CORPORATION LAW

(Case Doctrines)
San Beda College Alabang- School of Law
S.Y. 2013-2014
Atty. Busmente
Lex Talionis Fraternitas, Inc.

1st SET
Good Earth Emporium vs. CA, 154 SCRA 594
A corporation has a personality distinct and separate from its
individual stockholders or members. Being an officer or
stockholder of a corporation does not make ones property
also of the corporation, and vice-versa, for they are separate
entities. Shareowners are not the owners of corporate property
(or credits). The corporate debt or credit is not the debt or
credit of the stockholder, and vice-versa.
Article 1240 NCC: Payment shall be made to the person in
whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it. In
the case at bar, the supposed payments were not made to
Roces-Reyes Realty, Inc. Jesus Marcos Roces was no longer
President or even an officer of Roces-Reyes Realty, Inc. at the
time he received the money.
Cruz vs. Dalisay, 152 SCRA 482 (Piercing the veil of
corporate entity)
A Corporation has a personality distinct and separate from its
individual stockholders or members; Sheriff usurped a power
that belonged to the court when he chose to pierce the veil of
corporate entity.
Bank of America vs. CA, GR No. 120135, March 31, 2013
The private respondents, being stockholders of the foreign
corporations, have such personalities to sue. (1) they have the
right to demand for an accounting from defendants, as
trustees, by reason of the fiduciary relationship that was
created between the parties in question; (2) defendants have
the obligation, as trustees, to render such an accounting; and
(3) defendants failed to do the same.
As to the issue on forum shopping, the court held that there is
no forum shopping due to the pendency of the foreign action.
Avon Dale Garments, Inc. vs. CA, 246 SCRA 733
Absent any showing that there was indeed an actual closure
and cessation of the operations of a corporation is not enough
to establish that a corporation is a separate and distinct entity
from the other. Mere filing of the Articles of Dissolution with
the Securities and Exchange Commission, without more, is not
enough to support the conclusion that actual dissolution of an
entity in fact took place. The two entities cannot be deemed as
separate and distinct where there is a showing that one is
merely the continuation of the other.
Concept Builders, Inc. cs. NLR, 257 SCRA 149
(Test in determining the applicability of the doctrine of
piercing the veil of corporate fiction)
1. Control, not mere majority or complete stock control, but
complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own.

2. Such control must have been used 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 ones legal rights.
3. The aforesaid control and breach of duty must proximately
cause the injury or unjust loss complained of.
***The absence of any one these elements prevents piercing
of the corporate veil. In applying the instrumentality or
alter ego doctrine, the courts are concerned with reality and
not form, with how the corporation operated and the
individual defendants relationship to that operation.***
First Phil. International Bank vs. CA, 252 SCRA 259
When the fiction is urged as a means of perpetrating a fraud or
an illegal act or as a vehicle for the evasion of an existing
obligation, the veil which covers the corporation from the
members and stockholders will be lifted. Corporate veil cannot
be used to shield a blatant violation of the prohibition against
forum shopping. Stockholders cannot trifle the case. To rule
otherwise would be to encourage corporate litigants to use
their shareholders as fronts to circumvent the stringent rules
against forum shopping.
Francisco Motors Corp. vs. CA, 309 SCRA 72 (Erroneous
invocation of piercing the corporate veil)
Instead of holding certain individuals or persons responsible
for an alleged corporate act, the situation has been reversed. It
is the corporation which is being ordered to answer for the
personal liability of a certain individual directors, officers and
incorporators concerned. Such application of piercing the
corporate veil has been turned upside down because of its
erroneous invocation.
***According to private respondent Gregorio Manuel his
services were solicited as counsel for members of the
Francisco family to represent them in the intestate proceedings
over Benita Trinidads estate. These estate proceedings did not
involve any business of petitioner***
Doctrine according to Atty. Busmente: In case of personal
liabilities of members or stockholders of a corporation, the
corporation cannot be held liable for such personal liabilities.
However, if it is the corporation who incurred such liability
then the members or stockholders may be held liable.
Bibiano Reynoso vs. CA, 345 SCRA 335 (Identity Rule)
The defense of separateness will be disregarded where the
business affairs of a subsidiary corporation are so controlled
by the mother corporation to the extent that it becomes an
instrument or agent of its parent. But even when there is
dominance over the affairs of the subsidiary, the doctrine of
piercing the veil of corporate fiction applies only when used to
defeat public convenience, justify wrong, protect fraud, or
defend crime.
Factually & legally, CCC had dominant control of the
business operations of CCC-QC:
(1) The exclusive management contract insured that CCC-QC
would be managed & controlled by CCC & not deviate from
the commands of the mother corp.
(2) CCC appointed its own employee as the resident manager
of CCC-QC.
(3) Salaries, pensions, benefits, etc. were from CCC, which
later became GCC.
(4) Unity of interest, management, control, intensive auditing
function of CCC over CCC-QC, sharing of office space.

(5) Lawyers of the CCC-QC case were all in-house counsels
of CCC.
Simeon De Leon vs. NLRC, 358 SCRA 274
It appears from the records that FISI, while having its own
corporate identity, was a mere instrumentality of FTC, tasked
to provide protection and security in the company premises.
The records show that the two corporations had identical
stockholders and the same business address. FISI also had no
other clients except FTC and other companies belonging to the
Lucio Tan group of companies. Moreover, the early pay slips
of petitioners show that their salaries were initially paid by
FTC. Hence, the Labor Arbiter correctly applied the doctrine
of piercing the corporate veil to hold all respondents liable for
ULP and illegal termination of petitioners employment.
PNB vs. Andrada Electric & Engr. Co., 381 SCRA 244
1. Gen. Rule: A corporation that purchases the assets of
another will not be liable for the debts of the selling
corporation, provided the former acted in good faith, and paid
adequate consideration for such assets.
Exceptions:
(1) where the purchaser expressly or impliedly agrees to
assume such debts;
(2) where the transaction amounts to a consolidation or
merger of the corporations;
(3) where the purchasing corporation is merely a continuation
of the selling corporation;
(4) where the transaction is fraudulently entered into in order
to escape liability for those debts.
2. The merger does not become effective upon the mere
agreement of the constituent corporations. There must be an
express provision of law authorizing them. In order that a
valid merger or consolidation may become effective, the
approval by the SEC of the articles of merger or consolidation
is required. These articles must likewise be duly approved by a
majority of the respective stockholders of the constituent
corporations.
Estelita Burgos Lipat vs. Pacific Banking Corp., 402 SCRA
339 (Doctrine of Apparent Authority)
Whenever a corporation knowingly permits one of its officers
or any other agent to act within the scope of an apparent
authority (such as a special power of atty.), it holds him out to
the public as possessing the power to do those acts; thus, the
corporation will, as against anyone who has in good faith dealt
with it through such agent, be estopped from denying the
agents authority.
2nd SET
International Travel Express & Tours Inc. vs. CA, 343
SCRA 674 (Doctrine of Corporation by Estoppel)
The doctrine of corporation by estoppel applies to a third party
only when he tries to escape liability on a contract from which
he has been benefited on the irrelevant ground of defective
incorporation. In the case at bar, the doctrine of corporation by
estoppel is mistakenly applied since the petitioner is not trying
to escape liability from the contract but rather is the one
claiming from the contract.
Lim Tong Lim vs. Phil. Fishing Gear Industries, Inc., 317
SCRA 728 (Doctrine of Corporation by Estoppel)

A third party who, knowing as association to be

unincorporated, nonetheless treated it as a corporation and
received benefits from it, may be barred from denying its
corporate existence in a suit brought against the alleged
corporation. in such case, all those who benefited from the
transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts
they impliedly assented to or took advantage of. It follows
under the law on estoppel, that those acting on behalf of a
corporation and those benefitted by it, knowing it to be
without valid existence, are held liable as general partners.
Lozano vs. De Los Santos, 273 SCRA 452
The grant of jurisdiction to the SEC must be viewed in the
light of its nature and function under the law. This jurisdiction
is determined by a concurrence of two elements: (1) the status
or relationship of the parties; and (2) the nature of the question
that is the subject of their controversy. There is no
intracorporate nor partnership relation between petitioner and
private respondent. The controversy between them arose out
of their plan to consolidate their respective jeepney drivers
and operators associations into a single common association.
This unified association was, however, still a proposal. It had
not been approved by the SEC. Consolidation becomes
effective only upon issuance of the certificate of consolidation
by the SEC. the KAMAJDA and SAMAJODA are duly
registered with the SEC, but the two associations are two
separate entities. The SEC therefore has no jurisdiction over
the complaint because there is no intracorporate controversy.
Lyceum of the Philippines, Inc. vs. CA, GR No. 101897,
March 5, 1993 (Doctrine of Secondary meaning)
Doctrine of secondary meaning can be extended to corporation
name but must comply with the requirement that it has been
used so long and so exclusively by one that the said name has
come to mean in the mind of the general public that it is
referred to as that corporation.
Industrial Refractories Corp. vs. CA, GR No. 122174.
October 3, 2002
Confusing and deceptive similarity of corporate names
prohibited under Section 18 of the Corporation Code.
Petitioners corporate name is Industrial Refractories Corp.
of the Phils. while respondents is Refractories Corp. of the
Phils. Obviously, both names contain the identical words
Refractories, Corporation and Philippines. The only
word that distinguishes petitioner from respondent RCP is the
word Industrial which merely identifies a corporations
general field of activities or operations. These two corporate
names are patently similar that even with reasonable care and
observation, confusion might arise. Furthermore, both cater to
the same clientele, i.e., the steel industry.
Hall vs. Piccio, GR No. L-2598, June 29, 1950 (De Facto
Corporations)
Can a corporation transact business as a de facto
corporation while application is still pending with SEC?
No. In the case of Hall v. Piccio (86 Phil. 603; 1950), where
the supposed corporation transacted business as a corporation
pending action by the SEC on its articles of incorporation, the
Court held that there was no de facto corporation on the
ground that the corporation cannot claim to be in good faith
to be a corporation when it has not yet obtained its certificate
of incorporation.

In the case of Hall v. Piccio, where the supposed corporation
transacted business as a corporation pending action by the
SEC on its articles of incorporation, the Court held that there
was no de facto corporation on the ground that the
corporation cannot claim to be in good faith to be a
corporation when it has not yet obtained its certificate of
incorporation.

all other obligations arising therefrom such as payment of the

shares of stock.
***By allowing its president to sign the Agreement on its
behalf, petitioner clothed him with apparent capacity to
perform all acts which are expressly, impliedly and inherently
stated therein.***

Seventh Day Adventist vs. Northeastern Mindanao, GR

No. 150416, July 21, 2006 (De Facto Corporations)
The donation could not have been made in favor of an entity
yet inexistent at the time it was made. Nor could it have been
accepted as there was yet no one to accept it.
***Donation is an act of liberality whereby a person disposes
gratuitously of a thing or right in favor of another person who
accepts it. The deed of donation was not in favor of any
informal group of SDA members but supposed SPUM-SDA
Bayugan (the local church) which, at the time, had neither
juridical personality nor capacity to accept such gift.***

Nacpil vs. International Broadcasting, GR No. 144767,

March 21, 2002
The rule is that dismissal or non-appointment of a corporate
officer is clearly an intra-corporate matter and jurisdiction
over the case properly belongs to the SEC, not to the NLRC.
As to the argument that the nature of Nacpils functions is
recommendatory thereby making him a mere managerial
officer, the Court has previously held that the relationship of a
person to a corporation, whether as officer or agent or
employee is not determined by the nature of the services
performed, but instead by the incidents of the relationship as
they actually exist.

3rd SET

4th SET

Grace Christian high school vs. CA, GR No. 108905,

October 23, 1997
The former and present corporation law leave no room for
doubt as to their meaning: the board of directors of
corporations must be elected from among the stockholders or
members. There may be corporations in which there are
unelected members in the board but it is clear that in the
examples cited by petitioner the unelected members sit as ex
officio members, i.e., by virtue of and for as long as they hold
a particular office. Nor can petitioner claim a vested right to
sit in the board on the basis of practice. Practice, no matter
how long continued, cannot give rise to any vested right if it is
contrary to law. Even less tenable is petitioners claim that its
right is coterminous with the existence of the association.

Western Institute of Technology, Inc. vs. Salas, GR No.

113032, August 21, 1997

Gokongwei vs. SEC, GR No. L-45911, April 11, 1979

The doctrine of corporate opportunity is a recognition by the
courts that the fiduciary standards could not be upheld where
the fiduciary was acting for two entities with competing
interests. This doctrine rests on unfairness, in particular
circumstances, of an officer or director taking advantage of an
opportunity for his own personal profit when the interest of
the corporation unjustly calls for protection.
Whether the corporation has the power to provide for the
(additional) qualifications of its directors.
It is recognized by all authorities that "every corporation has
the inherent power to adopt by-laws 'for its internal
government, and to regulate the conduct and prescribe the
rights and duties of its members towards itself and among
themselves in reference to the management of its affairs.'" In
this jurisdiction under section 21 of the Corporation Law, a
corporation may prescribe in its by-laws "the qualifications,
duties and compensation of directors, officers and
employees."
Inter-Asia Investments vs. CA, GR. No. 125778, June 10,
2003
An officer of a corporation who is authorized to purchase the
stock of another corporation has the implied power to perform

1.COMMERCIAL LAW; CORPORATION LAW; BOARD

OF
DIRECTORS;
GENERAL
RULE
ON
COMPENSATION; EXCEPTION; CASE AT BAR.
There is no argument that directors or trustees, as the case may
be, are not entitled to salary or other compensation when they
perform nothing more than the usual and ordinary duties of
their office. This rule is founded upon a presumption that
directors/trustees render service gratuitously, and that the
return upon their shares adequately furnishes the motives for
service, without compensation. Under the foregoing section,
there are only two (2) ways by which members of the board
can be granted compensation apart from reasonable per diems:
(1) when there is a provision in the by-laws fixing their
compensation; and (2) when the stockholders representing a
majority of the outstanding capital stock at a regular or special
stockholders' meeting agree to give it to them. The
proscription, however, against granting compensation to
directors/trustees of a corporation is not a sweeping rule.
Worthy of note is the clear phraseology of Section 30 which
states: " . . . [T]he directors shall not receive any
compensation, as such directors, . . . ." The phrase as such
directors is not without significance for it delimits the scope of
the prohibition to compensation given to them for services
performed purely in their capacity as directors or trustees. The
unambiguous implication is that members of the board may
receive compensation, in addition to reasonable per diems;
when they render services to the corporation in a capacity
other than as directors/ trustees. In the case at bench,
Resolution No. 48, s. 1986 granted monthly compensation to
private respondents not in their capacity as members of the
board, but rather as officers of the corporation, more
particularly as Chairman, Vice Chairman, Treasurer and
Secretary of Western Institute of Technology. Thus, the
prohibition with respect to granting compensation to corporate
directors/trustees as such under Section 30 is not violated in
this particular case.
2.ID.; ID.; DERIVATIVE SUIT; NOT THE CASE AT BAR
WHICH IS MERELY AN APPEAL ON THE CIVIL
ASPECT OF A CRIMINAL CASE. A derivative suit is an
action brought by minority shareholders in the name of the
corporation to redress wrongs committed against it, for which
the directors refuse to sue. It is a remedy designed by equity
and has been the principal defense of the minority
shareholders against abuses by the majority. Here, however,

the case is not a derivative suit but is merely an appeal on the
civil aspect of Criminal Cases Nos. 37097 and 37098 filed
with the RTC of Iloilo for estafa and falsification of public
document. Among the basic requirements for a derivative suit
to prosper is that the minority shareholder who is suing for and
on behalf of the corporation must allege in his complaint
before the proper forum that he is suing on a derivative cause
of action on behalf of the corporation and all other
shareholders similarly situated who wish to join. This is
necessary to vest jurisdiction upon the tribunal in line with the
rule that it is the allegations in the complaint that vests
jurisdiction upon the court or quasi-judicial body concerned
over the subject matter and nature of the action. This was not
complied with by the petitioners either in their complaint
before the court a quo nor in the instant petition. By no
amount of equity considerations, if at all deserve, can a mere
appeal on the civil aspect of a criminal case be treated as a
derivative suit.
3.ID.; ID.; ID.; JURISDICTION; SECURITIES AND
EXCHANGE COMMISSION. Granting, for purposes of
discussion, that this is a derivative suit, the same is out rightly
dismissible for having been wrongfully filed in the regular
court devoid of any jurisdiction to entertain the complaint. The
case should have been filed with the Securities and Exchange
Commission (SEC) which exercises original and exclusive
jurisdiction over derivative suits, they being intra-corporate
disputes, per Section 5(b) of P.D. No. 902-A.. Once the case is
decided by the SEC, the losing party may file a petition for
review before the Court of Appeals raising questions of fact,
of law, or mixed questions of fact and law. It is only after the
case has ran this course, and not earlier, can it be brought to us
via a petition for review on certiorari under Rule 45 raising
only pure questions of law.
Santos vs. NLRC, GR No. 101699, March 13, 1996
COMMERCIAL LAWS; CORPORATION; LIFTING OF
CORPORATE VEIL; CONCEPT
. A corporation is a juridical entity with legal personality
separate and distinct from those acting for and in its behalf
and, in general, from the people comprising it. The rule is that
obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities.
Nevertheless, being a mere fiction of law, peculiar situations
or valid grounds can exist to warrant, albeit done sparingly,
the disregard of its independent being and the lifting of the
corporate veil. As a rule, this situation might arise when a
corporation is used to evade a just and due obligation or to
justify a wrong, to shield or perpetrate fraud, to carry out
similar other unjustifiable aims or intentions, or as a
subterfuge to commit injustice and so circumvent the law.
INSTANCES WHEN PERSONAL CIVIL LIABILITY CAN
BE LAWFULLY ATTACHED TO A CORPORATE
DIRECTOR, TRUSTEE OR OFFICER. In Tramat
Mercantile, Inc. vs. Court of Appeals, (238 SCRA 14, 19) the
Court has collated the settled instances when, without
necessarily piercing the veil of corporate fiction, personal civil
liability can also be said to lawfully attach to a corporate
director, trustee or officer; to wit: When "(1) He assents (a)
to a patently unlawful act of the corporation, or (b) for bad
faith or gross negligence in directing its affairs, or (c) for
conflict of interest, resulting in damages to the corporation, its
stockholders or other persons; (2) He consents to the issuance
of watered stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection
thereto; (3) He agrees to hold himself personally and solidarily
liable with the corporation; or (4) He is made, by a specific
provision of law, to personally answer for his corporate
action."

.
CORPORATE OFFICERS; WHEN PERSONALLY
ACCOUNTABLE FOR THE PAYMENT OF WAGES AND
MONEY CLAIMS TO ITS EMPLOYEES. It is true, there
were various cases when corporate officers were themselves
held by the Court to be personally accountable for the
payment of wages and money claims to its employees. In A.C.
Ransom Labor Union-CCLU vs. NLRC, for instance, the
Court ruled that under the Minimum Wage Law, the
responsible officer of an employer corporation could be held
personally liable for nonpayment of back wages for "(i)f the
policy of the law were otherwise, the corporation employer
(would) have devious ways for evading payment of back
wages." In the absence of a clear identification of the officer
directly responsible for failure to pay the back wages, the
Court considered the President of the corporation as such
officer. The case was cited in Chua vs. NLRC (182 SCRA
353) in holding personally liable the vice-president of the
company, being the highest and most ranking official of the
corporation next to President who was dismissed, for the
latter's claim for unpaid wages. The basic rule is still that
which can be deduced from the Court's pronouncement in
Sunio vs. National Labor Relations Commission (127 SCRA
390, 397-398); thus: "We come now to the personal liability of
petitioner, Sunio, who was made jointly and severally
responsible with petitioner company and CIPI for the payment
of the back wages of private respondents. This is reversible
error. The Assistant Regional Director's Decision failed to
disclose the reason why he was made personally liable.
Respondents, however, alleged as grounds thereof, his being
the owner of one-half (1/2) interest of said corporation, and his
alleged arbitrary dismissal of private respondents." Petitioner
Sunio was impleaded in the Complaint in his capacity as
General Manager of Petitioner Corporation. There appears to
be no evidence on record that he acted maliciously or in bad
faith in terminating the services of private respondents. His
act, therefore, was within the scope of his authority and was a
corporate act. "It is basic that a corporation is invested by law
with a personality separate and distinct from those of the
persons composing it as well as from that of any other legal
entity to which it may be related. Mere ownership by a single
stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground
for disregarding the separate corporate personality. Petitioner
Sunio, therefore, should not have been made personally
answerable for the payment of private respondents' back
salaries."
Sps. David et al. vs. Construction Industry, GR No.
159795, July 30, 2004
As a general rule, the officers of a corporation are not
personally liable for their official acts unless it is shown that
they have exceeded their authority. However, the personal
liability of a corporate director, trustee or officer, along
with corporation, may so validly attach when he assents to
a patently unlawful act of the corporation or for bad faith
or gross negligence in directing its affairs.
Malayang Samahan ng mga manggagawa sa M. Greenfield
vs. Ramos, GR No. 113907, April 20, 2001

A corporation is a juridical entity with legal personality
separate and distinct from those acting for and in its behalf
and, in general from the people comprising it. The rule is that
obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities. True,
solidary liabilities may at times be incurred but only when
exceptional circumstances warrant such as, generally, in the
following cases:
(1) When directors and trustees or, in appropriate cases, the
officers of a corporation
(a) Vote for or assent to patently unlawful acts of
the corporation;
(b) act in bad faith or with gross negligence in
directing the corporate affairs;
(c) are guilty of conflict of interest to the prejudice
of the corporation, its stockholders or
members, and other persons.
(2) When a director or officer has consented to the issuance of
watered stocks or who, having knowledge thereof, did not
forthwith file with the corporate secretary his written objection
thereto.
(3) When a director, trustee or officer has contractually agreed
or stipulated to hold himself personally and solidarily liable
with the Corporation.
(4) When a director, trustee or officer is made, by specific
provision of law, personally liable for his corporate action
Prime White Cement Corporation vs. IAC, GR No. 68555,
March 19, 1993
COMMERCIAL LAW; CORPORATIONS; GENERALLY
CORPORATE POWERS SHALL BE EXERCISED BY THE
BOARD OF DIRECTORS; EXCEPTIONS. Under the
Corporation Law, which was then in force at the time this case
arose, as well as under the present Corporation Code, all
corporate powers shall be exercised by the Board of Directors,
except as otherwise provided by law. Although it cannot
completely abdicate its power and responsibility to act for the
juridical entity, the Board may expressly delegate specific
powers to its President or any of its officers. In the absence of
such express delegation, a contract entered into by its
President, on behalf of the corporation, may still bind the
corporation if the board should ratify the same expressly or
impliedly. Implied ratification may take various forms - like
silence or acquiescence; by acts showing approval or adoption
of the contract; or by acceptance and retention of benefits
flowing therefrom. Furthermore, even in the absence of
express or implied authority by ratification, the President as
such may, as a general rule, bind the corporation by a contract
in the ordinary course of business, provided the same is
reasonable under the circumstances. These rules are basic, but
are all general and thus quite flexible. They apply where the
President or other officer, purportedly acting for the
corporation, is dealing with a third person, i.e., person outside
the corporation.
BOARD OF DIRECTORS; RULE IN CASE OF
CONFLICT OF INTEREST. A director of a corporation
holds a position of trust and as such, he owes a duty of loyalty
to his corporation. In case his interests conflict with those of
the corporation, he cannot sacrifice the latter to his own
advantage and benefit. As corporate managers, directors are
committed to seek the maximum amount of profits for the
corporation. This trust relationship "is not a matter of statutory
or technical law. It springs from the fact that directors have the
control and guidance of corporate affairs and property and
hence of the property interests of the stockholders." In the case
of Gokongwei v. Securities and Exchange Commission, this
Court quoted with favor from Pepper v. Litton, (89 scra 336)
thus: ". . . He cannot by the intervention of a corporate entity

violate the ancient precept against serving two masters . . . He

cannot utilize his inside information and his strategic position
for his own preferment. He cannot violate rules of fair play by
doing indirectly through the corporation what he could not do
directly. He cannot use his power for his personal advantage
and to the detriment of the stockholders and creditors no
matter how absolute in terms that power may be and no matter
how meticulous he is to satisfy technical requirements. For
that power is at all times subject to the equitable limitation that
it may not be exercised for the aggrandizement, preference, or
advantage of the fiduciary to the exclusion or detriment of the
cestuis . . ."
DEALINGS OF DIRECTORS, TRUSTEES OR OFFICERS
WITH THE CORPORATION; RULE. A director's
contract with his corporation is not in all instances void or
voidable. If the contract is fair and reasonable under the
circumstances, it may be ratified by the stockholders provided
a full disclosure of his adverse interest is made as provided in
Section 32 of the Corporation Code.

5th SET
Dee vs. SEC, GR No. 60502, July 16, 1991
The pre-emptive right of stockholders is recognized only with
respect to new issue of shares, and not with respect to
additional issues of originally authorized shares.
The issuance of the 113,800 stocks is not invalid even
assuming that it was made without notice to the stockholders
as claimed by Dee, et. al.. The power to issue shares of stocks
in a corporation is lodged in the board of directors and no
stockholders meeting is required to consider it because
additional issuance of shares of stocks does not need approval
of the stockholders. Consequently, no pre-emptive right of
Natelco stockholders was violated by the issuance of the
113,800 shares to CSI.
McLeod vs. NLRC, GR No. 146667, January 23, 2007
Gen. Rule: A corporation that purchases the assets of another
will not be liable for the debts of the selling corporation,
provided the former acted in good faith, and paid adequate
consideration for such assets.
Exceptions:
(1) where the purchaser expressly or impliedly agrees to
assume such debts;
(2) where the transaction amounts to a consolidation or merger
of the corporations;
(3) where the purchasing corporation is merely a continuation
of the selling corporation;
(4) where the transaction is fraudulently entered into in order
to escape liability for those debts.
The parties to a merger or consolidation are called constituent
corporations. In consolidation, all the constituents are
dissolved and absorbed by the new consolidated enterprise. In
merger, all constituents, except the surviving corporation, are
dissolved. In both cases, however, there is no liquidation of
the assets of the dissolved corporation, and the surviving or
consolidated corporation acquires all their properties, rights
and franchises and their stockholders usually become its
stockholders. The surviving or consolidated corporation
assumes automatically the liabilities of the dissolved
corporations, regardless of whether the creditors have
consented or not to such merger or consolidation.


Islamic Directorate of the Philippines vs. CA, GR No.
117897, May 14, 1997
Where a corporate body never gave its consent, thru a
legitimate governing board, to a deed of absolute sale, the
subject sale is void for lack of consent and thus, produces no
effect whatsoever.
PNB vs. Andrada Electric, GR No. 142936, April 17, 2002
1. Gen. Rule: A corporation that purchases the assets of
another will not be liable for the debts of the selling
corporation, provided the former acted in good faith, and paid
adequate consideration for such assets.
Exceptions:
(1) where the purchaser expressly or impliedly agrees to
assume such debts;
(2) where the transaction amounts to a consolidation or
merger of the corporations;
(3) where the purchasing corporation is merely a continuation
of the selling corporation;
(4) where the transaction is fraudulently entered into in order
to escape liability for those debts.
2. The merger does not become effective upon the mere
agreement of the constituent corporations. There must be an
express provision of law authorizing them. In order that a
valid merger or consolidation may become effective, the
approval by the SEC of the articles of merger or consolidation
is required. These articles must likewise be duly approved by a
majority of the respective stockholders of the constituent
corporations.
Nielson and Co., Inc. vs. Lepanto Mining, GR No. L-21601,
December 28, 1968
Section 16 of the Corporation Law, Stock dividends cannot
be issued to a person who is not a stockholder in payment of
services rendered.
- No corporation shall issue stocks or bond except in
exchange for actual cash paid to the corporation or for
property actually received by itor for profits earned by it
but not distributed among its stockholders or members.
- Stocks issued in exchange for cash or property are issued
for capital generation and can be issued to a nonstockholder.
- Stock dividends should be considered as 1.) a dividend, and
2.) an enforced use of the dividend money to purchase
additional shares at par.
- A dividend is defined as the portion of the profits of the
enterprise which the corporation sets apart for ratable
division among the holders of the capital stock.
- As such, stock dividends can only be granted to existing
stockholders in proportion to their shares.
Hydro Resources Contractors Corp. vs. NIA, GR No.
160215, November 10, 2004
The CA erred in ruling that Cesar L. Techs act of signing the
Joint Computation was an ultra vires act. It must be noted that
the Administrator is the highest officer of the NIA.
Furthermore, Hydro has been dealing with NIA through its
Administrator in all of its transactions with respect to the
contract and subsequently the foreign currency differential
claim. The NIA Administrator is empowered by the contract
to grant or deny foreign currency differential claims. It would
be preposterous for the NIA Administrator to have the power
of granting claims without the authority to verify the
computation of such claims.

6th SET

Loyola Grand Villas Association Inc. vs. CA, GR No. 117188, Augus
1997
Automatic corporate dissolution for failure to file the by-laws
on time was never the intention of the legislature. Section 46
reveals the legislative intent to attach a directory, and not
mandatory, meaning for the word ''must" in the first sentence
thereof. The second paragraph of the law which allows the
filing of the by-laws even prior to incorporation. This
provision in the same section of the Code rules out mandatory
compliance with the requirement of filing the by-laws "within
1 month after receipt of official notice of the issuance of its
certificate of incorporation by the Securities and Exchange
Commission." It necessarily follows that failure to file the bylaws within that period does not imply the "demise" of the
corporation. Although the Corporation Code requires the
filing of by-laws, it does not expressly provide for the
consequences of the non-filing of the same within the period
provided for in Section 46. Nonetheless, failure to file them
within the period required by law by no means tolls the
automatic dissolution of a corporation.
China Banking Corporation vs. CA, GR No. 117604,
March 26, 1997
In order to be bound, the third party must have acquired
knowledge of the pertinent by-laws at the time the transaction
or agreement between said third party and the shareholder was
entered into. Therefore, it is the generally accepted rule that
third persons are not bound by by-laws, except when they
have knowledge of the provisions either actually or
constructively. For the exception to the general accepted rule
that third persons are not bound by by-laws to be applicable
and binding upon the pledgee, knowledge of the provisions of
the By-laws must be acquired at the time the pledge agreement
was contracted. Knowledge of said provisions, either actual or
constructive, at the time of foreclosure will not affect pledges
right over the pledged share.

Salafranca vs. Philamlife

Village
Association, Inc. et al., 300 SCRA 469

Homeowners

At that time, Salafranca already enjoys security of tenure

because he is already a regular employee. It is true that
PVHAI has the right to amend its by-laws but such
amendment must not impair existing contracts or rights. In this
case, the provision that Salafrancas position shall be coterminus with the appointing Board impairs his right to
security of tenure which has already vested even prior to the
amendment of the by-laws in 1987.

7th SET
Republic of the Philippines vs. COCOFED et al., GR Nos.
147062-64, December 14, 2001
General rule is that the registered owner of the shares of a
corporation exercises the right and the privilege of voting.
This principle applies even to shares that are sequestered by
the government, over which the PCGG as a mere conservator
cannot, as a general rule, exercise acts of dominion.
From the foregoing general principle, has provided two clear
public character exceptions under which the government is
granted the authority to vote the shares:

(1) Where government shares are taken over by private
persons or entities who/which registered them in their own
names, and
(2) Where the capitalization or shares that were acquired with
public funds somehow landed in private hands.
The exceptions are based on the common-sense principle that
legal fiction must yield to truth; that public property registered
in the names of non-owners is affected with trust relations;
and that the prima facie beneficial owner should be given the
privilege of enjoying the rights flowing from the prima facie
fact of ownership.
Chua vs. CA, GR No. 150793, November 19, 2004
Not every suit filed in behalf of the corporation is a derivative
suit. For a derivative suit to prosper, it is required that:
(1) 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;
(2) It is a condition sine qua non that the corporation be
impleaded as a party because not only is the corporation an
indispensable party, but it is also the present rule that it must
be served with process. In other words, the corporation must
be joined as party because it is its cause of action that is being
litigated and because judgment must be a res adjudicata
against it.
Expert Travel & Tours vs. CA, GR No. 152392, May 26,
2005
Teleconferencing is interactive group communication (three or
more people in two or more locations) through an electronic
medium. Other evidence must be presented to prove the
existence of such meeting.
8th SET
Ramon Lee vs. CA, GR No. 93695, February 1992
Voting trust agreement is an agreement in writing whereby
one or more stockholders of a corporation consent to transfer
his or their shares to a trustee in order to vest in the latter
voting or other rights pertaining to said shares for a period not
exceeding five years upon the fulfillment of statutory
conditions and such other terms and conditions specified in the
agreement. The five year-period may be extended in cases
where the voting trust is executed pursuant to a loan
agreement whereby the period is made contingent upon full
payment of the loan.
The most immediate effect of a voting trust agreement on the
status of a stockholder who is a party to its execution from
legal titleholder or owner of the shares subject of the voting
trust agreement, is he becomes the equitable or beneficial
owner.
Ong Yong vs. Tiu, GR No. 144476, February 2002
Pre-subscription agreement is any contract for the acquisition
of unissued stock in an existing corporation or a corporation
still to be formed shall be deemed a subscription within the
meaning of this Title, notwithstanding the fact that the parties
refer to it as a purchase or some other contract.
In the instant case, the rescission of the Pre-Subscription
Agreement will effectively result in the unauthorized

distribution of the capital assets and property of the

corporation, thereby violating the Trust Fund Doctrine and the
Corporation Code, since rescission of a subscription
agreement is not one of the instances when distribution of
capital assets and property of the corporation is allowed.