CORPORATION CODE and AOI or the by-laws of the corporation.

or the by-laws of the corporation. or business of MIC is Pasig, Metro Manila, the addressed to each stockholder at his place of
(Sec. 23, Corporation Code) holding of the annual stockholder’s meeting residence as shown on the books of the
2008 4. A natural person, of legal age, whether or in Manila is proper. corporation deposited to the addressee in the
Article XII, Sec 16 provides that Congress shall not a Filipino citizen but under the SEC rules 3. No. Ting cannot question the validity of post office with postage prepaid, or served
not, except by general law, provide for the he must be a resident of the Philippines and corporate resolutions passed in the BOD personally. In the present case, the
formation, organization, or regulation of provided that he is not the president of the meeting because Section 53 of the Code does resolutions are not binding on the corporation
private corporations. Government-owned same corporation at the same time. (SEC not require that the meeting must held within and its stockholders including Jimmy Morato.
and controlled corporations may be created Opinion No. 10-24) the city or municipality where the principal While these resolutions were approved by the
or established by special charters in the 5. A natural person, of legal age, and a Filipino office of the corporation is located. The stockholders, the directors’ approval, which is
interest of the common good and subject to resident citizen may become a secretary of directors' meeting can be held anywhere in or required by law in such case, does not exist.
the test of economic viability the corporation provided that he is not the outside the Philippines.
- president of the same corporation at the b) Jimmy Morato can petition the RTC to
Yes. NPC is a government owned and same time. 1996 declare the 2 resolutions, as well as any and
controlled corporation created by a special The dealership agreement is valid PROVIDED all actions taken by the BOD thereunder, null
charter. It’s charter allows the composition of 2005 the following conditions under section 32 of and void.
its board of directors to be reduced. The The Korean National can still be a member of BP 68 are complied with. The law provides
prohibition only applies to private the Board of Directors as long as sixty percent that a contract of the corporation with one or 2005
corporations. As clearly enunciated in Article (60%) of the Board of Directors are Filipinos. more of its directors or trustees or officers is Under what conditions may a stock
XII, Sec.16: Congress shall not, except by Corporations that are sixty percent (60%) voidable, at the option of such corporation, corporation acquire its own shares?
general law, provide for the formation, owned by Filipinos can engaged in the unless all the following conditions are The corporation may acquire its own shares
organization, or regulation of private business of exploration, development and present: 1) that the presence of such director when it has unrestricted retained earnings in
corporations. The general law creating private utilization of natural resources (Art. XII, Sec. 2, or trustee in the board meeting in which the its books to cover the shares to be
corporations is governed by Batas Pambansa 1987 Constitution). The election of aliens as contract was approved was not necessary to purchased/acquired and if it is for a legitimate
Blg.68 otherwise known as the Corporation members of the Board of Directors engaging constitute a quorum for such meeting; 2) that corporate purpose/s.
Code of the Philippines where the number of in partially-nationalized activities is allowed in the vote of such director or trustee was not
directors of trustees shall not be less than five proportion to their allowable participation or necessary for the approval of the contract; 3) 1996,1995
nor more than fifteen. Since NPC is not share in the capital of such entities (Sec. 2-A, that the contract is fair and reasonable under Under Section 42 of the Corporation Code, a
governed by the Corporation Code, the Anti Dummy Law) Nothing in the facts shows the circumstances; and 4) that in case of an corporation may invest its funds in another
standard number of directors is not required. that more than forty percent (40%) of the officer, the contract has been previously corporation or business or for any other
Board of Directors are foreigners. authorized by the board of directors. purposes when approved by a majority of the
1996 board of directors or trustees and ratified by
Yes. A corporation may enter into a joint (1998, 2000, 2001, 2003) 2005 the stockholders representing at least two-
venture with another where the nature of No. In a similar case Gokongwei vs. SEC, it was Doctrine of Corporate Opportunity thirds (2/3) of the outstanding capital stock,
that venture is in line with the business held that a corporation is authorized to It is where a director, by virtue of his office, or by at least two thirds (2/3) of the members
authorized by its charter. (Tuason v. Bolanos, prescribe the qualifications of its directors. A acquires for himself a business opportunity in the case of non-stock corporations, at a
G.R. No. L-4935, May 28, 1954) However, provision in the by-laws of the corporation which should belong to the corporation, stockholder's or member's meeting duly
inasmuch as the term ‘joint venture’ has no that no person shall qualify or be eligible for thereby obtaining profits to the prejudice of called for the purpose. There must be written
precise legal definition, it may take various nomination for elections to the BOD if he is such corporation In such a case, a director notice of the proposed investment and the
forms. It could take the form of a simple engaged in any business which competes with shall refund to the corporation all the profits time and place of the meeting shall be
pooling of resources (not involving that of the Corporation is valid, provided, he realizes on a business opportunity which: addressed to each stockholder or member at
incorporation) between two or more however, that before such nominee is 1. The corporation is financially able to his place of residence as shown on the books
corporations for a specific project, purpose or disqualified. A director stands in a undertake; 2. From its nature, is in line with of the corporation and deposited to the
undertaking, or for a limited time. It may competition from being elected to the board corporations business and is of practical addressee in the post office with postage
involve the creation of a more formal of directors is a reasonable exercise of advantage to it; and 3. The corporation has an prepaid, or served personally.
structure, and, hence, the formation of a corporate authority. Sound principles of interest or a reasonable expectancy, unless
corporation. What is prohibited by law is the corporate management counsel against the act has been ratified by a vote of the 2005
creation of a partnership between sharing sensitive information with a director stockholders owning or representing at least a) Voidable – A contract of the corporation
corporations but not the creation of a joint whose fiduciary duty to loyalty may well two-thirds of the outstanding capital stock. with one or more of its directors or trustees
venture require that he discloses this information to a This shall apply notwithstanding the fact that or officers is voidable, at the option of such
- competitive rival. In the case at bar, the the director risked his own funds in the corporation (Sec 32, Corporation Code). Such
1. X, Y, Z, and T can be incorporators. The petition of Y is not tenable because he has no venture (Sec 34, CCP). contract can be ratified by the vote of the
corporations and S cannot be incorporators vested right to be elected as a director. When stockholders representing at least two-thirds
since the former are not natural persons and a person buys stock in a corporation he does 1998 of the outstanding capital stock in a meeting
the latter is not of legal age. (Sec. 10, so with the knowledge that its affairs are a) No. Sec. 38 of the Corporation Code called for the purpose: Provided, that full
Corporation Code). All of the foregoing can dominated by a majority of the stockholders. provides that no corporation shall increase or disclosure of the adverse interest of the
become subscribers except S since she is not Such amendment made in the by-laws is valid. decrease capital stock or incur create or directors or trustees involved is made at such
yet of legal age. increase bonded indebtedness unless meeting: Provided, however, That the
2. The difference between the two is as 1993 approved by a majority of the board of contract is fair and reasonable under the
follows: a) an incorporator is a signatory of 1. Section 54 of the Code provides that it is the directors and, at a stockholders’ meeting duly circumstances
the AOI while a subscriber is not; b) there is a President who shall preside over the called for the purpose, two-thirds of the
limit for the number of incorporators while directors' meeting, unless the by-laws provide outstanding capital stock shall favor the b) The Board of Directors of XL Foods
there is no limit in the number of subscribers; otherwise. However, in practice it is the increase or diminution of the capital stock, or Corporation declared and paid cash dividends
c) an incorporator must be a natural person Chairman who presides because the the incurring, creating or increasing any without approval of the stockholders.
while a subscriber can be either natural or President only reports to the Chairman. Only bonded indebtedness. Written notice of the
juridical person and d) incorporators has a in the absence of a Chairman can a President proposed increase or diminution of the capital b) Valid – Approval of the stockholders is not
residence requirement while there is no such preside over directors meetings. stock or of the incurring, creating, or required in declaring cash dividends
requirement in case of subscribers. 2. No. Sec. 51 provides that the annual increasing of any bonded indebtedness and of
3. A natural person, of legal age, and who stockholders’ meeting shall be held in the city the time and place of the stockholder’s c.)XL Foods Corporation guaranteed the loan
owns at least one share of stock registered in or municipality where the principal office is meeting at which the proposed increase or of its sister company XL Meat Products, Inc.
his name in the books of the corporation and located. For this purpose, the law also diminution of the capital stock or the
must have all the qualifications and none of provides that Metro Manila is considered a incurring or increasing of any bonded c) Void – This is an ultra vires act on part of XL
the disqualifications provided for by the law city or municipality. Since the principal office indebtedness us to be considered, must be Foods Corporation, and is not one of the
powers provided for in Sec. 36 of the b) The instances when a corporation shall not 2. A corporation may be dissolved voluntarily, 2. No. The venue for actions involving intra-
Corporation Code. It can be ratified provided be held liable for not declaring dividends are: by shortening of the corporate term and corporate controversies are now under the
it is not illegal per se but merely beyond the (Sec.43) through involuntary dissolution. In voluntary jurisdiction of the RTC acting as a special
power of the corporation by the approval of dissolution, the action for dissolution must be commercial court. (Sec. 5, A.M. NO. 01-2-04-
the majority of the board and vote of the 1) when justified by definite corporate approved by majority of the directors or SC)
stockholders representing at least two thirds expansion projects or programs approved by trustees and 2/3 of the stockholders
of the outstanding capital stock. Where the the BOD; or representing the outstanding capital stock or
contract or act is not illegal per se but merely members, publication requirement and filed Conflict of Interest; Ratification (2008)
beyond the power of the corporation, the 2) when the corporation is prohibited under with SEC which will issue certificate of The contracts of Paolo, who owns 15% of the
same is merely voidable and may be enforced any loan agreement with any financial dissolution. If there are creditors affected, Outstanding Capital Stock of the office
by performance, ratification, or estoppels, or institution or creditor, whether local or there must be a hearing to hear the objections building company is concerned if they were
on equitable grounds (Republic v. Acoje foreign, from declaring dividends without its and claims of the creditors. In case of not approved by the Board of Directors and
Mining Co., Inc) especially if no creditors are or his consent, and such consent has not yet shortening of corporate term, through Paolo was not designated to execute them on
prejudiced thereby and no rights of the state been secured; or amendment of the AOI. In involuntary behalf of said company.
or the public are involved (Flecher, p.585). dissolution, through filing of a verified On the other hand, if the contracts were duly
3) when it can be clearly shown that such complaint with the SEC based on any ground approved by the Board of Directors of the
2005 retention is necessary under special provided by law or rules. office building company with Paolo duly
A corporation may declare dividends when circumstances obtaining in the corporation, designated as company representative, they
there is unrestricted retained earnings, a such as when there is need for special reserve 1997 would nevertheless be voided at the option of
resolution of the Board of Directors and in for probable contingencies. the company. Under Sec. 32 of the
case of declaration of stock dividends, a Q: The corporation, once dissolved, Corporation Code. “A contract of the
ratification of the stockholders representing 1991 thereafter continues to be a body corporate corporation with one or more of its directors
two-thirds (2/3) of the outstanding capital I would not approve a proposed stipulation in for three years for purposes of prosecuting or trustees or officers is voidable at the option
stock. the management contract that the managing and defending suits by and against it and of of such corporation, unless all the following
corporation, as an additional compensation enabling it to settle and close its affairs, conditions are present,” (a) if Paolo as a
From what funds are cash and stock dividends to it, should be entitled to 10% of any stock culminating in the final disposition and director in the board meeting in which the
sourced? Explain why (2005) dividend that may be declared. Stockholders distribution of its remaining assets. If the 3 contracts were approved was not necessary
Dividends either cash or stock dividend must are the only ones entitled to receive stock year extended life expires without a trustee or to constitute a quorum for such meeting; (b)
be declared out of unrestriscted retained dividends (Nielsen & Co v Lepanto Mining 26 receiver being designated by the corporation Paolo’s vote at such meeting was not
earnings because of the Trust Fund Doctrine. s 569) I would add that the unsubscribed within that period and by that time (expiry of necessary for the approval of the contracts;
The Trust Fund Doctrine provides that capital stock of a corporation may only be the 3 year extended term), the corporate (c) Each of the contract are fair and
subscription to the capital stock of a issued for cash or property or for services liquidation is not yet over, how, if at all, can a reasonable under the circumstances.
corporation constitute a fund to which the already rendered constituting a demandable final settlement of the corporate affairs be
creditors have the right to look for the debt (Sec 62 Corp Code). As an alternative, I made? If condition (a) or (b) is absent, Sec, 32
satisfaction of their claims (Ong vs Tiu, G.R. would suggest that the managing corporation - requires that the contracts must be ratified by
No. 144476, April 8, 2003). Thus, dividends should instead be given a net profit The liquidation can continue with the winding the shareholders representing at least two-
must never impair the subscribed capital participation and, if it later so desires, to then up. The members of the BOD can continue thirds (2/3) of outstanding capital stock,
stock. convert the amount that may be due thereby with the winding of the corporate affairs until provided that there was full disclosure of the
to equity or shares of stock at no less than the final liquidation. They can act as trustees or adverse interest of Paolo to Pedro.
2008 par value thereof. receivers for this purpose.
1. Ace is entitled to the whole amount of his BOD; Qualifications (2012)
shares which is 100,000. A contract of 1993 2000 X filipino immigrant
subscription is an indivisible contract. If only a) As a general rule, A cannot bring a The cases can be pursued even beyond May Y filipino
partial payment for the subscription was derivative suit in the name of the corporation 30, 1997, the last day of the corporate Z resident alien
made, it cannot be the basis for the amount concerning an act that took place before he existence of GHQ Corp. The Corporation is not S Filipino/ 16 yrs old
of cash dividend in favor of the stockholder. became a stockholder. However, if the act actually dissolved upon the expiration of its X,Y,Z and T could all be incorporators and
Cash dividends due on delinquent stocks shall complained of is a continuing one, A may do corporate term. There is still the period for subscribers. Note, however, that Sec.10 of the
first be applied to the unpaid balance on the so. liquidation or winding up. Corporation Code requires that there must be
subscription plus cost and expenses. (Sec 43) b) No. In a derivative suit, the action is at least five but not more than fifteen
Stocks become delinquent 30 days from the instituted/ brought in the name of a 1998 incorporators (who must all be natural
due date specified in the contract of corporation and reliefs are prayed for therein A foreign corporation is deemed to “deemed persons) and that a majority of the
subscription or in the date stated in the call for the corporation, by a minority business in the Philippines” if it is continuing incorporators must be residents of the
made by the board (Sec 67). In this case, the stockholder. The law does not qualify the the body or substance of the business or Philippines. S, being a minor, could neither be
cash dividend is not yet delinquent. Ace Cruz, term “minority” in terms of the number of enterprise for which it was organized. It is the an incorporator nor a subscriber. GGG
therefore can claim the entire cash dividend shares owned by a stockholder bringing the intention of an entity to continue the body of Corporation, CCC Corporation, and KKK
payable on December 1, 2008. action in behalf of the corporation. (SMC v its business in the country. The grant and Corporation, CCC Corporation, and KKK
2. No. No certificate of stock shall be issued to Khan 176 SCRA 448) extension of 90-day credit terms of a foreign Corporation could not be incorporators as
a subscriber until the full amount of c) No. Watered shares are those sold by the corporation to a domestic corporation for they are not natural persons. However, they
subscription together with interest and corporation for less than the par/book value. every purchase shows an intention to could be subscribers,
expenses (in case of delinquent shares), if any In the instant case, it will depend upon the continue transacting with the latter.
is due, has been paid (Sec 64).Clearly, since value of services rendered in relation to the Incorporator vs subscriber
Ace Cruz did not pay the full subscription yet, total par value of the shares. 2006 Some of the differences are as follows: first,
the certificate of stock shall not be issued to 1. An intra-corporate controversy is one all the incorporators are required to sign and
him. 2012. which arises between a stockholder and the acknowledge the Articles of Incorporation
1. No. AAA Corporation is an artificial being corporation and pertains to the enforcement while the subscribers, as such, are not subject
2001 created by law and has a legal personality of of the parties’ correlative rights and to the same requirement; second, the
a) Corporation X is guilty of violating its own. A corporation does not owe its obligations under the Corporation Code and incorporators could be either natural or
Section 43 of the Corp Code. This provision existence upon the presence of assets and the internal and intra-corporate regulatory juridical persons; and third, the number of
prohibits stock corporations from retaining properties. It can only be dissolved in cases rules of the corporation (Real v. Sangu incorporators cannot exceed fifteen while the
surplus profits in excess of 100% of their paid- provided for by law. As such, AAA Corporation Philippines Inc., G.R. No. 168757 January 19, number of subscribers could be more than
in capital. will subsist regardless of the sale of all of its 2011). fifteen (subject to compliance, in the
assets and liabilities to another corporation.
appropriate cases, with the requirements of than if she were to form a separate any circumstance that would excuse or -
the Securities Regulation Code). corporation. However, all the assets of the favorably explain the action of F. Yes, the taxicab company can be liable for
existing corporation will be liable for the - damages because it failed to comply with its
X,Y,Z and T could be directors (subject to the debts and losses of the restaurant business. A corporation would be liable for the acts of obligation as a common carrier to use
residency requirement mentioned in (a) - its Board of Directors and officers if the said extraordinary diligence in transporting the
above and any nationality requirement under The corporation must have at least five acts were performed by them in accordance passenger, and because at the time of death
the law governing the business of the directors (Section 14 of the Corporation with powers granted to them under the of the passenger, the cab driver was violating
corporation) but not GGG Corporation, CCC Code). It Must also have a president, a Corporation Code, the articles of a traffic regulation. Under Art. 2185 of Civil
Corporation, and KKK Corporation as they are treasure, and secretary (Section 25 of the incorporation and by-laws of the corporation, Code, it is presumed that a person driving a
not natural persons. However, the Corporation Code). the laws and regulations governing the motor vehicle has been negligent if at time of
aforementioned corporations could have - business of, or otherwise applicable to, the mishap he was violating a traffic regulation,
their respective representatives nominated Every director must own at least one share of corporation, and, in the case of officers, the such as when he was driving on the wrong
and possibly elected as directors by the the capital stock of the corporation, which resolutions approved by the Board of side of the road (Mallari, Sr. v. CA, G.R. No.
stockholders. Each director must own at least must be recorded in his name on the books of Directors. 128607, 31 January 2000).
one share of the capital stock of the the corporation, and a majority of the
corporation (Sec.23, Corporation Code). directors must be residents of the Philippines As the directors have a personality separate Stockholders; Appraisal Right (2007)
- (Section 25 of the Corporation Code). from that of the corporation, they would be Appraisal right is the right of stockholder, who
The Corporation Code does not impose any personally liable only if they acted wilfully and dissents from a fundamental or extraordinary
nationality or residency requirement in The president must also be a director. The knowingly vote for or assent to a patently corporate action, to demand payment of the
respect of the Treasurer. Any such secretary must be a resident and citizen of the unlawful act of the corporation, or when they fair value of his shares. It is the right of a
requirement or any other reasonable Philippines (Section 25 of the Corporation are guilty of gross negligence or bad faith in di stockholder to withdraw from the
requirement may be adopted by the Code). recting the affairs of the corporation, or when corporation and demand payment of the fair
corporation and reflected in its by-laws, or they acquire any personal or pecuniary value of his shares after dissenting form
required by the law(s) governing the business Derivative Suit; Expiration of Term (2013) interest in conflict with their duty as directors, certain corporate acts involving fundamental
of the corporation or a law of general The remaining directors cannot elect new which acts result in damages to the changes in the corporate structure (Section
application (e.g., the Anti- Dummy Law which directors to fill in the two vacancies. The corporation, its stockholders or other 81, Corporation Code).
applies to all nationalized businesses). board of directors may fill up vacancy only if persons, when they agree to hold themselves -
Accordingly, anybody with the qualifications the ground is not due to expiration of term, personally and solidarily liable with the No, T cannot exercise the right of appraisal in
required under the by-laws of the corporation removal or increase in the number of board corporation, or when they are made, by a this case. When S transferred his shares to T
or under the law(s) governing the business of seats. In this case, the term of the two specific provision of law, to personally answer and T was issued new stock certificates, the
the corporation, could be elected Treasurer directors expired after one year. They hold- for the corporate action. (Sec. 31, appraisal right of S ceased, and T acquired all
by the Board of Directors. Note, however, that over period is not part of their term. The Corporation Code). the rights of a regular stockholder. The
the Treasurer could not be the President at vacancies should be filled up by election by transfer of shares from S to T constitutes an
the same time (Sec. 25, Corporation Code). the stockholders (Valle Verde Country Club, Piercing the Corporate Veil (2008) abandonment of the appraisal right of S. All
Inc. v. Africa, 598 SCRA 202, 2009). I would sue Nelson, as the person who owned the T acquired from the issuance of new stock
The Secretary is required to be both a resident and controlled Sonnel Contruction Company, certificated was the rights of a regular
and a citizen of the Philippines (Sec. 10, The derivative suit was improper. In a under the doctrine of “piercing the veil of stockholders (Section 86, Corporation Code).
Corporation Code). derivative suit, the corporation, not the corporate fiction.” Although a corporation has
individual stockholder, must be the aggrieved a juridical personality separate and distinct Stockholders; Contractual Relationship;
[Note: The problem does not state what kind party and that the stockholder is suing on from that of its stockholders, when the Quorum (2009)
of business the corporation would engaged in. behalf of the corporation. What stockholder X corporation is used merely as an alter ego or Yes. The articles of Incorporation define the
Neither does it state whether X,Y,Z and T are is asserting is his individual right as a controlled for the benefit of a stockholder, or charter of the corporation and the contractual
all of legal age and otherwise have the stockholder to elect the two directors. The when it is necessary to render justice, then relationship between the State and the
capacity to enter into contracts. Accordingly, case partakes more of an election contest the courts have the right to pierce the veil of Corporation, the State and the stockholders,
the suggested answer set out below assume under the rules on intra-corporate corporate fiction to hold the and between the corporation and the
that the corporation would not be engaging in controversy (Legaspi Towers 300, Inc. v. controllingstockholder-officer personally stockholders. Its contents are thus binding
a nationalized activity and that X,Y,Z and T are Muer, 673 SCRA 453, 2012). liable for the corporate tort or wrong upon both the corporation and the
all of legal age and otherwise have the committed. stockholders, conferring on Juancho a clear
capacity to enter into contracts.] Dividends; Declaration of Dividends (2009) right to have his stockholding recorded
True. Dividends on shares of stock of a The contractor should also be held liable, -
Corporation; Sole Proprietorship (2010) corporation, whether cash dividend or stock since being an independent contractor it is A quorum consists of the majority of the
If Dianne will set up a separate corporation, dividend, can be validly declared only out of liable for the fault or negligence of its people. totality of the shares which gave been
her liability for its obligations and losses will unrestricted retained earnings (Sec. 43, - subscribed and issued. Thus the quorum for
be limited to the amount of her subscription Corporation Code). It cannot be declared out If you were the counsel for Sonnel such meeting would be 289 shares or a
in the absence of showing that there is a of the capital. Otherwise, such declaration of Construction, how would you defend your majority of the 576 shares issued and
ground to disregard its separate juridical dividend will violate the trust fund doctrine client? What would be your theory? outstanding as indicated in the article of
personality. If she were to operate a single I would use the theory that the company incorporation. This includes the 33 common
proprietorship, her liability for its debts and Liabilities; BOD; Corporate Acts (2012) cannot be held liable for damages because shares reflected in the stock and transfer
losses will be unlimited. there was no fraud or negligence by its book, there being no mention or showing of
No. In approving the transaction, the directors officers in undertaking the project for the any transaction effected from the time of
The formation and the operation of a were not acting their personal capacities but construction of the building or the selection of Triple A’s incorporation in 1960up to the said
corporation require a great deal of paper rather in behalf of XYZ Corporation exercising a construction company. Since a contractor is meeting (Section 52 in Relation to Section 137
work and record-keeping. This is not the the powers of the corporation and conduction not an agent of Sonnel Construction, the of corporation Code; Lanuza
situation in the case of a single proprietorship. its business (Sec. 23, Corporation Code). The latter cannot be held liable for the v. court of Appeals, 454 SCRA 54 (2005))
problem contains no facts that would indicate contractor’s negligence. I would also argue
If Dianne will form a separate corporation, it that the directors acted otherwise. that piercing the veil of corporate fiction is a Stockholders; Preferred Shares (2013)
can raise more funds for the business than if - remedy of last resort and cannot be availed of The holding of Bernard Fleet equivalent to the
she were to set up a single proprietorship. Yes, F could be sued in his personal capacity without clear evidence showing fraud or outstanding common shares is illegal. His
because he knowingly consented to the non- disrespect of the separate juridical holdings of preferred shares should not
If she were to set up the restaurant as a delivery of the promised supplies contrary to personality of the corporation. Mere control exceed 40%. Since the constitutional
branch office an existing corporation, the the contract that was duly approved by the of equity has not been considered as requirement of 60% Filipino ownership of the
corporation will have more funds as capital Board of Directors. The problem does indicate sufficient basis for piercing the veil. capital of public utilities applies not only to
voting control but also to beneficial
ownership of the corporation, it should also
apply to the preferred shares. Preferred
shares are also entitled to vote in certain
corporated matters. (Gamboa v. Teves, 682
SCRA 397, 2012) The state shall develop a self-
reliant and independent n ational economy
effectively controlled by Filipinos. (Articles II,
Sec. 19, 1987 Constitution) The effective
control here should be mirrored across the
board on all kinds of shares.

Trust Fund Doctrine (2007)

The trust fund doctrine means that the capital
stock, properties and other assets of a
corporation are regarded as equity in trust for
the payment of corporate creditors. Stated
simply, the trust fund doctrine states that all
funds received by the corporation in payment
of the shares of stock shall be held in trust for
the corporate creditors and other
stockholders of the corporation. Under such
doctrine, no fund shall be used to buy back
the issued shares of stock except only in
instances specifically allowed by the
Corporation Code (Boman
Environmental Development
Corporation v. Court of Appeals, 167 SCRA
540 [1988]).

Ultra Vires Acts (2009)

Under Section 45 of the Corporation Code, no
corporation shall possess or exercise any
corporate power except those conferred by
the Code or by its articles of incorporation and
except such as are necessary or incidental to
the exercise of the powers so conferred.
When a corporation does an act or engages in
an activity which is outside of its express,
implied or incidental powers set out in its
articles of incorporation, the act is deemed to
be ultra vires.
-
When the Board engages in an activity or
enters into a contract without the ratificatory
vote of the stockholders in those instances
where the Corporation Code so Requires such
ratificatory vote, such as when the
corporation is made to invest in another
corporation or engage in a business which is
not in pursuit of its primary purpose, the
board resolution not ratified by stockholders
owning or representing at least two-thirds of
the outstanding capital stock would make the
transaction void, as being ultra vires.
-
When a corporate officer enters into a
contract on behalf of the corporation without
having been so expressly or impliedly
authorized by the Board of Directors, even
when the act or contract falls within the
corporation’s express, implied or incidental
power, then the unauthorized act of the
corporate officer is deemed to be ultra vires.
MIDTERM as owners of the company, the stockholders, 2) Can X question the right of A to sue him in BOD. A stockholder of ABC questioned the
Corporation; Separate Juridical Personality by a majority vote, can do anything. As behalf of the corporation on the ground that bonus. Does he have grounds to object?
(1999) chairman of the meeting, how would you rule A has only one share in his name?
As a result of perennial business losses, a on the motion to declare stock dividends? SUGGESTED ANSWER:
corporation’s net worth has been wiped out. SUGGESTED ANSWER: 3) Cannot the shares issued to X be Yes, the stockholder as a valid and legal
In fact, it is now in negative territory. As the chairman of the meeting, I would rule considered as watered stock? ground to object to the payment to the
Nonetheless, the stockholders did not like to against the motion considering that a directors of a bonus equivalent to 15% of the
give up. Creditor-banks, however, do not declaration of stock dividends should initially SUGGESTED ANSWER: company’s net income. The law provides that
share the confidence of the stockholders and be taken by the BOD and thereafter to be 1) As a general rule, A cannot bring a the total annual compensation of the
refuse to grant more loans. concurred in by a 2/3 vote of the stockholders derivative suit in the name of the corporation directors, in the preceding year, cannot
a) What tools are available to the (Sec 43 Corp Code). There is no prohibition, concerning an act that took place before he exceed 10% of the company’s net income
stockholders to replenish capital? (3%) however, against the stockholders’ resolving became a stockholder. However, if the act before income tax (Sec 30 Corp Code).
Assuming that the corporation continues to to recommend to the BOD that it consider a complained of is a continuing one, A may do
operate even with depleted capital, would the declaration of stock dividends for so. Corporation; Meetings; BOD & Stockholders
stockholders or the managers be solidarily concurrence thereafter by the stockholders. (1993) Under the Articles of Incorporation of
liable for the obligations incurred by the 2) No. In a derivative suit, the action is Manila Industrial Corp, its principal place of
corporation? Explain. Stockholder; Delinquent; Unpaid Subscription instituted/ brought in the name of a business shall be in Pasig, MM. The principal
(1997) The BOD of a corporation, by a vote of corporation and reliefs are prayed for therein corporate offices are at the Ortigas Center,
SUGGESTED ANSWER: ten in favor of one against, declared due and for the corporation, by a minority Pasig, MM while its factory processing leather
a) In the face of the refusal of the creditor- payable all unpaid subscription to the capital stockholder. The law does not qualify the products, is in Manila. The corporation holds
banks to grant more loans, the following are stock. The lone dissenting director failed to term “minority” in terms of the number of its annual stockholders’ meeting at the Manila
tools available to the stockholders to pay on due date, i.e., 19 Sept 1997, his unpaid shares owned by a stockholder bringing the Hotel in Manila and its BOD meeting at a hotel
replenish capital, to wit: subscription. Other than the shares wherein action in behalf of the corporation. (SMC v in Makati MM. The by-laws are silent as to the
1) additional subscription to shares of stock of he was unable to complete payment, he did Khan 176 SCRA 448) place of meetings of the stockholders and
the corporation by stockholders or by not own any share in the corporation. On 23 directors.
investors; Sept 1997, he was informed by the BOD that, 3) No. WATERED SHARES are those sold by the 1) Who shall preside at the meeting of the
2) advances by the stockholders to the unless due payment is meanwhile received, corporation for less than the par/book value. directors?
corporation; he: In the instant case, it will depend upon the 2) Can Ting, a stockholder, who did not attend
3) payment of unpaid subscription by the a) could no longer serve as a director of the value of services rendered in relation to the the stockholders’ annual meeting in Manila,
stockholders. corporation forthwith: total par value of the shares. question the validity of the corporate
b) would not be entitled to the cash and stock resolutions passed at such meeting?
SUGGESTED ANSWER: dividends which were declared and payable Piercing the Corporate Veil (2001) 3) Can the same stockholder question the
b) No. As a general rule, the stockholders or on 24 Sep 1997; and Plaintiffs filed a collection action against X validity of the resolutions adopted by the BOD
the managers cannot be held solidarily liable c) could not vote in the stockholders meeting Corporation. Upon execution of the court’s at the meeting held in Makati?
for the obligations incurred by the scheduled to take place on 26 Sept 1997. decision, X Corporation was found to be
corporation. The corporation has a separate without assets. Thereafter plaintiffs filed an SUGGESTED ANSWER:
and distinct personality from that of the Was the action of the BOD on each of the action against its present and past 1) The President presides over the meeting of
stockholders or managers. The latter are foregoing matters valid? stockholder Y Corporation which owned the directors, if there is no position of
presumed to be acting in good faith in substantially all of the stocks of X Corporation. Chairman provided in the By-Laws. If there is
continuing the operation of the corporation. SUGGESTED ANSWER: The two corporations have the same board of the position of Chairman provided in the By-
The obligations incurred by the corporation a) No. The period of 30 days within which the directors and Y Corporation financed the Laws, the Chairman presides over the meeting
are those of the corporation which alone is stockholder can pay the unpaid subscription operations of X Corporation. May Y of the Directors (Sec 54 Corp Code)
liable therefor. However, when the had not yet expired. Corporation be held liable for the debts of X
corporation is already insolvent, the directors Corporation? Why? (5%) 2) No. The law provides that the annual
and officers become trustees of the business b) No. The delinquency did not deprive the stockholders’ meeting shall be held in the city
and assets of the corporation for the benefit stockholder of his right to receive dividends SUGGESTED ANSWER: or municipality where the principal office of
of the creditors and are liable for negligence declared. However, the cash dividend Yes, Y Corporation may be held liable for the the Corporation is located. For this purpose,
or mismanagement. declared may be applied by the corporation to debts of X Corporation. The doctrine of the law also provides that Metro Manila is
the unpaid subscription. (Sec 71 Corp Code) piercing the veil of corporation fiction applies considered a city or municipality. Since the
Corporation; De Facto Corporation (1994) to this case. The two corporations have the principal place of business of MIC is Pasig,
A corporation was created by a special law. c. No. The period of 30 days within which the same board of directors and Y Corporation MM, the holding of the annual stockholders
Later, the law creating it was declared invalid. stockholder can pay the unpaid subscription owned substantially all of the stocks of X meeting in Manila is proper. (Sec 51 Corp)
May such corporation claim to be a de facto had not yet expired. Corporation, which facts justify the
corporation? conclusion that the latter is merely an 3) No. The law allows the BOD to hold its
Derivative Suit: Watered Stock (1993) extension of the personality of the former, meeting anywhere in the Philippines. The
SUGGESTED ANSWER: A became a stockholder of Prime Real Estate and that the former controls the policies of holding of the BOD meeting in Makati was
No. A private corporation may be created only Corporation (PREC) on July 10, 1991, when he the latter. Added to this is the fact that Y proper and the validity of the resolutions
under the Corporation Code. Only public was given one share by another stockholder Corporation controls the finances of X adopted by the Board in that meeting cannot
corporations may be created under special to qualify him as a director. A was not re- Corporation which is merely an adjunct, be questioned. (Sec 53 Corp code)
law. elected director in the July 1, 1992 annual business conduit or alter ego of Y Corporation
meeting but he continued to be a registered (CIR v Norton & Harrison Co 11 S 714 (1964)) Corporation; Recovery of Moral Damages
Where a private corporation is created under shareholder of PREC. (1998)
a special law, there is no attempt at a valid BOD; Compensation (1991) In a complaint filed against XYZ Corporation,
incorporation. Such corporation cannot claim When he was still a director, A discovered that After many difficult years, which called for Luzon Trading Corporation alleged that its
a de facto status. on Jan 5, 1991, PREC issued free of charge sacrifices on the part of the company’s President & General Manager, who is also a
10,000 shares to X a lawyer who assisted in a directors, ABC Manufacturing Inc was finally stockholder, suffered mental anguish, fright,
Dividends; Declaration of Dividends (1991) court case involving PREC. earning substantial profits. Thus, the social humiliation and serious anxiety as a
During the annual stockholders meeting, Riza, 1) Can A now bring an action in the name of President proposed to the BOD that the result of the tortuous acts of XYZ Corporation.
a stockholder proposed to the body that a the corporation to question the issuance of directors be paid a bonus equivalent to 15%
part of the corporation’s unreserved earned the shares to X without receiving any of the company’s net income before tax In its counterclaim, XYZ Co claimed to have
surplus be capitalized and stock dividends be payment? during the preceding year. The President’s suffered moral damages due to besmirched
distributed to the stockholders, arguing that proposal was unanimously approved by the
reputation or goodwill as a result of Luzon purpose other than the primary purpose for right, at a price fixed by the BOD, which shall pay on due date, i.e., 19 Sept 1997, his unpaid
Trading Co’s complaint. which it was organized when the said not be less than the par value of such shares. subscription. Other than the shares wherein
1) May Luzon Trading Co recover damages investment is approved by a majority of the he was unable to complete payment, he did
based on the allegations of the complaint? BOD and such approval is ratified by the SUGGESTED ANSWER: not own any share in the corporation. On 23
(2%) stockholders representing at least 2/3 of the d. No, the stockholder may not exercise Sept 1997, he was informed by the BOD that,
2) May XYZ Co recover moral damages? (3%) outstanding capital stock. Written notice of appraisal right because the matter that he unless due payment is meanwhile received,
the proposed investment and the date, time dissented from is not one of those where right he:
SUGGESTED ANSWER: and place of the stockholders’ meeting at of appraisal is available under the corporation a) could no longer serve as a director of the
No. A corporation, being an artificial person which such proposal will be taken up must be code. corporation forthwith:
which has no feelings, emotions or senses, sent to each stockholder. (Sec 42 Corp Code) Stockholders; Removal of Officers & BOD b) would not be entitled to the cash and stock
and which cannot experience physical (2001) dividends which were declared and payable
suffering or mental anguish, is not entitled to Pre-Emptive Right vs. Appraisal Right (1999) In 1999, Corporation A passed a board on 24 Sep 1997; and
moral damages. ABC Corporation has an authorized capital resolution removing X from his position as c) could not vote in the stockholders meeting
stock of P1M divided into 50,000 common manager of said corporation. The by-laws of A scheduled to take place on 26 Sept 1997.
ALTERNATIVE ANSWER: shares and 50,000 preferred shares. At its corporation provides that the officers are the
Yes. When a juridical person has a good inception, the Corporation offered for president, vice-president, treasurer and Was the action of the BOD on each of the
reputation that is debased, resulting in social subscription all the common shares. secretary. Upon complaint filed with the SEC, foregoing matters valid?
humiliation, moral damages may be awarded. However, only 40,000 shares were it held that a manager could be removed by
Moreover, goodwill can be considered an subscribed. Recently, the directors thought of mere resolution of the board of directors. On SUGGESTED ANSWER:
asset of the corporation. raising additional capital and decided to offer motion for reconsideration, X alleged that he a) No. The period of 30 days within which the
TAKE NOTE: In the case of FBN Inc. vs AMEC, to the public all the authorized shares of the could only be removed by the affirmative vote stockholder can pay the unpaid subscription
January 17, 2005, the SC ruled that; Corporation at their market value. of the stockholders representing 2/3 of the had not yet expired.
FBNI contends that AMEC is not entitled to a) Would Mr. X, a stockholder holding 4,000 outstanding capital stock. Is X’s contention
moral damages because it is a corporation. shares, have pre-emptive rights to the legally tenable. Why? (5%) b) No. The delinquency did not deprive the
remaining 10,000 shares? (2%) stockholder of his right to receive dividends
A juridical person is generally not entitled to b) Would Mr. X have pre-emptive rights to the SUGGESTED ANSWER: declared. However, the cash dividend
moral damages because, unlike a natural 50,000 preferred shares? (2%) No. Stockholders’ approval is necessary only declared may be applied by the corporation to
person, it cannot experience physical c) Assuming that the existing stockholders are for the removal of the members of the BOD. the unpaid subscription. (Sec 71 Corp Code)
suffering or such sentiments as wounded entitled to pre-emptive rights, at what price For the removal of a corporate officer or
feelings, serious anxiety, mental anguish or will the shares be offered? (2%) employee, the vote of the BOD is sufficient for C. No. The period of 30 days within which the
moral shock. The Court of Appeals cites d) Assuming a stockholder disagrees with the the purpose. stockholder can pay the unpaid subscription
Mambulao Lumber Co. v. PNB, et al. to justify issuance of new shares and the pricing for the had not yet expired.
the award of moral damages. However, the shares, may the stockholder invoke his Corporation; Separate Juridical Personality
Court's statement in Mambulao that "a appraisal rights and demand payment for his (2000) Marulas Creative Technology Inc., an Dividends; Declaration of Dividends (1991)
corporation may have a good reputation shareholdings? (2%) e-business enterprise engaged in the During the annual stockholders meeting, Riza,
which, if besmirched, may also be a ground manufacture of computer media accessories; a stockholder proposed to the body that a
for the award of moral damages" is an obiter SUGGESTED ANSWER: rents an office and store space at a part of the corporation’s unreserved earned
dictum. a. Yes. Mr. X, a stockholder holding 4,000 commercial building owned by X. Being a surplus be capitalized and stock dividends be
shares, has pre-emptive right to the start-up company, Marulas enjoyed some distributed to the stockholders, arguing that
Nevertheless, AMEC's claim for moral remaining 10,000 shares. All stockholders of a leniency in its rent payments; but after three as owners of the company, the stockholders,
damages falls under item 7 of Article 2219 of stock corporation shall enjoy pre- emptive years, X put a stop to it and asked Marulas by a majority vote, can do anything. As
the Civil Code. This provision expressly right to subscribe to all issues or disposition of president and general manager, Y, who is a chairman of the meeting, how would you rule
authorizes the recovery of moral damages in shares of any class, in proportion to their stockholder, to pay the back rentals on the motion to declare stock dividends?
cases of libel, slander or any other form of respective shareholdings. amounting to a hundred thousand pesos or to
defamation. Article 2219(7) does not qualify vacate the premises at the end of the month. SUGGESTED ANSWER:
whether the plaintiff is a natural or juridical ALTERNATIVE ANSWER. Marulas neither paid its debt nor vacated the As the chairman of the meeting, I would rule
person. Therefore, a juridical person such as a a. No, Mr X does not have pre-emptive right premises. X sued Marulas and Y for collection against the motion considering that a
corporation can validly complain for libel or over the remaining 10,000 shares because of the unpaid rentals, plus interest and costs declaration of stock dividends should initially
any other form of defamation and claim for these shares have already been offered at of litigation. Will the suit prosper against X? be taken by the BOD and thereafter to be
moral damages. incorporation and he chose not to subscribe Against Y? (5%) concurred in by a 2/3 vote of the stockholders
to them. He, therefore, has waived his right SUGGESTED ANSWER: (Sec 43 Corp Code). There is no prohibition,
Moreover, where the broadcast is libelous per thereto and the corporation may offer them Yes, the suit will prosper against Marulas. It is however, against the stockholders’ resolving
se, the law implies damages. In such a case, to anyone. the one renting the office and store space, as to recommend to the BOD that it consider a
evidence of an honest mistake or the want of lessee, from the owner of the building, X, as declaration of stock dividends for
character or reputation of the party libeled SUGGESTED ANSWER: lessor. concurrence thereafter by the stockholders.
goes only in mitigation of damages. Neither in b. Yes. Mr. X would have pre-emptive rights to
such a case is the plaintiff required to the 50,000 preferred shares. All stockholders But the suit against Y will not prosper. Y, as Corporation; Separate Juridical Personality
introduce evidence of actual damages as a of a stock corporation shall enjoy pre-emptive president and general manager, and also (2000) Marulas Creative Technology Inc., an
condition precedent to the recovery of some right to subscribe to all issues or disposition of stockholder of Marulas Creative Technology, e-business enterprise engaged in the
damages. In this case, the broadcasts are shares of any class, in proportion to their Inc., has a legal personality separate and manufacture of computer media accessories;
libelous per se. Thus, AMEC is entitled to respective shareholdings. distinct from that of the corporation. The rents an office and store space at a
moral damages. liability of the corporation is that of the commercial building owned by X. Being a
ALTERNATIVE ANSWER: corporation and not that of its officers and start-up company, Marulas enjoyed some
Corporation; Power to Invest Corporate Funds b. Yes, Mr. X has preemptive right over the stockholders who are not liable for corporate leniency in its rent payments; but after three
in another Corporation (1996) 50,000 preferred shares because they were liabilities. years, X put a stop to it and asked Marulas
When may a corporation invest its funds in not offered before by the corporation for president and general manager, Y, who is a
another corporation or business or for any subscription. FINALS stockholder, to pay the back rentals
other purposes? Stockholder; Delinquent; Unpaid Subscription amounting to a hundred thousand pesos or to
SUGGESTED ANSWER: (1997) The BOD of a corporation, by a vote of vacate the premises at the end of the month.
SUGGESTED ANSWER: c. The shares will be offered to existing ten in favor of one against, declared due and Marulas neither paid its debt nor vacated the
A corporation may invest its funds in another stockholders, who are entitled to preemptive payable all unpaid subscription to the capital premises. X sued Marulas and Y for collection
corporation or business or for any other stock. The lone dissenting director failed to of the unpaid rentals, plus interest and costs
of litigation. Will the suit prosper against X? getting paid, Juan indorsed and delivered said
Against Y? (5%) Certificate of Stock No 1001 to Pedro. The
SUGGESTED ANSWER: following day, Juan went to the offices of the
Yes, the suit will prosper against Marulas. It is corporation and claimed that his Certificate of
the one renting the office and store space, as Stock No 1001 was lost and that, despite
lessee, from the owner of the building, X, as diligent efforts, the certificate could not be
lessor. located. The formalities prescribed by law for
the replacement of the “lost” certificate were
But the suit against Y will not prosper. Y, as complied with. Eventually X Co issued in
president and general manager, and also substitution of the “lost” certificate, Cert of
stockholder of Marulas Creative Technology, Stock No 2002. Juan forthwith transferred for
Inc., has a legal personality separate and valuable consideration the new certificate to
distinct from that of the corporation. The Jose who knew nothing of the previous sale to
liability of the corporation is that of the Pedro. In time, the corporation was
corporation and not that of its officers and confronted with the conflicting claims of Jose
stockholders who are not liable for corporate and Pedro. The BOD of X Co invited you to
liabilities. enlighten them on these questions; viz

Derivative Suit: Watered Stock (1993) a) If a suit were to be initiated in order to

A became a stockholder of Prime Real Estate resolve the controversy between Pedro and
Corporation (PREC) on July 10, 1991, when he Jose, should the matter be submitted to the
was given one share by another stockholder SEC or to the regular courts?
to qualify him as a director. A was not re- b) Between Jose and Pedro, whom should the
elected director in the July 1, 1992 annual corporation so recognize as the rightful
meeting but he continued to be a registered stockholder?
shareholder of PREC.
How would you respond to the above
When he was still a director, A discovered that queries?
on Jan 5, 1991, PREC issued free of charge
10,000 shares to X a lawyer who assisted in a SUGGESTED ANSWER:
court case involving PREC. a) The matter should be submitted to the
1) Can A now bring an action in the name of regular courts – specifically in the Regional
the corporation to question the issuance of Trial Court where the principal office of the
the shares to X without receiving any corporation is located. The controversy
payment? between Pedro and Jose is not an intra-
corporate controversy.
2) Can X question the right of A to sue him in
behalf of the corporation on the ground that b) If there is no over-issuance of shares
A has only one share in his name? resulting from the two-transactions of Juan,
the corporation should recognize both Pedro
3) Cannot the shares issued to X be and Jose as rightful stockholders. This is
considered as watered stock? without prejudice to the right of the
corporation to claim against Juan for the value
SUGGESTED ANSWER: of the shares which Juan sold to Jose.
1) As a general rule, A cannot bring a
derivative suit in the name of the corporation Stockholders; Removal of Officers & BOD
concerning an act that took place before he (2001)
became a stockholder. However, if the act In 1999, Corporation A passed a board
complained of is a continuing one, A may do resolution removing X from his position as
so. manager of said corporation. The by-laws of A
corporation provides that the officers are the
2) No. In a derivative suit, the action is president, vice-president, treasurer and
instituted/ brought in the name of a secretary. Upon complaint filed with the SEC,
corporation and reliefs are prayed for therein it held that a manager could be removed by
for the corporation, by a minority mere resolution of the board of directors. On
stockholder. The law does not qualify the motion for reconsideration, X alleged that he
term “minority” in terms of the number of could only be removed by the affirmative vote
shares owned by a stockholder bringing the of the stockholders representing 2/3 of the
action in behalf of the corporation. (SMC v outstanding capital stock. Is X’s contention
Khan 176 SCRA 448) legally tenable. Why? (5%)

3) No. WATERED SHARES are those sold by the SUGGESTED ANSWER:

corporation for less than the par/book value. No. Stockholders’ approval is necessary only
In the instant case, it will depend upon the for the removal of the members of the BOD.
value of services rendered in relation to the For the removal of a corporate officer or
total par value of the shares. employee, the vote of the BOD is sufficient for
the purpose.
Controversy; Intra-corporate; Jurisdiction
(1997)
Juan was a stockholder of X Co. He owned a
total of 500 shares evidenced by Cert of Stock
No 1001. He sold the shares to Pedro. After
 of the company’s net income before tax At the meeting of the BOD of Kwik to approve nullity of the amended by-laws. He alleged
BOD: Election of Aliens as members (2005) during the preceding year. The President’s the contract, Chito would have to make sure among other things that as a stockholder, he
A Korean national joined a corporation which proposal was unanimously approved by the that - had acquired rights inherent in stock
is engaged in the furniture manufacturing BOD. A stockholder of ABC questioned the a) there is no fraud involved; and ownership such as the right to vote and be
business. He was elected to the Board of bonus. Does he have grounds to object? b) the contract is fair and reasonable under voted upon in the election of directors. Is the
Directors. To complement its furniture the circumstances. stockholder’s petition tenable? (5%)
manufacturing business, the corporation also SUGGESTED ANSWER:
engaged in the logging business. With the Yes, the stockholder as a valid and legal SUGGESTED ANSWER: SUGGESTED ANSWER:
additional logging activity, can the Korean ground to object to the payment to the 2. If the conditions relating to the quorum and No. There is no vested right of a stockholder
national still be a member of the Board of directors of a bonus equivalent to 15% of the required number of votes are not met, the to be elected as director. When a person buys
Directors? Explain. (3%) company’s net income. The law provides that contract must be ratified by the vote of stock in a corporation he does so with the
the total annual compensation of the stockholders representing at least 2/3 of the knowledge that its affairs are dominated by a
SUGGESTED ANSWER: directors, in the preceding year, cannot outstanding capital stock in a meeting called majority of the stockholders. To this extent,
Yes, just as long as sixty percent (60%) of the exceed 10% of the company’s net income for the purpose. Furthermore, the adverse the stockholder parted with his personal right
Board of Directors are Filipinos. Corporations before income tax (Sec 30 Corp Code). interest of Chito in the contract must be to regulate the disposition of his property
that are sixty percent (60%) owned by disclosed and the contract is fair and which he invested in the capital stock of the
Filipinos can engage in the business of BOD; Conflict of Interest (1994) reasonable. (Secs. 32 and 33, BP 68) corporation and surrendered it to the will of
exploration, development and utilization of ABC Pigger Inc is engaged in raising and selling the majority of his fellow incorporators or
natural resources. (Art. XII, Sec. 2, 1987 hogs in the local market. Mr. De Dios, one of BOD; Interlocking Directors (1996) stockholders.
Constitution) The election of aliens as its directors while traveling abroad, met a Leonardo is the Chairman and President,
members of the Board Of Directors engaging leather goods manufacturer who was while Raphael is a Director of NT Corporation. Corporations have the power to make by-laws
in partially-nationalized activities is allowed in interested in buying pig skins from the On one occasion, NT Co, represented by declaring a person employed in the service of
proportion to their allowable participation or Philippines. Mr De Dios set up a separate Leonardo and A Ent, a single proprietorship a rival company to be ineligible for the
share in the capital of such entities. (Sec. 2-A, company and started exporting pig skins to his owned by Raphael, entered into a dealership Corporation’s BOD. An amendment which
Anti- Dummy Law) Nothing in the facts shows foreign contact but the pig skins exported agreement whereby NT Co appointed A Ent as renders a director ineligible, or if elected,
that more than forty percent (40%) of the were not sourced from ABC. His fellow exclusive distributor of its products in subjects him to removal, if he is also a director
Board of Directors are foreigners. directors in ABC complained that he should Northern Luzon. Is the dealership agreement in a corporation whose business is in
have given this business to ABC. How would valid? Explain. competition with or is antagonistic to the
BOD; Capacity of Directors (1996) you decide on this matter? other corporation is valid.
Rodman, the President of TF Co, wrote a letter SUGGESTED ANSWER:
to Gregorio, offering to sell to the latter 5,000 SUGGESTED ANSWER: The dealership agreement is voidable at the By-Laws; Validity; limiting qualifications of
bags of fertilizer at P100 per bag. Gregorio I would decide in favor of Mr De Dios. ABC is option of NT Co inasmuch as the facts do not BOD members (2000)
signed his conformity to the letter-offer, and engaged in raising and selling hogs in the local indicate that the same was approved by the At the annual stockholders’ meeting of MS
paid a down-payment of P50th. A few days market. The company that Mr De Dios had set BOD of NT Co before it was signed or, Corporation, the stockholders unanimously
later, the Corporate Secretary of TF informed up was to engage, as it did, in the export of assuming such approval, that it was approved passed a resolution authorizing the Board of
Gregorio of the decision of their BOD not to pigs skins. There is thus no conflict of interest under the following conditions: Directors to amend the corporate by-laws so
ratify the letter offer. However, since between Mr. De Dios and ABC Pigger Inc so as 1) That the presence of Raphael, the owner of as to disqualify any stockholder who is also a
Gregorio had already paid the down- to make the case fall within the conflict of A Ent, in the meeting of the BOD at which the director or stockholder of a competing
payment, TF delivered 500 bags of fertilizer interest situation under the law (Sec 34 Corp agreement was approved was not necessary business from being elected to the Board of
which Gregorio accepted. TF made it clear Code) to constitute a quorum for such meeting; Directors of MS Corporation. The by-laws
that the delivery should be considered an Observation: The term “conflict of interest” is 2) That the vote of Raphael was not necessary were accordingly amended. GK, a stockholder
entirely new transaction. Thereafter, susceptible to varied views and for the approval of the agreement; of MS Corporation and a majority stockholder
Gregorio sought enforcement of the letter- interpretations. 3) That the agreement is fair and reasonable of a competitor, sought election to the Board
offer. under the circumstances (Sec 32 Corp Code) of Directors of MS Corporation. His
Is there a binding contract for the 5,000 bags BOD; Interlocking Directors (1995) nomination was denied on the ground that he
of fertilizer? Explain. Chito Santos is a director of both Platinum ALTERNATIVE ANSWER: was ineligible to run for the position. Seeking
Corporation and Kwik Silver Corporation. He The dealership agreement is valid upon the a nullification of the offending disqualification
SUGGESTED ANSWER: owns 1% of the outstanding capital stock of assumption that the same was approved by provision, GK consults you about its validity
No, there is no binding contract for the 5,000 Platinum and 40T of Kwik. Platinum plans to the BOD of NT Co before it was signed and under the Corporation Code of the Phils.
bags of fertilizer. First, the facts do not enter into a contract with Kwik that will make that such approval was made under the What would your legal advice be? (3%)
indicate that Rodman, the President of TF Co, both companies earn very substantial profits. following conditions:
was authorized by the BOD to enter into the The contract is presented at the respective 1) That the presence of Raphael, the owner of SUGGESTED ANSWER:
said contract or that he was empowered to do board meetings of Platinum and Kwik. A Ent, in the meeting of the BOD at which the The provision in the amended by-laws
so under some provision of the by-laws of TF 1. In order that the contract will not be agreement was approved was not necessary disqualifying any stockholder who is also a
Co. The facts do not also indicate that Rodman voidable, what conditions will have to be to constitute a quorum for such meeting; director or stockholder of a competing
has been clothed with the apparent power to complied with? Explain. 2) That the vote of Raphael was not necessary business from being elected to the Board of
execute the contract or agreements similar to 2. If these conditions are not met, how may for the approval of the agreement; Directors of MS Corp is valid. The corporation
it. Second, TF Co has specifically informed this contract be ratified? Explain. 3) That the agreement is fair and reasonable is empowered to adopt a code of by-laws for
Gregorio that it has not ratified the contract under the circumstances (Sec 32 Corp Code) its government not inconsistent with the Corp
for the sale of 5,000 bags of fertilizer and that SUGGESTED ANSWER: Code. Such disqualifying provision is not
the delivery to Gregorio of 500 bags, which 1. At the meeting of the BOD of Platinum to By-Laws; Validity; limiting qualifications of inconsistent with the Corp Code.
Gregorio accepted, is an entirely new approve the contract, Chito would have to BOD members (1998)
transaction. (Yao Ka Sin Trading v CA GR make sure that The BOD of X Co, acting on a standing By-Laws; Validity; limiting qualifications of
53820 June 15, 1992 209s763) a. his presence as director at the meeting is authority of the stockholders to amend the BOD members (2001)
not necessary to constitute a quorum for such by-laws, amended its by-laws so as to Is a by-law provision of X Corporation
BOD; Compensation (1991) meeting. disqualify any of its stockholders who is also a “rendering ineligible or if elected, subject to
After many difficult years, which called for b) his vote is not necessary for the approval of stockholder and director of a competitor from removal, a director if he is also a director in a
sacrifices on the part of the company’s the contract; and being elected to its BOD. corporation whose business is in competition
directors, ABC Manufacturing Inc was finally c) the contract is fair and reasonable under with or is antagonistic to said corporation”
earning substantial profits. Thus, the the circumstances. Y, a stockholder holding sufficient assets to valid and legal? State your reasons.
President proposed to the BOD that the assure him of a seat in the BOD, filed a
directors be paid a bonus equivalent to 15% petition with the SEC for a declaration of SUGGESTED ANSWER:
Yes, the by-law provision is valid. It is the right 2. Are there any remedies to prevent the than 25% par value, without any qualification Controversy; Intra-Corporate (1996)
of a corporation to protect itself against paralyzation of the business available to whatsoever, is not in the articles. It is merely Jennifer and Gabriel owned the controlling
possible harm and prejudice that may be Robert under PD 902-A while the petition to stated in the By-laws. Therefore such stocks in MFF Co and CLO Inc, both family
caused by its competitors. The position of break the deadlock is pending litigation? limitation shall not be binding on the corporations. Due to serious disagreements,
director is highly sensitive and confidential. To Explain. purchaser Jennifer assigned all her shares in MFF to
say the least, to allow a person, who is a Gabriel, while Gabriel assigned all his shares
director in a corporation whose business is in SUGGESTED ANSWER: Controversy; Intra-Corporate (1994) in CLO to Jennifer. Subsequently, Jennifer and
competition with or is antagonistic to X 1. Robert can petition the SEC to arbitrate the Because of disagreement with the BOD and a CLO filed a complaint against Gabriel and MFF
Corporation, to become also a director in X dispute, with such powers as provided in Sec threat by the BOD to expel her for misconduct in the SEC seeking to recover the corporate
Corporation would be harboring a conflict of 104 of the Corp Code. and inefficiency, Carissa offered in writing to records and funds of CLO which Gabriel
interest which is harmful to the latter 2. The SEC can appoint a rehabilitation resign as President and member of the BOD, allegedly refused to turn over, and which
(Gokongwei Jr v SEC 89 S 336 (1979); 97 S 78 receiver or a management committee. and to sell to the company all her shares remained in the offices of MFF.
(1980)). therein for P300,000.00 Her offer to resign Is there an intra-corporate controversy in this
Closed Corporation; Restriction; Transfer of was “effective as soon as my shares are fully case?
By-Laws; Validity; limiting qualifications of shares (1994) paid.” At its meeting, the BOD accepted
BOD members (2003) Rafael inherited from his uncle 10,000 shares Carissa’s resignation, approved her offer to SUGGESTED ANSWER:
To prevent the entry of Marlo Enriquez, of Sta. Ana Corporation, a close corporation. sell back her shares of stock to the company, Yes, there is an intra-corporate controversy in
whom it considered as one antagonistic to its The shares have a par value of P10.00 per and promised to buy the stocks on a this case. The fact that, when the complaint
interests, into its Board of Directors, Bayan share. Rafael notified Sta. Ana that he was staggered basis. Carissa was informed of the against Gabriel and MFF was filed with the
Corporation amended its articles of selling his shares at P70.00 per share. There BOD Resolution in a letter-agreement to SEC (per 2006, RTC’s Jurisdiction), Jennifer
incorporation and by-laws to add certain being no takers among the stockholders, which she affixed her consent. The Company’s and CLO were no longer stockholders of MFF
qualifications of stockholders to be elected as Rafael sold the same to his cousin Vicente new President singed the promissory note. did not divest the SEC (per 2006, RTC’s
members of its Board of Directors. When (who is not a stockholder) for P700,000. After payment P100,000 the company Jurisdiction) of its jurisdiction over the case
presented for approval at a meeting of its defaulted in paying the balance of P200,000. inasmuch as Jennifer was a former
stockholders duly called for the purpose, the The Corporate Secretary refused to transfer stockholder of MFF and the controversy arose
amendments were overwhelmingly ratified. the shares in Vicente’s name in the corporate Carissa wants to sue the Company to collect out of this relation. (SEC v CA GR 93832 Aug
Marlo Enriquez brought suits against Bayan books because Alberto, one of the the balance. If you were retained by Carissa as 23 91; 201s124)
Corporation to question the amendments. stockholders, opposed the transfer on the her lawyer, where will you file the suit? A)
Would the action prosper? Why? (4%) ground that the same violated the by-laws. Labor Arbiter; b) RTC; or c) SEC? Controversy; Intra-Corporate (2006)
Alberto offered to buy the shares at P12.50 What is an intra-corporate controversy? (8%)
SUGGESTED ANSWER: per share, as fixed by the by-laws or a total SUGGESTED ANSWER:
(per Dondee) The SC reiterated in the case of price of P125,000 only. The RTC has jurisdiction over this case which SUGGESTED ANSWER:
SMC vs. SEC decided in April 11, 1979, that it involves intra-corporate controversy. As of An intra-corporate controversy is a conflict
is recognized by all authorities that 'every While the by-laws of Sta. Ana provides that 2006, the applicable rule is that there is a between stockholders, members or partners
corporation has the inherent power to adopt the right of first refusal can be exercised “at a TRANSFERRED JURISDICTION under Sec. 5.2 and the corporation, association or
by-laws 'for its internal government, and to price not exceeding 25% more than the par of the SRC, the Commission’s jurisdiction over partnership regarding the regulation of the
regulate the conduct and prescribe the rights value of such shares, the Articles of all cases enumerated under PD 902-A sec. 5 corporation. The controversy must arise out
and duties of its members towards itself and Incorporation simply provides that the has been transferred to the Courts of general of intra- corporate or partnership relations of
among themselves in reference to the stockholders of record “shall have jurisdiction or the appropriate Regional Trial the parties; or between such corporation,
management of its affairs.'" At common law, preferential right to purchase said shares.” It Court. partnership or association and the State
the rule was "that the power to make and is silent as to pricing. insofar as it concerns their individual
adopt by- laws was inherent in every Controversy; Intra-Corporate (1996) franchises. It is further required that the
corporation as one of its necessary and Is Rafael bound by the pricing proviso under In 1970, Magno joined AMD Co as a Junior dispute be intrinsically connected with the
inseparable legal incidents. And it is settled the by-laws of Sta. Ana Corporation? Accountant. He steadily rose from the ranks regulation of the corporation (Speed
throughout the United States that in the until he became AMD’s Executive VP. Distributing Corp., et al. v. Court of Appeals,
absence of positive legislative provisions SUGGESTED ANSWER: Subsequently, however because of his et al, G.R. No. 149351, March 17, 2004;
limiting it, every private corporation has this Yes. In a close corporation, the restriction as involvement in certain anomalies, the AMD Intestate Estate of Alexander T.Tyv. Court of
inherent power as one of its necessary and to the transfer of shares has to be stated/ BOD considered him resigned from the Appeals, G.R. No. 112872, April 19, 2001).
inseparable legal incidents, independent of annotated in the Articles of Incorporation, the company due to loss of confidence.
any specific enabling provision in its charter or By-Laws and the certificate of stock. This Is the Securities and Exchange Commission
in general law, such power of self- serves as notice to the person dealing with Aggrieved, Magno filed a complaint in the SEC the venue for actions involving intra-
government being essential to enable the such shares like Rafael in this case. With such questioning the validity of his termination, corporate controversies? (2%)
corporation to accomplish the purposes of its notice, he is bound by the pricing stated in the and seeking reinstatement to his former
creation." By-laws. position, with backwages, vacation and sick SUGGESTED ANSWER:
leave benefits, 13th month pay and Christmas No, pursuant to Subsection 5.2 of the
Close Corporations; Deadlocks (1995) ALTERNATIVE ANSWER: bonus, plus moral and exemplary damages, Securities Regu- lation Code, the quasi-judicial
Robert, Rey and Ben executed a joint venture No, Rafael is not bound by the pricing proviso attorney’s fees and costs. AMD filed a motion jurisdiction of the Securities and Exchange
agreement to form a close corporation under under the By-laws of Sta Ana Corporation. to dismiss, arguing that the SEC has no Commission to hear corporate cases,
the Corp Code the outstanding capital stock of Under the corporation law, the restrictions on jurisdiction over cases of illegal dismissal, and including intra-corporate controversies,
which the three of them would equally own. the right to transfer shares must appear in the has no power to award damages. under Section 5 of Pres. Decree No. 902-A, has
They also provided therein that any corporate articles of incorporation and in the by-laws as Should the motion to dismiss be granted? been expressly transferred to the designated
act would need the vote of 70% of the well as in the certificate of stock, otherwise, Explain. Regional Trial Court. Pursuant to a
outstanding capital stock. The terms of the the same shall not be binding on any memorandum circular issued by the Supreme
agreement were accordingly implemented purchaser thereof in good faith. Moreover the SUGGESTED ANSWER: Court, only particularly designated RTC
and the corresponding close corporation was restriction shall not be more onerous than As of 2006, the applicable rule is that there is special commercial courts in each judicial
incorporated. After 3 years, Robert, Rey and granting the existing stockholders or the a TRANSFERRED JURISDICTION under Sec. 5.2 region have original and exclusive jurisdiction
Ben could not agree on the business in which corporation the option to purchase the shares of the SRC, the Commission’s jurisdiction over over such cases (See Intestate Estate of
to invest the funds of the corporation. Robert of the transferring stockholder with such all cases enumerated under PD 902-A sec. 5 Alexander T. Ty v. Court of Appeals, G.R. No.
wants the deadlock broken. reasonable term or period stated therein. has been transferred to the Courts of general 112872, April 19, 2001).
1. What are the remedies available to Robert jurisdiction or the appropriate REGIONAL
under the Corp code to break the deadlock? Here, limiting the price to be paid, when the TRIAL COURT. Controversy; Intra-corporate; Jurisdiction
Explain. right of first refusal is exercised, to not more (1997)
Juan was a stockholder of X Co. He owned a outstanding capital stock is obtained. with apparent authority to deal with YKS SUGGESTED ANSWER:
total of 500 shares evidenced by Cert of Stock Although the facts indicate that the Trading.
No 1001. He sold the shares to Pedro. After consultancy work has already been 2. CBY & Co., Inc., registered with the
getting paid, Juan indorsed and delivered said "rendered" constituting "previously Corporation; Articles of Incorporation (1990) Securities and Exchange Commission its
Certificate of Stock No 1001 to Pedro. The contracted debt," under Section 39 of the The articles of incorporation to be registered articles of incorporation. It failed, however,
following day, Juan went to the offices of the Corporation Code, the pre-emptive rights of in the SEC contained the following provisions for one reason or another, to have its by-laws
corporation and claimed that his Certificate of existing stockholders need not be respected -- filed with, and registered by, the Commission.
Stock No 1001 was lost and that, despite "in payment of a previously contracted debt," a) “First Article. The name of the corporation It nevertheless transacted and did business as
diligent efforts, the certificate could not be but only with the indicated stockholders' shall be Toho Marketing Company.” a corporation for sometime. A suit was
located. The formalities prescribed by law for approval. Under Section 62 of the Corporation commenced by its minority stockholders
the replacement of the “lost” certificate were Code, consideration for the issuance of stock b) “Third Article. The principal office of such assailing the continued existence of CBY &
complied with. Eventually X Co issued in may include labor performed for or services corporation shall be located in Region III, in Co., Inc., because of the non-adoption and
substitution of the “lost” certificate, Cert of actually rendered to the corporation. such municipality therein as its Board of registration of its by-laws. Would the action
Stock No 2002. Juan forthwith transferred for Directors may designate.” prosper? Why? (6%)
valuable consideration the new certificate to Corporation: Right of Repurchase of Shares;
Jose who knew nothing of the previous sale to Trust Fund Doctrine (2005) c) “Seventh Article. The capital stock of the SUGGESTED ANSWER:
Pedro. In time, the corporation was Under what conditions may a stock corporation is One Million Pesos (P1,000,000)
confronted with the conflicting claims of Jose corporation acquire its own shares? (2%) Philippine Currency.” Corporation; Conversion of Stock Corporation
and Pedro. The BOD of X Co invited you to (2001)
enlighten them on these questions; SUGGESTED ANSWER: What are your comments and suggested X company is a stock corporation composed
a) If a suit were to be initiated in order to In line with the trust fund doctrine that changes to the proposed articles? of the Reyes family engaged in the real estate
resolve the controversy between Pedro and generally renders it unlawful for the business. Because of the regional crisis, the
Jose, should the matter be submitted to the corporation to return assets to the SUGGESTED ANSWER: stockholders decided to convert their stock
SEC or to the regular courts? stockholders representing capital, a a) On the First Article, I would suggest that the corporation into a charitable non-stock and
b) Between Jose and Pedro, whom should the corporation may acquire its own shares only corporate name indicate the fact of non-profit association by amending the
corporation so recognize as the rightful when there exists in the books unrestricted incorporation by using either “Toho articles of incorporation.
stockholder? retained earnings to cover the repurchase of Marketing Corporation” or “Toh Marketing a) Could this be legally done? Why? (3%)
shares. The purpose of the repurchase of Company, Incorporated.” b) Would your answer be the same if at the
How would you respond to the above shares must be a legitimate business purpose inception, X Company is a non-stock
queries? of the corporation, such as to: b) The Third Article should indicate the City or corporation? Why? (2%)
1. ELIMINATE fractional shares arising out of the Municipality and the Province in the
SUGGESTED ANSWER: stock dividends; Philippines, and not merely the region or as its SUGGESTED ANSWER:
a) The matter should be submitted to the 2. COLLECT or COMPROMISE an indebtedness BOD may later designate, to be its place of a) Yes, it can be legally done. In converting the
regular courts – specifically in the Regional to the corporation arising out of unpaid principal office. stock corporation to a non-stock corporation
Trial Court where the principal office of the subscription in a delinquency sale; by a mere amendment of the articles of
corporation is located. The controversy 3. to PURCHASE delinquent shares sold during c) The Seventh Article must additionally point incorporation, the stock corporation is not
between Pedro and Jose is not an intra- the sale; and out the number of shares into which the distributing any of its assets to the
corporate controversy. 4. to PAY dissenting or withdrawing capital stock is divided, as well as the par stockholders. On the contrary, the
stockholders entitled to such payment under value thereof or a statement that said stock or stockholders are deemed to have waived
b) If there is no over-issuance of shares the Corporation Code. (Sees. 41 and 82, a portion thereof are without par value. (Sec their right to share in the profits of the
resulting from the two-transactions of Juan, Corporation Code) 14 & 15 Corp Code) corporation which is a gain not a loss to the
the corporation should recognize both Pedro corporation.
and Jose as rightful stockholders. This is Corporation: Sole Proprietorship (2004) Corporation; By-laws (2001)
without prejudice to the right of the YKS Trading filed a complaint for specific Suppose that the by-laws of X Corp, a mining b) No, my answer will not be the same. In a
corporation to claim against Juan for the value performance with damages against PWC firm provides that “The directors shall be non-stock corporation, the members are not
of the shares which Juan sold to Jose. Corporation for failure to deliver cement relieved from all liability for any contract entitled to share in the profits of the
ordered by plaintiff. In its answer, PWC entered into by the corporation with any firm corporation because all present and future
Corporation Sole; Definition (2004) denied liability on the ground, inter alia, that in which the directors may be interested.” profits belong to the corporation. In
What is a corporation sole? YKS has no personality to sue, not being Thus, director A acquired claims which converting the non- stock corporation to a
incorporated, and that the President of PWC overlapped with X’s claims and were stock corporation by a mere amendment of
SUGGESTED ANSWER: was not authorized to enter into a contract necessary for the development and operation the Articles of Incorporation, the non- stock
Section 110 of the Corporation Code defines a with plaintiff by the PWC Board of Directors, of X’s mining properties. corporation is deemed to have distributed an
"corporation sole" as one formed for the hence the contract is ultra vires. YKS Trading a) Is the by-law provision valid? Why? (3%) asset of the corporation – i.e. its profits,
purpose of administering and managing, as replied that it is a sole proprietorship owned b) What happens if director A is able to among its members, without a prior
trustee, the affairs, property and by YKS, and that the President of PWC had consummate his mining claims over and dissolution of the corporation. Under Sec 122,
temporalities of any religious denomination, made it appear in several letters presented in above that of the corporation’s claims? (2%) the non-stock corporation must be dissolved
sect or church. It is formed by the chief evidence that he had authority to sign first.
archbishop, bishop, priest, minister, rabbi or contracts on behalf of the Board of Directors SUGGESTED ANSWER:
other presiding elder of such religious of PWC. Will the suit prosper or not? Reason a) No. It is in violation of Section 32 of the (Observation: The question is rather vague
denomination, sect or church. briefly. (5%) Corp Code. more particularly question 1b. The question
does not specify that the conversion is from a
Corporation: Issuance of shares of stock to SUGGESTED ANSWER: b) A should account to the corporation for the non- stock corporation to a stock corporation.
pay for the services (2005) Yes the suit will prosper. As a sole profits which he realized from the The candidate is likely to be confused because
Janice rendered some consultancy work for proprietorship, the proprietor of YKS Trading transaction. He grabbed the business of the words “if at the inception, X Co is a
XYZ Corporation. Her compensation included has the capacity to act and the personality to opportunity from the corporation. (Section nonstock corporation.” Hence, any answer
shares of stock therein. Can XYZ Corporation sue PWC. It is not necessary for YKS Trading to 34, Corp Code) along the same line should be treated with
issue shares of stock to pay for the services of be incorporated before it can sue. On the liberality)
Janice as its consultant? Discuss your answer. other hand, PWC is estopped from asserting Corporation; Commencement; Corporate
that its President had no authority to enter Existence (2003) Corporation; De Facto Corporation (1994)
SUGGESTED ANSWER: into the contract, considering that, in several 1. When does a corporation acquire corporate A corporation was created by a special law.
Yes, provided the approval of stockholders of PWC's letters, it had clothed its President existence? Later, the law creating it was declared invalid.
representing two-thirds (2/3) of the
May such corporation claim to be a de facto SUGGESTED ANSWER: the position of Chairman provided in the By- operate a specialty restaurant that caters to
corporation? Not all directors and incorporators need to be Laws, the Chairman presides over the meeting the general public. In such case, the action of
SUGGESTED ANSWER: residents of the Philippines. Under Section 10 of the Directors (Sec 54 Corp Code) the foundation will be ultra vires.
No. A private corporation may be created only of the Corporation Code, only a majority of
under the Corporation Code. Only public the incorporators need to be residents of the 2) No. The law provides that the annual ALTERNATIVE ANSWER:
corporations may be created under special Philippines. As provided in Section 23 of the stockholders’ meeting shall be held in the city 2) If the act of the corporation is justified by
law. same Code, only a majority of the members of or municipality where the principal office of the secondary purpose of the corporation
the Board of Directors need to be residents of the Corporation is located. For this purpose, which includes the act of operating a
Where a private corporation is created under the Philippines. the law also provides that Metro Manila is restaurant, the foundation will be within its
a special law, there is no attempt at a valid considered a city or municipality. Since the power to do so.
incorporation. Such corporation cannot claim Corporation; Incorporation; Requisites (2002) principal place of business of MIC is Pasig,
a de facto status. You have been asked to incorporate a new MM, the holding of the annual stockholders 3) Since there are only 2 of the members of
company to be called FSB Savings & Mortgage meeting in Manila is proper. (Sec 51 Corp) the BOT remaining and there is no quorum,
Corporation; Dissolution; Methods of Bank, Inc. List the documents that you must the vacancies will have to be filled up in a
Liquidation (2001) X Corporation shortened submit to the Securities and Exchange 3) No. The law allows the BOD to hold its special meeting of the members (sec 29 Corp)
its corporate life by amending its Articles of Commission (SEC) to obtain a certificate of meeting anywhere in the Philippines. The
Incorporation. It has no debts but owns a incorporation for FSB Savings & Mortgage holding of the BOD meeting in Makati was Corporation; Power to Invest Corporate Funds
prime property located in Quezon City. How Bank, Inc. (5%) proper and the validity of the resolutions for other Purpose (1995)
would the said property be liquidated among adopted by the Board in that meeting cannot Stikki Cement Co was organized primarily for
the five stockholders of said corporation? SUGGESTED ANSWER: be questioned. (Sec 53 Corp code) cement manufacturing. Anticipating
Discuss two methods of liquidation. (5%) The documents to be submitted to the substantial profits, its President proposed
Securities and Exchange Commission (SEC) to Corporation; Nationality of Corporation that Stikki invest in a) a power plant project,
SUGGESTED ANSWER: incorporate a new company to be called FSB (1998) b) a concrete road project, and c) quarry
The prime property of X Corporation can be Savings & Mortgage Bank, Inc., to obtain the What is the nationality of a corporation operations for limestone in the manufacture
liquidated among the five stockholders after certificate of incorporation for said company, organized and incorporated under the laws of of cement.
the property has been conveyed by the are: a foreign country, but owned 100% by 1) What corporate approvals or votes are
corporation to the five stockholders, by 1) Articles of Incorporation Filipinos? (2%) needed for the proposed investments?
dividing or partitioning it among themselves 2) Treasurer’s Affidavit; Explain.
in any two of the following ways: 3) Certificate of Authority from the Monetary SUGGESTED ANSWER: 2) Describe the procedure in securing these
1) by PHYSICAL DIVISION or PARTITION based Board of the BSP; Under the control test of corporate approvals.
on the proportion of the values of their 4) Verification slip from the records of the SEC nationality, this foreign corporation is of
stockholdings; or whether or not the proposed name has Filipino Nationality. Where there are grounds SUGGESTED ANSWER:
already been adopted by another for piercing the veil of corporate entity, that 1. Unless the power plant and the concrete
2) SELLING THE PROPERTY to a third person corporation, partnership or association; is, disregarding the fiction, the corporation road project are reasonable necessary to the
and dividing the proceeds among the five 5) Letter undertaking to change the proposed will follow the nationality of the controlling manufacture of cement by Stikki (and they do
stockholders in proportion to their name if already adopted by another members or stockholders, since the not appear to be so), then the approval of said
stockholdings; or corporation, partnership or association; corporation will then be considered as one projects by a majority of the BOD and the
6) Bank certificate of deposit concerning the and the same. ratification of such approval by the
3) after the determination of the value of the paid-up capital; stockholders representing at least 2/3 of the
property, by ASSIGNING or TRANSFERRING 7) Letter authorizing the SEC or Monetary Corporation; Non-Stock Corporation (1993) outstanding capital stock would be necessary.
THE PROPERTY to one stockholder with the Board or its duly authorized representative to The AB Memorial Foundation was
obligation on the part of said stockholder to examine the bank records regarding the incorporated as a non-profit, non-stock As for the quarry operations for limestone,
pay the other four stockholders the amount/s deposit of the paid-up capital; corporation in order to establish and maintain the same is an indispensable ingredient in the
in proportion to the value of the stockholding 8) Registration Sheet; a library and museum in honor of the manufacture of cement and may, therefore,
of each. deceased parents of the incorporators. Its be considered reasonably necessary to
Corporation; Meetings; BOD & Stockholders Articles of Incorporation provided for a board accomplish the primary purpose of Stikki. In
Corporation; Incorporation; Requirements (1993) Under the Articles of Incorporation of of trustees composed of 5 incorporators, such case, only the approval of the BOD would
(2006) Manila Industrial Corp, its principal place of which authorized to admit new members. The be necessary (Sec 42 BP 68)
What is the minimum and maximum number business shall be in Pasig, MM. The principal Articles of Incorporation also allow the
of in- corporators required to incorporate a corporate offices are at the Ortigas foundation to receive donations from ALTERNATIVE ANSWER:
stock corporation? Is this also the same members. As of Jan 30, 1993, 60 members 1. The majority vote of the BOD is necessary.
minimum and maximum number of directors Center, Pasig, MM while its factory processing had been admitted by the BOT. The investment in a) a power plant project, b)
required in a stock corporation? leather products, is in Manila. The 1. Can the Foundation use the funds donated a concrete road project, and c) quarry
corporation holds its annual stockholders’ to it by its members for purchase of food and operations of limestone used in the
SUGGESTED ANSWER: meeting at the Manila Hotel in Manila and its medicine for distribution to the victims of the manufacture of cement, is within the express
Under Section 10 of the Corporation Code, BOD meeting at a hotel in Makati MM. The by- Pinatubo eruption? or implied power of the corporation, or at
any number of natural persons not less than laws are silent as to the place of meetings of 2) Can the Foundation operate a specialty least the same is incidental to, or necessary
five (5) but not more than fifteen (15), all of the stockholders and directors. restaurant that caters to the general public in for the existence of the corporation.
legal age and a majority of whom are 1) Who shall preside at the meeting of the order to augment its funds?
residents of the Philippines, may form a directors? 3) One of the original trustees died and the SUGGESTED ANSWER:
private corporation for any lawful purpose. 2) Can Ting, a stockholder, who did not attend other two resigned because they immigrated 2.a) The procedure in securing the approval of
the stockholders’ annual meeting in Manila, to the US. How will the vacancies in the BOT the BOD is as follows:
This is the same minimum and maximum question the validity of the corporate be filled? a. a notice of the BOD should be sent to all the
number of directors required in a stock resolutions passed at such meeting? directors. The notice should state the purpose
corporation under Section 14(6) of the 3) Can the same stockholder question the SUGGESTED ANSWER: of the meeting.
Corporation Code. validity of the resolutions adopted by the BOD 1) Yes, (Sec 36(9) of the Corp Code) as long as b. At the meeting, each of the project should
at the meeting held in Makati? the amount of donation is reasonable. be approved by a majority of the BOD (not
Corporation; Incorporation; Residency merely a majority of those present at the
Requirements (2006) SUGGESTED ANSWER: 2) If the purposes of the corporation are meeting)
Must all incorporators and directors be 1) The President presides over the meeting of limited to the establishment and
residents of the Philippines? (2.5%) the directors, if there is no position of maintenance of the library and museum as 2.b) The procedure in securing the approval of
Chairman provided in the By-Laws. If there is stated in the problem, the foundation cannot the stockholders is as follows:
a. Written notice of the proposed investment P60th. Briccio discovered that the engine of The action may prosper against GOM but president and general manager, Y, who is a
and the time and place of the stockholders’ the tractor was reconditioned so he refused definitely not against Richard. Richard has a stockholder, to pay the back rentals
meeting should be sent to each stockholder at to pay Turtle. As a result, Dick Seldon ordered legal personality separate and distinct from amounting to a hundred thousand pesos or to
his place of residence as shown on the books “Stop Payment” of the check issued to that of GOM. If he singed the contract to sell, vacate the premises at the end of the month.
of the corporation and deposited to the Shamron. he did so as the President and General Marulas neither paid its debt nor vacated the
addressee in the post office with postage Manager of GOM and not in his personal premises. X sued Marulas and Y for collection
prepaid, or served personally. Shamron sued Turtle and Dick Seldon. capacity. Mere ownership by Richard of 90% of the unpaid rentals, plus interest and costs
b. At the meeting, each of the projects should Shamron obtained a favorable judgment of the capital stock of GOM is not of itself of litigation. Will the suit prosper against X?
be approved by the stockholders representing holding co-defendants Turtle and Dick Seldon sufficient ground to disregard his separate Against Y? (5%)
at least 2/3 of the outstanding capital stock. jointly and severally liable. legal personality absent a showing, for
(Sec 42 BP 68) Comment on the decision of the trial court. example that he acted maliciously or in bad SUGGESTED ANSWER:
Discuss fully. faith (EPG Const Co v CA GR 103372 Jn 22,92 Yes, the suit will prosper against Marulas. It is
Corporation; Power to Invest Corporate Funds 210s230) the one renting the office and store space, as
in another Corporation (1996) SUGGESTED ANSWER: lessee, from the owner of the building, X, as
When may a corporation invest its funds in The trial court erred in holding Dick Seldon, Corporation; Separate Juridical Personality lessor.
another corporation or business or for any President and GM of Turtle, jointly and (1999)
other purposes? severally liable with Turtle. In issuing the As a result of perennial business losses, a But the suit against Y will not prosper. Y, as
check issued to Shamron and, thereafter, corporation’s net worth has been wiped out. president and general manager, and also
SUGGESTED ANSWER: stopping payment thereof, Seldon was acting In fact, it is now in negative territory. stockholder of Marulas Creative Technology,
A corporation may invest its funds in another in his capacity as an officer of Turtle. He was Nonetheless, the stockholders did not like to Inc., has a legal personality separate and
corporation or business or for any other not acting in his personal capacity. give up. Creditor-banks, however, do not distinct from that of the corporation. The
purpose other than the primary purpose for Furthermore, no facts have been provided share the confidence of the stockholders and liability of the corporation is that of the
which it was organized when the said which would indicate that the action of refuse to grant more loans. corporation and not that of its officers and
investment is approved by a majority of the Seldon was dictated by an intent to defraud a) What tools are available to the stockholders who are not liable for corporate
BOD and such approval is ratified by the Shamron by himself or in collusion with stockholders to replenish capital? (3%) liabilities.
stockholders representing at least 2/3 of the Turtle. Having acted in what he considered as b. Assuming that the corporation continues to
outstanding capital stock. Written notice of his duty as an officer of the corporation, operate even with depleted capital, would the Corporation; Separate Juridical Personality
the proposed investment and the date, time Seldon should not be held personally liable. stockholders or the managers be solidarily (2000)
and place of the stockholders’ meeting at liable for the obligations incurred by the Nine individuals formed a private corporation
which such proposal will be taken up must be Corporation; Separate Juridical Personality corporation? Explain. pursuant to the provisions of the Corporation
sent to each stockholder. (Sec 42 Corp Code) (1996) Code of the Philippines (BP 68). Incorporator
PR Co owns a beach resort with several SUGGESTED ANSWER: S was elected director and president – general
Corporation; Recovery of Moral Damages cottages. Jaime, the President of PR, occupied a) In the face of the refusal of the creditor- manager. Part of his emolument is a Ford
(1998) one of the cottages for residential purposes. banks to grant more loans, the following are Expedition, which the corporation owns. After
In a complaint filed against XYZ Corporation, After Jaime’s term expired, PR wanted to tools available to the stockholders to a few years, S lost his corporate positions but
Luzon Trading Corporation alleged that its recover possession of the cottage. Jaime replenish capital, to wit: he refused to return the motor vehicle
President & General Manager, who is also a refused to surrender the cottage, contending 1) additional subscription to shares of stock of claiming that as a stockholder with a
stockholder, suffered mental anguish, fright, that as a stockholder and former President, he the corporation by stockholders or by substantial equity share, he owns that portion
social humiliation and serious anxiety as a has a right to possess and enjoy the properties investors; of the corporate assets now in his possession.
result of the tortuous acts of XYZ Corporation. of the corporation. 2)advances by the stockholders to Is the contention of S valid? Explain (5%)
Is Jaime’s contention correct? Explain. the corporation; SUGGESTED ANSWER:
In its counterclaim, XYZ Co claimed to have 3) payment of unpaid No. The contention of S is not valid. The Ford
suffered moral damages due to besmirched SUGGESTED ANSWER: subscription by the Expedition is owned by the corporation. The
reputation or goodwill as a result of Luzon Jaime’s contention is not correct. Jaime may stockholders. corporation has a legal personality separate
Trading Co’s complaint. own shares of stock in PR Corp but such and distinct from that of its stockholder. What
1) May Luzon Trading Co recover damages ownership does not entitle him to the SUGGESTED ANSWER: the corporation owns is its own property and
based on the allegations of the complaint? possession of any specific property of the b) No. As a general rule, the stockholders or not the property of any stockholder even how
(2%) corporation or a definite portion thereof. the managers cannot be held solidarily liable substantial the equity share that stockholder
2) May XYZ Co recover moral damages? (3%) Neither is he a co-owner of corporate for the obligations incurred by the owns.
property. Properties registered in the name of corporation. The corporation has a separate
SUGGESTED ANSWER: the corporation are owned by it as an entity and distinct personality from that of the Corporation; Set-Off; Unpaid Subscription
No. A corporation, being an artificial person separate and distinct from its stockholders. stockholders or managers. The latter are (1994)
which has no feelings, emotions or senses, presumed to be acting in good faith in Victor was employed in MAIA Corporation. He
and which cannot experience physical Stockholders like Jaime only own shares of continuing the operation of the corporation. subscribed to 1,500 shares of the corporation
suffering or mental anguish, is not entitled to stock in the corporation. Such shares of stock The obligations incurred by the corporation at P100 per share or a total of P150,000. He
moral damages. do not represent specific corporate property. are those of the corporation which alone is made an initial down payment of P37,500.00.
(Rebecca Boyer-Roxas v CA GR 100866 Jul 14, liable therefor. However, when the He was appointed President and General
ALTERNATIVE ANSWER: 92 211s470) corporation is already insolvent, the directors Manager. Because of his disagreement with
Yes. When a juridical person has a good and officers become trustees of the business the BOD, he resigned and demanded payment
reputation that is debased, resulting in social Corporation; Separate Juridical Personality and assets of the corporation for the benefit of his unpaid salaries, his cost of living
humiliation, moral damages may be awarded. (1996) Richard owns 90% of the shares of the of the creditors and are liable for negligence allowance, his bonus, and reimbursement of
Moreover, goodwill can be considered an capital stock of GOM Co. On one occasion, or mismanagement. his gasoline and representation expenses.
asset of the corporation. GOM represented by Richard as President and
General Manager executed a contract to sell a Corporation; Separate Juridical Personality MAIA Corporation admits that it owed Victor
Corporation; Separate Juridical Personality subdivision lot in favor of Tomas. For failure of (2000) Marulas Creative Technology Inc., an P40,000. but told him that this will be applied
(1995) Ronald Sham doing business under the GOM to develop the subdivision, Tomas filed e-business enterprise engaged in the to the unpaid balance of his subscription in
name of SHAMRON Machineries (Shamron) an action for rescission and damages against manufacture of computer media accessories; the amount of P100,000.00 There was no call
sold to Turtle Mercantile (Turtle) a diesel farm GOM and Richard. Will the action prosper? rents an office and store space at a or notice for the payment of the unpaid
tractor. In payment, Turtle’s President and Explain. commercial building owned by X. Being a subscription. Victor questioned the set-off.
Manager Dick Seldon issued a check for P50th start-up company, Marulas enjoyed some 1) May MAIA set-off the unpaid
in favor of Shamron. A week later, Turtle sold SUGGESTED ANSWER: leniency in its rent payments; but after three subscription with victor’s claim for salaries?
the tractor to Briccio Industries (Briccio) for years, X put a stop to it and asked Marulas
2) Would your answer be the same if indeed Jimmy Morato. While these resolutions were 3)Dissolution by shortening of the corporate Third, the suit is brought on behalf and for the
there had been a call for the unpaid approved by the stockholders, the directors’ term. This is done by amendment of the benefit of MOP Corporation. In this
subscription? approval, which is required by law in such articles of incorporation. connection, it was held in Conmart (Phils.) Inc.
case, does not exist. v. Securities and Exchange Commission, 198
SUGGESTED ANSWER: Corporation; Voting Trust Agreement (1992) SCRA 73 (1991) that to grant to the
1) No. MAIA cannot setoff the unpaid 2. Jimmy Morato can petition the SEC (Now A distressed company executed a voting trust corporation concerned the right of
subscription with Victor’s claim for salaries. RTC) to declare the 2 resolutions, as well as agreement for a period of three years over withdrawing or dismissing the suit, at the
The unpaid subscription is not yet due as any and all actions taken by the BOD 60% of its outstanding paid up shares in favor instance of the majority stockholders and
there is no call. thereunder, null and void. of a bank to whom it was indebted, with the directors who themselves are the persons
Bank named as trustee. Additionally, the alleged to have committed the breach of trust
2) Yes. The reason is that Victor is entitled to Corporation; Validity of Corporate Acts (2002) Company mortgaged all its properties to the against the interests of the corporation would
the payment of his salaries which MAIA has no Which of the following corporate acts are Bank. Because of the insolvency of the be to emasculate the right of minority
right to withhold in payment of unpaid valid, void, or voidable? Indicate your answer Company, the Bank foreclosed the mortgaged stockholders to seek redress for the
subscription. To do so would violate Labor by writing the paragraph number of the properties, and as the highest bidder, corporation. Filing such action as a derivative
Laws (Apodaco v NLRC 172 S 442) query, followed by your corresponding acquired said properties and assets of the suit even by a lone stockholder is one of the
answer as “Valid,” “Void,” or “Voidable,” as Company. protections extended by law to minority
Corporation; Stock Corporation (2001) the case may be. If your answer is “Void,” stockholders against abuses of the majority.
“XY” is a recreational club which was explain your answer. In case of a “Voidable” The three-year period prescribed in the
organized to operate a golf course for its answer, specify what conditions must be Voting Trust Agreement having expired, the Derivative Suit: Watered Stock (1993)
members with an original authorized capital present or complied with to make the company demanded the turn-over and A became a stockholder of Prime Real Estate
stock of P100M. The articles of incorporation corporate act valid. (5%) transfer of all its assets and properties, Corporation (PREC) on July 10, 1991, when he
nor the by-laws did not provide for 1) XL Foods Corporation, which is engaged in including the management and operation of was given one share by another stockholder
distribution of dividends although there is a the fast- food business, entered into a the Company, claiming that under the Voting to qualify him as a director. A was not re-
provision that after its dissolution, the assets contract with its President Jose Cruz, whereby Trust Agreement, the Bank was constituted as elected director in the July 1, 1992 annual
shall be given to a charitable corporation. Is the latter would supply the corporation with trustee of the management and operations of meeting but he continued to be a registered
“XY” a stock corporation? Give reasons for its meat and poultry requirements. the Company. shareholder of PREC.
your answer? (5%)
SUGGESTED ANSWER: Does the demand of the Company tally with When he was still a director, A discovered that
SUGGESTED ANSWER: Voidable – A contract of the corporation with the concept of a Voting Trust Agreement? on Jan 5, 1991, PREC issued free of charge
XY is a stock corporation because it is one or more of its directors or trustees or Explain briefly. 10,000 shares to X a lawyer who assisted in a
organized as a stock corporation and there is officers is voidable, at the option of such court case involving PREC.
no prohibition in its Articles of Incorporation corporation (Sec 32, Corporation Code). SUGGESTED ANSWER: 1) Can A now bring an action in the name of
or its by-laws for it to declare dividends. When The demand of the company does not tally the corporation to question the issuance of
a corporation is organized as a stock 2) The Board of Directors of XL Foods with the concept of a Voting Trust Agreement. the shares to X without receiving any
corporation and its articles of Incorporation Corporation declared and paid cash dividends The Voting Trust Agreement merely conveys payment?
or By-Laws are silent, the corporation is without approval of the stockholders. to the trustee the right to vote the shares of 2) Can X question the right of A to sue him in
deemed to have the power to declare grantor/s. The consequence of foreclosure of behalf of the corporation on the ground that
dividends under Sec 43. Since it has the power SUGGESTED ANSWER: the mortgaged properties would be alien to A has only one share in his name?
to declare dividends, XY is a stock corporation. Valid the Voting Trust Agreement and its effects. 3) Cannot the shares issued to X be
considered as watered stock?
The provision of the Articles of Incorporation 3) XL Foods Corporation guaranteed the loan Derivative Suit: Requisites (2004)
that at dissolution the assets of the of its sister company XL Meat Products, Inc. AA, a minority stockholder, filed a suit against SUGGESTED ANSWER:
corporation shall be given to a charitable BB, CC, DD, and EE, the holders of majority 1) As a general rule, A cannot bring a
corporation does not prohibit the corporation SUGGESTED ANSWER: shares of MOP Corporation, for alleged derivative suit in the name of the corporation
from declaring dividends before dissolution. Void – This is an ultra vires act on part of XL misappropriation of corporate funds. The concerning an act that took place before he
Foods Corporation, and is not one of the complaint averred, inter alia, that MOP became a stockholder. However, if the act
Corporation; Validity of Corporate Acts (1998) powers provided for in Sec. 36 of the Corporation is the corporation in whose complained of is a continuing one, A may do
The stockholders of People Power Inc (PPI) Corporation Code. behalf and for whose benefit the derivative so.
approved two resolutions in a special suit is brought. In their capacity as members 2) No. In a derivative suit, the action is
stockholders’ meeting: Corporation; Voluntary Dissolution (2002) of the Board of Directors, the majority instituted/ brought in the name of a
a) Resolution increasing the authorized Name three (3) methods by which a stock stockholders adopted a resolution authorizing corporation and reliefs are prayed for therein
capital stock of PPI; and corporation may be voluntarily dissolved. MOP Corporation to withdraw the suit. for the corporation, by a minority
b) Resolution authorizing the BOD to issue, for Explain each method. (5%) Pursuant to said resolution, the corporate stockholder. The law does not qualify the
cash payment, the new shares from the counsel filed a Motion to Dismiss in the name term “minority” in terms of the number of
proposed capital stock increase in favor of SUGGESTED ANSWER: of the MOP Corporation. Should the motion shares owned by a stockholder bringing the
outside investors who are non-stockholders. The three (3) methods by which a stock be granted or denied? Reason briefly. (5%) action in behalf of the corporation. (SMC v
corporation may be voluntarily dissolved are: SUGGESTED ANSWER: Khan 176 SCRA 448)
The foregoing resolutions were approved by 1) Voluntary Dissolution where no creditors No. All the requisites for a valid derivative suit
stockholders representing 99% of the total are affected. This is done by a majority vote of exist in this case. 3) No. WATERED SHARES are those sold by the
outstanding capital stock. The sole dissenter the directors, and resolution of at least 2/3 First, AA was exempt from exhausting his corporation for less than the par/book value.
was Jimmy Morato who owned 1% of the vote of stockholders, submitted to the remedies within the corporation, and did not In the instant case, it will depend upon the
stock. Securities and Exchange Commission. have to make a demand on the Board of value of services rendered in relation to the
1. Are the resolutions binding on the 2) Voluntary dissolution where creditors are Directors for the latter to sue. Here, such a total par value of the shares.
corporation and its stockholders including affected. This is done by a petition for demand would be futile, since the directors
Jimmy Morato, the dissenting stockholder? dissolution which must be filed with the who comprise the majority (namely, BB, CC, Derivative Suit; Close Corporation; Corporate
(3%) Securities and Exchange Commission, signed DD and EE) are the ones guilty of the wrong Opportunity (2005)
2. What remedies, if any, are available to by a majority of the members of the board of complained of. Malyn, Schiera and Jaz are the directors of
Morato? (2%) directors, verified by the president or Patio Investments, a close corporation
secretary, and upon affirmative vote of Second, AA appears to be stockholder at the formed to run the Patio Cafe, an al fresco
SUGGESTED ANSWER: stockholders representing at least 2/3 of the time the alleged misappropriation of coffee shop in Makati City. In 2000, Patio Cafe
1. No. The resolutions are not binding on the outstanding capital stock. corporate funds. began experiencing financial reverses,
corporation and its stockholders including consequently, some of the checks it issued to
its beverage distributors and employees the date of dissolution, precisely one of the STOCK DIVIDENDS are simply transfers of All cash and stock dividends are always paid
bounced. purposes is to allow the winding-up of its retained earnings to capital stock, thereby out of the unrestricted retained earnings (also
affairs, including the termination of pending increasing the number of shares of stocks of called surplus profit) of the corporation. If the
In October 2003, Schiera informed Malyn that suits. each stockholder with no required cash corporation has no unrestricted retained
she found a location for a second cafe in contribution. A two-thirds vote of the earnings, the dividends would have to be
Taguig City. Malyn objected because of the Derivative Suit; Minority Stockholder (2003) stockholders, coupled with a majority vote of sourced from the capital stock. This is illegal.
dire financial condition of the corporation. Gina Sevilla, a minority stockholder of Bayan the Board of Directors, is needed to declare It violates the "TRUST FUND DOCTRINE" that
Sometime in April 2004, Malyn learned about Corporation, felt that various investments of stock dividends. provides that the capital stock of the
Fort Patio Cafe located in Taguig City and that the company’s capital were ultra vires if not, corporation is a trust fund to be kept intact
its development was undertaken by a new indeed, made in violation of law. She filed a Distinction; Private vs. Public Corporation during the life of the corporation for the
corporation known as Fort Patio, Inc., where derivative suit seeking to nullify the (2004) Distinguish clearly a private benefit of the creditors of the corporation.
both Schiera and Jaz are directors. Malyn also questioned investments. Would her action corporation from a public corporation (Commissioner of Internal- Revenue v. Court
found that Schiera and Jaz, on behalf of Patio prosper? Why? of Appeal®, G.R. No. 108576, January 20,
Investments, had obtained a loan of SUGGESTED ANSWER: 1999; Boman Environmental Development
P500,000.00 from PBCom Bank, for the SUGGESTED ANSWER: A PRIVATE CORPORATION is one formed for Corp. v. Court of Appeals,
purpose of opening Fort Patio Cafe. This loan Yes, she is already a stockholder at the time some private purpose, benefit or end, while a G.R. No. 77860, November 22, 1988; and
was secured by the assets of Patio the alleged misappropriation of corporate PUBLIC CORPORATION is formed for the Steinberg v. Velasco, G.R. No. 30460, March
Investments and personally guaranteed by funds. And that filing such action as a government of a portion of the State for the 12,1929)
Schiera and Jaz. derivative suit even by a lone stockholder is general good or welfare. The true test is the
one of the protections extended by law to purpose of the corporation. If the corporation
Malyn then filed a corporate derivative action minority stockholders against abuses of the is created for political or public purpose Dividends; Declaration of Dividends (1990)
before the Regional Trial Court of Makati City majority. Nevertheless, Gina must first connected with the administration of At least 2/3 of the stockholders of Solar
against Schiera and Jaz, alleging that the two exhaust any administrative remedies before government, then it is a public corporation. If Corporation, meeting upon the
directors had breached their fiduciary duties her suit be consider in court. not, it is a private corporation although the recommendation of the BOD, declared a 50%
by misappropriating money and assets of whole or substantially the whole interest in stock dividend during their annual meeting.
Patio Investments in the operation of Fort Distinction: De facto Corporation vs. the corporation belongs to the State. A public The notice of the annual stockholders’
Patio Cafe. (5%) Corporation by Estoppel (2004) corporation is created by special legislation or meeting did not mention anything about a
1) Did Schiera and Jaz violate the principle of Is there a difference between a de facto act of Congress. A private corporation must stock dividend declaration. The matter was
corporate opportunity? Explain. corporation and a corporation by estoppel? be organized under the Corporation Code. taken up only under the item “other business”
Explain briefly. (2%) in the agenda of the meeting. C.K. Senwa, a
SUGGESTED ANSWER: Distinction; Stock vs. Non-Stock Corporation stockholder, who received his copy of the
Yes. Although Malyn refused the business SUGGESTED ANSWER: (2004) Distinguish clearly a stock corporation notice but did not attend the meeting,
before, nevertheless, using the resources and A DE FACTO CORPORATION is one which from a non-stock corporation. subsequently learned about the 50% stock
credit standing of the company, Schiera and actually exists for all practical purposes as a dividend declaration. He desires to have the
Jaz clearly demonstrated that the business corporation but which has no legal right to SUGGESTED ANSWER: stock dividend declaration cancelled and set
could have been successfully pursued in the corporate existence as against the State. It is A stock corporation is one that has capital aside, and wishes to retain your services as a
name of the close corporation. More essential to the existence of a de facto stock divided into shares and is authorized to lawyer for the purpose. Will you accept the
importantly, Schiera and Jaz are guilty of corporation that there be (1) a valid law under distribute to the holders of such shares case? Discuss with reasons.
diverting the resources of the close which a corporation might be incorporated, dividends or allotments of the surplus profits
corporation to another entity, equivalent to (2) a bona fide attempt to organize as a on the basis of the shares held. All other SUGGESTED ANSWER:
fraud and bad faith. corporation under such law, and corporations are non-stock corporations. I will not accept the case. Sec 43 of the Corp
(3) actual use or exercise in good faith of Code states that no stock dividend shall be
2) Was it proper for Malyn to file a derivative corporate powers conferred upon it by law. Dividends: Declaration of Dividends (2005) issued without the approval of the
suit with a prayer for injunctive relief? Explain. Under what circumstances may a corporation stockholders representing not less than 2/3 of
A CORPORATION BY ESTOPPEL exists when declare dividends? (2%)' the outstanding capital stock at a regular or
SUGGESTED ANSWER: persons assume to act as a corporation special meeting duly called for that purpose.
Although it is a close corporation, knowing it to be without authority to do so. In SUGGESTED ANSWER: Conformably with Sec 50 of the Corp Code, a
nevertheless the principles of separate this case, those persons will be liable as No form of dividends can be declared and written notice of the holding of the regular
juridical personality still apply. The business of general partners for all debts, liabilities and paid by the corporation except from meeting sent to the shareholders will suffice.
the corporation is still separate and distinct damages incurred or arising as a result of their unrestricted retained earnings appearing on The notice itself specified the said subject
from the proprietary interests of its actions. its books. Dividends must be paid in amounts matter.
stockholders and directors. Consequently, proportional to all stockholders on the basis
since the business opportunity and the Distinction: Dividends vs. Profit: Cash of outstanding stock held by them. Cash or ALTERNATIVE ANSWER:
resource's used pertain to the close Dividend vs. Stock Dividend (2005) property dividends, can be declared from Yes, I will accept the case. The problem does
corporation, the standing to sue and to Distinguish dividend from profit; cash such unrestricted retained earnings by a not indicate that there is action by the BOD
recover remains with the close corporation dividend from stock dividend. (2%) proper resolution of the Board of Directors. which is also necessary for the declaration of
and not with Malyn. Therefore, it is still Stock dividends, however, must be declared 50% stock dividend.
necessary to file a derivative suit on behalf of SUGGESTED ANSWER: by a proper resolution of the Board of
the close corporation, although the PROFITS are residual amounts representing Directors from existing unrestricted retained Dividends; Declaration of Dividends (1991)
proceedings would be governed under the return of capital after deducting all corporate earnings and ratified by stockholders During the annual stockholders meeting, Riza,
Interim Rules of Procedure for Intra- costs and expenses from revenues. The representing at least two-thirds (2/8) of the a stockholder proposed to the body that a
Corporate Disputes. accumulated profits, from year to year, outstanding capital stock of the corporation, part of the corporation’s unreserved earned
represent the corporate retained earnings obtained in a meeting duly called for the surplus be capitalized and stock dividends be
3) Assuming that a derivative suit is proper; from which the dividends can be declared. purpose. (Sec. 43, Corporation Code) distributed to the stockholders, arguing that
may the action continue if the corporation is as owners of the company, the stockholders,
dissolved during the pendency of the suit? CASH DIVIDENDS represent an actual Dividends: Sources of Dividends; Trust Fund by a majority vote, can do anything. As
Explain. distribution of accumulated profits to the Doctrine (2005) chairman of the meeting, how would you rule
stockholders as a return on their investments. From what funds are cash and stock dividends on the motion to declare stock dividends?
SUGGESTED ANSWER: Declaration of cash dividends requires only sourced? Explain why. (2%)
Yes, for in spite of the dissolution of any the approval of the majority of the Board of SUGGESTED ANSWER:
corporation, it remains a juridical person for Directors in a proper resolution. SUGGESTED ANSWER: As the chairman of the meeting, I would rule
purpose of dissolution for three years from against the motion considering that a
declaration of stock dividends should initially issued for cash or property or for services XYZ Corporation's contention is not corporation under Sec 80 of the Corp. Code
be taken by the BOD and thereafter to be already rendered constituting a demandable meritorious. Based on the ruling of the which does not make any distinction as to the
concurred in by a 2/3 vote of the stockholders debt (Sec 62 Corp Code). As an alternative, I Supreme Court in Philippine National Bank vs. assets and liabilities of the absorbed
(Sec 43 Corp Code). There is no prohibition, would suggest that the managing corporation CFI of Rizal, 209 SCRA (1992). XYZ Corp. was corporation that the surviving corporation
however, against the stockholders’ resolving should instead be given a net profit dissolved ipso facto upon the expiration of its would inherit.
to recommend to the BOD that it consider a participation and, if it later so desires, to then original term. It ceased to be a body corporate
declaration of stock dividends for convert the amount that may be due thereby for the purpose of continuing the business for Effects; Winding Up Period of a Corporation
concurrence thereafter by the stockholders. to equity or shares of stock at no less than the which it was organized, except only for (1997)
par value thereof. purposes connected with its winding up or The corporation, once dissolved, thereafter
Dividends; Declaration of Dividends (2001) liquidation. Extending the lease is not an act continues to be a body corporate for three
For the past three years of its commercial Doctrine of Corporate Opportunity (2005) to wind up or liquidate XYZ Corp.'s affairs. It is years for purposes of prosecuting and
operation, X, an oil company, has been Briefly discuss the doctrine of corporate contrary to the idea of winding up the affairs defending suits by and against it and of
earning tremendously in excess of 100% of opportunity. (2%) of the corporation. enabling it to settle and close its affairs,
the corporation’s paid-in capital. All of the culminating in the final disposition and
stockholders have been claiming that they SUGGESTED ANSWER: Effects; Merger of Corporations (1999) distribution of its remaining assets. If the 3
share in the profits of the corporation by way In brief, the doctrine disqualifies a director, Two corporations agreed to merge. They then year extended life expires without a trustee or
of dividends but the Board of Directors failed trustee or officer from appropriating for his executed an agreement specifying the receiver being designated by the corporation
to lift its finger. personal benefit a transaction or opportunity surviving corporation and the absorbed within that period and by that time (expiry of
a) Is Corporation X guilty of violating a law? If that pertains to the corporation, and which corporation. Under the agreement of merger the 3 year extended term), the corporate
in the affirmative, state the basis (2%) under the duty of loyalty he should first bring dated November 5, 1998, the surviving liquidation is not yet over, how, if at all, can a
to the corporation for its use or exploitation. corporation acquired all the rights, properties final settlement of the corporate affairs be
SUGGESTED ANSWER: and liabilities of the absorbed corporation. made?
Corporation X is guilty of violating Section 43 The doctrine of corporate opportunity is an 1) What would happen to the absorbed
of the Corp Code. This provision prohibits enforcement of the duty of loyalty of corporation? Must the absorbed corporation SUGGESTED ANSWER:
stock corporations from retaining surplus corporate directors and officers. When a undertake dissolution and the winding up The liquidation can continue with the winding
profits in excess of 100% of their paid-in director, trustee or officer attempts to procedures? Explain your answer. (3%) up. The members of the BOD can continue
capital. acquire or acquires, in violation of his duty, an with the winding of the corporate affairs until
interest adverse to the corporation in respect SUGGESTED ANSWER: final liquidation. They can act as trustees or
b) Are there instances when a corporation of any matter which has been reposed in him No. There is no need for the absorbed receivers for this purpose.
shall not be held liable for not declaring in confidence, he shall be liable as a trustee corporation to undertake dissolution and
dividends? (3%) for the corporation and must account for the winding up procedure. As a result of the Effects; Winding Up Period of a Corporation
profits which otherwise would have accrued merger, the absorbed corporation is (2000)
SUGGESTED ANSWER: to the corporation. Equity imposes liability automatically dissolved and its assets and The SEC approved the amendment of the
The instances when a corporation shall not be upon him not to deal for his own benefit. (Sec. liabilities are acquired and assumed by the Articles of Incorporation of GHQ Corp
held liable for not declaring dividends are: 31, Corporation Code) surviving corporation. shortening its corporate life to only 25 years
1) when justified by definite corporate in accordance with Sec 120 of the Corp
expansion projects or programs approved by Under Sec. 34 of the Corporation Code where 2) Pending approval of the merger by the SEC,
the BOD; or a director, by virtue of his office, acquires for may the surviving corporation already Code. As shortened, the corporation
2) when the corporation is prohibited under himself a business opportunity which should institute suits to collect all receivables due to continued its business operations until May
any loan agreement with any financial belong to the corporation, thereby obtaining the absorbed corporation from its customers? 30, 1997, the last day of its corporate
institution or creditor, whether local or profits to the prejudice of such corporation, Explain your answer. (3%) existence. Prior to said date, there were a
foreign, from declaring dividends without its he must account to the latter for all such number of pending civil actions, of varying
or his consent, and such consent has not yet profits by refunding the same, unless his act SUGGESTED ANSWER: nature but mostly money claims filed by
been secured; or has been ratified by a vote of the stockholders No. The merger does not become effective creditors, none of which was expected to be
3) when it can be clearly shown that such owning or representing at least two-thirds until and unless approved by the SEC. Before completed or resolved within five years from
retention is necessary under special (2/8) of the outstanding capital stock. approval by the SEC of the merger, the May 30, 1997.
circumstances obtaining in the corporation, surviving corporation has no legal personality
such as when there is need for special reserve Effect: Expiration of Corporate Term (2004) with respect to receivables due to the If the creditors had sought your professional
for probable contingencies. XYZ Corporation entered into a contract of absorbed corporation. help at that time about whether or not their
lease with ABC, Inc., over a piece of real estate cases could be pursued beyond May 30, 1997,
Dividends; Right; Managing Corporation for a term of 20 years, renewable for another 3) A case was filed against a customer to what would have been your advice? (2%)
(1991) 20 years, provided that XYZ's corporate term collect on the promissory note issued by him
ABC Management Inc. presented to the DEF is extended in accordance with law. Four after the date of the merger agreement. The SUGGESTED ANSWER:
Mining Co, the draft of its proposed years after the term of XYZ Corporation customer raised the defense that while the The cases can be pursued even beyond May
Management Contract. As an incentive, ABC expired, but still within the period allowed by receivables as of the date of the merger 30, 1997, the last day of the corporate
included in the terms of compensation that the lease contract for the extension of the agreement was transferred to the surviving existence of GHQ Corp. The Corporation is not
ABC would be entitled to 10% of any stock lease period, XYZ Corp. notified ABC, Inc., that corporation, those receivables which were actually dissolved upon the expiration of its
dividend which DEF may declare during the it is exercising the option to extend the lease. created after the merger agreement corporate term. There is still the period for
lifetime of the Management Contract. Would ABC, Inc., objected to the proposed extension, remained to be owned by the absorbed liquidation or winding up.
you approve of such provision? If not, what arguing that since the corporate life of XYZ corporation. These receivables would be
would you suggest as an alternative? Corp. had expired, it could no longer opt to distributed to the stockholders conformably NOTE: U nder Section 122 of the C
renew the lease. XYZ Corp. countered that with the dissolution and liquidation orporation C ode, a corporation whose
SUGGESTED ANSWER: withstanding the lapse of its corporate term it procedures under the New Corporation corporate existence is term inated in any m
I would not approve a proposed stipulation in still has the right to renew the lease because Code? Discuss the merits of this argument. anner continues to be a body corporate for
the management contract that the managing no quo warranto proceedings for involuntary (3%) three (3) years afterits dissolution
corporation, as an additional compensation dissolution of XYZ Corp. has been instituted by forpurposes ofprosecuting and defending
to it, should be entitled to 10% of any stock the Office of the Solicitor General. SUGGESTED ANSWER: suits by and againstitand to enable itto settle
dividend that may be declared. Stockholders Is the contention of XYZ Corp. meritorious? Whether the receivable was incurred by the and close its affairs, culm inating in the
are the only ones entitled to receive stock Explain briefly. (5%) absorbed corporation before or after the disposition and distribution of its rem aining
dividends (Nielsen & Co v Lepanto Mining 26 merger agreement, or before or after the assets. Itm ay, during the three-yearterm ,
s 569) I would add that the unsubscribed SUGGESTED ANSWER: approval thereof by the SEC, the said appointa trustee ora receiverwho m ay
capital stock of a corporation may only be receivable would still belong to the surviving actbeyond thatperiod.
 May a corporation enter into a joint venture? corporation, when the latter becomes Furthermore, the sale by E Co of its assets is a
The term ination of the life of a corporate insolvent, is the extent of his subscription. sale of its property. It does not involve the
entity does notby itself cause the extinction SUGGESTED ANSWER: sale of the shares of stock of the corporation
or dim inution of the rights and liabilities of A corporation may enter into a joint venture. c) As to C—an action can be filed against C, belonging to its stockholders. There is
such entity. 27 If the three-yearextended life However, inasmuch as the term ‘joint not as stockholder because he has already therefore no merger or consolidation that
has expired without a trustee or receiver venture’ has no precise legal definition, it may paid up the shares, but in his capacity as took place. E Co continues to exist and
having been expressly designated by the take various forms. It could take the form of a director and officer because of the remains liable to the creditor.
corporation, within thatperiod, the board of simple pooling of resources (not involving corporation’s insolvency being the result of
directors (or trustees) itself, m ay be perm incorporation) between two or more fraudulent practices within the company. Piercing the Corporate Veil (2001)
itted to so continue as "trustees" by legal im corporations for a specific project, purpose or Directors are liable jointly and severally for Plaintiffs filed a collection action against X
plication to com plete the corporate undertaking, or for a limited time. It may damages sustained by the corporation, Corporation. Upon execution of the court’s
liquidation. (PEPSI-COLA PHILIPPINES, INC., involve the creation of a more formal stockholders or other persons resulting from decision, X Corporation was found to be
vs. THE COURT OF APPEALS, [G.R. No. structure and, hence, the formation of a gross negligence or bad faith in directing the without assets. Thereafter plaintiffs filed an
145855. November 24, 2004.]) corporation. If the joint venture would involve affairs of the corporation. (Sec 31 Corp Code) action against its present and past
the creation of a partnership, as the term is stockholder Y Corporation which owned
Foreign Corporation; “Doing Business” in the understood under the Civil Code, then a Piercing the Corporate Veil (1994) substantially all of the stocks of X Corporation.
Philippines (1998) corporation cannot be a party to it. Mr. Pablo, a rich merchant in his early forties, The two corporations have the same board of
When is a foreign corporation deemed to be was a defendant in a lawsuit which could directors and Y Corporation financed the
“doing business in the Philippines?” (3%) Liabilities; BOD; Corporate Acts (1996) subject him to substantial damages. A year operations of X Corporation. May Y
When may a corporate director, trustee, or before the court rendered judgment, Pablo Corporation be held liable for the debts of X
SUGGESTED ANSWER: officer be held personally liable with the sought his lawyer’s advice on how to plan his Corporation? Why? (5%)
A foreign corporation is deemed to be “doing corporation? estate to avoid taxes. His lawyer suggested
business in the Philippines” if it is continuing that he should form a corporation with SUGGESTED ANSWER:
the body or substance of the business or SUGGESTED ANSWER: himself, his wife and his children (all students Yes, Y Corporation may be held liable for the
enterprise for which it was organized. It is the A corporate director, trustee or officer may be and still unemployed) as stockholders and debts of X Corporation. The doctrine of
intention of an entity to continue the body of held personally liable with the corporation then transfer all his assets and liabilities to piercing the veil of corporation fiction applies
its business in the country. The grant and under the following circumstances: this corporation. Mr Pablo followed the to this case. The two corporations have the
extension of 90- day credit terms of a foreign 1) When he assents to a patently unlawful act recommendation of his lawyer. 1 year later, same board of directors and Y Corporation
corporation to a domestic corporation for of the corporation; the court rendered judgment against Pablo owned substantially all of the stocks of X
every purchase shows an intention to 2) When he acts in bad faith or with gross and the plaintiff sought to enforce this Corporation, which facts justify the
continue transacting with the latter. negligence in directing the affairs of the judgment. The sheriff, however, could not conclusion that the latter is merely an
corporation, or in conflict with the interest of locate any property in the name of Pablo and extension of the personality of the former,
Foreign Corporation; “Doing Business” in the the corporation resulting in damages to the therefore returned the writ of execution and that the former controls the policies of
Philippines; Acts or Activities (2002) corporation, its stockholders or other unsatisfied. What remedy, if any, is available the latter. Added to this is the fact that Y
Give at least three (3) examples of the acts or persons; to the plaintiff? Corporation controls the finances of X
activities that are specifically identified under 3) When he consents to the issuance of Corporation which is merely an adjunct,
our foreign investment laws as constituting watered stocks or who, having knowledge SUGGESTED ANSWER: business conduit or alter ego of Y Corporation
“doing business” in the Philippines (3%) thereof, does not forthwith file with the The plaintiff can avail himself of the doctrine (CIR v Norton & Harrison Co 11 S 714 (1964))
corporate secretary his written objection of piercing the veil of corporate fiction which
SUGGESTED ANSWER: thereto; can be invoked when a corporation is formed Piercing the Corporate Veil (2004)
Any three (3) of the following acts or activities 4) When he agrees to hold himself personally or used in avoiding a just obligation. While it How does one pierce the veil of corporate
constitute “doing business” in the Philippines and solidarily liable with the corporation; or is true that a family corporation may be fiction?
under our foreign investment laws: 5) When he is made, by a specific provision of organized to pursue an estate tax; planning,
1. Soliciting orders law, to personally answer for the corporate which is not per se illegal or unlawful (Delpher SUGGESTED ANSWER:
3. Participating in the management, action. (Tramat Mercantile Inc v CA GR Trades Corp v IAC 157 SCRA 349) the factual The veil of corporate fiction may be pierced by
supervision or control of any domestic entity 111008, Nov 7, 94 238s14) settings, however, indicate the existence of a proving in court that the notion of legal entity
4. Entering into service contracts lawsuit that could subject Pablo to a is being used to defeat public convenience,
5. Appointing representatives or distributors, Liabilities; Stockholders, Directors, Officers substantial amount of damages. It would thus justify wrong, protect fraud, or defend crime
operating under the control of the foreign (1997) be difficult for Pablo to convincingly assert or the entity is just an instrument or alter ego
entity, who is domiciled in the Philippines or A, B, and C are shareholders of XYZ Co. A has that the incorporation of the family or adjunct of another entity or person.
who stays in the country for a period or an unpaid subscription of P100th, B’s shares corporation was intended merely as a case of
periods totaling at least 180 days in any are fully paid up, while C owns only nominal “estate tax planning.” (Tan Boon Bee v 4P07H40i7Hercing the Corporate Veil (2006)
calendar year. but fully paid up shares and is a director and Jarencio 41337 30June88) What is the doctrine of "piercing the veil of
officer. XYZ becomes insolvent, and it is corporate entity?" Explain.
Foreign Corporation; “Doing Business” in the established that the insolvency is the result of Piercing the Corporate Veil (1996)
Philippines; Test (2002) fraudulent practices within the company. If E Co sold its assets to M Inc after complying SUGGESTED ANSWER:
What is the legal test for determining if an you were counsel for a creditor of XYZ, would with the requirements of the Bulk Sales Law. The doctrine of "piercing the veil of corporate
unlicensed foreign corporation is doing you advise legal action against A, B, and C? Subsequently, one of the creditors of E Co entity," is the doctrine that allows the courts
business in the Philippines? (2%) tried to collect the amount due it, but found to look behind the separate juridical
SUGGESTED ANSWER: SUGGESTED ANSWER: out that E Co had no more assets left. The personality of a corporation and treat the
The test is whether or not the unlicensed a) As to A—an action can be brought against creditor then sued M Inc on the theory that M corporation as an association of persons and
foreign corporation has performed an act or A for P100th which is the amount of unpaid Inc is a mere alter ego of E Co. thereby make the individual actors personally
acts that imply a continuity of commercial subscription. Since the corporation is Will the suit prosper? Explain. liable for corporate liabilities. The fiction of
dealings or arrangements, and contemplate insolvent, the limit of the stockholder’s corporate identity is disregarded and the
to that extent the performance of acts or liability to the creditor is only up to the extent SUGGESTED ANSWER: individuals comprising it can be treated
works, or the exercise of some of the of his unpaid subscription. The suit will not prosper. The sale by E Co of identically. The stockholders can be held
functions normally incident to, and in its assets to M Inc does not result in the directly liable for corporate obligations, even
progressive prosecution of, commercial gain b) As to B—there is no cause of action against transfer of the liabilities of the latter to, nor to the extent of their personal assets (Concept
or of the purpose and object of the business B because he has already fully paid for his in the assumption thereof by, the former. The Builders v. NLRC, Marabe, et al, G.R. No.
corporation. subscription. As stated earlier, the limit of the facts given do not indicate that such transfer 108734, May 29, 1996).
stockholder’s liability to the creditor of the or assumption took place or was stipulated
Joint Venture; Corporation (1996) upon by the parties in their agreement.
To what circumstances will the doctrine However, only 40,000 shares were a) Devices or schemes amounting to fraud and Stockholders; Appraisal Right (2003)
apply? (2.5%) subscribed. Recently, the directors thought of misrepresentation; In what instances may the right of appraisal
The doctrine is applicable when the notion of raising additional capital and decided to offer b) Controversies arising out of intra-corporate be availed of under the Corporation Code?
legal entity is used to — to the public all the authorized shares of the or partnership relations;
1) Defeat public convenience. Corporation at their market value. c) Controversies in the election or SUGGESTED ANSWER:
2) Justify wrong. a) Would Mr. X, a stockholder holding 4,000 appointment of directors, officers, etc; SECTION 81. Instances of Appraisal Right. —
3) Protect fraud. shares, have pre-emptive rights to the d) Petitions to be declared in a state of Any stockholder of a corporation shall have
4) Defend crime (PNB v. Andrada Electric, G.R. remaining 10,000 shares? (2%) suspension of payments (Sec 5 PD 902-A) the right to dissent and demand payment of
No. 142936, April 17, 2002). b) Would Mr. X have pre-emptive rights to the the fair value of his shares in the following
5) Shield a violation of the proscription 50,000 preferred shares? (2%) TAKE NOTE: The RTC has jurisdiction over the instances:
against forum shopping (First Philippine c) Assuming that the existing stockholders are cases which involves intra-corporate 1. In case any amendment to the articles of
International Bank v. Court of Appeals, G.R. entitled to pre-emptive rights, at what price controversy. As of 2006, the applicable rule is incorporation has the effect of changing or
No. 137537, January 24, 1996). will the shares be offered? (2%) that there is a TRANSFERRED JURISDICTION restricting the rights of any stockholders or
6) Work inequities among members of the d) Assuming a stockholder disagrees with the under Sec. 5.2 of the SRC, the Commission’s class of shares, or of authorizing preferences
corporation internally, involving no rights of issuance of new shares and the pricing for the jurisdiction over all cases enumerated under in any respect superior to those of
the public or third persons (Secosa v. Heirs shares, may the stockholder invoke his PD 902-A sec. 5 has been transferred to the outstanding shares of any class, or of
ofErwin Suarez Francisco, G.R. No. 156104, appraisal rights and demand payment for his Courts of general jurisdiction or the extending or shortening the term of corporate
June 29, 2004). shareholdings? (2%) appropriate Regional Trial Court. existence;
7) Evade the lawful obligations of the 2. In case of sale, lease, exchange, transfer,
corporation like a judgment credit (Sibagat SUGGESTED ANSWER: Stockholder; Delinquent; Unpaid Subscription mortgage, pledge or other disposition of all or
Timber Corp. v. Garcia, G.R. No. 112546, a. Yes. Mr. X, a stockholder holding 4,000 (1997) The BOD of a corporation, by a vote of substantially all of the corporate property and
December 11, 1992). shares, has pre-emptive right to the ten in favor of one against, declared due and assets as provided in the Code; and
8) Escape liability arising from a debt (Arcilla remaining 10,000 shares. All stockholders of a payable all unpaid subscription to the capital 3. In case of merger or consolidation. (n)
v. Court of Appeals, G.R. No. 88113, October stock corporation shall enjoy pre- emptive stock. The lone dissenting director failed to
23, 1992). right to subscribe to all issues or disposition of pay on due date, i.e., 19 Sept 1997, his unpaid Stockholders; Removal of Officers & BOD
9) Avoid inclusion of corporate assets as part shares of any class, in proportion to their subscription. Other than the shares wherein (2001)
of the estate of the decedent (Cease v. Court respective shareholdings. he was unable to complete payment, he did In 1999, Corporation A passed a board
of Appeals, G.R. No. L-35861, October 18, not own any share in the corporation. On 23 resolution removing X from his position as
1979). ALTERNATIVE ANSWER. Sept 1997, he was informed by the BOD that, manager of said corporation. The by-laws of A
10) To promote or to shield unfair objectives a. No, Mr X does not have pre-emptive right unless due payment is meanwhile received, corporation provides that the officers are the
(Villanueva v. Adre, G.R. No. 80863, April 27, over the remaining 10,000 shares because he: president, vice-president, treasurer and
1989). these shares have already been offered at a) could no longer serve as a director of the secretary. Upon complaint filed with the SEC,
incorporation and he chose not to subscribe corporation forthwith: it held that a manager could be removed by
Pre-emptive Right (2001) to them. He, therefore, has waived his right b) would not be entitled to the cash and stock mere resolution of the board of directors. On
Suppose that X Corporation has already thereto and the corporation may offer them dividends which were declared and payable motion for reconsideration, X alleged that he
issued the 1000 originally authorized shares to anyone. on 24 Sep 1997; and could only be removed by the affirmative vote
of the corporation so that its BOD and c) could not vote in the stockholders meeting of the stockholders representing 2/3 of the
stockholders wish to increase X’s authorized SUGGESTED ANSWER: scheduled to take place on 26 Sept 1997. outstanding capital stock. Is X’s contention
capital stock. After complying with the b. Yes. Mr. X would have pre-emptive rights to legally tenable. Why? (5%)
requirements of the law on increase of capital the 50,000 preferred shares. All stockholders Was the action of the BOD on each of the
stock, X issued an additional 1000 shares of of a stock corporation shall enjoy pre-emptive foregoing matters valid? SUGGESTED ANSWER:
the same value. right to subscribe to all issues or disposition of No. Stockholders’ approval is necessary only
a) Assume that the stockholder A presently shares of any class, in proportion to their SUGGESTED ANSWER: for the removal of the members of the BOD.
holds 200 out of the 1000 original shares. respective shareholdings. a) No. The period of 30 days within which the For the removal of a corporate officer or
Would A have a pre-emptive right to 200 of stockholder can pay the unpaid subscription employee, the vote of the BOD is sufficient for
the new issue of 1000 shares? Why? (3%) ALTERNATIVE ANSWER: had not yet expired. the purpose.
b) When should stockholder A exercise the b. Yes, Mr. X has preemptive right over the b) No. The delinquency did not deprive the
pre-emptive right? (2%) 50,000 preferred shares because they were stockholder of his right to receive dividends Stockholders; Removal; Minority Director
not offered before by the corporation for declared. However, the cash dividend (1991) Assuming that the minority block of
SUGGESTED ANSWER: subscription. declared may be applied by the corporation to the XYZ Corporation is able to elect only 1
a) Yes, A would have a pre-emptive right to the unpaid subscription. (Sec 71 Corp Code) director and therefore, the majority
200 of the new issue of 1000 shares. A is a SUGGESTED ANSWER: c) No. The period of 30 days within which the stockholders can always muster a 2/3 vote,
stockholder of record holding 200 shares in X c. The shares will be offered to existing stockholder can pay the unpaid subscription would you allow the majority stockholders to
Corpo. According to the Corp Code, each stockholders, who are entitled to preemptive had not yet expired. remove the one director representing the
stockholder has the pre-emptive right to all right, at a price fixed by the BOD, which shall minority?
issues of shares made by the corporation in not be less than the par value of such shares. Stockholders: Preemptive Right (2004)
proportion to the number of shares he holds The Board of Directors of ABC, Inc., a domestic SUGGESTED ANSWER:
on record in the corporation. SUGGESTED ANSWER: corporation, passed a resolution authorizing No. I will not allow the majority stockholders
d. No, the stockholder may not exercise additional issuance of shares of stocks to remove the director. While the
b) Pre-emptive right must be exercised in appraisal right because the matter that he without notice nor approval of the stockholders may, by a 2/3 vote, remove a
accordance with the Articles of Incorporation dissented from is not one of those where right stockholders. DX, a stockholder, objected to director, the law also provides, however, that
or the By-Laws. When the Articles of of appraisal is available under the corporation the issuance, contending that it violated his his right may not, without just cause, be
Incorporation and the By-Laws are silent, the code. right of pre- emption to the unissued shares. exercised so as to deprive the minority of
BOD may fix a reasonable time within which Is his contention tenable? Explain briefly. (5%) representation in the BOD (Sec 28 Corp code;
the stockholders may exercise the right. SEC; Jurisdiction; Transferred Jurisdiction Gov’t vs Agoncillo 50p348)
(1996) SUGGESTED ANSWER:
Pre-Emptive Right vs. Appraisal Right (1999) What is the original and exclusive jurisdiction Yes. DX's contention is tenable. Under Section Stockholders; Rights (1996)
ABC Corporation has an authorized capital of the SEC? 39 of the Corporation Code, all stockholders What are the rights of a stockholder?
stock of P1M divided into 50,000 common of ABC, Inc. enjoy preemptive right to
shares and 50,000 preferred shares. At its SUGGESTED ANSWER: subscribe to all issues of shares of any class, SUGGESTED ANSWER:
inception, the Corporation offered for The SEC has original and exclusive jurisdiction including the reissuance of treasury shares in The rights of a stockholder are as follows:
subscription all the common shares. over cases involving: proportion to their respective shareholdings.
1) The right to vote, including the right to indicate that the stock certificate for the Yes. The corporation may be compelled by was executed by the corporation for the
appoint a proxy; 1,000 shares in question is in the name of mandamus to register the shares of stock in unpaid balance.
2) The right to share in the profits of the Arnold. Although the certificate was delivered the name of the assignee. The only legal
corporation, including the right to declare by Arnold to Steven, the facts do not indicate limitation imposed by Section 63 of the The corporation failed to pay the first
stock dividends; that the certificate was duly endorsed by Corporation Code is when the Corporation installment on due date. A then sued Paje on
3) The right to a proportionate share of the Arnold at the time it was delivered to Steven holds any unpaid claim against the shares the promissory note in the RTC.
assets of the corporation upon liquidation; or that the procedure for the effective intended to be transferred. The alleged claim a) Does the court have jurisdiction over the
4) The right of appraisal; transfer of shares of stock set out in the by- of another heir of PX is not sufficient to deny case?
5) The pre-emptive right to shares; laws of ABC Co, if any, was observed. Since the the issuance of new certificates of stock to his b) Would your answer be the same if A
6) The right to inspect corporate books and certificate was not endorsed in favor of wife and children. It would be otherwise if the instead sold his shares to his friend Mabel and
records; Steven (or anybody else for that matter), the transferee's title to the shares has no prima the latter filed a case with the RTC against the
7) The right to elect directors; only conclusion could be no other than that facie validity or is uncertain. corporation to compel it to register the sale
8) Such other rights as may contractually be the shares in question still belong to Arnold. and to issue new certificates of stock in her
granted to the stockholders by the (Razon v IAC GR 74306 Mar 16,92 207s234) Trust Fund Doctrine (1992) name?
corporation or by special law. A Corporation executed a promissory note
Stocks; Sale, Transfer of Certificates of Stock binding itself to pay its President/Director, SUGGESTED ANSWER:
Stockholders; Voting Power of Stockholders (2001) who had tendered his resignation, a certain a) The RTC has jurisdiction over the case. The
(1990) Mercy subscribed to 1,000 shares of A is the registered owner of Stock Certificate sum in payment of the latter’s shares and SC said that a corporation may only buy its
stock of Rosario Corporation. She paid 25% of No. 000011. He entrusted the possession of interests in the company. The corporation own shares of stock if it has enough surplus
said subscription. During the stockholders’ said certificate to his best friend B who defaulted in paying the full amount so that profits therefore.
meeting, can Mercy vote all her subscribed borrowed the said endorsed certificate to said former President filed suit for collection b) My answer would be the same. An action
shares? Explain. support B’s application for passport (or for a of the balance before the SEC. to compel a corporation to register a sale and
purpose other than transfer). But B sold the a) Under what conditions is a stock to issue new certificates of stock is itself an
SUGGESTED ANSWER: certificate to X, a bona fide purchaser who corporation empowered to acquire its own intra-corporate matter that exclusively lies
Yes, Mercy can vote all her subscribed shares. relied on the endorsed certificates and shares? with the RTC.
Section 72 of the Corporation Code states that believed him to be the owner thereof. b) Is the arrangement between the
holders of subscribed shares not fully paid a) Can A claim the shares of stock from X? corporation and its President covered by the TAKE NOTE: The RTC has jurisdiction over the
which are not delinquent shall have all the Explain (3%) trust fund doctrine? Explain your answers cases which involves intra-corporate
rights of a stockholder. b) Would your answer be the same if A lost briefly. controversy. As of 2006, the applicable rule is
the stock certificate in question or if it was that there is a TRANSFERRED JURISDICTION
Stocks; Increase of Capital Stock (2001) stolen from him? (2%) SUGGESTED ANSWER: under Sec. 5.2 of the SRC, the Commission’s
Suppose X Corporation has an authorized a) A stock corporation may only acquire its jurisdiction over all cases enumerated under
capital stock of P1M divided into 100,000 SUGGESTED ANSWER: own shares of stock if the trust fund doctrine PD 902-A sec. 5 has been transferred to the
shares of stock with par value of P10 each. a) No. Assuming that the shares were already is not impaired. This is to say, for instance, Courts of general jurisdiction or the
a) Give two ways whereby said authorized transferred to B, A cannot claim the shares of that it may purchase its own shares of stock appropriate Regional Trial Court.
capital stock may be increased to about stock from X. The certificate of stock covering by utilizing merely its surplus profits over and
P1.5M. (3%) said shares have been duly endorsed by A and above the subscribed capital of the
b) Give three practical reasons for a entrusted by him to B. By his said acts, A is corporation.
corporation to increase its capital stock (2%) now estopped from claiming said shares from
X, a bona fide purchaser who relied on the ALTERNATIVE ANSWER:
SUGGESTED ANSWER: endorsement by A of the certificate of stock. a) (an answer enumerating the instances or
a) Two ways of increasing the Authorized cases under the Corporation Code where the
Capital Stock of X corporation to P1.5M are: b) Yes. In the case where the certificate of Corp allows the acquisition of shares such as
1) Increase the number of shares from stock was lost or stole from A, A has a right to in the stockholder’s exercise of appraisal
100,000 to 150,000 shares with the same par claim the certificate of stock from the thief right, failure of bids in the sale of delinquent
value of P10.00 each. who has no right or title to the same. “One shares, etc.)
2) Increase par value of 100,000 shares to who has lost any movable or has been
P15.00 each. unlawfully deprived thereof, may recover it SUGGESTED ANSWER:
b) Three practical reasons for a corporation to from the person in possession of the same.” b) The arrangement between the corporation
increase its capital stock are: (Art 559 NCC) and its President to the extent that it calls for
1) to generate more working capital; the payment of the latter’s shares is covered
2) to have more shares with which to pay for Stocks; Sale, Transfer of Certificates of Stock by the trust fund doctrine. The only
the acquisition of more assets like acquisition (2004) Four months before his death, PX exceptions from the trust fund doctrine are
of company car, stocks, house, machinery or assigned 100 shares of stock registered in his the redemption of redeemable shares and, in
business; and name in favor of his wife and his children. the case of close corporation, when there
3) to have extra share with which to cover or They then brought the deed of assignment to should be a deadlock and the SEC orders the
meet the requirement for declaration of stock the proper corporate officers for registration payment of the appraised value of a
dividend. with the request for the transfer in the stockholder’s share.
corporation's stock and transfer books of the
Stocks; Sale, Transfer of Certificates of Stock assigned shares, the cancellation of the stock Trust Fund Doctrine; Intra-Corporate
(1996) Arnold has in his name 1,000 shares of certificates in PX's name, and the issuance of Controversy (1991)
the capital stock of ABC Co as evidenced by a new stock certificates in the names of his wife
stock certificate. Arnold delivered the stock and his children as the new owners. The On December 6, 1988, A, an incorporator and
certificate to Steven who now claims to be the officers of the Corporation denied the request the General Manager of the Paje Multi Farms
real owner of the shares, having paid for on the ground that another heir is contesting Co, resigned as GM and sold to the
Arnold’s subscription. ABC refused to the validity of the deed of assignment. May corporation his shares of stocks in the
recognize and register Steven’s ownership. the Corporation be compelled by mandamus corporation for P300th, the book value
Is the refusal justified? Explain. to register the shares of stock in the names of thereof, payable as follows: a) P100th as
the assignees? Explain briefly. (5%) down payment; b) P100th on or before 31
SUGGESTED ANSWER: July1989; and c) the remaining balance of
ABC’s refusal to recognize and register SUGGESTED ANSWER: P100th on or before 30 Sep 1989. A
Steven’s ownership is justified. The facts promissory note, with an acceleration clause,