorney’s fees, if any. No appeal or petition taken therefrom shall stay
the enforcement or implementation of the decision or order, unless
restrained by an appellate court.
2. Interlocutory orders shall not be subject to appeal. Questioning the
trial court orders does not stay its enforcement or implementation.
There is no showing that the trial court orders were restrained by the
appellate court.
3. Hence, petitioners could not refuse to comply with the trial court
orders just because they opined that they were invalid. It is not for the
parties to decide whether they should or should not comply with a
court order. Petitioners did not obtain any injunction to stop the
implementation of the trial court orders nor was there an injunction to
prevent the trial court from hearing and ruling on the contempt case.
Petitioners’ stubborn refusal cannot be excused just because they
were convinced of its invalidity. Their resort to the processes of
questioning the orders does not show that they are in good faith. Oca
vs. Custodio, 832 SCRA 615, G.R. No. 199825 July 26, 2017,
Leonen
7. Trust fund doctrine
1. Definition
1. Under the Trust Fund Doctrine, the capital stock, property, and other
assets of a corporation are regarded as equity in trust for the
payment of corporate creditors, who are preferred over the
stockholders in the distribution of capital assets. (Yamamoto v Nishino
Leather Industries, 2008)
2. In case of violation of the trust fund doctrine, the corporate creditors
are allowed to maintain an action against the subscriber for any
unpaid subscriptions.
3. The creditors thereby step into the shoes of the corporation in
satisfaction of the debt
2. When is the trust fund doctrine violated (CDAFP)
1. Condones or releases the payment of the unpaid subscription. The
 1.
corporation has no legal capacity to do the same.
2. Dividends were declared without unrestricted retained earnings
3. Acquires its own shares without unrestricted retained earnings
(fractional shares, compromise of unpaid subscription in delinquency
sale, and appraisal right.)
4. Transfer of property in Fraud of creditors
5. When properties are disposed or undue Preference is given to some
creditors even if the corporation is insolvent.
3. When is the trust fund doctrine NOT violated (AROWD)
1. Amendment of the AOI to reduce the authorized capital stock,
2. Redeemable shares, regardless of the existence of URE,
3. Order of the SEC-arbiter to acquire the shares of a close corporation
in case of deadlocks, regardless of existence of URE,
4. Withdrawal of stockholders in close corporations, regardless of
existence of URE; and
5. Dissolution and eventual liquidation of the corporation.
4. QUESTION:
1. Could any stockholder, at his pleasure, pull-out the machines and
equipment, which he used to pay for his shares in a corporation?
1. No. The property of a corporation is not the property of its
stockholders or members. Under the Trust Fund Doctrine, the
capital stock, property, and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors,
which are preferred over the stockholders in the distribution of
corporate assets. The distribution of corporate assets and
property cannot be made to depend on the whims and caprices of
the stockholders, officers, or directors of the corporation unless
the indispensable conditions and procedures for the protection of
corporate creditors are followed. (Yamamoto vs. Nishino Leather
Industries, G.R. No. 150283, April 16, 2008)
2. A, B, and C are shareholders of XYZ Company. A has an unpaid
subscription of P100,000. B’s shares are fully paid up, while C owns
only nominal but fully paid-up shares and is a director and officer. XYZ
Company became insolvent, and it is established that the insolvency
resulted from fraudulent practices within the company. If you were the
counsel for a creditor of XYZ Company, will you advice legal action
directly against A, B, and C?
1. My advice would be different for each of the three shareholders.
2. I would advise the creditor to file a claim against A for the latter’s
unpaid subscription in the amount of P100,000 before the
insolvency court under the Trust Fund Doctrine (Halley v.
Printwell, G.R. No. 157549, May 30, 2011). My action cannot be
direct against A as it is still a clam against the corporation except
 that it is in the form of seeking to compel the corporation to
collect unpaid subscriptions for purposes of liquidating its assets.
3. I would advise the creditor to file an action for damages against C
in his personal capacity as director and officer because the
corporation’s insolvency was the result of fraudulent practices
within the company. Under Section 30 of the Revised Corporation
Code, directors are liable jointly and severally for damages
sustained by the corporation, stockholders, or other persons
resulting from gross negligence or bad faith in directing the
affairs of the corporation.
4. However, my client does not have any cause of action against B
because B has already fully paid for his subscription. Since the
stockholder is not an officer, his liability as stockholder is only up
to the extent of his subscription which has been paid. This is also
called the limited liability feature of the corporate vehicle
(Pioneer Insurance Surety Corp. v. Morning Star Travel & Tours,
Inc., G.R. No. 198436, July 8, 2015, Leonen Case)
5. How Corporate Powers are Exercised
1. How exercised
1. By the shareholders
1. The powers are exercised by voting in a regular or special
meeting duly called for the purpose.
2. As a rule, the vote necessary to approve a particular
corporate act shall be deemed to refer only to stocks with
voting rights. (Sec. 6)
1. Examples of these are:
1. Election of directors/trustees
2. Declaration of stock dividends
3. Delegation of power to adopt/amend by-laws
4. Revocation of such power delegated
5. Management contracts
6. Fixing the consideration of no-par value shares
7. Fixing the compensation of directors
3. The exceptions are:
1. (AAC-BC-MID)
2. By the board of directors
1. The powers of the board of directors are exercised by a
majority vote of the quorum in a directors’ meeting.
2. NOTE: The approval of the board is not needed for adoption/
amendment of by-laws.
3. By the officers
1. Binding effects of the acts of officers
1. The general rule is that, in the absence of authority from
 1.
the board of directors, no person, not even the officers,
can validly bind a corporation. (DBP v Sta. Ines Melale
Forest, 2017, Leonen)
2. Doctrine of apparent authority (Knowing permits officers
+ apparent authority + estopped + anyone relied in good
faith)
1. If a corporation knowingly permits one of its officers, or
any other agent, to act within the scope of an “apparent
authority,” it holds him out to the public as possessing
the power to do those acts. Hence, the corporation will be
estopped from denying the agent’s authority against
anyone who relied therein in good faith. (Lapulapu
Foundation v CA, 2004)
1. It can be gleaned that apparent authority is
determined by the acts of the principal and not by the
acts of the agent. However, the principal’s liability is
limited to THIRD PERSONS IN GOOD FAITH who are
reasonably led to believe that the agent was
authorized to act for the principal due to the
principal’s conduct. (Calubad v Ricarcen
Development, 2017, Leonen)
2. QUESTION:
1. T Construction planned to develop a housing project,
to finance this, T Construction, B Corporation, and
Planters Bank agreed to raise funds through the
issuance of bonds worth P400 million called the
Margarita Bonds. B Construction, as guarantor, would
pay investors the value of the bond at maturity plus
8.5% interest per year. Banco Filipino purchased the
Margarita Bonds and asked for additional interest
other than the 8.5% per annum based on the letters
written by T Construction Senior Vice President
Escalona. When the Margarita Bonds matured, the
funds in the asset pool were insufficient to pay the
bond holders. Banco Filipino, however, sent T
Construction a demand letter dated January 31, 2001,
alleging that it was entitled to a 15.5% interest on its
investment and that as of July 1, 2001, it was entitled
to a 7% percent remaining unpaid interest of P
18,104,431.33. T Construction refused to pay the
demanded interest. Banco Filipino alleged that it was
induced into buying the Margarita Bonds after T
Construction, through its senior vice president's
 letters, committed to pay 15.5% interest on a P50
million bond that Banco Filipino held for a client and
16.5% interest on a P50 million bond it held for
another client. It also alleged that T Construction paid
the additional interest twice during the Margarita
Bonds' holding period. Is T Construction liable to
Banco Filipino to pay the demanded interest?
1. Yes. Escalona had apparent authority to transact
on behalf of T Construction. The rule is of course
settled that although an officer or agent acts
without, or in excess of, his actual authority if he
acts within the scope of an apparent authority
with which the corporation has clothed him by
holding him out or permitting him to appear as
having such authority, the corporation is bound
thereby in favor of a person who deals with him in
good faith in reliance on such apparent authority,
as where an officer is allowed to exercise a
particular authority with respect to the business,
or a particular branch of its continuously and
publicly, for a considerable time. Here, Banco
Filipino relied on Escalona's apparent authority to
promise interest payments over and above the
guaranteed 8.5%, considering that Escalona was
T Construction's then senior vice president. His
apparent authority was further demonstrated by T
Construction paying Banco Filipino what Escalona
promised during the Margarita Bonds' term (Terp
Construction Corporation v. Banco Filipino
Savings and Mortgage Bank, G.R. No. 221771,
September 18, 2019, Leonen Case).
2. Ms. Mateo, the President of Stanley Corporation
(Stanley), obtained a loan before the Lestine
Financing (Lestine) and secured by a real estate
mortgage of Stanley’s property. Ms. Mateo presented
a board resolution empowering her to borrow money
from Lestine and to use Stanley’s property to secure
the loan. However, Stanley failed to pay its loan.
Lestine initiated extrajudicial foreclosure proceedings.
Only then Stanley learned about the transactions of
Ms. Mateo. She was immediately removed as
president. Stanley filed a Complaint for Annulment of
Real Estate Mortgage contending that it never gave
 Ms. Mateo the authority to obtain the loan and it
should not be liable for such. Is Stanley correct?
1. No. When a corporation intentionally or
negligently clothes its agent with apparent
authority to act in its behalf, it is estopped from
denying its agent's apparent authority as to
innocent third parties who dealt with this agent in
good faith (Calubad v. Ricarcen Development
Corp, G.R. No. 202364, August 30, 2017, Leonen
Case). Stanley cannot deny the authority it vested
upon Ms. Mateo to obtain the loan and use of its
property to secure such loan. This is evident on
the board resolution to such effect, absent any
proof negating the validity of the resolution.
Exceptions
Deny pre- Sale or Other Power to Power to Management
emptive right Disposition acquire own declare contracts;
of All or shares dividends; when 2/3
substantially without URE Can retain stockholders
all of surplus of the
corporate profits in managed
assets excess of corporation
100% of the is needed
paid-in
capital stock
Denied by If the same is Redeemable Corporate Stockholders
AOI/ necessary in shares expansion represent the
amendment the usual and projects same interest
regular course approved by in both the
of business the board managing and
managed
corporation +
Stockholders
owns MORE
THAN 1/3 of
the
outstanding
capital stock
entitled to
vote in the
MANAGING
corporation
Comply with Appropriated Withdrawal of Prohibited to Majority of
law requiring for the stockholders declare board in the
stock conduct of in close dividends by a managing
offerings/ the remaining corporation Loan corporation +
 entitled to
vote in the
MANAGING
corporation
Comply with Appropriated Withdrawal of Prohibited to Majority of
law requiring for the stockholders declare board in the
stock conduct of in close dividends by a managing
offerings/ the remaining corporation Loan corporation +
minimum business agreement + also majority
stock without the of the board
ownership of consent of the in the
the public creditor + the managed
consent is not corporation
acquired
Shares issued Order of SEC- Retention is
in good faith + Arbiter in case necessary
2/3 of deadlock in under special
stockholders close circumstance
+ exchange of corporation s (special
property OR reserve for
payment of possible
PREVIOUSLY contingencies
contracted )
debt
Stockholders and members
1. Fundamental rights of a stockholder
1. Participation in management;
2. Voting rights;
3. Right to remove directors;
4. Proprietary rights (dividends, appraisal, stock certificate, liquidation);
5. Right to inspect books;
6. Right to be furnished of most recent financial statements;
7. Right to recover stocks unlawfully sold for delinquent payment;
8. Right to file individual/representative/derivative suits
2. Participation in management
1. Proxy (Sec. 57)
2. Voting trust (Sec. 58)
3. Cases when stockholders' action is required
1. With preferred and non-voting shares
1. At least 2/3 vote is needed:
1. (AC-BC-MID)
2. At least majority vote is needed:
1. Adoption and amendment of bylaws; and
2. Dissolution of the corporation, in case of voluntary dissolution
where no creditors are affected.
2. Without preferred and non-voting shares
1. At least 2/3 vote is needed:
 1. Deny Pre-emptive right, when it is issued in good faith, in
exchange for property for corporate purposes or for
payment of previously incurred debt
2. Stock dividends
3. Delegate to the board the power to amend, repeal, and
adopt new bylaws
4. Management contract, when 1) a stockholder represents
interest of both the corporations and he owns, controls, or
represents more than 1/3 of the outstanding capital stock
entitled to vote of the managing corporation, or 2) the
majority of the directors or trustees in the managing
corporation are also majority of the directors or trustees in
the managed corporation.
5. Remove Directors or trustees
6. Ratifying Dealings with directors/trustees that are voidable
7. Ratifying acts of Disloyalty of the director
8. Approval of Plan of distribution of assets in nonstock
corporation
9. A corporation is not deemed as “Close” when at least 2/3 of
its voting stock is owned by another corporation which is not
a close corporation.
10. For Religious societies, it can be incorporated if at least 2/3
of its members have given their written consent and/or
affirmative vote
2. At least majority vote is needed:
1. Management contract (General rule)
2. Revoke the delegation to the board of the power to amend,
repeal, and adopt new bylaws
3. Fix Issued value of no-par value shares.
4. In choosing the presiding officer in Meetings called by
stockholders, as ordered by the SEC.
5. Granting Compensation other than per diems to the directors
3. By cumulative voting
1. Cumulative voting applies to election of directors and trustees
4. Manner of voting
1. Person - in all meetings
2. Proxy - in all meetings
3. Remote or in absentia - when authorized by the by-laws OR majority
of the board; or in case of election of directors/trustees in
corporations vested with public interest.
3. Proprietary rights
1. Right to dividends
1. Done.
2. Appraisal right (Sec. 80-85)
1. When available
2. Manner of exercise of right
1. Done.
3. Right to inspect (Sec. 73-74)
1. Right to Inspection
1. Specifically, stockholders cannot be prevented from gaining
access to the (a) records of all business transactions of the
corporation; and (b) minutes of any meeting of stockholders or
the board of directors, including their various committees and
subcommittees. (Philippine Associated Smelting and Refining
Corp. v Lim, 2016, Leonen)
2. The Corporation Code has granted to all stockholders the right to
inspect the corporate books and records, and in so doing has not
required any specific amount of interest for the exercise of the
right to inspect. Ubi lex non distinguit nee nos distinguere
debemos. When the law has made no distinction, we ought not to
recognize any distinction. (Terelay Investment v Yulo, 2015)
3. Hence, an action for injunction filed by a corporation generally
does not lie to prevent the enforcement by a stockholder of his or
her right to inspection. The stockholder has the right to inspect
the records of the corporation. Such right is subject to certain
limitations, but these limitations are expressly provided as
defenses in actions filed under Section 73. Thus, this Court has
held that a corporation's objections to the right to inspect must be
raised as a defense. If a stockholder demands the inspection of
corporate books, the corporation could refuse to heed to such
demand. When the stockholder subsequently files an action to
enforce the right to inspection, corporations may raise their
objections thereto through an affirmative defense in an ordinary
civil action for specific performance or damages, or though a
comment in a petition for mandamus. (Philippine Associated
Smelting and Refining Corp. v Lim, 2016, Leonen)
1. COMMENT: It cannot be raised through an action for
injunction because it is a pre-emptive action unjustly intended
to restrain the rights of the stockholder. Instead, the
corporation may refuse to heed the demand of the
stockholder, and then raise the objections in the Answer once
a civil case is filed by the stockholder.
4. The corporation or defendant or respondent still carries the
burden of proving a) the stockholder Improperly used the
information before, b) he was NOT in good faith or not for a
legitimate purpose, or c) he represented the interests of the
4.

Competitor. Good faith and a legitimate purpose of the

stockholder are presumed. It is the duty of the corporation to
allege and prove with sufficient evidence the facts that give rise to
a claim of bad faith as to the existence of an illegitimate purpose.
(Philippine Associated Smelting and Refining Corp. v Lim, 2016,
Leonen)
1. As such, and in the absence of evidence, the PCGG cannot
unilaterally deny a stockholder from exercising his statutory
right of inspection based on an unsupported and naked
assertion that private respondent's motive is improper or
merely for curiosity or on the ground that the stockholder is
not in friendly terms with the corporation's officers.
5. Further, the confidentiality of business transactions is not a
magical incantation that will defeat the request of a stockholder to
inspect the records. Although it is true that the business is
entitled to the protection of its trade secrets and other intellectual
property rights, facts must be pleaded to convince the court that
a specific stockholder's request for inspection, under certain
conditions, would violate the corporation's own legal right.
(Philippine Associated Smelting and Refining Corp. v Lim, 2016,
Leonen)
6. QUESTION:
1. Y owns one (1) share of the stock of TID Corporation since its
first issue of shares 3 years prior. She wrote to TID
Corporation requesting to inspect its books and records. TID
Corporation denied the request for inspection as she only
held one share and thus a negligible interest in the
corporation and demanded that she show proof that she had
a bona fide purpose. Did TID validly deny Y’s request to
inspect its books and records?
1. No, the denial was invalid. The following are the only
limitations on the right to inspect corporate books:
1. The right must be exercised during reasonable hours
on business days;
2. The person demanding the right has not improperly
used any information obtained through any previous
examination of the books and records of the
corporation;
3. The demand is made in good faith or for a legitimate
purpose; and
4. The person demanding is not a competitor, director,
officer, controlling stockholder or
otherwiserepresents the interests of a competitor
 4.

(REVISED CORPORATION CODE, Sec. 73).

2. The Revised Corporation Code does not require any
minimum amount of stockholding for the exercise of the
right to inspect corporate books. The right of the
shareholder to inspect the books and records is not
subject to the condition of a showing of any particular
dispute or of proving any mismanagement or other
occasion rendering an examination proper. Where the
right is to be denied, the burden of proof is upon the
corporation to show that the purpose of the shareholder
is improper (Terlay Investment and Development
Corporation v. Yulo, G.R. No. 160924, August 5, 2015).
4. Preemptive right
1. Done.
5. Right to vote
1. Done.
6. Right of first refusal
1. Right of First Refusal - Obligates a stockholder who may wish to sell
or assign his shares to first offer the shares to the corporation or to
the other existing stockholders under terms and conditions which are
reasonable.
1. Only when the corporation or the other stockholders do not or fail
to exercise their option, is the offering stockholder at liberty to
dispose of his shares to third parties.
2. An agreement entered into between the two majority stockholders of a
corporation, whereby they mutually agreed not to sell, transfer, or
otherwise dispose of any part of their shareholdings till after one year
from the date of the agreement is valid. (Lambert v. Fox, 1914)
3. Nature of the Right of First Refusal
1. The right of first refusal is primarily an attribute of ownership, and
consequently can be effected only through a contractual
commitment by the owner of the shares.
2. Consequently, the waiver of a right of first refusal when duly
constituted can be effected only by the registered owner. (PCGG
v. SEC, 1988)
4. Remedial rights
1. Individual suit
1. It is an action brought by the shareholder in his own name against the
corporation, when a wrong is directly inflicted against him. The cause
of action pertains to him and the action is meant directly to protect his
interest.
2. Examples are denial of the right to inspection, or denial of dividends,
or denial of the right to vote. (Villamor v Umale, 2014, Leonen)
2. Representative suit
1. This is an action brought by the stockholder in his own name and in
behalf of all other stockholders similarly situated, when a wrong is
committed against a group of stockholders.
3. Derivative suit
1. A derivative suit is an action brought by minority shareholders in the
name of the corporation to redress wrongs committed against the
corporation, for which the directors refuse to sue. (Western Institute
of Technology v Salas, 1997) In derivative suits, the real party in
interest is the corporation, and the suing stockholder is a mere
nominal party. (Villamor v Umale, 2014, Leonen)
2. Requisites of Derivative Suit: (SECANN)
1. The party bringing the suit should be a Shareholder as of the
time of the act or transaction complained of
2. The party has tried to Exhaust intra-corporate remedies, i.e., he
has made a demand on the board for the appropriate relief and
the board failed or refused to heed his plea
3. The Cause of action actually devolves on the Corporation, the
wrongdoing or harm having been, or being caused to the
corporation and not to the particular stockholder bringing the suit.
4. No Appraisal right is available for the act/s complained of;
5. The stockholder or member must bring an action in the Name of
the corporation, and not in his own name; and
6. The suit is not a Nuisance or harassment suit. (Ching v Subic Bay
Golf and Country Club, 2014; Villamor v Umale, 2014, Leonen)
3. Not only is the corporation an indispensable party, but it is also the
present rule that it must be served with process. (Villamor v Umale,
2014, Leonen)
4. A violation of Sections 23 and 25 of the Corporation Code — on how
decision-making is vested in the board of directors and on the board’s
quorum requirement — implies that a decision was wrongly made for
the entire corporation, not just with respect to a handful of
stockholders. (Florete v Florete, 2016, Leonen)
5. In Villamor v Umale, 2014, Leonen, the suit should have been
derivative. However, the petitioner filed an individual suit because:
1. the petitioner failed to specifically allege that he exhausted all the
intra-corporate remedies, as stated in the bylaws and/or articles,
2. the petitioner failed to specifically allege that there is no appraisal
right available, and
3. the action was not in his name and not in the name of the
corporation
4. The alleged cause of action belonged to the corporation, and not
personal to him.
6. Effect of filing an individual suit for a wrong committed against the
corporation.
1. Corporations have a personality that is separate and distinct
from their stockholders and directors. A wrong to the corporation
does not necessarily create an individual cause of action.
(Villamor v Umale, 2014, Leonen)
2. For this reason, respondent Balmores is not entitled to the
reliefs sought in the complaint. Only the corporation, or
arguably the stockholders as a group, is entitled to these reliefs,
which should have been sought in a proper derivative suit filed on
behalf of the corporation. (Villamor v Umale, 2014, Leonen)
3. Hence, for a derivative suit to prosper, it is required that the
minority stockholder suing for and on behalf of the corporation
must allege in his complaint that he is suing on a derivative
cause of action on behalf of the corporation and all other
stockholders similarly situated who may wish to join him in the
suit.
4. Although in most every case of wrong to the corporation, each
stockholder is necessarily affected because the value of his
interest therein would be impaired, this fact of itself is not
sufficient to give him an individual cause of action since the
corporation is a person distinct and separate from him.
5. The real party-in-interest is the corporation, not the stockholders
filing the suit. The stockholders are technically nominal parties
but are nonetheless the active persons who pursue the action for
and on behalf of the corporation. (Florete v Florete, 2016, Leonen)
7. Exhaustion of intra-corporate remedies; exception (Against whom the
suit was filed)
1. As a rule:
1. It is also required that the stockholder “should have exerted
all reasonable efforts to exhaust all remedies available under
the articles of incorporation, by-laws, laws or rules governing
the corporation or partnership to obtain the relief he desires.
(Forest Hills Golf v Fil-Estate Properties, 2016)
2. As exception: (The derivative suit is against the person who
has complete control of the corporation)
1. While the complaining stockholder must satisfactorily show
that he has exhausted all means to redress his grievances
within the corporation, such remedy is no longer necessary
where the corporation itself is under the COMPLETE
CONTROL of the person AGAINST WHOM the suit is being
filed. The reason is obvious: a demand upon the board to
institute an action and prosecute the same effectively would
 have been useless. (Hi-Yield Realty v CA, 2009)
3. However, the Court held that exhaustion of intra-corporate
remedies cannot be dispensed with even if the company is a
family corporation. There is nothing in the pertinent laws or rules
supporting the distinction between family corporations and other
corporations. (Yu v Yukayguan, 2009)
8. Failure to specifically allege the fraudulent acts in intra-corporate
controversies is indicative of a nuisance or harassment suit and may
be dismissed motu proprio.
1. This is because fraud in intra-corporate controversies must be
based on “devises and schemes employed by, or any act of, the
board of directors, business associates, officers or partners,
amounting to fraud or misrepresentation which may be
detrimental to the interest of the public and/or of the
stockholders, partners, or members of any corporation,
partnership, or association. (Guy v Guy, 2012)
9. Mutually exclusive
1. The avenues for relief are mutually exclusive. The determination of
the appropriate remedy hinges on the wrong done. When the
object is a specific stockholder or a class of stockholders, the
appropriate suit is an individual suit or representative suit. When
the object of the wrong done is the corporation itself or the whole
body of its stock and property without severance or distribution
among individual holders, it is a derivative suit that a stockholder
must resort to. (Florete Jr v Florete, 2016, Leonen)
5. Obligations of a stockholder
1. Liability for unpaid subscription;
2. Liability for interest on unpaid subscription if required by the by-laws;
3. Liability for watered stocks;
4. Liability for dividends unlawfully paid; and
5. Liability for assuming to act as a corporation knowing it to be without
authority.
1. Discussed already or will be discussed later.
6. Meetings of stockholders
1. Regular or special
1. Requirements for the validity of a stockholders’ or members’
meeting: (DNPPQV)
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 or members of record
3. It must be called by the Proper party
4. It must be held at a Proper place
 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 the corporation or parties
concerned. (Lim v Moldex Land, 2017)
2. Notice of meetings
1. No need to file the notice nor make a service of the same
1. The provisions only require the sending/mailing of the notice of a
stockholders' meeting to the stockholders of the corporation.
Sending/mailing is different from filing or service under the Rules
of Court. Had the lawmakers intended to include the stockholder's
receipt of the notice, they would have clearly reflected such
requirement in the law. Absent that requirement, the word "send"
should be understood in its plain meaning. (Guy v Guy, 2016)
2. Respondents do not dispute that Article VIII(3) of the PSI’s bylaws
fixed the annual meeting of stockholders on the third Friday of
March of every year. This Court takes judicial notice that March
15, 2002 was the third Friday of March 2002. Furthermore, the
agenda for the meeting, which includes the elections of the new
board of directors and ratification of acts of the incumbent board
of directors and management, was the standard order of business
in a regular annual meeting of stockholders of a corporation.
1. Thus, this Court holds that the March 15, 2002 annual
stockholders’ meeting was a regular meeting. Hence, the
requirement to state the object and purpose in case of a special
meeting as provided for in Article VIII(5) of the PSI’s bylaws does
not apply to the Notice for the March 15, 2002 annual
stockholders’ meeting.
3. By its express terms, the Corporation Code allows “the
shortening (or lengthening) of the period within which to send the
notice to call a special (or regular) meeting.”
1. In this case, the PSI’s bylaws providing only for a five (5)-day prior
notice must prevail over the two (2)-week notice under the
Corporation Code. By its express terms, the Corporation Code
allows “the shortening (or lengthening) of the period within which
to send the notice to call a special (or regular) meeting.” Thus, the
mailing of the Notice to respondents on March 5, 2002 calling for
the annual stockholders’ meeting to be held on March 15, 2002 is
not irregular, since it complies with what was stated in PSI’s
bylaws. Lao vs. Yao Bio Lim, 836 SCRA 341, G.R. No. 201306
August 9, 2017, Leonen
3. Place and time of meetings
1. Proper place of meeting for stock or nonstock corporation
 1. Stock - the rule is in the principal office
1. Exception:
1. If not practicable, within the city/municipality of the
principal office
1. Any city Metro Manila/Cebu/Davao is considered as
city/municipality. (Sec. 50)
1. NOTE: This Metro Manila etc. feature is only
applicable as an exception. The rule is always
ONLY in the principal office.
2. Nonstock - the rule is it can be outside the principal office, as
long as it is within the Philippines (akin to meetings of the board)
4. Quorum
1. Determination of existence of quorum
1. For stockholders and members
1. In regular meetings
1. Unless otherwise provided in this Code or in the bylaws, a
quorum shall consist of the stockholders representing a
majority of the outstanding capital stock or a majority of
the members in the case of nonstock corporations.
2. NOTE: For stock corporations, both voting and nonvoting
shares must be considered.
1. Why? Because in a regular meeting, matters requiring
the vote of non-voting shares can be put in agenda.
2. In special meetings
1. NOTE: It depends on the agenda of the meeting.
1. If the matter to be discussed requires the votes of
nonvoting shares, then nonvoting shares must be
considered for purposes of quorum.
2. If it does not require the votes of nonvoting shares,
then only voting shares must be considered for
purposes of quorum.
1. An example would be amendment of articles of
incorporation versus mere perfection of a contact
of sale of merchandise.
2. For board of directors and trustees
1. 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
2. Exception: In 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. Hence, quorum constitutes the attendance of
all the directors or trustees.
 2. QUESTION: Should we include the disputed shares in the
determination of quorum?
1. Yes.
2. For stock corporations, the quorum is based on the number of
outstanding voting stocks.
3. The distinction of undisputed or disputed shares of stocks is
not provided for in the law or the jurisprudence.
4. Ubi lex non distinguit nee nos distinguere debemus -when the law
does not distinguish we should not distinguish.
1. In the case, the 200,000 outstanding capital stocks of Phil-
Ville should be the basis for determining the presence of a
quorum, without any distinction.
2. This is despite the exceptional nature of the case since the
3,140 shares of the late Geronima and the fractional .67, .67,
and .66 shares of Eumir Que Camara; Paolo Que Camara and
Abimar Que Camara are the subject of another dispute filed
before the RTC. Thus, excluding the 3,142 shares from the
200,000 outstanding capital stock, the proper basis of
determining the presence of quorum should be 196,858
shares of stocks.(Villongco v Yabut, 2018)
3. QUESTION: Should we include the shares of deceased stockholders
in stock corporations?
1. Yes.
2. Executors, administrators, receivers, and other legal
representatives duly appointed by the court may attend and vote
on behalf of the stockholders or members without need of any
written proxy. (Sec. 54)
3. In stock corporations, shareholders may generally transfer their
shares. Thus, on the death of a shareholder, the executor or
administrator duly appointed by the Court is vested with the legal
title to the stock and entitled to vote it. Until a settlement and
division of the estate is effected, the stocks of the decedent are
held by the administrator or executor. (Lopez Realty v Tanjangco)
4. QUESTION: How about nonstock corporations?
1. No.
2. Membership in a nonstock corporation and all rights arising
therefrom are personal and nontransferable. (Sec. 89)
3. Hence, membership ceases at the time of death.
5. Minutes and agenda of meetings
1. Any petitioning stockholder or member upon order of the SEC when
there is no person authorized to call a meeting OR if the authorized
person refuses to call a meeting. The petitioning stockholder or
member shall preside until at least a majority of the stockholders/
 1.

members present have chosen from among themselves, a presiding

officer. (Sec. 49)

Board of directors and trustees

1. Repository of corporate powers; Doctrine of Centralized Management
1. It means the board is the seat of corporate powers.
2. General Rule:
1. Unless otherwise provided in this Code, the board shall: (CBP)
1. Exercise the corporate powers;
2. Conduct all business; and
3. Control all properties of the corporation. (Sec. 22)
3. Exceptions:
1. Management contract
1. Already discussed.
2. Management committee
3. Close corporations
1. More on these later.
2. Tenure, qualifications and disqualifications of directors (Sec. 22 and 26)
1. A director who ceases to own at least one (1) share of stock or a trustee
who ceases to be a member of the corporation shall cease to be such.
(Sec. 22)
1. Hence, a director must own at least 1 share of stock/member of the
corporation.
2. The representative of the majority stockholder in the board must also
be a stockholder (even for 1 share).
3. If it is not a stockholder/member, the representative cannot become a
director/trustee.
1. Illustration:
1. The facts of this case show that the petitioners, by virtue of
the voting trust agreement executed in 1981 disposed of all
their shares through assignment and delivery in favor of the
DBP, as trustee. Consequently, the petitioners ceased to own
at least one share standing in their names on the books of
ALFA as required under Section 23 of the new Corporation
Code. They also ceased to have anything to do with the
management of the enterprise. The petitioners ceased to be
directors. Hence, the transfer of the petitioners' shares to the
DBP created vacancies in their respective positions as
directors of ALFA. (Lee v CA, 1992)
3. Requirement of independent directors (Sec. 22)
1. “Independent of management and free from any business or other
 1.
relationship”
1. Free from business relationship
2. Not lender/creditor of the corporation
3. Not consultant of the corporation
4. Elections (Sec. 23)
1. Cumulative
2. Quorum
1. Already discussed.
2. For a corporate act of the Philippine Postal Corporation to be
valid, it must have the vote of at least a majority of the members
in a meeting where there is a quorum.
1. Ideally, there would have been minutes taken after the conduct of
the board meeting. In its absence, as in this case, the transcript
may be resorted to in order to determine the Board of Directors’
action on a particular measure. For a corporate act of the
Philippine Postal Corporation to be valid, it must have the vote of
at least a majority of the members in a meeting where there is a
quorum. In this instance, six (6) out of seven (7) members were
present during the April 29, 2004 Special Board Meeting.
However, the Board of Directors never actually took a vote on
whether or not it should renew its contract with Aboitiz One for
the outsourcing of its mail deliveries.
2. A “no comment” from two (2) of the directors present cannot be
considered as a unanimous approval. One (1) of the directors even
required the presentation of the draft contract before its approval.
There was also no board resolution issued after approving it. As
there was no majority vote or a board resolution, respondent was
not authorized to enter into the contract dated May 7, 2004. A
contract entered into by corporate officers who exceed their
authority generally does not bind the corporation except when the
contract is ratified by the Board of Director. Office of the
Ombudsman vs. De Guzman, 841 SCRA 616, G.R. No. 197886
October 4, 2017, Leonen
3. Illustration of election of directors/trustees
1. To illustrate, according to the bylaws, the representative of Grace
Christian High School shall have a permanent seat in the board.
2. There is no reason at all for its representative to be given a seat in the
board. The board of directors of corporations must be elected from
among the stockholders or members.
3. Since the provision in question is contrary to law, the fact that for
fifteen years it has not been questioned or challenged but, on the
contrary, appears to have been implemented by the members of the
association cannot forestall a later challenge to its validity. Neither can
 3.

it attain validity through acquiescence because, if it is contrary to law,

it is beyond the power of the members of the association to waive its
invalidity. For that matter the members of the association may have
formally adopted the provision in question, but their action would be
of no avail because no provision of the by-laws can be adopted if it is
contrary to law. (Grace Christian High School v CA, 1997)
5. Corporate officers (Sec. 24)
1. The clear weight of jurisprudence clarifies that to be considered a
corporate officer:
1. first, the office must be created by the AOI/BY-LAWS of the
corporation, and
2. second, the officer must be ELECTED by the board of directors or
by the stockholders. (Malcaba v ProHealth Pharma Philippines, 2018,
Leonen)
2. It may be clearly gleaned from the explicit provisions of the Code that a
president must necessarily be a director; otherwise, he cannot be
elected for such position. Thus, in a case, Jaminola, being a non-
member, could not be elected as a director. Consequently, his election
as president was null and void. (Lim vs. Moldex Land, Inc., G.R. No.
206038, January 25, 2017, Leonen)
1. In short, a president must be a director, and a director must be a
shareholder/member. Since he is not a member/shareholder, he
cannot be a President.
6. Removal (Sec. 27)
1. 2/3 vote stockholders
2. No removal of directors/trustees without cause shall deprive the minority
stockholders of their right to representation, as provided under Sec. 23.
3. Here, 1 share is 1 vote. There is no more cumulative voting.
7. Filing of vacancies (Sec. 28)
1. Grounds:
1. Removal
2. Expiration of term
3. No more quorum from the remaining directors/trustees (whatever the
ground for vacancy may be)
4. Increase in the number of directors/trustees
1. The vacancy must be filled by the stockholders/members, not the
board.
2. Emergency board; Requisites (Corporate officer; Unanimous vote)
1. Vacancy prevents the remaining directors from constituting a quorum
2. Emergency action is required to prevent (GSI) loss or damage
3. Vacancy may be TEMPORARILY filled
4. From among the OFFICERS of the corporations
5. By UNANIMOUS VOTE of the remaining directors/trustees.
 1. Action is limited to the emergency action necessary
2. Term shall cease a) within a reasonable time from termination of
emergency OR b) upon election of replacement director,
whichever comes earlier. (Art. 28)
8. Compensation (Sec. 29)
9. Centralized management rule
1. General Rule:
1. Exercise of corporate powers
2. Conduct of business
3. Control of assets and properties
1. Vested with the board of directors.
2. Exceptions:
1. In case an executive or special committees is duly authorized in the
by-laws (Sec. 34, RCC);
2. In case of a contracted manager which may be an individual, a
partnership or another corporation; and
3. In case of close corporations, the stockholders may directly manage
the business of the corporation if the articles of incorporation so
provide.
10. Business judgment rule
1. The questions of policy or management are left solely to the honest
decision of officers and directors of a corporation and the courts are
without authority to substitute their judgment for the judgment of the
board of directors; the board is the business manager of the corporation
and so long as it acts in GOOD FAITH, its orders are not reviewable by the
courts or the SEC. (Saber v CA, 2004)
2. Hence, the Court cannot reverse the acts of the board/officers. Further,
the board/officers cannot be held personally liable for the transactions it
entered in behalf of the corporation.
1. The exceptions to the business judgment rule are Sec. 33 (disloyalty)
and Sec. 30 (personal liabilities).
11. Disloyalty (Sec. 33); Doctrine of Corporate Opportunity (4 clauses)
1. Where a director, by virtue of such office, acquires a business opportunity
2. which should belong to the corporation,
3. thereby obtaining profits to the prejudice of such corporation,
4. the director must account for and refund to the latter all such profits,
unless
1. the act has been ratified by a vote of the stockholders owning or
representing at least two-thirds (2/3) of the outstanding capital stock.
2. This provision shall be applicable, notwithstanding the fact that the
director risked one's own funds in the venture. (Sec. 33)
12. Personal liabilities (Sec. 30)
1. The director or trustee who: (ABC-WAL)
 1. willfully or knowingly voted for or assented to a patently unlawful
corporate act;
2. is guilty of gross negligence or bad faith in directing corporate
affairs;
3. acquired personal or pecuniary interest in conflict with his duties as
a director; (Sec. 30)
2. Meaning of “patently unlawful corporate act”
1. For a wrongdoing to make a director personally liable for debts of the
corporation, the wrongdoing approved or assented to by the director
must be a patently unlawful act. Mere failure to comply with the
notice requirement of labor laws on company closure or dismissal of
employees does not amount to a patently unlawful act. Patently
unlawful acts are those declared unlawful by law which imposes
penalties for commission of such unlawful acts. There must be a law
declaring the act unlawful and penalizing the act. (Carag vs. National
Labor Relations Commission, G.R. No. 147590, April 2, 2007)
13. Solidary liabilities for damages (ABC-WAL)
1. The above mentioned grounds in Sec. 30.
2. consented to the issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate secretary his written
objection thereto; (Sec. 64)
3. contractually agreed or stipulated to hold himself personally and
solidarily liable with the corporation; and
4. is made by specific provision of law, personally liable to the corporate
act. (Lanuza v BF Corporation, 2014, Leonen)
1. QUESTION:
1. X subscribed and paid for P10,000.00 worth of shares of stock of
Rainbow Mines Equipment, Inc. (RMEI) as an incorporator and
original subscriber. He was employed as a Chief of the
Engineering Section in charge of overseeing the maintenance and
improvement of RMEI’s equipment. As such, he designed certain
modifications in RMEI’s equipment which it would rent out to third
persons. However, due to some technical error in his designs, the
third persons who leased the equipment suffered damages which
were brought against RMEI. The Board accused X of infidelity and
breach of trust and confiscated his shares claiming that he was
solidarily liable for the damages charged against RMEI. Is the
action of the Board legal?
1. No, such action of the Board is not legal. For an officer to be
made liable under Section 30 of the Revised Corporation
Code, he must have:
1. Voted or assented to a patently unlawful act of the
corporation;
 2. Be guilty of gross negligence or bad faith in directing the
affairs of the corporation; or
3. Acquired any personal or pecuniary interest in conflict
with his duty.
2. Nowhere does it appear that there was gross negligence on
the part of X in the performance of his duties. Mere technical
error will not make the officer liable. In any case, even if there
was gross negligence, the corporation cannot take the law in
its own hands and confiscate the shares of X without due
process. The corporation must file the appropriate action
before the RTC since the claim against X is the subject matter
of an intra-corporate dispute.
14. Responsibility of crimes
1. The corporation itself cannot be arrested and imprisoned; thus, it cannot
be penalized for a crime punishable by imprisonment. The criminal action
is limited to corporate agents guilty of the act amounting to crime.
(Time Inc. v Reyes, 1971)
2. If a crime is committed, the responsible officers shall be criminally liable.
1. As clearly enunciated in Ty vs. NBI Supervising Agent De Jemil, 638
SCRA 671 (2010), a member of the Board of Directors of a
corporation, cannot, by mere reason of such membership, be held
liable for the corporation’s probable violation of B.P. Blg. 33. If one is
not the President, General Manager or Managing Partner, it is
imperative that it first be shown that he/she falls under the catch-all
“such other officer charged with the management of the business
affairs,” before he/ she can be prosecuted. (Federated LPG Dealers
Association vs. Del Rosario, G.R. No. 202639, November 9, 2016)
2. Mere membership in the Board or being the President per se does not
mean knowledge, approval, and participation in the act alleged as
criminal. There must be a showing of active participation, not
simply a constructive one. (ABS-CBN Corporation vs. Gozon, G.R.
No. 195956, March 11, 2015)
3. However, a corporation may be charged and prosecuted for a crime if the
imposable penalty is a fine. (Ching v. Secretary of Justice, ̧ 2006)
1. NOTE: Sec. 170 of the RCC provides that for violations of the Code, if
it is committed by a corporation, the same may, after notice and
hearing, be dissolved in appropriate proceedings before the
Commission.
15. Special fact doctrine
1. General Rule:
1. (Majority view) Directors only owe their duty to the corporation. They
owe no fiduciary duty to stockholders, and they may deal with each
other at fair and reasonable terms, as if they were unrelated. Hence,
 1.

there is no duty to disclose to the stockholder facts known to the

director or officer. [Taylor v. Wright, 53 N.Y.S. 423 (1945)]
2. Minority View (Realistic View) recognizes the directors’ obligation to
the stockholders individually as well as collectively, and refuses to
permit him to profit at the latter’s expense by the use of information
obtained as a result of official position and duties.
1. COMMENT: In short, director + duty to disclose facts +
stockholder.
2. Exception to Special Facts Doctrine:
1. Conceding the absence of a fiduciary relationship in the ordinary case,
where special circumstances or facts are present which make it
inequitable for the director to withhold information from the
stockholder, courts nevertheless hold that the duty to disclose arises
and concealment is fraud.
1. COMMENT: Special facts + inequitable to withhold + hence, duty
to disclose + concealment is fraud
3. Examples:
1. Concealment of the defendant-purchaser's identity (the corporate
officer had used an agent to avoid detection of his actions by the
seller here);
2. Failure to disclose significant facts that materially affected the price of
the stock. [Strong v. Repide, 213 U.S. 419 (1909)] Example is the
board decided to do a stock split, which will dilute the share prices.
However, before such issuance is made known to the stockholders,
the director sold his shares to a stockholder at current market price.
16. Inside information
1. Discussed in SRC.
17. Contracts (Sec. 31-32)
1. By self-dealing directors with the corporation
1. General Rule:
1. Contracts with directors/officers/spouses/members by
consanguinity or affinity within the 4th degree are VOIDABLE
2. Exception:
1. Directors of corporations - (quorum; approval; fair and
reasonable)
2. Directors of corporations vested with public interest - (2/3 of the
entire board; majority vote of independent; fair and reasonable)
3. Officers - (previously authorized by the board; fair and
reasonable)
3. Exception to the exception: In case of contracts with directors/
trustees, where any of the first 3 conditions is ABSENT
1. Such contract can still be ratified by 2/3 vote of the stockholders
+ Full disclosure of adverse interest + Fair and reasonable
2. Between corporations with interlocking directors
1. General Rule:
1. A contract between two corporations with interlocking directors
shall NOT be invalidated on that ground alone, provided it is fair
and reasonable.
2. Exceptions:
1. Except in cases of fraud
2. When the interest of an interlocking director in one corporation is
substantial and nominal in the other, the contract shall be subject
to the provisions of Sec. 31 insofar as the latter corporation is
concerned.
1. “Substantial” - if the stockholdings exceed 20%.
3. QUESTION:
1. Pedro and his two daughters own a total of 70% of the subscribed
capital stock of a close family corporation which owns an office
building. Tomas and Juan, the respective husbands of Pedro’s
daughters own the rest of the shares. Tomas, the corporate secretary,
also owns majority shares in a security agency, a janitorial company,
and a catering business. By Tomas’ suggestion and referral, the office
building company engaged the service companies to render their
services at reasonable fees. Assuming that Tomas was not present in
any of the board meetings that approved the service contracts, are
the service contracts valid?
1. Yes, the service contracts are valid. Under Section 32 of the
Revised Corporation Code, the mere fact that a contract is
executed between corporations with interlocking directors will not
make said contracts invalid except when:
1. There is a clear case of fraud; or
2. The contract is not fair and reasonable under the
circumstances (REVISED CORPORATION CODE, Sec. 32, par.
1)
2. However, where the interest of the interlocking directors in one
corporation is substantial while his interest in the other is nominal
—that is, less than 20% of the outstanding capital stock—the
contract shall be subject to the provisions of Section 31 of the
Revised Corporation Code with respect to the corporation where
the interlocking director has nominal holding. Thus, unless the
following conditions are present, the said contract is voidable, at
the option of such corporation, unless all the following conditions
are present:
1. The presence of the interlocking director in the board meeting
approving the contract was not necessary to constitute a
quorum;
 2. His vote was not necessary to approve the contract;
3. The contract is fair and reasonable under the circumstances;
4. In case of corporations vested with public interest, material
contracts are approved by at least two-thirds (2/3) of the
entire membership of the board, with at least a majority of the
independent directorsvoting to approve the material contract;
and
5. In case of an officer, the contract has been previously
authorized by the board of directors (REVISEDCORPORATION
CODE, Sec. 31).
3. According to the facts, Tomas owns a nominal interest of 15% in
the office building company and is a majority shareholder in the
service companies. However, his presence in the board meetings
that approved the service contracts did not seem to be necessary
to constitute their quorums. Nor was his vote necessary to
approve the contracts. Thus, ratification by the stockholders of
the office building company is not required to validate the
contracts. Furthermore, there is no allegation of fraud and the
contracts seem to be fair and reasonable under the
circumstances. Therefore, the contracts are valid.
18. Executive and other special committees (Sec. 34)
1. Creation
1. The by-laws may provided for the creation of a management
committee composed of at least 3 directors/trustees.
2. It may act, by majority vote of all its members, on such specific
matters within the competence of the board, as may be delegated to it
in the by-laws or on a majority vote of the board.
2. Limitation of powers
1. Approval of stockholders
2. By-laws
3. Vacancies in the board
4. Cash dividends distribution
5. Resolution of the board which is not amendable
3. What about other committees?
1. The board has the power to create positions not provided for in the
by-laws since the board is the corporation’s governing body. (Filipinas
Port Services Inc. v. Go, 2007)
2. Hence, the board can also create other special committees, without
the need of amending the by-laws.
19. Meetings of the board of directors or trustees (Sec. 52)
1. Regular or special
1. When and where
2. Notice
 3. Attendance in meetings
1. The Court ruled that the signing of the minutes by all the directors
is not a requisite and that the lack of signatures on the minutes
does not mean that the resolution was not passed by the board.
2. The signing of the minutes by all the members of the board is not
required. There is no provision in the Corporation Code of the
Philippines that requires that the minutes of the meeting should
be signed by all the members of the board. (Lopez Realty v Sps.
Tanjangco, 2014)
2. Who presides
3. Quorum
4. Mandatory refusal
1. A director or trustee who has a potential interest in any related
party transaction must refuse from voting on the approval of the
related party transaction without prejudice to compliance with the
requirements of Section 31 of this Code. (Sec. 52)
1. Sec. 31 is dealing with directors/trustees/officers of corporation
5. Rule on abstention
1. No inference can be drawn in a vote of abstention.
2. When a director or trustee abstains, it cannot be said that he intended
to acquiesce in the action taken by those who voted affirmatively.
3. Neither, for that matter, can such inference be drawn from the
abstention that he was abstaining because he was not then ready to
make a decision. [Lopez v. Ercita, G.R. No. L-32991 (1972)]
20. Capital affairs
1. Certificate of stock
1. Nature of the certificate (Sec. 62)
1. A share is a personal property, and can be transferred by delivery.
2. The certificate is the instrument that constitutes the best
evidence of the rights and status of shareholder
3. A certificate of stock is NOT:
1. A condition precedent to the acquisition of of the rights and
status of a shareholder
2. A stock in the corporation
3. The equivalent of ownership of the share it represents
4. Essential to the existence of a share of stock or the nature of
the relation of shareholder to the corporation. (Makati Sports
Club v. Cheng, 2010)
2. Uncertificated shares
1. “Uncertificated shares or securities” are those evidenced by
ELECTRONIC or similar means.
1. Hence, it is a subscription duly recorded in the corporate
books, but has no certificate of stock yet issued.
 2. The Commission may require corporations whose securities are
traded in trading markets and, which can reasonably
demonstrate their capability to do so, to issue their securities or
shares of stocks in uncertificated or scripless form in accordance
with the rules of the Commission. (Sec. 62)
3. Transfers of securities, how made
1. Valid as between parties
1. Validly made and consummated by appropriate book-
entries in the securities intermediaries, or in the stock and
transfer book held by the corporation or the stock transfer
agent.
2. A transfer made pursuant to the foregoing has the effect
of delivery of a security in bearer form or duly indorsed in
blank representing the amount of security or right
transferred, including the unrestricted negotiability of that
security by reason of such delivery.
2. Valid as to corporation
1. When the transfer is recorded in the books of the
corporation so as to show the names of the parties to the
transfer and the number of shares transferred (Sec. 43.3,
Securities Regulation Code).
3. Negotiability; Requirements for valid transfer of stocks
1. Theory of quasi-negotiability
1. It is well-settled that the certificate of stock is NON-
NEGOTIABLE.
1. Why? Because the holder takes it without prejudice to the
rights or defenses of the registered owner.
1. Hence, a transferee under a forged assignment
acquires NO title
2. Further, if the owner of the certificate has endorsed it
in blank, and it was stolen from him, NO title was
acquired by an innocent purchaser for value. (De Los
Santos v Republic, 1955)
2. However, once the stock certificate becomes a street
certificate, i.e., when the stock certificate is endorsed in
blank, it becomes quasi-negotiable. (Santamaria v HSBC,
1951)
2. Valid transfer of stocks; Requirements (DIR)
1. Delivery of stock certificate
2. Certificate must be indorsed by the owner
3. To be valid against third persons and the corporation, the
transfer must be recorded in the books of the corporation.
1. Hence, an execution of deed of sale does NOT necessarily
 1.
make the transfer effective. There must be an
indorsement, because this is the operative act that
transfers the shares. (Rural Bank of Lipa City v CA, 2001)
2. Remedy of mandamus to issue certificate of stock
1. As a rule:
1. A mandamus should NOT issue to compel the
secretary to make a transfer of the stock on the
books of the corporation.
2. Exception:
1. It appears that the corporation has failed to do
so
2. Upon the demand of either:
1. a person in whose name the stock is
registered OR
2. a person holding an SPA (power of attorney)
for that purpose from the registered owner of
stock.
3. The action to be enforced the right does not accrue until
here has been a demand and a refusal to record the
transfer. (Interport v Securities Specialist, 2016)
4. Further, without an SPA, only the registered owner of the
stock can compel a transfer of stock in the books of the
corporation.
4. QUESTION: Is the surrender of the certificate of stock
required to register the transfer?
1. No.
2. The surrender of the certificate of stocks by the
transferee to the corporation is NOT A REQUISITE
BEFORE REGISTRATION OF THE TRANSFER maybe
made in the corporate books. (Teng v SEC, 2016)
5. QUESTION: When is surrender required?
1. When the transferee seeks the issuance of a new
certificate of stock already. (Teng v SEC, 2016)
4. Transfer of stocks
1. No transfer, however, shall be valid, except as between the
parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the transaction,
the date of the transfer, the number of the certificate or
certificates, and the number of shares transferred.
2. No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the
corporation. (Sec. 62)
3. Illustration:
 1. It must be clarified that Madrid's inheritance of Angela's
shares of stock does not ipso facto afford him the rights
accorded to such majority ownership of FSVCI's shares of
stock. The reason is the transfer must first be registered in
the stock and transfer book.
2. In the case at bar, records reveal that at the time Madrid
called for the November 18, 2009 Meeting, as well as the
actual conduct thereof, he was already the owner of 74.98%
shares of stock of FSVCI as a result of his inheritance of
Angela's 70.82% ownership thereof. However, records are
bereft of any showing that the transfer of Angela's shares of
stock to Madrid had been registered in FSVCFs Stock and
Transfer Book when he made such call and when the
November 18, 2009 Meeting was held.
3. While it may be true that petitioners were named as
shareholders in the General Information Sheet (GIS) submitted
to the SEC, that document alone does not conclusively prove
that they are shareholders of PFSC. The information in the
document will still have to be correlated with the corporate
books of PFSC. As between the General Information Sheet
and the corporate books, it is the latter that is controlling.
4. In light of the foregoing, Madrid could not have made a valid
call of the November 18, 2009 Meeting as his stock ownership
of FSVCI as registered in the Stock and Transfer Book is only
4.16% in view of the nonregistration of Angela's shares of
stock in the FSVCI Stock and Transfer Book in his favor. (F&S
Velasco v Madrid, 2015)
5. Issuance (Sec. 63)
1. Full payment
1. 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 (Sec. 63)
2. Payment pro-rata; Cannot issue the certificate of stock
1. The entire subscription must be paid first before the
certificates of stock can be issued.
2. Partial payments are to be applied pro rata to each share of
stock subscribed.(Nava v Peers Mktg. Corp., (1976)
6. Stock and transfer book
1. Contents (Sec. 73)
2. Who may make valid entries
1. The corporate secretary.
2. If the corporate secretary refuses to comply, mandamus is a
 2.
possible remedy. (Torres Jr v CA, 1997)
3. Stock transfer agent
7. Lost or destroyed certificates (Sec. 72)
8. Situs of the shares of stock
1. General rule:
1. The situs of shares of stock is the country where the
corporation is domiciled [Wells Fargo Bank v. CIR, G.R. No.
L-46720, June 28, 1940].
2. It is not the domicile of the owner of a certificate but the
domicile of the corporation which is decisive [Chua Guan v.
Samahang Magsasaka, Inc., 1935].
3. The residence of the corporation is the place where the
principal office of the corporation is located as stated in its
AOI, even though the corporation has closed its office therein
and relocated to another place [Hyatt Elevators and
Escalators Corp. v. Goldstar Elevator Phils., Inc., G.R. No.
161026, 2005]
2. Exception:
1. In property taxation – the situs of intangible property, such as
shares of stocks, is at the domicile or residence of the owner.
3. Exceptions to the exception:
1. When a nonresident alien has shares of stock in a domestic
corporation, then the situs will be in the Philippines; and
2. For purposes of the estate tax, the gross estate of a resident
decedent, whether citizen or alien, or a citizen decedent,
whether resident or nonresident, includes his intangible
personal property wherever situated [De Leon].
2. Watered stocks (Sec. 64)
1. Definition
1. These are stocks which are issued as fully paid, when it truth, the
consideration received is less than the par or issued value of the
stock.
2. Subsequent increase in the value of the property used in paying
the stock does not do away with the watered stocks, nor cure the
defect in issuance. The existence of watered stocks is determined
at the time of issuance of the stock.
2. Liability of directors for watered stocks
1. The directors/trustees, who consent to the same OR having
knowledge of the same, does not file a written objection with the
corporate secretary, shall be solidarily liable with the stockholder
for:
1. The difference between the consideration received and the
par or issued value.
 3. Trust fund doctrine for liability for watered stocks
1. It is established doctrine that subscription to the capital of a
corporation constitute a fund to which creditors have a right to
look for satisfaction of their claims, and that the assignee in
insolvency can maintain an action upon any unpaid stock
subscription in order to realize assets for the payment of its debts
(Philippine Trust Corp. v. Rivera, 1923)
2. A corporation has no power to release an original subscriber to its
capital stock from the obligation of paying for his shares, without
a valuable consideration for such release
1. As against creditors. a reduction of the capital stock can take
place only in the manner and under the conditions prescribed
by the statute or the charter or the articles of incorporation.
2. Moreover, strict compliance with the statutory regulations is
necessary (Philippine Trust Corp. v. Rivera, 1923)
3. Trust Fund Doctrine for Liability for Watered Stocks
1. Where the corporation issues watered stock and thereby
assumes an ostensible capitalization in excess of its real
assets, the transaction necessarily involves —
1. The misleading of subsequent creditors; and
2. A constructive fraud upon creditors, whether done with
that purpose actually in mind or not
2. Hence, it is held that recovery may be had by a creditor in
such case, even though the corporation itself has no cause of
action against the stockholders.
3. Payment of balance of subscription (Sec. 66)
1. Call by board of directors
2. Notice requirement
1. Where call is necessary, notice must be given to the stockholder
concerned. A call without notice to the subscriber is
practically no call at all.
2. The notice is regarded as a condition precedent to the right of
recovery. It must, therefore, be alleged and proved to maintain an
action for the call. (Lingayen Gulf Electric Power Co., Inc. v.
Baltazar, 1965)
3. The right to notice of call, however, may be waived by the
subscriber. (De Leon)
4. Sale of delinquent shares (Sec. 67)
1. Effect of delinquency
2. Call by resolution of the board of directors
3. Notice of sale
4. Auction sale
5. Alienation of shares
1. Allowable restrictions on the sale of shares
1. General Rule: Free Transferability of Shares Shares of stock so
issued are personal property and may be transferred [Sec. 62].
2. Exception: In CLOSE corporations, restrictions on the right to
transfer shares may be provided in the Articles of Incorporation,
by- laws and certificates [Sec. 97].
2. Sale of partially paid shares
1. No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the corporation.
[Sec. 62]
2. A corporation may refuse to acknowledge and register a sale or
assignment of shares which are not fully paid, and may continue
to hold the original subscriber liable on the payment of the
subscription.
1. However, the above principle in Section 62 cannot be utilized
by the corporation to refuse to recognize ownership over
pledged shares purchased at public auction.
2. The term “unpaid claims” refers to “any unpaid claims arising
from unpaid subscription, and not to any indebtedness which
a subscriber or stockholder may owe the corporation arising
from any other transactions. [China Banking Corp. v. CA, G.R.
No. 117604 (1997)]
3. Sale of a portion of shares not fully paid
1. The SEC has opined on several occasions that a stockholder who
has not paid the full amount of his subscription cannot transfer
part of his subscription in view of the indivisible nature of a
subscription contract.
4. Sale of all of shares not fully paid
1. The SEC has opined that the entire subscription, although not yet
fully paid, may be transferred to a single transferee, who as a
result of the transfer must assume the unpaid balance.
5. Sale of fully paid shares
1. Shares of stock so issued are personal property and may be
transferred by the delivery of the stock certificate or certificates.
(Sec. 62)
6. Requisites of a valid transfer
1. Already discussed.
7. Involuntary dealings
1. Right to Encumber Shares
1. Shares of stock are personal property and the owner has an
inherent right, as incident of ownership to transfer the same
at will, which would include the power to encumber the
shares.
 1. The right of a stockholder to pledge, mortgage or
otherwise encumber his shares is recognized under Sec.
54 of the RCC which regulates the manner of voting on
pledged or mortgaged shares.
2. Restrictions on the Right to Encumber Shares
1. Absolutely prohibits the stockholders from pledging or
mortgaging their shares without the consent of the BOD
1. Invalid.
2. Merely allows the corporation or existing stockholders to
accept the offer within the option period, and thereafter, if
no one accepts the offer, the stockholder is free to pledge or
mortgage his shares in favor of any 3rd party
1. Valid and binding
3. Right to Vote of Secured Creditors and Administrators
1. Already discussed.
4. Attachment, Execution and Other Involuntary Dealings on
Shares
1. Attachments of shares of stock are not included in the term
“transfer” as provided in [Section 62, RCC].
2. Both the Revised Rules of Court and [Revised Corporation
Code] do not require annotation in the corporation’s transfer
books for the attachment of shares to be valid and binding on
the corporation and third parties. [Chemphil Export &
Import Corp. v. CA, 251 SCRA 257 (1995).]
3. A bona fide transfer of shares, not registered in the corporate
books, is not valid as against a subsequent lawful attachment
of said shares, regardless of whether the attaching creditor
had actual notice of said transfer or not. All transfers not so
entered on the books of the corporation are absolutely void;
not because they are without notice or fraudulent in law or
fact, but because they are made so void by statute. [Garcia v.
Jomouad, 323 SCRA 424 (2000).]
5. Bias Against Voluntary Sales
1. By the strict application of Sec. 62 of the Corporation Code, it
covers only the sale, assignment or absolute disposition of
shares of stock.
1. To be valid and binding on third parties, the voluntary
sale, assignment or disposition of shares requires the
essential element of registration in the stock and
transfer book;
2. Otherwise the sale, assignment or disposition is
considered void as to third parties, even when they have
actual notice.
 2. In contrast, when it comes to pledge, mortgage,
encumbrance, attachment or levy of shares, registration
thereof in the stock and transfer book is not essential either
for validity or as a species of notifying third parties.
[Villanueva].
6. Corporate books and records
1. Records to be kept at principal office
2. Right to inspect corporate records
3. Effect of refusal to inspect corporate records
1. Done.

Meeting (Sec. Rescheduled Removal of Removal of

49) election (Sec. director or director or
25) trustee (V1) trustee (V2)
(Sec. 27) (Sec. 27)
When, for any If the rescheduled If there is no
cause, there is no election is not secretary, or the
person authorized held secretary fails to
to call a meeting, call the special
or unjustly refuses meeting to remove
to call a meeting directors or give
notice thereof
The Commission The Commission The stockholder The Commission,
may may may motu proprio or
upon verified
complaint
Upon petition of a Upon the After due notice
stockholder on application of the and hearing
showing of good stockholder/
cause director
After verification
of the unjustified
non-holding of
election
Issue an order Summarily order Call Order
Directing the That an election For the meeting by The removal of a
petition held directly director who was
stockholder to call addressing the elected despite
the meeting stockholders. the
disqualification
The petitioning Notwithstanding
stockholder shall any provision of
preside thereat, the AOI/bylaws to
until at least a the contrary,
majority of the
 disqualification
The petitioning Notwithstanding
stockholder shall any provision of
preside thereat, the AOI/bylaws to
until at least a the contrary,
majority of the
stockholders
present have
chosen
The shares of stock
represented at
such meeting
entitled to vote
shall constitute as
quorum.

Dissolution and liquidation

1. Modes of dissolution
1. Voluntary dissolution
1. Where no creditors are affected
2. Where creditors are affected
3. By shortening of corporate term
4. Withdrawal of dissolution
2. Involuntary dissolution
2. Methods of liquidation
1. By the corporation itself
2. Conveyance to a trustee within a three-year period
1. The trustee of a dissolved corporation may commence a suit which
can proceed to final judgment even beyond the 3-year period of
liquidation. [Reburiano v. CA, G.R. No. 102965 (1999)].
2. Unless the trusteeship is limited in its duration by the deed of trust,
there is no time limit within which the trustee must finish liquidation
[Board of Liquidators v Kalaw, G.R. No. L-18805 (1967)].
3. By management committee or rehabilitation receiver
1. In SEC’s judgment dissolving the corporation and directing disposition
of its assets as justice requires, it may appoint a receiver to collect
such assets and pay the debts of the corporation. (Sec. 135)
2. Receivership v Trusteeship
1. Trusteeship is a contractual relationship that can be created by a
corporation through its Board of Directors. Receivership is created
by judicial appointment of a rehabilitation receiver and/or
management committee.
2. Both involve transfers of legal/naked title from the
corporation to the trustee/receiver/management committee.
From the time the assets of the corporation are transferred to a
trustee or receiver pursuant to liquidation, all such assets are then
 2.

held by and in the name of the trustee or receiver who can lawfully
proceed with liquidation even if the corporation no longer exists,
because he has title to the assets.
3. The trustee in liquidation is accountable under the terms of the
trust agreement. The receiver and management committee
members are deemed officers of the court and must therefore be
accountable to the court by provision of law.
4. Both are not subject to the 3-year period because the
corporation is substituted in either case by the trustee or the
receiver who may sue or be sued even after the expiration of the
3-year period. However, in the case of trusteeship, the trustee
must have been designated within the 3-year period.
4. Liquidation after 3 years
1. The termination of the life of a corporate entity does not by itself
cause the extinction or diminution of the rights and liabilities of
such entity.
1. If the 3-year extended life has expired without a trustee or
receiver having been expressly designated by the corporation,
within that period, the board of directors or trustees may be
permitted to so continue as "trustees" by legal implication.
2. Such designation as “trustees” is for the purpose of completing
the corporate liquidation [Pepsi-Cola Products Philippines, Inc. v.
CA, G.R. No. 145855 (2004)].
3. Further, the creditors of the corporation who were not paid within
the 3-year period may follow the property of the corporation that
may have passed to its stockholders.
2. Right of the corporation to appeal a judgment is not extinguished
by the expiration of the 3-year period.
1. Corporations whose certificate of registration was revoked by the
SEC may still maintain actions in court for the protection of its
rights which includes the right to appeal [Paramount Insurance
Corp. v. A.C. Ordonez Corp., G.R. No. 175109, August 6, 2008].

Other corporations
1. Close corporations
1. Characteristics of a close corporation
1. Family Corporation versus Close Corporation
1. The articles of incorporation of Motorich Sales Corporation does
not contain any provision stating that (1) the number of
stockholders shall not exceed 20, or (2) a preemption of shares is
restricted in favor of any stockholder or of the corporation, or (3)
listing its stocks in any stock exchange or making a public offering
of such stocks is prohibited. From its articles, it is clear that
 Respondent Motorich is not a close corporation. Motorich does
not become one either, just because Spouses Reynaldo and
Nenita Gruenberg owned 99.866% of its subscribed capital stock.
The "[m]ere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation
is not of itself sufficient ground for disregarding the separate
corporate personalities." So, too, a narrow distribution of
ownership does not, by itself, make a close corporation. (San Juan
Structural and Steel Fabricators, CA, 1998)
2. Validity of restrictions on transfer of shares
1. Option Restriction - this restriction provides that the disposition of
shares will be invalid unless the shares are offered first to the
corporation or to the stockholders. This is valid because this is the
one contemplated by law.
2. Consent Restriction - this restriction provides that no disposition of
shares will be made without the consent of the directors. This
restriction is not valid. The law states “restrictions shall not be more
onerous than granting the existing stockholders or the corporation the
option to purchase the shares.”
3. Issuance or transfer of stock in breach of qualifying conditions
1. Requisites to make the stockholder personally liable
1. As can be read in that provision, several requisites must be
present for its applicability, i.e. a) the stockholders must actively
engage in the management or operation of the business, b) the
obligation must be corporate torts, and c) the corporation has
not obtained a reasonably adequate liability insurance. 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 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. (Bustos v Millians Shoe, 2017)
4. When board meeting is unnecessary or improperly held
1. Written consent
2. Knowledge + no prompt objection in writing by director
3. Knowledge + no prompt objection in writing by stockholder
4. Accustomed to take informal actions + express or implied
acquiescence of directors
5. Preemptive right
6. Amendment of articles of incorporation
7. Deadlocks
2. Non-stock corporations
1. Definition
2. Purposes
3. Treatment of profits
4. Plan and distribution of assets upon dissolution
1. Conversion to Stock Corporation; and vice versa
1. From nonstock to stock corporation
1. A nonstock corporation cannot be converted into a stock
corporation by mere amendment of the Articles of
Incorporation. The amendment would be inconsistent with the
nature of a nonstock corporation, because the same will have
the effect of distributing the assets as liquidating dividends to
its members so that the latter can become its shareholders. A
nonstock corporation is defined as a corporation where “no
part of its income is distributable dividends to its members,
trustees, or officers.” (Sec. 86)
2. From stock to nonstock corporation
1. A stock corporation can be converted into a nonstock
corporation by mere amendment of the Articles of
Incorporation. Thereafter, the stockholders lose their
proprietary interest in the business of the corporation and
their contribution to its capital will then be treated as
donations to achieve the corporation’s benevolent purposes.
2. Homeowners’ association
1. Qualification of a Member. - A homeowner as defined under this
Act shall be qualified to be a member of an association: Provided,
however, That a lessee, usufructuary, or legal occupant shall have
the right of a homeowner as set forth under this Act upon
procurement of a written consent or authorization from the owner
of the lot or housing unit. (Sec. 6, Magna Carta for Homeowners
and Homeowners’ Associations) The Court held that if
membership in the association is a condition for the sale, the
buyer is bound to honor the same. As elucidated by the Court:
“Neither are we convinced by PADCOM’s contention that the
automatic membership clause is a violation of its freedom of
association. It could have avoided such membership by not buying
the land from TDC. Nobody forced it to buy the land when it
bought the building with the annotation of the condition or lien on
the Certificate of Title thereof and accepted the Deed. PADCOM
voluntarily agreed to be bound by and respect the condition, and
thus to join the Association. (Padcom Conominium Corp. v Ortigas
Center Association, 2002)
3. Condominium Corporation
1. Title to the common areas, including the land, or the appurtenant
 1.
interests in such areas, may be held by a corporation specially
formed for the purpose (hereinafter known as the "condominium
corporation") 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. (Sec. 2, Condominium Act)
There is no provision in PD 957 that states that an owner-
developer cannot be a member of the corporation. Thus, whether
one becomes an owner of a condominium unit by virtue of sale or
donation is of no moment. He automatically becomes a member of
the condominium corporation. (Lim v Moldex Land, 2017, Leonen)
2. Any transfer or conveyance of a unit or an apartment, office or
store or other space therein, shall include the transfer or
conveyance of the undivided interests in the common areas or, in
a proper case, the membership or shareholdings in the
condominium corporation: Provided, however, That where the
common areas in the condominium project are owned by the
owners of separate units as co-owners thereof, no condominium
unit therein shall be conveyed or transferred to persons other than
Filipino citizens, or corporations at least sixty percent of the
capital stock of which belong to Filipino citizens, except in cases
of hereditary succession. Where the common areas in a
condominium project are held by a corporation, no transfer or
conveyance of a unit shall be valid if the concomitant transfer of
the appurtenant membership or stockholding in the corporation
will cause the alien interest in such corporation to exceed the
limits imposed by existing laws. (Sec. 5, Condominium Act)
3. Educational corporations
4. Religious corporations
1. Corporation sole; nationality
2. Religious societies
5. One person corporations
1. Excepted corporations
2. Capital stock requirement
3. Articles of incorporation and by-laws
4. Corporate name
5. Corporate structure and officers
6. Nominee
7. Minutes and records
8. Liability
9. Conversion of corporation to one person corporation and vice versa
6. Foreign corporations
1. Bases of authority of foreign corporations
 1. Consent
2. Doctrine of "doing business"
2. Necessity of a license to do business
1. Requisites for issuance of a license
2. Resident agent
3. Amendment of license
3. Personality to sue
4. Suability of foreign corporations
5. Instances when unlicensed foreign corporations may be allowed to
sue (isolated transactions)
6. Grounds for revocation of license
1. Which foreign corporations are allowed to sue?
1. Any foreign corporation NOT doing business in the Philippines
may maintain an action in our courts upon any cause of action,
provided that the subject matter and the defendant are within the
jurisdiction of the court.
2. It is not the absence of the prescribed license but "doing
business" in the Philippines without such license which prohibits
the foreign corporation from access to our courts. In other words,
although a foreign corporation is without license to transact
business in the Philippines, it does not follow that It has no
capacity to bring an action. Such license is not necessary if it is
not engaged in business in the Philippines. (Columbia Pictures v
CA, 1996)
2. Tests of Doing Business
1. Continuity Test - any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that
extent the performance of acts or works, or
2. Substance Test - the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain
or of the purpose and object of the business organization.
(Agilent Technologies v Integrated Silicon, 2004; Section 3(d),
FIA)
3. Maintaining office in the Philippines; Doing Business
1. By its own admission, Saudia, while a foreign corporation, has a
Philippine office. Section 3(d) of Republic Act No. 7042, otherwise
known as the Foreign Investments Act of 1991, provides the
following: The phrase “doing business” shall include . . . opening
offices, whether called “liaison” offices or branches; . . . and any
other act or acts that imply a continuity of commercial dealings or
arrangements and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of commercial gain or
 of the purpose and object of the business organization. A plain
application of Section 3(d) of the Foreign Investments Act leads to
no other conclusion than that Saudia is a foreign corporation
doing business in the Philippines. As such, Saudia may be sued in
the Philippines and is subject to the jurisdiction of Philippine
tribunals. Saudi Arabian Airlines (Saudia) vs. Rebesencio, 746
SCRA 140, G.R. No. 198587 January 14, 2015, Leonen
4. Offline Carrier that sells tickets in the Philippines; Doing Business
1. While Section 3(d) above states that "appointing a representative
or distributor domiciled in the Philippines which transacts
business in its own name and for its own account" is not
considered as "doing business," the Implementing Rules and
Regulations of Republic Act No. 7042 clarifies that "doing
business" includes "appointing representatives or distributors,
operating under full control of the foreign corporation,
domiciled in the Philippines or who in any calendar year stay in the
country for a period or periods totaling one hundred eighty (180)
days or more[.]”
2. An offline carrier is "any foreign air carrier not certificated by the
[Civil Aeronautics] Board, but who maintains office or who has
designated or appointed agents or employees in the Philippines,
who sells or offers for sale any air transportation in behalf of said
foreign air carrier and/or others, or negotiate for, or holds itself
out by solicitation, advertisement, or otherwise sells, provides,
furnishes, contracts, or arranges for such transportation."
3. Petitioner is undoubtedly "doing business" or "engaged in trade or
business" in the Philippines. (Air Canada v CIR, 2016, Leonen)
4. NOTE: Even if the ticket sales agent act under its own name and
under its own account, the offline carrier is still deemed doing
business in the Philippines, because the ticket sales agent acts
under the full control of the offline carrier.
5. Foreign Companies entering into Reinsurance contracts abroad;
Not Doing Business
1. The reinsurance treaties between the petitioners and Worldwide
Surety and Insurance were made through an international
insurance broker, and not through any entity or means remotely
connected with the Philippines. Moreover, there is authority to the
effect that a reinsurance company is not doing business in a
certain state merely because the property or lives which are
insured by the original insurer company are located in that state.
The reason for this is that a contract of reinsurance is generally a
separate and distinct arrangement from the original contract of
insurance, whose contracted risk is insured in the reinsurance
 agreement. Hence, the original insured has generally no interest in
the contract of reinsurance. (Avon Insurance PLC v CA, 1997)
1. NOTE: In short, it is not doing business in the Philippines
because 1) the contract was entered into abroad, and 2)
reinsurance contracts are separate and distinct from the
original insurance contracts.
6. Instances when a foreign corporation may sue in the Philippines,
whether or not it is licensed to do business: (RINAE)
1. Reputation, name and goodwill
2. Isolated business transaction. This means a transaction or series
of transactions set apart from the common business of the foreign
corporation in the sense that there is no intention to engage in a
progressive pursuit of the purpose and object of the corporation.
(Eriks Pte., Ltd v CA, 1997)
3. Not arising from business transactions e.g. crime/tort that
occurred in the Philippines
4. Agreed that the Philippines is the venue of the action; and
5. Estoppel or unjust Enrichment (solutio indebiti) from questioning
the capacity of the foreign corporation, because it already
benefited from the contract.
1. Trademark infringement
1. The foreign corporation can sue despite the lack of
license. Suits to protect corporate reputation, name, or
goodwill are allowed.
2. Estoppel or unjust enrichment
1. A foreign corporation doing business in the Philippines
without license may sue in Philippine courts a Filipino
citizen that had contracted with and benefited from it.
(Agilent Singapore v Integrated Silicons 2004) A party is
estopped from challenging the personality of a foreign
corporation, after having acknowledged the same by
entering into a contract with it. The principle is applied to
prevent a person contracting with a foreign corporation,
then later taking advantage of its noncompliance with the
statutes, chiefly in cases where such person have
received benefits of the contract. (Global Business v
SurecompSofware, 2010)
3. Not arising from business transactions (crime/quasi-delict)
1. Further, the crime of unfair competition punishable the
Intellectual Property Code is a public crime. It is
essentially an act against the State and it is the State
which stands as the injured party. Hence, the
complainant’s capacity to sue becomes immaterial. (Sasot
 v People, 2005)
7. Subrogee’s capacity to sue
1. Rights inherited by the subrogee pertain only to the obligations,
not to the capacity.
2. Incapacity of the insured will not affect the capacity of the insurer
exercising the right of subrogation because capacity is PERSONAL
to its holder. It is conferred by law, and not by the parties.
(Lorenzo Shipping v Chubb & Sons, 2004)
1. For legal basis, in merger or consolidation, the surviving/
consolidated corporation shall assume the rights, privileges,
immunities, and franchises of the constituent corporations. It
does not include “capacity” or “incapacity.” (Sec. 79)
8. Subsequent acquisition of license; Cure
1. It must be noted though that the lack of capacity to sue by a
foreign corporation at the time of the execution of contract is
CURED by its subsequent registration here. (Home Insurance v
Eastern Shipping Lines, 1983)

Stock Corporation Non-Stock Corporation

Nature It has capital stock No part of its income is
divided into shares and is distributable as
authorized to distribute dividends to its members
dividends to its during its term of
stockholders. existence.
Right to Vote A class of shares must The right of the members
always have complete of any class or classes to
voting rights. (Sec. 6) vote may be limited,
broadened, or denied to
the extent specified in
the articles of
incorporation or the
bylaws.
Manner of Voting Cumulative voting is Unless allowed by the
available in the election Articles and/or the
of directors bylaws, cumulative voting
is not available
Proxy Stockholders may vote Members may vote by
by proxy. (It cannot be proxy, unless the Articles
deprived) and/or the bylaws
deprive them of such
right. (It can be deprived)
Non-transferability of Stockholders may freely Membership is personal
membership transfer their shares and non-transferrable,
unless allowed in the
Articles and/or the
bylaws
 deprived) and/or the bylaws
deprive them of such
right. (It can be deprived)
Non-transferability of Stockholders may freely Membership is personal
membership transfer their shares and non-transferrable,
unless allowed in the
Articles and/or the
bylaws
Directors/Trustees Directors cannot exceed Trustees can exceed 15
15 in number in number, except in case
of nonstock educational
corporations.
Term of Office The term of a director is Trustees can hold office
one (1) year. for not more than three
(3) years. For nonstock
educational corporations,
it cannot be more than
five (5) years.
Independent directors/ Independent directors Except with respect to
trustees must own at least 1 independent trustees of
share. Otherwise, they nonstock corporations
cease to become vested with public
directors. interest, only a member
of the corporation shall
be elected as a trustee.
(Sec. 91)
Election of Officers Officers are elected by Unless otherwise
the Board of Directors provided in the articles of
incorporation or the
bylaws, the members
may directly elect
officers of a nonstock
corporation.
Place of Meeting Stockholder’s meetings The bylaws may provide
shall be held in the that members of a non-
principal office of the stock corporation may
corporation, or if not hold their meetings at
practicable, anywhere any place within the
within the city or Philippines.
municipality where the
principal office of the
corporation is located.

Open Corporation Close Corporation

Articles of The articles of Its articles must contain
Incorporation incorporation must only those mentioned in
contain those mentioned Section 13, and may also
in Section 13. provide for other matters
mentioned in Section 96.
 Open Corporation Close Corporation
Articles of The articles of Its articles must contain
Incorporation incorporation must only those mentioned in
contain those mentioned Section 13, and may also
in Section 13. provide for other matters
mentioned in Section 96.
Management The business of the The business of the
corporation is managed corporation may be
by the board of directors managed DIRECTLY by
the stockholders, if the
articles of incorporation
so provide. In this case,
they are liable as
directors.
Officers The officers are elected The articles of
by a majority vote of all incorporation may
the directors likewise provide that all
officers or employees or
that specified officers or
employees shall be
elected or appointed by
the stockholders, instead
of by the board of
directors.
Pre-emptive Right Pre-emptive right is Pre-emptive right is
subject to the exceptions available to all shares to
found in Section 38. be issued, and applies to
Further, it does not apply re-issuance of treasury
to resistance of treasury shares, unless it is
shares. denied by the articles of
incorporation
Appraisal Right Appraisal right may be Appraisal right may be
exercised by a exercised by a
stockholder only in the stockholder, for any
cases provided in reason, as long as the
Section 80. Further, corporation has
unrestricted retained sufficient assets in its
earnings must exist. books to cover its debts
and liabilities, exclusive
of capital stock
Unrestricted retained Except as regards In case of deadlock, and
earnings redeemable shares, the the subsequent
purchase by the arbitration by the SEC,
corporation of its own the corporation may be
stock must always be ordered to purchase its
made from the own shares from the
unrestricted retained stockholders, regardless
earnings. of the availability of
unrestricted retained
earnings redeemable shares, the the subsequent
purchase by the arbitration by the SEC,
corporation of its own the corporation may be
stock must always be ordered to purchase its
made from the own shares from the
unrestricted retained stockholders, regardless
earnings. of the availability of
unrestricted retained
earnings. (Sec. 103)
One Person Corporation Ordinary Stock
Corporation
Stockholders Single stockholder Multiple stockholders
Who can be a Only a natural person, A natural person,
stockholder trust, or estate can form corporation, association,
an OPC. or partnership can
become an incorporator.
President The stockholder must be Any director must be the
the sole director and President
President
President and treasurer The stockholder can be The President cannot be
the President and the treasurer
treasurer, provided a
bond is filed
Nominees The stockholder must No need
appoint a nominee and
alternate nominee, who
will sit as the director if
he dies or becomes
incapacitated.
Reportorial requirement The OPC must comply Same. (Sec. 178)
with the reportorial
requirements at least 3
times within 5 years.
Otherwise, the OPC may
be placed under
delinquent status.
Limited liability The single stockholder No need
claiming limited liability
must prove that the OPC
is adequately financed. If
it is shown that the
property of the OPC is
not independent from the
property of the single
stockholder, the latter
shall be jointly and
solidarily liable with the
OPC for its debts and
obligations. The doctrine
 not independent from the
property of the single
stockholder, the latter
shall be jointly and
solidarily liable with the
OPC for its debts and
obligations. The doctrine
of piercing the corporate
veil shall also be
applicable.
Conversion An ordinary stock OPC may be converted
corporation can be into an ordinary stock
converted to OPC if a corporation after due
single stockholder notice to the Commission
acquires all the shares of of such fact/
single stock corporation, circumstance leading to
and he applies for the conversion. (Sec.
conversion into OPC, 132)
subject to the
submission of such
documents that the
Commission may require.
(Sec. 131)
Mere acquisition of stock Same.
does not convert the
corporation. The
approval of the
Commission and the
amendment of the AOI
are needed.
Merger and consolidation
1. Definition and concept
1. Merger – a corporation absorbs the other and remains in existence while
the others are dissolved
2. Consolidation – a new corporation is created, and consolidating
corporations are extinguished. (Sec. 75)
2. Distinguish: constituent and consolidated corporation
1. Constituent Corporations – the parties to a merger or consolidation
2. Consolidated Corporation - The new single corporation created through
consolidation.
3. Surviving Corporation – one of the constituent corporations which
remain in existence after the merger.
3. Plan of merger or consolidation
4. Articles of merger or consolidation
5. Procedure
6. Effectivity
7. Limitations
8. Effects
1. A merger is a consolidation of two or more corporations, which
results in one or more corporations being absorbed into one surviving
corporation. The separate existence of the absorbed corporation
ceases, and the surviving corporation “retains its identity and takes
over the rights, privileges, franchises, properties, claims, liabilities
and obligations of the absorbed corporation(s).”
1. If respondent is a subsidiary of Unocal California, which, in turn, is a
subsidiary of Unocal Corporation, then the merger of Unocal
Corporation with Blue Merger and Chevron does not affect respondent
or any of its employees. Respondent has a separate and distinct
personality from its parent corporation.
2. Although this provision does not explicitly state the merger’s effect on
the employees of the absorbed corporation, Bank of the Philippine
Islands v. BPI Employees Union-Davao Chapter- Federation of Unions
in BPI Unibank, 658 SCRA 828 (2011), has ruled that the surviving
corporation automatically assumes the employment contracts of the
absorbed corporation, such that the absorbed corporation’s
employees become part of the manpower complement of the
surviving corporation.
2. The surviving corporation shall possess all the rights, privileges,
properties, and receivables due of the absorbed corporation.
Moreover, all interests of, belonging to, or due to the absorbed
corporation “shall be taken and deemed to be transferred to and
vested in such surviving or consolidated corporation without further
act or deed.”
1. The surviving corporation likewise acquires all the liabilities and
obligations of the absorbed corporation as if it had itself incurred
these liabilities or obligations. This acquisition of all assets, interests,
and liabilities of the absorbed corporation necessarily includes the
rights and obligations of the absorbed corporation under its
employment contracts. Consequently, the surviving corporation
becomes bound by the employment contracts entered into by the
absorbed corporation. These employment contracts are not
terminated. They subsist unless their termination is allowed by law.
3. The surviving corporation automatically assumes the employment
contracts of the absorbed corporation. The absorbed corporation’s
employees are not impliedly dismissed, but become part of the
manpower complement of the surviving corporation.
1. The merger of Unocal Corporation with Blue Merger and Chevron does
not result in an implied termination of the employment of petitioner’s
members. Assuming respondent is a party to the merger, its
employment contracts are deemed to subsist and continue by “the
 1.

combined operation of the Corporation Code and the Labor Code

under the backdrop of the labor and social justice provisions of the
Constitution.”
4. Although the absorbed employees are retained as employees of the
merged corporation, the employer retains the right to terminate their
employment for a just or authorized cause.
1. Likewise, the employees are not precluded from severing their
employment through resignation or retirement. The freedom to
contract and the prohibition against involuntary servitude is still, thus,
preserved in this sense. This is the manner by which the consent of
the employees is considered by the law.
5. Merger is not one of the circumstances where the employees may
claim separation pay.
1. The only instances where separation pay may be awarded to petitioner
are: (a) reduction in workforce as a result of redundancy; (b)
retrenchment or installation of labor-saving devices; or (c) closure and
cessation of operations. Philippine Geothermal, Inc. Employees
Union vs. Unocal Philippines, Inc. (now known as Chevron
Geothermal Philippines Holdings, Inc.), 804 SCRA 286, G.R. No.
190187 September 28, 2016, Leonen
Merger Consolidation
One or more corporations are Union of 2 or more corporations to
absorbed by another which survives form a new corporation
and continues the combined business
One of the constituent corporations All constituents corporations are
remains as an existing juridical person, distinguished with the emergence of a
whereas the other corporation shall new corporate entity
cease to exist.
The surviving corporation shall The new corporate entity shall obtain
acquire all the assets, rights of action, all the assets of the constituent
and assuming all the liabilities of the corporations, and likewise shall
disappearing corporation/s. assume all their liabilities.
There is no liquidation of the assets of Same.
the dissolved corporation, all rights,
properties and franchises are acquired
by the surviving/new corporation
Investigations, offenses, and penalties
1. Authority of Commissioner
1. Investigation and prosecution of offenses
2. Administration of oath and issuance of subpoena
3. Cease and desist power
4. Contempt
 2. Sanctions for violations
1. Administrative sanctions
2. Prohibited Acts
3. Penalties
4. Who are liable
1. The corporation and/or the DTSME responsible.
3. Authority of the Securities and Exchange Commission
1. While the SEC has the authority to dissolve a corporation, it does not have
the authority to settle disputes arising from its liquidation.
2. A commercial court is in the best position to convene all stakeholders,
including creditors, to ascertain their claims and determine their
preferences [Consuelo Metals Corporation v. Planters Development Bank
G.R. No. 152580 (2008)].

Foreign Investments Act (For nationality and for “doing business” in the
Philippines)
1. Policy of the law
2. Definition of terms
1. Foreign investment
2. "Doing business" in the Philippines
3. Export enterprise
4. Domestic market enterprise
3. Registration of investments of non-Philippine nationals
4. Foreign investments in export enterprises
5. Foreign investments in domestic market enterprises
6. Foreign Investment Negative List
_______________________________________________________________________________________
_______________________________________________________________________________________
_____________________
LIST A: FOREIGN OWNERSHIP IS LIMITED BY MANDATE OF THE
CONSTITUTION AND SPECIFIC LAWS.

NO FOREIGN EQUITY (Media;Profession;Retail;Coop;Security guard; Small-

scale mining; Marine; Cockpit; Nuclear; Radiological; Pyrotechnic device)
1. Mass media, except recording and internet business
2. Practice of professions, including radiologic and x-ray technology, law,
criminology, and marine deck officers and marine engine officers.
○ subject to the Annex on Professions indicating professions where
foreigners are allowed to practice in the Philippines subject to reciprocity
and where corporate practice is allowed
○ foreigners may teach at higher education levels if subject being taught is
not a professional subject (included in a government board or bar
examination)
 3. Retail trade enterprises with paid-up capital of less than US$2.5 million

4. Cooperatives
5. Organization and operation of private detective, watchmen or security guards
agencies

6. Small-scale mining
7. Utilization of marine resources in archipelagic waters, territorial sea, and
exclusive economic zone as well as small-scale utilization of natural resources
in rivers, lakes, bays and lagoons

8. Ownership, operation and management of cockpits

9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons

10. Manufacture, repair, stockpiling and/or distribution of biological, chemical
and radiological weapons and anti-personnel mines
11. Manufacture of firecrackers and other pyrotechnic devices

UP TO TWENTY-FIVE PERCENT (25%) FOREIGN EQUITY (Private recruitment;

Defense-related structure)
12. Private recruitment, whether for local or overseas employment
13. Contracts for the construction of defense-related structures

UP TO THIRTY PERCENT (30%) FOREIGN EQUITY UP TO 30% FOREIGN

EQUITY (Advertising)
14.Advertising

UP TO 40% FOREIGN EQUITY (Public works; Natural resources; Private lands;

Public utilities; Educational; Rice and corn; GOCC; Deep sea fishing;
Condominium; Radio)
15. Subject to applicable regulatory frameworks, contracts for the construction
and repair of locally-funded public works except:
A. Infrastructure/development projects covered in Republic Act No. 7718
B. Projects which are foreign-funded or assisted and required to undergo
international competitive bidding
16. Exploration, development and utilization of natural resources, i.e. oil and
minerals
17. Ownership of private lands
18. Operation of public utilities, except power generation and the supply of
electricity to the contestable market and similar businesses or services not
covered by the definition of public utilities
19. Educational institutions other than those established by religious groups and
mission boards, for foreign diplomatic personnel and their dependents and other
foreign temporary residents, or for short-term high-level skills development that
do not form part of the formal education system as defined in Section 20 of Batas
Pambansa No. 232 (1982)
20. Culture, production, milling, processing, trading except retailing, of rice and
corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-
products thereof
21. Contracts for the supply of materials, goods and commodities to government-
owned or controlled corporation, company, agency or municipal corporation
22. Operation of deep sea commercial fishing vessels
23. Ownership of condominium units
24. Private radio communications network

LIST B: FOREIGN OWNERSHIP IS LIMITED FOR REASONS OF SECURITY,

DEFENSE, RISK TO HEALTH AND MORALS AND PROTECTION OF SMALL AND
MEDIUM SCALE ENTERPRISES

UP TO FORTY PERCENT (40 %) FOREIGN EQUITY

(PNP; DND; Drugs; Sauna; Gambling)
1. Manufacture, repair, storage, and/or distribution of products and/or
ingredients requiring Philippine National Police (PNP) clearance:
○ Firearms (handguns to shotguns), parts of firearms and ammunition
therefor, instruments or implements used or intended to be used in the
manufacture of firearms;
○ Gunpowder;
○ Dynamite;
○ Blasting supplies;
○ Ingredients used in making explosives:
◆ Chlorates of potassium and sodium;
◆ Nitrates of ammonium, potassium, sodium barium, copper (11), lead
(11), calcium and cuprite;
◆ Nitric acid;
◆ Nitrocellulose;
◆ Perchlorates of ammonium, potassium and sodium;
◆ Dinitrocellulose;
◆ Glycerol;
◆ Amorphous phosphorus;
◆ Hydrogen peroxide;
◆ Strontium nitrate powder;
◆ Toluene; and
◆ Telescopic sights, sniper scope and other similar devices.
◆ However, the manufacture or repair of these items may be
authorized by the Chief of the PNP to non-Philippine nationals;
 ◆

Provided that a substantial percentage of output, as determined

by the said agency, is exported. Provided further that the extent
of foreign equity ownership allowed shall be specified in the said
authority/clearance.
2. Manufacture, repair, storage and/or distribution of products requiring
Department of National Defense (DND) clearance:
○ Guns and ammunition for warfare;
○ Military ordnance and parts thereof (e.g., torpedoes, depth charges,
bombs, grenades, missiles);
○ Gunnery, bombing and fire control systems and components;
○ Guided missiles/missile systems and components;
○ Tactical aircraft (fixed and rotary-winged), parts and components thereof;
○ Space vehicles and component systems;
○ Combat vessels (air, land and naval) and auxiliaries;
○ Weapons repair and maintenance equipment;
○ Military communications equipment;
○ Night vision equipment;
○ Stimulated coherent radiation devices, components and accessories;
○ Armament training devices; and
○ Others as may be determined by the Secretary of the DND.
◆ However, the manufacture or repair of these items may be authorized
by the Secretary of National Defense to non-Philippine nationals;
Provided that a substantial percentage of output, as determined by
the said agency, is exported. Provided further that the extent of
foreign equity ownership allowed shall be specified in the said
authority/clearance
3. Manufacture and distribution of dangerous drugs
4. Sauna and steam bathhouses, massage clinics and other like activities
regulated by law because of risks posed to public health and morals, except
wellness centers
5. All forms of gambling except those covered by investment agreements with
PAGCOR
6. Domestic market enterprises with paid-in equity capital of less than the
equivalent of US$200,000
7. Domestic market enterprises which involve advanced technology or employ at
least fifty (50) direct employees with paid-in equity capital of less than the
equivalent of US$100,00
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RA 7652 - Investors’ Lease Act (Relevant to know what a foreign corporation
can or cannot do)
SEC. 3. Definitions. – For purposes of this Act, unless the context indicates
otherwise, the term:
1. “Investing in the Philippines” shall mean making an equity investment in the
Philippines through actual remittance of foreign exchange or transfer of
assets, whether in the form of capital goods, patents, formulae, or other
technological rights or processes, upon registration with the Securities and
Exchange Commission;
2. “Withdrawal of approved investment” shall mean either; (Failure operate 3y;
Outright abandon; Failure pay lease 3m with failure operate)
1. the failure to operate the investment project for any three (3) consecutive
years; or
2. outright abandonment of the investment project at any time during the
approved lease period; or
3. failure to pay lease rental for three (3) consecutive months coupled with
the failure to operate the investment project for the same period shall be
deemed an outright abandonment of the project.

SEC. 4. Coverage.

Any foreign investor investing in the Philippines shall be allowed to lease

PRIVATE LANDS in accordance with the laws of the Republic of the Philippines
subject to the following conditions:

1. No lease contract shall be for a period exceeding fifty (50) years, renewable
once for a period of not more than twenty- five (25) years;
2. The leased area shall be used solely for the purpose of the investment upon
the mutual agreement of the parties;
3. The leased premises shall comprise such area as may reasonably be required
for the purpose of the investment subject however to the Comprehensive
Agrarian Reform Law and the Local Government Code.

The leasehold right acquired under long-term lease contracts entered into
pursuant to this Act may be sold, transferred, or assigned: Provided, That when
the buyer, transferee, or assignee is a foreigner or a foreign-owned enterprise, the
conditions and limitations in respect to the use of the leased property as provided
for under this Act shall continue to apply.

SEC. 5. Limitations. –
1. Foreign individuals, corporations, associations, or partnerships not otherwise
investing in the Philippines as defined herein shall continue to be covered by
Presidential Decree No. 471 and other existing laws in lease of lands to
foreigners.
2. Withdrawal of the approved investment in the Philippines within the period
 2.
of the lease agreement entered into under this Act, or use for the purpose
other than that authorized, shall warrant the ipso facto termination of the
lease agreement without prejudice to the right of the lessor to be
compensated for the damages he may have suffered thereby.
3. Any lease agreement under this Act which is renewable at the option of the
lessee subject to the same terms and conditions of the original contract shall
be interpreted to mean as renewable upon the mutual agreement of the
parties.
4. In addition to the conditions for the renewal of a lease agreement after the
period of fifty (50) years as provided herein, the foreign lease shall show that
it has made social and economic contributions to the country.
5. In the case of tourism projects, lease of private lands by foreign investors
qualified herein shall be limited to projects with an investment of not less than
five million (5M) US dollars, seventy percent (70%) of which shall be infused in
said project within three years from the signing of the lease contract.

SEC. 6. Termination of Lease Contract. – The Secretary of Trade and Industry shall
terminate any lease contract entered into under the provisions of this Act, if the
investment project is not initiated within three (3) years from the signing of the
lease contract. (Because there is withdrawal of approved investment)
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RA 7916, as amended - Special Economic Zone Act (Relevant when connected
to Investors’ Lease Act)

SEC. 30. Leases of Lands and Buildings. – Lands and buildings in each ECOZONE
may be leased to foreign investors for a period not exceeding fifty (50) years
renewable once for a period of not more than twenty-five (25) years, as provided
for under Republic Act No. 7652, otherwise known as the Investors’ Lease Act. The
leasehold right acquired under long-term contracts may be sold, transferred or
assigned, subject to the conditions set forth under Republic Act No. 7652.

SEC. 35. Registration of Business Enterprises. - Business enterprises within a

designated ECOZONE shall register with the PEZA to avail of all incentives and
benefits provided for in this Act.