2006 BAR QUESTIONS AND ANSWERS

Controversy; Intra-Corporate (2006)

a. What is an Intra-Corporate Controversy?

SUGGESTED ANSWER:
An intra-corporate controversy is a conflict between stockholders, members or
partners and the corporation, association or partnership regarding the regulation of
the corporation. The controversy must arise out of intra-corporate or partnership
relations of the parties; or between such corporation, partnership or association and
the State insofar as it concerns their individual franchises. It is further required that
the dispute be intrinsically connected with the regulation of the corporation. ( Speed
Distributing Corpo., et al. vs Court of Appeals, et al, G.R No. 149351, March 17,
2004; Intestate Estate of Alexander T. Ty vs Court of Appeals, G. R No. 112872,
April 19, 2001 )
b. Is the Securities and Exchange Commission the venue for actions
involving intra-corporate controversies?

SUGGESTED ANSWER:
No, pursuant to the Subsection 5. 2 of the Securities Regulation Code, the quasi-
judicial jurisdiction of the Securities and Exchange Commission to hear corporate
cases, including intra-corporate controversies, under Section 5 of Presidential
Decree No. 902-A, has been expressly transferred to the designated Regional Trial
Court. Pursuant to a memorandum circular issued by the Supreme Court, only
particularly designated RTC special commercial courts in each judicial region have
original and exclusive jurisdiction over such cases. (See Intestate Estate of
Alexander T. Ty v Court of Appeals, GR No. 112872, April 19, 2001.)

Corporation; Incorporation; Requirements (2006)

a. What is the minimum and maximum number of incorporators required
to incorporate a stock corporation?

b. Is this also the same minimum and maximum number of directors

required in a stock corporation?

SUGGESTED ANSWER:
Under Section 10 of the Corporation Code, any number of natural persons not less
than five (5) but not more than fifteen (15), all of legal age and majority of whom
are residents of the Philippines, may form a private corporation for any lawful
purpose.
This is the same minimum and maximum number of directors required in a stock
corporation under Section 14(6) of the Corporation Code.

c. May all incorporations and directors be residents of the Philippines?

SUGGESTED ANSWER:
Not all directors and incorporators need to be residents of the Philippines. Under
Section 10 of the Corporation Code, only a majority of the incorporators need to be
residents of the Philippines. As provided in Section 23 of the same Code, only a
majority of the members of the Board of Directors need to be residents of the
Philippines.

Piercing the Corporate Veil (2006)

a. What is the doctrine of “piercing the veil of corporate entity?”

SUGGESTED ANSWER:
The doctrine of “piercing the veil of corporate entity” allows the courts to look
behind the separate juridical personality of a corporation and treat the corporation as
an association of persons thereby make the individual actors personally liable for
corporate liabilities. The fiction of corporate identity is disregarded and the
individuals comprising it can be directly liable for corporate obligations, even to the
extent of their personal assets. (Concept Builders v NLRC, Marabe, et al, GR No.
108734, May 29, 1996.)

b. To what circumstances will the doctrine apply?

SUGGESTED ANSWER:
The doctrine is applicable when the notion of legal entity is used to
1. Justify wrong
2. Defeat public convenience
3. Protect fraud
4. Defend a crime (PNB v Andrada Electric, GR No. 142936, April 17, 2002.)
5. Shield a violation of the proscription against forum shopping (First Philippine
International Bank v Court of Appeals, GR No. 137537, January 24, 1996.)
6. Work inequities among members of the corporation internally, involving no
rights of the public or third persons ( Secosa v Heirs of Erwin Suarez
Francisco, GR No. 156104, June 29, 2004. )
7. Evade the lawful obligations of the corporation like a judgment credit ( Sibgat
Timber Corp v Garcia, GR No. 112546, December 11, 1992. )
8. Escape liability arising from a debt ( Arcilla v Court of Appelas, GR NO.
88113, October 23, 1992.)
9. Avoid inclusion of corporate assets as part of the estate of the decedent ( Cease
v Court of Appeals, GR No. L-35861, October 18, 1979.)
10.To promote or to shield unfair objectives ( Villanueva v Adre, GR No. 80863,
April 27, 1989)