Corpo Notes (Ausl) - Ladia

1
CORPORATION LAW
(6) Illegal search;
Corporation is one of the types of business organizations. It is also

the most important in economic development.
(7) Libel, slander or any other form of defamation;

(8) Malicious prosecution;
INTRODUCTION
Sole proprietorship
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30,
32, 34, and 35.
One man form of business entity, personally answers all liabilities,

but enjoys all the profits with the exclusion of others
Limited shareholders responsibility
Paid subscription in full, you are no longer liable
Partnership
Based on mutual trust and confidence
Joint venture
one time grouping of persons whether they be natural or juridical

does not entail continuity because after the undertaking is completed
it is already the end
particular partnership and joint venture would be similar, but there is
already a decision of the Supreme Court declaring them as different
when they do not register, it does not exist
Foreign corporations enters into an agreement with a domestic
corporation, it must be registered. Generally they do not need to be
registered.
Corporations
They may enter into joint venture, but generally they cannot enter
into a partnership, but there are exceptions allowed by the SEC: the 3
exceptions must go hand in hand
1.
The articles of incorporation expressly authorized the
corporation to enter into contracts of partnership;
2.
The agreement or articles of partnership must provide that all
the partners will manage the partnership; and
3.
The articles of partnership must stipulate that all the partners
are and shall be jointly and severally liable for all obligations
of the partnership.
DEFINITION AND ATTRIBUTES
4 attributes of a corporation
1.
2.
3.
4.
Artificial being
Created by operation of law
Right of succession
Powers, attributes and properties expressly authorized by law or
incident to its existence.
Doctrine of limited capacity
Only such powers as are expressly granted to it by law and by its

articles of incorporation including others which are incidental to
such conferred powers, those reasonably necessary to accomplish its
purpose and those which may be incidental to its existence
The parents of the female seduced, abducted, raped, or abused,

referred to in No. 3 of this article, may also recover moral damages.
The spouse, descendants, ascendants, and brothers and sisters may
bring the action mentioned in No. 9 of this article, in the order
named.
Advantages (SEE LADIA BOOK)
No. 2 may also be a disadvantage

No. 5 may also be a disadvantage
A corporation is a person, therefore protected by the due process

clause and equal protection clause of the Constitution
CLASSIFICATION OF CORPORATIONS
Section 3 Stock and non-stock
Importance of knowing, determining what provisions of the code or

the law may be applicable
Section 3. Classes of corporations. - Corporations
formed or organized under this Code may be stock or non-stock
corporations. Corporations which have capital stock divided into
shares and are authorized to distribute to the holders of such shares
dividends or allotments of the surplus profits on the basis of the
shares held are stock corporations. All other corporations are nonstock corporations. (3a)
Non-stock- title 10
Stock- section 51
Stockholders must generally cast their votes in the meeting; section 4

governed primarily by the law creating them
Section 4. Corporations created by special laws or
charters. - Corporations created by special laws or charters shall be
governed primarily by the provisions of the special law or charter
creating them or applicable to them, supplemented by the provisions
of this Code, insofar as they are applicable. (n)
Section 3
1.
2.
The two requisites must always concur

That they have a capital stock divided into shares; and,
That they are authorized to distribute dividends or allotments as
surplus profits to its stockholders on the basis of the shares held by
each of them.
Can do things as the law asks or allows it to do

If it does anything beyond, it shall be considered as ULTRA VIRES
General rule: Moral damages cannot be granted to corporations
Exception: Filipinas Broadcasting Network Inc. vs. Ago Med
Section 4
In cases of slander, libel and other forms of defamation (should not

qualify because the code does not qualify whether natural or
juridical) Art. 2219 of the civil code:
Created by a special law, they have their own character

They are not immune from suit unless provided by the law of their
creation
Primarily governed by the law creating them
Their subsidiaries are entirely different or independent from that of
the other
Art. 2219. Moral damages may be recovered in the

following and analogous cases:
(1) A criminal offense resulting in physical injuries;
Close corporation
There is no exemption it is absolute
Public corporation
Political or governmental purposes

Those formed or organized for the government or a portion of the
State or any of its political subdivision and which have for their
purpose the general good and welfare
Private Corporation
(2) Quasi-delicts causing physical injuries;

(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
Notes on Corporation Law
Notes come in handy only when you have studied
GTan; ASoguilon; VVillanueva
Immediate benefit, aim or advantage of private individuals

Those formed for some private purpose, benefit, aim or end
Distinction: public for governmental purpose
Non-stock
If value is not more than 100,000
Corporation Sole
A corporation cannot use any other name unless it has been amended
Exemption to the rule because it is composed only of one person

An incorporator may also be a juridical person
Section 19
Close corporation
If confusingly similar it will not be allowed to be registered

Verification slip from the records officer
There is exclusivity of shares of stock

Section 96-105
Restrictions to transfer shares
Only those indicated can own shares
Article must provide that there will be no public offering
Open corporation
openly admit investors

example: stock exchange
Domestic/ Foreign
Test
Incorporation test
If incorporated under the laws of the Philippines it is a domestic
corporation
Section 19. Commencement of corporate existence. - A

private corporation formed or organized under this Code commences
to have corporate existence and juridical personality and is deemed
incorporated from the date the Securities and Exchange Commission
issues a certificate of incorporation under its official seal; and
thereupon the incorporators, stockholders/members and their
successors shall constitute a body politic and corporate under the
name stated in the articles of incorporation for the period of time
mentioned therein, unless said period is extended or the corporation
is sooner dissolved in accordance with law. (n)
-
Section 18. Corporate name. - No corporate name may

be allowed by the Securities and Exchange Commission if the
proposed name is identical or deceptively or confusingly similar to
that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to
existing laws. When a change in the corporate name is approved, the
Commission shall issue an amended certificate of incorporation
under the amended name. (n)
ME Gray vs. CA
-
Parent or Holding/ subsidiaries and affiliates

Affiliates- no majority vote
SMC 12%
CBP
HERSHEY
Words corporation or inc. either in full or abbreviated form must be

included
Doctrine of secondary meaning
A word or phrase originally incapable of exclusive appropriation

[usually generic] with reference to an article in the market, because
of 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 become to mean that the article was
his product.
CBPl 12%
12%
Affiliate is subject to common control by the 12 % owners
De jure
-
cannot be attached by the state even in a quo warranto proceeding
Section 18
De facto
exists by virtue of colorable compliance

Attached directly only by the state in a quo warranto proceeding
Lyceum of the Philippines case, the additional geographical name

does not make it confusingly similar
actual confusion is not necessary- Philips case it is enough that
there is probable confusion
Corporation by estoppel
2 requisites must be proven
that the complainant corporation acquired a prior right over the use
of such corporate name
identical, deceptively or confusingly, patently deceptive
principal office
statement of principal office is required

city and municipality not only province must be specified
principal office NOT operations office
necessary because it will establish the residence of corporations
venue of actions for or against the corporations
venue of meetings
section 51 meetings may only be within the boundaries of the city
where the principal office
non-stock may be held anywhere in the Philippines, if provided in its
by-laws
where summons may be served
registration of chattel mortgage must be registered in the register of
deeds where the principal office is located
So defectively formed, but still considered corporation, but only in

relation to those who cannot deny their existence section 20 and 21
FORMATION AND ORGANIZATION
3 stages
1.
Creation
2.
Re-organization or quasi-reorganization
3.
Dissolution/winding-up
Purpose clause
Defining the scope of authority of the corporate enterprise pr
undertaking. Both confirmed and limited
4 limitations of purpose clause

1.
Lawful
2.
Specific or stated concisely
3.
More than one, the primary and secondary must be specified
4.
Lawfully combined
Provision that states, cannot be issued less than par, exception is
treasury shares because it can be issued less than par
A corporation commences only upon issuance of the certificate, prior

thereto it has no being and cannot transact business. Promoters
cannot act for a projected corporation
Metro Manila- paid up capital requirement is 10 M
Non- stock- mere mention of the operating capital
Mention the authorized capital
Restrictions
Mandatory in close
Not mandatory in ordinary

Clavecilla Radio System vs. Antillon

-
action not upon a written contract

city where the defendant resides
term of existence
corporate term required

determining what point in time the juridical personality will cease to
exist
enter into contract only when it has juridical personality
once it ceases to exist, it no longer has personality
exist for another 3 years only for purposes of liquidation
Dissolution- it is automatic
When should extension be made?
General rule: Not earlier than 5 years

Exception: unless there are justifiable reasons
May it be extended after expiration?
Alhambra cigar vs. SEC once it ceases to exist it has no vested

politic, exist only for a period of 3 years only for liquidation and for
that purpose only
Article 5 How many incorporators should there be?
5-15
May a corporation be an incorporator?
General rule: only natural persons

Exception: cooperatives and corporation primarily organized to hold
equities in rural banks
How about minors?
NO, because they must be of legal age
May a corporation organized by incorporators consisting solely of

foreigners
Yes, there is no nationality requirement only residence, as long as

majority are residents of the Phil
Define incorporators <sec.5>
Those person mentioned in the articles as originally forming the

corporation and who are signatories of the articles of incorporation.
Must be signatories to be incorporators
1. Amendment of the articles of incorporation;
Section 5. Corporators and incorporators, stockholders

and members. - Corporators are those who compose a corporation,
whether as stockholders or as members. Incorporators are those
stockholders or members mentioned in the articles of incorporation
as originally forming and composing the corporation and who are
signatories thereof.
3. Sale, lease, exchange, mortgage, pledge or other disposition of all

or substantially all of the corporate property;
banks, trust companies, insurance companies, public utilities, and

building and loan associations shall not be permitted to issue no-par
value shares of stock.
Preferred shares of stock issued by any corporation may
be given preference in the distribution of the assets of the
corporation in case of liquidation and in the distribution of
dividends, or such other preferences as may be stated in the articles
of incorporation which are not violative of the provisions of this
Code: Provided, That preferred shares of stock may be issued only
with a stated par value. The board of directors, where authorized in
the articles of incorporation, may fix the terms and conditions of
preferred shares of stock or any series thereof: Provided, That such
terms and conditions shall be effective upon the filing of a certificate
thereof with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be
deemed fully paid and non-assessable and the holder of such shares
shall not be liable to the corporation or to its creditors in respect
thereto: Provided; That shares without par value may not be issued
for a consideration less than the value of five (P5.00) pesos per
share: Provided, further, That the entire consideration received by
the corporation for its no-par value shares shall be treated as capital
and shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for
the purpose of insuring compliance with constitutional or legal
requirements.
Except as otherwise provided in the articles of
incorporation and stated in the certificate of stock, each share shall
be equal in all respects to every other share.
Where the articles of incorporation provide for nonvoting shares in the cases allowed by this Code, the holders of such
shares shall nevertheless be entitled to vote on the following matters:
2. Adoption and amendment of by-laws;
4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;
Corporators in a stock corporation are called

stockholders or shareholders. Corporators in a non-stock corporation
are called members. (4a)
6. Merger or consolidation of the corporation with another

corporation or other corporations;
Define corporators <sec.5>
All persons who compose the corporation at any given time and need
not be among those who execute the articles of incorporation at the
start of its formation and organization.
Originally or subsequently
Section 5 provides:
Corporators in a stock corporation are called
stockholders or shareholders. Corporators in a non-stock corporation
are called members. (4a)
May a corporation be a corporator?
How many directors should there be?
YES. There is nothing to prevent a corporation from being a

stockholder
1.
Incorporator must subscribe to 1 share
There are those that are exclusively reserved to Filipinos
An incorporator maybe a corporator as long as he is a stockholder
section 6
General rule: Not less than 5 not more than 15

Exceptions:
Educational corporations registered as non stock corporation whose
number of trustees, though not less than five and not more than [15]
should be divisible by five [5], meaning they must have either five,
ten, or fifteen trustees and no other;
In close corporations where all the stockholders are considered as
members of the board of directors thereby effectively allowing
twenty members in the board.
The by-laws of a corporation may provide for additional
qualifications and disqualifications of its members of the board of
directors or trustees. However it may not do away with the minimum
disqualifications lay down by the Code.
Section 6. Classification of shares. - The shares of

stock of stock corporations may be divided into classes or series of
shares, or both, any of which classes or series of shares may have
such rights, privileges or restrictions as may be stated in the articles
of incorporation: Provided, That no share may be deprived of voting
rights except those classified and issued as "preferred" or
"redeemable" shares, unless otherwise provided in this Code:
Provided, further, That there shall always be a class or series of
shares which have complete voting rights. Any or all of the shares or
series of shares may have a par value or have no par value as may be
provided for in the articles of incorporation: Provided, however, That
7. Investment of corporate funds in another corporation or business

in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding
paragraph, the vote necessary to approve a particular corporate act as
provided in this Code shall be deemed to refer only to stocks with
voting rights. (5a)
2.
3.
Qualifications of the governing board
Requires mere residency <sec. 23>

Section 23. The board of directors or trustees. - Unless
otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held
by the board of directors or trustees to be elected from among the

holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year
until their successors are elected and qualified. (28a)
Every director must own at least one (1) share of the
capital stock of the corporation of which he is a director, which share
shall stand in his name on the books of the corporation. Any director
who ceases to be the owner of at least one (1) share of the capital
stock of the corporation of which he is a director shall thereby cease
to be a director. Trustees of non-stock corporations must be members
thereof. A majority of the directors or trustees of all corporations
organized under this Code must be residents of the Philippines.
May a domestic corporation have a governing board consisting

solely of foreigners?
Section 30. Compensation of directors. - In the absence

of any provision in the by-laws fixing their compensation, the
directors shall not receive any compensation, as such directors,
except for reasonable per diems: Provided, however, That any such
compensation other than per diems may be granted to directors by
the vote of the stockholders representing at least a majority of the
outstanding capital stock at a regular or special stockholders'
meeting. In no case shall the total yearly compensation of directors,
as such directors, exceed ten (10%) percent of the net income before
income tax of the corporation during the preceding year. (n)
Minimum for a domestic corporation?
In no case shall the paid- up capital be less than 5k
Is there a minimum authorized capital imposed by the code?
YES, section 23 majority of them must be residents of the

Philippines, no nationality requirement
If there is minimum paid-up logically there should also be a

minimum capital =5000
Anti-dummy act <sec.2-A>
Minimum paid-up capital for a financing company metro manila 10

M if located in MM
If the business undertaking or activity is only partially nationalized,

aliens can be elected as such directors, [unless the law provides
otherwise] but their number shall only be in proportion to their
equity or participation in the capital stock of the corporation.
Shares of stock
Purpose of classification
Disqualifications <sec.27>
To specify and define the rights and privileges of the stockholders;
The disqualifications provided for is absolute and may not be done

away with. Corporate by-laws may, however, provide for additional
qualifications and disqualifications.
For regulation and control of the issuance of sale of corporate

securities for the protection of purchasers and stockholders.
As a management control device.
To comply with statutory requirements particularly those which

provide for certain limitations on foreign ownership and shares like
overseas employment agencies requiring to own at least 75% of the
shares of stock thereof.
To better insure return on investment which can be affected through

the issuance of redeemable shares or preferred shares, i.e., granting
the holders thereof, preference as to dividends and/or distribution of
assets in case of liquidation; and,
For flexibility in price, particularly, no par shares may be issued or

sold from time to time at different price depending on the net worth
of the company since they do not purport to represent an actual of
fixed value.
Section 6
Each shall be equal in all respects to every other share
Preferred shares
Specific preference
Dividends or during liquidation
No par
Can sell it with the network of the corporation
Distinction between the subscribed and outstanding stocks?
Section 137
Section 27. Disqualification of directors, trustees or

officers. - No person convicted by final judgment of an offense
punishable by imprisonment for a period exceeding six (6) years, or
a violation of this Code committed within five (5) years prior to the
date of his election or appointment, shall qualify as a director, trustee
or officer of any corporation. (n)
Section 27 and 23 minimum disqualifications and qualifications

Lee vs. CA
By laws may provide for additional
Govt vs. El hogar Filipino, Gokongwei vs. SMC
Capital structure
Foundation- minimum paid-up capital 3M
Authorized capital 1 M
par value 1.00
No. of shares 1M shares
Amount of shares subscribed

50 K
50 K
B
C
250K
D
E
Section 137. Outstanding capital stock defined. - The
term "outstanding capital stock", as used in this Code, means the
total shares of stock issued under binding subscription agreements to
subscribers or stockholders, whether or not fully or partially paid,
except treasury shares. (n)
PAID UP =62,500
Corporation cannot exceed more than 1 M it is the maximum amount it cannot
issue more unless amended
How much shares should be subscribed?
Must be at least 25% of the authorized capital stock
Treasury shares
Paid- up must be at least 25%-minimum
Section 30
are also subscribed shares

while they remain in the treasury, no voting and dividend rights
may be reissued by the corporation
once reissued they become outstanding stocks again
Total subscription compliance with minimum 25% total

Any combination would comply with the minimum required by
section 30
common shares
Maximum shares it can issue is 1M shares unless amended

Voting and dividend rights, it refers to the outstanding capital stocks

Only outstanding stocks are allowed to vote and receive dividends
Actually the same
carry the right to vote
preferred shares
grants the holder preference

preference as to dividends
preference as to distribution of the remaining assets upon dissolution
or
both
YOU MUST STATE THE PREFERENCE BECAUSE IF NOT
THEY ARE PRESUMED TO BE EQUAL
It may include such other preferences not inconsistent with the Code.
This is so because Section 6 of the said law allows a stock
corporation to issue preferred shares subject only to the limitations
imposed therein which are:
They can be issued only with sated par value; and,
The preferences must be stated in the articles of incorporation and in
the certificate of stock, otherwise, each share shall be, in all respect,
equal to every other share.
a.
b.
Participating
Must be stated because the presumption is that it is participating
Cumulative
Irrespective of whether or not they where earned
Preferred
May be denied
Unless denied they are still entitled
What if hindi i-declare kahit na may dividends rights for the previous
years? May they be denied dividend rights because they are non
holders of non-cumulative? NOTE: YOU CANNOT COMPEL THE
CORPORATION TO DECLARE DIVIDENDS UNLESS IT
EXCEEDS 100 % PAID UP CAPITAL SEC. 43
Section 43. Power to declare dividends. - The board of
directors of a stock corporation may declare dividends out of the
unrestricted retained earnings which shall be payable in cash, in
property, or in stock to all stockholders on the basis of outstanding
stock held by them: Provided, That any cash dividends due on
delinquent stock shall first be applied to the unpaid balance on the
subscription plus costs and expenses, while stock dividends shall be
withheld from the delinquent stockholder until his unpaid
subscription is fully paid: Provided, further, That no stock dividend
shall be issued without the approval of stockholders representing not
less than two-thirds (2/3) of the outstanding capital stock at a regular
or special meeting duly called for the purpose. (16a)
Corporations cannot use its capitals in declaring dividends; not all

can issue no par value section 6
Voting
entitled to vote at any motion brought up in writing
Non-voting
not entitled to vote
What types of shares may be denied of the right to vote?
Preferred and redeemable shares
Is it correct to state that common shares can never be denied the right
to vote?
Only preferred and redeemable shares are denied unless provided in

this code
PWEDENG MA-DENY YUNG COMMON SHARES, KASI

YUNG FOUNDERS SHARES MERON SILANG EXCLUSIVE
RIGHTS NA SILA LANG ANG MERON, SO PWEDE SILANG
BUMOTO WITH REGARDS TO SOMETHING NA HINDI NA
SAKOP NG COMMON SHARE RIGHTS
Example: founders shares- may be given certain rights and privileges
Even common shares may be denied the right to vote of founders

shares issued <sec.7>
Section 7. Founders' shares. - Founders' shares
classified as such in the articles of incorporation may be given
certain rights and privileges not enjoyed by the owners of other
stocks, provided that where the exclusive right to vote and be voted
for in the election of directors is granted, it must be for a limited
period not to exceed five (5) years subject to the approval of the
Securities and Exchange Commission. The five-year period shall
commence from the date of the aforesaid approval by the Securities
and Exchange Commission. (n)
Do you include non-voting shares in passing a valid corporate act?
Even non-voting shares are entitled to vote under section 6
Redeemable shares
Discretionary/optional
Obligatory or mandatory
Generally a corporation can reacquire its own shares if it has

unrestricted retained earnings
Exception: redeemable shares may be reacquired irrespective of

retained earnings
Treasury shares
They are treasury while in the treasury account of the corporation
It depends because there are three types of non-cumulative preferred

shares
Discretionary dividend type
Mandatory if earned
Earned cumulative or dividend credit type
May they be reissued by the corporation?
YES
If they are reissued will they be denied the right to vote?
Compare cumulative share from non-cumulative, earned cumulative

or dividend credit type
Cumulative share whether or not earned

Non-cumulative earned cumulative or dividend credit type- only if
earned
Once reissued they shall become outstanding stocks again and

purchasers shall be entitled to all the rights and privileges as the
other holders have
Section 57 treasury shares have no voting and dividend rights. Why

not?
Par
stated par value; shall not be issued less than par
No par
without stated par value
once fully paid no longer liable
Stock corporations are prohibited from retaining surplus

profits in excess of one hundred (100%) percent of their paid-in
capital stock, except: (1) when justified by definite corporate
expansion projects or programs approved by the board of directors;
or (2) when the corporation is prohibited under any loan agreement
with any financial institution or creditor, whether local or foreign,
from declaring dividends without its/his consent, and such consent
has not yet been secured; or (3) when it can be clearly shown that
such retention is necessary under special circumstances obtaining in
the corporation, such as when there is need for special reserve for
probable contingencies. (n)
-

Section 57. Voting right for treasury shares. - Treasury

shares shall have no voting right as long as such shares remain in the
Treasury. (n)
-
Answer: commissioner vs. manning page 62 first par.

Although authorities may differ on the exact legal and
accounting status of so-called treasury shares, they are more or less
in agreement that treasury shares are stocks issued and fully paid for
and reacquired by the corporation either by purchase, donation,

forfeiture or other means. Treasury shares are therefore issued shares
but being in the treasury they do not have the status of outstanding
shares. Consequently, although a treasury share, not having been
retired by the corporation re-acquiring it, may be re-issued or sold
again, such shares, as long as it is held by the corporation as a
treasury share, participates neither in dividends, because dividends
cannot be declared by the corporation to itself, nor in meetings of the
corporation as voting stock, for otherwise equal distribution of
voting powers among stockholders will be effectively lost and the
directors will be able to perpetrate their control of the corporation,
though it still represents a paid for interest in the property of the
corporation. The foregoing essential features of a treasury stocks are
lacking in the questioned shares.
2. That the purpose or purposes of the corporation are patently

unconstitutional, illegal, immoral, or contrary to government rules
and regulations;
3. That the Treasurer's Affidavit concerning the amount of capital
stock subscribed and/or paid is false;
4. That the percentage of ownership of the capital stock to be owned
by citizens of the Philippines has not been complied with as required
by existing laws or the Constitution.
No articles of incorporation or amendment to articles of
incorporation of banks, banking and quasi-banking institutions,
building and loan associations, trust companies and other financial
intermediaries, insurance companies, public utilities, educational
institutions, and other corporations governed by special laws shall be
accepted or approved by the Commission unless accompanied by a
favorable recommendation of the appropriate government agency to
the effect that such articles or amendment is in accordance with law.
(n)
In this case, and under the terms of the trust agreement,

the shares of stock of Reese
participated in dividends which the
trustee received and the said shares were voted upon by the trustee in
all corporation meetings. They were not, therefore, treasury shares.
When the law speaks of outstanding rights it does not include

treasury shares
But the grounds in section 17 are not exclusive
Treasury shares may be reissued
When will the corporation commence to exist?
They are actually assets of the corporation
Section 19
Once re-issued they become outstanding stocks again
The corporation may cancel them; in effect there will be a reduction

in the outstanding capital stocks
The code does not require ordinary corporations to provide for

restrictions, but it does not likewise prohibit restrictions
Example: right of first refusal
The restriction must be contained in the articles of incorporation
If provided in by-laws but not in the articles of incorporation then it

will not be binding
Restrictions and preferences are mandatorily required in close

corporations
If it does not provide restrictions it is not a close corporation
Specified persons- close corporations
If not one of those specified you are not included because there is
exclusivity in close corporations
Should also be in the by-laws not only in the articles of incorporation
No transfer clause
Execution clause
Acknowledgment
Treasurer affidavit part of the articles of incorporation
Section 23-27 minimum qualifications, but there may be additional
Grounds for disapproval
Only substantial and not strict is required
Section 19. Commencement of corporate existence. - A

private corporation formed or organized under this Code commences
to have corporate existence and juridical personality and is deemed
incorporated from the date the Securities and Exchange Commission
issues a certificate of incorporation under its official seal; and
thereupon the incorporators, stockholders/members and their
successors shall constitute a body politic and corporate under the
name stated in the articles of incorporation for the period of time
mentioned therein, unless said period is extended or the corporation
is sooner dissolved in accordance with law. (n)
A corporation de jure can come into existence only upon the

issuance of the certificate of registration by the SEC? TRUE OR
FALSE?
TRUE
EXCEPTION: CORPORATION SOLE <sec. 112>

Section 112. Submission of the articles of
incorporation. - The articles of incorporation must be verified,
before filing, by affidavit or affirmation of the chief archbishop,
bishop, priest, minister, rabbi or presiding elder, as the case may be,
and accompanied by a copy of the commission, certificate of election
or letter of appointment of such chief archbishop, bishop, priest,
minister, rabbi or presiding elder, duly certified to be correct by any
notary public.
From and after the filing with the Securities and
Exchange Commission of the said articles of incorporation, verified
by affidavit or affirmation, and accompanied by the documents
mentioned in the preceding paragraph, such chief archbishop,
bishop, priest, minister, rabbi or presiding elder shall become a
corporation sole and all temporalities, estate and properties of the
religious denomination, sect or church theretofore administered or
managed by him as such chief archbishop, bishop, priest, minister,
rabbi or presiding elder shall be held in trust by him as a corporation
sole, for the use, purpose, behalf and sole benefit of his religious
denomination, sect or church, including hospitals, schools, colleges,
orphan asylums, parsonages and cemeteries thereof. (n)
CORPORATION SOLE- upon filing of the verified articles of

incorporation, once filed it is vested with a judicial capacity
May the SEC refuse or reject registration?
General rule section 19
<Section 17>
Vested with judicial capacity upon issuance of the certificate by the

SEC
Section 17. Grounds when articles of incorporation or

amendment may be rejected or disapproved. - The Securities and
Exchange Commission may reject the articles of incorporation or
disapprove any amendment thereto if the same is not in compliance
with the requirements of this Code: Provided, That the Commission
shall give the incorporators a reasonable time within which to correct
or modify the objectionable portions of the articles or amendment.
The following are grounds for such rejection or disapproval:
1. That the articles of incorporation or any amendment thereto is not
substantially in accordance with the form prescribed herein;

However it is not accurate according to atty. Ladia

because there are those that can issue for example
cooperatives- BUREAU OF COOPERATIVES which
register, home insurance guaranty corporation- HOME
OWNERS
Cagayan Fishing vs. Sandika

-
Corporations are created by law
Commence to exist upon issuance by the CONCERNED government

corporation or agency
Prior there to it has no being
The transfer of the property was not valid, it likewise did not have
the right to transfer
Enters with business with 3rd parties
When there is no 3rd persons involved and the problem arises

between there members, therefore they themselves know that there
is no corporation by estoppel
Albert vs. University
De jure
1965 case, no section 21 yet
Strict or substantial compliance
Applied where the rules governing agency
De facto
A person purporting in behalf of a non existing corporation
4 requisites must go hand in hand take out anyone of them there can
be no de facto corporation
Section 21, you arrive at the same decision
1.
There is a valid statute under which the corporation could have been
created as a de jure corporation.
Chiang Kai Siek vs. CA

-
SC based its decision from the provision of the education act
An attempt, in good faith, to form a corporation according to the

requirements of law, which goes far enough to amount to a
colorable compliance with the law;
It cannot immune itself by virtue of its non compliance with the law
Assuming there was no law?
3.
A user of corporate powers, the transaction of business in some way

as if it were a corporation; and,
YES, it may still be sued as a school for the past 32 years the school
represented itself as possessed of juridical personality
4.
Good faith in claiming to be and doing business as a corporation.
General rule: a 3rd party transacting with a non existent corporation

shall be estopped to deny
Are the rights and obligations between officers and directors of a de

jure and de facto the same?
2.
YES. Governed by the same law, rules and regulations
Only important in determining, is for the purpose of applying the

rules with regards to the direct and collateral attack
The existence of a de jure cannot be questioned even by the State,

either directly or indirectly
Asia banking vs. standard products

-
General rule: absence of fraud a person who has dealt with a non
incorporated corporation shall be stopped to deny from actions in
which it had benefited
Exemptions: when there is fraud the general rule shall not apply
Salvatierra vs. Garlitos
Existence of a de facto can be questioned only by the State directly

in a quo warranto proceeding only
As a general rule a person who has contracted it a corporation

lacking personality
Municipality of Malabang vs. Benito
Doctrine is not applicable where fraud takes part in the transaction
What is the missing link so as to consider it a de facto? A law,

because the executive order is unconditional
Another exemption
An unconditional act affords no rights, creates no office
Legal contemplation it was never passed at all
It can therefore be questioned by any person
If the certificate of registration has not been issued, may a

corporation de facto exist?
NO!
Number 4 requirement, good faith in claiming to be and doing

business as a corporation
Hall vs. Piccio
Missing link is good faith
The certificate was not yet issued by the SEC, the members knew
and therefore they were not acting in good faith, therefore anybody
can question its existence
So defectively formed so that they are not to be considered a de jure

or de facto
General partners- liable even beyond his promise even his personal
properties are prone to attachment
International express travel and tours vs. CA

-
No fraud in this case
How come Kahn was made liable?
Doctrine of incorporation
Applies only if that person is trying to escape from a contract where

he is benefited
In this case petitioner is not trying to escape liability, but rather the
one claiming from the contract
Would this apply to foreign corporation?
YES, it may apply
Georg Grotjahn vs. Isnami
A foreign corporation cannot gain access to our courts unless they

attain a license to engage in business in the Philippines but applying
corporation by estoppels, the court allowed
Municipality of Malabang case
No law, hence may be questioned by any person
An unconstitutional act is not a law, t confers no rights, it imposes no

duties, it affords no protections, it crates o office, it is in legal
contemplation, as inoperative as though it had never been passes
Hall vs. Piccio
No good faith
Lozano vs. Delos Santos

-
Founded on principle of equity
Exercise corporate powers

Admission, conduct or agreement
They are not personally liable
Will not apply among members themselves there must be a 3rd party
They where signed for and in behalf of the corporation
Cannot escape when benefited
General rule: you deal with a corporation, as to estop it
Exceptions: 1. fraudulently misrepresents the third person may file

an action directly to those members, 2. 3rd party will not be estopped
if he is not trying to escape liability
2 possible remedies
Chiang kai siek case
Palay inc. vs. Clave

-
Liabilities incurred by the corporation cannot be enforced against

stockholders, etc., even if stockholders, etc. happens to own a
substantial interest in the corporation, mere ownership does not
disregard the corporate entity theory
Corporate entity for legal or legitimate purposes only
Two or more corporations, one of them will be treated as a mere

alter-ego
Albert case
You cannot pierce the veil of corporate fiction when there are no
facts attendant in the case
What would be the effect if the corporation failed to commence

transaction?
Corporate Entity Theory
Automatic
Operated but becomes subsequently inoperative for 5 years only a

ground for suspension, proper notice and hearing
The corporation is possessed with a personality separate and distinct

from the individual stockholders or members and is not affected by
the personal rights, obligations or transactions of the latter
Instrumentality rule
Commencement
Example realty company
Where one corporation is so organized and controlled and its affairs

are conducted so that it is, in fact, a mere instrumentality or adjunct
of the other, the fiction of the corporate entity of the
instrumentality may be disregarded
Courts are concerned with reality and not form
Mere ownership of all or substantially all of the shares of stock of a

corporation is not, in itself, insufficient ground for disregarding the
separate corporate personality. And for the separate personality of
the corporation to be disregarded, the wrong doing must be clearly
and convincingly established
Fraud must be proven by clear and convincingly evidence amounting

to more than preponderance. It cannot be justified by speculation and
can never be presumed. And only if it sought to hold the
stockholders liable directly for corporate debt
CORPORATE CHARTER AND ITS AMENDMENTS
What do you understand by the word charter? Is it the same as

articles of incorporation?
Corporate charter is broader
Franchise
Primary power granted by the state to be and act as a corporation
Secondary franchise is the right or privilege that the corporation may

exercise
You cannot issue investment contracts without a secondary

franchise, kailangan primary muna hindi pwede mauna secondary
kasi sa section 19 it does not exist until issued with a certificate of
registration or incorporation
Piercing the veil of corporate fiction
Corporate entity
Fely trans and the other corporation is one and the same
Corporation exist
stockholders
Stockholders cannot bring an action, to bring back the properties of a

corporation
Corporation has no interest in the individual properties of its

members
separately
and
independently
from
Palacio vs. Fely
Marvel bldg. vs. David
the
-
There must be facts before the court will be justified in piercing the
veil of corporate fiction
Corporation was a mere extension of the personality of the person

Yutivo and sons vs. Court of Tax Appeals
Sulo ng Bayan vs. Araneta
What where the facts or circumstances arrived by the court here?
Corporation cannot bring an action for the recovery of the properties

of its members
Subscribed capital where all advanced by Yutivo, the board where

the same as Yutivo
Caram vs. CA
Commissioner of Internal Revenue vs. Norton and Harrison
Stockholders cannot be held liable for the legitimate obligations of

the corporation, they exist separately and independently from one
another
Court applied the general rule
Mere substantial ownership does not mean that it has a same

corporate entity
Cruz vs. Dalisay

-
Final judgment against a corporation cannot be enforced against

stockholders
La Campana Coffee Factory, Inc. vs. KKM

-
Rustan Pulp vs. CA

-
Corporation exist separately and independently
Corporation are juridical entities, they exist only in legal

contemplation, can act only through its authorized representatives
Soriano vs. CA

Two corporations managed by the same family, workers were made

interchangeably
Emilio Cano vs. CIR
Sued in there official capacity
Reverse of Soriano vs. CA (signed in their official capacity)

Tesco vs. WCC
The two corporations where located in the same office
The wrongdoing must be clearly established
Claparols vs. CIR
There must be facts to support
Same as NAFLU and A.C. Ransom
Payment of claims cannot thus be presumed
Concept builders vs. NLRC

-
Instrumentality rule. What is the instrumentality rule? where one

corporation is so organized and controlled and its affairs are
conducted so that it is, in fact, a mere instrumentality or adjunct of
the other, the fiction of the corporate entity of the instrumentality
may be disregarded.
Indophil Textile Mill vs. CALICA

-
How do you distinguish this ruling to La Campana, having the same

issues:
La campana, one payroll, employees were made interchangeable.

Acrylic had its own standards
Has no separate mind of its own. What is the degree of control?
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.
Control test
Not mere majority but rather complete
Twin ace was only a subsequent interested party
Such control must have been used by the defendant to commit fraud
or wrong, to perpetuate the violation of a statutory or other positive
legal duty or dishonest and unjust act in contravention of plaintiffs
legal rights; and,
Assets and machineries
Amendment of the articles of incorporation
Express power granted to a corporation
Section 16
Appraisal right
Section 81 to object on certain acts and transactions
2.
3.
The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of.
The absence of one of the elements prevents piercing 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.
There must facts and circumstances before warrant piercing the veil
of corporate fiction
The control necessary does not mean stock ownership
PNB vs. Ritratto Group
Section 81. Instances of appraisal right. - Any

stockholder of a corporation shall have the right to dissent and
demand payment of the fair value of his shares in the following
instances:
1. In case any amendment to the articles of incorporation has the
effect of changing or restricting the rights of any stockholder or class
of shares, or of authorizing preferences in any respect superior to
those of outstanding shares of any class, or of extending or
shortening the term of corporate existence;
MCConnel vs. CA
-
were located in the same floor
while the mere ownership of all or nearly all of the capital stock of
a corporation does not necessary mean that it is a mere business
conduit of the stockholder, that conclusion is amply justified where it
is shown, as in the case before us, that the operations of the
corporation were so merged with the stockholders as to be practically
indistinguishable from them. To hold the latter liable for the
corporations obligations is not to ignore the corporations separate
entity, but merely to apple the established principle that such entity
cannot be invoked or used for purposes that could not have been
intended by the law that created that separate personality.
2. In case of sale, lease, exchange, transfer, mortgage, pledge or

other disposition of all or substantially all of the corporate property
and assets as provided in the Code; and
3. In case of merger or consolidation. (n)
-
Right granted only in specified instances
Are non-voting shares included in amending the articles of incorporation
Tan boon bee vs. Jarencio
100/s
Why would a drug company need a printing machine
100/s
The property must be in pursuance of a company business
To
Cease vs. CA
10
Alter-ego or the extension of the person of forest ware does the court
pierced the veil of corporate fiction
=1M/S
the 2/3?
As to not deprive the holders of their successional rights
Section 6 last paragraph
Mere ownership of all or substantially all is not a justification of

piercing the veil of corporate fiction
Voting shares are excluded except the foregoing instances
Fraud must be proven by clear and convincing evidence cannot

presume or speculate, there must be facts and circumstances
XYZ-----ABC
100/s
what would be
Fraud must be clear and convincing evidence more than

preponderance
Remo Jr. vs. IAC
The resolution was not entered to defraud anyone

Del Rosario vs. National Labor Commission

10
1 & 2=absent
1&2=absent but gave their written assent
corporation lawfully holding office at the time of the filing of the

certificate, showing that at least twenty-five (25%) percent of such
increased capital stock has been subscribed and that at least twentyfive (25%) percent of the amount subscribed has been paid either in
actual cash to the corporation or that there has been transferred to the
corporation property the valuation of which is equal to twenty-five
(25%) percent of the subscription: Provided, further, That no
decrease of the capital stock shall be approved by the Commission if
its effect shall prejudice the rights of corporate creditors.
3 & 4= objected
3&4=objected
5 & 6= approved the amendment
5&6=approved
Would there be a valid amendment
Non-stock corporations may incur or create bonded

indebtedness, or increase the same, with the approval by a majority
vote of the board of trustees and of at least two-thirds (2/3) of the
members in a meeting duly called for the purpose.
Special amendments 37 & 38 shortening that would result to

dissolution require prior approval by the SEC
Section 37. Power to extend or shorten corporate term.
- A private corporation may extend or shorten its term as stated in
the articles of incorporation when approved by a majority vote of the
board of directors or trustees and ratified at a meeting by the
stockholders representing at least two-thirds (2/3) of the outstanding
capital stock or by at least two-thirds (2/3) of the members in case of
non-stock corporations. Written notice of the proposed action and of
the time and place of the meeting shall be addressed to each
stockholder or member at his place of residence as shown on the
books of the corporation and deposited to the addressee in the post
office with postage prepaid, or served personally: Provided, That in
case of extension of corporate term, any dissenting stockholder may
exercise his appraisal right under the conditions provided in this
code. (n)
Bonds issued by a corporation shall be registered with

the Securities and Exchange Commission, which shall have the
authority to determine the sufficiency of the terms thereof. (17a)
The vote must be cast at the meeting called for that purpose
Written assent would not suffice
When do amendments become valid and effective?
Only upon the approval of the SEC TRUE OR FALSE?
FALSE because it can be valid upon the date of filing if not acted
upon within 6 months without fault attributable to the corporation
Why is it retroactive?
What provision may be amended, altered or repealed
Can you change name, address for example she married or changed
address?
NO. you cannot change that
Fait accompli, are beyond the powers or authority of the corporation

to change, alter or modify. These would include the following:
Names of the incorporators and
The incorporating directors or trustees,
The name of the treasurer originally or first elected by the

subscribers or members to act as such until his successor has been
duly elected and qualified,
The number of shares and amount originally subscribed and paid out
of the original authorized capital stock of the corporation,
The date and place of execution of the articles of incorporation,
The signatories and acknowledgment thereof.
All other provisions or matters stated or contained in the articles are

subject to amendment.
Founders or signatories hindi pwede palitan
Names, nationalities- you cannot
Capital- right granted by law to all corporation
Paid up capital- NO
(7) The vote authorizing the increase or diminution of the capital

stock, or the incurring, creating or increasing of any bonded
indebtedness.
Restriction and transfer of shares in ordinary stock corporations
You can, but close corporation cannot
Any increase or decrease in the capital stock or the

incurring, creating or increasing of any bonded indebtedness shall
require prior approval of the Securities and Exchange Commission.
Section 96, otherwise it will not be a close corporation
Section 38. Power to increase or decrease capital

stock; incur, create or increase bonded indebtedness. - No
corporation shall increase or decrease its capital stock or incur,
create or increase any bonded indebtedness unless approved by a
majority vote of the board of directors and, at a stockholder's
meeting duly called for the purpose, two-thirds (2/3) of the
outstanding capital stock shall favor the increase or diminution of the
capital stock, or the incurring, creating or increasing of any bonded
indebtedness. Written notice of the proposed increase or diminution
of the capital stock or of the incurring, creating, or increasing of any
bonded indebtedness and of the time and place of the stockholder's
meeting at which the proposed increase or diminution of the capital
stock or the incurring or increasing of any bonded indebtedness is to
be considered, must be addressed to each stockholder at his place of
residence as shown on the books of the corporation and deposited to
the addressee in the post office with postage prepaid, or served
personally.
A certificate in duplicate must be signed by a majority
of the directors of the corporation and countersigned by the chairman
and the secretary of the stockholders' meeting, setting forth:
(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or
number of shares of no-par stock thereof actually subscribed, the
names, nationalities and residences of the persons subscribing, the
amount of capital stock or number of no-par stock subscribed by
each, and the amount paid by each on his subscription in cash or
property, or the amount of capital stock or number of shares of nopar stock allotted to each stock-holder if such increase is for the
purpose of making effective stock dividend therefor authorized;
(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the
meeting;
(6) The amount of stock represented at the meeting; and
One of the duplicate certificates shall be kept on file in

the office of the corporation and the other shall be filed with the
Securities and Exchange Commission and attached to the original
articles of incorporation. From and after approval by the Securities
and Exchange Commission and the issuance by the Commission of
its certificate of filing, the capital stock shall stand increased or
decreased and the incurring, creating or increasing of any bonded
indebtedness authorized, as the certificate of filing may declare:
Provided, That the Securities and Exchange Commission shall not
accept for filing any certificate of increase of capital stock unless
accompanied by the sworn statement of the treasurer of the
Section 96. Definition and applicability of Title. - A

close corporation, within the meaning of this Code, is one whose
articles of incorporation provide that: (1) All the corporation's issued
stock of all classes, exclusive of treasury shares, shall be held of
record by not more than a specified number of persons, not
exceeding twenty (20); (2) all the issued stock of all classes shall be
subject to one or more specified restrictions on transfer permitted by
this Title; and (3) The corporation shall not list in any stock
exchange or make any public offering of any of its stock of any
class. Notwithstanding the foregoing, a corporation shall not be
deemed a close corporation when at least two-thirds (2/3) of its
voting stock or voting rights is owned or controlled by another
11
corporation which is not a close corporation within the meaning of

this Code.
Ramirez vs. Orientalist co.
Any corporation may be incorporated as a close

corporation, except mining or oil companies, stock exchanges,
banks, insurance companies, public utilities, educational institutions
and corporations declared to be vested with public interest in
accordance with the provisions of this Code.
What was the position of Fernandez in this case? TREASURER
Why did the court rule that actions of Fernandez bound the
corporation when he is not even a board of director?
if a man is found acting for a corporation with the
external indicia of authority, any person not having notice of want of
authority, may usually rely upon those appearances; and if it be
found that the directors had permitted the agent to exercise that
authority and thereby held him out as a person competent to bind the
corporation, or had acquiesced in a contract and retained the benefit
supposed to have been conferred by it, the corporation will be bound,
notwithstanding the actual authority may never have been granted.
The provisions of this Title shall primarily govern close

corporations: Provided, That the provisions of other Titles of this
Code shall apply suppletorily except insofar as this Title otherwise
provides.
Transfer clause,
affidavit-NO
executor
clause,
acknowledgment,
treasury
Philippine First Insurance case
Contracts must be made by the director and not the stockholders
Actions of the stockholders in such matters is only advisory and not

in any way binding in the corporation
Mere change in the name of a corporation or by merely complying

with the law is general amendment
It does not change its personality. It is the same person in a different

name. the charter is the same
Everything emanates from the board of directors
Amendment of a corporate term
Extending the same can never be made 7 years prior? TRUE or

FALSE
Stockholders action is merely advisory except their approval or vote

is necessary to prove a valid corporate act
Qualifications:
No citizenship requirement, at least majority must be residents
Can have a governing board consisting solely of foreigners
But we have to take into consideration partly nationalized industries

and other laws which prohibits or limits foreign ownership
Anti-dummy act
Utilization development of natural resources 60% must be owned by

Filipino citizens, therefore they only own 40%---10 members they
can only have 4 seats, but not entirely correct because the law may
provide otherwise; educational institutions restricted to Filipinos, but
there are exceptions when created by religious and charitable
institutions.
By-laws may provide additional qualifications and disqualifications
To qualify as a director he must own at least 1 share
Should the stockholder be the equitable or beneficial owner in order

to qualify as a director?
NO, it is not necessary, as long as you are listed in the books as

owner of one share
FALSE. It can be if there are justifiable reasons for earlier extension

as may be determined by the SEC
Can you extend the corporate term if it has already expired?
Once the term expires without an amendment having happen it

ceases to exist as a body politic. It is dissolved automatically on the
day it expires.
Alhambra cigar and PNB case
Instances when the SEC allowed extension whose term has already
expired
All of them involved are institutions of learning, it was the case in

order to avoid confusion that would arise later on.
Barreto vs. La previsora Filipina
BOARD OF DIRECTORS/TRUSTEES
Section 23
Section 23. The board of directors or trustees. - Unless
otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held
by the board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year
until their successors are elected and qualified. (28a)
Every director must own at least one (1) share of the
capital stock of the corporation of which he is a director, which share
shall stand in his name on the books of the corporation. Any director
who ceases to be the owner of at least one (1) share of the capital
stock of the corporation of which he is a director shall thereby cease
to be a director. Trustees of non-stock corporations must be members
thereof. A majority of the directors or trustees of all corporations
organized under this Code must be residents of the Philippines.
Controlled by the board of directors
Authority are however restricted to the day to day
Stockholders may have all the profit but will turn over the
management to the governing board
But unless the law provides the power may be delegated
General rule
Corporations must sit and act as a body
Will be bound by corporate officers if they acted within the 5

classification page 150

Lee vs. CA
-
As long as you are listed in the books as owner of one share
Under the old law he must be the beneficial owner and legal owner
thereof but in the new law it is not required as long as it stands in his
name he is qualifies
1 A-100t/S B (own in the trust of X) is B qualified to be a director?

2
3-10
2 transferring there voting rights in favor of VT
Other rights will accrue in favor of them, but not the voting rights
voting rights must be recorder in the books of the corporation that it is transferred
PNB-IFL- wholly owned subsidiary of PNB
PNB will assign to PNB-IFL nominal shares and PNB-IFL now will be able to be
nominated
Gen. Rule:
12
Term of one year who will serve as such until there successors are
elected and qualified
Exception:
Non-stock corporation can serve for a term of 3 years
Educational non-stock- term of the governing board can be 5 years
May this term exceed one year?
Yes, they may serve in a hold over capacity until their successors
have been duly elected and qualified
Is it allowed in a non-stock corporation?
Not generally available
Section 89 unless the articles or by-laws allow cumulative voting

Section 89. Right to vote. - The right of the members of
any class or classes to vote may be limited, broadened or denied to
the extent specified in the articles of incorporation or the by-laws.
Unless so limited, broadened or denied, each member, regardless of
class, shall be entitled to one vote.
Unless otherwise provided in the articles of
incorporation or the by-laws, a member may vote by proxy in
accordance with the provisions of this Code. (n)
Detective and protective bureau vs. Cloribel

-
In the by-laws, managing director must be elected from among

themselves
Must be duly elected and qualified
Voting by mail or other similar means by members of

non-stock corporations may be authorized by the by-laws of nonstock corporations with the approval of, and under such conditions
which may be prescribed by, the Securities and Exchange
Commission.
How are the directors elected?

1-100T/S
Other corporate officers other than the governing board section 25
2-100T/S
Section 25. Corporate officers, quorum. - Immediately
after their election, the directors of a corporation must formally
organize by the election of a president, who shall be a director, a
treasurer who may or may not be a director, a secretary who shall be
a resident and citizen of the Philippines, and such other officers as
may be provided for in the by-laws. Any two (2) or more positions
may be held concurrently by the same person, except that no one
shall act as president and secretary or as president and treasurer at
the same time.
3-100T/S
to 10=1M/S
Do you include the vote of 1 & 2 to have a quorum to have a valid

meeting?
NO, quorum requirements is 401,000

The directors or trustees and officers to be elected shall
perform the duties enjoined on them by law and the by-laws of the
corporation. Unless the articles of incorporation or the by-laws
provide for a greater majority, a majority of the number of directors
or trustees as fixed in the articles of incorporation shall constitute a
quorum for the transaction of corporate business, and every decision
of at least a majority of the directors or trustees present at a meeting
at which there is a quorum shall be valid as a corporate act, except
for the election of officers which shall require the vote of a majority
of all the members of the board.
Quorum requirement is 501k

Holders of non-voting shares are only entitled to vote in last par. Of section 6
1-200k
2-200k
3-200k
Directors or trustees cannot attend or vote by proxy at

board meetings. (33a)
4-100k
5-100k
Is the president required to be a stockholder. YES
6-100k
The chairman may be another person
7-50k
The president may also be another person
8-40k
Prohibited is president to be secretary or treasurer at the same time
9-5k
Board of director must sit and act as a body to arrive at a corporate

act
What would constitute a quorum if 5 then 3 must be present
May the vote of 2 members past a 5 man governing board pass a

valid corporate act?
YES. Voting requirement is majority of directors present at which

there where a quorum
10-5k
=1MS
1&2 is absent, 3&4 ayaw tumakbo and hindi nagvote 6-10, tumakbo and
ninominate nila yung sarili nila and cast all their shares on themselves
Who wins? Or who gets elected?
No vote requirement, the one who gets the most number of votes
gets elected, section24.
What is cumulative voting?
Process of multiplying the number of shares to the number of

director to be elected
Matter of right granted to stockholders in a stock corporation
1 to 5 has 200k/s and members of the same family- majority 800k they have 4M
votes they are guaranteed 4 seats
1 and 2 present=valid voting requirement
1 and 2 voted yes
3 voted no
Is it absolute?
NO, except in the election because it requires the majority of all the
members of the board
If by-laws or articles provide a higher voting requirement
6 to 10 are not related- 1 seat 1M votes
Cumulative to allow the minority to have a rightful representation in

the board

13
Artificial beings must act through its members and act as a body to
have a valid corporate act
Exception:
Delegation
Kalaw signed alone and said contracts were submitted to the board
of directors after its consummation and not before
Expressly conferred
Buenaseda vs. Bowen
Where the officer or agent is clothed with actual or apparent

authority
Otherwise it will not bind the corporation
board should give its stamp of prior approval on all corporate

contracts. But that Board itself, by its acts and through acquiescence,
practically laid aside the by-law requirement of prior approval.
-
Express ratification is made through a formal board action
Implied ratification is through: silence or acquiescence, acceptance

benefits and lastly recognition or adoption
Yao ka sin trading case already asked in the bar
An unauthorized act may nevertheless be binding either by express

or implied by estoppels
Only bind the corporation to the extent of authority confined to him

or virtue of customs, usage and policy
By virtue of silence the board had impliedly accepted the act
Must pass first the controller and counsel
By recognition or adoption
What if the notice requirement is not complied with?
By virtue of payment of obligations arising therefore- Lopez realty
Lopez realty vs. Fotencha
May directors or trustees be disqualified to act as such?
Notice requirement must be complied with hence it should have been

with force and effect, but according to the SC, it may be ratified
expressly if there is a subsequent meeting called for that purpose
YES, crime, etc. disqualifications in book
Possess or dispossess any of the qualifications or disqualifications ,

cease to hold at least one share
May directors be ousted from office?
At least 2/3 of members representing outstanding capital stock.

Again notice requirement must be complied with
Impliedly through acts
Asuncion was aware of the corporations obligation
There was implied ratification or she was estopped

Pua casim vs. Neumark and Co.
1-200
Considered 3 circumstanced
2-200
Check which was the proceed of the loan which was endorsed and
deposit in the corporate account
3-200
Neumark as president and also stockholder
1-5 same family
4-100
5-100
electing
6-100
related
Yu chuck vs. Kong Li Po

-
General manager usually has the power to hire but the SC said the
contract must be reasonable
The contract here is so onerous that it would throw the corporation

into insolvency
8-40
Francisco vs. GSIS
9-5
GSIS cannot evade the binding effect of the telegram
10-5
director
Only 15 months later that the corporation said there was a mistake
The silence coupled with the unconditional acceptance of the other

subsequent remittances is binding to the corporation
to
10
not
7-50
Meetings called by the president or the secretary ordered by the

president
It depends if the removal is without cause they cannot do so because

removal without cause shall not deprive the minority stockholders or
members of the right of representative
If with cause they can even if it will prejudice the rights of the
minority, provided of course additional requirements by-laws and
articles of incorporation
Who will fill up the vacancy created due to the ouster of a member
of the board of directors <section 29>
Board of liquidators vs. Kalaw

Settled jurisprudence has it that where similar acts
have been approved by the directors as a matter of general practice,
custom and policy, the general manager may bind the company
without formal authorization of the board of directors. In varying
language, existence of such authority is established, by proof of the
course of business, the usages and practices of the company and by
the knowledge which the board of directors has, or must be
presumed to have, of acts and doings of its subordinates in and about
the affairs of the corporation. So also, xx authority to act for and
bind a corporation may be presumed from acts of recognition in
other instances where the power was in fact exercised. xx Thus,
when, in the usual course of business of a corporation, an officer has
been allowed in his official capacity to manage its affairs, his
authority to represent the corporation may be implied from the
manner in which he has been permitted by the directors to manage its
business.
In the case at bar, the practice of the corporation has
been to allow its general manager to negotiate and execute contracts
in its copra trading activities for and in NACOCOs behalf without
prior board approval. If the by-laws were to be literally followed, the
outstanding
Section 29. Vacancies in the office of director or

trustee. - Any vacancy occurring in the board of directors or trustees
other than by removal by the stockholders or members or by
expiration of term, may be filled by the vote of at least a majority of
the remaining directors or trustees, if still constituting a quorum;
otherwise, said vacancies must be filled by the stockholders in a
regular or special meeting called for that purpose. A director or
trustee so elected to fill a vacancy shall be elected only or the
unexpired term of his predecessor in office.
Any directorship or trusteeship to be filled by reason of
an increase in the number of directors or trustees shall be filled only
by an election at a regular or at a special meeting of stockholders or
members duly called for the purpose, or in the same meeting
14
authorizing the increase of directors or trustees if so stated in the

notice of the meeting. (n)
Other than by removal or expiration of term they do not have the

power
Obligations incurred by those acting for and in behalf of the

corporations are not theres BUT there are exceptions even if they
are acting for and in behalf of the corporation
Tramat vs. CA
When will the vacancies be filled up?
General rule was applied in the case
Is notice required, to fill up vacancies due to removal?
Ong acted as officers and acted within the scope of his authority
What if the vacancy is due to an increase, can it be filled up in the

same meeting where in the number is increased?
Court laid down 4 instances when even if acting within the scope of
his authority he is held solidarily liable
Election due to removal-in the same meeting notice is not required
1.
Election due to increase in number- it must be so stated in the

meeting
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;
Section 30
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;
4.
He is made, by a specific provision of law, to personally answer for

his corporate action.
Watered stocks- issued, fully paid up when in fact they have not
been fully paid or promised as such

-
Generally not entitled to receive compensation because they render it

gratuitously
Unless the by-laws allows
Stockholders may also grant pursuant to a majority vote
Must not exceed net income of 10% tax of the preceding year
Acting in special capacity
In, sum directors may receive compensation when
1.
there is a provision in the by-laws to that effect
2.
When the stockholders, by a majority vote of the outstanding capital

stock grant the same; and,
Llamado vs. CA
-
The corporate entity theory cannot be used as a defense to escape

liability in violation of B.P. 22
Where the check is drawn by a corporation the persons who signed

the check shall be liable.
Uichico vs. NLRC
Labor case corporate directors and officers are solidarily liable with
the corporation for the termination of employment of corporate
employee done with malice and bad faith
3 fold duty of directors
obedient
If the director renders extra-ordinary or unsual service
diligent
Central cooperative exchange vs. Tibe
loyal
By-laws may allow, stockholders may also allow such
Business judgment rule
What do you understand by the phrase as such directors
Questions of policy and management are left solely to the honest

decision of the board of directors and the courts are without authority
to substitute its judgment as against the former. The directors are the
business managers of the corporation and as long as they act in good
faith, its actuations are not subject to judicial review. Montelibano
vs. Bacolod Murcia Milling
questions of policy and management are left solely to the board of

directors
BOD, business manager of the corporation and as long as they act in

good faith, its actuations are not subject to judicial review
They are not insurer of the property of the company, they were
guarantors that the enterprise undertaken by the corporation shall be
successful
3.
Western institute vs. Salas

-
Compensation was granted without by-laws authority
Prohibition is not a sweeping rule
Members of the board may receive when they receive in a special

capacity
Mere act of the board will suffice
Is the 10% ceiling applicable to other officers?
NO. the phrase as such director was used twice <Section 30>
The SC ruled that the 10% ceiling will not likewise apply if they
acted in a capacity other than as such directors
Montelibano vs. Bacolod Murcia Milling Co.

-
Directors are not liable due to imprudence or honest error of

judgment
Government vs. El Hogar

-
Judicial intervention is not proper
Duty of loyalty of corporate directors
The appropriates remedy is to those who can make or unmake the

by-laws
31,32,33,34
Liability of corporate officers
31,32,33- specific instances when corporate officers may violate

loyalty

15
32,33 self-dealing and interlocking director
YES. If all the 4 conditions are present they will be valid per se
Corporate opportunity doctrine
1.
It places a director of a corporation in the position of a fiduciary and

prohibits him form seizing a business opportunity and/or developing
it at the expense and with the facilities of the corporation. He cannot
appropriate to himself a business opportunity which in fairness
should belong to the corporation.
That the presence of such director or trustee in the board meeting in

which the contract was approved was not necessary to constitute a
quorum for such meeting;
2.
That the vote of such director or trustee was not necessary for the
approval of the contract;
3.
That the contract is fair and reasonable under the circumstances; and
Last paragraph of section 31 and the provision of section 34 make

reference to recovery of forbidden profits
4.
That in case of an officer, the contract has been previously

authorized by the board of directors.
Distinction between section 31 and 34 relative to the ratification by

the stockholders
When do they become voidable?
The second paragraph of section 31 which makes a director liable to

account for profits if he attempts to acquire or acquires any interest
adverse to the corporation in respect to any matter reposed in him in
confidence as to which equity imposes a disability upon him to deal
in his own behalf is not subject to ratification by the stockholders.
Whereas, in section 34 if a director acquires for himself a business
opportunity which should belong to the corporation, he is bound to
account for such profits unless his act is ratified by the stockholders
owning ore representing at least 2/3 of the outstanding capital stock.
When any of the two requisites are absent it is voidable, but subject
to ratification by 2/3 of the outstanding capital stock or 2/3 of the
member
Requisites for ratification (subject to ratification by the stockholders

holding or representing at least 2/3 of the outstanding capital stock or
2/3 of the members.)
it must be at a meeting called for the purpose
If reposed in him in confidence, not subject to ratification
full disclosure of the adverse interest of the director concerned must

be made
If the acquisition is merely that of a business opportunity which has

not been reposed in him in confidence, the same may be subject to
ratification by the stockholders.
the contract is fair and reasonable under the circumstances
Problem if self-dealing director involved owns all or substantially all

of the shares of stock of the corporation thereby making it easily
possible to have the contract ratified
last sentence of section 32 should be made to apply by determining

the reasonableness and fairness of the contract
Director x co.
A-REALTY
B
C
Z owns property and is going abroad never

to Return, he wants to sell for 25M the fair
market value is 30M
Section 32. Dealings of directors, trustees or officers

with the corporation. - A contract of the corporation with one or
more of its directors or trustees or officers is voidable, at the option
of such corporation, unless all the following conditions are present:
D
1. That the presence of such director or trustee in the board meeting
in which the contract was approved was not necessary to constitute a
quorum for such meeting;
E
E goes to Z and offers to pay the property for 26 M and later he sells it for 30M
making 4M profit, one of the stockholders learned and complains that he should
submit the profits. E said that he will move for ratification of his actuation. Can it
be ratified?
2. That the vote of such director or trustee was not necessary for the
approval of the contract;
It can be ratified he merely acquired a business owning to the

corporation
3. That the contract is fair and reasonable under the circumstances;

and
It would be different if it was entrusted in his confidence
4. That in case of an officer, the contract has been previously

authorized by the board of directors.
Another scenario:
Strong vs. Rapide
Where any of the first two conditions set forth in the

preceding paragraph is absent, in the case of a contract with a
director or trustee, such contract may be ratified by the vote of the
capital stock or of at least two-thirds (2/3) of the members in a
meeting called for the purpose: Provided, That full disclosure of the
adverse interest of the directors or trustees involved is made at such
meeting: Provided, however, That the contract is fair and reasonable
under the circumstances. (n)
What duty did he violate?
Prime white cement vs. IAC
He violated his duty of loyalty
a director of a corporation owes a position in trust
The law would be impotent if the sale were not invalidated
in case of conflict between himself and that of the corporation, he

cannot sacrifice the interest of the corporation to his own advantage
Self-dealing director and interlocking director

-
What is a self-dealing director?
as a director he should have acted in a manner as not to unduly

prejudice the corporation
Director of a corporation dealing or transacting business with his

corporation
he cannot be allowed to enrich himself
May corporate directors purchase the corporate property?
Are the contracts and dealing of a self0dealing director valid?
General rule: voidable
May the contracts of a self-dealing director be valid per se.
Had A not attended the meeting he would not have known of the sale it is then
a matter reposed in him in confidence
A corporation cannot reaquire its share if it has no restricted

unretained earnings
Mead vs. Mccullogh

interlocking director- a director of one corporation who deals and

transacts business with another corporation who is himself a director
16
Any benefit should inure to the corporation
C-
Stockholder bringing the action is entitled to reimbursement such as

attorneys fee ONLY IF the case is SUCCESSFUL to avoid
harassment suit to their management
D-
Pascual vs. Orozco
A-
director of X company also a director of Y corporation
B-
Both companies enter into a contract and A sits, is the contract valid?
Yes on the ground of fraud or if it is unfair
May be subject to the provision of section 32
Section 32 contract may become voidable, hence it may also be

ratified
X Co.
By virtue of the fact that he is a stockholder, may maintain a

derivative suit
Depend on how, when and what reason
Seeking for the years 1898 all the way 1907
Only became a stockholder in 1903
He can sue only in 1903 forward because he must be a stockholder
The right of action is personal in nature. He became a stockholder

only in 1902
Derivative suit
By a stockholder to address a wrong done against the corporation

and the stockholder indirectly
Essential requisite must have been a stockholder from the time the
act complained of took place
Cannot institute an action from the years he was still not a

stockholder
Y Co.
A owe 20%
owe 20%
Is it generally valid or voidable? VALID

25%
25% VALID
15%
25% VOIDABLE SUBJECT TO section 32
More than 20 substantial
BOD mismanages corporate officers. Who may file a suit?
General rule: BOD which can institute a case because it has all the
powers. To allow stockholders to file would violate the doctrine of
corporate entity and may result to multiplicity of suits
Stockholders cannot therefore generally file a case EXCEPT of

course in a DERIVATIVE SUIT
Derivative suit
Everett vs. Asia Banking

-
Stockholders cannot ordinarily commence suit in equity and such is

in the hands of its BOD however there are exceptions when the BOD
will not sue since they are themselves principals to the fraud.
Republic vs. Cuaderno
The facts constitute sufficient cause of action
It is not the corporate interest to shield one from criminal

prosecution which is personal interest
An action based on injury to the corporation-to enforce a corporate

right- wherein the corporation itself is joined as a necessary party,
and recovery is in favor of and for the corporation.
Perez is not suing in his behalf, but in behalf of the corporation
Remedy granted by law to stockholders to institute a case to remedy

a wrong done directly to the corporation and indirectly to the
stockholders, if the board refuses to do so. Otherwise if not they
would be left without any recourse
Assuming it was filed in the proper forum would there argument that
it is a derivative suit prosper? NO. it is people of the Philippines vs.
individual director, it must be stated in the complaint that it is being
instituted as a derivative suit and for and in behalf of the corporation
Available suits
individual or personal
Wrong done against his person as a stockholder
Granting arguendo, that this is a derivative suit, the same is still

outrightly 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 SEC which exercises original and
exclusive jurisdiction over derivative suits, they being intracorporate disputes, per Section 5 (b) of P.D. 902-A
Class suit
Filed by a stockholder in representation of other stockholders
A wrong or redress done, a derivative suit in nature
Western institute vs. Salas
San Miguel vs. Khan

-
Was a demand made? NO
Intra-corporate remedies
It is not necessary because he objected in the board meeting, but still

it was adopted therefore it was useless
Demand to the BOD to institute such action
Chase vs. Buencamino
Negated by the BOD
Argument that he should be in estoppels since he filed in the U.S.
The one who instituted must be a stockholder at the date when the
act was done, must have been a stockholder by that time
Assuming the case prospered in the U.S. would not estoppels apply
as against him? NO for estoppels to step in it must be a case by the
corporation
Demand will not be required if the majority of the BOD are the ones
guilty of the wrong charged
The corporation must be made a party in the case whatever side will
not matter because under Philippine law misjoinder is not a ground
for dismissal
Corporate director are guilty of breach of trust
A stockholder may institute an action to remedy a wrong done
Non-joinder is a ground for dismissal
Fraud in the conduct of corporate affairs

Reyes vs. tan
17
Gamboa vs. Victoriano

-
Is derivative suit appropriate in this case
They are not vindicatory damage done to the corporation, but rather
they where vindicating damage against him
board which by its express terms is not so amendable or repealable;

and (5) a distribution of cash dividends to the shareholders.
-
Said committee may act and bind the corporation by the majority
vote of all its members except with respect to those matters provided
for in sec. 35 these are:
Violation of their rights as individuals, hence derivative suit is not

the remedy
1.
Approval of any action for which shareholders approval is also

required
Evangelista vs. Santos
2.
The filing of vacancies in the board;
Derivative suit is not proper
3.
Amendment or repeal of by-laws or the adoption of new by-laws;
Claim is not for the benefit of the corporation, but rather his
individual benefit
4.
Amendment or repeal of any resolution of the board which by its

express terms is not so amenable or repealable; and,
From the cases above cited, these are the requirements and the
procedures that must be followed in order that a derivative suit may
prosper
5.
Distribution of cash dividends to the shareholders.
May the board alone create an executive committee without any

authority provided for the by-laws?
NO board of directors must sit and act as a body to have a valid

transaction
May a non-member of the board of directors be a member of the

executive committee?
NO, all of them must be members of the board of directors
BOD cannot act by proxy it would be abdication of powers
Purpose clauses necessary because it confers and also limits the

actual authority of the corporation
1.
That the party bringing the suit should be a stockholder as of the

time the act or transaction complained of took place, or whose shares
have evolved upon him since by operation of law. This rule,
however, does not apply if such act or transaction continues and is
injurious to the stockholder or affect him specifically in some other
way.
The number of his hares is immaterial since he is not suing in his
own behalf or for the protection or vindication of his own right, or
the redress of a wrong done against him, individually, but in behalf
and for the benefit of the corporation.
2.
3.
4.
5.
He has tried to exhaust intra-corporate remedies, he has made a

demand on the board of directors for the appropriate relief but the
latter had failed or refused to heed his plea. Demand, however, is not
required if the company is under the complete control of the
directors who are the very ones to be sued (or where it becomes
obvious that a demand upon them would have been futile and
useless) since the law does not require a litigant to perform useless
acts;
The stockholder bringing the suit 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, otherwise, the case is
dismissible. This is because the cause of action actually devolves on
the corporation and not to a particular stockholder.
The corporation should be made a party, either as party-plaintiff or
defendant, in order to make the courts judgment binding upon it,
and thus, bar future litigation of the same issues. On what side the
corporation appears loses importance when it is considered that it lay
within the power of the court to direct the making of amendment of
the pleading, by adding or dropping parties, as may be required in
the interest of justice. Misjoinder of parties is not a ground to dismiss
action; and,
Any benefit or damages recovered shall pertain to the corporation.
This is so because in all instances, derivative suit is instituted for and
in behalf of the corporation and not for the protection or vindication
of a right or rights of a particular stockholder, otherwise, the
aggrieved stockholder should institute, instead, an individual or
personal suit to vindicate his personal or individual right. Or, for that
matter, representative or class suit for all other stockholders whose
rights are similarly situated, injured or violated, personally or
individually.
Executive committee
Not allowed under the OLD law
How may executive committee created and constituted?
Section 35
Section 35. Executive committee. - The by-laws of a
corporation may create an executive committee, composed of not
less than three members of the board, to be appointed by the board.
Said committee 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,
except with respect to: (1) approval of any action for which
shareholders' approval is also required; (2) the filing of vacancies in
the board; (3) the amendment or repeal of by-laws or the adoption of
new by-laws; (4) the amendment or repeal of any resolution of the

CORPORATE POWERS AND AUTHORITY
Corporate authority may be classified into three classes namely:
1.
Those expressly granted or authorized by law inclusive of the

corporate charter or articles of incorporation;
2.
Those impliedly granted as are essential or reasonably necessary to

the carrying out of the express powers;
3.
Those that are incidental to its existence.
Section 36 to 45- POWER GRANTED BY LAW
Section 36. Corporate powers and capacity. - Every corporation

incorporated under this Code has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated
in the articles of incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the
provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy,
and to amend or repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers
and to sell stocks to subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and to admit members
to the corporation if it be a non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage and otherwise deal with such real and personal
property, including securities and bonds of other corporations, as the
transaction of the lawful business of the corporation may reasonably
and necessarily require, subject to the limitations prescribed by law
and the Constitution;
8. To enter into merger or consolidation with other corporations as
provided in this Code;
9. To make reasonable donations, including those for the public
welfare or for hospital, charitable, cultural, scientific, civic, or
similar purposes: Provided, That no corporation, domestic or foreign,
18
shall give donations in aid of any political party or candidate or for

purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit
of its directors, trustees, officers and employees; and
11. To exercise such other powers as may be essential or necessary
to carry out its purpose or purposes as stated in the articles of
incorporation. (13a)
Section 37. Power to extend or shorten corporate term. - A private
corporation may extend or shorten its term as stated in the articles of
incorporation when approved by a majority vote of the board of directors or
trustees and ratified at a meeting by the stockholders representing at least twothirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the
members in case of non-stock corporations. Written notice of the proposed action
and of the time and place of the meeting shall be addressed to each stockholder or
member at his place of residence as shown on the books of the corporation and
deposited to the addressee in the post office with postage prepaid, or served
personally: Provided, That in case of extension of corporate term, any dissenting
stockholder may exercise his appraisal right under the conditions provided in this
code. (n)
Section 38. Power to increase or decrease capital stock; incur,
create or increase bonded indebtedness. - No corporation shall increase or
decrease its capital stock or incur, create or increase any bonded indebtedness
unless approved by a majority vote of the board of directors and, at a
stockholder's meeting duly called for the purpose, two-thirds (2/3) of the
outstanding capital stock shall favor the increase or diminution of the capital
stock, or the incurring, creating or increasing of any bonded indebtedness.
Written notice of the proposed increase or diminution of the capital stock or of
the incurring, creating, or increasing of any bonded indebtedness and of the time
and place of the stockholder's meeting at which the proposed increase or
diminution of the capital stock or the incurring or increasing of any bonded
indebtedness is to be considered, must be addressed to each stockholder at his
place of residence as shown on the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or served personally.
A certificate in duplicate must be signed by a majority of the directors of the
corporation and countersigned by the chairman and the secretary of the
stockholders' meeting, setting forth:
(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or
number of shares of no-par stock thereof actually subscribed, the
names, nationalities and residences of the persons subscribing, the
amount of capital stock or number of no-par stock subscribed by
each, and the amount paid by each on his subscription in cash or
property, or the amount of capital stock or number of shares of nopar stock allotted to each stock-holder if such increase is for the
purpose of making effective stock dividend therefor authorized;
(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the
meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital
stock, or the incurring, creating or increasing of any bonded
indebtedness.
Any increase or decrease in the capital stock or the incurring, creating or
increasing of any bonded indebtedness shall require prior approval of the
Securities and Exchange Commission.
One of the duplicate certificates shall be kept on file in the office of the
corporation and the other shall be filed with the Securities and Exchange
Commission and attached to the original articles of incorporation. From and after
approval by the Securities and Exchange Commission and the issuance by the
Commission of its certificate of filing, the capital stock shall stand increased or
decreased and the incurring, creating or increasing of any bonded indebtedness
authorized, as the certificate of filing may declare: Provided, That the Securities
and Exchange Commission shall not accept for filing any certificate of increase of
capital stock unless accompanied by the sworn statement of the treasurer of the
corporation lawfully holding office at the time of the filing of the certificate,
showing that at least twenty-five (25%) percent of such increased capital stock
has been subscribed and that at least twenty-five (25%) percent of the amount
subscribed has been paid either in actual cash to the corporation or that there has
been transferred to the corporation property the valuation of which is equal to
twenty-five (25%) percent of the subscription: Provided, further, That no decrease
of the capital stock shall be approved by the Commission if its effect shall
prejudice the rights of corporate creditors.

Non-stock corporations may incur or create bonded indebtedness, or increase the

same, with the approval by a majority vote of the board of trustees and of at least
two-thirds (2/3) of the members in a meeting duly called for the purpose.
Bonds issued by a corporation shall be registered with the Securities and
Exchange Commission, which shall have the authority to determine the
sufficiency of the terms thereof. (17a)
Section 39. Power to deny pre-emptive right. - All stockholders of a
stock corporation shall enjoy pre-emptive right to subscribe to all issues or
disposition of shares of any class, in proportion to their respective shareholdings,
unless such right is denied by the articles of incorporation or an amendment
thereto: Provided, That such pre-emptive right shall not extend to shares to be
issued in compliance with laws requiring stock offerings or minimum stock
ownership by the public; or to shares to be issued in good faith with the approval
of the stockholders representing two-thirds (2/3) of the outstanding capital stock,
in exchange for property needed for corporate purposes or in payment of a
previously contracted debt.
Section 40. Sale or other disposition of assets. - Subject to the
provisions of existing laws on illegal combinations and monopolies, a corporation
may, by a majority vote of its board of directors or trustees, sell, lease, exchange,
mortgage, pledge or otherwise dispose of all or substantially all of its property
and assets, including its goodwill, upon such terms and conditions and for such
consideration, which may be money, stocks, bonds or other instruments for the
payment of money or other property or consideration, as its board of directors or
trustees may deem expedient, when authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, or in case of
non-stock corporation, by the vote of at least to two-thirds (2/3) of the members,
in a stockholder's or member's meeting duly called for the purpose. Written notice
of the proposed action and of the time and place of the meeting shall be addressed
to each stockholder or member at his place of residence as shown on the books of
the corporation and deposited to the addressee in the post office with postage
prepaid, or served personally: Provided, That any dissenting stockholder may
exercise his appraisal right under the conditions provided in this Code.
A sale or other disposition shall be deemed to cover substantially all the corporate
property and assets if thereby the corporation would be rendered incapable of
continuing the business or accomplishing the purpose for which it was
incorporated.
After such authorization or approval by the stockholders or members, the board of
directors or trustees may, nevertheless, in its discretion, abandon such sale, lease,
exchange, mortgage, pledge or other disposition of property and assets, subject to
the rights of third parties under any contract relating thereto, without further
action or approval by the stockholders or members.
Nothing in this section is intended to restrict the power of any corporation,
without the authorization by the stockholders or members, to sell, lease,
exchange, mortgage, pledge or otherwise dispose of any of its property and assets
if the same is necessary in the usual and regular course of business of said
corporation or if the proceeds of the sale or other disposition of such property and
assets be appropriated for the conduct of its remaining business.
In non-stock corporations where there are no members with voting rights, the vote
of at least a majority of the trustees in office will be sufficient authorization for
the corporation to enter into any transaction authorized by this section.
Section 41. Power to acquire own shares. - A stock corporation shall
have the power to purchase or acquire its own shares for a legitimate corporate
purpose or purposes, including but not limited to the following cases: Provided,
That the corporation has unrestricted retained earnings in its books to cover the
shares to be purchased or acquired:
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out of
unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold
during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment for their
shares under the provisions of this Code. (a)
Section 42. Power to invest corporate funds in another corporation
or business or for any other purpose. - Subject to the provisions of this Code, a
private corporation may invest its funds in any other corporation or business or
for any purpose other than the primary purpose for which it was organized when
approved by a majority of the board of directors or trustees and ratified by the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock,
or by at least two thirds (2/3) of the members in the case of non-stock
corporations, at a stockholder's or member's meeting duly called for the purpose.
Written notice of the proposed investment and the time and place of the meeting
shall be addressed to each stockholder or member at his place of residence as
shown on the books of the corporation and deposited to the addressee in the post
office with postage prepaid, or served personally: Provided, That any dissenting
stockholder shall have appraisal right as provided in this Code: Provided,
however, That where the investment by the corporation is reasonably necessary to
accomplish its primary purpose as stated in the articles of incorporation, the
approval of the stockholders or members shall not be necessary. (17 1/2a)
19
Section 43. Power to declare dividends. - The board of directors of a

stock corporation may declare dividends out of the unrestricted retained earnings
which shall be payable in cash, in property, or in stock to all stockholders on the
basis of outstanding stock held by them: Provided, That any cash dividends due
on delinquent stock shall first be applied to the unpaid balance on the subscription
plus costs and expenses, while stock dividends shall be withheld from the
delinquent stockholder until his unpaid subscription is fully paid: Provided,
further, That no stock dividend shall be issued without the approval of
stockholders representing not less than two-thirds (2/3) of the outstanding capital
stock at a regular or special meeting duly called for the purpose. (16a)
the old rules was ambiguous and broad and at all time illogical
the particular revision under Section 11 of Rule 14 was explained by

retired Supreme Court Justice Florenz Regalado, thus:
xxx the then section 13 of this Rule allowed service
upon a defendant corporation to be made on the
president, manager, secretary, cashier, agent or any of
its directors. The aforesaid terms were obviously
ambiguous and susceptible of broad and sometimes
illogical interpretations, especially the word agent of
the corporation. The Filoil case, involving the litigation
lawyer of the corporation who precisely appeared to
challenge the validity of service of summons but whose
very appearance for that purpose was seized upon to
validate the defective service, is an illustration of the
need for this revised section with limited scope and
specific terminology. Thus the absurd result in the Filoil
case necessitated the amendment permitting service
only on the in-house counsel of the corporation who is
in effect an employee of the corporation, as
distinguished from an independent practitioner.
Stock corporations are prohibited from retaining surplus profits in excess of one
hundred (100%) percent of their paid-in capital stock, except: (1) when justified
by definite corporate expansion projects or programs approved by the board of
directors; or (2) when the corporation is prohibited under any loan agreement
with any financial institution or creditor, whether local or foreign, from declaring
dividends without its/his consent, and such consent has not yet been secured; or
(3) when it can be clearly shown that such retention is necessary under special
circumstances obtaining in the corporation, such as when there is need for special
reserve for probable contingencies. (n)
Section 44. Power to enter into management contract. - No
corporation shall conclude a management contract with another corporation
unless such contract shall have been approved by the board of directors and by
stockholders owning at least the majority of the outstanding capital stock, or by at
least a majority of the members in the case of a non-stock corporation, of both the
managing and the managed corporation, at a meeting duly called for the purpose:
Provided, That (1) where a stockholder or stockholders representing the same
interest of both the managing and the managed corporations own or control more
than one-third (1/3) of the total outstanding capital stock entitled to vote of the
managing corporation; or (2) where a majority of the members of the board of
directors of the managing corporation also constitute a majority of the members
of the board of directors of the managed corporation, then the management
contract must be approved by the stockholders of the managed corporation
owning at least two-thirds (2/3) of the total outstanding capital stock entitled to
vote, or by at least two-thirds (2/3) of the members in the case of a non-stock
corporation. No management contract shall be entered into for a period longer
than five years for any one term.
The provisions of the next preceding paragraph shall apply to any contract
whereby a corporation undertakes to manage or operate all or substantially all of
the business of another corporation, whether such contracts are called service
contracts, operating agreements or otherwise: Provided, however, That such
service contracts or operating agreements which relate to the exploration,
development, exploitation or utilization of natural resources may be entered into
for such periods as may be provided by the pertinent laws or regulations. (n)
Section 45. Ultra vires acts of corporations. - No corporation under
this Code shall possess or exercise any corporate powers except those conferred
by this Code or by its articles of incorporation and except such as are necessary or
incidental to the exercise of the powers so conferred. (n)
Section 36
Where should the corporation be sued?
principal office is important because it establishes the residence of

the corporation and determining service of summons, venue of action
it can be sued in the city or municipality where its principal office is

found
Principal office is also important for venue of meetings
Non-stock corporation may provide in its by-laws that the venue of

meeting be anywhere in the Philippines
Upon whom service of summons be made?
Section 11. Service upon domestic private juridical entity- when the
defendant is a corporation, partnership or association organized
under the laws of the Philippines with a juridical personality, service
may be made upon the president, managing partner, general
manager, corporate secretary, treasurer, or in house counsel.
notes: additional knowledge
special appearance enter for that particular appearance you are not
the counsel in the case
would apply only if it does not involve an intra-corporate

controversy (controversy between and among the stockholders)
upon any of the statutory officers or officers fixed in the by-laws any
secretary, any of the directors; any managers in the by-laws
Seal
merely ministerial or permissive
Power to amend
section 16
special 37,38,120
Power to adopt by-laws
section 46-48
Power to issue or sell stocks and to admit members
stock of stockholders and provision governing non-stock
Power to acquire or alienate real or personal property
is there any limitation? YES
Two specific limitation
1.
Section 36, as lawful transactions of business of the corporation may

reasonably and necessarily require
2.
Constitution and law

Luneta vs. A.D. Santos
Importance of the purpose clause
Cannot have the power to acquire
Cannot engage in land transportation
Doctrine of limited capacity
Delta motor vs. Mangosing

-
strict compliance is necessary
should be served to those named in the statute
secretary of a dept are not those included in the statute
Govt vs. El Hogar

-
As the lawful transaction of its business may reasonably represent

Director of Lands vs. CA
E.B. Villarosa vs. Benito

-
decision En Banc repeals all other pronouncement
section 13 Rule 14 was repealed

Exception to the rule in the constitution
Alienable public land
20
Converts the property to a private land automatically once converted

it can now be registered
After dissolution, it has 3 years to windup
Power to make donation
What are the modes of increasing capital stock?
Limitation section 36 par.9
1.
Increasing the par value of the existing number of shares without

increasing the number of shares;
These are circumstances, however, under which a donation by a

corporation may be to its benefit as a means of increasing its
business or promoting patronage. Thus, paragraph 9 of section 36
expressly authorizes a corporation to make donations. The only
limitations imposed are the following:
2.
Increasing the number of existing shares without increasing the par

value thereof; and,
3.
Increasing the number of existing shares and at the same time

increasing the par value of the shares.
1.
The donation must be reasonable;
Why a corporation increases it capital stock?
2.
It must be for public welfare, or for hospital, charitable, scientific,

cultural or similar purpose; and,
3.
It shall not be in aid of political party or candidate, or for purposes of

partisan political activity.
Generate funds, business expansion, or payment of liabilities,

purposes of acquiring other business. (example: to buy cars for the
officers, purpose of acquiring other business, expansion, other valid
reasons)
How do you decrease capital stock and why a corporation decreases?
Power to establish pension

-
Include any act to promote and improve the convenience, welfare

and benefit of the employees or offices
Reduce or wipeout existing deficit where no creditors would thereby

be effected
When capital is more than necessary to procreate the business or

reduction of capital surplus
To write down the value of its fixed assets to reflect those present
and actual
NOTE: any increase or decrease of capital stock requires approval of

government agency like SEC it can never take place unless SEC
approves the same
Relevance of decrease of capital?
1.
To reduce or wipe out existing deficit where no creditors would

thereby be affected;
2.
When the capital is more than what is necessary to procreate the

business or reduction of capital surplus; or,
3.
To write down the value of its fixed assets to reflect there present
actual value in case where there is a decline in the value of the fixed
assets of the corporation.
Examples: Php 10M capital for grocery business, mayor didnt want
to issue license/permit because mayor has 3 other grocery stores,
only allowed sari-sari store permit, reduce capital for sari-sari so that
the money will not sleep in bank
Example: car rental agencies-Php 10M capital for 20 taxis, after

some time each taxi is only 250K, nagmura ang taxi, to reduce
capital is to show actual assets
Limitation imposed by law
Decrease shall not in any way affect the rights of the creditors
Philippine Trust Company vs. Rivera
Without the appraisal of SEC, a decrease in capital stocks has no

effect
TRUST FUND DOCTRINE:
Republic vs. Acoje

-
While as a rule an ultra-vires act is one committed outside the object

for which a corporation is created as defined by law, there are
however certain corporate acts that may be performed outside of the
scope of the powers expressly conferred if they are necessary to
promote the interest or welfare of the corporation. Thus, it has been
held that although not expressly authorized to do so a corporation
may become a surety where the particular transaction is reasonably
necessary or proper to the conduct of its business, and here it is
undisputed that the establishment local post office is a reasonable
and proper adjunct to the conduct of the business of appellant
company. Indeed, such post office is a vital improvement in the
living condition of its employees and laborers who came to settle in
its mining camp which is far removed from the postal facilities or
means of communication accorded to people living in a city or
municipality.
Power to exercise such other powers essential or necessary to carry

out its purpose (implied power)
1.
Acts in the usual course of business;
2.
Acts to protect debts owing to the corporation;
3.
Embarking in a different business;
4.
Acts in part or wholly to protect or aid employees; and,
5.
Acts to increase business

Teresa Electric and Power Co. vs. P.S.C.
Examined the articles of incorporation to arrive at its decision

National Power vs. Vera
For purpose of prohibiting the NAPOCOR
The court must decide whether or not a logical and necessary

relation exists between the act questioned and the corporate purpose
expressed in the NPC charter
Importance of PLACE of registration
Residence
Subscription to capital stock of a corporation constitute a fund to

which the creditors have a right to look upon 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.
Venue
Madrigal vs. Zamora
Place of meetings
Decrease in capital has a subterfuge to evade payment
Place or registration of chattel mortgage
Thus not valid and effective
Power to extend its terms
Must not prejudice creditors which includes the employees
Once its term expires, already dissolved automatically, thus can no

longer ask for extension
Bond

21
Commonly understood as an obligation of a state, its subdivision or a

private corporation, represented by a certificate or an instrument for
the principal and by detachable coupons for the payment of interests.
In its simplest term, it is one where an obligor obliges himself to pay
a certain sum of money to another at a day named.
See section 96, close corporations must provide it first on its articles
of incorporation, that its articles does not really deny such preemptive rights.
Section 102, will not apply to close corporations
There are different kinds of bond but before they may be issued or
floated by the corporation, the same must be registered and approved
by the SEC subject to the rules and regulations that may be adopted
by that agency. The procedure and requirements set forth in section
38 is the same as in increasing or decreasing the capital stock except
that the certificate does not have to state the matters required in subsection 2 & 3 thereof.
The right of pre-emptive rights is absolute in close corporations
Pre-emptive rights
A right granted by law to all existing stockholders of a stock

corporation to subscribe to all issues or disposition of shares of any
class, in proportion to their respective stockholdings, subject only to
the limitations imposed under section 39 of the Code.
Internationally granted
Pre-emptive rights, why it is granted?
In order that the existing stockholders may maintain their

proportionate right as not to dilute their right
Power to deny pre-emptive rights
All issues or depositing shares of any class form part of ACS
Certain instances when a stockholder may nevertheless be unable to

exercise this right:
Issued for public ownership
Issued in good faith, with approval of 2/3 of outstanding capital

stock either a) in exchange for property needed or b) for payment of
a previously contracted debt
Pre- emptive rights of stockholders in ordinary stock corporations

may be denied
if the shares are to be issued in compliance with laws requiring

stock offering or minimum stock ownership by the pubic
In exchange for property needed for corporate purposes
In payment of previously contracted debts
This rule, however, does not apply in a close corporation as the preemptive rights of the stockholders thereof is broadened to include all
issues without exceptions unless, of course, denied or limited by the
articles of incorporations. Section 102 provides:
Section 39. Power to deny pre-emptive right. - All

stockholders of a stock corporation shall enjoy pre-emptive right to
subscribe to all issues or disposition of shares of any class, in
proportion to their respective shareholdings, unless such right is
denied by the articles of incorporation or an amendment thereto:
Provided, That such pre-emptive right shall not extend to shares to
be issued in compliance with laws requiring stock offerings or
minimum stock ownership by the public; or to shares to be issued in
good faith with the approval of the stockholders representing twothirds (2/3) of the outstanding capital stock, in exchange for property
needed for corporate purposes or in payment of a previously
contracted debt.
Denial will not apply to a close corporation, ABSOLUTE
section 96
May a stock holder in a close corporation insist in the exercise of his

pre-emptive rights?
Yes, section 102
Exceptions
What type or shares are covered by pre-emptive rights?
1.
When the shares to be issued is in compliance with laws

requiring stock offerings or minimum stock ownership by the
public
Does it include those originally unsubscribed?
NO. Benito vs. SEC
Shares to be issued in good faith with the approval of the

stockholders representing 2/3 of the outstanding capital stock
either
Will the stockholders be able to exercise their pre-emptive right with

respect to the old unissued shares?
Pre-emptive rights is applicable only to new issued shares and not to

the old unissued shares because it is presumed that the original
subscribers is deemed to have taken his shares knowing that they
form a definite proportionate part of the whole number of authorized
shares
When the shares, left unsubscribed are re-offered, he cannot

therefore claim. DILUTION OF INTEREST
Will the acquiring purchaser be liable for debts of the former

corporation?
Generally no, corporate entity theory because there may be instances

when purchasing corporation may be held liable
May a corporation acquire its own shares?
Yes
Is there any restriction provided for by law in reacquiring its own

shares?
Yes, it must have been unrestricted retained earnings appearing in

the books of corporation
May it be denied? How?
Yes, if provided by articles of incorporation or by an amendment
However, pre-emptive rights is unavailable to shares in trading in

stock exchange otherwise stockholders must waive first their right
before they may sell such.
2.
Section 102. Pre-emptive right in close corporations. The pre-emptive right of stockholders in close corporations shall
extend to all stock to be issued, including reissuance of treasury
shares, whether for money, property or personal services, or in
payment of corporate debts, unless the articles of incorporation
provide otherwise.
a.
In exchange for property needed for corporate purpose

or,
b.
In payment of a previously contracted debt
The exceptions, however will not apply to stockholders of a close

corporation by virtue of a subsequent and specific provision of the
Code which provides that the pre-emptive right of a stockholder in
a close corporation shall extend to all stock to be issued, including
reissuance of treasury shares, whether for money, property or
personal services or in payment of a corporate debt, unless the
articles of incorporation provide otherwise, if not entirely absolute,
in that it extends to all issuance and disposition of shares
Such right of pre-emption may be lost by waiver of the stockholder,
expressly or impliedly by his inability or failure to exercise it after
having been notified of the proposed issuance or disposition of
shares
When is it unavailable?
In shares traded openly in stock exchange/market
Is it applicable to close corporations?

22
A corporation can never acquire its own shares if it has no

unrestricted retained earnings
False, exception close corporation and redeemable shares
ASSETS
500K
1M PROFITS
500K LIABILITIES
EXAMPLE:
____________________
ACS
2M
SUBSCRIBED
1M
PAID UP
1M
100K
100K
500K RESERVES
IN
A
CLOSE
CORPORATION IT CAN USE THIS TO REACQUIRE ISSUED STOCKS
X REALTY CORPORATION
THE ONLY PROPERTY OF

THE CORPORATION
BOARD OF DIRECTORS
DECIDED TO SELL IT
TO
10
100K
If 1-5 became 200K each, may 6-10 demand the exercise their preemptive right?
YES
May 1-5 subscribe to the unsubscribed capital stock to the exclusion

of 6-10?
If a corporation makes 2M unrestricted retained earnings, it is the

shares and not the number of persons that matters
Will it need the approval of the stockholders?

-
NO, if the same is necessary in the usual and regular course of

business of said corporation or if the proceeds of the sale or other
disposition of such property and assets be appropriated for the
conduct of its remaining business
If X is a manufacturing company, then it can sell its only property

upon approval of the stockholders because it will render itself
capable of continuing its business, BUT if the proceeds will be used
to purchase a better one for the continuance of its business, then it
does not need the approval of the stockholders
May 6-10 complain for a dilution of their interest?
Conditions for the valid exercise of this power are the following
YES, its an internationally recognized right because it includes all

issues and disposition of shares of any class and all kinds of shares
new or old
1.
Resolution by the majority vote of the board of directors/trustees
2.
Authorization from the stockholders representing at least 2/3 of the

outstanding capital stock or 2/3 of the members;
If the remaining unsubscribed shares are issued, its an issuance of

any class
3.
The ratification of the stockholders or members must be made at a

meeting duly called for that purpose
May a corporation sell/dispose all or substantially all of its corporate

assets and liabilities?
4.
Prior written notice of the proposed action and of the time and place
of meeting must be made addressed to all stockholders of record,
either by mail or personal service;
5.
The sale of the assets shall be subject to the provisions of existing

laws on illegal combinations and monopolies
6.
Any dissenting stockholder shall have the option to exercise his

appraisal right
YES
1) RESOLUTION 2) AUTHORIZATION 3) RATIFICATION 4)

PRIOR WRITTEN NOTICE 5) SALE SUBJECT TO PROVISIONS
OF EXITING LAWS 6) DISSENTING STOCKHOLDERS HAVE
THE RIGHT TO EXERCISE THEIR APPRAISAL RIGHT
If a corporation sells substantially all of it assets and properties, will

the buyer assume liability?
IDP vs. CA
-
Consent of the members was not secured
NO, EXCEPT
1)
Express or implied agreement to the purchase
2)
Where the transaction amounts to consolidation or merger of the

corporations
3)
When purchasing corporation is merely a continuation of the selling

corporation
1.
Where the purchaser expressly or impliedly agrees to assume

such debts;
Where the transaction is entered into fraudulently in order to escape

liability for such debt
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 entered into fraudulently in order to

escape liability for such debts.
4)
Legitimate purpose: for a corporation to reacquire its own shares
Limitation: it must have surplus/unrestricted retained earnings
Exception: may redeem irrespective of unrestricted retained earnings
1)
Exercise of stockholders right to compel close corporation to

purchase his shares
2)
Where corporation has sufficient assets in its books to cover its debts
and liabilities exclusive of capital stock
ACS
1M
SUBSRIBED
1M
PAID-UP
1M

Edward Nell Co. vs. Pacific Farms

-
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, except:
Power to acquire own shares

Section 41. Power to acquire own shares. - A stock
corporation shall have the power to purchase or acquire its own
shares for a legitimate corporate purpose or purposes, including but
not limited to the following cases: Provided, That the corporation has
unrestricted retained earnings in its books to cover the shares to be
purchased or acquired:
23
2. To collect or compromise an indebtedness to the corporation,

arising out of unpaid subscription, in a delinquency sale, and to
purchase delinquent shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to
payment for their shares under the provisions of this Code. (a)
The corporation must at all times have unrestricted retained

earnings to exercise this corporate power
Steinberg vs. Velasco
For as long as there are debts and liabilities, a corporation may not
reacquire its shares (subject to exceptions)
Creditors of a corporation have the right to assume that so long as

there are outstanding debts and liabilities, the board of directors will
not use the assets of the corporation to purchase its own stock, and
that it will not declare dividends to stockholders when the
corporation is insolvent.
Power to invest funds <sec.42>

Section 42. Power to invest corporate funds in another
corporation or business or for any other purpose. - Subject to the
provisions of this Code, a private corporation may invest its funds in
any other corporation or business or for any purpose other than the
primary purpose for which it was organized when approved by a
majority of the board of directors or trustees and ratified by the
capital stock, or by at least two thirds (2/3) of the members in the
case of non-stock corporations, at a stockholder's or member's
meeting duly called for the purpose. Written notice of the proposed
investment and the time and place of the meeting shall be addressed
to each stockholder or member at his place of residence as shown on
the books of the corporation and deposited to the addressee in the
post office with postage prepaid, or served personally: Provided,
That any dissenting stockholder shall have appraisal right as
provided in this Code: Provided, however, That where the
investment by the corporation is reasonably necessary to accomplish
its primary purpose as stated in the articles of incorporation, the
approval of the stockholders or members shall not be necessary. (17
1/2a)
For any other purpose other than the primary purpose, stockholders
consent or approval is necessary
Thus, if its for the secondary purpose, it is necessary
If its in connection with the primary purpose, only board resolution

is necessary
Requirements and steps to be followed for a valid investment of

corporate funds are:
1.
Resolution by the majority of the board of directors or trustees;
2.
Ratification by the stockholders representing at least 2/3 of the

outstanding capital stock or 2/3 of the members in case of non-stock
corporations;
3.
The ratification must be made at a meeting duly called for that

purpose;
4.
Prior written notice of the proposed investment and the time and
place of the meeting shall be made, addressed to each stockholder or
member by mail or by personal service, and;
5.
Any dissenting stockholder shall have the option to exercise his

appraisal right
Dela rama vs. Ma-ao Sugar
There is a substantial and not remote connection between the sugar

bags and the sugar manufacture, thus stockholders approval is not
necessary for validity
A private corporation, in order to accomplish its purpose as stated in

its articles of incorporation, and imposed by the Corporation Law,
has the power to acquire, hold, mortgage, pledge, or dispose of
shares bonds, securities and other evidences of indebtedness of any
domestic or foreign corporation. Such an act, if done in pursuance of
the corporate purpose, does not need the approval of the
stockholders; but when the purchase of shares of another corporation
is done solely for investment and not to accomplish the purpose of
its incorporation, the vote of approval of the stockholders is
necessary.

Gokongwei vs. SEC

-
Investments made by SMC is necessarily connected with its primary

purpose and this was ratified in a meeting
Submission of previous action is a sound corporate practice
Redeemable shares
Closed corporation (see section 105)
For any reason, compel the value of shares withdrawal shares

provided corporation has sufficient funds to cover its debts and
liabilities
Section 105. Withdrawal of stockholder or dissolution
of corporation. - In addition and without prejudice to other rights
and remedies available to a stockholder under this Title, any
stockholder of a close corporation may, for any reason, compel the
said corporation to purchase his shares at their fair value, which shall
not be less than their par or issued value, when the corporation has
sufficient assets in its books to cover its debts and liabilities
exclusive of capital stock: Provided, That any stockholder of a close
corporation may, by written petition to the Securities and Exchange
Commission, compel the dissolution of such corporation whenever
any of acts of the directors, officers or those in control of the
corporation is illegal, or fraudulent, or dishonest, or oppressive or
unfairly prejudicial to the corporation or any stockholder, or
whenever corporate assets are being misapplied or wasted.
If shares are reacquired, what happens?
It becomes treasury shares
Stockholders consent/ approval is not necessary and mere board

action is sufficient if in accordance with primary purpose
The logical relation of act done and primary purpose of corporation

and between the board of directors to undertake submission of acts is
a sound corporate practice
Dividends
What are dividends?
Corporate profits set aside, declared and ordered by the Board of

Directors to be paid to the stockholders.
What are property dividends?
Those paid in property surplus
Like tables and chairs? Can tables and chairs make surplus profits?
No, they do not make surplus, bonds, etc.
Where should dividends come from?
Stock dividends are declared as stocks coming from corporation
Who declares dividends to be declared? Do stockholders have any

say?
24
Board of Directors, if stock approval of 2/3 outstanding capital stock
ACS-1M
the corporation)
SUB-1M
P.U.-1M
1M-U.R.E. (surplus profits of
100K
TO
10
100K
1-100k
1M
2-100k
May they be compelled?
NO. You cannot declare if it does not come from unrestricted

retained earnings.
1.
1M-U.R.E. (is it true there is no way to compel?)
2.
2M-U.R.E.
May they be compelled to declare dividends
Mandatory if earned, the board may be compelled to declare

dividends
if exceeds 100% of the paid-up capital the boards may be compelled
To
10-100k
1M
Board decides to declare 1M, how much will each receive? May the
board declare stock dividend
NO. that would be over issuance of shares, violation of securities

regulation code
It must have a free portion
The corporation may increase its capital
Z co. 1M to X Co. is 2/3 of Xco. Stockholders reacquired?
No, because in property 2/3 is not required
What is the effect of declaration of dividends with regards to the

assets of a company?
ACS
2M
1M
SUB
1M
PU
800K
1-100K
50K PU
As compared to stock dividends, the declaration of cash or property

dividends have the effect of reducing corporate assets to the extent of
dividends declared.
2-100K
50K
Neither would stock dividends increase the proportionate interest of

the stockholders of the corporation although it will have the effect of
increasing the subscribed and paid-up capital of the corporation. It
gives the stockholders nothing in the way of distribution of assets but
merely divides his existing shares into smaller units.
10-100K
U.R.E.
TO
1M
Will 1 and 2 receive full amount of dividends?
YES. They are entitled however if they are declared delinquent, the
amount due them shall first be applied to his delinquency plus
expenses.
Earnings belong to the corporation until declared or given
Revocation
No revocation of dividend may be has unless it has not been

officially communicated to the stockholders or is in the form of stock
dividends which is revocable at any time prior to distribution.
Delinquency occurs, you are called to pay, but you failed to pay. In
case of stock dividend, the delinquent stock holder will not be
entitled thereto until he has paid his subscription in full.
Stock dividends- no reduction, you capitalize your restricted retained

earnings, what is issued is a piece of paper. The restricted earnings
remain in the corporation
Are non-stockholders entitled to receive dividends?
No, tock dividends are civil fruits of the original investment, and to
the owners of the shares belong the civil fruits.
How did the court decide dividends in the case of Neilsen
Stock dividends cannot be issued to a person who is not a

stockholder in payment of services rendered.
Whether cash, property or stock, only stockholders may receive

dividends. Dividends are fruits of investments. They come from the
U.R.E. or surplus profits of the corporation.
Cash and property- reduces corporate assets
Stock dividends increase corporate assets? No, it will only have the
effect of increasing the subscribed and paid-up capital of the
corporation
Will there be a corresponding increase in their proportionate

interest?
REMAINS THE SAME
Exception: when stock dividends will result in a fractional share
ACS-2M
1-100K 200 (10%)
DIVIDEND RIGHTS STILL THE SAME
SUB-1M
TO
PU-1M
*VOTING AND
10%
10-100K
ACS
2M
1M
SUB
1M
JULY 31
JULY
PU
1M
1
100K
2M
SUB
1M
TO
RECORDED
PU
1M
1M
RE
100K
1M

100K
24
DECLARATION
100T JULY 26-Y(NEW ONE WAS DECLARED TO

Y) JULY 30- 100K
ACS
10
U.R.E.
TO
HAVE
THE
TRANSFER
25
Insofar as 1 and Y who has a better right? Already declared, but not
yet paid?
Right to receive vest upon declaration. Who ever owns at the time of
declaration owns the dividends
Not only a majority but 2/3 of the outstanding capital stock or 2/3 of
the members in a non-stock corporation would be required for the
approval of a management contract in the following instances:
1.
Where the stockholders representing the same interest of both the

managing and managed corporation own or control more than 1/3 of
the total outstanding capital stock of the managing corporation; and
2.
Where a majority of the members of the board of directors of the

managing corporation also constitute a majority of the directors of
the managed corporation
3.
Where the contract would constitute the management or operation of

all or substantially all of the business of another corporation, whether
such contracts are called service contracts. If it will not constitute the
management of all or substantially all of the business of another
corporation the first paragraph of section 44 will apply and not that
of the second, that is, only the vote of the stockholders holding or
representing at least a majority of the outstanding capital stock or
majority of the members in the case of non-stock corporation will be
required.
How long?
Not longer than 5 years for any one term
Exception: exploration, development or utilization of natural

resources
Unless there is a stipulation to the contrary
TRUST FUND DOCTRINE
The power to declare it if paid-up capital is not maintained or is

impaired
Trust fund must be kept intact for the protection of creditors who
have the right to rely on such subscription and the paid-up capital for
the satisfaction of their claims
Cannot accumulate surplus unreasonably
Basis is the paid-up capital
Entitled to dividends
Irrespective of whether the subscription is full
Illegally declared
Declare dividend with the belief that it formed part of the U.R.E., but
yun pala sa capital
What is an ultra-vires act or contract?
Directors are not liable, unless sec31 acted in bad faith or gross
negligence in the conduct of corporate affairs
Doctrine of limited capacity. Corporation can do such acts and things

as it is allowed to do
Directors even if acting in behalf of the corporation, may still be held

solidarily liable
Acts beyond it will be ultra vires, allowing a collateral attack
Power to enter into management contract
If not illegal per se merely voidable. Can be ratified expressly or

impliedly or even stopped as equitable grounds
New provision
Ultra-vires acts which are not illegal per se may become binding and
enforceable either by satisfaction, estoppels or equitable grounds
Consequences of ultra-vires acts?
1.
On the corporation itself
The proper forum, in accordance with the provisions of PD 902-A,

as amended and R.A. No. 8799 may suspend or revoke, after proper
notice and hearing, the franchise or certificate of registration of the
corporation for serious misrepresentation as to what the corporation
can do or is doing to the great damage or prejudice of the general
public
2.
On the rights of the stockholders
A stockholder may bring either an individual or derivative suit to

enjoin a threatened ultra-vires act or contract. If the act or contract
has already been performed, a derivative suit for damages against the
directors may be filed, but their liability will depend on whether they
acted in good faith and with reasonable diligence in entering into the
contract.
3.
On the immediate parties
The courts have not agreed as to the legal effect of a corporate

contract outside of its authorized business but Ballatine gives the
following summary of the doctrines evolved:
Section 44. Power to enter into management contract. No corporation shall conclude a management contract with another
corporation unless such contract shall have been approved by the
board of directors and by stockholders owning at least the majority
of the outstanding capital stock, or by at least a majority of the
members in the case of a non-stock corporation, of both the
managing and the managed corporation, at a meeting duly called for
the purpose: Provided, That (1) where a stockholder or stockholders
representing the same interest of both the managing and the managed
corporations own or control more than one-third (1/3) of the total
outstanding capital stock entitled to vote of the managing
corporation; or (2) where a majority of the members of the board of
directors of the managing corporation also constitute a majority of
the members of the board of directors of the managed corporation,
then the management contract must be approved by the stockholders
of the managed corporation owning at least two-thirds (2/3) of the
total outstanding capital stock entitled to vote, or by at least twothirds (2/3) of the members in the case of a non-stock corporation.
No management contract shall be entered into for a period longer
than five years for any one term.
The provisions of the next preceding paragraph shall
apply to any contract whereby a corporation undertakes to manage or
operate all or substantially all of the business of another corporation,
whether such contracts are called service contracts, operating
agreements or otherwise: Provided, however, That such service
contracts or operating agreements which relate to the exploration,
development, exploitation or utilization of natural resources may be
entered into for such periods as may be provided by the pertinent
laws or regulations. (n)
The requirement for a valid management contract are as follows:
1.
2.
Resolution of the board of directors

Approval by the stockholders holding or representing a majority of
the outstanding capital stock or majority of the members in case of
non-stock corporation of both the managing and the managed
corporation
The approval of the stockholders or members must be made at the
meeting called for that purpose
The contract shall not be for a period longer than 5 years for any one
term, except those which relate to exploration, development or
utilization of natural resources which may be entered into for such
periods as may be provided by pertinent laws and regulations
3.
4.
Every corporate act emanates from the BOARD
Is the voting requirements of a majority stockholder ABSOLUTE?

a.
If the contract is fully executed on both sides, the contract is

effective and the courts will no interfere to deprive either party
of what has been acquired under it
b.
If the contract is executory on both sides, as a rule, neither

party can maintain an action for its non-performance
c.
Where the contract is executor on one side only, and has been
fully performed on the other, the courts differ as to whether an
action will lie on the contract against the party who has
received benefits of performance under it. Majority of the
courts, however, hold that the party who has received benefits
from the performance is estopped to set up that the contract is
ultra-vires to defeat an action on the contract. This is more in
conformity with the doctrine that no person shall be allowed to
enrich himself at the expense of another
26
Privano vs. Dela Rama
What happens if the corporation fails to adopt the by-laws from the
tie provided by the law? Would there be an automatic revocation or
suspension?
Proper notice and hearing, must first be complied with
Court looked into the purpose clause
The purpose clause empowers and limits
Articles likewise provide that it may deal with any of its money
deal broad enough to cover the donation it is not then ultra-vires
Not the SEC, but the HIGC
Not illegal per se hence (law of agency) excess powers are subject to
ratification
Must not always imperative
Filing of by-laws mandatory
Ratified by passing the resolution in question

-
Empowered by SEC
Loyola grand villas vs. CA
Carlos vs. Mindoro sugar Co.

-
Merely a ground, there must be proper notice and hearing
PTC- trust company as such, it also has implied powers as to make

them more attractable
Not affect the status of the corporation as a juridical person
Not ultra-vires in pursuance of its legitimate business
Subject the corporation to a fine, as may be issued by the SEC
Japanese war notes vs. SEC
When do by-laws become effective?
Non-stock corporations cannot make profits and distribute profits to

its shareholders
Until and unless the SEC gives it stamped of approval
Ultra-vires because Japanese war notes is a non-stock corporation
Suspension of any government agency. The permission must first be

secured- section 46
Elements of a valid by-law
1.
It must not be contrary to law, public policy or morals;
2.
It must not be inconsistent with the articles of incorporation;
3.
It must be general and uniform in its effect or applicable to all alike

or those similarly situated;
4.
It must not impair obligations and contracts or vested rights; and
5.
It must be reasonable.
Must not be inconsistent with existing laws. Not be inconsistent with

articles of incorporation
Section 10
By-laws
Section 14 and 15
None filing would not affect the status of the corporation, Loyola
grand villas case
The word must is not always imperative
It may sell and it may guarantee, contract not necessarily illegal, it

will in the absence of proof to the contrary presumed within its
power. Corporations are presumed to contract with in its powersCARLOS CASE
Stockholders are conlusively presumed to know the provisions of the

by-laws
How about 3rd persons?
Purpose clause may be stretched to cover PLDT internet. It may be

within its business.
NO. unless there is actual knowledge of the same they are not
presumed to know of the provisions of the by-laws
May it sell computers? NO! other line of business. Its trading!
Crisologo-Jose
SUNDIANG)
-
vs.
CA
(ALWAYS
ASKED
BY
DEAN
The negotiable instruments law which holds an accommodation

party liable on the instrument to a holder for value, although such
holder at the time of taking the instrument knew him to be only an
accommodation party, does not include nor apply to corporations
which are accommodation parties. This is because the issue or
indorsement of negotiable paper by a corporation without
consideration and for the accommodation of another is ultra-vires
Corporate officers may guarantee or endorse an accommodation only
if specifically authorized
Section 36 paragraph 11
Corporate powers depend on the agreement of the stockholders

rather than any director
BY-LAWS
Fleischer vs. Botika Nolasco

-
Shares of stock are personal properties
By-Laws
Shares of stock may transfer to whom ever he wishes
Rule adopted by the corporation for its internal governance
The by-laws is contrary to law
Is the adoption of by-laws mandatory?
Articles of incorporation
When should the by-laws be adopted or filed? Can it not be adopted

earlier?
May provide reasonable restriction
After incorporation- within 1 month (emanates from the BOARD)
By-laws merely internal laws
Prior-more convenient (signed by the incorporators)
Articles is the contract between and among the parties and

corporation
Who will sign the adoption clause?
Majority of the stockholders or members attested to by the corporate

secretary

Govt vs. El Hogar

-
Did the court categorically ruled here that the provision in the 5th
cause of action is valid?
Rules governing equity, considering the fact that there was always
lack of quorum
27
Section 29 BOD if still constituting a quorum may fill up a vacancy

other than by removal, etc.
Upon issuance of the SEC that they are not inconsistent
What if the SEC failed to act within 10 months without fault

attributable to the corporation?
Gokongwei vs. SEC

-
Section 48 allows a corporation to amend it by-laws
T or F any amendment of the by-laws will never become valid until

it gives its stamp of approval even after 1 year
Section 47 of the code, the by-laws may provide for the qualification
and disqualification
TRUE. Articles of incorporation and by-laws are different
It cannot be said Gokongwei has a vested rights
Prevent directors from taking advantage of position to promote his

individual interest to the damage of others
The validity or reasonableness of a by-laws is a question of law
Subject to the limitations that reasonableness of a by-law is a mere

matter of judgment
Rule of the majority and not the tyranny of the minority
May the by-laws be amended altered or appealed?
YES. HOW? Two modes
1.
By a majority vote of the directors or trustees and the majority vote

of the outstanding capital stock or members in a non-stock
corporation, at a regular or special meeting called for that purpose;
2.
By the board of directors alone when delegated by 2/3 of the

outstanding capital stock or 2/3 of the members in a non-stock
corporation.
This delegated power, however, is considered revoked whenever a
majority of the outstanding capital stock or members shall so vote at
a regular or special meeting.
If it is to be amended what is the proceeding?
Section 48 2nd paragraph provides:

Section 48. Amendments to by-laws. - The board of
directors or trustees, by a majority vote thereof, and the owners of at
least a majority of the outstanding capital stock, or at least a majority
of the members of a non-stock corporation, at a regular or special
meeting duly called for the purpose, may amend or repeal any bylaws or adopt new by-laws. The owners of two-thirds (2/3) of the
outstanding capital stock or two-thirds (2/3) of the members in a
non-stock corporation may delegate to the board of directors or
trustees the power to amend or repeal any by-laws or adopt new bylaws: Provided, That any power delegated to the board of directors or
trustees to amend or repeal any by-laws or adopt new by-laws shall
be considered as revoked whenever stockholders owning or
representing a majority of the outstanding capital stock or a majority
of the members in non-stock corporations, shall so vote at a regular
or special meeting.
Whenever any amendment or new by-laws are adopted,
such amendment or new by-laws shall be attached to the original bylaws in the office of the corporation, and a copy thereof, duly
certified under oath by the corporate secretary and a majority of the
directors or trustees, shall be filed with the Securities and Exchange
Commission the same to be attached to the original articles of
incorporation and original by-laws.
The amended or new by-laws shall only be effective
upon the issuance by the Securities and Exchange Commission of a
certification that the same are not inconsistent with this Code. (22a
and 23a)
Baretto vs. La Previsora
Any corporate act emanates from the board
Directors themselves cannot amend the by-laws if they were not

granted the same
Section 48
The power granted is not subject to revocation T or F?
FALSE
If the by-laws are amended when will they become valid?

MEETINGS
Meetings
Meetings of stockholders
the by-laws or by-law
Meetings of director or trustees
Meetings are regular and special
Meetings of stockholders
What is regular and what is special?
When are regular meetings of the stockholders held?
Fixed date provided by the by-laws
What if there is no date?
April
Why april?
Point in time the audited financial statement have been prepared
What if in the date specified in the by-laws or by the law itself the
meeting was not convened, for instance lack of quorum or force
majeure?
It may be postponed on a reasonable date
Notice requirement?
Regular- 2 weeks prior notice
Special- 1 week
May the notice requirement be lessened?
By-laws may provide a longer or a shorter duration
What if the notice requirement is not complied with?
What happened to any act passed in a meeting when notice

requirement was not required with?
Voidable, subject to ratification
1. Date fixed in
Board of directors vs. Tan

-
Notice requirement is the by-laws is a mandatory requirement
Improperly served, any action will be invalidated at the objection of

any stockholder or member
Must be held in the proper place
Where should it be held?
Apparent from the foregoing provision is that meetings of

stockholders must, at all times, be held in the city or municipality
where the principal office of the corporation is located and, as far as
practicable, in the principal office of the corporation.
May the by-laws of a corporation provide that meetings be held

anywhere in the Philippines?
While there is no provision authorizing a stock corporation to hold

stockholders meetings outside of the City of Municipality where the
principal office is located, the law allows a non-stock corporation to
provide in its by-laws any place of members meeting provided that
28
proper notice is sent to all members indicating the date, time and
place of the meeting which shall be within the Philippines.
T or F the by-laws of a stock corporation may validly provide that

meetings shall be held anywhere in the Philippines?
It depends.
Section 6 last par. If it falls within the penultimate par. Of section 6
Five requisites of a valid meeting
FALSE. Non-stock corporations lang pwede provided nakalagay sa

by-laws and provided proper notice is given
1.
It must be held on the date fixed in the by-laws or in accordance with

law
Corporation can do only such things as the law allows it to do,

DOCTRINE OF LIMITED CAPACITY
2.
Prior notice must be given
3.
It must be held at he proper place
San Miguel office located in Ortigas Center. May stockholders

meeting be held in PICC center?
4.
It must be called by the proper party
YES. Metro Manila, one single city
5.
Quorum and voting requirements must be met
Must be called by the proper party
Who calls?
Date not complied with, notice, place, not complied with and the
person who called not authorized, what happens to any resolution
called?
President until and unless there is a provision , secretary on order of

the president
Section 51, any meeting shall be valid provided all the stockholders
are present or duly represented and provided it is within the power of
the corporation. 3RD paragraph of 324
What if there is nobody who can call?

-
The petitioner, stockholder may petition the court
What if there is a person who can call, but he fails or neglects to call
the meeting? May a stockholder petition to authorize a meeting?
If the voting requirement is met, any resolution passed in the

meeting, even if improperly held or called will be valid if all the
stockholders or members are present or duly represented thereat. The
last paragraph of section 51 is clear on the matter when it provides:
Ponce case only applies when there is NO person authorized to call

the meeting. If there is a person, but neglects his duty. Ponce will not
apply.
Writ of injunction may never be issued ex parte
Is there any exception?
Section 28 only instance

Section 28. Removal of directors or trustees. - Any
director or trustee of a corporation may be removed from office by a
vote of the stockholders holding or representing at least two-thirds
(2/3) of the outstanding capital stock, or if the corporation be a nonstock corporation, by a vote of at least two-thirds (2/3) of the
members entitled to vote: Provided, That such removal shall take
place either at a regular meeting of the corporation or at a special
meeting called for the purpose, and in either case, after previous
notice to stockholders or members of the corporation of the intention
to propose such removal at the meeting. A special meeting of the
stockholders or members of a corporation for the purpose of removal
of directors or trustees, or any of them, must be called by the
secretary on order of the president or on the written demand of the
stockholders representing or holding at least a majority of the
outstanding capital stock, or, if it be a non-stock corporation, on the
written demand of a majority of the members entitled to vote. Should
the secretary fail or refuse to call the special meeting upon such
demand or fail or refuse to give the notice, or if there is no secretary,
the call for the meeting may be addressed directly to the stockholders
or members by any stockholder or member of the corporation
signing the demand. Notice of the time and place of such meeting, as
well as of the intention to propose such removal, must be given by
publication or by written notice prescribed in this Code. Removal
may be with or without cause: Provided, That removal without cause
may not be used to deprive minority stockholders or members of the
right of representation to which they may be entitled under Section
24 of this Code. (n)
Cases of removal or ouster of a director
Mandamus would be appropriate remedy if there is a person

authorized but refuses
Quorum and voting requirement
Majority stockholders or members constitute a quorum
Is the presence of the majority owners of the outstanding capital

stock ABSOLUTE to have a quorum?
NO. when the code requires a higher quorum it must also be

equivalent to the vote required
Do you include non-voting shares in arriving at the voting

requirement to have a valid corporate act?

all proceedings had and any business transacted at any

meeting of the stockholders or members, if within the
powers or authority of the corporation, shall be valid
even if the meeting be improperly held or called,
provided all the stockholders or members of the
corporation are present or duly represented at the
meeting.
Directors/trustees meeting
Regular (monthly) and special (anytime)
May that be restricted (within or outside the Phil)
YES. unless the by-laws provide otherwise.
Is there any notice requirement?
YES. 1 day unless otherwise provided by the by-laws
What happens if notice is not complied with?
If the notice requirement is not complied with the meeting is illegal

and will not bind the corporation except when subsequently ratified
or in the case of a close corporation where the act of any one director
may bind the corporation even without a meeting under the special
provision of Section 101 of the Code.
Can notice be waived? <sec.53>

Section 53. Regular and special meetings of directors
or trustees. - Regular meetings of the board of directors or trustees of
every corporation shall be held monthly, unless the by-laws provide
otherwise.
Special meetings of the board of directors or trustees
may be held at any time upon the call of the president or as provided
in the by-laws.
Meetings of directors or trustees of corporations may be
held anywhere in or outside of the Philippines, unless the by-laws
provide otherwise. Notice of regular or special meetings stating the
date, time and place of the meeting must be sent to every director or
trustee at least one (1) day prior to the scheduled meeting, unless
otherwise provided by the by-laws. A director or trustee may waive
this requirement, either expressly or impliedly. (n)
YES. Expressly and impliedly
SEC ruling
A special meeting is valid without notice where the
directors are all present or where they consent to the
meeting. Presence at the meeting waives the want of
notice. Moreover, it has been ruled that the meeting of
29
the directors without a formal call first being had, and

notice thereof given to the members, did not operate to
invalidate it or to render the proceedings which were
taken at it void, for every member of the board were
present, and their joint action had completely bound the
corporation as if the meeting has been called with due
formality, and everyone of the directors had received
proper notice.
and effective for a period longer than five (5) years at any one time.
(n)
How long may a proxy exist?
Maximum of 5 years
Valid for the meeting in which it is intended
What is the quorum and voting requirement in the directors meeting?
Is proxy revocable?
Majority of the members of the board of directors (entire

membership)
Generally revocable, unless coupled with interest
Vote required to pass a valid corporate act?
Revocation
Majority of those present at which there is a quorum (3 present, vote

of 2 sufficient)
Exception, majority of all the members of the board in case of

election of corporate officers, unless the articles provide for a greater
quorum or voting requirement
A proxy, like agency in general is revocable unless coupled with an

interest and revocation need not be made by formal notice in writing.
Revocation may be expressed to the proxy holder, to the election
committee, by a subsequent proxy to another or by sale of the shares.
Thus it may be revoke orally by conduct such that appearing and
asserting the right to vote at a meeting by the registered owner of the
shares revokes a proxy previously given.
Should the director or trustees be physically present?
Must be submitted to a validation committee
General rule, must sit and act as a body to have a valid corporate act
By-laws of non-stock corporations may deny proxy voting
Five man member board, a meeting was called today, should the
physical presence or warm bodies requires to constitute a quorum?
What is voting trust agreement?
NO. it is not required. Teleconference or video conference is

allowed, E- commerce law
Membership subject to laws
Stockholder not yet
May director vote by proxy?
One created by an agreement between a group of stockholders of a

corporation and a trustee, or a group of identical agreements between
individual stockholders and a common trustee, whereby it is
provided that for a term o years or for a period contingent upon a
certain event, or until the agreement is terminated, control over the
stock owned by such stockholders, shall be lodged in the trustee,
either with or without reservation to the owners or persons
designated by them the power to direct how such control shall be
issued.
NO
If A is a director and a meeting is called for the purpose of electing a

new set of BOD can A vote by proxy?
It is a devise of binding stockholders to vote as a unit and thus

assuring a desirable stability and continuity in management in
situations where it is needed.
What is the effect of a voting trust agreement relative to the rights?
YES. Because it is a stockholders meeting

-
Lee vs. CA must pass these criteria
If directors meeting, cannot vote by proxy

1.
Stockholders right to vote
That the voting rights of the stock are separated from the other
attributes of ownership;
Inherent in stock ownership
2.
That the voting rights granted are intended to be irrevocable for a

definite period of time; and,
However this right is not always inherent, because it may be denied:
3.
That the principal purpose of the grant of voting rights is to acquire

voting control of the corporation.
During the duration of the trust they are irrevocable unless there is a
violation either by fraud
Requisites
Section 59
1.
Redeemable and preferred shares, however if founders shares

are issued others may be denied the right to vote.
2.
May be denied by the articles of incorporation or contracts
When not denied they may do so in person or by proxy
May the right to vote by proxy be denied?
May the articles of incorporation deny?
May the by-laws validly provide that proxy voting is not allowed?
NO
Only non-stock may be denied proxy voting (may be broaden,

limited or denied)
Proxy voting is a matter of right granted by law
Requirements of a valid proxy?
Section 58
Section 58. Proxies. - Stockholders and members may
vote in person or by proxy in all meetings of stockholders or
members. Proxies shall in writing, signed by the stockholder or
member and filed before the scheduled meeting with the corporate
secretary. Unless otherwise provided in the proxy, it shall be valid
only for the meeting for which it is intended. No proxy shall be valid

Section 59. Voting trusts. - One or more stockholders of

a stock corporation may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to vote and other rights
pertaining to the shares for a period not exceeding five (5) years at
any time: Provided, That in the case of a voting trust specifically
required as a condition in a loan agreement, said voting trust may be
for a period exceeding five (5) years but shall automatically expire
upon full payment of the loan. A voting trust agreement must be in
writing and notarized, and shall specify the terms and conditions
thereof. A certified copy of such agreement shall be filed with the
corporation and with the Securities and Exchange Commission;
otherwise, said agreement is ineffective and unenforceable. The
certificate or certificates of stock covered by the voting trust
agreement shall be cancelled and new ones shall be issued in the
name of the trustee or trustees stating that they are issued pursuant to
said agreement. In the books of the corporation, it shall be noted that
the transfer in the name of the trustee or trustees is made pursuant to
said voting trust agreement.
The trustee or trustees shall execute and deliver to the
transferors voting trust certificates, which shall be transferable in the
same manner and with the same effect as certificates of stock.
30
The voting trust agreement filed with the corporation

shall be subject to examination by any stockholder of the corporation
in the same manner as any other corporate book or record: Provided,
That both the transferor and the trustee or trustees may exercise the
right of inspection of all corporate books and records in accordance
with the provisions of this Code.
Any other stockholder may transfer his shares to the
same trustee or trustees upon the terms and conditions stated in the
voting trust agreement, and thereupon shall be bound by all the
provisions of said agreement.
No voting trust agreement shall be entered into for the
purpose of circumventing the law against monopolies and illegal
combinations in restraint of trade or used for purposes of fraud.
Unless expressly renewed, all rights granted in a voting
trust agreement shall automatically expire at the end of the agreed
period, and the voting trust certificates as well as the certificates of
stock in the name of the trustee or trustees shall thereby be deemed
cancelled and new certificates of stock shall be reissued in the name
of the transferors.
Voting trust agreements
Normally executed in favor of banking and financial institutions
So that they can vote a certain set of directors
They will be more secured
Voting pull agreement
Enters into an agreement
Pull all their shares to cast one vote
Covered by rules governing contracts
By pulling their votes they can decline the resolution passed by the
board
END OF MIDTERMS
The voting trustee or trustees may vote by proxy unless

the agreement provides otherwise. (36a)
STOCKS AND STOCKHOLDERS
Does it need to be notarized?
Yes, otherwise it is ineffective and unenforceable
Only legal ownership is transferred
Being still the beneficial owner they may transfer these rights
Is the right granted to a voting trust agreement absolute? (to inspect)
NO.
The voting trust agreement filed with the corporation shall be subject
to examination by any stockholder of the corporation in the same
manner as any other corporate book or record. Provided, that both
the transfer and the trustee or trustees may exercise the right of
inspection of all corporate books and records in accordance with the
provisions of this Code.
3 modes
1.
By a contract of subscription with the corporation;
2.
By purchase of treasury shares from the corporation; and,
3.
By purchase or acquisition of shares from existing stockholders.
Section 60 subscription
Any contract
Whether existing or still to be formed
Section 60. Subscription contract. - 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. (n)
Legal title is transferred to the voting trustee
May the voting trustee vote by proxy?
Under the old law the 4th mode is PURCHASE
Yes, legal owner may vote by proxy
Purchase
May the proxy holder vote by proxy?
Reciprocal in nature
NO, (AGENT) an agent can have no other agent unless specifically

allowed by the principal
Purchaser can neither require the issuance
Stockholder executing as a proxy, is he qualified to be voted as a

director?
Why is he qualified to act as a director if the stockholder executes as

a director?
The beneficial owner of the shares in a voting trust is disqualified to

be a director in a voting trust whereas in a proxy, the owner of the
shares may be elected as such since legal title thereof remains with
him
Xco. Inc.
P
Authorized capital
1M
500
SUBSCRIBED
500
UNISSUED STOCKS (AS LONG AS GALING DITO)
YES he remains to be the owner
Z wants to acquire 100K
Is the stockholder executing in a voting trust agreement, is he

qualified to act as a director?
Entered in June 50% shall be down payment remainder December 08
NO. ceases to be stockholder of record, no longer the legal owner of

shares
May the corporation enforce the voting trust agreements executed by

its stockholders?
NO. NIDC vs. AQUINO
Not a privy to the contract
Rights liabilities of a stockholder are there in their individual

capacity- corporate entity theory
he will not be considered a stockholder unless he has paid in full
August 08 property is ravaged by fire all are turned into shares
Is Z liable to pay the balance of his acquisitions?
YES, no matter how the party refer to it, it is considered subscription
Once you subscribe, you become a stockholder which is entitled to

all the liabilities of a stockholder
Z- subscribed to 100T/S of XCo.

Amount he paid 50k

31
Z did not pay on the date called and was declared a delinquent share
Corporation paid 100T/S therefore the corporation reacquired the

shares again, what are they called?
Treasury shares
Y- 80T/S DECEMBER 08
40 % (AUGUST) WAS DESTROYED BY FIRE, IS HE STILL LIABLE TO
PAY THE UNPAID PORTION?
The issued price of no-par value shares may be fixed in

the articles of incorporation or by the board of directors pursuant to
authority conferred upon it by the articles of incorporation or the bylaws, or in the absence thereof, by the stockholders representing at
least a majority of the outstanding capital stock at a meeting duly
called for the purpose. (5 and 16)
Amounts transferred from unrestricted retained earnings to stated

capital what does it mean?
Stock dividends will in effect capitalize the unrestricted retained

earnings
After 5 years the founders shares may be converted into common

shares or other kinds of shares
May shares of stocks be issued without consideration? Why?
NO, two reasons by the SC, discriminatory against other

stockholders and second unlawful, it prejudices the right of the
creditors Trust Fund Doctrine
IT WAS AGREED THAT IT WAS A PURCHASE AND WILL BE

A STOCKHOLDER ONLY IF PAID IN FULL IS HE LIABLE?
NO, because that was a purchase
First example galing sa unissued stock
2nd example galling sa treasury shares hindi sa unissued share
NO such thing as purchase of unissued stocks
If issued without a consideration
A subscription contract can be conditional provided there is nothing

in the charter or statute prohibiting it and not against public order,
law, etc.
Section 65, they will be considered as watered stocks
Must it be in writing?
NO, it may be oral
5M should it be in writing to be valid and binding as a subscription?
NO, statutes of frauds only applies to SALES

Trillana vs. Quezon College
Counter proposal, therefore there was a need for an acceptance
Facultative because it is in his own free will, it is void
What may be used as a consideration and how much should be the

consideration?
Section 62 provides:
Section 65. Liability of directors for watered stocks. Any director or officer of a corporation consenting to the issuance of
stocks for a consideration less than its par or issued value or for a
consideration in any form other than cash, valued in excess of its fair
value, or who, having knowledge thereof, does not forthwith express
his objection in writing and file the same with the corporate
secretary, shall be solidarily, liable with the stockholder concerned to
the corporation and its creditors for the difference between the fair
value received at the time of issuance of the stock and the par or
issued value of the same. (n)
-
Subscribers may be compelled to pay the value
Issuance of a certificate of stock is another thing
What are the requisites for the issuance of a valid certificate of

stock?
1.
It must be signed by the president or vice-president and

countersigned by the secretary or assistant secretary;
2.
It must be sealed with the corporate seal; and the entire value thereof
(together with interest or expenses, if any) should have been paid.
Section 62. Consideration for stocks. - Stocks shall not

be issued for a consideration less than the par or issued price thereof.
Consideration for the issuance of stock may be any or a combination
of any two or more of the following:
While it appears, that a subscriber to shares of stock cannot be

entitled to the issuance of a certificate of stock until the full amount
of his subscription together with interest and expenses (in case of
delinquent shares) if any is due, has been paid, a subscriber to shares
of stock, even if not yet fully paid, is entitled to exercise all the rights
of a stockholder and the corresponding liability that attach
thereunder. Thus, the Code provides:
1. Actual cash paid to the corporation;

2. Property, tangible or intangible, actually received by the
corporation and necessary or convenient for its use and lawful
purposes at a fair valuation equal to the par or issued value of the
stock issued;
Section 72. Rights of unpaid shares. - Holders of

subscribed shares not fully paid which are not delinquent shall have
all the rights of a stockholder. (n)
3. Labor performed for or services actually rendered to the

corporation;
Is the issuance of a certificate of stock necessary to consider the

subscriber a stockholder?
NO, shall be considered a stockholder even without a certificate of

stock
Instances when he may not be able to exercise his rights as such

stockholder
Declared delinquent
When he exercises his appraisal right
Are certificate of stocks transferrable?
YES
Are certificate of stocks considered negotiable?
Quasi-negotiable
Why are they considered quasi-negotiable when it may be

transferred through endorsement and delivery?
4. Previously incurred indebtedness of the corporation;

5. Amounts transferred from unrestricted retained earnings to stated
capital; and
6. Outstanding shares exchanged for stocks in the event of
reclassification or conversion.
Where the consideration is other than actual cash, or
consists of intangible property such as patents of copyrights, the
valuation thereof shall initially be determined by the incorporators or
the board of directors, subject to approval by the Securities and
Exchange Commission.
Shares of stock shall not be issued in exchange for
promissory notes or future service.
The same considerations provided for in this section,
insofar as they may be applicable, may be used for the issuance of
bonds by the corporation.

32
100t/s
001
10/s
Abc co.
3.
To afford the corporation an opportunity to object or refuse

registration of the transfer in case allowed by law;
4.
To avoid fictitious and fraudulent transfers; and,
5.
To protect creditors who have the right to look upon stockholders, in

case of no-payment or watered shares, for the satisfaction of their
claims.
Duty of the secretary is ministerial, hence mandamus will lie if the

secretary refuses to record the transfer, but he cannot be compelled
when the transferees title to the said shares has no prima facie
validity or uncertain
Transfer- absolute and unconditional transfer to warrant registration

in the books of the corporation in order to bind the latter and other
third persons.
Other restrictions on the right to transfer shares would include:
1.
It is not valid, except as between the parties, until recorded in the

books of the corporation;
2.
Shares of stock against which the corporation holds any unpaid claim
shall not be transferable in the books of the corporation; unpaid
claims, refer to claims arising from unpaid subscription and not to
any indebtedness which a stockholder may owe the corporation such
as monthly dues;
3.
Restrictions required to be indicated in the articles of incorporation,

by-laws and stock certificates of a close corporation;
4.
Restrictions imposed by special law, such as the Public Service Act

requiring the approval of the government agency concerned if it will
vest unto the transferee 40% of the capital of the public service
company;
5.
Sale to aliens in violation of maximum ownership of shares under

the Nationalization Laws;
6.
Those covered by reasonable agreement of the parties.
B stole and forged the signature

C is purchaser in good faith and for value will C acquire title
Endorsement from
When issued by owner
Endorsed by owner- strict compliance
ANSWER: a certificate of stock is not regarded as negotiable in the same sense

that a bill or note is negotiable, even if it is endorsed in blank. Thus, while it may
be transferred by endorsement coupled with delivery thereof, and therefore
merely quasi-negotiable, it is nonetheless non-negotiable in that the transferees
takes it without prejudice to all the rights and defenses which the true and lawful
owner may have except in so far as the principles governing estoppels may apply.
He acquired it by virtue of a forged instrument; no matter how innocent the
purchaser is because it is subject to all the rights and defenses
What if A endorsed it?
He is estopped, unless there are other available defenses
Transfer is required to be recorded in the books of the corporation,

however even if not recorded, it will be valid between the parties.
Non-registration will not however, affect the validity thereof at least
in so far as the contracting parties are concerned.
Section 63. Certificate of stock and transfer of shares. The capital stock of stock corporations shall be divided into shares
for which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed with
the seal of the corporation shall be issued in accordance with the bylaws. Shares of stock so issued are personal property and may be
transferred by delivery of the certificate or certificates indorsed by
the owner or his attorney-in-fact or other person legally authorized to
make the transfer. No transfer, however, shall be valid, except 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.
Monserat vs. Ceron

-
Does it include mortgage?
NO, it is not an absolute transfer
Will not affect the transfer through mortgage
Absolute and unconditional transfer
Only the transfer or absolute conveyance of the ownership of the title

to a share need be entered and noted upon the books of the
corporation in order that such transfer may be valid, therefore,
inasmuch as a chattel mortgage of the aforesaid title is not a
complete and absolute alienation of the dominion and ownership
thereof, its entry and notation upon the books of the corporation is
not necessary requisite to its validity
Chua guan vs. Magsasaka
Was the mortgage valid and effective as against subsequent third

parties
Register of deeds where the corporation resides and if different in the

register of deeds of owners domicile
Unson vs. Dinamito
All transferred not register will not have a valid force and effect
Right to transfer may be regulated
May not be unreasonably restricted
Violation of nationalization law- Central Bank
No shares of stock against which the corporation holds

any unpaid claim shall be transferable in the books of the
corporation. (35)
Until registration is accomplished, the transfer, though valid

between the parties, cannot be effective as against the corporation.
Thus the, unrecorded transfer cannot enjoy the status of a
stockholder; he cannot vote nor be voted for, and he will not be
entitled to dividends. The corporation will be protected when it pays
dividend to the registered owner despite a previous transfer of which
it had no knowledge. The purpose of registration therefore is
twofold: to enable the transferee to exercise all the rights of a
stockholder and to inform the corporation of any change in shares
ownership so that it can ascertain the persons entitled to the rights
and subject to the liabilities of a stockholder.
Thus, it was also ruled by the High Court in Nautica
Canning Corp. vs. Yumul that A transfer of shares not
recorded in the stock and transfer book of the
corporation is non-existent in so far as the corporation is
concerned. This is so because the corporation looks
only through its books for the purpose of determining
who its stockholders are.
Registration is necessary for the following:
1.
To enable the corporation to know who its stockholders are;
2.
To enable the transferee to exercise his rights a s stockholders;

Lambert vs. Fox

-
Valid , may be reasonably regulated, restricted by agreement of

parties
Reasonable agreement by the parties
33
Reasonable as to length of time
The subscriber is as much bound to pay his subscription as he would

be to pay any other debt
No stock certificate was issued. Without stock certificate, which is

the evidence of ownership of corporate stock, the assignment of
corporate shares is effective only between the parties to the
transaction
Exception to the general rule
Padgett vs. Babcock

-
Any attempt to restrain transfer
SC, in the absence of a valid lien upon its shares
Valid restrictions shares are applicable
Any restriction on a stockholders right to dispose of his shares must

be construed strictly; and any attempt to restrain a transfer of shares
is regarded as being in restraint of trade, in the absence of a valid
lien upon its shares, and except to the extent that valid restrictive
regulations and agreements exist and are applicable. Subject only to
such restrictions, a stockholder cannot be controlled in or restrained
from exercising his right to transfer by the corporation or its officers
or by other stockholders, even though the sale is to a competitor of
the company, or to an insolvent person, or even though a controlling
interest is sold to one purchaser.
Rural Bank of Lipa vs. CA

-
By notarized deed
Certificate of stocks already issued must be coupled with delivery,

exception (TAN vs. SEC)
Stock certificate has already been issued it must be coupled with the
delivery
After certificate of stock is issued, may it be effectively transferred

even without endorsement or delivery of the stock certificate?
Certificate of stocks are transferrable
By endorsement and delivery of the stock certificate to the transferee
Person sought to be a stockholder is an officer and has custody
In order to be valid, must be registered in the books. If not, will only

be binding among parties
Endorsement and delivery is not necessary (TAN vs. SEC)
How may shares of stock be transferred?
Endorsement of stock certificate by owner or attorney-in-fact with

delivery
Tan vs. SEC (FULL KNOWLEDGE, HE IS ESTOPPED)

-
Persons sought to be stockholder is officer and has custody of the

book (estopped)
General Rule for valid transfer
Certificate of stock must be endorsed by owner or attorney-in-fact

coupled with delivery
Embassy farms vs. CA

-
Must be endorsed by owner or attorney-in-fact coupled with delivery
Endorsed not delivered
Exceptions
Proper mode and manner must be complied with
Section 63 uses the word may
Razon vs. IAC
Showing that there may be other modes of transferring shares
Delivered not endorsed
Is there a time frame or fixed period as when transfer can be made?
Reverse of Embassy Farms
NO, (WON vs. WACK WACK)
Endorsement alone is not sufficient nor delivery without

endorsement is not allowed
Endorsement plus delivery is mandatory
Won vs. Wack Wack

-
Valid between contracting parties even if not recorded in corporation

books
Is there any other mode of transferring stock?
Right accrues only if refused
Notarized deed
Statute of limitations does not apply in registration of shares of stock
Deed of assignment
Must determined from the time of refusal
Rural bank of Salinas vs. CA
Why are they non-negotiable when they may be transferred?
If denied or refused without good cause, mandamus will lie
Transferees pays it without prejudice to all the rights and defenses as

the true and lawful owner may have under the law except insofar as
such rights and defenses are subject to the limitations imposed by the
principles governing estoppels
Tay vs. CA
-
Mandamus may issue if petition has a clear legal right
Never issued in doubtful cases
Petitioner failed to establish a clear legal right and alleged ownership

is without merit
Did not acquire ownership by virtue of the contract of pledge
In a contract of pledge there must be foreclosure
In the case there was no attempt to foreclose
Petitioner must have a prima facie right
De los Santos vs. Republic
Nava vs. Peers Marketing

-
A stock subscription is a subsisting liability from the time the

subscription is made

Why is he, not considered as the owner of shares? When it has been
said that when endorsed by the owner it is considered as strict
certificate? Because certificate of stocks are non-negotiable
Although a stock-certificate is sometimes regarded as quasinegotiable, in the sense that it may be transferred by endorsement,
coupled with delivery, it is well settled that the instrument is nonnegotiable, because the holder thereof takes it without prejudice to
such rights or defenses as the registered owner or creditor may have
under the law, except insofar as such rights or defenses are subject to
the limitations imposes by the principles governing estoppels.
Unauthorized issuance of stock certificates
100/s
100
XYZCo
34
100 pesos per share

Stolen by B and forged the signature of A
B sells to C will C acquire title? NO
- only A citing citizens national bank vs. state (but if recognition of both
stockholders would result in an over issue of shares, then only the
original and true owner can be recognized as a stockholder)
-
by virtue of the doctrine of non-negotiability of certificate of stocks
The true and lawful owner will never be deprived of his rights
What happens to D?
- D will have a cause of action against the corporation for the value of his
acquisition cost inclusive of damages, attorneys fees and cost of suit
ENDORSEMENT FORM
C armed with the endorsement form certificate, sold to D (innocent

purchaser for value), will D acquire title?
NO, subject to such rights and defenses as the true and lawful owner
may have
A found out what happened and goes to the corporation who has a
better title C or A?
Corporation can compel C to deliver the new stock certificate

because he made a representation that the certificate where good.
Armed with the new certificate issued to C, C delivers to D a
purchaser in good faith and for value will D acquire title?
- D will acquire title took the shares not by virtue of a forged or

unauthorized transfer, but on the reliance that the stock certificate is
valid and owned by C
When may certificate of stocks be issued?
Section 64. Issuance of stock certificates. - 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. (37)
the corporation may be compelled to recognize both, A as stockholder

(non-negotiable) D, reliance that the stock certificate is valid and
existing and owned by C
Forged transfers
If the corporation should issue a new certificate in pursuance of a

forged transfer, the corporation incurs no liability to the person in
whose favor it is issued and it may demand its return for
cancellation. The corporation in such case has been guilty of no
misrepresentation. On the other hand, it is the duty of the purchaser
to determine that the indorsement of the owner is genuine. However,
if the new certificate issued to the purchaser comes into the hands of
a bona fide purchaser for value, the corporation will be stopped from
denying validity thereof, since by issuing such new certificate it
represents that the person named therein is a stockholder of the
corporation. The corporation is thus forced to recognize both the
original certificate and new certificate-the original, because the true
owner could not be deprived of his title by a forged transfer, and the
new, because of its representation that the person named therein is
the owner of shares in the corporation. But if the recognition of both
stockholders would result in an over issue of shares, then only the
original and true owner can be recognized as a stockholder. The bona
fide purchaser of the new certificate will however have a right of
damages against the corporation. The corporation, in turn, would
have a right of action against the person who made false
representations and in whose favor it issued a new certificate. The
true owner of the shares which were wrongfully transferred would of
course have a right to compel the corporation to issue him a
certificate in lieu of the original one which was wrongfully
cancelled.
Authorized capital stock 1M shares
All are subscribed who will the corporation recognize as rightful

owner A or D? if both will be recognized there will be over issuance
1.
2.
3.
4.
1.

A certificate of stock cannot be issued unless he fully paid the

amount subscribed
Subscription to the capital stocks of the corporation are indivisible
Clear mandate of section 148 of the code is that the ruling of the
court in Baltazar vs. Lingayen Gulf, no longer holds true
Section 148. Applicability to existing corporations. All corporations lawfully existing and doing business in the
Philippines on the date of the effectivity of this Code and heretofore
authorized, licensed or registered by the Securities and Exchange
Commission, shall be deemed to have been authorized, licensed or
registered under the provisions of this Code, subject to the terms and
conditions of its license, and shall be governed by the provisions
hereof: Provided, That if any such corporation is affected by the new
requirements of this Code, said corporation shall, unless otherwise
herein provided, be given a period of not more than two (2) years
from the effectivity of this Code within which to comply with the
same. (n)
Stock certificate now in possession of D. A knew of what happened

and went to the corporation and complains. Who will have a better
title?
2nd situation, what cause of action may the corporation have?

Remedy?
- Third party complaint against C, but what if he is a purchaser for value?

4th party claim against B
- A, A cannot be deprived of his right by virtue of an unauthorized

transfer
D sues the corporation for the value of his acquisition cost, inclusive
of damages, attorneys fees and cost of suit. What may the
corporation do?
- NO defense, no valid defense, because it was represented to other

parties that the certificate of stocks is valid, subsisting, etc.
What if C now goes to the corporation and presents the form?
- Then the corporation shall cancel the old certificate and issues a new
one, now in the name of C, now registered in the name of C, will C
acquire title?
Subscription to shares of stocks are indivisible

Also apparent is that once a subscriber has paid his subscription in
full, he becomes entitled to be issued a stock certificate and in the
event that the corporation refuses to do so, the stockholder my
institute a case for mandamus with damages. Thus, it has been said
that the duty of the corporate officers to issue stock certificates to
those entitled thereto is a ministerial duty enforceable by mandamus.
Fua Cun vs. Summers and China Banking Corp.
The court erred in holding the plaintiff as the owner of 250 shares of
stock; the plaintiffs rights consist in equity in 500 shares and upon
payment of the unpaid portion of the subscription price he becomes
entitled to the issuance of certificate for said 500 shares in his favor.
No certificate of stock until the full amount has been paid.
Watered stock
One which is issued by the corporation as fully paid-up shares, when
in fact the whole amount of the value thereof has not been paid.
Basis is par value and not the fair market value
Section 62 states that stocks shall not be issued for a consideration
less than par or issued price thereof, while section 13 states that in no
case shall be paid-up capital be less than five thousand [P5000]
pesos.
If issued below par, issued value considered as water
How may watered stocks be issued?
For a monetary consideration less than its par or issued value;
For a consideration in property, tangible or intangible, valued in
excess of its fair market value;
Gratuitously or under an agreement that nothing shall be paid at all;
or
In the guise of stock dividends when there are no surplus profits of
the corporation.
Why is stock watering illegal?
The corporation is deprived of its capital thereby hurting its business
prospects, financial capability and responsibility;
35
2.
3.
1.
2.
3.
4.
5.
6.
Stockholders who paid their subscriptions in full, or promised to pay

the same, are injured and prejudiced by the reduction of their
proportionate interest in the corporation; and,
Present and future creditors are deprived of the corporate assets for
the protection of their interest.
Corporation is prejudiced
Stockholders, dilution of interest
Creditors are prejudiced, virtue of right to look upon corporations
properties for the satisfaction of their claims
What is the effect of issuance of watered stocks
As to the corporation - when a corporation is guilty of ultra-vires or
illegal acts which constitute an injury to or fraud upon the public, or
which will tend to injure or defraud the public, the State may
institute a quo-warranto proceeding to forfeit its charter for the
misuse or abuse of its franchise.
As between the corporation and the subscriber- The subscription is
void. Such being the case, the subscriber is liable to pay the full par
or issued value thereof, to render it valid and effective.
As to the consenting stockholders - They are stopped from raising
any objection thereto;
As to dissenting stockholders - In view of the dilution of their
proportionate interest in the corporation, they may compel the
payment of the water in the stock solidarily against the responsible
and consenting directors and officers inclusive of the holder of the
watered stocks;
As to creditors - They may enforce payment of the difference in the
price, or the water in the stock, solidarily against the responsible
directors/officers and the stockholders concerned; and
As against transferees of the watered stock His right is the same as
that of his transferor. If, however, a certificate of stock has been
issued and duly indorsed to a bona fide purchaser, without
knowledge, actual or constructive, the latter cannot be held liable, at
least as against the corporation, since he took the shares on reliance
of the misrepresentation made by the corporation that the stock
certificate is valid and subsisting. This is because a corporation is
prohibited from issuing certificates of stock until the full value of the
subscriptions have been paid and could not, therefore, deny the
validity of the stock certificate it issued as against a purchaser in
good faith. Thus, Ballentine states that whether there is any liability
on the part of the transferee of watered stock is made to depend upon
whether he acquired the same without notice, either as purchaser or
donee. If he had knowledge thereof, he is subject to the same liability
as his transferor.
What is the nature of the liability of the corporate directors
consenting to the issuance of watered stocks and the extent of their
liabilities?
Solidarily liable with the holder of the watered stocks to the extent of
the water from said shares of stocks
Will all the directors be liable? What if you objected will you also be
liable?
If you do not issue a written objection, you are still liable
Even passive directors may be liable
Those having knowledge thereof, but did not interpose their
objection shall be liable
ACS-100M 100M/S
SUBSCRIBED-50M
12.00/S
UNSUBSCRIBED-50M
A
B
C
D
E
PAR VALUE-1.00
FAIR MARKET VALUE-
There is a denial of pre-emptive rights and directors A,B,C,D,E decided to

issue the remaining 50M and subscribed for 10M each at 2 per share.
Can you question there actuations? What would be the cause of

action?
It may be questioned.
Duty of loyalty or fiduciary duty as such directors
They cannot advance their own motives to the damage prejudice of
the corporation which they represents and stockholders as a whole
instead of it being sold outside
500M would have gone to the coffers of the corporation, 500M
should be there for the protection of creditors
They are placed in a fiduciary relationship
Sila lang ba ang kikita, pano naman yung corporation, opportunity
na yun para kumita
When are unpaid subscriptions due and payable?
Section 67. Payment of balance of subscription. - Subject to the
provisions of the contract of subscription, the board of directors of
any stock corporation may at any time declare due and payable to the
corporation unpaid subscriptions to the capital stock and may collect
the same or such percentage thereof, in either case with accrued
interest, if any, as it may deem necessary.
Payment of any unpaid subscription or any percentage thereof,
together with the interest accrued, if any, shall be made on the date
specified in the contract of subscription or on the date stated in the
call made by the board. Failure to pay on such date shall render the
entire balance due and payable and shall make the stockholder liable
for interest at the legal rate on such balance, unless a different rate of
interest is provided in the by-laws, computed from such date until
full payment. If within thirty (30) days from the said date no
payment is made, all stocks covered by said subscription shall
thereupon become delinquent and shall be subject to sale as
hereinafter provided, unless the board of directors orders otherwise.
(38)
Remedies of the corporation to enforce payment of unpaid

subscription
1.
By board action in accordance with the procedure laid down in

sections 67 to 69 of the code
By a collection case in court as provided for in section 70
2.
Are subscribers of shares of stocks not fully paid, liable to pay

interest?
General rule is they are not liable to pay interest because the code
says unless requires in the by-laws
Aside from the mandate of the law that subscribers to shares of stock
must pay the full value of their subscription, they may likewise be
required to pay interest on all unpaid subscriptions if so imposed in
the contract or in the corporate by-laws at such rate as may be
indicated thereat or the legal rate if not so fixed. Unless so required
or provided, however, subscribers to shares of stock, not fully paid,
are not liable to pay interest on their unpaid subscriptions. The code
thus provides:
Section 65. Liability of directors for watered stocks. Any director or officer of a corporation consenting to the issuance of
stocks for a consideration less than its par or issued value or for a
consideration in any form other than cash, valued in excess of its fair
value, or who, having knowledge thereof, does not forthwith express
his objection in writing and file the same with the corporate
secretary, shall be solidarily, liable with the stockholder concerned to
the corporation and its creditors for the difference between the fair
value received at the time of issuance of the stock and the par or
issued value of the same. (n)
3 days later they sold their 10M share for P11.00 each, therefore making a
profit.
Is there stock watering if the fair market value is 12.00?

No stock watering
The basis is the par value
The shares where in fact paid more than the par value indicated in
the articles of incorporation

Section 66. Interest on unpaid subscriptions. Subscribers for stock shall pay to the corporation interest on all
unpaid subscriptions from the date of subscription, if so required by,
and at the rate of interest fixed in the by-laws. If no rate of interest is
fixed in the by-laws, such rate shall be deemed to be the legal rate.
(37)
Until a call is made, they are not due and payable, but still subject to
the provisions of the contracts
Procedures in case of sale of delinquent stocks
Section 68. Delinquency sale. - The board of directors may, by
resolution, order the sale of delinquent stock and shall specifically
state the amount due on each subscription plus all accrued interest,
and the date, time and place of the sale which shall not be less than
thirty (30) days nor more than sixty (60) days from the date the
stocks become delinquent.
Notice of said sale, with a copy of the resolution, shall
be sent to every delinquent stockholder either personally or by
registered mail. The same shall furthermore be published once a
week for two (2) consecutive weeks in a newspaper of general
circulation in the province or city where the principal office of the
corporation is located.
Unless the delinquent stockholder pays to the
corporation, on or before the date specified for the sale of the
delinquent stock, the balance due on his subscription, plus accrued
interest, costs of advertisement and expenses of sale, or unless the
board of directors otherwise orders, said delinquent stock shall be
sold at public auction to such bidder who shall offer to pay the full
amount of the balance on the subscription together with accrued
36
interest, costs of advertisement and expenses of sale, for the smallest

number of shares or fraction of a share. The stock so purchased shall
be transferred to such purchaser in the books of the corporation and a
certificate for such stock shall be issued in his favor. The remaining
shares, if any, shall be credited in favor of the delinquent stockholder
who shall likewise be entitled to the issuance of a certificate of stock
covering such shares.
Should there be no bidder at the public auction who
offers to pay the full amount of the balance on the subscription
together with accrued interest, costs of advertisement and expenses
of sale, for the smallest number of shares or fraction of a share, the
corporation may, subject to the provisions of this Code, bid for the
same, and the total amount due shall be credited as paid in full in the
books of the corporation. Title to all the shares of stock covered by
the subscription shall be vested in the corporation as treasury shares
and may be disposed of by said corporation in accordance with the
provisions of this Code. (39a-46a)
Who is the winning bidder in a delinquency sale?
Bidder who shall offer to pay the full amount of the balance on the
subscription together with accrued interest, cost of advertisement and
expenses of sale, for the smallest number of shares or fraction of a
share.
3. To pay dissenting or withdrawing stockholders entitled to

payment for their shares under the provisions of this Code. (a)
What if the shares of A were sold without compliance of the

requirements? May A question the sale?
The law prescribes two conditions before an action to recover

delinquent stocks irregularly sold may be allowed. These are:
1.
The party seeking to maintain such action first pays or tenders to the
party holding the stock the sum for which the same was sold, with
interest from the date of the sale at the legal rate; and,
The action shall be commenced by the filing of a complaint within
six months from the date of the sale.
2.
The reason for such is the stability of transactions of the shares of

stock
Suppose in the example, since there are no unrestricted retained

earnings, hence the corporation cannot bid, is the corporation left
without any recourse?
Section 70. Court action to recover unpaid subscription. - Nothing

in this Code shall prevent the corporation from collecting by action
in a court of proper jurisdiction the amount due on any unpaid
subscription, with accrued interest, costs and expenses. (49a)
X Co. has 1M authorized capital stock

500 thousand is already subscribed
A subscribed to 100 thousand shares, 50 thousand is already paid
leaving 50 thousand unpaid
The corporation is at a loss of 250 thousand, the board decides to
make a call for the payment of the unpaid subscriptions, however A
could not paid, hence declared delinquent and decides to sell his
share at a public auction
Velasco vs. Poizat

-
De Silva vs. Aboitiz and Co.
55 thousand is to be paid, remaining balance plus cost and expenses

-
X-55K FOR 99,900 shares
Discretionary on the part of the board of directors to do whatever is

provided in the said article relative to the application of the part of
the 70 percent of the profit distributable in equal parts on the
payment of the shares subscribed to and fully paid
Y-55K FOR 99,500 shares
Lingayen Gulf vs. Baltazar
BIDDERS:
Z-55K FOR 99,000 shares (winning bidder)
Assume there is no bidder, may the corporation bid?
NO. It cannot bid because the law says, subject to the provisions of
this CODE. Section 68 and 41 should be reconciled. Section 68
states that:
Should there be no bidder at the public auction who
offers to pay the full amount of the balance on the subscription
together with accrued interest, costs of advertisement and expenses
of sale, for the smallest number of shares or fraction of a share, the
corporation may, subject to the provisions of this Code, bid for the
same, and the total amount due shall be credited as paid in full in the
books of the corporation. Title to all the shares of stock covered by
the subscription shall be vested in the corporation as treasury shares
and may be disposed of by said corporation in accordance with the
provisions of this Code. (39a-46a)

Trust Fund Doctrine- subscription to the capital of a corporation

constitute a fund to which the 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.
PNB vs. Bitulak

2. To collect or compromise an indebtedness to the corporation,
arising out of unpaid subscription, in a delinquency sale, and to
purchase delinquent shares sold during said sale; and
Set-off is without any legal basis

It was premature
Unpaid subscriptions will become due and payable only upon certain
instance
Call or if there is a stipulation in contract
If no call and no stipulation in contract then it will not be
demandable or payable at all
Lumanlan vs. Cura
There was no unrestricted retained earnings in the example given

therefore the corporation cannot bid , section 41, it states that:
Section 41. Power to acquire own shares. - A stock
corporation shall have the power to purchase or acquire its own
shares for a legitimate corporate purpose or purposes, including but
not limited to the following cases: Provided, That the corporation has
unrestricted retained earnings in its books to cover the shares to be
purchased or acquired:
Exception: pursuant to a bona fide compromise or to set off a debt

due from the corporation, a release supported by consideration, will
be effectual as against dissenting stockholders and subsequent and
existing creditors. A release which might originally have been held
invalid may be sustained after a considerable lapse of time
Apocada vs. NLRC
The subscriber is as much bound to pay the amount of the share

subscribed by him as he would be to pay any other debt, and the
right of the company to demand payment is no less incontestable.
Two available remedies: the first and most special remedy given by
the statute consist in permitting the corporation to put up the unpaid
stock and dispose of it for the account of the delinquent subscriber.
The other remedy is by action in court.
Where it not for the promise, the defendants would have not
subscribed
Trust Fund Doctrine, it is established doctrine that subscriptions 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.
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; and 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.
37
Edward Keller and Co. vs. COB

-
May the stockholder be held liable for the debts of the corporation?
YES. To the extent of their unpaid subscription
As to the liability of the stockholders, it is settled that a stockholder
is personally liable for the financial obligations of a corporation to
the extent of his unpaid subscriptions
Is there a prescriptive period wherein a demand for unpaid

subscription should be made?
NO. Garcia vs. Suarez case
When a certificate of stock is loss or destroyed, what must be done

by the owner thereof?
Section 73. Lost or destroyed certificates. - The following procedure

shall be followed for the issuance by a corporation of new
certificates of stock in lieu of those which have been lost, stolen or
destroyed:
1. The registered owner of a certificate of stock in a
corporation or his legal representative shall file with the corporation
an affidavit in triplicate setting forth, if possible, the circumstances
as to how the certificate was lost, stolen or destroyed, the number of
shares represented by such certificate, the serial number of the
certificate and the name of the corporation which issued the same.
He shall also submit such other information and evidence which he
may deem necessary;
Garcia vs. Suarez

-
Never became due and payable until there is a call made

Prescription will not run until and unless there is demand
Prescription should be determined from the time demand has been
made and not from the time of subscription
If declared delinquent, what would be the effect as to the owner of

said shares?
Section 71. Effect of delinquency. - No delinquent stock shall be

voted for or be entitled to vote or to representation at any
stockholder's meeting, nor shall the holder thereof be entitled to any
of the rights of a stockholder except the right to dividends in
accordance with the provisions of this Code, until and unless he pays
the amount due on his subscription with accrued interest, and the
costs and expenses of advertisement, if any. (50a)
However if the shares are not delinquent, subscribers to the capital of
a corporation, though not fully paid, are entitled to all the rights of a
stockholder, according to section 72
2. After verifying the affidavit and other information

and evidence with the books of the corporation, said corporation
shall publish a notice in a newspaper of general circulation published
in the place where the corporation has its principal office, once a
week for three (3) consecutive weeks at the expense of the registered
owner of the certificate of stock which has been lost, stolen or
destroyed. The notice shall state the name of said corporation, the
name of the registered owner and the serial number of said
certificate, and the number of shares represented by such certificate,
and that after the expiration of one (1) year from the date of the last
publication, if no contest has been presented to said corporation
regarding said certificate of stock, the right to make such contest
shall be barred and said corporation shall cancel in its books the
certificate of stock which has been lost, stolen or destroyed and issue
in lieu thereof new certificate of stock, unless the registered owner
files a bond or other security in lieu thereof as may be required,
effective for a period of one (1) year, for such amount and in such
form and with such sureties as may be satisfactory to the board of
directors, in which case a new certificate may be issued even before
the expiration of the one (1) year period provided herein: Provided,
That if a contest has been presented to said corporation or if an
action is pending in court regarding the ownership of said certificate
of stock which has been lost, stolen or destroyed, the issuance of the
new certificate of stock in lieu thereof shall be suspended until the
final decision by the court regarding the ownership of said certificate
of stock which has been lost, stolen or destroyed.

May the rules governing delinquency sale apply to a non-stock

corporation? Are there unpaid shares in a non-stock corporation?
Rules governing stock corporations, when applicable, also applies to

a non-stock corporation
There are delinquent shareholders also in a non-stock corporation.
Example is membership dues
A corporation paid 50% of subscription and was later on declared

delinquent when he could not pay upon call; A is also a director of
the corporation. Will A, upon declaration of delinquency , still be
able to exercise his right as a director?
Yes, he loses all his right as a stockholder except his right to receive
dividends
He remains to be a director, only qualification to be a director is he
must own at least 1 share and since it still stands in his name pending
the sale, he remains to be and act as a director
Even if there is sale, he may still be director because the winning
bidder may not bid or pay for all the shares or there might be
remaining shares, which would be credited in favor of the delinquent
stockholder


Except in case of fraud, bad faith, or negligence on the

part of the corporation and its officers, no action may be brought
against any corporation which shall have issued certificate of stock
in lieu of those lost, stolen or destroyed pursuant to the procedure
above-described. (R.A. 201a)
-
The rationale of the above-quoted law is to avoid duplication of

certificates of stock and the avoidance of fictitious and fraudulent
transfers.
When will the replacement certificate be issued?
The code provides that:

after the expiration of one (1) year from the date of
the last publication, if no contest has been presented to said
corporation regarding said certificate of stock, the right to make such
contest shall be barred and said corporation shall cancel in its books
the certificate of stock which has been lost, stolen or destroyed and
issue in lieu thereof new certificate of stock,
Could it be issued earlier than 1 year?
Yes it can be, the code states that:

unless the registered owner files a bond or other
security in lieu thereof as may be required, effective for a period of
one (1) year, for such amount and in such form and with such
sureties as may be satisfactory to the board of directors, in which
case a new certificate may be issued even before the expiration of
the one (1) year period provided herein: Provided, That if a
contest has been presented to said corporation or if an action is
pending in court regarding the ownership of said certificate of stock
which has been lost, stolen or destroyed, the issuance of the new
certificate of stock in lieu thereof shall be suspended until the final
decision by the court regarding the ownership of said certificate of
stock which has been lost, stolen or destroyed.
May corporate officers be held liable for the unauthorized issuance?
YES, the code provides that:

Except in case of fraud, bad faith, or negligence on the
part of the corporation and its officers, no action may be brought
against any corporation which shall have issued certificate of stock
38
in lieu of those lost, stolen or destroyed pursuant to the procedure

above-described. (R.A. 201a)
Assuming the last paragraph is not there; would it be not the same,
that they should be held liable due to fraud, bad faith or negligence?
YES. Section 31 provides that:

Section 31. Liability of directors, trustees or officers. Directors or trustees who willfully and knowingly vote for or assent
to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the
corporation or acquire any personal or pecuniary interest in conflict
with their duty as such directors or trustees shall be liable jointly and
severally for all damages resulting there from suffered by the
corporation, its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or
acquires, in violation of his duty, any interest adverse to the
corporation in respect of any matter which has been reposed in him
in confidence, as to which equity imposes a disability upon him to
deal in his own behalf, he shall be liable as a trustee for the
corporation and must account for the profits which otherwise would
have accrued to the corporation. (n)
Certificate of stock was lost, the owner transfers his shares by way of
a notarized deed will it be valid?
He cannot do so, if a certificate of stock is issued by a corporation, a

mere notarized deed will not suffice
Deed of assignment was not sufficient since there was no
endorsement (Rural Bank of Lipa vs. CA)
Rights and liabilities of stockholders
RIGHTS
1.
Participation in the management of the corporate affairs by

exercising their right to vote and be voted upon either personally or
by proxy as provided for under sections 50 and 58 of the code;
To enter into a voting trust agreement subject to the procedure,
requirements and limitations imposed under section 50;
To receive dividends and to compel their declaration if warranted
under section 43;
To transfer shares of stock subject only to reasonable restrictions
such as options and preferences as may be allowed by law inclusive
of the right of the transferee to compel the registration of the transfer
in the books of the corporation as provided for in section 63;
To be issued a certificate of stock for fully paid-up shares in
accordance with 64;
To exercise pre-emptive rights as provided for in section 39;
To exercise their appraisal right in accordance with the provision of
section 81 and in those instance allowed by law such as section 42
and 105;
To institute and file a derivative suit;
To recover shares of stock unlawfully sold for delinquency as may
be allowed under section 69;
To inspect the books of the corporation subject only to the
limitations imposed by section 73;
To be furnished by the most recent financial statement of the
corporation as by section 75;
To be issued a new stock certificate in lieu of the lost or destroyed
one subject to the procedure laid down in section 73;
To have the corporation dissolved under section 118 to 121, and
section 105 in a close corporation;
To participate in the distribution of the assets of the corporation upon
dissolution under section 122;
In the case of a close corporation, to petition the SEC to arbitrate in
the event of a deadlock as allowed under section 104; and,
Also in the case of a close corporation, to withdraw therefrom, for
my reason, and compel the corporation to purchase his shares as
provided for under section 105.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.

39
LIABILITIES
1.
To pay to the corporation the balance of his unpaid subscriptions

subject to the provision of section 67 to 70;
To pay interest on his unpaid subscription if required by the by-laws
or by the contract of subscription in accordance with section 66;
To answer to the creditors for the unpaid portion of his subscription
under the TRUST FUND DOCTRINE;
To answer the water in his stocks as provided for in section 65;
To be liable, as general partners, for all debts, liabilities and damages
of a determinable corporation as envisioned under section 21
(corporation by estoppel); and,
To be personally liable for torts, in the event that a stockholder in a
close corporation actively participates in the management of the
corporate affairs.
2.
3.
4.
5.
6.
2.
3.
These corporate books and records, inclusive of all business

transactions and minutes of meetings, are subject to inspection by
any of the directors, trustees, stockholders or members of the
corporation at reasonable hours on business days and a copy of
excerpts of said records may be demanded. In fact, in so far as
financial statement is concerned, the Code clearly provides:
CORPORATE BOOKS AND RECORDS
What are these books and records that are required to be kept?
Section 74. Books to be kept; stock transfer agent. - Every

corporation shall keep and carefully preserve at its principal
office a record of all business transactions and minutes of all
meetings of stockholders or members, or of the board of
directors or trustees, in which shall be set forth in detail the time
and place of holding the meeting, how authorized, the notice
given, whether the meeting was regular or special, if special its
object, those present and absent, and every act done or ordered
done at the meeting. Upon the demand of any director, trustee,
stockholder or member, the time when any director, trustee,
stockholder or member entered or left the meeting must be noted
in the minutes; and on a similar demand, the yeas and nays must
be taken on any motion or proposition, and a record thereof
carefully made. The protest of any director, trustee, stockholder
or member on any action or proposed action must be recorded in
full on his demand.
The records of all business transactions of the
corporation and the minutes of any meetings shall be open to
inspection by any director, trustee, stockholder or member of the
corporation at reasonable hours on business days and he may
demand, in writing, for a copy of excerpts from said records or
minutes, at his expense.
Any officer or agent of the corporation who shall refuse
to allow any director, trustees, stockholder or member of the
corporation to examine and copy excerpts from its records or
minutes, in accordance with the provisions of this Code, shall be
liable to such director, trustee, stockholder or member for damages,
and in addition, shall be guilty of an offense which shall be
punishable under Section 144 of this Code: Provided, That if such
refusal is made pursuant to a resolution or order of the board of
directors or trustees, the liability under this section for such action
shall be imposed upon the directors or trustees who voted for such
refusal: and Provided, further, That it shall be a defense to any action
under this section that the person demanding to examine and copy
excerpts from the corporation's records and minutes has improperly
used any information secured through any prior examination of the
records or minutes of such corporation or of any other corporation,
or was not acting in good faith or for a legitimate purpose in making
his demand.
Stock corporations must also keep a book to be known
as the "stock and transfer book", in which must be kept a record of
all stocks in the names of the stockholders alphabetically arranged;
the installments paid and unpaid on all stock for which subscription
has been made, and the date of payment of any installment; a
statement of every alienation, sale or transfer of stock made, the date
thereof, and by and to whom made; and such other entries as the bylaws may prescribe. The stock and transfer book shall be kept in the
principal office of the corporation or in the office of its stock transfer
agent and shall be open for inspection by any director or stockholder
of the corporation at reasonable hours on business days.
No stock transfer agent or one engaged principally in
the business of registering transfers of stocks in behalf of a stock
corporation shall be allowed to operate in the Philippines unless he
secures a license from the Securities and Exchange Commission and
pays a fee as may be fixed by the Commission, which shall be
renewable annually: Provided, That a stock corporation is not
precluded from performing or making transfer of its own stocks, in
which case all the rules and regulations imposed on stock transfer
agents, except the payment of a license fee herein provided, shall be
applicable. (51a and 32a; P.B. No. 268.)
To summarize:
1.
Records of all business transactions which include, among others,

journals, ledger, contracts, vouchers and receipts, financial
statements and other books of accounts, income tax returns, and
voting trust agreements which must be kept and carefully preserved
at its principal office;

Minutes of all meetings of stockholders or members and of the

directors or trustees setting forth in detail the date, time, and place of
meeting, how authorized, the notice given whether the same be
regular or special, and if special, the purpose thereof shall be
specified, those present and absent, and every act done or ordered
done there at which ,must likewise be kept at the principal office of
the corporation; and,
Stock and transfer book showing the names of the stockholders, the
amount paid or unpaid on all stocks for which subscription has been
made, a statement of every alienation, sale or transfer of stock made,
if any the date thereof, and by whom and to whom made which must
also be kept at the principal office of the corporation or in the office
of its stock transfer agent.
Section 75. Right to financial statements. - Within ten

(10) days from receipt of a written request of any stockholder or
member, the corporation shall furnish to him its most recent financial
statement, which shall include a balance sheet as of the end of the
last taxable year and a profit or loss statement for said taxable year,
showing in reasonable detail its assets and liabilities and the result of
its operations.
At the regular meeting of stockholders or members, the board of
directors or trustees shall present to such stockholders or members a
financial report of the operations of the corporation for the preceding
year, which shall include financial statements, duly signed and
certified by an independent certified public accountant.
However, if the paid-up capital of the corporation is less than
P50,000.00, the financial statements may be certified under oath by
the treasurer or any responsible officer of the corporation. (n)
May books and records be examined? Who may examine? Can they
copy them? In whose expense?
Yes, according to the code:

The records of all business transactions of the
corporation and the minutes of any meetings shall be open to
inspection by any director, trustee, stockholder or member of the
corporation at reasonable hours on business days and he may
demand, in writing, for a copy of excerpts from said records or
minutes, at his expense.
Is there any defense available that could be raised? By the corporate

officers to justify the refusal?
Yes, the code provides that:

and Provided, further, That it shall be a defense to any
action under this section that the person demanding to examine
and copy excerpts from the corporation's records and minutes
has improperly used any information secured through any prior
examination of the records or minutes of such corporation or of
any other corporation, or was not acting in good faith or for a
legitimate purpose in making his demand.
What is the stock and transfer? Where should stock and transfer be
kept? Can it be kept elsewhere?
Stock corporations must also keep a book to be known
as the "stock and transfer book", in which must be kept a record of
all stocks in the names of the stockholders alphabetically
arranged; the installments paid and unpaid on all stock for
which subscription has been made, and the date of payment of
any installment; a statement of every alienation, sale or transfer
of stock made, the date thereof, and by and to whom made; and
such other entries as the by-laws may prescribe. The stock and
transfer book shall be kept in the principal office of the
corporation or in the office of its stock transfer agent and shall be
open for inspection by any director or stockholder of the corporation
at reasonable hours on business days.
Stock and transfer agent
Records every movement

Person who monitors movement by the minutes or by the hours
Non-stock corporation- stock and transfer books
Club share- membership
Are stockholders entitled to financial statements?
40
74 provides that Any officer or agent of the corporation who shall

refuse to allow any director, trustees, stockholder or member of the
corporation to examine and copy excerpts from its records or
minutes, in accordance with the provisions of this Code, shall be
liable to such director, trustee, stockholder or member for damages,
and in addition, shall be guilty of an offense which shall be
punishable under Section 144 of this Code. The latter provision
imposes a penalty of a fine of not less than P1,000 but not more than
P10,000 or an imprisonment for not less than 30 days but not more
than 5 years, or both, at the discretion of the court. If the refusal is
pursuant to a resolution or order of the board, the liability shall be
imposed upon the directors or trustees who voted for such refusal.
Yes, they are entitled to a copy, the code provides that:

Section 75. Right to financial statements. - Within ten
(10) days from receipt of a written request of any stockholder or
member, the corporation shall furnish to him its most recent financial
statement, which shall include a balance sheet as of the end of the
last taxable year and a profit or loss statement for said taxable year,
showing in reasonable detail its assets and liabilities and the result of
its operations.
At the regular meeting of stockholders or members, the
board of directors or trustees shall present to such stockholders or
members a financial report of the operations of the corporation for
the preceding year, which shall include financial statements, duly
signed and certified by an independent certified public accountant.
However, if the paid-up capital of the corporation is less
than P50,000.00, the financial statements may be certified under oath
by the treasurer or any responsible officer of the corporation. (n)
Defense of the responsible corporate officer
1.
That the person demanding has improperly used any information

secured through any prior examination of the records or minutes of
such corporation or of any other corporation;
That he was not acting in good faith or for a legitimate purpose in
making his demand;
The right is limited or restricted by special law or the law of it
creation.
2.
3.
Audited financial statement filed in the SEC, 120 days from the end
of the final year, or must be filed on or before April of each year
Must be stamp received by the BIR
Those in the stock exchange
Disclosure of any matter that have to do with increasing and

decreasing
If not kulong violation of securities and regulation act
Why is this right of inspection granted to a stockholder?
The basis of the right of the stockholder to inspect the books and
records of the corporation for a proper purpose is to protect his
interest as a stockholder. Thus, it has been said that:
W.G. Philpotts vs. Philippine Manufacturing Co.

-
The right of inspection given to a stockholder can be exercised either

by himself or by any proper representative or attorney-in-fact, and
either with or without the attendance of the stockholder
The right may be regarded as personal, in the sense that only a
stockholder may enjoy it; but the inspection and examination may be
made by another. Otherwise it would be unavailing in many
instances.
o
The right of the shareholders to ascertain how the

affairs of his company are being conducted by its
directors and officers is founded by his beneficial
interest through ownership of shares and the necessity
of self-protection. Managers of some corporations
deliberately keep the shareholders in ignorance or under
misapprehension as to the true condition of its affairs.
Business prudence demands that the investor keep a
watchful eye on the management and the condition of
the business. Those in charge of the company may be
guilty of gross incompetence or dishonesty for years
and escape liability if the shareholders cannot inspect
the records and obtain information.
a.
b.
c.
d.
1.
2.
3.
Pardo vs. Hercules Lumber Co.

-
Is there any distinction of the right of inspection of a stockholder and

that of a director?
Yes, as compared to a stockholder or member, the right of a director
or trustee to inspect and examine corporate books and records is
considered absolute and unqualified and without regard to motive.
This is because a director supervises, directs and manages corporate
business and it is necessary that he be equipped with all the
information and data with regard to the affairs of the company in
order that he may manage and direct its operations intelligently and
according to his best judgment in the interest of all the stockholders
he represents. Thus, while stockholders and members are entitled to
inspect and examine the books and records as provided in sections
74 and 75 they may not gain access to highly sensitive and
confidential information. In the case of directors. it is not denied
that they have such access. This would include, among others,
May a stockholder of a holding company inspect the books and

records of a subsidiary?
It depends
The right of the stockholders to examine corporate books extends to
wholly-owned subsidiary which is completely under the control and
management of the parent company where he is such a stockholder.
But if the two entities (subsidiary and parent) are legally being
operated as separate and distinct entities, there is no such right of
inspection on the part of the stockholder of the parent company.
AYALA- HOLDING COMPANY/PARENT COMPANY
SUBSIDIARIES: BPI/GLOBE/AYALA LAND (not wholly-owned
subsidiary)
Yes, while the right is founded on stock ownership thus personal in

nature it may be made by the stockholders agent or representative
since it may be unavailing in many instances

Directors of a corporation have the unqualified right to inspect the

books and records of the corporation at all reasonable hours.
We do not conceive, however, that a director or stockholder has any
absolute right to secure certified copies of the minutes of the
corporation until these minutes have been written up and approved
by the directors.
May this right be exercised, other than by the stockholders

themselves?
Mandamus
Damages either against the corporation or responsible officer who
refused the inspection
Criminal complaint for violation of his right to inspect and copy
excerpts of all business transactions and minutes of meeting. Section
The law is clear, it may be exercised during reasonable hours on any

business days, the by-laws cannot deny this right all together
The general right given by the statute may not be lawfully abridged
to the extent attempted in this resolution. It may be admitted that the
officials in charge of a corporation may deny inspection when sought
at unusual hours or under other improper conditions; but neither the
executive officers nor the board of directors have the power to
deprive a stockholder of the right altogether.
The corporation, or its responsible directors and officers cannot
unduly restrict this right of inspection and may not arbitrarily set a
few days of the year within which the stockholder may make the
inspection.
A by-law unduly restricting the right of inspection is undoubtedly
invalid
Vegaruth vs. Isabela Sugar Co.
Marketing strategies and pricing structure;

Budget for expansion and diversification;
Research and development;
Sources of funding, availability of personnel, proposals of
mergers or tie-ups with other firms
What if the right of the stockholder to inspect is denied? What is his

remedy?
Note: Usually hires an auditor or accountant to safeguard his

interest
HOLD ATLEAST 50 +1 shares in order to be a PARENT

COMPANY
A, is a stockholder of Ayala, does he have a right to inspect the

records of its subsidiaries?
If wholly owned pwede, but its subsidiaries are not wholly owned
kaya hindi pwede
41
Gokongwei vs. SEC

-
shall issue a certificate of merger or of consolidation, at which time

the merger or consolidation shall be effective.
San Miguel corporation owns all of the shares of stock of San

Miguel International
It is wholly-owned
It would be in accord with equity, good faith and fair dealing to
construe the statutory right of petitioner as stockholder to inspect the
books and records of such wholly-owned subsidiary which are in
respondent corporations possession and control
If, upon investigation, the Securities and Exchange

Commission has reason to believe that the proposed merger or
consolidation is contrary to or inconsistent with the provisions of this
Code or existing laws, it shall set a hearing to give the corporations
concerned the opportunity to be heard. Written notice of the date,
time and place of hearing shall be given to each constituent
corporation at least two (2) weeks before said hearing. The
Commission shall thereafter proceed as provided in this Code. (n)
If being operated as separate and distinct corporations, there is no

such right
Telecommunications- special franchise, it is a legislative grant
Merger
Gonzales vs. PNB
A union effected by absorbing one or more existing corporations by

another which survives and continues the combined business
It is the uniting of two or more corporations by the transfer of
property to one of them which continue in existence, the other or the
others being dissolved and merged therein.
Provisions of the old law was unqualified, when it granted

stockholders the right to inspect
However, whole seemingly enlarging the right of inspection, the new
code has prescribed limitations to the same. It is now expressly
required as a condition for such examination that the one requesting
it must not have been guilty of using improperly any information
secured through a prior examination and that the person asking for
such examination must be acting in good faith and for a legitimate
purpose in making his demand
Admittedly, he sought to be a stockholder in order to pry into
transactions entered into by the respondent bank even before he
became a stockholder. His obvious purpose was to arm himself with
materials he can use against the respondent bank for acts done by the
latter when the petitioner was a total stranger to the same.
Bank was created by a special law, it has its own charter and
primarily governed by the law creating them
The bank is only subject to the inspection of the Central Bank and
any information pertaining to the bank is confidential and shall not
be revealed to any person other than the President of the Philippines,
the Secretary of Finance and the Board of Directors, nor shall any
information relative to the funds in its custody, its current accounts
or deposits belonging to private individuals, corporations or other
entities except by order of a Court of Competent Jurisdiction, hence
inspection sought to by the petitioner is violative of the provisions of
its charter and is even subject to penal sanctions
Assuming you are a stockholder of PNB, and then it was privatized,

may you already have the right to inspect?
No, unless its charter has been altered or repealed it is still subject to
the same law
3 stages in the life of a corporation
Formation or birth
We now discuss the union of the corporation
The last would be its death or dissolution
A transfers all assets, properties, rights, obligations, liabilities to B

B issues shares of stocks in exchange of the transfer
A is then dissolved and B SURVIVES
Parties to a merger are called constituent corporation
Consolidation
The uniting or amalgamation of two or more existing corporations to

form a new corporation
In merger there is a surviving corporation, the others are dissolved,
while in consolidation, all constituent are dissolved and a new one
organized
MERGER AND CONSOLIDATION
Merger and consolidation
In corporate parlance it is called spin-off

Almost a year ago San Miguel separated its brewery business
San Miguel Corporation is now a full time holding company; it can
later on absorb the company
Corporations are granted by the code to merge or consolidate
most common type of corporate recognition
not the same in every case
but most common in the weal financial or insolvent condition, aim is
to bring it back to its financial capability
also a method of recapitalization
purchase and sale of corporate assets is another form of

corporate reorganization
Like all other corporate acts, it emanates from the board
1.
The board of directors or trustees of each constituent corporations

shall approve a plan of merger or consolidation setting forth the
matters required in section 76;
Approval of the plan by the stockholders representing 2/3 of the
outstanding capital stock or 2/3 of the member in non-stock
corporations of each of such corporations at separate corporate
meetings called for the purpose;
Prior notice of such meeting, with a copy or summary of the plan
of merger or consolidation shall be given to all stockholders or
members at least two (2) weeks prior to the scheduled meeting,
either personally or registered mail stating the purpose thereof;
Execution of the articles of merger or consolidation by each
constituent corporations to be signed by the president or vicepresident and certified by the corporate secretary or assistant
secretary setting forth the matters required in section 78;
Submission of the articles of merger or consolidation in
quadruplicate to the SEC subject to the requirement of section 79
that if it involve corporations under the direct supervision of any
other government agency or governed by special laws the favorable
recommendation of the government agency concerned shall first be
secured and;
Issuance of the certificate of merger or consolidation by the SEC
at which time the merger or consolidation shall be effective. If the
plan, however, is believed to be contrary to law, the SEC shall set a
hearing to give the corporations concerned an opportunity to be
heard upon proper notice and thereafter, the Commission shall
proceed as provided in the Code.
2.
3.
4.
5.
6.
How do you value the assets of the merging corporation, do you

consider goodwill?
First secure favorably recommendation of government agency
Section 79. Effectivity of merger or consolidation. The articles of merger or of consolidation, signed and certified as
herein above required, shall be submitted to the Securities and
Exchange Commission in quadruplicate for its approval: Provided,
That in the case of merger or consolidation of banks or banking
institutions, building and loan associations, trust companies,
insurance companies, public utilities, educational institutions
and other special corporations governed by special laws, the
favorable recommendation of the appropriate government
agency shall first be obtained. If the Commission is satisfied that
the merger or consolidation of the corporations concerned is not
inconsistent with the provisions of this Code and existing laws, it

1.
2.
3.
Although merger and consolidation is an express power granted to

corporation, it is subject to limitations, as maybe proscribed by law
What would be the effect of merger or consolidation? <sec. 80>
There will only be a single corporation. In case of merger, the
surviving corporation or the consolidated corporation in case of
consolidation;
The termination of the corporate existence of the constituent
corporations, except that of the surviving corporation or the
consolidated corporation;
The surviving corporation or the consolidated corporation will
possess all the rights, privileges, immunities and powers and shall be
42
4.
5.
subject to all the duties and liabilities of a corporation organized

under the Code;
The surviving or consolidated corporation shall possess all the rights,
privileges, immunities and franchises of the constituent corporations,
and all property and all receivables due, including subscriptions to
shares and other choses in action, and every other interest of, or
belonging to or due to the constituent corporations shall be deemed
transferred to and vested in such surviving or consolidated
corporation without further act and deed; and,
The rights of creditors or any lien on the property of the constituent
corporations shall not be impaired by the merger or consolidation.
Is there a liquidation process in case of merger or consolidation?
None, there is nothing to distribute
of shares, or of authorizing preferences in any respect superior to

those of outstanding shares of any class, or of extending or
shortening the term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or
other disposition of all or substantially all of the corporate property
and assets as provided in the Code; and
3. In case of merger or consolidation. (n)
X Co. inc
Associated Bank vs. CA

-
By virtue of a specific provision in the merger agreement

Although the subject promissory note names CBTC as the payee, the
reference to CBTC in the note shall be construed, under the very
provision of the merger agreement, as a reference to petitioner bank,
as if such reference (was a) direct reference to the latter for all
intents and purposes
Section 80 par. 4 states:
The surviving or the consolidated corporation shall
thereupon and thereafter possess all the rights, privileges, immunities
and franchises of each of the constituent corporations; and all
property, real or personal, and all receivables due on whatever
account, including subscriptions to shares and other choses in action,
and all and every other interest of, or belonging to, or due to each
constituent corporation, shall be deemed transferred to and vested in
such surviving or consolidated corporation without further act or
deed; and
Without further acts, meaning it is automatic
When do merger and consolidation become effective? What if the

SEC fails to act on it without fault attributable to the corporation
involved?
It will never become valid until and unless the SEC gives its stamp
of approval
It will be up to the constituent corporation to follow it up
It will never take effect until the SEC gives its approval and issues
the articles of merger
Could there be liquidators and winding up with respect to the

corporation in consolidation and merger?
No, there is none

No assets properties or rights to collect, they are transferred
No debts and liabilities to pay because they become the liabilities of
the surviving corporations
No properties transferred because they will be the properties of the
surviving corporations
o
o
Principal office is in Quezon city, it was changed to Paranaque

A objects and makes a written demand. May he exercise his right of
appraisal?
-
It is not available in all amendments of the corporation

It must be changing or restricting the rights of any stockholder
What if the principal office is changed from QC to TAWI-TAWI,

will it change or affect the rights of A?
To some it may change or restrict the rights to others it may not
How is the right exercised?
According to section 82 of the code:

Section 82. How right is exercised. - The appraisal right
may be exercised by any stockholder who shall have voted against
the proposed corporate action, by making a written demand on the
corporation within thirty (30) days after the date on which the vote
was taken for payment of the fair value of his shares: Provided, That
failure to make the demand within such period shall be deemed a
waiver of the appraisal right. If the proposed corporate action is
implemented or affected, the corporation shall pay to such
stockholder, upon surrender of the certificate or certificates of stock
representing his shares, the fair value thereof as of the day prior to
the date on which the vote was taken, excluding any appreciation or
depreciation in anticipation of such corporate action.
If within a period of sixty (60) days from the date the
corporate action was approved by the stockholders, the withdrawing
stockholder and the corporation cannot agree on the fair value of the
shares, it shall be determined and appraised by three (3) disinterested
persons, one of whom shall be named by the stockholder, another by
the corporation, and the third by the two thus chosen. The findings of
the majority of the appraisers shall be final, and their award shall be
paid by the corporation within thirty (30) days after such award is
made: Provided, That no payment shall be made to any dissenting
stockholder unless the corporation has unrestricted retained earnings
in its books to cover such payment: and Provided, further, That upon
payment by the corporation of the agreed or awarded price, the
stockholder shall forthwith transfer his shares to the corporation. (n)
Granted 3 years to wing up unless there is a trustee to wing up

its affairs
May it be exercised by a stockholder who dissents to the act of a

business other than a primary purpose?
X Co.
Hardest part is the financial act, regarding how many shares

would be issued, probability of collection and the like
In merger and consolidation, there is due diligence and an
economist is usually hired
Principal Office- QC, it was changed to Manila

A objects and makes a written demand for payment of fair value of
shares. Can he make a demand of payment of shares?
APPRAISAL RIGHT
Define appraisal
True or False, no stockholder in a stock corporation can ever demand

if the principal office is amended, changing it from QC to Manila
Right to withdraw from the corporation and demand payment of the

fair value of his shares after dissenting from certain corporate acts
involving fundamental changes in corporate structure <sec. 81>
False, a stockholder in a close corporation may for any reason

compel the close corporation that he be paid the fair value of his
shares
What property? When may this right be exercises?
Section 81. Instances of appraisal right. - Any
stockholder of a corporation shall have the right to dissent and
demand payment of the fair value of his shares in the following
instances:
1. In case any amendment to the articles of incorporation has the
effect of changing or restricting the rights of any stockholder or class

Can he exercise his appraisal rights in the first place? He hasnt even
paid his subscription in full.
May a stockholder who hasnt paid his subscription in full exercise

his appraisal rights?
Yes, he can exercise his appraisal rights, by reconciling the

provisions of section 72, section 82 and section 86
43

What would be the effect if the stockholder exercises his appraisal

rights? What happens to his voting and dividend rights if he
exercises his appraisal rights?
Section 82. How right is exercised. - The appraisal right

may be exercised by any stockholder who shall have voted against
the proposed corporate action, by making a written demand on the
corporation within thirty (30) days after the date on which the vote
was taken for payment of the fair value of his shares: Provided, That
failure to make the demand within such period shall be deemed a
waiver of the appraisal right. If the proposed corporate action is
implemented or affected, the corporation shall pay to such
stockholder, upon surrender of the certificate or certificates of
stock representing his shares, the fair value thereof as of the day
prior to the date on which the vote was taken, excluding any
appreciation or depreciation in anticipation of such corporate action.
It will be suspended, with a limitation of 30 days, as provided for by

section 83 of the code:
If within a period of sixty (60) days from the date the

corporate action was approved by the stockholders, the withdrawing
stockholder and the corporation cannot agree on the fair value of the
shares, it shall be determined and appraised by three (3) disinterested
persons, one of whom shall be named by the stockholder, another by
the corporation, and the third by the two thus chosen. The findings of
the majority of the appraisers shall be final, and their award shall be
paid by the corporation within thirty (30) days after such award is
made: Provided, That no payment shall be made to any dissenting
stockholder unless the corporation has unrestricted retained earnings
in its books to cover such payment: and Provided, further, That upon
payment by the corporation of the agreed or awarded price, the
stockholder shall forthwith transfer his shares to the corporation. (n)
Section 86. Notation on certificates; rights of
transferee. - Within ten (10) days after demanding payment for his
shares, a dissenting stockholder shall submit the certificates of stock
representing his shares to the corporation for notation thereon that
such shares are dissenting shares. His failure to do so shall, at the
option of the corporation, terminate his rights under this Title. If
shares represented by the certificates bearing such notation are
transferred, and the certificates consequently cancelled, the rights of
the transferor as a dissenting stockholder under this Title shall cease
and the transferee shall have all the rights of a regular stockholder;
and all dividend distributions which would have accrued on such
shares shall be paid to the transferee. (n)
-
Notation is not mandatory, it is even discretionary because the code

provides at the option of the corporation because it never issued
one for that matter since the subscriptions are not yet fully paid
May the corporation be compelled to pay the interest of A
Section 83. Effect of demand and termination of right. From the time of demand for payment of the fair value of a
stockholder's shares until either the abandonment of the corporate
action involved or the purchase of the said shares by the corporation,
all rights accruing to such shares, including voting and dividend
rights, shall be suspended in accordance with the provisions of
this Code, except the right of such stockholder to receive
payment of the fair value thereof: Provided, That if the
dissenting stockholder is not paid the value of his shares within
30 days after the award, his voting and dividend rights shall
immediately be restored. (n)
How do you compare the rights of a stockholder, declared delinquent

compared to a dissenting stockholder exercising his appraisal rights
What if a stockholder exercising his appraisal rights is also a
director, will he also lose his rights as a stockholder?
The shares remain to stand in his name until he is paid, unless there
is a stipulation in the by-laws
When may the right to be paid the value of his shares cease? Can he
withdraw his right of appraisal?
Yes, he may withdraw, but there must be consent by the corporation

as provided for by section 83 of the code:
Section 84. When right to payment ceases. - No demand
for payment under this Title may be withdrawn unless the
corporation consents thereto. If, however, such demand for payment
is withdrawn with the consent of the corporation, or if the proposed
corporate action is abandoned or rescinded by the corporation or
disapproved by the Securities and Exchange Commission where
such approval is necessary, or if the Securities and Exchange
Commission determines that such stockholder is not entitled to the
appraisal right, then the right of said stockholder to be paid the fair
value of his shares shall cease, his status as a stockholder shall
thereupon be restored, and all dividend distributions which would
have accrued on his shares shall be paid to him. (n)
Instances when the right of a dissenting stockholder to be paid the

fair value of his shares ceases.
1.
When he withdraws his demand for payment and the corporation

consents thereto;
When the proposed action is abandoned or rescinded by the
corporation;
When the proposed action is disapproved by the SEC where such
approval is necessary;
When the SEC determines that he is not entitled to exercise his
appraisal right;
When he fails to submit the stock certificate within ten (10) days
from demand to the corporation for notation that such shares are
dissenting shares; and,
If the shares are transferred and the certificate subsequently
cancelled.
300 T, 150T, 150T and 0 unrestricted retained earnings
No stockholder may be able to compel the corporation to pay the

value of his shares if the corporation has no unrestricted retained
earnings
False, a stockholder of a close corporation may for any reason,
provided only that the corporation has sufficient assets to cover its
debts and liabilities
o
o
General rule: there should be unrestricted retained earnings

Exception: section 105 close corporation
The procedure and requirements for the valid exercise of this rights
are:
1.
The stockholder must have voted against the proposed corporate

action in any of the instances allowed by law for the exercise of the
right of appraisal;
The written demand for payment must be made by the dissenting
stockholder within thirty (30) days after the date on which the vote
was taken thereon. Failure to make the demand within the said
period shall be deemed a waiver on the part of the stockholder
concerned to exercise his appraisal right;
Surrender of the certificate of stock by the dissenting stockholder for
notation in the corporate books and the payment by the corporation
of the fair market value of the said shares as of the day prior to the
date on which the vote was taken. If the stockholder and the
corporation cannot agree on the fair market value thereof, the same
shall be determined in accordance with the provision of paragraph 2
of section 82;
The fair value of the shares of the dissenting stockholder must be
paid by the corporation only if it has unrestricted retained earnings
in its books to cover such payment. If the corporation has no
unrestricted retained earnings, the dissenting stockholder may not,
therefore, be able to effectively exercise his appraisal rights;
Upon payment of the shares by the corporation, the dissenting
stockholder shall transfer his shares to the corporation.
2.
3.
4.
5.

2.
3.
4.
5.
6.
Who bears the cost of appraisal?
It depends
The corporation bears the cost if
a.
b.
Dissenting stockholder will be liable for the cost and expenses of

appraisal when
a.
b.
The price offered by the corporation is lower than the fair

value of the shares of the dissenting stockholder as determined
by the appraisers;
Where an action is filed by the dissenting stockholder to
recover such fair value and the refusal of the stockholder to
receive payment is found by the court to be justified.
When the price offered by the corporation is approximately

the same as the fair value ascertained by the appraisers;
Where the action filed by the dissenting stockholder and his
refusal to accept payment is found by the court to be
unjustified.
The dissenting stockholder may also sell, transfer or assign his

shares
44
Section 86. Notation on certificates; rights of

transferee. - Within ten (10) days after demanding payment for his
shares, a dissenting stockholder shall submit the certificates of stock
representing his shares to the corporation for notation thereon that
such shares are dissenting shares. His failure to do so shall, at the
option of the corporation, terminate his rights under this Title. If
shares represented by the certificates bearing such notation are
transferred, and the certificates consequently cancelled, the
rights of the transferor as a dissenting stockholder under this
Title shall cease and the transferee shall have all the rights of a
regular stockholder; and all dividend distributions which would
have accrued on such shares shall be paid to the transferee. (n)
Section 92. Election and term of trustees. - Unless

otherwise provided in the articles of incorporation or the by-laws, the
board of trustees of non-stock corporations, which may be more than
fifteen (15) in number as may be fixed in their articles of
incorporation or by-laws, shall, as soon as organized, so classify
themselves that the term of office of one-third (1/3) of their number
shall expire every year; and subsequent elections of trustees
comprising one-third (1/3) of the board of trustees shall be held
annually and trustees so elected shall have a term of three (3) years.
Trustees thereafter elected to fill vacancies occurring before the
expiration of a particular term shall hold office only for the
unexpired period.
NON-STOCK CORPORATIONS
What is a non-stock corporation?
A non-stock corporation is one where no part of its income is

distributable as dividends to its members, trustees, or officers,
subject to the provisions of this code on dissolution
What provision of the code will govern non-stock corporations?

Would the provision governing stock corporations also apply to nonstock corporations?
Yes, 2nd par. Of section 87 provides:
The provisions governing stock corporation, when
pertinent, shall be applicable to non-stock corporations, except as
may be covered by specific provisions of this Title. (n)
It may exceed 15 in a non-stock corporation unless the AOI or bylaws provide otherwise, as provided for by section 92 of the code:
No person shall be elected as trustee unless he is a

member of the corporation.
incorporation or the by-laws, officers of a non-stock corporation may
be directly elected by the members. (n)
Qualifications?
1.
2.
3.
He is a member of the association;

Majority thereof must be residents of the Philippines; and,
Other qualifications as may be provided for in the by-laws.
Governing board in a non-stock
Board of Trustees, however section 138 provides that:
How is the right to vote exercised in a non-stock corporation

compared to a stock corporation
May a member in a non-stock corporation vote cumulatively?
General rule is NO
May it be granted or allowed by the by-laws?
Yes
Disqualifications
May the right to cumulative voting be denied in a stock corporation?
Section 27 also applies to a non-stock corporation, same holds true

to the manner of removal <sec. 29 ad 30>
No, Doctrine of Limited Capacity
May members in a non-stock corporation vote by proxy?
Yes, section 89 provides that:
Section 138. Designation of governing boards. - The

provisions of specific provisions of this Code to the contrary
notwithstanding, non-stock or special corporations may, through
their articles of incorporation or their by-laws, designate their
governing boards by any name other than as board of trustees.
(n)
Section 27. Disqualification of directors, trustees or

officers. - No person convicted by final judgment of an offense
punishable by imprisonment for a period exceeding six (6) years, or
a violation of this Code committed within five (5) years prior to the
date of his election or appointment, shall qualify as a director, trustee
or officer of any corporation. (n)

incorporation or the by-laws, a member may vote by proxy in
accordance with the provisions of this Code. (n)
May the right to vote by proxy be validly denied in a stock

corporation?
No, it is a matter of right in a stock corporation
May member of a non-stock corporation cast their vote by text?
Yes, subject to the approval and terms and conditions of the SEC
<sec. 89>
Section 29. Vacancies in the office of director or

trustee. - Any vacancy occurring in the board of directors or trustees
other than by removal by the stockholders or members or by
expiration of term, may be filled by the vote of at least a majority of
the remaining directors or trustees, if still constituting a quorum;
otherwise, said vacancies must be filled by the stockholders in a
regular or special meeting called for that purpose. A director or
trustee so elected to fill a vacancy shall be elected only or the
unexpired term of his predecessor in office.
Any directorship or trusteeship to be filled by reason of
an increase in the number of directors or trustees shall be filled only
by an election at a regular or at a special meeting of stockholders or
members duly called for the purpose, or in the same meeting
authorizing the increase of directors or trustees if so stated in the
notice of the meeting. (n)
Voting by mail or other similar means by members of

non-stock corporations may be authorized by the by-laws of nonstock corporations with the approval of, and under such conditions
which may be prescribed by, the Securities and Exchange
Commission.
How about in stock?
Voting by mail or other similar means may also be authorized and

allowed by the by-laws of non-stock corporations. Generally, in
stock corporations, the vote must be cast at a duly constituted
meeting. The only exception, in case of the latter, is in the matter of
general amendment of the articles of incorporation where the written
assent of the stockholder may be sufficient.
How is the governing board constituted in a non-stock corporation?

How many members?

Who elects the other officers?
Directly by the general members unless the by-laws or articles

provide otherwise. <sec.92>
Unless

otherwise
provided
in
the
articles
of
45
incorporation or the by-laws, officers of a non-stock corporation may

be directly elected by the members. (n)
2.
In stock corporations who elect officers?
Directors
The provision that stock corporations cannot validly provide that

members cannot be voted by stockholders is only a general rule
because there is an exception section 97 of the code states that:
The articles of incorporation of a close corporation
may provide that the business of the corporation shall be managed
by the stockholders of the corporation rather than by a board of
directors. So long as this provision continues in effect:
3.
If the conduct of the member comes within any of this cases, it is a

ground for valid expulsion although it may not be expressly made so
by the by-laws
Chinese YMCA vs. Ching
-
1. No meeting of stockholders need be called to elect directors;

2. Unless the context clearly requires otherwise, the stockholders of
the corporation shall be deemed to be directors for the purpose of
applying the provisions of this Code; and
-
The articles of incorporation may 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.
Nature of membership is non-transferrable and personal in nature
unless the articles of incorporation or by-laws provide otherwise
c.
A holds a membership certificate
d.
Membership in non-stock corporations may be acquired by

complying with the provisions of its rules prescribed in the by-laws.
This is in consonance with the express power granted by law under
section 36, paragraph 6 of the code, authorizing them to admit
members thereof and that authority carries with it the power to
prescribe rules on membership. It has thus been stated that in the
absence of charter or statutory restrictions, non-stock corporations
may determine who shall be admitted to membership and how they
shall be admitted.
Section 36. Corporate powers and capacity. - Every
corporation incorporated under this Code has the power and
capacity:
6. In case of stock corporations, to issue or sell stocks to subscribers
and to sell stocks to subscribers and to sell treasury stocks in
accordance with the provisions of this Code; and to admit members
to the corporation if it be a non-stock corporation;
They can provide the manner in which to admit depending on their

own rules
The power or authority to terminate members in non-stock
corporations is said to be inherent but strict compliance with the
manner and procedure laid down in the by-laws must be observed,
otherwise it may render the expulsion ineffective and invalid.
Section 91. Termination of membership. - Membership
shall be terminated in the manner and for the causes provided in the
articles of incorporation or the by-laws. Termination of membership
shall have the effect of extinguishing all rights of a member in the
corporation or in its property, unless otherwise provided in the
articles of incorporation or the by-laws. (n)
b.
How is a membership requirement in a non-stock corporation
B goes to the corporation and compels the corporation to record the

transfer in his name
-
Courts will not generally interfere on matters involving the internal

affairs of an unincorporated association such as election contest
unless the acts complained of are arbitrary, oppressive, fraudulent,
violative of civil rights and the like
General rule is that the courts will not interfere with the internal
affairs of an unincorporated association so as to settle disputes
between the members, or questions of policy, discipline, or internal
government, so long as the government of the society is fairly and
honestly administered in conformity with its by-laws and the law of
the land, and no property or civil rights are involved.
Exceptions are the following:
a.
Section 90. Non-transferability of membership. Membership in a non-stock corporation and all rights arising there
from are personal and non-transferable, unless the articles of
incorporation or the by-laws otherwise provide. (n)
Right of the corporation to choose who the members are, cannot be

inquired or intervened by the court
The appealed decision thus contravened the establish principle that
the courts cannot strip a member of a non-stock corporation of his
membership therein without cause.
Lions Club International vs. CA
3. The stockholders of the corporation shall be subject to all

liabilities of directors.
Power is inherent and may be exercised in certain situations:

1.
When an offense is committed which, although it has no

immediate relation to a members duty as such, it is so

infamous as to render him unfit for society of honest men,

which is indictable at common law;
When the offense is a violation of his duty as member of the
corporation; and,
When the offense is of a mixed nature, being both against his
duty as a member of the corporation, and also indictable at
common law.
Where law and justice so require, and the proceedings of the

association are subject to judicial review where there is fraud,
oppression, or bad faith, or where the action complained of is
capricious, arbitrary, or unjustly discriminatory
To grant relief in case property or civil rights are invaded,
although it has also been held that the involvement of property
rights does not necessarily authorize judicial intervention, in
the absence of arbitrariness, fraud or collusion.
Are violative of the laws of the society, or the law of the land,
as by depriving the person of due process of law
There is lack of jurisdiction on the part of the tribunal
conducting the proceedings, where the organization exceeds
its powers, or where the proceedings are otherwise illegal
Corporations, stock and non-stock, may be dissolved in accordance

and pursuant to the provisions of Sections 118 to 121 of the
Corporation Code and the pertinent provisions of P.D. 902-A, as
amended. If such be the case, the assets of the corporation are to be
distributed in accordance with law and established jurisprudence.
If a non-stock corporation is dissolved how will its properties be
distributed?
Section 94. Rules of distribution. - In case dissolution
of a non-stock corporation in accordance with the provisions
of this Code, its assets shall be applied and distributed as
follows:
1. All liabilities and obligations of the corporation shall be
paid, satisfied and discharged, or adequate provision shall be
made therefore;
2. Assets held by the corporation upon a condition requiring
return, transfer or conveyance, and which condition occurs by
reason of the dissolution, shall be returned, transferred or
conveyed in accordance with such requirements;
3. Assets received and held by the corporation subject to
limitations permitting their use only for charitable, religious,
benevolent, educational or similar purposes, but not held upon
a condition requiring return, transfer or conveyance by reason
of the dissolution, shall be transferred or conveyed to one or
more corporations, societies or organizations engaged in
activities in the Philippines substantially similar to those of the
dissolving corporation according to a plan of distribution
adopted pursuant to this Chapter;
4. Assets other than those mentioned in the preceding
paragraphs, if any, shall be distributed in accordance with the
provisions of the articles of incorporation or the by-laws, to
the extent that the articles of incorporation or the by-laws,
determine the distributive rights of members, or any class or
classes of members, or provide for distribution; and
5. In any other case, assets may be distributed to such persons,
societies, organizations or corporations, whether or not
46
organized for profit, as may be specified in a plan of

distribution adopted pursuant to this Chapter. (n)
Non-stock corporations with 4Billion funds, may it be distributed for

and among its members?
- Section 94 number 3 provides:

3. Assets received and held by the corporation subject to
limitations permitting their use only for charitable, religious,
benevolent, educational or similar purposes, but not held upon a
condition requiring return, transfer or conveyance by reason of the
dissolution, shall be transferred or conveyed to one or more
corporations, societies or organizations engaged in activities in the
Philippines substantially similar to those of the dissolving
corporation according to a plan of distribution adopted pursuant to
this Chapter;
-
Notwithstanding the foregoing, a corporation shall not

be deemed a close corporation when at least two-thirds (2/3) of its
this Code.
If there is no distributive agreement then they may do so through a

plan of distribution under section 95
What kind of corporations cannot be a close corporation?
1.
2.
3.
4.
5.
6.
Mining or oil companies,

Stock exchange
Banks and insurance companies,
Public utilities
Educational institutions
Corporations vested with public interest
Classification of directors
Ordinary stock- no such right

Close corporation-yes there is such a right
Section 97 is a permissive provision
Section 95. Plan of distribution of assets. - A plan

providing for the distribution of assets, not inconsistent with the
provisions of this Title, may be adopted by a non-stock corporation
in the process of dissolution in the following manner:
Section 97. Articles of incorporation. - The articles of

incorporation of a close corporation may provide:
1. For a classification of shares or rights and the qualifications for
owning or holding the same and restrictions on their transfers as may
be stated therein, subject to the provisions of the following section;
The board of trustees shall, by majority vote, adopt a

resolution recommending a plan of distribution and directing the
submission thereof to a vote at a regular or special meeting of
members having voting rights. Written notice setting forth the
proposed plan of distribution or a summary thereof and the date, time
and place of such meeting shall be given to each member entitled to
vote, within the time and in the manner provided in this Code for the
giving of notice of meetings to members. Such plan of distribution
shall be adopted upon approval of at least two-thirds (2/3) of the
members having voting rights present or represented by proxy at
such meeting. (n)
CLOSE CORPORATIONS
Section 96. Definition and applicability of Title. - A close

corporation, within the meaning of this Code, is one whose articles
of incorporation provide that: (1) All the corporation's issued stock
of all classes, exclusive of treasury shares, shall be held of record
by not more than a specified number of persons, not exceeding
twenty (20); (2) all the issued stock of all classes shall be subject
to one or more specified restrictions on transfer permitted by
this Title; and (3) The corporation shall not list in any stock
exchange or make any public offering of any of its stock of any
class. Notwithstanding the foregoing, a corporation shall not be
deemed a close corporation when at least two-thirds (2/3) of its
this Code.
Between and among themselves, they feel and act alike
Not more than 20 stockholders
Specified persons, if you are not specified, you cannot be a
stockholder
All the issued stocks of all classes is subject to restrictions
Shall not be listed in the stock exchange not publicly offered
3 qualifying conditions must be contained in the articles of
incorporation, to be considered as a close corporation, if not, it will
not be considered as such and will be governed by the general
provisions of the code
Even if 100 % is owned by one person it will not be considered a
close corporation without the 3 qualifying provisions
Identity of stockholders, specified persons
Active management either as directors or partners in management
Combination of the corporation and partnership type of business
May any type of corporation, be organized as such close
corporation?
No, the 3 qualifying conditions must be present
What if 2/3 of the outstanding capital stock is owned by another

corporation which is also a close corporation, will it be a close
corporation?
No, it will only be a closed corporation if 2/3 of the voting stocks of

a close corporation is also owned by a close corporation. It must be
voting stocks
Even if another corporation owns or controls 2/3 of the voting stocks
of a close corporation, the latter may still be considered as such close
corporation if the corporation owning or controlling the shares is also
a close corporation.

2. For a classification of directors into one or more classes, each of

whom may be voted for and elected solely by a particular class of
stock; and
3. For a greater quorum or voting requirements in meetings of
stockholders or directors than those provided in this Code.
After classification what then?
After classification, qualification and then restriction as provided for

under the 3 qualifying conditions in section 96
Cumulative voting is restricted in close corporations if will be

elected solely by a particular class
In a close corporation, the articles of incorporation may provide for a
greater quorum and voting requirement in meetings of both
stockholders or directors to increase the veto power of minority
stockholders, unlike in a stock corporation wherein only directors
meetings may provide for greater quorum requirement and in
stockholders meeting which may not be altered or increased, as
provide for in section 25, following the doctrine of limited capacity
The articles of a close corporation may likewise provide that the
business of the corporation shall be managed by the stockholders
rather than by the board of directors. However the same must contain
the continuing provisions required in paragraph 2 of section 97, that
is:
1.
2.
3.
No meeting of stockholders need be called to elect directors;

Unless the context clearly requires otherwise, the stockholders
of the corporation shall be deemed to be directors; and;
The stockholders of the corporation shall be subject to all
liabilities of directors.
Liability of stockholders acting as directors in a close corporation

are more extensive since they are personally liable for corporate torts
unless the corporation has obtained a reasonable adequate liability
insurance, unlike a ordinary stock corporation, wherein directors
thereof are only liable for corporate torts only if they have been
negligent or acted fraudulently in the performance of their functions.
Restrictions
In ordinary stock corporations, the restrictions must appear in the
articles of incorporation as well as the certificate of stocks
In a close corporation, the restrictions must appear in the articles of
incorporation, the by-laws and the certificate of stocks. Otherwise,
the same shall not be binding on any purchaser thereof in good faith
What if the stockholders do not want to exercise their right or option

to purchase may it be sold to any person?
Yes, any third person, section 98 provides:

Section 98. Validity of restrictions on transfer of
shares. - Restrictions on the right to transfer shares must appear in
the articles of incorporation and in the by-laws as well as in the
certificate of stock; otherwise, the same shall not be binding on any
purchaser thereof in good faith. Said restrictions shall not be more
47
onerous than granting the existing stockholders or the corporation

the option to purchase the shares of the transferring stockholder with
such reasonable terms, conditions or period stated therein. If upon
the expiration of said period, the existing stockholders or the
corporation fails to exercise the option to purchase, the
transferring stockholder may sell his shares to any third person.
o
What if there are already 20 stockholders and they want to add 2

more, may it compel?
In ordinary stock corporations, they may compel by mandamus

In close corporations, may not be compelled to admit because it
breaches the qualifying conditions
Since they cannot be compelled, may they admit?
Yes, provided all the stockholders consented or instead of consenting

they decide to amend their articles of incorporation
Will have to amend the articles of incorporation to accommodate
other purchasers of share
Will cease to be a close corporation if it amends and becomes in
excess of 20
3. The directors are accustomed to take informal action with the

express or implied acquiescence of all the stockholders; or
4. All the directors have express or implied knowledge of the action
in question and none of them makes prompt objection thereto in
writing.
ordinary stock corporations are liable only if acted in

Bad faith, fraud or negligence in performance of duty
2. All the stockholders have actual or implied knowledge of the

action and make no prompt objection thereto in writing; or
Section 102. Pre-emptive right in close corporations. The pre-emptive right of stockholders in close corporations shall
extend to all stock to be issued, including reissuance of treasury
shares, whether for money, property or personal services, or in
payment of corporate debts, unless the articles of incorporation
provide otherwise.
Why is it said to be absolute?
Because there is no public offering in a close corporation, otherwise

it will not be considered as close
In a close corporation the pre-emptive rights is broadened to include

all issues without exception unless denied or limited by the articles
of incorporation
Section 39 is the governing provision concerning rights of the
stockholder in an ordinary stock corporation and it may be denied. If
it is not denied a stockholder can exercise his pre-emptive rights for
all issues of shares whether money, property or previously incurred
indebtedness.
Unless all the stockholders consent they may
What if the other stockholders object to register? What will be the

remedy of the transferee?
His remedy is rescission. The effect of rescission is mutual

restitution
How about the stockholder, what is his recourse?
He may compel the close corporation to purchase his shares at their

fair value for any reason, provided the corporation has sufficient
assets in its books to cover the debts and liabilities exclusive of
capital
In a close corporation, there is a withdrawing stockholder, unlike in
an ordinary stockholder where there is none, they may only do so in
the exercise of appraisal rights
Section 105. Withdrawal of stockholder or dissolution

of corporation. - In addition and without prejudice to other rights
and remedies available to a stockholder under this Title, any
stockholder of a close corporation may, for any reason, compel
the said corporation to purchase his shares at their fair value,
which shall not be less than their par or issued value, when the
corporation has sufficient assets in its books to cover its debts
and liabilities exclusive of capital stock: Provided, That any
stockholder of a close corporation may, by written petition to the
Securities and Exchange Commission, compel the dissolution of
such corporation whenever any of acts of the directors, officers or
those in control of the corporation is illegal, or fraudulent, or
dishonest, or oppressive or unfairly prejudicial to the corporation or
any stockholder, or whenever corporate assets are being misapplied
or wasted.
Agreements may also be entered in a close corporation <sec.100>
They can even agree to be partners in management

Pre-incorporation
Manner in which the business of the corporation shall be managed
Board resolution
Ordinary stock corporations- sit and act as a body at a duly

constituted meeting, they may do so by virtue of the E-Commerce
Act through teleconference or video conference
Exception to the rule: other officers may be directly appointed and

hired by the stockholders
Close corporations may validly act even without a meeting provided
the conditions are obtained
Section 101. When board meeting is unnecessary or

improperly held. - Unless the by-laws provide otherwise, any action
by the directors of a close corporation without a meeting shall
nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is
signed by all the directors; or

Pre-emptive rights in a close corporation is absolute
Section 39. Power to deny pre-emptive right. - All

stockholders of a stock corporation shall enjoy pre-emptive right to
subscribe to all issues or disposition of shares of any class, in
proportion to their respective shareholdings, unless such right is
denied by the articles of incorporation or an amendment thereto:
Provided, That such pre-emptive right shall not extend to shares to
be issued in compliance with laws requiring stock offerings or
minimum stock ownership by the public; or to shares to be issued in
good faith with the approval of the stockholders representing twothirds (2/3) of the outstanding capital stock, in exchange for property
needed for corporate purposes or in payment of a previously
contracted debt.
Are treasury shares covered in the exercise of pre-emptive rights in

ordinary stock corporations?
As regards amendments
Section 103. Amendment of articles of incorporation. Any amendment to the articles of incorporation which seeks to delete
or remove any provision required by this Title to be contained in the
articles of incorporation or to reduce a quorum or voting requirement
stated in said articles of incorporation shall not be valid or effective
unless approved by the affirmative vote of at least two-thirds (2/3) of
the outstanding capital stock, whether with or without voting rights,
or of such greater proportion of shares as may be specifically
provided in the articles of incorporation for amending, deleting or
removing any of the aforesaid provisions, at a meeting duly called
for the purpose.
What happens if there is a deadlock?
Section 104 provides for a remedy

Section 104. Deadlocks. - Notwithstanding any contrary
provision in the articles of incorporation or by-laws or agreement of
stockholders of a close corporation, if the directors or stockholders
are so divided respecting the management of the corporation's
business and affairs that the votes required for any corporate action
cannot be obtained, with the consequence that the business and
affairs of the corporation can no longer be conducted to the
advantage of the stockholders generally, the Securities and Exchange
Commission, upon written petition by any stockholder, shall have
the power to arbitrate the dispute. In the exercise of such power, the
Commission shall have authority to make such order as it deems
appropriate, including an order: (1) cancelling or altering any
provision contained in the articles of incorporation, by-laws, or any
stockholder's agreement; (2) cancelling, altering or enjoining any
resolution or act of the corporation or its board of directors,
stockholders, or officers; (3) directing or prohibiting any act of the
corporation or its board of directors, stockholders, officers, or other
persons party to the action; (4) requiring the purchase at their fair
value of shares of any stockholder, either by the corporation
regardless of the availability of unrestricted retained earnings in its
books, or by the other stockholders; (5) appointing a provisional
director; (6) dissolving the corporation; or (7) granting such other
relief as the circumstances may warrant.
48
A provisional director shall be an impartial person who

is neither a stockholder nor a creditor of the corporation or of any
subsidiary or affiliate of the corporation, and whose further
qualifications, if any, may be determined by the Commission. A
provisional director is not a receiver of the corporation and does not
have the title and powers of a custodian or receiver. A provisional
director shall have all the rights and powers of a duly elected director
of the corporation, including the right to notice of and to vote at
meetings of directors, until such time as he shall be removed by
order of the Commission or by all the stockholders. His
compensation shall be determined by agreement between him and
the corporation subject to approval of the Commission, which may
fix his compensation in the absence of agreement or in the event of
disagreement between the provisional director and the corporation.
-
Powers of the SEC in intra-corporate concerns has been transferred

to the proper commercial courts
Prohibit, even if acting in good faith
Provisional director appointed by the court
Requiring the purchase, irrespective of unrestricted retained earnings
The provision of the law above-quoted gives the SEC a very wide
discretion in respect to management of a close corporation in the
event of a deadlock. It may:
1.
2.
3.
4.
5.
6.
7.
Cancel or alter any provision in the articles of incorporation,

by-laws or any stockholders agreement
Cancel, alter or enjoin any resolution or other act of the
corporation or its board of directors, stockholders or officers
Prohibit any act of the corporation or its board of directors,
stockholders or officers or other persons party to the action;
Requiring the purchase of the par value of the shares of any
stockholders, either by the corporation regardless of
availability of unrestricted earnings, or by the other
shareholders,
Appointment of a provisional director
Dissolving the corporation; or
Other relief as the circumstances may warrant.
Section 105
Dishonesty is a ground for dissolution of a close corporation

Even one stockholder may petition for dissolution
o
1. The number of stockholders cannot

exceed 20
ORDINARY STOCK
CORPORATION
No limitation as to number
shareholder
11.It may provide for greater quorum

and voting requirements in
meetings of stockholders and
directors
12.Restriction on transfer of shares
should be indicated in the articles
of incorporation, by-laws and stock
certificates
Directors
Although the articles of incorporation

or by-laws may provide for greater
quorum and voting requirements in
directors meeting under section 25,
those for stockholders meeting cannot
generally be altered
Valid and binding if indicated in the
articles of incorporation and stock
certificates
13.Pre-emptive rights of stockholders

is broader as it include all issues
without exception
Pre-emptive rights may be denied as

provided for in section 39
14.A stockholder may withdraw and

compel the corporation to purchase
his shares for any reason with the
limitation only that the corporation
has sufficient assets to cover its
liabilities exclusive of capital stock
Unless he sells his shares, a

stockholder cannot get back his
investment nor compel the corporation
to buy his shares except in the exercise
of his appraisal right
15.The proper forum may interfere in

the management of a close
corporation in case of deadlocks
under Section 104, even of the
directors/stockholders are acting in
good faith
Courts cannot interfere I the business

judgment of the directors/stockholders
BUSINESS JUDGMENT RULE
16.Any stockholder may petition the

SEC for corporate dissolution on
grounds among others, provides for
in section 105
Dissolution may be had only on the

grounds provided by the provisions of
the Code on dissolution and P.D. 902A, as amended
Manuel Dulay Enterprises vs. CA
when there is a relief available, dissolution would not be

available in an ordinary corporation
CLOSE CORPORATION
provide that all officers shall be

elected or appointed by the
stockholders
of
2. To the extent that all stockholders

can be deemed directors, the
number of directors can effectively
be more than 15
Maximum number of directors is 15
3. Shares of stock are subject to

specified restrictions
Generally no restriction on transfer of

shares
4. Shares of stock are prohibited from

being listed in the stock exchange
or offered for sale to the public
No prohibition
5. Stockholders may take an active

part in corporate management by
vesting management to them rather
than a Board of Director
Management is lodged in the Board of

Directors
6. Those active in management are

personally liable for corporate torts
unless the corporation has obtained
an adequate liability insurance
Directors are liable for torts only if

they have acted negligently or
fraudulently
7. Directors can validly act even

without a meeting
Directors must, as a rule, act as a body

at a duly constituted meeting
8. Agreements between stockholders

regarding the operations of the
business can validly be made
Not valid and binding since

stockholders agreement cannot limit
the discretion of the Board to manage
corporate affairs
9. To the extent that directors may be

classified into one or more classes
and to be voted solely by a
particular
class
of
stock,
cumulative voting may, in effect,
be restricted
Ordinarily, no such classification and

no restrictions on cumulative voting
10.The articles of incorporation may
Officers are elected by the Board of
What was the position of Manuel Dulay here? President, General

Manager and Treasurer
Cannot act both as president and treasurer at the same time
Since it is a close corporation owned by the family of Manuel Dulay,
save and except the secretary, it should be governed by Title XII
Petitioner is classified as a close corporation and consequently a
board resolution authorizing the sale or mortgage of the subject
property is not necessary to bind the corporation for the action of its
president. At any rate, a corporate action taken at a board meeting
without proper call or notice in a close corporation is deemed ratified
by the absent director unless the latter promptly files his written
objection with the secretary of the corporation after having
knowledge of the meeting which, in this case, petitioner Virgilio
Dulay failed to do.
Virgilio Dulay is a signatory witness, he knows very well about the
deed of absolute sale, he is estopped
Naguiat vs. NLRC
Section 100 par. 5. To the extent that the stockholders are actively
engaged in the management or operation of the business and affairs
of a close corporation, the stockholders shall be held to strict
fiduciary duties to each other and among themselves. Said
stockholders shall be personally liable for corporate torts unless the
corporation has obtained reasonably adequate liability insurance.
Family corporations is not automatically a close corporation the 3

qualifying conditions must be present.
SPECIAL CORPORATIONS
2 types of special corporations
1.
2.
Educational corporations
Religious corporations
2.1 Corporation Sole
2.2 Religious Societies
What provision governs educational corporations?

Section 106. Incorporation. - Educational corporations
shall be governed by special laws and by the general provisions of
this Code. (n)

Special laws like they Education Act of the Philippines
49
These institutions of learning, once recognized by the government as

such are mandated by law to be incorporated within ninety (90) days
under the provisions of the Corporation Code and must, perforce,
comply with the requirements and procedure laid down there under.
Their failure to so will not immune the educational institution from
suit as a corporation. (Chiang Kai Siek Case)
Favorable recommendation of government agency involved
Two types of educational corporations
Certificate of completion in the academic field

Vocational and technical ones
o
Recommendation of DECS if certificate of completion

in the academic field
How is the governing board of an educational institution instituted?
Non-stock- multiples of 5 only (example: 5,10,15)

Stock- can be anywhere between 5 to 15
Can they consist of 7 or 9 members?
Yes, if stock
Can they be incorporated also as non-stock?
Yes
B.P. 232 allows the organization of an educational institution that is
stock corporation, only if they do not issue a certificate of
completion in the academic field
Qualifications and disqualifications of the membership in the board

of an educational corporation
Educational corporations are governed by special laws and general

provisions, hence if there is no provision in the special law, you go
back to section 25 and 27 of the general provisions
Stock- must be a stockholder
Non-stock- must be a member
By-laws may provide for additional qualifications and
disqualifications
Section 25. Corporate officers, quorum. - Immediately

after their election, the directors of a corporation must formally
organize by the election of a president, who shall be a director, a
treasurer who may or may not be a director, a secretary who shall be
a resident and citizen of the Philippines, and such other officers as
may be provided for in the by-laws. Any two (2) or more positions
may be held concurrently by the same person, except that no one
shall act as president and secretary or as president and treasurer at
the same time.
The directors or trustees and officers to be elected shall
perform the duties enjoined on them by law and the by-laws of the
corporation. Unless the articles of incorporation or the by-laws
provide for a greater majority, a majority of the number of directors
or trustees as fixed in the articles of incorporation shall constitute a
quorum for the transaction of corporate business, and every decision
of at least a majority of the directors or trustees present at a meeting
at which there is a quorum shall be valid as a corporate act, except
for the election of officers which shall require the vote of a majority
of all the members of the board.
Directors or trustees cannot attend or vote by proxy at board
meetings. (33a)
Section 27. Disqualification of directors, trustees or officers. - No
person convicted by final judgment of an offense punishable by imprisonment for
a period exceeding six (6) years, or a violation of this Code committed within five
(5) years prior to the date of his election or appointment, shall qualify as a
director, trustee or officer of any corporation. (n)
Article 14 section 4 par. 2 of the Constitutions

Educational institutions, other than those established by
religious groups and mission boards, shall be owned solely by
citizens of the Philippines or corporations or associations at least
sixty per centum of the capital of which is owned by such citizens.
The Congress may, however, require increased Filipino equity
participation in all educational institutions. The control and
administration of educational institutions shall be vested in citizens
of
the
Philippines.
No educational institution shall be established exclusively for aliens
and no group of aliens shall comprise more than one-third of the
enrollment in any school. The provisions of this sub section shall not

apply to schools established for foreign diplomatic personnel and

their dependents and, unless otherwise provided by law, for other
foreign temporary residents.
-
Management is left solely to citizens of the Philippines

Board of Directors manages the corporate affairs, foreigners cannot
therefore be elected in the board
Exceptions are, mission boards and religious orders, which may have
a governing board consisting of foreigners
Term of office of governing board in an educational institutions
Can serve a term of 5 years. If that be the case, 1/5 of their number
shall expire every year
Non-stock or stock, can they serve for a 1 year term only?
Yes, the articles of incorporation may provide that it be 1 year only
What are these religious corporations spoken off?
Corporation sole and religious societies
What is a corporation sole?
Consists of one person only and his successor in some particular

station, who are incorporated by law in order to give them some
legal capacities and advantages, particularly that of perpetuity, which
in their natural persons they could not have had
May a corporation be organized by less than 5 natural persons?
General rule, 5 to 15 natural persons(except cooperatives and

corporations primarily organized to hold equities in rural banks and
may rightfully become incorporators thereof)
Exception, corporation sole, consist of only one person
May any person form or organize a corporation sole?
No, not any person can form a corporation sole, section 110
provides:
Section 110. Corporation sole. - 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. (154a)
Is it required to file the articles of incorporation in the SEC?
Yes
What should be contained in the articles of incorporation?
Section 111 and section 112 provides for the contents and procedures
Section 111. Articles of incorporation. - In order to
become a corporation sole, the chief archbishop, bishop, priest,
minister, rabbi or presiding elder of any religious denomination, sect
or church must file with the Securities and Exchange Commission
articles of incorporation setting forth the following:
1. That he is the chief archbishop, bishop, priest, minister, rabbi or
presiding elder of his religious denomination, sect or church and that
he desires to become a corporation sole;
2. That the rules, regulations and discipline of his religious
denomination, sect or church are not inconsistent with his becoming
a corporation sole and do not forbid it;
3. That as such chief archbishop, bishop, priest, minister, rabbi or
presiding elder, he is charged with the administration of the
temporalities and the management of the affairs, estate and
properties of his religious denomination, sect or church within his
territorial jurisdiction, describing such territorial jurisdiction;
4. The manner in which any vacancy occurring in the office of chief
archbishop, bishop, priest, minister, rabbi of presiding elder is
required to be filled, according to the rules, regulations or discipline
of the religious denomination, sect or church to which he belongs;
and
50
5. The place where the principal office of the corporation sole is to

be established and located, which place must be within the
Philippines.
The articles of incorporation may include any other

provision not contrary to law for the regulation of the affairs of the
corporation. (n)
Section 112. Submission of the articles of
incorporation. - The articles of incorporation must be verified,
before filing, by affidavit or affirmation of the chief archbishop,
bishop, priest, minister, rabbi or presiding elder, as the case may be,
and accompanied by a copy of the commission, certificate of election
or letter of appointment of such chief archbishop, bishop, priest,
minister, rabbi or presiding elder, duly certified to be correct by any
notary public.
From and after the filing with the Securities and
Exchange Commission of the said articles of incorporation, verified
by affidavit or affirmation, and accompanied by the documents
mentioned in the preceding paragraph, such chief archbishop,
bishop, priest, minister, rabbi or presiding elder shall become a
corporation sole and all temporalities, estate and properties of the
religious denomination, sect or church theretofore administered or
managed by him as such chief archbishop, bishop, priest, minister,
rabbi or presiding elder shall be held in trust by him as a corporation
sole, for the use, purpose, behalf and sole benefit of his religious
denomination, sect or church, including hospitals, schools, colleges,
orphan asylums, parsonages and cemeteries thereof. (n)
Is it required to indicate its terms of execution? Why not?
Not required because they are supposed to exist in perpetuity

However, it does not mean that it shall continue to exist forever, it
merely means that it has the capacity of continuous existence during
a particular period until dissolved in accordance with law
When will it acquire judicial personality? How do you compare this

to other types of corporation?
After the filing the verified articles of incorporation along with the
documents required in Section 112 with the SEC, immediately
becomes endowed with corporate personality, this serves as an
exception to the rule that a corporation acquires juridical personality
only upon the issuance of a certificate of incorporation by the said
government agency.
Upon filing of verified articles of incorporation with the SEC, will
not require the approval of SEC
A corporation sole is possessed with the same power, rights and

privileges, to own, acquire and hold or convey properties like any
other corporation? True or False
False, they have the same power rights and privileges, but when it
comes to alienation and acquisition, it must possess a court order,
however when there is a regulated method, a court order may be
dispensed with <sec. 113>
Act only as a guardian

Ownership devolves upon the congregation or religious
denomination
A corporation consists of one person only and his successors (who
will always be one at a time, in some particular station), who are
incorporated by law in order to give them some legal capacities and
advantages, particularly that of perpetuity, which in their natural
persons they could not have had
Roman Catholic Church has no nationality and that the framers of
the Constitution, as will be hereunder explained, did not have in
mind the religious corporations sole when they provided that 60
percent of the capital thereof be owned by Filipino citizens.
Director of Lands vs. CA
Alienable public land is converted into private land when the same
has been openly, continuously and exclusively in possession of the
property as concept of an owner for 30 years, automatically that is
Republic of the Philippines vs. IAC
Determination of the character of the land should be in mind

If they still form part of public domain they cannot be owned, but if
they are converted into private land, the constitutional prohibition
will not apply
If there is vacancy who will fill up the same? What if there is none,
what must the successor do?
According to section 114:

Section 114. Filling of vacancies. - The successors in
office of any chief archbishop, bishop, priest, minister, rabbi or
presiding elder in a corporation sole shall become the corporation
sole on their accession to office and shall be permitted to transact
business as such on the filing with the Securities and Exchange
Commission of a copy of their commission, certificate of election, or
letters of appointment, duly certified by any notary public.
During any vacancy in the office of chief archbishop,
bishop, priest, minister, rabbi or presiding elder of any religious
denomination, sect or church incorporated as a corporation sole, the
person or persons authorized and empowered by the rules,
regulations or discipline of the religious denomination, sect or
church represented by the corporation sole to administer the
temporalities and manage the affairs, estate and properties of the
corporation sole during the vacancy shall exercise all the powers and
authority of the corporation sole during such vacancy. (158a)
If a corporation exists in equity may it not be dissolved?

Section 115. Dissolution. - A corporation sole may be
dissolved and its affairs settled voluntarily by submitting to the
Securities and Exchange Commission a verified declaration of
dissolution.
The declaration of dissolution shall set forth:
Section 113. Acquisition and alienation of property. Any corporation sole may purchase and hold real estate and personal
property for its church, charitable, benevolent or educational
purposes, and may receive bequests or gifts for such purposes. Such
corporation may sell or mortgage real property held by it by
obtaining an order for that purpose from the Court of First Instance
of the province where the property is situated upon proof made to the
satisfaction of the court that notice of the application for leave to sell
or mortgage has been given by publication or otherwise in such
manner and for such time as said court may have directed, and that it
is to the interest of the corporation that leave to sell or mortgage
should be granted. The application for leave to sell or mortgage must
be made by petition, duly verified, by the chief archbishop, bishop,
priest, minister, rabbi or presiding elder acting as corporation sole,
and may be opposed by any member of the religious denomination,
sect or church represented by the corporation sole: Provided, That in
cases where the rules, regulations and discipline of the religious
denomination, sect or church, religious society or order concerned
represented by such corporation sole regulate the method of
acquiring, holding, selling and mortgaging real estate and personal
property, such rules, regulations and discipline shall control, and the
intervention of the courts shall not be necessary. (159a)
Since a corporation sole is consists only of one person, will the

registration of the property in the name of the corporation sole vest
unto the head thereof the ownership of the property?
No, it will not vest unto the head, the head is acting merely as a
guardian
Roman Catholic Apostolic Adm. Of Davao, inc. vs. Land Reg.
Comm, et al.

1. The name of the corporation;

2. The reason for dissolution and winding up;
3. The authorization for the dissolution of the corporation by the
particular religious denomination, sect or church;
4. The names and addresses of the persons who are to supervise the
winding up of the affairs of the corporation.
Upon approval of such declaration of dissolution by the
Securities and Exchange Commission, the corporation shall cease to
carry on its operations except for the purpose of winding up its
affairs. (n)
-
While section 115 of the code provides for the process and procedure
for the dissolution of a corporate sole, there is nothing in the law
itself which would prohibit it from amending its articles of
incorporation
It is believed that authorization for the dissolution by the particular
religious denomination, sect or church, as required in sub-paragraph
3 of section 115 would still be necessary in the case of amending the
articles of incorporation to affect dissolution.
o
Expiration of a corporate term will not apply to a

religious corporation
May a corporation sole be dissolved by judicial decree?
51
General rule: No, because a corporation sole, is by its very nature

ecclesiastical and religious (doctrine of separation of church and
state)
Exception: police power of the state, if its purpose is being carried
out and is instead being used for illegal purpose, it may be so
dissolved
What are religious societies?
Under common law, a religious society is a body of persons

associated together for the purpose of maintaining religious worship.
Is it also required to file its articles of incorporation to the SEC?
No <sec. 116> may
What should be contained in the articles of incorporation?
Go to the general rules governing dissolution, because the rules

under special corporations do not provide for such rule
DISSOLUTION
What is dissolution?
Extinguishment of the corporate franchise and the termination of

corporate existence
3 modes of dissolution
1.
2.
By expiration of its term;

By voluntary surrender of its primary franchise (voluntary
dissolution);
By revocation of its corporate franchise (involuntary dissolution)
3.
Philippine National Bank vs. CFI

Section 116. Religious societies. - Any religious society
or religious order, or any diocese, synod, or district organization of
any religious denomination, sect or church, unless forbidden by the
constitution, rules, regulations, or discipline of the religious
denomination, sect or church of which it is a part, or by competent
authority, may, upon written consent and/or by an affirmative vote at
a meeting called for the purpose of at least two-thirds (2/3) of its
membership, incorporate for the administration of its temporalities or
for the management of its affairs, properties and estate by filing with
the Securities and Exchange Commission, articles of incorporation
verified by the affidavit of the presiding elder, secretary, or clerk or
other member of such religious society or religious order, or diocese,
synod, or district organization of the religious denomination, sect or
church, setting forth the following:
1. That the religious society or religious order, or diocese, synod, or

district organization is a religious organization of a religious
denomination, sect or church;
2. That at least two-thirds (2/3) of its membership have given their
written consent or have voted to incorporate, at a duly convened
meeting of the body;
3. That the incorporation of the religious society or religious order,
or diocese, synod, or district organization desiring to incorporate is
not forbidden by competent authority or by the constitution, rules,
regulations or discipline of the religious denomination, sect, or
church of which it forms a part;
4. That the religious society or religious order, or diocese, synod, or
district organization desires to incorporate for the administration of
its affairs, properties and estate;
5. The place where the principal office of the corporation is to be
established and located, which place must be within the Philippines;
and
6. The names, nationalities, and residences of the trustees elected by
the religious society or religious order, or the diocese, synod, or
district organization to serve for the first year or such other period as
may be prescribed by the laws of the religious society or religious
order, or of the diocese, synod, or district organization, the board of
trustees to be not less than five (5) nor more than fifteen (15). (160a)
Is it required to indicate its term of existence?
Likewise to exist in perpetuity, the law does not require to indicate

its term of existence
When will it acquire juridical personality?
Only a corporation sole may come into existence without SEC

approval, section 19 will thus govern, Vested with judicial capacity
upon issuance of the certificate by the SEC
However it is not accurate according to atty. Ladia

because there are those that can issue for example
cooperatives- BUREAU OF COOPERATIVES which
register, home insurance guaranty corporation- HOME
OWNERS
How may religious societies be dissolved?

3 modes of
dissolution, 3 modes of voluntary
dissolution and 3 modes of liquidation and winding upFREQUENTLY ASKED IN THE FINALS
What are the 3 modes of voluntary dissolution?
1.
2.
3.
Voluntary dissolution where no creditors are affected; <sec.118>

Voluntary dissolution where creditors are affected; <sec. 119>
Shortening of corporate term. <sec. 120>
Voluntary dissolution where no creditors are affected <sec.118>
The formal and procedural requirements necessary are the following:
1.
2.
6.
Majority vote of the board of directors or trustees;

Sending of notice of each stockholders or member either by
registered mail or personal delivery at least thirty (30) days prior to
the meeting (scheduled by the board for the purpose of submitting
the board action to dissolve the corporation for approval of the
stockholder or members.);
Publication of the notice of time, place and subject of the meeting for
three (3) consecutive weeks in a newspaper published in the place
where the principal office of said corporation is located or in a
newspaper of general circulation in the Philippines;
Resolution adopted by the affirmative vote of the stockholders
owning at least 2/3 of the outstanding capital stock or 2/3 of the
members at the meeting duly called for the purpose;
A copy of the resolution authorizing the dissolution must be certified
by a majority of the board of directors or trustees and countersigned
by the corporate secretary;
Issuance of a certificate of dissolution by the SEC.
Should this be strictly complied with?
Yes, compliance with the requirements and formalities prescribed

above is mandatory such that failure to comply therewith will have
no effect on the legal existence of the corporation.
3.
4.
When the period of corporate life expires, the corporation ceases to

be a body corporate for purposes of continuing the business for
which it is organized. But it shall nevertheless be continued as a
body corporate for three years after the time when it would have be
dissolved, for the purpose of prosecuting and defending suits by or
against it and for enabling it gradually to settle and close its affairs to
dispose of and convey its property and to divide its assets. There is
no need for the institution of a proceeding for quo warranto to
determine the time and date of the dissolution of a corporation
because the period of corporate existence is provided in the articles
of incorporation. When such period expires and without any
extension having been made pursuant to law, the corporation is
dissolved automatically insofar as the continuation of its business is
concerned.
The rights of the lessor and the lessee over the improvements which
the latter constructed on the leased premises are governed by Article
1678 of the Civil Code. The provision gives the lessee the right to
remove the improvements if the lessor chooses not to pay one half of
the value thereof. However, in the case at bar the law will not apply
because the parties herein have stipulated in the contract their own
terms and conditions concerning the improvements before the
termination of the lease. Petitioner PNB as assignee of PBM
succeeded to the obligation of the latter under the contract of lease. It
could not possess rights more than what PBM had as lessee under
the contract. Hence, petitioner was duly bound to remove the
improvements before the expiration of the period of lease. Its failure
to do so when the lease was terminated was tantamount to a waiver
of its rights and interest over the improvements on the leased
premise.
5.
52
Will dissolution be effective and valid by a mere resolution of the

BOD and stockholders?
No, a mere resolution by the stockholders or the BOD of a

corporation to dissolve the same does not affect the dissolution but
that some other steps, administrative or judicial is necessary.
(Daguhoy Enterprises vs. Ponce)
Since it is the State which grants its right to exist, it is only through
the State which can allow the termination of its existence; without
consent of the State, it will not be dissolved.
Voluntary dissolution where creditors are affected <sec.119>
By virtue of a petition, when there are creditors affected

The following formalities would thus be required:
1.
Affirmative vote of the stockholders representing at least 2/3 of the

outstanding capital stock or at least 2/3 of the members at a meeting
duly called for that purpose;
Petition for dissolution shall be filed with the SEC signed by a
majority of its board of directors or trustees or other officers having
the management of its affairs, verified by the president or secretary
or one of its directors or trustees, setting forth all claims and
demands against it.
Issuance of an order by the SEC reciting the purpose of the petition
and fixing the date on or before which objections thereto may be
filed by any person, which date shall not be less than thirty days nor
more than sixty days after entry of the order.
Before such date, a copy of the order must be published once a week
for three (3) consecutive weeks in a newspaper of general circulation
published in the city or municipality where the principal office is
situated or in a newspaper of general circulation in the Philippines.
Posting of the same order for three (3) consecutive weeks in three (3)
public places in such city or municipality.
Upon five (5) days notice, given after the date on which the right to
file objections has expired, the SEC shall hear the petition and try
any issue made by the objections filed.
Judgment dissolving the corporation and directing of its assets as
justice requires and the appointment of a receiver (if necessary in its
discretion) to collect such assets and pay the debts of the corporation.
2.
3.
4.
5.
6.
7.
Is the appointment of a receiver mandatory?
No, it is merely permissive or discretionary on the part of the court.

The code uses the word may; the law intended to let the
shareholders have the control of the assets of the corporation upon
dissolution and winding up.
The directors may also undertake liquidation and winding up of its
corporate affairs, and sound business judgment, on how they will
wind up
Dissolution by shortening of corporate term <sec.120>
Will be valid upon approval of the SEC, unlike general amendments,

which will be deemed approved if not acted upon by the SEC within
6 months from the date of filing for a cause not attributable to the
corporation.
Shortening of the corporate term partakes the nature of an
amendment of the articles of incorporation. Section 16 under general
amendments allows written assent section 37 mandates that the
vote must be cast at a duly constituted meeting.
Section 120. Dissolution by shortening corporate term.
- A voluntary dissolution may be effected by amending the articles
of incorporation to shorten the corporate term pursuant to the
provisions of this Code. A copy of the amended articles of
incorporation shall be submitted to the Securities and Exchange
Commission in accordance with this Code. Upon approval of the
amended articles of incorporation of the expiration of the shortened
term, as the case may be, the corporation shall be deemed dissolved
without any further proceedings, subject to the provisions of this
Code on liquidation. (n)
o
What are the grounds for involuntary dissolution?
It is commenced through a verified complaint or motu proprio by the

proper courts
Section 6 of PD 902-A provides for the grounds for involuntary
dissolution as follows:
1.
2.
4.
5.
6.
Other grounds are provided for in the corporation code itself: among
them are:
1.
2.
Violation of any provision of the Code under section 144;

In case of deadlock in a close corporation as provided for in section
105;
In a close corporation, any acts of directors, officers or those in
control of the corporation which is illegal or fraudulent or dishonest
or oppressive or unfairly prejudicial to the corporation or any
stockholder or whenever corporate assets are being misapplied or
wasted under section 105.
3.
Dissolution is tantamount to the imposition of death penalty

Instead of dissolving the corporation, courts normally enjoin the
further commission of the questioned act

It is necessary in order to secure judicial foreclosure of respondents

charter to show a mis-user of its franchise justifying such a forfeiture
Object is to protect the public, and not to redress private grievances,
the mis-user must be such as to work or threaten a substantial injury
to the public, or such as to amount to a violation of the fundamental
condition of the contract by which the franchise was granted and
thus defeat the purpose of the grant
Courts proceed with extreme caution which has for their object the
forfeiture of corporate franchise, and forfeiture will not be allowed,
except under express limitation, or for plain abuse of power by
which the corporation fails to fulfill the design and purpose of its
organization. But when the abuse or violation constitutes or threatens
a substantial injury to the public or such as to amount to a violation
of the fundamental conditions of its charter, or its conduct is
characterized by obduracy or pertinacity in contempt of law,
dissolution will be granted
Did the court dissolve the corporation? No, it did not, it granted the
corporation 6 months to cease and desist the performance of the
questioned act otherwise it will be dissolved
Government vs. El Hogar
3 causes of action, the first is that the corporation violated the law by
holding on the property beyond that provide for by law, the second is
that the corporation undertook the management f petitioners
belonging to delinquent shareholders of the association, and lastly
that the by-law provision, which empowers the BD to cancel shares
and to return to the owners thereof the balance returning from the
liquidation
Compare to Philippine Sugar Estate, wherein the court ruled

conditional dissolution. Why decree conditional dissolution in one
and not in the other case?
Because in El Hogar the government was at fault, the government

wasnt able to issue the certificate of title on time
When the case was instituted, El Hogar was already able to dispose
the properties in question, in Philippine Sugar Estate it was still the
holding the properties in order to enrich itself at the expense of the
taxpayers
Section 121. Involuntary dissolution. - A corporation

may be dissolved by the Securities and Exchange Commission upon
filing of a verified complaint and after proper notice and hearing on
the grounds provided by existing laws, rules and regulations. (n)
-
Mere dishonesty is also a ground in a close corporation

Other grounds can be found in other special laws like the Securities
Regulation Code and the General Banking Act as well as the
Insurance Code.
Government vs. Philippine Sugar Estate
Intra-corporate- special commercial courts
Another way of dissolving a corporation is through involuntary

dissolution
Fraud in procuring its certificate of registration;

Serious misrepresentation as to what the corporation can do or is
doing to the great prejudice of or damage to the general public;
Refusal to comply or defiance of any lawful order of the
Commission restraining commission of acts which would amount to
a grave violation of its franchise;
Continuous inoperation for a period of at least five (5) years;
Failure to file by-laws within the required period;
Failure to file required reports in appropriate forms as determined by
the Commission within the prescribed period.
The foregoing are also mandatory requirements
The relief of dissolution will be awarded only where no other

remedy is available and it will not be allowed where the rights of the
stockholders can be, or are, protected in some other way (Republic
vs. Bisaya Land Trans. Co. Inc.)
3.
Republic vs. Security Credit and Acceptance Corp. et al.

-
The corporation here is a lending institution and not a banking

institution
Defendant corporation violated the law because before a corporation
53
may engage into a banking activity it must first obtain a secondary

franchise from the Central Bank
Defendant corporation threatens substantial injury to the general
public, dissolution is warrant
If there is a bank run kawawa naman yung depositors
Republic vs. Bisaya Land Transportation Co. Inc
The relief of dissolution will be awarded only where no other

remedy is available and it will not be allowed where the rights of the
stockholders can be, or are, protected in some other way
Misuse and misapplication of the funds and assets of the respondent
were committed particularly by the corporate officers, where they
can instead be held personally liable
Since there is another remedy available dissolution is not warranted
Assuming the above stated corporation is a close corporation, would

the court decree otherwise?
Yes, because in a close corporation, mere dishonesty is a ground for

the dissolution
Can even be dissolved by petition of only one stockholder on the
grounds stated in the code < sec. 105>
Financing Corporation of the Philippines vs. Teodoro
Cebu Port Labor Union vs. State Marine Co

-
Minority stockholders may not ask for the dissolution of a

corporation in private suits and that such actions should be brought
by the Government through its legal officers, except in cases where
the intervention of the State, for one reason or another, cannot
be obtained, as when the State is not interested because the
complaint is strictly a matter between the stockholders and does
not involve, in the opinion of the legal officer of the Government,
any of the acts or omissions warranting quo warranto
proceeding , in which minority stockholders are entitled to have
such dissolution. It should be exercised if necessary in order not to
entirely ignore and disregard the rights of said minority stockholders,
especially when said minority stockholders are unable to obtain
redress and protection of their rights within the corporation itself.
Stockholders should not be left without recourse
Present set up
Any stockholder or member of a corporation can institute a

dissolution proceeding against his own corporation before the proper
forum
Special Commercial Courts, shall hear and decide intra-corporate
disputes
May a corporation ask for dissolution of the corporation when there

is no prejudice to the general public?
Yes, in a close corporation, a petition for the dissolution of the

corporation may be instituted by any one individual shareholder on
the ground, even by mere dishonesty
Effects of dissolution
The dissolution of a corporation not only terminates its primary

franchise to be a corporation, but generally prevents it from further
exercising other or secondary franchises which have been conferred
to its. It terminates its power to enter into contracts or t o continue
the business as a going concern.
Based on this general rule, the Supreme Court held that a
corporation, whose corporate life expired, cannot lawfully pursue the
business for which it was organized. It cannot apply for a new
certificate or a secondary franchise for it is incapable of receiving a
grant. Neither can it enforce a contract executed prior its dissolution
for the purpose of continuing the business of its organization.
In general the rights and liabilities of the corporation are not
extinguished by its dissolution.
After dissolution what next?
Liquidation and winding up should follow
What is the definition of liquidation and winding up?
Collection of all corporate assets, the payments of all its debts and
settlement of its obligations and the ultimate distribution of the
corporate assets, if any of it remains, to all stockholders in
accordance with their proportionate stockholdings in the corporation
or in accordance with their respective contracts of subscription.
Preference upon liquidation
If there are preferred shares, the preference granted to such should be

complied with
Preferred shares may give the holder thereof, preference only in the
dividends but also in the distribution of corporate assets upon
liquidation or termination of the corporate existence. If such is the
intent, the contract of subscription must so indicate lest they are
placed on equal footing with common shareholders
Preference may be participating or non-participating
Dissolved corporations are granted a period of 3 years to liquidate
Section 122. Corporate liquidation. - Every corporation

whose charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for other
purposes is terminated in any other manner, shall nevertheless be
continued as a body corporate for three (3) years after the time when
it would have been so dissolved, for the purpose of prosecuting and
defending suits by or against it and enabling it to settle and close its
affairs, to dispose of and convey its property and to distribute its
assets, but not for the purpose of continuing the business for which it
was established.
At any time during said three (3) years, the corporation
is authorized and empowered to convey all of its property to trustees
for the benefit of stockholders, members, creditors, and other persons
in interest. From and after any such conveyance by the corporation
of its property in trust for the benefit of its stockholders, members,
creditors and others in interest, all interest which the corporation had
in the property terminates, the legal interest vests in the trustees, and
the beneficial interest in the stockholders, members, creditors or
other persons in interest.
Upon the winding up of the corporate affairs, any asset
distributable to any creditor or stockholder or member who is
unknown or cannot be found shall be escheated to the city or
municipality where such assets are located.
Buenaflor vs. Camarines Sur Industry Corp.
From that time on Camarines Sur was plying in an activity that was
illegal
A corporation where the corporate life has expired it cannot lawfully
pursue the business for which it was organized.
the Supreme Court held that a corporation, whose corporate life
expired, cannot lawfully pursue the business for which it was

Instead of applying the corporation code, the court applied the

constitutional provision
Cannot be read as permitting to destroy the substantive rights
Such would collide with the non-impairment of contracts clause of
the constitution
Complainants will have the right to follow the assets of the
corporation in the hands of SRA or any other agency for that matter
Section 145. Amendment or repeal. - No right or

remedy in favor of or against any corporation, its stockholders,
members, directors, trustees, or officers, nor any liability incurred by
any such corporation, stockholders, members, directors, trustees, or
officers, shall be removed or impaired either by the subsequent
dissolution of said corporation or by any subsequent amendment or
repeal of this Code or of any part thereof. (n)
Even a cursory reading of the provision would convey the idea

clearly manifested in the limitation but not for the purpose of
continuing the business for which it was established, that the 3-year
period allowed by the law is only for the purpose of winding up its
affairs.
Gonzales vs. Sugar Regulatory Administration
organized. It cannot apply for a new certificate or a secondary

franchise for it is incapable of receiving a grant.
Awarding it to Camarines Sur is tantamount to a medal for its illegal
acts
It cannot apply for a new certificate or a secondary franchise for it is
incapable of receiving a grant. It was not even a corporation de facto.
And then, there is no application subscribed by the new corporation
And yet as stated, the new corporation has not filed any application
for certificate of public convenience in Sabang, and has not
published such application.
Except by decrease of capital stock and as otherwise

allowed by this Code, no corporation shall distribute any of its assets
or property except upon lawful dissolution and after payment of all
its debts and liabilities. (77a, 89a, 16a)
However the 3 year period is not absolute

Liquidation may be undertaken in either of the 3 ways
54
1.
By the corporation itself through the BOD
Usual method or procedure of liquidating a corporation and although

there is no law authorizing it, neither is there anything that prohibits
the BOD from undertaking the same
If this method is resorted to, the board will only have a period of 3
years to finish its task of liquidation
Claims for or against the corporate entity not filed within the period
will become unenforceable as there exist no corporate entity against
which they can be enforced
Actions pending for or against the corporation when the 3 year
period expires, are abated since after the period, the corporation
ceases for all intents and purposes and is no longer capable of suing
or being sued
2.
By a trustee appointed by the corporation
The corporation may opt to convey all corporate assets to a trustees

who will take charge of liquidation
If this method is used, the three year period limitation imposed by
section 122 will not apply provided the designation of the trustee is
made within that period
3.
By appointment of a receiver
A receiver may be appointed by the proper forum on petition or motu

proprio upon the dissolution of the corporation
The appointment of a receiver is, however, permissive rather than
mandatory and the law tends to recognize that in cases of voluntary
dissolution there is no occasion for the appointment of a receiver
except under special circumstances and upon proper showing
If a receiver is appointed, the 3 year period fixed by law within
which to complete the task of liquidation will not likewise apply
because the dissolved corporation is substituted by the receiver who
may sue or be sued even after that period
May a corporation that is already dissolved, transfer and assign its

assets and properties to a new corporation which will continue the
business of the dissolved one?
Yes, provided all the stockholders gave their consent (Chung Ka Bio
vs. IAC)
Republic vs. Marsman Development Company & Chung Ka Bio vs.
IAC
Mere appointment of a receiver without anything more

does imply in the dissolution of a corporation
National Abaca other Fibers Co. vs. Pore

-
Actions pending for or against the corporation when the 3 year

period expires, are abated since after that period, the corporation
ceases for all intents and purposes and is no longer capable of suing
or being sued
May be continued by the trustee provided done within the 3 year
period
Should the corporation, therefore, finds it difficult to finish its
liquidation, it may, at any time during the three year period, convey
all its assets and receivables to a trustee to prosecute and defend suits
by or against the corporation begun before the expiration of said
period
The effect of the conveyance is to make the trustees the legal owners
of the property conveyed, subject to the beneficial interest therein of
creditors and stockholders
Thus it was held that when a corporation is dissolved and the

liquidation of the assets is placed in the hands of receiver or
assignee, the period of 3 years prescribed by law is not applicable
and the assignee may institute all actions leading to the liquidation of
the corporation even after the expiration of 3 years.
If the corporation carries out the liquidation of its assets through its
own officers and continues and defends the actions brought by or
against it, its existence shall terminate at the end of three years from
the time of dissolution; but if a receiver or assignee is appointed,
with or without a transfer of its properties within 3 years, the legal
interest passes to the assignee, the beneficial interest remaining in
the members, stockholders, creditors and other interested persons
and said assignee may bring an action, prosecute that which has
already been commenced for the benefit of the corporation, or
defend the latter against any other action already instituted or which
may be instituted even outside of the period of three years fixed for
the offices of the corporation.
What happens to the remaining assets and properties of the dissolved

corporation if liquidation and winding up as provided in section 122
is not complied with, as a result of which the 3 year period has
elapsed
If the three year extended life has expired without a trustee or

receiver having been expressly designated by the corporation within
that period, the board of directors o trustees itself, following the
rationale of the Supreme Courts decision in Gelano vs. CA may be
permitted to do so continue as trustees by legal implication to
complete the liquidation. Still in the absence of a BOD or BOT,
those having any pecuniary interest in the assets, including not only
the shareholders but likewise the creditors of the corporation, acting
for and in its behalf, might make proper representations with the
SEC, which has primary and sufficiently broad jurisdiction in
matters of this nature, for working out a final settlement of the
corporate concerns (Clemente vs. CA)
o
If there is a trustee, assignee or liquidator, it can continue

prosecuting suit even beyond the 3 year period fixed by law because
he becomes the legal owner of the rights, assets and properties
conveyed to him
Trustee as used in the corporation statute must be understood in its

general concept which could include the counsel to whom was
entrusted in the instant case, the prosecution of the suit filed by the
corporation. The purpose in the transfer of the assets of the

Who owns the properties? SOCIEDAD ANONIMA

The termination of the life of a juridical entity does not by itself
cause the extinction or diminution of the rights and liabilities of such
entity or those of its owners and creditors. If the three year extended
life has expired without a trustee or receiver having been expressly
designated by the corporation within that period, the board of
directors o trustees itself, following the rationale of the Supreme
Courts decision in Gelano vs. CA may be permitted to do so
continue as trustees by legal implication to complete the
liquidation. Still in the absence of a BOD or BOT, those having any
pecuniary interest in the assets, including not only the shareholders
but likewise the creditors of the corporation, acting for and in its
behalf, might make proper representations with the SEC, which has
primary and sufficiently broad jurisdiction in matters of this nature,
for working out a final settlement of the corporate concerns
o
the ruling is wrong according to atty. Ladia
According to atty Ladia: What happens to a corporation that is

already dissolved, that has not been able to appoint a trustee with in
the 3 year period?
a corporation dissolved which failed to exercise its rights granted in

section 122 after the 3 year period has elapsed, ceases to exist for all
intents and purposes, it can no longer sue or be sued
according to 122 of the code, the property should be escheated,
accordingly:
Gelano vs. CA
-
According to atty. Ladia the ruling of the Supreme

Court in the case of Clemente vs. CA is wrong, opinion
is further discussed after the Clemente Case
Clemente vs. CA
Board of Liquidators vs. Kalaw

-
During the three year period granted to a corporation to liquidate or

wind up its affairs, the BOD is not normally permitted to undertake
any activity outside the usual liquidation of the corporation. There is,
however, nothing to prevent the stockholders from conveying their
respective shareholdings toward the creation of a new corporation to
continue the business of the old. This is because winding up is the
sole activity of the dissolved corporation that does not intend to
incorporate a new. If it does, however, it is not unlawful for the old
board of directors to negotiate and transfer the assets of the dissolved
corporation to the new corporation intended to be created as long as
the stockholders have given their consent (Republic vs. Marsman
Development Company)
Winding up is the sole activity of a dissolved corporation that does
not intend to incorporate anew. If it does, however, it is not unlawful
for the old board of directors to negotiate and transfer the assets of
the dissolved corporation to the new corporation intended to be
created as long as the stockholders have given their consent (Chung
Ka Bio vs. IAC)
Sumera vs. Valencia

-
corporation to a trustee upon its dissolution is more for the protection

of its creditors and stockholders. Debtors like the petitioners herein
may not take advantage of the failure of the corporation to transfer
its assets to a trustee, assuming it has any to transfer which petitioner
has failed to show, in the first place. To sustain petitioners
contention would be to allow them to enrich themselves at the
expense of another, which all enlightened legal systems condemn.
The counsel who prosecuted and defended the interest of the
corporation may be considered as a trustee at least with respect to
the matter in litigation only
55
Section 122. Corporate liquidation. - Every corporation

whose charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for other
purposes is terminated in any other manner, shall nevertheless be
continued as a body corporate for three (3) years after the time when
it would have been so dissolved, for the purpose of prosecuting and
defending suits by or against it and enabling it to settle and close its
affairs, to dispose of and convey its property and to distribute its
assets, but not for the purpose of continuing the business for which it
was established.
2. The address, including the street number, of the principal office of

the corporation in the country or state of incorporation;
3. The name and address of its resident agent authorized to accept
summons and process in all legal proceedings and, pending the
establishment of a local office, all notices affecting the corporation;
4. The place in the Philippines where the corporation intends to
operate;
At any time during said three (3) years, the corporation

is authorized and empowered to convey all of its property to trustees
for the benefit of stockholders, members, creditors, and other persons
in interest. From and after any such conveyance by the corporation
of its property in trust for the benefit of its stockholders, members,
creditors and others in interest, all interest which the corporation had
in the property terminates, the legal interest vests in the trustees, and
the beneficial interest in the stockholders, members, creditors or
other persons in interest.
5. The specific purpose or purposes which the corporation intends to

pursue in the transaction of its business in the Philippines: Provided,
That said purpose or purposes are those specifically stated in the
certificate of authority issued by the appropriate government agency;
6. The names and addresses of the present directors and officers of
the corporation;
7. A statement of its authorized capital stock and the aggregate
number of shares which the corporation has authority to issue,
itemized by classes, par value of shares, shares without par value,
and series, if any;
Upon the winding up of the corporate affairs, any asset

distributable to any creditor or stockholder or member who is
unknown or cannot be found shall be escheated to the city or
municipality where such assets are located.
8. A statement of its outstanding capital stock and the aggregate

number of shares which the corporation has issued, itemized by
classes, par value of shares, shares without par value, and series, if
any;
Except by decrease of capital stock and as otherwise

allowed by this Code, no corporation shall distribute any of its assets
or property except upon lawful dissolution and after payment of all
its debts and liabilities. (77a, 89a, 16a)
9. A statement of the amount actually paid in; and
FOREIGN CORPORATIONS
Definition
Section 123. Definition and rights of foreign corporations. - For the

purposes of this Code, a foreign corporation is one formed,
organized or existing under any laws other than those of the
Philippines and whose laws allow Filipino citizens and corporations
to do business in its own country or state. It shall have the right to
transact business in the Philippines after it shall have obtained a
license to transact business in this country in accordance with this
Code and a certificate of authority from the appropriate government
agency. (n)
What if the law of the state of the foreign corporation does not allow
Filipino citizens to do business in their country?
The phrase and whose laws allow Filipino citizens and corporations
to do business in its own country or state is not, however, an
accurate inclusion in the definition as ay corporation registered or
organized under the laws of another state is necessarily a foreign
corporation whether or not the state of its incorporation allow
Filipino citizens or corporations to do business in that forum.
The said phrase was inserted by the framers of the law only as a
condition precedent to the grant of a license of a foreign corporation
to do business in the Philippines.
Composed of 100% Americans; organized under the laws other than

the Philippines
The test is the incorporation test

General rule: the place of its incorporation irrespective of the
nationality
Exception: control test would apply in determining the corporate
nationality, i.e., the citizenship of the controlling stockholders
determines the nationality of the corporation
If a foreign corporation wants to transact business in the Philippines,

what must it do?
Obtain a license
How may it do so?
According to sec. 125:

Section 125. Application for a license. - A foreign
corporation applying for a license to transact business in the
Philippines shall submit to the Securities and Exchange Commission
a copy of its articles of incorporation and by-laws, certified in
accordance with law, and their translation to an official language of
the Philippines, if necessary. The application shall be under oath and,
unless already stated in its articles of incorporation, shall specifically
set forth the following:
1. The date and term of incorporation;

10. Such additional information as may be necessary or appropriate

in order to enable the Securities and Exchange Commission to
determine whether such corporation is entitled to a license to transact
business in the Philippines, and to determine and assess the fees
payable.
Attached to the application for license shall be a duly
executed certificate under oath by the authorized official or officials
of the jurisdiction of its incorporation, attesting to the fact that the
laws of the country or state of the applicant allow Filipino citizens
and corporations to do business therein, and that the applicant is an
existing corporation in good standing. If such certificate is in a
foreign language, a translation thereof in English under oath of the
translator shall be attached thereto.
The application for a license to transact business in the
Philippines shall likewise be accompanied by a statement under oath
of the president or any other person authorized by the corporation,
showing to the satisfaction of the Securities and Exchange
Commission and other governmental agency in the proper cases that
the applicant is solvent and in sound financial condition, and setting
forth the assets and liabilities of the corporation as of the date not
exceeding one (1) year immediately prior to the filing of the
application.
Foreign banking, financial and insurance corporations
shall, in addition to the above requirements, comply with the
provisions of existing laws applicable to them. In the case of all
other foreign corporations, no application for license to transact
business in the Philippines shall be accepted by the Securities and
Exchange Commission without previous authority from the
appropriate government agency, whenever required by law. (68a)
Is there any deposit or security requirement?
Yes, within 60 days after the issuance of the license, a foreign

corporation, except those engaged in foreign banking or insurance,
shall deposit with the SEC, for the benefit of creditors, securities
consisting of bonds or other evidence of indebtedness of the
Philippine government or its political subdivision, or of government
owned or controlled corporation, shares of stock in registered
enterprises as this term is defined in R.A. 5186, shares of stock in
domestic insurance companies and banks or any combination thereof
with an actual market value of 100,000
Additional securities may be required by the SEC if the actual
market value of the securities on deposit has decreased by at least
10%. Section 126 of the code provides:
Section 126. Issuance of a license. - If the Securities

and Exchange Commission is satisfied that the applicant has
complied with all the requirements of this Code and other special
laws, rules and regulations, the Commission shall issue a license to
the applicant to transact business in the Philippines for the purpose
or purposes specified in such license. Upon issuance of the license,
such foreign corporation may commence to transact business in the
Philippines and continue to do so for as long as it retains its authority
to act as a corporation under the laws of the country or state of its
incorporation, unless such license is sooner surrendered, revoked,
56
suspended or annulled in accordance with this Code or other special

laws.
Within sixty (60) days after the issuance of the license
to transact business in the Philippines, the license, except foreign
banking or insurance corporation, shall deposit with the Securities
and Exchange Commission for the benefit of present and future
creditors of the licensee in the Philippines, securities satisfactory to
the Securities and Exchange Commission, consisting of bonds or
other evidence of indebtedness of the Government of the Philippines,
its political subdivisions and instrumentalities, or of governmentowned or controlled corporations and entities, shares of stock in
"registered enterprises" as this term is defined in Republic Act No.
5186, shares of stock in domestic corporations registered in the stock
exchange, or shares of stock in domestic insurance companies and
banks, or any combination of these kinds of securities, with an actual
market value of at least one hundred thousand (P100,000.) pesos;
Provided, however, That within six (6) months after each fiscal year
of the licensee, the Securities and Exchange Commission shall
require the licensee to deposit additional securities equivalent in
actual market value to two (2%) percent of the amount by which the
licensee's gross income for that fiscal year exceeds five million
(P5,000,000.00) pesos. The Securities and Exchange Commission
shall also require deposit of additional securities if the actual market
value of the securities on deposit has decreased by at least ten (10%)
percent of their actual market value at the time they were deposited.
The Securities and Exchange Commission may at its discretion
release part of the additional securities deposited with it if the gross
income of the licensee has decreased, or if the actual market value of
the total securities on deposit has increased, by more than ten (10%)
percent of the actual market value of the securities at the time they
were deposited. The Securities and Exchange Commission may,
from time to time, allow the licensee to substitute other securities for
those already on deposit as long as the licensee is solvent. Such
licensee shall be entitled to collect the interest or dividends on the
securities deposited. In the event the licensee ceases to do business in
the Philippines, the securities deposited as aforesaid shall be
returned, upon the licensee's application therefor and upon proof to
the satisfaction of the Securities and Exchange Commission that the
licensee has no liability to Philippine residents, including the
Government of the Republic of the Philippines. (n)
Other than section 125 and 126. What other requirements are set
under Philippine Law before a foreign corporation may transact
business in the Philippines
Yes. A Resident agent is required. As a condition precedent to the
grant of a license to do or transact business in the Philippines, the
foreign corporation is required to designate its resident agent on
whom summons and other legal processes may be served in all
actions or legal proceedings against such corporation
Section 128. Resident agent; service of process. - The
Securities and Exchange Commission shall require as a condition
precedent to the issuance of the license to transact business in the
Philippines by any foreign corporation that such corporation file with
the Securities and Exchange Commission a written power of attorney
designating some person who must be a resident of the Philippines,
on whom any summons and other legal processes may be served in
all actions or other legal proceedings against such corporation, and
consenting that service upon such resident agent shall be admitted
and held as valid as if served upon the duly authorized officers of the
foreign corporation at its home office. Any such foreign corporation
shall likewise execute and file with the Securities and Exchange
Commission an agreement or stipulation, executed by the proper
authorities of said corporation, in form and substance as follows:
"The (name of foreign corporation) does hereby
stipulate and agree, in consideration of its being granted by the
Securities and Exchange Commission a license to transact business
in the Philippines, that if at any time said corporation shall cease to
transact business in the Philippines, or shall be without any resident
agent in the Philippines on whom any summons or other legal
processes may be served, then in any action or proceeding arising out
of any business or transaction which occurred in the Philippines,
service of any summons or other legal process may be made upon
the Securities and Exchange Commission and that such service shall
have the same force and effect as if made upon the duly-authorized
officers of the corporation at its home office."
Whenever such service of summons or other process
shall be made upon the Securities and Exchange Commission, the
Commission shall, within ten (10) days thereafter, transmit by mail a
copy of such summons or other legal process to the corporation at its
home or principal office. The sending of such copy by the
Commission shall be necessary part of and shall complete such
service. All expenses incurred by the Commission for such service
shall be paid in advance by the party at whose instance the service is
made.
In case of a change of address of the resident agent, it
shall be his or its duty to immediately notify in writing the Securities
and Exchange Commission of the new address. (72a; and n)

The necessity of the appointment of a resident agent is only for the

purpose of receiving summons and other legal processes in any legal
action or proceeding against the foreign corporation
Who may be appointed as a resident agent?
Section 127 provides that:

Section 127. Who may be a resident agent. - A resident
agent may be either an individual residing in the Philippines or a
domestic corporation lawfully transacting business in the
Philippines: Provided, That in the case of an individual, he must be
of good moral character and of sound financial standing. (n)
May a partnership be appointed as a resident agent?
Yes, domestic corporation taken in its general sense not legal sense
If there is a resident agent appointed. May summons be served to any

officers of the corporation?
No, if there is a resident agent, the designation is exclusive and

service must be made only to the resident agent or else the service is
without force and effect unless made to him
Thus, while the law allows service upon the SEC or any of its
officers or agents within the Philippines
The two modes may become effective only if the foreign corporation
failed or neglected to designate such a person or an agent
Summons must be made only to resident agent except when there is
no resident agent appointed
Where such foreign corporation actually doing business here has not
applied for a license to do and has not designated an agent to receive
summons, then service of summons on it will be made pursuant to
the provisions of the rules of court. If such foreign corporation has a
license to do business, then summons to it will be served on the
agent designated by it for the purpose, or otherwise in accordance
with the Corporation Law (General Corporation of the Philippines
vs. Union Insurance Soc. Of Canton Ltd.)
If the foreign corporation conducts business in the Philippines

without the license requirement. What is the effect?

Section 133. Doing business without a license. - No
foreign corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may
be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized
under Philippine laws. (69a)
if they do so, the responsible officers may be subjected to the penal

sanctions provided for in section 144 of the code, which may either
be fine or imprisonment
What if it is not doing business without a license?
If it is not transacting business in the Philippines, even without a

license, it can sue before the Philippine Courts
The general rule is that it is not the lack of required license but
doing business without a license which bars a foreign corporation
form access to our courts.
Exception:
1.
2.
3.
4.
5.
Foreign corporations can sue before the Philippine Courts if

the act or transaction involved is an isolated transaction or
the corporation is not seeking to enforce any legal or
contractual rights arising from, or growing out of, any
business which it has transacted in the Philippines
Neither is a license required before a foreign corporation may
sue before the forum if the purpose of the suit is to protect its
trademark, trade name, corporate name, reputation or
goodwill;
Or where it is based on a violation of the Revised Penal Code;
Or merely defending a suit filed against it
Or where a party is stopped to challenge the personality of the
corporation by entering into a contract with it.
Rules laid down by the SC

A.
As to whether or not it
can sue
B.
As to whether or not it
can be sued
57
A foreign corporation transacting

or doing business in the Philippines
with a license can sue before
Philippine Courts
Subject to certain exceptions, a
foreign corporation doing business
in the country without a license
cannot sue in Philippine Courts
If it is not transacting business in
the Philippines, even without a
license, it can sue before the
Philippine Courts

business in the Philippines with the
requisite license can be sued in the
Philippine Courts
business in the Philippines without
a license can be sued in Philippine
Courts
if it is not doing business in the
Philippines, it cannot be sued in
Philippine Courts for lack of
jurisdiction
A foreign corporation not doing business in the Philippines, may it

be sued?
If it is not transacting business in the country it cannot be sued for

lack of jurisdiction
Is there any sanction that can be enforced to foreign corporations

which are doing business without the required license?
Penal sanctions under section 144

Any violation of the code is subject to such penal sanctions
What would constitute doing business?
The true test, however, seems to be whether the foreign corporation

is continuing the body or substance of the business or enterprise for
which it was organized or whether it has substantially retired from it
and turned it over to another. The term implies a continuity of
commercial dealings and arrangements, and contemplates, 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,
the purpose and object of its organization (Mentholatum Co. Inc. vs.
Mangaliman)
engaged in continuing business or enterprise for which it was

organized, when the sixteen bundles were erroneously discharged in
manila, for it to be considered as transacting business in the
Philippines. The fact is that the bundles, the value of which is sought
to be recovered, were landed not as a result of a business transaction,
isolated or otherwise, but due to a mistaken belief that they were part
of the shipment of forty similar bundles consigned to persons or
entities in the Philippines, there is no justification therefore, for
invoking the section
There were 3 contracts entered into, how come they were still not
considered as doing business? (Antam Consolidted, Inc. vs. CA)
Every case shall be judged in the light of its peculiar circumstances,

where a single act or transaction however, is not merely incidental or
casual but indicates the foreign corporations intention to do other
business in the Philippines, said single act or transaction constitutes
doing or engaging in or transacting business in the Philippines
In the case at bar, the transaction entered into by the respondent with
the petitioners are not a series of commercial dealings which signify
an intent on the part of the respondent to do business in the
Philippines but constitute an isolated one which does not fall under
the category of doing business.
The records show that the only reason why the respondent entered
into the second and third transactions with the petitioner was because
it wanted to recover the loss it sustained from the failure of the
petitioners to deliver the crude coconut oil under the first transaction
and in order to give the latter a chance to make good on their
obligation. From these facts alone, it can be deducted that in reality
there was only one agreement between the petitioners and the
respondent.
The three seemingly different transactions were entered into by the
parties only in an effort to fulfill the basic agreement and in no way
indicate an intent on the part of the respondent to engage in a
continuity of transactions with petitioners which will categorize it as
a foreign corporation doing business in the Philippines
3 contracts, but according to the court was not doing business in the
Philippines
Far East Intl import vs. Nankai Kogyo Co. Ltd.

Mentholatum vs. Mangaliman
-
The true test, however, seems to be whether the foreign corporation

is continuing the body or substance of the business or enterprise for
which it was organized or whether it has substantially retired from it
and turned it over to another. The term implies a continuity of
commercial dealings and arrangements, and contemplates, 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,
the purpose and object of its organization
Whatever transaction the Philippine-American Drug Co. had
executed in view of the law, the Mentholatum Co. did it itself. And
the Mentholatum Co. being a foreign corporation doing business in
the Philippines without the license required by section 68 of the
Corporation Law, it may not prosecute this action for violation of
trade mark and unfair competition
Why is foreign corporations barred access from our courts if they do

business without a license?
Marshall-Wells Co. vs. Henry W. Elser and Co.

Marshall-Wells Co. vs. Henry W. Elser and Co.
The object of the statute was to subject the foreign corporation doing
business in the Philippines to the jurisdiction of its courts. The object
of the statute was not to prevent the foreign corporation from
performing single acts, but to prevent it from acquiring a domicile
for the purpose of business without taking the steps necessary to
render it amenable to suit in local courts.
Only one contract , but according to the Supreme Court was doing
business in the Philippines
Every case shall be judged in the light of its peculiar circumstances,
where a single act or transaction however, is not merely incidental or
casual but indicates the foreign corporations intention to do other
business in the Philippines, said single act or transaction constitutes
doing or engaging in or transacting business in the Philippines
In the instant case, the testimony of Atty. Pablo Ocampo, that
appellant was doing business in the Philippines corroborated by no
less than Nabuo Toshida, one of appellants officers, that he was sent
to the Philippines to look into the operation of mines, thereby
revealing the defendants desire to continue engaging in business
here, after receiving the shipment of the scrap iron under
consideration, making the Philippines a base thereof.
In such a case, the single act of transaction is not merely incidental
or casual, but is of such character as distinctly to indicate a purpose
on the part of the operations for the conduct of a part of
corporations ordinary business
If a corporation appoints a distributor or a representative, will it

necessarily imply doing business in the country?
If the foreign corporation maintained an independent status during

the existence of the disputed contract.
Appointment of a distributor or representative in the Philippines,
unless it has an independent status (transacts and does business in its
own name and for its account and not of the foreign corporation)
if that be the case the mere appointment of a distributor will not
constitute doing business
How do you know if it has an independent status?
Communications Materials and Design vs. CA
Bulakhidas vs. Navarro

-
It is settled that if a foreign corporation is not engaged in business in

the Philippines, it may not be denied the right to file an action in
Philippine courts for isolated transactions
The object of section 68 and 69 of the Corporation law was not to
prevent the foreign corporation from performing single acts, but to
prevent it from acquiring a domicile for the purpose of business
without taking the steps necessary to render it amenable to suit in the
local courts. It was never the purpose of the Legislature to exclude a
foreign corporation which happens to obtain an isolated order for
business from the Philippines, from securing redress in the
Philippine courts
Communications Materials and Design vs. CA

-
The Swedish East Asia Co., Ltd. Vs. Manila Port Service
-
It must stated that the section is not applicable to a foreign

corporation performing single acts or isolated transactions. There
is nothing to show that the petitioner has been in the Philippines

A perusal of the agreements between petitioner ASPAC and the

respondents show that there are provisions which are highly
restrictive in nature, such as to reduce petitioner ASPAC to a mere
extension or instrument of the private respondents
ITEC was doing business without a license, however ASPAC is
estopped
by entering into the Representative Agreement with ITEC,
petitioner is charge with knowledge that ITEC was not licensed to
engage in business activities in the country, and is thus stopped from
raising in defense such incapacity of ITEC, having chosen to ignore
or even presumptively take advantage of the same
In top-weld we ruled that a foreign corporation may be exempted
from the license requirements in order to institute an action in our
courts if its representative in the country maintained an independent
status during the existence of the disputed contract. Petitioner is
58
deemed to have acceded to such independent character when it

entered into the Representative Agreement with ITEC
commerce and not belonging to him is to render nugatory the very

essence of the law on trademarks and trade names
Western Equipment and Supply Co. vs. Reyes
Atlantic Mutual Insurance Co. vs. Cebu Stevedoring Co.
The company is not here seeking to enforce any legal or contract

rights arising from, or growing out of any business which it has
transacted in the Philippine Islands. The sole purpose of the action is
to protect its reputation, its corporate name, its goodwill, whenever
that reputation, corporate name or goodwill have through the natural
development of its trade, established themselves
And it contends that its rights to the use of its corporate and trade
name, is a property right, a right in rem, which may assert and
protect against all the world, in any of the courts of the world even in
jurisdictions where it does not transact business just the same as it
may protect its tangible property, real or personal, against trespass,
or conversion
Since it is the trade and not the mark that is to be protected a
trademark acknowledges no territorial boundaries or municipalities
or states or nations, but extends to every market where the traders
goods have become known and identified by the use of the mark
The law denies to a foreign corporation the right to maintain suit

unless it has previously complied with a certain requirement, then
such compliance, or the fact that the suing corporation is exempt
there from, becomes a necessary averment in the complaint
These are matters peculiarly within the knowledge of appellants
alone, and it would be unfair to impose upon appellee the burden of
asserting and proving the contrary. It is enough that foreign
corporations are allowed by law to seek redress in our courts under
certain conditions: the interpretation of the law should not go so far
as to include, in effect, an inference than those conditions have been
met from the mere fact that the party suing is a foreign corporation
Olympia Business Machines Co. vs. E. Razon
How do you distinguish this case with Atlantic?

In Atlantic it dismissed the case, while in Olympia it did not
General Garments Corporation vs. Director of Patents

Time Inc. vs. Reyes
-
A foreign corporation which has never done business in the

Philippine Islands and which is unlicensed and unregistered to do
business here, but is widely and favorably known in the Islands
through the use therein of its products bearing its corporate and trade
name has a legal right to maintain an action in the Islands
Mentholatum case was subsequently derogated when Congress,
purposely to counteract the effects of said case, enacted R.A. 638,
inserting Section 21-A in the Trademark Law, which allows a
foreign corporation or juristic person to bring an action in Philippine
Courts for infringement of a mark or trade-name, for unfair
competition, or false designation of origin and false description,
whether or not it has been licensed to do business in the Philippines
under Act Numbered Fourteen hundred and fifty-nine, as amended,
otherwise known as Corporation Law, at the time it brings
complaint.
Puma Sporschufabriken Rudolf Dassler, K.G. vs. IAC and MILORO MFG. Corp.
The ruling in the aforecited case is in consonance with the

Convention of the Union of Paris for the protection of Industrial
Property to which the Philippines became a party. Article 8 thereof
provides that a trade name shall be protected in all the countries of
the Union without the obligation of filing or registration, whether or
not it forms part of the trademark
Le Chemiste Lacoste vs. Fernandez
We fail to see how these doctrines can be a propos in the case at bar,
since the petitioner is not maintaining any suit but is merely
defending one against itself; it did not file any complaint but only a
corollary defensive petition to prohibit the lower court from further
proceeding with a suit that it had no jurisdiction to entertain
What law govern foreign corporation doing and transacting business

in the Philippines with a license
Laws of the Republic of the Philippines save and except that would
normally be those matters which concern its formation, organization
or dissolution, or those fixing the relationship, liabilities,
responsibilities, or duties of the stockholders, members or officers of
the foreign corporation or their relations to each other.
In effect, intra-corporate or internal matters not affecting creditors or
the public in general are governed not by Philippine laws but the law
under which the foreign corporation was formed or organized
Treaties for part of the law of the land

Quoting the Paris Convention and the case of Vanity Fair Mills Inc.
vs. T. Eaton Co. this court further said:
By the same token, the petitioner should be given the
same treatment in the Philippines as we make available
to our own citizens. We are obliged to assure to
nationals of countries of the Union an effective
protection against unfair competition on the same way
that they are obligated to similarly protect Filipino
Citizen and firms
The French company may gain access to our courts, in the first place
it was not doing business in the Philippines
The marketing of its products in the Philippines is done through an
exclusive distributor, Rustan Commercial Corporation. The latter is
an independent entity which buys and then markets not only
products of the petitioner but also many other products bearing
equally well-known and established trademarks and trade-names
Assuming Rustans had no independent status would the SC grant
Lacoste access to our courts?
Even if Lacoste did business in the Philippines it can bring action
because the case involves a violation of our penal code
Such was a violation of article 189 of the RPC, if prosecution
follows after the completion of the preliminary investigation being
conducted by the Special Prosecutor the information shall be in the
name of the People of the Philippines and no longer the petitioner
which is only an aggrieved party since a criminal offense is
essentially an act against the State. It is the latter which is principally
the injured party although there is a private right violated
The records show that the goodwill and reputation of the petitioners
products bearing the trademark Lacoste date back even before 1964
when Lacoste clothing apparels were forst marketed in the
Philippines. To allow Hemandas to continue using the trademark
Lacoste for the simple reason that he was the first registrant in the
Supplemental Register of a trademark used in international

Section 129. Law applicable. - Any foreign corporation

lawfully doing business in the Philippines shall be bound by all laws,
rules and regulations applicable to domestic corporations of the same
class, except such only as provide for the creation, formation,
organization or dissolution of corporations or those which fix the
relations, liabilities, responsibilities, or duties of stockholders,
members, or officers of corporations to each other or to the
corporation. (73a)
Will the pre-emptive rights of a foreign corporation be governed by

the same section of the code? Is the pre-emptive rights of a
stockholder in a domestic corporation same as the pre-emptive of a
stockholder of a foreign corporation.
No
M.E. Grey vs. Insular Lumber Company
PNB vs. Gonzales, will this apply to a foreign corporation? How do

you distinguish this case from a Philippine law?
Since it concerns the rights of stockholders it is the law of New York
that should govern
Is the license to do business of a foreign corporation subject to

suspension or revocation? What are the grounds?

Section 134. Revocation of license. - Without prejudice
to other grounds provided by special laws, the license of a foreign
corporation to transact business in the Philippines may be revoked or
suspended by the Securities and Exchange Commission upon any of
the following grounds:
1. Failure to file its annual report or pay any fees as required by this
Code;
2. Failure to appoint and maintain a resident agent in the Philippines
as required by this Title;
3. Failure, after change of its resident agent or of his address, to
submit to the Securities and Exchange Commission a statement of
such change as required by this Title;
59
4. Failure to submit to the Securities and Exchange Commission an

authenticated copy of any amendment to its articles of incorporation
or by-laws or of any articles of merger or consolidation within the
time prescribed by this Title;
5. A misrepresentation of any material matter in any application,

report, affidavit or other document submitted by such corporation
pursuant to this Title;
6. Failure to pay any and all taxes, imposts, assessments or penalties,
if any, lawfully due to the Philippine Government or any of its
agencies or political subdivisions;
7. Transacting business in the Philippines outside of the purpose or
purposes for which such corporation is authorized under its license;
8. Transacting business in the Philippines as agent of or acting for
and in behalf of any foreign corporation or entity not duly licensed to
do business in the Philippines; or
9. Any other ground as would render it unfit to transact business in
the Philippines. (n)
SEC does not have the sole authority to suspend or revoke the
license of a foreign corporation doing business in the Philippines,
other government agencies like the Central Bank , the Insurance
Commission may also do so within their respective dominion,
despite the provision of section 134
If the SEC believes that revocation is warranted, section 135
provides that:
Section 135. Issuance of certificate of revocation. Upon the revocation of any such license to transact business in the
Philippines, the Securities and Exchange Commission shall issue a
corresponding certificate of revocation, furnishing a copy thereof to
the appropriate government agency in the proper cases.
The Securities and Exchange Commission shall also
mail to the corporation at its registered office in the Philippines a
notice of such revocation accompanied by a copy of the certificate of
revocation. (n)
Voluntary withdrawal of license
All 3 conditions must be complied with
1.
2.
Section 136. Withdrawal of foreign corporations. Subject to existing laws and regulations, a foreign corporation
licensed to transact business in the Philippines may be allowed to
withdraw from the Philippines by filing a petition for withdrawal of
license. No certificate of withdrawal shall be issued by the Securities
and Exchange Commission unless all the following requirements are
met;
1. All claims which have accrued in the Philippines have been paid,
compromised or settled;
2. All taxes, imposts, assessments, and penalties, if any, lawfully due
to the Philippine Government or any of its agencies or political
subdivisions have been paid; and
3. The petition for withdrawal of license has been published once a

week for three (3) consecutive weeks in a newspaper of general
circulation in the Philippines.
P.D. 902-A
P.D. 902-A was amended by R.A. 8799 or the SECURITIES

REGULATION CODE in the year 2000
The jurisdiction of SEC for cases falling under section 5 thereof was
transferred to the courts of general jurisdiction designated by the SC,
they were called special commercial courts, the only exceptions were
revocation of corporate franchise and calling of elections
However the SEC retained receivership or suspension payments
within June 20,2000
Jurisdiction of special commercial courts are exclusive and original,
jurisdiction is conferred by law; 1 Special Commercial Court per
region except MAKATI and QUEZON CITY which has two
Devices or Schemes
Pyramid scheme (misrepresentation)-Special Commercial Courts
Syndicated estafa- not bailable
Alleje case
Falls squarely under sec. 5 (a) Special Commercial Courts

1.
-
2.
Allegation corporate officers employing schemes in diverting

Not only detrimental to corporation, but general membership
Fraud must be stated with particularity
Abad vs. CFI of Pangasinan
Fraud must be stated with particularity otherwise it may be filed to
any court
Intra-corporate
Exclusive and original jurisdiction of special commercial courts
Sole criteria is there must be an intra-corporate relationship
Pertaining to a controversy (speaks also of intra-partnership
controversy, that partnership must be registered with the SEC)
Rule now
Necessarily be an intra-corporate relationship; and,
The controversy must arise out of said relationship
Intra-corporate relationship alone will not suffice to put it in the
ambit of special commercial courts and courts of general jurisdiction
may take cognizance
Case of a transferee of shares of stock to compel the corporation to
recognize him as a stockholder
How can it be intra-corporate when he is not yet fully paid
When the transferee has done all he can be required to do to render
the transfer effectual and the corporation refuses to register the
transfer, the requirement of the registration is waived and the
transferee is considered technically a stockholder who may sue to
enforce the right to have the transfer registered
Florendo vs. rivera, Embassy Farms
The transferor withheld the delivery, they are not yet prima facie; it
will not be considered intra-corporate
Controversies in the appointment (asked in the bar)
Cases involving election, appointment and removal
In Andaya the court said that a corporate officer elected or appointed
by the BOD is always a corporate act
The fact that petitioner sought payment of his back wages, other
benefits as well as moral and exemplary damages and attorneys fees
in his complaint will not operate to prevent the SEC from exercising
its jurisdiction under P.D. 902-A. The jurisdiction will not wrest on
the NLRC just because of that
Tabang vs. NLRC
Jurisdiction lies originally and exclusively to special commercial
courts and not in the NLRC
SEC has jurisdiction over cases of removal from employment of
corporate officers
The relationship of a person to a corporation, whether as officer or as
agent or employee or not determined by the nature of the servides
performed, but by the incidents of the relationship on they actually
exist
Corporate officers dismissal is always a corporate act or intracorporate controversy
Midland construction vs. Movilla
NLRC will be possessed of jurisdiction exception will not apply to
mere recovery
Main consideration
Asserts his right to the office or questions the propriety or validity of
his ouster or removal, it will be the special commercial courts and
not the NLRC
Securities Regulation Code
Transferred jurisdiction of the SEC to Special Commercial Courts
Suspension of payment, appointment of management receivership
What is the reason for suspension of all claims?
The reason for suspending actions for claims against the corporation
is not really to enable the management committee or the
rehabilitation receiver to substitute the defendant in any pending
action against it before any court, tribunal or body. The real
justification is to enable the management committee or rehabilitation
receiver to effectively exercise his powers free from any Judicial or
extra-judicial interference that might unduly hinder or prevent the
rescue of the debtor company. To allow such other actions to
continue would only add to the burden of the management
committee pr rehabilitation receiver, whose time, effort and
resources would be wasted in defending claims against the
corporation instead of being directed towards restructuring and
rehabilitation.(PAL vs. Spouses Sadic and Kurangking)
To enable the receiver to effectively exercise his or her power free
form any judicial or extra-judicial that may disturb
3 types of suspension of payments
Simple suspension of payments
where deferment of payment of claims against a distress company;
ask the court to be given time to the payment of liability by
postponing the payment
When it has sufficient assets and liabilities but forces the
impossibility of meeting them when they respectively fall due
Suspension of receiver with a management committee with a
rehabilitation play or suspension of payments accompanied by a
proposal for rehabilitation (with or without rehabilitation)
corporation has sufficient assets to cover its liabilities, but sees the
60
3.
1.
2.
-
possibility; is or without rehabilitation plans; normally would attach

the rehabilitation plan
For purpose of economic development
Suspension of payments when the corporation has no sufficient
assets to its liabilities
May it still be revived?
Yes, it may still be revived
How can a corporation with more liabilities than assets continue its
operations profitably?
Even if the distressed company has no sufficient assets and liabilities
it can go for suspension
It asked for a management committee without a receiver plan
(Victorius Milling case)
Convert their claims into equity
Their liability was almost wiped out they became stockholders
instead of creditors
After 5 years those who converted sold it back to the corporation,
thereby making profits
Amendment is for the economic development of the country
What if walang amendment, e mas maraming liabilities kesa assets
Suspension order- all actions for claims against the corporation are
accordingly suspended at whatever stage the proceedings maybe
Effect of suspension- you cannot foreclose
What are claims?
Debts or demands of pecuniary nature. Assertion of a right to have
money paid
Claims against the corporation shall be suspended, assertion of a
right to have money paid; it must present a monetary claim,
liquidated or unliquidated
Nullification of corporations does not present a monetary claim of
pecuniary nature
Union vs. CA
It does not allow a mere individual to file the petition which is
limited to corporations partnership or associations.
Where no authority is granted to hear petitions of individuals for
suspension of payments, such petition are beyond the competence of
the SEC
What happens if there is a suspension order?
Explain the key phrase quality is equity
All creditors stand on equal footing, secure or unsecure, holding or
lien or without a lien, no creditor may enforce his lien while
rehabilitation is going (Alemar case)
No preference shall be given
RCBC vs. IAC
Decided on motion for reconsideration
It court 7 years to decide authentication
Rule of the thumb
Automatic suspension even if not decreed in the decision itself
Once lifted the preferred creditors will regain their preference
Appointment of a management committee
Take over the management committee of the distressed corporation
Extraordinary and drastic remedy
Without any remedy
What is an intra-corporate controversy?
Section 5(B)
Sole criteria is whether there exists an intra-corporate dispute is that
if there is an intra-corporate relationship
Why is there suspension of all actions against claims when a receiver
is appointed?
To enable the management committee to exercise its powers
Sy Chim vs. Sy Siy Ho (before a management committee may be opt
by a court)
2 requisites for a valid appointment of management committee
Imminent danger of dissipation, loss, wastage or destruction of assets
or other corporate properties
Paralysis of business operations, the mere apprehension of future
misconduct based upon prior management
Save and except in the case of a close corporation in case of
deadlock management committee is allowed to take over right away
Jacinto case
2nd par of page 676
2 requisites where present
Wala ng mapautang, there was a paralyzation
Sy Chim
Did not appoint a management committee
In the absence of a strong showing of an imminent danger of
dissipation, loss wastage or destruction of assets or other properties
of a corporation and paralysis of its business operations, the mere
apprehension of future misconduct based upon prior mismanagement
will not authorize the appointment of a management committee
Section 5 and 6(D) governed by separate rules; interim rules and
intra-corporate controversy
Venue of actions
Rules of court- where the parties are residing
Intra-corporate- no matter where the parties are residing it will be in
the city or municipality where the principal office is located

1.
2.
3.
4.
5.
6.
7.
Rehabilitation proceedings venue

In rem
Acquired upon publication without furnishing the creditors a copy of
the petition and attachments thereof
A creditor may now file the suspension proceedings; provides that
creditors owns at least 25%
Intra-corporate- rule 1 section 6
Service of summons- rule 2 section 5
Summons may be made to anyone
In case of intra-corporate dispute, elections, fraud, etc; if they are
governed by interim rules of procedure on intra-corporate
controversies
Venue
Special commercial courts where principal office is
located/established (section 5 rule 1)
Matters of payment/suspension must be filed in the city/
municipality where corporation is located
Under old rule, creditors have no right to institute an action for
receivership; now creditors, if they sold 20% they can institute an
action for receivership
Section 5
Service of summons may be made by fax/e-mail
E.B. Villarosa vs. Benito
Will apply only if it is not an intra-corporate controversy
If the controversy arose out of an intra-corporate dispute rules on
interim rules of procedure of intra-corporate controversies shall
govern
Rule 4 section 17- immunity from suit
Rehabilitation receiver shall not subject to any action, claim or
demand in connection with any act done omitted by him in good
faith in the exercise of his functions and powers herein conferred
Claim
Right to payment, whether or not it is reduced to judgment,
liquidated or unliquidated, fixed or contingent, matured or
unmatured, disputed or undisputed, legal or equitable and secured or
unsecured
Investment contracts
A contract, transaction or scheme whereby a person invests his
money in a common enterprise and is led to expect profits primarily
from the effects of others
The management committee and rehabilitation receiver are
empowered to:
Take custody and control of all assets of the corporation
Evaluate assets and liabilities, earnings operations of the corporation
Determine the best way to protect the investors and creditors
Study, review evaluate the feasibility of continuing operation and
structures
Submit recommendations to the RTC regarding rehabilitation plan
Rehabilitate the corporation if determined to be feasible by the RTC
Report to the RTC until the corporation is dissolved
THE SECURITIES REGULATION CODE (RA8799)

- Also known as the Blue Sky Law since it was enacted to protect the public from
unscrupulous promoters who stake business which have no basis and sell shares
and interest therein to investors, who are then left holding certificates
representing nothing more than a claim to a square of the blue sky.
-SEC. 2. Declaration of State Policy. The State shall establish a socially
conscious, free market that regulates itself, encourage the widest participation of
ownership in enterprises, enhance the democratization of wealth, promote the
development of the capital market, protect investors, ensure full and fair
disclosure about securities, minimize if not totally eliminate insider trading and
other fraudulent or manipulative devices and practices which create distortions in
the free market.
BROKER - person who buys and sells securities for the account of others.
DEALER - person who buys and sells securities for his/her own account in the
ordinary course of business.
NOTE: No person shall engage in the business of
buying or selling securities in the Philippines as a broker or
dealer, or act as a salesman, or an associated person of any
broker or dealer unless registered as such with the
Commission. (Sec 28)
SECURITES - shares, participation or interests in a corporation or in a
commercial enterprise or profit-making venture and evidenced by a certificate,
contract, instrument, whether written or electronic in character. It includes:
CODE: COFDIPS
a)
Certificates of assignments, certificates of participation, trust
certificates, voting trust certificates or similar instruments;
b)
Other instruments as may in the future be determined by the
Commission;
c)
Fractional undivided interests in oil, gas or other mineral rights;
d)
Derivatives like option and warrants;
e)
Investment contracts, certificates of interest or participation in a
profit sharing agreement, certificates of deposit for a future
subscription;
f)
Proprietary or non proprietary membership certificates
incorporations; and
61
g)
Shares of stock, bonds, debentures, notes, evidences of indebtedness,

asset-backed securities;
TENDER OFFER A publicly announced intention acting alone or in concert

with others to acquire equity securities of a company. (2002 Bar Exams)
GR: Securities shall not be sold or offered for sale or distribution within the PH,
without a registration statement filed with and approved by SEC. Prior to such
sale, information on the securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each prospective
purchaser. (Sec 8)
Instances when Tender Offer is Required

1.
When the person intends to acquire 15% or more of the equity share
of a public company pursuant to an agreement made between or
among the person and one or more sellers;
2.
When the person intends to acquire 30% or more of the equity share
of a public company within a period of 12 months;
3.
When the person intends to acquire shares that would result in an
ownership of more than 50% of the equity shares of a public
company.
EXCEPT: Exempt Securities under Sec 9

a)
Any security issued or guaranteed by the Government of the PH, or
by any political subdivision or agency thereof, or by any person
controlled or supervised by, and acting as an instrumentality of said
Government.
b)
Any security issued or guaranteed by the government of any country
with diplomatic relations with the PH, or by any state, province or
political subdivision thereof on the basis of reciprocity: Provided,
that the SEC may require compliance with the form and content of
disclosures the Commission may prescribe.
c)
Certificates issued by a receiver or by a trustee in bankruptcy duly
approved by the proper adjudicatory body.
d)
Any security or its derivatives the sale or transfer of which, by law, is
under the supervision and regulation of the Office of the Insurance
Commission, Housing and Land Use Regulatory Board, or the
Bureau of Internal Revenue.
e)
Any security issued by a bank except its own shares of stock.
AND Exempt Transactions under Sec 10
a)
A judicial sale, or sale by an executor, administrator, guardian or
receiver or trustee in insolvency or bankruptcy.
b)
By or for the account of a pledge holder, or mortgagee or any other
similar lien holder selling or offering for sale or delivery in the
ordinary course of business and not for the purpose of avoiding the
provisions of this Code, to liquidate a bona fide debt, a security
pledged in good faith as security for such debt.
c)
An isolated transaction in which any security is sold, offered for sale,
subscription or delivery by the owner thereof, or by his
representative for the owners account, such sale or offer for sale,
subscription or delivery not being made in the course of repeated and
successive transactions of a like character by such owner, or on his
account by such representative and such owner or representative not
being the underwriter of such security.
d)
Distribution by a corporation, actively engaged in the business
authorized by its AOI, of securities to its stockholders or other
security holders as a stock dividend or other distribution out of
surplus.
e)
Sale of capital stock of a corporation to its own stockholders
exclusively, where no commission or other remuneration is paid or
given directly or indirectly in connection with the sale of such capital
stock.
f)
Issuance of bonds or notes secured by mortgage upon real estate or
tangible personal property, where the entire mortgage together with
all the bonds or notes secured thereby are sold to a single purchaser
at a single sale.
g)
Issue and delivery of any security in exchange for any other security
of the same issuer pursuant to a right of conversion entitling the
holder of the security surrendered in exchange to make such
conversion: Provided, That the security so surrendered has been
registered under this Code or was, when sold, exempt from the
provisions of this Code, and that the security issued and delivered in
exchange, if sold at the conversion price, would at the time of such
conversion fall within the class of securities entitled to registration
under this Code. Upon such conversion the par value of the security
surrendered in such exchange shall be deemed the price at which the
securities issued and delivered in such exchange are sold.
h)
Brokers transactions, executed upon customers orders, on any
registered Exchange or other trading market.
i)
Subscriptions for shares of the capital stock of a corporation prior to
the incorporation thereof or in pursuance of an increase in its
authorized capital stock under the Corporation Code, when no
expense is incurred, or no commission, compensation or
remuneration is paid or given in connection with the sale or
disposition of such securities, and only when the purpose for
soliciting, giving or taking of such subscriptions is to comply with
the requirements of such law as to the percentage of the capital stock
of a corporation which should be subscribed before it can be
registered and duly incorporated, or its authorized capital increased.
j)
The exchange of securities by the issuer with its existing security
holders exclusively, where no commission or other remuneration is
paid or given directly or indirectly for soliciting such exchange.
k)
The sale of securities by an issuer to fewer than twenty (20) persons
in the Philippines during any twelve-month period.
l)
The sale of securities to any number of the following qualified
buyers: (i) Bank; (ii) Registered investment house; (iii)insurance
company; (iv) Pension fund or retirement plan maintained by the
Government of the Philippines or any political subdivision thereof or
managed by a bank or other persons authorized by the Bangko
Sentral to engage in trust functions; (v) investment company or; (vi)
Such other person as the Commission may by rule determine as
qualified buyers, on the basis of such factors as financial
sophistication, net worth, knowledge, and experience in financial and
business matters, or amount of assets under management.
PROTECTION OF SHAREHOLDERS INTEREST
1.
2.
3.
Tender Offers (Sec 19)

Proxy solicitation (Sec 20)
Internal record keeping and accounting (Sec 22)

PROXY SOLICITATION
NOTE: A broker or dealer who holds or acquires the proxy for at least ten per
centum (10%) or such percentage as the Commission may prescribe of the
outstanding share of the issuer, shall submit a report identifying the beneficial
owner within ten (10) days after such acquisition, for its own account or
customer, to the issuer of the security, to the Exchange where the security is
traded and to the Commission. (Sec 20.5)
FRAUDULENT
TRANSACTIONS
MANIPULATIONS
1.
2.
AND
OTHER
MARKET
Wash Sale (Sec 24.1(a)(i)) any transaction in a security which

involves no change in the beneficial ownership thereof.
Matched Order (Sec 24.1(a)(ii)) order or orders for the purchase or
sale of security with the knowledge that a simultaneous order or
orders of substantially the same size, time and price for the sale or
purchase of such security has, or will be entered by or for the same or
different parties.
Note: Wash sale and matched orders become illegal when they are
used as a means to create false appearance of active trading in the
security concerned.
3.
4.
5.
6.
7.
Marking the close placing the purchase order, at or near the close
of the trading period. The price that was closed will then be the price
that will be posted on the following trading day.
Painting the tape involves a series of transactions that are reported
publicly to give the impression of an activity in a security.
Squeezing the float the part of an outstanding security intentionally
held by dealers or other persons with a view of reselling them later
for profit.
Hype and dump Act employed by a person or group of persons of
purchasing the outstanding capital stock of a dormant public shell
company for a nominal amount and merge it with their privately held
company. They would then gain control of the majority stocks of the
merged entity. Stock certificates are often re-issued in the name of
the merged entity to relatives and associates who act as nominees of
the person or persons employing the device. They would then look
for a broker-dealer who would be willing to make a hype of the
securities. The broker-dealer then generates volume and advance bid
price. When the market reaches a high price, they would dump
their shareholdings and bail out.
Boiler Room Operations involves an intensive selling campaign
through numerous salesmen by telephone or through direct mail
offerings for securities of either a certain type or from a specific
issuer. Investors are induced to purchase through hard-sell based on
unfounded predictions and mailing of misleading market letters.
Note: Marking the close, Painting the tape, Squeezing the float, Hype
and dump, Boiler Room Operations become unlawful if it is effected
to either raise the price or induce the purchase of a security or of a
controlling, controlled, or commonly controlled company by others
or to depress the price to induce the sale of a security, whether of the
same or of a different class, of the same issuer or of a controlling,
controlled company or common controlled company by others or to
create active trading to induce the purchase through said devices or
schemes.
8.
9.
10.
11.
12.
Circulating or Disseminating Information circulating an

information that any of the security listed in the exchange will or is
likely to rise or fall because of manipulative market operations of any
one or more persons conducted for the purpose of raising or
depressing the price of the security and thus inducing the purchase of
such security.
Making False or Misleading Statements with respect to any material
fact which he knew or had reasonable ground to believe was so false
or misleading for the purpose of inducing the purchase or sale of
such security.
Pegging or Fixing Or Stabilizing the price of security effected either
alone or with others through any series of transactions for the
purchase or sale thereof, if done for such purpose.
Short sale selling of security which the vendor does not own unless
done in accordance with the rules and regulations of the SEC.
Insider Trading the act of an insider to buy or sell security of the
issuer while in possession of material information with respect to
such security that is not generally made known to the public unless
(a) The insider proves that the information was not gained from such
relationship; or (b) If the other party selling to or buying from the
insider (or his agent) is identified, the insider proves: (i) that he
disclosed the information to the other party, or (ii) that he had reason
to believe that the other party otherwise is also in possession of the
information.
Note: When is information material non-public? - if: (a) It has
not been generally disclosed to the public and would likely affect the
market price of the security after being disseminated to the public
62
and the lapse of a reasonable time for the market to absorb the
information; or (b) would be considered by a reasonable person
important under the circumstances in determining his course of
action whether to buy, sell or hold a security.
Note: Who is an insider? - Insider means: (a) the issuer; (b) a
director or officer (or person performing similar functions) of, or a
person controlling the issuer; (c) a person whose relationship or
former relationship to the issuer gives or gave him access to material
information about the issuer or the security that is not generally
available to the public; (d) a government employee, or director, or
officer of an exchange, clearing agency and/or self-regulatory
organization who has access to material information about an issuer
or a security that is not generally available to the public; or (e) a
person who learns such information by a communication from any of
the foregoing insiders.
INDEPENDENT DIRECTOR
Person other than an officer or employee of the corporation, its
parent or subsidiaries, or any other individual having a relationship with the
corporation, which would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director.
Corporations which require an Independent Director
1.
An exchange; or
2.
Any corporation with a class of equity securities listed for trading on
an Exchange or with assets in excess of P50M and having 200 or
more holders, at least 200 of which are holding at least 100 shares of
a class of its equity securities or which has sold a class of equity
securities to the public pursuant to an effective registration statement
shall have at least two (2) independent directors or such independent
directors shall constitute at least 20% of the members of such board,
whichever is the lesser.
OPTION TRADING
Put a transferrable option or offer to deliver a given number of

shares of stock at a stated price on any given time during the stated
period.
Call a transferrable option to buy a specified number of share at a

stated price
Straddle a combination of put and call.

SETTLEMENT OFFERS
At any time, during an investigation or proceeding under this Code,
parties being investigated and/or charged may propose in writing an offer of
settlement with the Commission. The Commission may only agree to a settlement
offer based on its findings that such settlement is in the public interest. Any
agreement to settle shall have no legal effect until publicly disclosed. Such
decision may be made without a determination of guilt on the part of the person
making the offer.
DAMAGES
All suits to recover damages shall be brought before the Regional
Trial Court, which shall have exclusive jurisdiction to hear and decide such suits.
The Court is authorized to award damages in an amount not exceeding triple the
amount of the transaction plus actual damages.
NOTES
If there are goods involved in the multimarket, it is beyond the

jurisdiction of SEC (Ex First Quadrant)
Criminal charge for violation of SRC is a specialized dispute, hence
it must be first referred with SEC (Baviera vs. Paglinawan G.R. No.
168380
Feb 8, 2007)
T3 Rule in trading of Securities Trading day + 3 more days you
must comply with your obligations.


Corpo Notes (Ausl) - Ladia

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1

(6) Illegal search;

Corporation is one of the types of business organizations. It is also

(7) Libel, slander or any other form of defamation;

(9) Acts mentioned in Article 309;

One man form of business entity, personally answers all liabilities,

Based on mutual trust and confidence

one time grouping of persons whether they be natural or juridical

Doctrine of limited capacity

Only such powers as are expressly granted to it by law and by its

The parents of the female seduced, abducted, raped, or abused,

Advantages (SEE LADIA BOOK)

No. 2 may also be a disadvantage

A corporation is a person, therefore protected by the due process

Section 3 Stock and non-stock

Importance of knowing, determining what provisions of the code or

Stockholders must generally cast their votes in the meeting; section 4

The two requisites must always concur

Can do things as the law asks or allows it to do

General rule: Moral damages cannot be granted to corporations

Exception: Filipinas Broadcasting Network Inc. vs. Ago Med

In cases of slander, libel and other forms of defamation (should not

Created by a special law, they have their own character

Art. 2219. Moral damages may be recovered in the

There is no exemption it is absolute

Political or governmental purposes

(2) Quasi-delicts causing physical injuries;

Immediate benefit, aim or advantage of private individuals

If value is not more than 100,000

Exemption to the rule because it is composed only of one person

If confusingly similar it will not be allowed to be registered

There is exclusivity of shares of stock

openly admit investors

Section 19. Commencement of corporate existence. - A

Section 18. Corporate name. - No corporate name may

Parent or Holding/ subsidiaries and affiliates

Words corporation or inc. either in full or abbreviated form must be

Doctrine of secondary meaning

A word or phrase originally incapable of exclusive appropriation

cannot be attached by the state even in a quo warranto proceeding

exists by virtue of colorable compliance

Lyceum of the Philippines case, the additional geographical name

2 requisites must be proven

statement of principal office is required

So defectively formed, but still considered corporation, but only in

4 limitations of purpose clause

A corporation commences only upon issuance of the certificate, prior

Metro Manila- paid up capital requirement is 10 M

Non- stock- mere mention of the operating capital

Mention the authorized capital

Notes on Corporation Law

Clavecilla Radio System vs. Antillon

action not upon a written contract

corporate term required

When should extension be made?

General rule: Not earlier than 5 years

May it be extended after expiration?

Alhambra cigar vs. SEC once it ceases to exist it has no vested

Article 5 How many incorporators should there be?

May a corporation be an incorporator?

General rule: only natural persons

How about minors?

NO, because they must be of legal age

May a corporation organized by incorporators consisting solely of