LADIA CORPO LECTURE PART 2 (JUNE 9)

TOPICS:
SPECIAL CORPORATION
RELIGIOUS CORPORATION
DISSOLUTION AND LIQUIDATION
o MODES OF DISSOLUTION
o MODES OF VOLUNTARY DISSOLUTION
o MODES OF LIQUIDATION
FOREIGN CORPORATION
Special Corporation
The educational and the religious ones.
The first one would be the educational corporations
- These are governed by special law and general provisions of the Corporation Code. Special
law spoken of would be the "education act. According to this act, once the government
recognizes such institution of learning. They must be incorporated within 90 days. Under the
provisions of the Corporation Code. The governing board of an educational institution... Of
course the education act refers to educational institutions that issues certificates of
completion in the academic field. The governing board should not be less than 5 but not
more than 15. The same holds true in a non-stock corporation but in a special corporation
particularly the non stock educational institutions, it shall only be in multiples of 5. Unlike
ordinary non stock corporation which should be within 5 to 15. NON STOCK HA. Sec 106
requires that educ. inst. it should be in multiple of 5s only. If it is therefore a STOCK
EDUCATIONAL INSTITUTION, it may be anywhere between 5 and 15. The term of office is 5
years. Unless otherwise provided for in the AOI. Provided that they shall so organize them
and at least 1/3 of the membership shall expire every year. Please note the constitutional
provision under Art 15 that educational institutions other than those established by religious
orders, mission boards and charitable organizations should be owned solely by citizens of
the phils. or Corporations 60% of the capital stock of which is owned by such citizen. The
control and administration of educational institutions shall be vested to citizens of the
Philippines. Thus, no foreigner can serve and act as members of the governing board of an
educational institution although they may hold and own at most, 40% of the capital stock of
an educational institution. But that statement is also not absolute. That is no foreigner may
serve as member of the board by virtue of the Philippine Constitution because the first
paragraph will also serve as an exception to the rule. If they are established by religious
group, mission boards or charitable organizations, foreigners may serve as directors of
members of the governing board in an educational institution.
The law says, corporation 60% of the capital stock of which is owned by a citizen of the Phil.
Does that mean that an educational institution may either be stock or non stock
corporation? Not anymore. Under BP 232, it prohibits the formation of an institution of
learning issuing certificate of completion in the academic field. They may only be formed as
a stock corporation now. In fact under BP 232, it encourages those encouraged as stock
corporations to convert themselves to Non-stock Corporation. Arellano is a stock
corporation, but they refuse to do so, to distribute yung income by dividends to the
stockholders. The other type of
Religious Corporations there are two of them, the religious society and the corporation sole.
The corporation sole is formed and organized by one single person or individual. 109 it may
be established by the chief archbishop, bishop, priest, rabbi, minister, elder or head of any
religious denomination, sect or church if you are not one of them, then he cannot or they
cannot form the corporation sole. It consists of only one person, exception to the rule that
there should be 5 natural persons all of legal ages, majority of whom are residents of the
Philippines. Only 1 natural person. Note 112 of the Corporation Code, it is an exception to
the rule that a corporation commences to exist and be vested with juridical capacity upon
the issuance of the certificate of registration by the concerned government agency. In 112, it
commences to exist and is vested with juridical personality upon the filing of the verified

AOI. Likewise, we take note that in the case of the corporation sole, it has the same powers,
rights and or prerogative to own, hold or acquire properties just like any other type of
corporation but the question is, does the corporation have the same right power, right and
privilege to dispose or alienate or even mortgage its real properties like any other
corporation? NO. Hindi po under Sec 113. If it disposes, sells or encumbers of its real
properties it must obtain an order by application of leave in the RTC where the real property
is located for the purpose of disposition or encumbrance of its real properties. This is not
required in any other corporation. But there is an exception. Unless it has rules and
regulations or discipline providing for the method of disposition and encumbrance then court
order will not be required for its validity. I think these are the just more important provisions
on special corporations. (Nothing has been asked in the bar regarding this)
Dissolution and liquidation
Dissolution is the extinguishment of the corporate franchise and the termination of the
corporate existence. There are 3 modes of dissolution.
3 modes of voluntary dissolution. 3 modes of liquidation (be careful)
In case of dissolution:
1) Expiration of the corporate term (sec 120) relate to Sec 11
2) Voluntary surrender of the corporate franchise is next.
3) Involuntary dissolution
The code enumerates 2 voluntary and involuntary because the expiration of the corporate
term may rightfully be considered as voluntary mode of dissolution it having been the
intention of the incorporators that it shall live for the period specified in the term of the AOI
but of course, it may rightfully be considered as a separate one because when the period of
life expired (PNB v CFI) in expiration of corporate term, it ceases to be a body corporate for
the purpose of continuing the business for which it is formed and organized. There will be no
need for the institution of a quo warranto proceeding to determine what point in time the
corporation cease to exist because the period is provided for in the AOI. The stockholders
and the state agreed that it shall exist only for that period. IF that period expires without any
extension having been made in pursuant to the law, the corporation will be dissolved
automatically. In so far as the continuation of the business is concerned. This has been
reiterated in the Case of (Majority stockholders of ruby industrial corporation v. Lee) vol.
dissolution where creditors are not affected are covered by Sec 118 where voluntary
dissolution where creditors are affected is covered by Sec 119. Shortening corporate term is
120; it is in the nature of an amendment of the AOI. If it has the effect of dissolution, lets
say that the stockholder decided to shorten to a few months. IT will have the effect of
dissolution then the approval of the SEC will be required for its validity. Sec 16 which cover
regular or ordinary amendment will not apply. Where in the provision of Sec. 16, an
amendment of the AOI will become valid and effective on the date of its filing if not acted
upon by the SEC within a period of 6 months from the date it was so filed without fault
attributable to the applicant corporation. In the case of shortening of the corporate term
which has the effect of dissolution, Sec 120 is specific that it shall be valid upon the approval
of the SEC. So without the imprimatur of the SEC, it will not become valid and binding.
Involuntary dissolution on the other hand is governed by Sec 121; it is by a judicial decree or
against the (?) decree. Under the Securities and Regulation Code, the SEC still possess with
jurisdiction to hear and decide cases involving dissolution of corporations under Sec5 of
Ra8799. When one of the directors of SEC was asked in the Senate, he was not answering
the questions very well; the only problem was that he was not speaking openly. The SEC can
under Sec 5 of the RA 8799 or the Securities Regulation Code. It can do so on grounds
provided for by law including non-filing of reports. Nung tinanong ni enrile sa kanya, it can.
The grounds are numerous. Non user of corporate franchise continues in operation for at
least 5 years. Failure to file by laws as we have seen earlier on. Fraud in procuring the
certificate of registration under PD 902-A serious misrepresentation on what the corporation
can do or is doing to the prejudice of the investing public or the stockholders. This is
normally what is being used by SEC in petitions for revocation of corporate franchises of
those who are operators of the pyramiding scheme. Refusal to comply with the lawful order

of the commission is also a ground for voluntary dissolution. In case of deadlocks or

dishonesty in the case of a close corporation or under circumstances of gross
mismanagement and fraudulent conduct of its affiars. Other mentioned by special laws. Any
violation of Securities Regulation Code can be a ground for the dissolution of the corporate
franchise of brokerage firms or of issuers or the corporation that are being traded in the
stock exchange.
Involuntary dissolution is an extreme remedy. It is likened to a death penalty. The courts
proceed with extreme caution which have for their forfeiture of the corporate franchise. The
forfeiture will not be allowed except upon express limitation or for plain abuse of power for
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 violation of the fundamental conditions of its charter. Dissolution will be granted.
In the case of Philippine Sugar State v Govt. In that case, the Phil sugar state was buying
lands which will be traversed by the Manila Railroad Corporation and selling it to the
government. The court ruled that it is through the expense of the taxpayer but despite that,
the court did not automatically dissolve the corporation it merely enjoined the further
commission of the questioned act. As I have said, it is an extreme remedy. The court will
merely enjoin. IN Rep. vs. Visaya Land: we noted there was misuse and misapplication of the
corporate funds by 2 particular corporate officers. The minority stockholders instituted a
case for dissolution. The court rejected the petition for dissolution because the court
stressed that dissolution will be awarded only where the stockholders are not protected in
some other way. They can go after responsible corporate officers who may be liable for
damages.
Bad faith, fraud or gross negligence in the conduct of the corporate affairs is one of the
instances when the corporate officers or directors maybe held personally or solidarily liable.
Of course, as we were saying in a close corporation, this will not hold true because misuse,
dishonesty and misappropriation is a ground for the dissolution of a corporation. The
dissolved corporation does not only terminates its primary franchise to be and act as a
corporation but generally prevents it from exercising other or secondary franchise that it
may had been conferred.
Dissolved for instance and PLDT, can it continue DSL lines? it cannot. Secondary franchise.
The primary franchise is the AOI. It is the power or authority to be and act as corporation.
But there are certain business activities that would require secondary franchise. Like
telecommunications, like transportation, Hindi ka naman pwede magoperate ng bus lines
without going to the LTFRB.
It has been held that where a corporation whose corporate life has expired or whose
existence is terminated cannot lawfully pursue the business for which it was organized. It
cannot apply for a new certificate or a secondary franchise for it is no longer capable of
receiving one. It is already dispossessed with a juridical personality. Hindi na siya person.
(Buenaflor v Camarines Sur Industry) It is no longer possessed with juridical personality to
continue its business. Neither can it enforce a contract executed prior to its dissolution for
the purpose of continuing the business of its organization (Cebu port labor union v State ?)
Note Sec 145. In general, debts due to or by corporation will not be extinguished by the
dissolution. 145, no rights or remedy for or against any corporation, its stockholders,
members, directors, trustees or officers, nor any liability incurred by them shall not be
removed or impaired by the subsequent dissolution of the corporation. A corporation once
dissolved is supposed to undertake liquidation and winding up affairs. this would refer to the
act of collecting all assets, properties and rights and the payment of all its debts and
liabilities and the ultimate distribution of its remaining assets to its stockholders in
proportion to their respective interests or in accordance with their contract of subscription in
the sense that there may be preferred shares and the preference may also include the
distribution of the corporate assets upon dissolution. It may grant the shareholders the right
to receive a certain amount or percentage in the assets of the corporation if it is dissolved. If
that be the case, they have to respect that contract or stipulation. That was reiterated in the
case of Majority stockholders of ruby v Lim. Despite the termination of the corporate
existence and the extinguishment of the corporate franchise, a corporation dissolved is still

possessed with juridical personality for another three year period. For the purpose of
prosecuting or defending suits for or against it, not for the purpose of continuing the
business of its organization and upon the expiration of the three year period, the juridical
personality of the corporation ceases for all intents and purposes and no longer exists as a
corporate body and it can no longer sue or be sued. Jelano v CA).
There are three modes of liquidation:
1. By the board of directors themselves
2. BY the appointment of an a trustee or assignee
3. by the appointment of a receiver or liquidator
If the corporate opts to undertake the liquidation itself by the board of directors, they are
only granted a period of 3 years to finish the task of liquidation. Claims for or against the
corporation not filed within the period will be abated and will become unenforceable as there
exists no more corporation which they can be enforced. Actions pending for or against the
corporation when the three years expires, are abated since after that period, the corporation
ceases to exists and no longer capable of suing and being sued.
But if the liquidation is undertaken by an assignee, trustee, receiver or liquidator, the 3 year
period will not apply because it will have the effect of conveying all the rights, assets,
properties of the dissolved corporation to the trustee, assignee, receiver or liquidator and
the effect of the conveyance will make the trustee, assignee, receiver or liquidator the legal
owner of the properties or rights transferred, subject only to the beneficial interest of the
stockholders or creditors alike. (Somera v Valencia) being the legal owner the trustee,
assignee, receiver or liquidator, they can continue prosecuting the case even if the 3 year
period expires for the benefits of the creditors and stockholders.
We were saying that the 3 year period is for the purpose of collecting its assets, right and
properties. They payments of all its debts and liabilities and the ultimate distribution of the
remaining assets to the stockholders in proportion to their respective interest in the
corporation.
May a corporation dissolved transfer its assets and properties to a new corporation for the
purpose of reincorporating anew and the new corporation will continue the business of the
dissolved one. Is that possible? (Chungkavio? v IAC)
- YES.
- The BOD is not normally permitted to undertake any other activity outside of the usual
liquidation of the business but there is nothing to prevent the stockholders from conveying
their respective stockholdings to the creation of a new corporation to continue the business
of the old one. Nadissolve in the process of liquidation and winding up. After paying the
debts and liabilities, the remaining assets will become a property right and the stockholders
may transfer their respective interest to another person even to a new corporation. The
court ruled that winding up is the sole activity of a dissolved corporation that does not
intend to incorporate anew. If it does, it is not unlawful for the old BOD to negotiate and
transfer the assets of the dissolved corporation to a new corporation as long as the
stockholders have given their consent. If the stockholder wants to transfer then nobody can
interfere. Property right na nila yan.
Please note under Sec 122, upon winding up of the corporate affairs, any assets
distributable to the creditor, stockholders or member who is unknown and cannot be found
will be escheated to the city or municipality where the property are located.
123, speaks of the foreign corporation - is one formed, organized or existing under any laws
other than those of the Philippines and whose law allows Filipino citizens or corporations to
do business in the state of their incorporation. The test in determining if the corporation is
domestic or foreign is called as the "incorporation test".
If it is incorporated under the laws of another state, then it is a foreign corporation. whereas
it is incorporated under the Laws of the RP, it is a domestic corporation XPN: in cases of war
as held in (Filipinas Companias Desigoros? v. HUwenfeld?) In times of war and for the

purpose of national security of the state, the control test would apply in determining the
corporate nationality that is the nationality of the controlling stockholders will be used only
in cases of times of war.
Under Sec 133 of the code, no foreign corporation transacting business in the Philippines
without a license shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency in the Phils. But jurisprudence dictates it is
not the lack of the required license but rather doing business without a license which bars
foreign corporation from access to our courts. The case law of Universal Shipping v. IAC.
Now, many times asked in the bar, what constitutes doing or transacting business so as to
bar a foreign corporation from access to our courts if it does transact business in the country
without license? The term transacting or doing business 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 the progressive
prosecution of the purpose and object of its organization. (agillant technology v. Integrated
silicon) Thus, it has been laid to rest that a foreign corporation can sue or gain access to our
courts if it involves an isolated transaction or one single act because it does not imply a
continuity of commercial dealings or the corporation is not here seeking to enforce a
contractual right arising from or growing out off any business transaction which it has
transacted in the Phils. (Western Equipment v. Reyes and Universal Products v. CA) or, if the
purpose of the suit is to protect its corporate name, trademark, reputation or goodwill.
(General Garments v Director ...) Note the treaty of Paris otherwise known as the Union
Convention for the protection of industrial and property rights to which the Philippines is a
signatory or member in 1965, where the member countries can gain access to each other's
court, if the purpose is to protect the corporate name, trademark, reputation or goodwill of
the corporations involved with or without a license to business, (Lacoste v. Fernandez) , the
court applied the Treaty of Paris because the treaty forms part of the law of the land under
the Phil. Constitution. If the foreign corporation is instituting a violation of the RPC, with or
without the license, they can gain access to the Philippines or in the case of (Time v. Reyes)
if it is merely defending a suit filed against it, a foreign corporation not doing business in the
Philippines cannot be sued in our courts for lack of jurisdiction. Time filed a petition for
injunction to prohibit the court from further proceeding with the case for the lack of
jurisdiction. Enrile and then Mayor Villegas stated that Time did not gain access to our courts
because it did not implead that it did not do business in the Philippines. The court said no, it
is not necessarily important in the first place, if there is no jurisdiction, it may be raised at
any time during the trial even on appeal. Or of course on the ground of estoppel
(Communication Materials and Design v. CA) the party is estopped to challenge the
personality of the corporation by merely entering into a contract or transaction with it. If a
foreign corporation appoints a distributor or representing domiciled in the Philippines, is it
necessarily doing business in the Phils? NO it does not follow. If the distributor or
representative appointed by the foreign corporation has an independent status that is the
distributor transacts business in its own name and for his or her own account and not in the
name or in the account of the foreign corporation, it is not doing or transacting business.
(Rustan and Lacoste) In the case of Lacoste, there was an independent status of Rustan. It
was selling products even directly in competition with Lacoste. In "Communication Materials
and Design" there was a clause in their agreement that it cannot sell any other product in
competition with the foreign corporation it was exclusive and it can only make
representation for and in behalf of the corporation subject to the conditions that the foreign
corporation may agree upon. It was under the control, the distributor was under the control
of the foreign corporation. It was a mere extension of the foreign corporation. It did not have
an independent status. The mere fact that a foreign corporation appoints a distributor or a
foreign representative, does not necessarily imply doing business or transacting business in
the country because if the distributor or the representative has an independent status, it is
not doing or transacting business in the Philippines.
Sec 126 may also be an important provision. It refers to the withdrawal of the license of the
Foreign Corporation. Foreign Corporation licensed to do business in the Philippines may
withdraw its license by way of a petition to be filed with the SEC subject to three
requirements. These three requirements must go hand in hand. Absent any one of them,
then the withdrawal of the license will not be allowed.

Mga foreign corporation malalaman mo agad kung foreign or hindi makikita mo in the
corporate name (Philippines). Either in its full or abbreviated form. That is a foreign
corporation doing business in the country. Kung Phils nakalagay walang (), it is not. Those
are rules being implemented by the SEC.
1.All claims which have been accrued in the Phils have been paid, compromised or settled.
2.All taxes, assessments and penalties lawfully due to the Phil. government or any of its
political subdivisions have been paid
3. Petition for withdrawal of license has been published at least once a week for 3
consecutive weeks in a newspaper of general circulation.
3 essential requisites
PD 902-A and Revised Securities Act or RA 8799
902-A may have been effectively amended by the FRIA (Insolvency Act) but there are
matters which are not covered by the Insolvency Act particularly intra corporate
controversies which is still covered and governed by 902-A and the jurisdiction of the special
commercial courts regarding these intra corporate controversies.