CASE LIST IN CORPORATION LAW

TESTS TO DETERMINE NATIONALITY OF A CORPORATION

PLACE OF INCORPORATION TEST CONTROL TEST

Determined by the state under whose laws such corporation was organized determined by the citizenship of the controlling stockholders.

LIBERAL VS STRICT CONTROL TEST (Narra Nickel Mining & Development Corp. v. Redmont Consolidated Mines Corp., G.R. No. 195580, April 21,
2014)

LIBERAL CONTROL TEST STRICT CONTROL TEST/ GRANDFATHER RULE

no need to further trace the ownership of the 60% (or more) Filipino When in the mind of the Court there is doubt, based on the attendant facts and
stockholdings of the Investing Corporation since a corporation which is at circumstances of the case, in the 60-40 Filipino-equity ownership in the
least 60% Filipino-owned is considered as Filipino. corporation.

NOTE: Ultimate Filipino ownership of the shares must first be traced to the
level of the Investing Corporation and added to the shares directly owned in
the Investee Corporation.

SEPARATE PERSONALITY/ PIERCING THE VEIL

CASE AND DOCTRINE APPLICATION

Shrimp Specialists, Inc., vs. Fuji-Triumph Agri-Ind’l Corp., G.R. No. In this case, none of these exceptional circumstances is present. In its decision,
168756, Dec. 7, 2009 the trial court failed to provide a clear ground why Eugene Lim was held
solidarily liable with Shrimp Specialists. The trial court merely stated that
GR: obligations incurred by the corporation, acting through its directors, Eugene Lim signed on behalf of the Shrimp Specialists as President without
officers, and employees, are its sole liabilities. explaining the need to disregard the separate corporate personality. The CA
correctly ruled that the evidence to hold Eugene Lim solidarily liable should be
*EXPN: Solidary liability may be incurred, but only under the following more than just signing on behalf of the corporation because artificial entities can
exceptional circumstances: only act through natural persons.

When directors and trustees or, in appropriate cases, the officers of a

corporation:
(a) vote for or ASSENT TO PATENTLY UNLAWFUL ACTS OF THE
CORPORATION;
(b) act in BAD FAITH OR WITH GROSS NEGLIGENCE in directing the
corporate affairs;
(c) are guilty of CONFLICT OF INTEREST to the prejudice of the
corporation, its stockholders or members, and other persons;

When a director or officer has CONSENTED TO THE ISSUANCE OF

WATERED STOCKS or who, HAVING KNOWLEDGE thereof, DID
NOT forthwith file with the corporate secretary his WRITTEN
OBJECTION THERETO;

When a director, trustee or officer has CONTRACTUALLY AGREED OR

STIPULATED TO HOLD HIMSELF PERSONALLY AND
SOLIDARILY LIABLE with the corporation; or When a DIRECTOR,
TRUSTEE OR OFFICER IS MADE, BY SPECIFIC PROVISION OF
LAW, PERSONALLY LIABLE FOR HIS CORPORATE ACTION.

Edsa Shangri-La Hotel and Resort, Inc. v. BF Corp., G.R. No. 145842, The Court did not find anything in the testimony of one Crispin Balingit to
June 27, 2008 indicate that Roxas-del Castillo made any misrepresentation respecting the
Ownership by a single or a small group of stockholders of nearly all of payment of the bills in question. Balingit, in fact, testified that the submitted but
the capital stock of the corporation is not, without more, sufficient to unpaid billings were still being evaluated. Further, in the said testimony, in no
disregard the fiction of separate corporate personality. Thus, obligations instance was bad faith imputed on Roxas-del Castillo.
incurred by corporate officers, acting as corporate agents, are not theirs
but direct accountabilities of the corporation they represent.
However, solidary liability on the part of corporate officers may at times
attach, but only under exceptional circumstances, such as when they act
with malice or in bad faith or when the separate juridical personality of a
corporation is abused or used to commit fraud and perpetrate a social
injustice, or used as a vehicle to evade obligations.

Zambrano v. Philippine Carpet Manufacturing Corp., G.R. No. Pacific Carpet has a personality separate and distinct from Phil Carpet.
224099, June 21, 2017
Although ownership by one corporation of all or a great majority of stocks of
Mere ownership of a single stockholder or by another corporation another corporation and their interlocking directorates may serve as  indicia  of
control, by themselves and without more, these circumstances are insufficient to
The doctrine of piercing the corporate veil applies only in three (3) basic establish an alter ego relationship or connection between Phil Carpet on the
areas, namely: one hand and Pacific Carpet on the other hand, that will justify the puncturing
of the latter's corporate cover.
1) DEFEAT OF PUBLIC CONVENIENCE as when the corporate fiction
is used as a vehicle for the evasion of an existing obligation;

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2) FRAUD CASES OR when the CORPORATE ENTITY IS USED TO
JUSTIFY A WRONG, PROTECT FRAUD, OR DEFEND A CRIME; or

3) ALTER EGO CASES, where a corporation is merely a farce since it is a

mere alter ego or business conduit of a person, or where the corporation
is so organized and controlled and its affairs are so conducted as to make
it merely an instrumentality, agency, conduit or adjunct of another
corporation

In this connection, case law lays down A THREE-PRONGED TEST TO

DETERMINE THE APPLICATION OF THE  ALTER EGO  THEORY,
which is also known as the instrumentality theory, namely:
(1) CONTROL, NOT MERE MAJORITY OR COMPLETE STOCK
CONTROL, BUT COMPLETE DOMINATION, not only of finances but of
policy and business practice in respect to the transaction attacked so that
the corporate entity as to this transaction had at the time no separate
mind, will or existence of its own;
(2) Such control must have been USED BY THE DEFENDANT TO
COMMIT FRAUD OR WRONG, TO PERPETUATE THE VIOLATION OF
A STATUTORY OR OTHER POSITIVE LEGAL DUTY, OR DISHONEST
AND UNJUST ACT in contravention of plaintiffs legal right; and
(3) The aforesaid CONTROL AND BREACH OF DUTY must have
proximately CAUSED THE INJURY OR UNJUST LOSS COMPLAINED
OF.

Manuel C. Espiritu, Jr., et al. vs. Petron Corp., et al., G.R. No. 170891, Jose claimed in his affidavit that, when he negotiated the swapping of captured
Nov. 24, 2009 cylinders with Bicol Gas, its manager, petitioner Audie Llona, claimed that he
would be consulting with the owners of Bicol Gas about it. Subsequently, Bicol
The "owners" of a corporate organization are its stockholders and they Gas declined the offer to swap cylinders for the reason that the owners wanted
are to be distinguished from its directors and officers. to send their captured cylinders to Batangas. The Court of Appeals seized on
this as evidence that the employees of Bicol Gas acted under the direct orders of
Stockholders are basically investors in a corporation. They do not have a its owners and that "the owners of Bicol Gas have full control of the operations
hand in running the day-to-day business operations of the corporation of the business."
unless they are at the same time directors or officers of the corporation.
BEFORE A STOCKHOLDER MAY BE HELD CRIMINALLY LIABLE Employees "could not have committed the crimes without the consent,
FOR ACTS COMMITTED BY THE CORPORATION, THEREFORE, IT [abetment], permission, or participation of the owners of Bicol Gas" is a
MUST BE SHOWN THAT HE HAD KNOWLEDGE OF THE CRIMINAL sweeping speculation especially since, as demonstrated above, what was
ACT COMMITTED IN THE NAME OF THE CORPORATION AND THAT involved was just one Petron Gasul tank found in a truck filled with Bicol Gas
HE TOOK PART IN THE SAME OR GAVE HIS CONSENT TO ITS tanks. Although the KPE manager heard petitioner Llona say that he was going
COMMISSION, WHETHER BY ACTION OR INACTION. to consult the owners of Bicol Gas regarding the offer to swap additional
captured cylinders, no indication was given as to which Bicol Gas stockholders
Llona consulted. It would be unfair to charge all the stockholders involved,
some of whom were proved to be minors. No evidence was presented
establishing the names of the stockholders who were charged with running the
operations of Bicol Gas. The complaint even failed to allege who among the
stockholders sat in the board of directors of the company or served as its
officers.

Queensland-Tokyo Commodities, Inc., et al. vs. Thomas George, G.R. The SEC Hearing Officer, held Lau and Collado jointly and severally liable with
No. 172727, Sept. 8, 2010 QTCI for respondent's claim, pursuant to Section 31 of the Corporation Code,
because:
Doctrine dictates that a CORPORATION IS INVESTED BY LAW WITH
A PERSONALITY SEPARATE AND DISTINCT FROM THOSE OF 1. Collado, not a licensed commodity salesman, violated the provisions of the
THE PERSONS COMPOSING IT, such that, save for certain exceptions, Revised Rules and Regulations on Commodity Futures Trading when he
CORPORATE OFFICERS WHO ENTERED INTO CONTRACTS IN admitted having participated in the execution of the customers orders without
BEHALF OF THE CORPORATION CANNOT BE HELD giving any exception thereto, which presumably includes his participation in the
PERSONALLY LIABLE FOR THE LIABILITIES OF THE LATTER. execution of customers orders of the .
Such being the case, [Mendoza's] participation in the trading of [respondent's]
account is within the knowledge of Collado.

2. Lau, as president of QTCI was negligent when it allowed the presence of 7

unlicensed investment consultants within QTCI (apart from Mendoza), and
allowed Collado's participation in the unlawful execution of orders under the
[respondent's] account. The management of QTCI failed to implement the rules
and regulations against the hiring of, and associating with, unlicensed
consultants or traders. How these unlicensed personnel been able to pursue
their unlawful activities is a reflection of how negligent the management was.
Lau cannot feign innocence on the existence of these unlawful activities within
the company, especially so that Collado, himself a ranking officer of QTCI, is
involved in the unlawful execution of customer’s orders. Lau, being the chief
operating officer, cannot escape the fact that had he exercised a modicum of
care and discretion in supervising the operations of QTCI, he could have
detected and prevented the unlawful acts of Collado and Mendoza.

Wherefore there is no compelling reason to depart from the conclusion of the

SEC Hearing Officer, which was affirmed by the CA. We are in full accord with
his reasons for holding Lau and Collado jointly and severally liable with QTCI
for the payment of respondent's claim.

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 Eric Godfrey Stanley Livesey vs. Binswanger Phils., Inc., et. al., G.R. In the present case, we see an indubitable link between CBB’s closure and
No. 177493, Mar. 19, 2014 Binswanger’s incorporation. CBB ceased to exist only in name; it re-emerged in
The law vests a corporation with a personality distinct and separate from the person of Binswanger for an urgent purpose to avoid payment by CBB of the
its stockholders or members. HOWEVER, circumstances might deny a last two installments of its monetary obligation to Livesey, as well as its other
claim for corporate personality, under the doctrine of piercing the veil. financial liabilities.

Ultra Vires Act

Jose Bernas, et. al. vs. Jovencio Cinco, et. al., G.R. Nos. 163356-57, July In the instant case, there is no dispute that the 17 December 1997
01, 2015 Special Stockholders' Meeting was called neither by the President nor by the
Board of Directors but by the MSCOC. While the MSCOC, as its name
Sec. 28 of the Corporation Code laid down the rules on the removal suggests, is created for the purpose of overseeing the affairs of the
of the Directors of the corporation by providing, inter alia, the persons corporation, nowhere in the by-laws does it state that it is authorized to
authorized to call the meeting and the number of votes required for the exercise corporate powers, such as the power to call a special meeting, solely
purpose of removal. Only the President and the Board of Directors are vested by law and the MSC by-laws on the President or the Board of
authorized by the by-laws to call a special meeting. In cases where the person Directors. It is apt to recall that illegal acts of a corporation which
authorized to call a meeting refuses, fails or neglects to call a meeting, then contemplate the doing of an act which is contrary to law, morals or public
the stockholders representing at least 100 shares, upon written request, may order, or contravenes some rules of public policy or public duty, are, like
file a petition to call a special stockholder's meeting. similar transactions between individuals, void. They cannot serve as basis for
a court action, nor acquire validity by performance, ratification or estoppel.
No corporation under the Code shall possess or exercise any
corporate powers except those conferred by this Code or by its articles of
incorporation and except such as are necessary or incidental to the exercise
of the powers so conferred. (Sec. 45, B.P. 68)

A distinction should be made between corporate acts or contracts which are

illegal and those which are merely ultra vires.

Illegal: The former contemplates the doing of an act which are contrary to
law, morals or public policy or public duty, and are, like similar transactions
between individuals, void. They cannot serve as basis of a court action nor
acquire validity by performance, ratification or estoppel.

Ultra vires: Mere ultra vires acts, on the other hand, or those which are not
illegal or void ab initio, but are not merely within the scope of the articles of
incorporation, are merely voidable and may become binding and enforceable
when ratified by the stockholders.

Magallanes Watercraft Asso., Inc., et. al. vs. Margarito Auguis, et. al.,
G.R. No. 211485, May 30, 2016 The fact alone that neither the articles of incorporation nor the by-
laws of MWAI granted its Board the authority to discipline members does not
Section 45 of the Corporation Code provides that a corporation has: make the suspension of the rights and privileges of the respondents ultra
(1) express powers, which are bestowed upon by law or its articles of vires.
incorporation; and
(2) necessary or incidental powers to the exercise of those expressly MWAI can properly impose sanctions on Auguis and Basnig for
conferred. being delinquent members considering that the payment of membership dues
enables MWAI to discharge its duties and functions enumerated under its
An act which cannot fall under a corporation's express or necessary or charter
incidental powers is an ultra vires act.

The test to be applied is whether the act in question is in direct and

immediate furtherance of the corporation’s business, fairly incident to the
express powers and reasonably necessary to their exercise.

RESIDENCE OF A CORPORATION
Hyatt Elevators Inc. vs. Goldstar Elevators. Phils., G.R. No. 161026, Oct. Admittedly, the latter’s principal place of business is Makati, as indicated in
24, 2005 its Articles of Incorporation. Since the principal place of business of a
Well established in our jurisprudence is the rule that the residence of a corporation determines its residence or domicile, then the place indicated in
corporation is the place where its principal office is located, as stated in its petitioner’s articles of incorporation becomes controlling in determining the
Articles of Incorporation. venue for this case.

CLAIM FOR MORAL DAMAGES

ABS-CBN Broadcasting Corp. vs. CA, 301SCRA 589, G.R. No. 128690. Court of Appeals found reasonable basis therefor, holding that RBS's
Jan. 21, 1999 reputation was debased by the filing of the complaint and by the non-showing
of the film "Maging Sino Ka Man." However, SC held that RBS is not
The award of moral damages cannot be granted in favor of a corporation entitled to moral damages.
because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, a corporation may recover moral damages if it "has a good reputation that is
experience physical suffering and mental anguish, which can be experienced debased, resulting in social humiliation" is an obiter dictum. On this score
only by one having a nervous system. alone the award for damages must be set aside, since RBS is a corporation

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 Filipinas Broadcasting Network, Inc. vs. Ago Medical And Educational AMEC's claim for moral damages falls under item 7 of Article 2219 of the
Center-Bicol Christian College of Medicine, (AMEC-BCCM) and Civil Code. This provision expressly authorizes the recovery of moral
Angelita F. Ago, G.R. No. 141994, January 17, 2005 damages in cases of libel, slander or any other form of defamation. Article
2219(7) does not qualify whether the plaintiff is a natural or juridical person.
As a matter of exception, a juridical person is entitled to moral damages Therefore, a juridical person such as a corporation can validly complain for
under expressed provision of law under Article 2219(7) of the Civil Code libel or any other form of defamation and claim for moral damages.
which expressly authorizes the recovery of moral damages in cases of libel,
slander or any other form of defamation. Therefore, a juridical person such
as a corporation can validly complain for libel or any other form of
defamation and claim for moral damages.

DOCTRINE OF APPARENT AUTHORITY

Calubad v. Ricarcen Development Corp., G.R. No. 202364, August 30, As the former president of Ricarcen, it was within Marilyn's scope of
2017 authority to act for and enter into contracts in Ricarcen's behalf. Her broad
authority from Ricarcen can be seen with how the corporate secretary
When a corporation intentionally or negligently clothes its agent with entrusted her with blank yet signed sheets of paper to be used at her
apparent authority to act in its behalf, it is estopped from denying its agent's discretion. She also had possession of the owner's duplicate copy of the land
apparent authority as to innocent third parties who dealt with this agent in title covering the property mortgaged to Calubad, further proving her
good faith. authority from Ricarcen. Various checks of their transactions where both
drawn by or deposited to Ricarcen.
Calubad could not be faulted for continuing to transact with
Marilyn, even agreeing to give out additional loans, because Ricarcen clearly
clothed her with apparent authority. Likewise, it reasonably appeared that
Ricarcen's officers knew of the mortgage contracts entered into by Marilyn in
Ricarcen's behalf as proven by the issued Banco De Oro checks as payments
for the monthly interest and the principal loan.

Calubad, as an innocent third party dealing in good faith with Marilyn, should
not be made to suffer because of Ricarcen's negligence in conducting its own
business affairs.

Citystate Savings Bank v. Tobias, G.R. No. 227990, March 7, 2018) Robles as branch manager, has been vested with the apparent or implied
authority to act for the petitioner in offering and facilitating banking
THE DOCTRINE OF APPARENT AUTHORITY / "HOLDING OUT" transactions.
THEORY/ DOCTRINE OF OSTENSIBLE AGENCY
 power to affect the legal relations of another person by transactions with The existence of apparent or implied authority is measured by previous acts
third persons arising from the other's manifestations to such third person that have been ratified or approved or where the accruing benefits have been
such that the liability of the principal for the acts and contracts of his agent accepted by the principal. It may also be established by proof of the course of
extends to those which are within the apparent scope of the authority business, usages and practices of the bank; or knowledge that the bank or its
conferred on him, although no actual authority to do such acts or to make officials have, or is presumed to have of its responsible officers' acts
such contracts has been conferred. regarding bank branch affairs

imposes liability, not "as the result of the reality of a contractual

relationship, but rather because of the actions of a principal or an employer
in somehow misleading the public into believing that the relationship or the
authority exist

Banate v. Philippine Countryside Rural Bank (Liloan, Cebu), Inc., G.R. In the present case, we would be unduly stretching the doctrine
No. 163825, July 13, 2010 of apparent authority were we to consider the power to undo or nullify solemn
Being a mere branch manager alone is insufficient to support the conclusion agreements validly entered into as within the doctrine’s ambit. Although a
that Mondigo has been clothed with “apparent authority” to verbally alter branch manager, within his field and as to third persons, is the general agent
terms of written contracts, especially when viewed against the telling and is in general charge of the corporation, with apparent authority
circumstances of this case. commensurate with the ordinary business entrusted him and the usual course
and conduct thereof, yet the power to modify or nullify corporate contracts
remains generally in the board of directors.

BUSINESS JUDGMENT RULE

Balinghasay vs. Castillo, G.R. No. 185664, April 8, 2015 In the case at bar, to the petitioners’ own detriment, they admit that the
antecedents and circumstances surrounding the operation of the ultrasound
GR: Questions of policy or of management are left solely to the honest unit, which they invoke to prove good faith on their part, were not introduced
decision of the board as the business manager of the corporation, and the into the records during the trial.
court is without authority to substitute its judgment for that of the board The respondents once again stress that MCPI’s Balance Sheets for
the years 1996 up to 2000 unequivocally show that the corporation had more
EXPN: Acts are in bad faith or are prejudicial to the corporation than enough cash and cash equivalents to purchase and operate the ultrasound
equipment. Hence, the petitioners were either impelled by bad faith or were
grossly negligent when they failed to conduct a simple examination of
MCPI’s financial records. As regards MCPI’s intent to buy the lot adjacent to
the hospital, the respondents claim that the allegation is an afterthought and
no evidence supports it. The respondents also contend that estoppel does not
apply in the instant case as they had repeatedly, but in vain, asked the MCPI’s
Board of Directors for a copy of the MOA, and letters were thereafter sent to
challenge its validity.

Ching v. Quezon City Sports Club, Inc., G.R. No. 200150, [November 7, Petitioner Catherine herself admitted violating Board Resolution No. 7-2001
by not paying the ₱2,500.00 special assessment. Despite being aware of the

MS. VALERIANO © 4
 2016 special assessment, petitioner Catherine simply chose not to pay the same,
without taking any other step to let respondents know of her opposition to
Articles of incorporation and bylaws of a country club are the fundamental said special assessment, until the suspension of her membership privileges.
documents governing the conduct of the corporate affairs of said club; they Consequently, there was ground for respondents to suspend petitioner
establish the norms of procedure for exercising rights, and reflected the Catherine's membership privileges.
purposes and intentions of the incorporators.
Thus, the court finds no bad faith on the part of respondents in
implementing petitioner Catherine's suspension. Petitioners utterly failed to
establish that respondents acted with malice or ill will or motive in the
issuance and distribution to the billing clerks and attendants of the list of
suspended members of respondent Club. In contrast, respondents were able to
explain that these were done in the ordinary course of business, i.e., to
implement Board Resolution Nos. 7-2001 and 3-2002.

TRUST FUND DOCTRINE

Donnina C. Halley vs. Printwell, Inc., G.R. No. 157549, May 30, 2011 Petitioner, stockholder, incorporator and director of the corporation (BMPI) is
liable to the extent of her unpaid subscription when the corporation did not
Stockholders of a corporation are liable for the debts of the corporation up to pay the remaining balance of its debt.
the extent of their unpaid subscriptions. They cannot invoke the veil of
corporate identity as a shield from liability, because the veil may be lifted to
avoid defrauding corporate creditors.

CAPITAL
Wilson P. Gamboa vs. Finance Sec. Margarito B. Teves, et. al., G.R. No. Since PTIC is a stockholder of PLDT, the sale by the Philippine Government
176579, June 28, 2011 of 46.125 percent of PTIC shares is actually an indirect sale of 12 million
shares or about 6.3 percent of the outstanding common shares of PLDT. With
"CAPITAL"  shares of stock entitled to vote in the election of directors, the sale, First Pacific’s common shareholdings in PLDT increased from 30.7
and thus in the present case only to common shares, and not to the total percent to 37 percent, thereby increasing the common shareholdings of
outstanding capital stock comprising both common and non-voting preferred foreigners in PLDT to about 81.47 percent. This violates Section 11,
shares. (Section 11, Article XII of the Constitution) Article XII of the 1987 Philippine Constitution which limits foreign
ownership of the capital of a public utility to not more than 40 percent.

Board of Directors/Power of the BOD

Valle Verde Country Club, Inc. vs. Victor Africa G.R. No. 151969, Sept. 4, Vacancy is caused by Makalintal’s resignation in 1998, not by the
2009 expiration of his term in 1997, is both illogical and unreasonable. His
The holdover period is not part of the term of office of a member of resignation as a holdover director did not change the nature of the
the board of directors The word "term" has acquired a definite meaning vacancy; the vacancy due to the expiration of Makalintal’s term had
in jurisprudence. been created long before his resignation
In several cases, we have defined "term" as the time during
which the officer may claim to hold the office as of right, and fixes
the interval after which the several incumbents shall succeed one
another. The term of office is not affected by the holdover. The term is
fixed by statute and it does not change simply because the office may
have become vacant, nor because the incumbent holds over in office
beyond the end of the term due to the fact that a successor has not
been elected and has failed to qualify.
Term is distinguished from tenure in that an officer’s
"tenure" represents the term during which the incumbent actually holds
office. The tenure may be shorter (or, in case of holdover, longer) than
the term for reasons within or beyond the power of the incumbent.
Based on the above discussion, when Section 239 of the
Corporation Code declares that "the board of directors… shall hold
office for one (1) year until their successors are elected and qualified,"
Filipinas Port Services vs. Go G.R. No. 161886, March 16, 2007 In the present case, the board’s creation of the positions of Assistant Vice
Presidents for Corporate Planning, Operations, Finance and Administration,
immediately after their election, the directors of a corporation must formally and those of the Special Assistants to the President and the Board Chairman,
organize by the election of a president, who shall be a director, a treasurer was in accordance with the regular business operations of Filport as it is
who may or may not be a director, a secretary who shall be a resident and authorized to do so by the corporation’s by-laws, pursuant to the Corporation
citizen of the Philippines, and such other officers as may be provided for in Code.
the by-laws.

Under Section 35 of the Corporation Code, the creation of an executive

committee must be provided for in the bylaws of the corporation

Besides, the determination of the necessity for additional offices and/or

positions in a corporation is a management prerogative which courts are not
allowed to review in the absence of any proof that such prerogative was
exercised in bad faith or with malice.
Indeed, it would be an improper judicial intrusion into the internal
affairs of Filport were the Court to determine the propriety or impropriety of
the creation of offices therein and the grant of salary increases to officers
thereof. Such are corporate and/or business decisions which only the
corporation’s Board of Directors can determine.

MS. VALERIANO © 5
CORPORATE OFFICER
*Matling Ind’l and Commercial Corp., et. Al. Ricardo R. Coros, G.R. No. Respondent was not appointed as Vice President for Finance and
157802 Oct. 13, 2010 Administration because of his being a stockholder or Director of Matling. He
had started working for Matling on September 8, 1966, and had been
Section 25, a position must be expressly mentioned in the By-Laws in order employed continuously for 33 years until his termination on April 17, 2000.
to be considered as a corporate office. Thus, the creation of an office pursuant
to or under a By-Law enabling provision is not enough to make a position a
corporate office

MARC II Marketing, Inc. vs. Alfredo M. Joson G.R. No. 171993, Dec. 12, Court rules that respondent was not a corporate officer of petitioner
2011 corporation because his position as General Manager was not specifically
An alleged subsequent passage of a board resolution which creates a mentioned in the roster of corporate officers in its corporate by-laws. The
corporate office, to that effect cannot make such position a corporate office enabling clause in petitioner corporation’s by-laws empowering its Board of
Directors to create additional officers, i.e., General Manager, and the alleged
subsequent passage of a board resolution to that effect cannot make such
position a corporate office.
Leslie Okol vs. Slimmers World International, et al., G.R. No. 160146, From the documents submitted by respondents, petitioner was a director and
December 11, 2009 officer of Slimmers World. The charges of illegal suspension, illegal
dismissal, unpaid commissions, reinstatement and back wages imputed by
petitioner against respondents fall squarely within the ambit of intra-
An "office" is created by the charter of the corporation and the officer is
corporate disputes.
elected by the directors or stockholders. On the other hand, an "employee"
usually occupies no office and generally is employed not by action of the
directors or stockholders but by the managing officer of the corporation who
also determines the compensation to be paid to such employee

Gloria V. Gomez vs. PNOC Dev. and Mngt. Corp. (PDMC), G.R. No. Here, respondent PDMC hired petitioner Gomez as an ordinary employee
174044, Nov. 27, 2009 without board approval as was proper for a corporate officer. When the
company got her the first time, it agreed to have her retain the managerial
Ordinary company employees are generally employed not by action of the rank that she held with Petron.Her appointment paper said that she would be
directors and stockholders but by that of the managing officer of the entitled to all the rights, privileges, and benefits that regular PDMC
corporation who also determines the compensation to be paid such employees enjoyed.
employees. Corporate officers, on the other hand, are elected or appointed by
the directors or stockholders, and are those who are given that character
either by the Corporation Code or by the corporation’s by-laws.

The relationship of a person to a corporation, whether as officer or agent or

employee, is not determined by the nature of the services he performs but by
the incidents of his relationship with the corporation as they actually exist.

LIABILITY OF CORPORATE OFFICER

Rodolfo Laborte, et al. v. Pagsanjan Tourism Consumers’ Coop., et al., With respect to Laborte’s liability in his official and personal capacity, the
G.R. No. 183860, Jan. 15, 2014 Court finds that Laborte was simply implementing the lawful order of the
PTA Management.
As a general rule the officer cannot be held personally liable with the
corporation, whether civilly or otherwise, for the consequences of his acts, if
acted for and in behalf of the corporation, within the scope of his authority
and in good faith.

MAM Realty Development Corporation v. NLRC, 314 Phil. 838 (1995) In the case at bench, there is nothing substantial on record that can justify,
prescinding from the foregoing, petitioner Centeno’s solidary liability with
\While MAM was properly held liable to Balbastro, the NLRC erred in the corporation
holding Centeno jointly and severally liable with MAM. A corporation, being
a juridical entity, may act only through its directors, officers and employees.
Obligations incurred by them, acting as such corporate agents, are not theirs
but the direct accountabilities of the corporation they represent. True,
solidary liabilities may at times be incurred but only when exceptional
circumstances warrant such as, in labor cases, for instance, the Court has
held corporate directors and officers solidarily liable with the corporation
for the termination of employment of employees done with malice or in bad
faith.

Harpoon Marine Services, Inc., et al. v. Fernan H. Francisco, G.R. No. No evidence in record could not show that Rosit acted in bad faith or gross
167751, March 2, 2011 negligence nor in excess of authority when he made the illegal dismissal.
Good faith is still presumed. Liability only attaches when the officer has
The general rule is grounded on the theory that a corporation has a legal assented to patently unlawful acts of the corporation.
personality separate and distinct from the persons comprising it. To warrant
the piercing of the veil of corporate fiction, the officer’s bad faith or
wrongdoing "must be established clearly and convincingly" as “BAD FAITH
IS NEVER PRESUMED."

SPI Technologies, Inc., et al. v. Victoria K. Mapua, G.R. No. 199022, While the Court finds Mapua’s averments against Villanueva, Nolan,
April 7, 2014 Maquera and Raina as detailed and exhaustive, the Court takes notice that
[i]t is hornbook principle that personal liability of corporate directors, these are mostly suppositions on her part. Thus, the Court cannot apply the
trustees or officers attaches only when: (a) they assent to a patently unlawful above-enumerated exceptions when a corporate officer becomes personally
act of the corporation, or when they are guilty of bad faith or gross liable for the obligation of a corporation to this case

MS. VALERIANO © 6
 negligence in directing its affairs, or when there is a conflict of interest
resulting in damages to the corporation, its stockholders or other persons;
(b) they consent to the issuance of watered down stocks or when, having
knowledge of such issuance, do not forthwith file with the corporate secretary
their written objection; (c) they agree to hold themselves personally and
solidarily liable with the corporation; or (d) they are made by specific
provision of law personally answerable for their corporate action.”

Mirant [Phils.] Corp., et al. v. Joselito A. Caro, G.R. No. 181490, April 23, Absent any evidence on record that petitioner Bautista acted maliciously or in
2014 bad faith in effecting the termination of respondent, plus the apparent lack of
A corporation has a personality separate and distinct from its officers and allegation in the pleadings of respondent that petitioner Bautista acted in such
board of directors who may only be held personally liable for damages if it is manner, the doctrine of corporate fiction dictates that only petitioner
proven that they acted with malice or bad faith in the dismissal of an corporation should be held liable for the illegal dismissal of respondent.
employee.

STOCKHOLDERS
Joselito Musni Puno vs. Puno Enterprises, Inc., et. al., G.R. No. 177066, Even if petitioner presents sufficient evidence in this case to establish that he
Sept. 11, 2009 is the son of Carlos L. Puno, he would still not be allowed to inspect
The stockholder’s right of inspection of the corporation’s books and records respondent’s books and be entitled to receive dividends from respondent,
is based upon his ownership of shares in the corporation and the necessity for absent any showing in its transfer book that some of the shares owned by
self-protection. After all, a shareholder has the right to be intelligently Carlos L. Puno were transferred to him. This would only be possible if
informed about corporate affairs. Such right rests upon the stockholder’s petitioner has been recognized as an heir and has participated in the
underlying ownership of the corporation’s assets and property. settlement of the estate of the deceased.
Similarly, only stockholders of record are entitled to receive
dividends declared by the corporation, a right inherent in the ownership of
the shares. Upon the death of a shareholder, the heirs do not automatically
become stockholders of the corporation and acquire the rights and
privileges of the deceased as shareholder of the corporation. The stocks
must be distributed first to the heirs in estate proceedings, and the transfer
of the stocks must be recorded in the books of the corporation
David C. Lao and Jose C. Lao vs. Dionisio C. Lao, G.R. No. 170585, Petitioners did not present any deed of assignment, or any similar instrument,
October 6, 2008 between Lao Pong Bao and petitioner Hipolito Lao; or between Lao Pong
Bao and petitioner David Lao. There is likewise no deed of assignment
A certificate of stock is the evidence of a holder’s interest and status in between petitioner Jose Lao and private respondent Dionisio Lao.
a corporation. It is a written instrument signed by the proper officer of a
corporation stating or acknowledging that the person named in the document
is the owner of a designated number of shares of its stock.
It is a prima facie evidence that the holder is a shareholder of a
corporation. Nor is there any written document that there was a sale of
shares, as claimed by petitioners.

The mere inclusion as shareholder of petitioners in the General Information

Sheet of PFSC is insufficient proof that they are shareholders of the company

BY-LAWS
Loyola Grand Villas Homeowners Asso. Inc. vs. CA, et. al., G.R. No. Although the Corporation Code requires the filing of bylaws, it does not
117188, Aug. 7, 1997 expressly provide for the consequences of the non-filing of the same within
the period provided for in Section 46.
There can be no automatic corporate dissolution simply because the
incorporators failed to abide by the required filing of by-laws—the
incorporators must be given the chance to explain their neglect or omission
and to remedy the same.
By-laws may be necessary for the “government” of the corporation but these
are subordinate to the articles of incorporation as well as to the Corporation
Code and related statutes.

Petronilo J. Barayuga vs. Adventist Univ. of the Phils., G.R. No. 168008, In AUPs case, its amended By-Laws provided the term of the members of the
Aug. 17, 2011 Board of Trustees to serve a term of office of only two years; and the officers,
who included the President, were to be elected from among the members of
Section 108 of the Corporation Code  determines the MEMBERSHIP AND the Board of Trustees during their organizational meeting, which was held
NUMBER OF TRUSTEES IN AN EDUCATIONAL CORPORATION which during the election of the Board of Trustees every two years. Naturally, the
the second paragraph of the provision contains a proviso expressly officers, including the President, were to exercise the powers vested by
SUBJECTing the DURATION to what is otherwise PROVIDED  IN THE Section 2 of the amended By-Laws for a term of only two years, not five
ARTICLES OF INCORPORATION OR BY-LAWS OF THE EDUCATIONAL years
CORPORATION. That contrary provision controls the term of office.
Petitioner, having assumed as President of AUP on January 23, 2001, could
serve for only two years, or until January 22, 2003. By the time of his
removal for cause as President on January 27, 2003, he was already
occupying the office in a hold-over capacity, and could be removed at any
time, without cause, upon the election or appointment of his successor making
his insistence on holding on to the office untenable
Valley Golf & Country Club, Inc., Rosa O. Vda. De Caram, G.R. No. The right of a non-stock corporation such as VGCC in the present case, to
158805, April 16, 2009 expel a member through the forfeiture of the said golf share may be
established in the by-laws alone, as in this case.

MS. VALERIANO © 7
 Sec. 91 of the Corporation Code provides that membership shall be
terminated in the manner and for the causes provided in the articles of The termination of membership in a non-stock corporation must be done in
incorporation or the by-laws. Termination of membership shall have the accordance with substantial justice. In the present case, however, it is
effect of extinguishing all rights of a member in the corporation, or in its apparent that the termination of Caram Jr.’s membership runs contrary to
property, unless otherwise provided in the articles of incorporation or by- substantial justice. VGCC has acted in bad faith when it sent notices to Caram
laws Jr. under the pretense that they believed that he was still alive, when in fact
they had very well known that he had already died
In a non-stock corporation, the loss of membership also entails the loss of
property rights. The manner of deprivation of such property right should be
in accordance with the provisions of the Civil Code of the Philippines

DERIVATIVE SUIT
Juanito Ang, et. al. vs. Sps. Roberto and Rachel Ang, G.R. No. 201675, Applying the foregoing, we find that the Complaint is not a derivative suit.
June 19, 2013 The Complaint failed to show how the acts of Rachel and Roberto resulted in
any detriment to SMBI. The CA-Cebu correctly concluded that the loan was
A DERIVATIVE SUIT is an action brought by a stockholder on behalf of the not a corporate obligation, but a personal debt of the Ang brothers and their
corporation to enforce corporate rights against the corporation’s directors, spouses. The check was issued to "Juanito Ang and/or Anecita Ang and/or
officers or other insiders. Roberto Ang and/or Rachel Ang" and not SMBI. The proceeds of the loan
In derivative suits, the real party in interest is the corporation, while the were used for payment of the obligations of the other corporations owned by
stockholder is a mere nominal party the Angs as well as the purchase of real properties for the Ang brothers. SMBI
was never a party to the Settlement Agreement or the Mortgage. It was never
Section 1, Rule 8 of the Interim Rules imposes the following requirements named as a co-debtor or guarantor of the loan. Both instruments were
for derivative suits: executed by Juanito and Anecita in their personal capacity, and not in their
(1) The person filing the suit must be a STOCKHOLDER OR MEMBER at the capacity as directors or officers of SMBI. Thus, SMBI is under no legal
time the acts or transactions subject of the action occurred and the time the obligation to satisfy the obligation.
action was filed; Since damage to the corporation was not sufficiently proven by Juanito, the
(2) He must have EXERTED ALL REASONABLE EFFORTS, AND ALLEGES Complaint cannot be considered a bona fide derivative suit. A derivative suit
THE SAME WITH PARTICULARITY IN THE COMPLAINT, TO EXHAUST is one that seeks redress for injury to the corporation, and not the stockholder
ALL REMEDIES AVAILABLE under the articles of incorporation, by-laws,
laws or rules governing the corporation or partnership to obtain the relief he
desires;
(3) NO APPRAISAL RIGHTS ARE AVAILABLE for the act or acts
complained of; and
(4) The suit is NOT A NUISANCE OR HARASSMENT SUIT.

Legaspi Towers 300, Inc., et. al. vs. Amelia P. Muer, et. al., G.R. No. Petitioners’ complaint seek to nullify the said election, and to protect and
170783, June 18, 2012 enforce their individual right to vote. The cause of action devolves on
petitioners, not the condominium corporation, which did not have the right to
The stockholders right to file a derivative suit is not based on any express vote. Hence, the complaint for nullification of the election is a direct action
provision of The Corporation Code, but is impliedly recognized when the law by petitioners, who were the members of the Board of Directors of the
makes corporate directors or officers liable for damages suffered by the corporation before the election, against respondents, who are the newly-
corporation and its stockholders for violation of their fiduciary duties. elected Board of Directors. Under the circumstances, the derivative suit filed
by petitioners in behalf of the condominium corporation in the Second
Amended Complaint is improper.

Forest Hills Golf and Country Club, Inc. vs. Fil-Estate Properties, Inc.,
G.R. No. 206649, July 20, 2016 In this case, Madrid, as a shareholder of petitioner
FHGCCI, failed to allege with particularity in the Complaint, and even in the
Failure to meet the requirements set forth in Section 1, Rule 8 of the Interim Amended Complaint, that he exerted all reasonable efforts to exhaust all
Rules of Procedure Governing Intra-Corporate Controversies, the Complaint, remedies available under the articles of incorporation, bylaws, or rules
denominated as a derivative suit for specific performance, must be dismissed. governing the corporation; that no appraisal rights are available for the act or
acts complained of; and that the suit is not a nuisance or a harassment suit.
Although the Complaint alleged that demand letters were sent to the Board of
Directors of petitioner FHGCCI and that these were unheeded, these
allegations will not suffice.

TRANSFER OF STOCK OWNERSHIP

Simny G. Guy, et. al. vs. The Hon. Ofelia C. Calo, G.R. No. 189486, With Gilbert’s failure to allege specific acts of fraud in his complaint and
Sept. 5, 2012 his failure to rebut the NBI report, this Court pronounces, as a
consequence thereof, that the signatures appearing on the stock
When a stock certificate is endorsed in blank by the owner thereof, it certificates, including his blank endorsement thereon were authentic. With
constitutes what is termed as “street certificate,” so that upon its face, the the stock certificates having been endorsed in blank by Gilbert, which he
holder is entitled to demand its transfer into his name from the issuing himself delivered to his parents, the same can be cancelled and transferred
corporation. Such certificate is deemed quasi-negotiable, and as such the in the names of herein petitioners.
transferee thereof is justified in believing that it belongs to the holder and
transferor

Fil-Estate Gold and Dev. Inc., et al. v. Vertex Sales and Trading, Inc., In this case, Vertex fully paid the purchase price by February 11, 1999 but
G.R. No. 202079, June 10, 2013 the stock certificate was only delivered on January 23, 2002 after Vertex
filed an action for rescission against the petitioner.
A sale of shares of stock, physical delivery of a stock certificate is one of
the essential requisites for the transfer of ownership of the stocks Petitioner Fil-Estate Golf clearly failed to deliver the stock
purchased." (Raquel-Santos v. CA) No shares of stock against which the certificates, representing the shares of stock purchased by Vertex, within a
corporation holds any unpaid claim shall be transferable in the books of the reasonable time from the point the shares should have been delivered. This
corporation was a substantial breach of their contract that entitles Vertex the right to
rescind the sale under Article 1191 of the Civil Code. It is not entirely

MS. VALERIANO © 8
 correct to say that a sale had already been consummated as Vertex already
enjoyed the rights a shareholder can exercise. The enjoyment of these
rights cannot suffice where the law, by its express terms, requires a
specific form to transfer ownership.

SALE OF DELINQUENT STOCKS

Calatagan Golf Club, Inc. vs. Sixto Clemente, JR., G.R. No. 16544, In this case, Clemente had already fully paid for the share in Calatagan and
April 16, 2009 no longer had any outstanding obligation to deprive him of full title to his
share
At the root of the sale of delinquent stock is the non-payment of the
subscription price for the share of stock itself. The stockholder or Calatagan had failed to duly observe both the spirit and letter of its own
subscriber has yet to fully pay for the value of the share or shares by-laws. The by-law provisions was clearly conceived to afford due notice
subscribed. to the delinquent member of the impending sale, and not just to provide an
intricate façade that would facilitate Calatagan’s sale of the share. But
Under Section 91 of the Corporation Code, membership in a nonstock then, the bad faith on Calatagan’s part is palpable. As found by the Court
corporation “shall be terminated in the manner and for the causes of Appeals, Calatagan very well knew that Clemente’s postal box to which
provided in the articles of incorporation or the by-laws. it sent its previous letters had already been closed, yet it persisted in
sending that final letter to the same postal box.
The obligation of a corporation to treat every person honestly and in good
faith extends even to its shareholders or members, even if the latter find It is noteworthy that Clemente in his membership application
themselves contractually bound to perform certain obligations to the had provided his residential address along with his residence and office
corporation. A certificate of stock cannot be a charter of dehumanization. telephone numbers. Nothing in Section 32 of Calatagan’s By-Laws
requires that the final notice prior to the sale be made solely through the
member’s mailing address. Clemente cites our aphorism-like
pronouncement in Rizal Commercial Banking Corporation v. Court of
Appeals, that “[a] simple telephone call and an ounce of good faith x x x
could have prevented
this present controversy.” That memorable observation is quite apt in this
case. Calatagan’s bad faith and failure to observe its own By-Laws had
resulted not merely in the loss of Clemente’s privilege to play golf at its
golf course and avail of its amenities, but also in significant pecuniary
damage to him. For that loss, the only blame that could be thrown
Clemente’s way was his failure to notify Calatagan of the closure of the
P.O. Box. That lapse, if we uphold Calatagan would cost Clemente a lot.
But, in the first place, does he deserve answerability for failing to notify
the club of the closure of the postal box? Indeed, knowing as he did that
Calatagan was in possession of his home address as well as residence and
office telephone numbers, he had every reason to assume that the club
would not be at a loss should it need to contact him. In addition, according
to Clemente, he was not even aware of the closure of the postal box, the
maintenance of which was not his responsibility but his employer
Phimco’s.

QUORUM
Paul Lee Tan, et. al. vs. Paul Sycip, et. al., August 17, 2006 With 11 remaining members, the quorum in the present case should be 6.
Therefore, there being a quorum, the annual members’ meeting, conducted
For stock corporations, the "quorum" referred to in Section 52 of the with six members present, was valid.
Corporation Code is based on the number of outstanding voting stocks.

For nonstock corporations, only those who are actual, living members
with  voting rights shall be counted in determining the existence of a quorum
during members’ meetings. Dead members shall not be counted.

APPRAISAL RIGHT
Philip Turner, et. al. vs. Lorenzo Shipping Corp., G.R. No. 157479, Since the respondent had indisputably no unrestricted retained earnings in its
Nov.24, 2010 books at the time the petitioners commenced the action on January 22, 2001,
it proved that the respondent’s legal obligation to pay the value of the
APPRAISAL RIGHT is right to demand payment of the fair value of shares petitioners’ shares did not yet arise
owned by a stockholder in case he/she dissents from certain corporate action.
HOWEVER, no payment shall be made to any dissenting stockholder unless
the corporation has unrestricted retained earnings in its books to cover the
payment. In case the corporation has no available unrestricted retained
earnings in its books,

IF THE DISSENTING STOCKHOLDER IS NOT PAID THE VALUE OF HIS

SHARES WITHIN 30 DAYS AFTER THE AWARD, his voting and dividend
rights shall immediately be restored.

MS. VALERIANO © 9
 Bangko Sentral ng Pilipinas v. Campa, Jr., G.R. No. 185979, March 16, The appraisal right does not obtain in this case because the subject of the act
2016 complained of is the private properties of a stockholder and not that of the
corporation
Section 81. Instances of appraisal right.- Any stockholder of a corporation
shall have the right to dissent and demand payment of the fair value of his
shares in the following instances:

1. In case any AMENDMENT TO THE ARTICLES OF INCORPORATION

HAS THE EFFECT OF CHANGING OR RESTRICTING THE RIGHTS OF
ANY STOCKHOLDER OR CLASS OF SHARES, OR OF AUTHORIZING
PREFERENCES IN ANY RESPECT SUPERIOR TO THOSE OF
OUTSTANDING SHARES OF ANY CLASS, OR OF EXTENDING OR
SHORTENING THE TERM OF CORPORATE EXISTENCE;

2. In case of SALE, LEASE, EXCHANGE, TRANSFER, MORTGAGE,

PLEDGE OR OTHER DISPOSITION OF ALL OR SUBSTANTIALLY ALL
OF THE CORPORATE PROPERTY and assets as provided in the Code; and

3. In case of MERGER OR CONSOLIDATION.

PRE-EMPTIVE RIGHT AND RIGHT OF FIRST REFUSAL

Pre-emptive right
It is the preferential right of shareholders to subscribe to all issues or disposition of shares of any class in proportion to their present shareholdings. (CC, Sec. 39)
NOTE: The stockholder must exercise his pre-emptive right within the time fixed in the resolution authorizing the increase of capital stock.

Pre-emptive right must be exercised within the period stated in the AOI or the By-Laws. When the AOI and the By-Laws are silent, the Board may fix a reasonable
time within which the stockholders may exercise the right.
NOTE: Pre-emptive right can only be exercised to the same class of shares issued or disposed with that owned by the stockholder (Share-a-like basis).

RIGHT OF FIRST REFUSAL  Right to purchase shares of a stockholder.

Andaya vs. Rural Bank of Cabadbaran, Inc., G.R. No. 188769, August 3, Andaya, as a transferee of shares of stock, may initiate an action
2016 for mandamus compelling the Rural Bank of Cabadbaran to record the
transfer of shares in its stock and transfer book, as well as issue new stock
It is already settled jurisprudence that the registration of a transfer of shares certificates in his name
of stock is a ministerial duty on the part of the corporation. Aggrieved parties
may then resort to the remedy of mandamus to compel corporations that
wrongfully or unjustifiably refuse to record the transfer or to issue new
certificates of stock.

CORPORATE BOOKS AND RIGHT TO INSPECT

Ma. Belen Flordeliza Ang-Abaya, et. al. vs. Eduardo G. Ang, G.R. No. Petitioners argue that Eduardo’s demand for an inspection of the corporations’
178511, Dec. 4, 2008 books is based on the latter’s attempt in bad faith at having his more than
P165 million advances from the corporations written off; that Eduardo is
The stockholder's right of inspection of the corporation's books and records is unjustly demanding that he be given the office of Jason, or the Vice
based upon their ownership of the assets and property of the corporation. It Presidency for Finance and Corporate Secretary; that Eduardo is usurping
is, therefore, an incident of ownership of the corporate property, whether this rights belonging exclusively to the corporations; and Eduardo’s attempts at
ownership or interest be termed an equitable ownership, a beneficial coercing the corporations, their directors and officers into giving in to his
ownership, or a quasi-ownership. This right is predicated upon the necessity baseless demands involving specific corporate assets.
of self-protection. It is generally held by majority of the courts that where the These serious allegations are supported by official and other
right is granted by statute to the stockholder, it is given to him as such and documents, such as board resolutions, treasurer’s affidavits and written
must be exercised by him with respect to his interest as a stockholder and for communication from the respondent Eduardo himself, who appears to have
some purpose germane thereto or in the interest of the corporation. In other withheld his objections to these charges. His silence virtually amounts to an
words, the inspection has to be germane to the petitioner's interest as a acquiescence. Taken together, all these serve to justify petitioners’ allegation
stockholder, and has to be proper and lawful in character and not inimical to that Eduardo was not acting in good faith and for a legitimate purpose in
the interest of the corporation making his demand for inspection of the corporate books. Otherwise stated,
there is lack of probable cause to support the allegation that petitioners
violated Section 74 of the Corporation Code in refusing respondent’s request
for examination of the corporation books.

Aderito Z. Yujuico , et. al. vs. Cezar T. Quiambao et. al., G.R. No. 180416, There is no denial of petitioner’s right to examine the books. Respondents
June 2, 2014 are merely outgoing officers of STRADEC who, for some reason,
withheld and refused to turn-over the company records of STRADEC;
The enforcement of the right to inspect the records and the stock and transfer that it is the petitioners who are actually acting on behalf of STRADEC; and
book of a corporation is different to the enforcement of the right of a that STRADEC is actually merely trying to recover custody of the withheld
stockholder to be in possession of such records and book. records.

MS. VALERIANO © 10
 A criminal action based on the violation of a stockholder's right to examine In other words, petitioners are not actually invoking their right
or inspect the corporate records and the stock and transfer book of a to inspect the records and the stock and transfer book of STRADEC
corporation under the second and fourth paragraphs of Section 74 of the under the second and fourth paragraphs of Section 74. What they seek to
Corporation Code can only be maintained against corporate officers or any enforce is the proprietary right of STRADEC to be in possession of such
other persons acting on behalf of such corporation records and book.

MERGER AND CONSOLIDATION

Mindanao Savings and Loan Asso., vs. Edward Willkom, et. al, G.R. No. It is undisputed that the articles of merger between FISLAI and DSLAI were
178618 Oct. 11, 2010 not registered with the SEC due to incomplete documentation. Consequently,
the SEC did not issue the required certificate of merger. Even if it is true that
A merger does not become effective upon the mere agreement of the the Monetary Board of the Central Bank of the Philippines recognized such
corporations. There must be an express provision of law authorizing them. merger, the fact remains that no certificate was issued by the SEC. Such
There is a procedure to be followed as stated in the Corporation Code. The merger is still incomplete without the certification.
board of each corporation draws up a plan of merger and is submitted to In this case, no certificate was issued and such merger is
stockholders or members for approval. The formal agreement is executed incomplete without it. The certificate is important because it bears the
(the articles of merger) and is submitted to the SEC for approval. If approval of the SEC and it marks the moment when the consequences of a
approved, the SEC issues a certificate of merger. merger take place.
The merger shall only be effective upon the issuance of the Since there is no valid merger, FISLAI and MSLAI are still
certificate. (An exception would be if a party to a merger is a special considered as two separate corporations. As far as third parties are
corporation governed by its own charter, then a favorable recommendation concerned, FISLAI's assets still belongs to them, not MSLAI. Being
of the appropriate government agency should first be obtained.) separate entities, the property of one cannot be considered the property of the
The issuance of the certificate of merger is crucial because not other. As far as third parties are concerned, the assets of FISLAI remain
only does it bear out SEC’s approval but it also marks the moment when the as its assets and cannot be considered as belonging to DSLAI and
consequences of a merger take place. By operation of law, upon the MSLAI, notwithstanding the Deed of Assignment wherein FISLAI assigned
effectivity of the merger, the absorbed corporation ceases to exist but its its assets and properties to DSLAI, and the latter assumed all the liabilities of
rights and properties, as well as liabilities, shall be taken and deemed the former.
transferred to and vested in the surviving corporation.

Bank of Commerce v. Radio Philippines Network, Inc., et. al., G.R. No. No merger took place between Bancommerce and TRB as the
195615, April 21, 2014 requirements and procedures for a merger were absent. A merger does not
become effective upon the mere agreement of the constituent corporations.
Merger is a re-organization of two or more corporations that results in their All the requirements specified in the law must be complied with in order for
consolidating into a single corporation, which is one of the constituent merger to take effect. Section 79 of the Corporation Code further provides
corporations, one disappearing or dissolving and the other surviving. that the merger shall be effective only upon the issuance by the Securities and
Exchange Commission (SEC) of a certificate of merger.
The Corporation Code requires the following steps for merger or
consolidation: Here, Bancommerce and TRB remained separate corporations
(1) The board of each corporation draws up a plan of merger or consolidation. with distinct corporate personalities. What happened is that TRB sold and
Such plan must include any amendment, if necessary, to the articles of Bancommerce purchased identified recorded assets of TRB in consideration
incorporation of the surviving corporation, or in case of consolidation, all the of Bancommerce’s assumption of identified recorded liabilities of TRB
statements required in the articles of incorporation of a corporation. including booked contingent accounts. There is no law that prohibits this kind
(2) Submission of plan to stockholders or members of each corporation for of transaction especially when it is done openly and with appropriate
approval. A meeting must be called and at least two (2) weeks’ notice must be government approval.
sent to all stockholders or members, personally or by registered mail. A
summary of the plan must be attached to the notice. Vote of two-thirds of the In strict sense, no merger or consolidation took place as the
members or of stockholders representing two thirds of the outstanding capital records do not show any plan or articles of merger or consolidation. More
stock will be needed. Appraisal rights, when proper, must be respected. importantly, the SEC did not issue any certificate of merger or consolidation.
(3) Execution of the formal agreement, referred to as the articles of merger
o[r] consolidation, by the corporate officers of each constituent corporation.
These take the place of the articles of incorporation of the consolidated
corporation, or amend the articles of incorporation of the surviving
corporation.
(4) Submission of said articles of merger or consolidation to the SEC for
approval.
(5) If necessary, the SEC shall set a hearing, notifying all corporations
concerned at least two weeks before.
(6) Issuance of certificate of merger or consolidation.

CORPORATE DISSOLUTION
Alabang Dev. Corp. v. Alabang Hills Village Asso. et. al., G.R. No. In the instant case, there is no dispute that petitioner's corporate registration
187456, June 2, 2014 was revoked on May 26, 2003. Based on the above-quoted provision of law, it
had three years, or until May 26, 2006, to prosecute or defend any suit by or
The time during which the corporation, through its own officers, may against it. The subject complaint, however, was filed only on October 19,
conduct the liquidation of its assets and sue and be sued as a corporation is 2006, more than three years after such revocation.
limited to three years from the time the period of dissolution commences;
but there is no time limit within which the trustees must complete a
liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78
now Sec. 122]) that the conveyance to the trustees must be made within the
three-year period. It may be found impossible to complete the work of
liquidation within the three-year period or to reduce disputed claims to
judgment. The authorities are to the effect that suits by or against a
corporation abate when it ceased to be an entity capable of suing or being
sued; but trustees to whom the corporate assets have been conveyed
pursuant to the authority of Sec. 78 [now Sec. 122] may sue and be sued as
such in all matters connected with the liquidation. Still in the absence of a
board of directors or trustees, those having any pecuniary interest in the

MS. VALERIANO © 11
 assets, including not only the shareholders but likewise the creditors of the
corporation, acting for and in its behalf, might make proper representations
with the SEC, which has primary and sufficiently broad jurisdiction in
matters of this nature, for working out a final settlement of the corporate
concerns.
Rich vs. Paloma III, G.R. No. 210538, March 7, 2018
These pronouncements draw their basis from Section 122 of the
Once a corporation is dissolved, be it voluntarily or involuntarily, Corporation Code,28 which empowers every corporation whose corporate
liquidation, which is the process of settling the affairs of the corporation, will existence has been legally terminated to continue as a body corporate for
ensue. This consists of (1) collection of all that is due the corporation, (2) the three (3) years after the time when it would have been dissolved. This
settlement and adjustment of claims against it, and (3) the payment of its continued existence would only be for the purposes of "prosecuting and
debts. Yu more particularly described this process as that which entails the defending suits by or against it and enabling it to settle and close its affairs, to
following: dispose of and convey its property and to distribute its assets."

"Winding up the affairs of the corporation means the collection of (1) MTLC has already been dissolved by the Securities and Exchange
all assets, the payment of all its creditors, and the distribution of the Commission as early as September 2003;
remaining assets, if any among the stockholders thereof in accordance with  (2) Estanislao and MTLC entered into the real estate mortgage agreement
their contracts, or if there be no special contract, on the basis of their only on January 24, 2005;36 and
respective interests. The manner of liquidation or winding up may be (3) MTLC, through respondent Servacio, redeemed the property on December
provided for in the corporate by-laws and this would prevail unless it is 15, 2005, for which a Deed of Redemption was issued by respondent Paloma
inconsistent with law."27 (Citations omitted) III on March 15, 2006.
From the foregoing, it is clear that, by the time MTLC executed
A corporation which has already been dissolved, be it voluntarily or the real estate mortgage agreement, its juridical personality has already
involuntarily, retains no juridical personality to conduct its business save for ceased to exist. The agreement is void as MTLC could not have been a
those directed towards corporate liquidation corporate party to the same. To be sure, a real estate mortgage is not part of
the liquidation powers that could have been extended to MTLC. It could not
have been for the purposes of "prosecuting and defending suits by or against
it and enabling it to settle and close its affairs, to dispose of and convey its
property and to distribute its assets." It is, in fact, a new business in which
MTLC no longer has any business pursuing

FOREIGN CORPORATION
Steelcase, Inc. vs. Design International Selections, Inc.,G.R. No. 171995 By acknowledging the corporate entity of Steelcase and entering into a
April 18, 2012 dealership agreement with it and even benefiting from it, DISI is estopped
from questioning Steelcase’s existence and capacity to sue.
A foreign corporation doing business in the Philippines without a license may
still sue before the Philippine courts a Filipino or a Philippine entity that had
derived some benefit from their contractual arrangement because the latter is
considered to be estopped from challenging the personality of a corporation
after it had acknowledged the said corporation by entering into a contract
with it.

The appointment of a distributor in the Philippines is not sufficient to

constitute "doing business" unless it is under the full control of the foreign
corporation. On the other hand, if the distributor is an independent entity
which buys and distributes products, other than those of the foreign
corporation, for its own name and its own account, the latter cannot be
considered to be doing business in the Philippines. It should be kept in mind
that the determination of whether a foreign corporation is doing business in
the Philippines must be judged in light of the attendant circumstances.

Global Business Holdings, Inc. v. Surecomp Software, B.V., G.R. No. Due to Global’s merger with ABC and because it is the surviving corporation,
173463, Oct. 13, 2010 it is as if it was the one which entered into contract with Surecomp. In the
A foreign corporation doing business in the Philippines without license may merger of two existing corporations, one of the corporations survives and
sue in Philippine courts a Filipino citizen or a Philippine entity that had continues the business, while the other is dissolved, and all its rights,
contracted with and benefited from it. A party is estopped from challenging properties, and liabilities are acquired by the surviving corporation. This is
the personality of a corporation after having acknowledged the same by particularly true in this case. Based on the findings of fact of the RTC, as
entering into a contract with it. The principle is applied to prevent a person affirmed by the CA, under the terms of the merger or consolidation, Global
contracting with a foreign corporation from later taking advantage of its assumed all the liabilities and obligations of ABC as if it had incurred such
noncompliance with the statutes, chiefly in cases where such person has liabilities or obligations itself. In the same way, Global also has the right to
received the benefits of the contract exercise all defenses, rights, privileges, and counter-claims of every kind and
nature which ABC may have or invoke under the law. These findings of fact
were never contested by Global in any of its pleadings filed before this Court.
Cargill, Inc. vs. Intra Strata Assurance Corp., G.R. No. 168266 March Cargill is NOT doing business in the Phils.
15, 2010 There is no showing that the transactions between Cargill andNMC signify
the intent of the former to establish a continuous business or extend its
Under Article 123 of the Corporation Code, a foreign corporation must first operations inthe Philippines. In National Sugar Trading Corp. v. CA –
obtain a license and a certificate from the appropriate government agency activities within Philippine jurisdiction that do not create earnings or profits
before it can transact business in the Philippines. Where a foreign corporation to the foreign corporation do not constitute doing business in the
does business in the Philippines without the proper license, it cannot maintain Philippines.In this case, it was NMC (the domestic corporation)that derived
any action or proceeding before Philippine courts. income from the transaction and not Cargill (foreign corp w/c merely bought
from NMC). Besides, under Section 3(d) of RA 7042, “soliciting purchases”
has been deleted from the enumeration of the acts/activities w/c constitute
“doing business”

MS. VALERIANO © 12
 Other factors w/c support that Cargill is NOT doing business in the PH:
(1) It does not have an office in the Philippines;
(2) It imports products from the PH through its nonexclusive local broker,
whose authority to act on behalf of Cargill is limited to soliciting purchases of
products from suppliers engaged in the sugar trade in the PH; and
(3) The local broker is an independent contractor and not an agent of Cargill.

To be doing or “transacting business in the Philippines” for purposes of

Section 133 of the Corporation Code, the foreign corporation must actually
transact business in the Philippines, that is, perform specific business
transactions within the Philippine territory on a continuing basis in its own
name and for its own account. Actual transaction of business within the
Philippine territory is an essential requisite for the Philippines to to acquire
jurisdiction over a foreign corporation and thus require the foreign
corporation to secure a Philippine businesslicense. If a foreign corporation
does not transact such kind of business in the Philippines, even if it exports
its products to the Philippines, the Philippines has no jurisdiction to require
such foreign corporation to secure a Philippine business license. In the
present case, Cargill is a foreign company merely importing molasses
from a Philippine exporter. A foreign company that merely imports goods
from a Philippine exporter, without opening an office or appointing an
agent in the Philippines, is not doing business in the Philippines. Thus,
Cargrill can sue in our courts

Strategic Alliance Dev. Corp. vs. Star Infra Dev. Corp. et. al., G.R. No. As the owner, STRADEC is undoubtedly possessed of clear and unmistakable
187872, Nov. 17, 2010 rights over the subject SIDC shares which respondent Yujuico pledged in
favor of respondent Wong. Unless collectively restrained, the aforesaid acts
An intra-corporate dispute is understood as a suit arising from an intra- will completely divest STRADEC of its shares and unfairly deprive it of
corporate relations or between or among stockholders or between any or all of participation in SIDC's corporate affairs pending the determination of the
them and the corporation validity of the impugned transfers

INTRA-CORPORATE DISPUTE
Renato Real vs. Sangu Philippines, Inc., et. al., G.R. No. 168757, Jan. 19, Guided by this recent jurisprudence, we thus find no merit in respondents’
2011 contention that the fact alone that petitioner is a stockholder and director of
respondent corporation automatically classifies this case as an intra-corporate
To determine whether a case involves an intra-corporate controversy, and is controversy. To reiterate, not all conflicts between the stockholders and the
to be heard and decided by the branches of the RTC specifically designated corporation are classified as intra-corporate. There are other factors to
by the Court to try and decide such cases, two elements must concur: (a) the consider in determining whether the dispute involves corporate matters as to
status or relationship of the parties, and (2) the nature of the question that is consider them as intra-corporate controversies.
the subject of their controversy.

The first element requires that the controversy must arise out of intra-
corporate or partnership relations between any or all of the parties and the
corporation x x . The second element requires that the dispute among the
parties be intrinsically connected with the regulation of the corporation. If
the nature of the controversy involves matters that are purely civil in
character, necessarily, the case does not involve an intra-corporate
controversy.

Raul C. Cosare v. Broadcom Asia, Inc., et al., G.R. No. 201298, Feb. 5, Settled jurisprudence, however, qualifies that when the dispute involves a
2014 charge of illegal dismissal, the action may fall under the jurisdiction of the
An intra–corporate controversy, which falls within the jurisdiction of regular LAs upon whose jurisdiction, as a rule, falls termination disputes and claims
courts, has been regarded in its broad sense to pertain to disputes that for damages arising from employer–employee relations as provided in Article
involve any of the following relationships: 217 of the Labor Code. Consistent with this jurisprudence, the mere fact that
(1) between the corporation, partnership or association and the public; Cosare was a stockholder and an officer of Broadcom at the time the subject
(2) between the corporation, partnership or association and the state in so controversy developed failed to necessarily make the case an intra–corporate
far as its franchise, permit or license to operate is concerned; dispute.
(3) between the corporation, partnership or association and its stockholders,
partners, members or officers; and
(4) among the stockholders, partners or associates, themselves.

Under the nature of the controversy test, the incidents of that relationship
must also be considered for the purpose of ascertaining whether the
controversy itself is intra–corporate. The controversy must not only be rooted
in the existence of an intra–corporate relationship, but must as well pertain
to the enforcement of the parties’ correlative rights and obligations under the
Corporation Code and the internal and intra–corporate regulatory rules of
the corporation. If the relationship and its incidents are merely incidental to
the controversy or if there will still be conflict even if the relationship does
not exist, then no intra–corporate controversy exists.

Belo Medical Group, Inc. v. Santos, G.R. No. 185894, August 30, 2017 The two defendants in that case are both stockholders on record. They
“The Court then combined the two tests and declared that jurisdiction should continue to be stockholders until a decision is rendered on the true ownership
be determined by considering not only the status or relationship of the of the 25 shares of stock in Santos' name. If Santos' subscription is declared
parties, but also the nature of the question under controversy”. fictitious and he still insists on inspecting corporate books and exercising
rights incidental to being a stockholder, then, and only then, shall the case
cease to be intra-corporate.Applying the nature of the controversy test, this is

MS. VALERIANO © 13
 still an intra-corporate dispute. The Complaint for interpleader seeks a
determination of the true owner of the shares of stock registered in Santos'
name. Ultimately, however, the goal is to stop Santos from inspecting
corporate books. This goal is so apparent that, even if Santos is declared the
true owner of the shares of stock upon completion of the interpleader case,
Belo Medical Group still seeks his disqualification from inspecting the
corporate books based on bad faith. Therefore, the controversy shifts from a
mere question of ownership over movable property to the exercise of a
registered stockholder's proprietary right to inspect corporate books.

REVISED CORPORATION CODE RA 11232

RA 11232 retained the following provisions from BP 68

- Definition of Corporation
- classes of corporation
-classification of shares
-Management structure of corporations
-Corporate powers and capacity
- Dissolution Process
- Mergers and consolidations
-Licensing of foreign corporations

The main principle of having a corporation with a separate and distinct legal personality from those of its stockholders/member, directors and trustee, officers and
employees was unchanged.

SUBSTANTIAL CHANGES UNDER THE REVISED CORPORATION CODE

1. MATTERS PERTAINING TO CORPORATE LIFE AND EXISTENCE
PERPETUAL EXISTENCE—
Corporations now have perpetual existence or corporate term, UNLESS the AOI provides otherwise

In the case of existing corporation, UNLESS majority of the stockholders elect to retain the specific corporate term provided in its AOI and advised the SEC (Sec
11, RA 11232)

REVIVAL OF CORPORATE TERM –

A corporation whose term has expired may apply for a revival of its corporate existence, together with all the rights and privileges under its certificate of
incorporation and subject to all its duties, debts and liabilities existing prior to its revival. Upon approval by the SEC, the corporation shall be deemed revived and
a certificate of revival of existence shall be issued ( Sec 11, RA 11232)

2. MATTERS PERTAINING TO CORPORATE ESTABLISHMENT AND OPERATION

Incorporators –
Partnerships, associations or corporations, singly or jointly with others BUT NOT MORE THAN 15 may now be incorporators (Secs. 10, RA 11232)

BUT IF SINGLY OR TO BE A ONE PERSON CORPORATION (“OPC”), incorporator must be a

(a) natural person
(b) Trust, or
(c) an estate (Secs 116, RA 11232)

May only have one incorporator BUT STILL NOT MORE THAN 15 ( Sec 10, RA 11232)

No more residency requirement for incorporators and directors ( Secs 10 and 22, RA 11232)

Professionals or partnerships or associations organized for the practice of a profession are not allowed to organized as a corporation (Sec 10)

Introduction of One Person Corporation (OPC) as a Type of Corporation (Secs 115 to 132) –
Allows the establishment of a corporation with a single stockholder but only for stock corporation.

Non-stock corporation cannot be an OPC

Who may form an OPC?

Only natural persons, trust, or an estate may form an OPC;

Banks, quasi-banks, preneed, trust, insurance, public and publicly-listed companies and non-chartered GOCCs may NOT incorporate an OPC

Professionals wanting to exercise their profession CANNOT form an OPC

Foreigners and non-residents may form an OPC

What is the capitalization requirement?

No minimum authorized capital stock EXCEPT as otherwise required by a special law

Foreigners need to comply with FIA requirement of USD 200,000 for domestic market enterprise

Who should constitute the OPC?

The single stockholder shall be the sole director and president of the OPC
The single stockholder CANNOT be corporate secretary
HOWEVER, he can be treasurer, PROVIDED, he posts a bond in a sum required by SEC, with a written undertaking to faithfully administer the OPC’s funds, and
to invest and disburse the same according to the AOI

MS. VALERIANO © 14
OPERATIONAL REQUIREMENTS FOR AN OPC—
Within 15 days from issuance of certificate of incorporation, the OPC shall appoint a treasurer, corporate secretary and other offices as necessary and SEC is
notified of appointments within 5 days

Articles of Incorporation must be filed BUT there is NO NEED FOR BY-LAWS

Corporate name should indicate “OPC” either below or at the end of the corporate name

Nominee and alternate nominee stockholders are required to be designated who shall take the place of the single stock holder as director and manage the
corporation’s affairs in the event of death of the single stockholder.

Nomination may be withdrawn or may be changed at any time.

What is the effect to the OPC if the single shareholder dies?

The OPC must continue but the nominee or alternate nominee shall transfer the shares to the duly designated legal heir or estate within 7 days from receipt of
either an Affidavit of heirship or self-adjudication executed by the sole heir;

The heirs shall notify the SEC of the decision to either wind up and dissolve the OPC or to convert into an ordinary stock corporation.

Can an OPC be converted to an Ordinary Stock

Yes, an OPC can be converted to an Ordinary Stock Corporation. Conversion can be made through an application for the amendment of the AOI.

Can an Ordinary Corporation be converted to an OPC?

Yes, when a single stockholder acquires the stocks of an ordinary stock corporation, he may
apply for conversion into an OFC.

A certificate of filing of amended articles of incorporation should be issued by the SEC to reflect the conversion. OPC becomes legally responsible for the latter's
outstanding liabilities as of the date of conversion.

Liability of Single Stockholder on the OPC –

The single shareholder has burden of proving the OPC was adequately financed; and the property of the OPC is independent of the stockholder's personal property
— otherwise, the sole shareholder shall be jointly and severally liable for the debts and other liabilities of the OFC.

Principle of piercing the veil of corporate fiction shall apply.

3. MATTERS PERTAINING TO DIRECTOR’S AND OFFICER’S LIABILITY AND ACCOUNTABILITY

Duties of Directors/Trustees
 The directors or trustees elected shall perform their duties as prescribed by law, rules of good corporate governance, and by-laws of the corporation (Sec 23, RA
11232)

Independent Directors/Trustees –

The board of the following corporations with public interest shall have independent directors constituting at least twenty percent (20%) of such board. (Sec. 22, R.
A. No. 11232)

Who is an independent director? –

An independent director is a person who, from shareholdings and fees received from the corporation, is independent of management and free from any business or
other relationship which could, or could reasonably be perceived to materially interfere with the exercise of independent judgment in carrying out responsibilities
as a director. (Sec. 22, R. A. No. 11232)

When is a corporation deemed to be vested with public interest? –

Corporations covered by Section 17.2 of RA 8799 (Securities Regulation Code)

Banks and quasi-banks, NSSLA’s, pawnshops, corporations engaged in money service business, pre-need, trust and insurance companies, and other financial
intermediaries, and

Other corporations engaged in business vested with public interest, as may be determined by the SEC, after taking into account relevant factors, such as the extent
of minority ownership, type of financial products or securities issued or offered to investors, public interest involved in the nature of business operations, and
other analogous factors.

Compensation of Directors—
Directors are prohibited from participating in the determination of their own per diems or compensation (Sec 29, RA 11232)

Rule on Self-Dealing Directors –

The rule is expanded to cover contracts of corporation with spouses and relatives fourth civil degree of consanguinity or affinity of a director of officer . (Sec. 31,
R. A. No. 11232)

A director who has potential interest in any related party transaction must recuse from voting on the approval of the related party transaction (Sec 52, RA11232)

MS. VALERIANO © 15
Who are Corporate Officers? –
The corporate officers are..
(a) president, who must be a director;
(b) a treasurer, who must be a resident;
(c) a secretary, who must be a citizen
and resident of the Philippines, and
(d) such other officers as may be provided in the by-laws.

If the corporation is vested with public interest, the board shall also elect a compliance officer
(Sec. 24, R. A. No. 11232)

Duties of Officers –
The officers shall manage the corporation and perform such duties as may be provided by-laws and/or as resolved by the board of
directors. (Sec. 24, R. A. No. 11232)

Newly Identified Corporate Offenses

Unauthorized use of corporate name

(Sec. 159, R. A. No. 11232)

Violation of disqualification provision

(Sec. 160, R.A. No. 11232)

Violation of duty to maintain records

(Sec. 161, R. A. No. 11232)

Willful certification of incomplete, inaccurate, false or misleading statements or reports

(Sec. 162, R.A. No. 11232)

Collusion of an independent auditor

(Sec. 163, R. A. No. 11232)

Obtaining corporate registration through fraud. (Sec. 164, R. A. No. 11232)

Fraudulent conduct of business(Sec 165 RA 11232)

Acting as intermediaries for graft and corruption (Sec 166, RA 11232)

Engaging intermediaries for graft and corrupt practices

(Sec. 167, R. A. No. 11232)

Tolerating graft and corrupt practices (Sec. 168, R.A. No. 11232)

Retaliation against whistleblowers (Sec. 169, R.A 11232)

Anyone who shall aid, abet, counsel, command, induce, or cause any violation of the Revised Corp. Code, rule, regulation, or order of the SEC shall be punished.
(Sec. 172, R. A. No. 11232)

Additional Grounds for disqualification

(a) for violating Securities Regulation Code
(b) found administratively liable for any offense involving fraud acts; and
(c) by a foreign court or equivalent foreign regulatory authority for similar acts, violations or misconduct resulting in conviction by final judgment (Sec 26, RA
11232)

4. MATTERS PERTAINING TO CORPORATE OPERATION AND ACTIVITIES

Operation and Activities Notice Of Stockholders/Members Meetings –

Written notice of regular meetings may be sent through the means of communications provided by by-laws, by electronic mail or other SEC
allowed manner.
 
at least 21 days (instead of 2 weeks)
(Secs. 49, R.A. No. 11232)

Voting of Stockholders/Members –
Stockholders or members are allowed vote
through remote communication or in
election Of directors, and in shareholders meetings.

Shareholders who participate through remote communication or in absentia are deemed present for purposes of quorum.

The right of a stockholder to vote by remote

MS. VALERIANO © 16
communications or in absentia is recognized
in corporations vested with public interest, even provision is absent in its by-laws. (Secs. 23,
No. 11232)

Notice of Special Meetings –

Notice of Special Meetings may be sent electronically when allowed by the bylaws or done
with the consent of the stockholders, and in accordance with the rules and regulations of SEC— following purposes to:

extend or shorten corporate term(Sec 36, R.A. No. 11232)

increase or decrease its capital stock, or incur, create or increase any bonded indebtedness
(Sec. 37, R.A. No. 11232)

approve the sale of all or substantially assets of the corporation — (Secs. 39, R.A. No. 11232) or invest the corporate funds in another corporation or business
(Secs. 41 , R.A. No. 11232)

Use of Remote Communications Meetings

Directors or trustees who cannot physically or vote at board meetings can participate vote through remote communication such as video-conferencing,
teleconferencing, or alternative modes of communication.

Directors or trustees cannot attend or vote by proxy of board meetings (Sec 52, RA 11232)

Higher Voting Threshold –

A higher voting threshold, including the vote of majority of the independent directors, is required for certain contracts of directors or officers corporation vested
with public interest. (Sec, 31
(d), R.A. No. 11232)

Disclosure of Additional Information

Additional information must be provided by directors/trustees at their regular meetings (e.g. list of stockholders/members with voting assessment of corporation's
performance; financial report; dividend policy; directors/trustees profiles directors/trustees attendance report; and performance reports for the board;
compensation report; self-dealing directors and transactions). (Sec. 49, R.A. No. 11232)

Notice of Stockholders' Meeting –

Notice Of stockholders' meeting is required be accompanied by:
(i) the agenda for the meeting,
(ii) a proxy form;
(iii) the requirement procedures to be followed by a stockholder who elects to participate by remote communication absentia, if such is allowed:
(iv)the requirements and procedure for nomination and election, the meeting is for election of directors. (Sec.50, R.A. No. 11232)

Presiding Officer During Stockholders' Meeting –

The Chairman shall act as Presiding Officer, unless the by-laws provide otherwise. (Sec. 53, No. 11232)
 
previously, it was the President designated as Presiding Officer by the old Corp. Code

Recognition of Expanded Right of Inspection

The Right of Inspection has been Expanded include the following:
a) AOI, By-laws and amendments
b) Current ownership structure and voting rights of the corporation, including stockholders or members, group structures, intra-group relations, ownership data,
beneficial ownership;
c) Names and Addresses of the board of
trustees and the executive officers,
d) A record of ail business transactions,
e) A record of the board and stockholders resolutions,
f) Copies of the latest reportorial requirements submitted to the SEC; and
g) The minutes of all meetings of stockholders or members, or of the board of directors or trustees — with more details required.

EXPANDED RIGHT OF INSPECTION

Inclusion in the Right of Inspection

The inspecting or reproducing party shall remain bound by confidentiality rules for trade secrets or processes under the "Intellectual Property Code of the Phils.",
as amended, the "Data Privacy Act of 2012", the SRC, and the Rules of Court.

The Right of Inspection is NOT open to a non- stockholder or non-member, or a competitor, director, officer, controlling stockholder or otherwise represents the
interests of competitor. (Sec. 73, R.A. No. 11232)

Actions requiring prior approval of the Competition Commission

sale or disposition of certain corporate assets.

(Secs. 39, R.A. No. 11232)

Increase or decrease in capital or incurring or

increasing any bonded indebtedness (Secs. 37,
R.A. No. 11232)

merger or consolidation of corporations. (Secs.

MS. VALERIANO © 17
78, R.A. No. 11232)

Prohibition on Political Donation

Foreign corporations are not allowed to give donations in aid of any political party or candidate or for purposes of partisan activity. (Secs. 35 (i), R.A. No. 11232)

5. MATTERS PERTAINING TO SEC’s POWERS AND JURISDICTION

Visitorial powers over all corporations

SEC shall have the power to
examine and inspect records,
regulate and supervise activities;
enforce compliance: and impose sanctions;

The SEC may revoke certificates of incorporation if a corporation refuses or obstructs the SEC's visitorial powers, without justifiable cause.

Authority Over Certain Intra-Corporate Disputes

Remove a director elected despite disqualification, after notice and hearing. (Sec. 27, R. A. No. 11232)

Decide disputes pertaining to a denial of right of inspection or reproduction of corporate records. (Sec. 73, R. A. No. 11232)

SEC's Powers and Authority over Certain Intra-Corporate Disputes

Motu proprio or upon verified order the dissolution of a corporation on grounds provided in Section 138 of the Revised Corp. Code (R. A. No. 11232)

Alleged violation of the Revised Corporation Code, or of its rule, regulation or order (sec 154, RA 11232)

Other Powers
To issue subpoena (Sec. 155, R. A. No. 11232)

Exercise contempt powers (Sec. 157, R. A. No.

11232):

issuance Of permanent cease and desist order, suspension or revocation of the certificate of incorporation; and dissolution of the corporation and forfeiture of its
assets for violations of Revised Corp. Code, rules or regulations, or any of SEC's orders. (Sec. 159, R. A. No. 11232)

Who can issue restraining order or preliminary

against the SEC?

No court below the Court of Appeals shall have jurisdiction to issue a restraining order, preliminary injunction, preliminary mandatory injunction in any case,
dispute, or controversy
that directly interferes with the exercise of the powers, duties and responsibilities of the SEC falling exclusively within its jurisdiction. (Sec. 179, R. A. No. 11232)

REVISED CORPORATION CODE RA 11232

RA 11232 retained the following provisions from BP 68

- Definition of Corporation
- classes of corporation
-classification of shares
-Management structure of corporations
-Corporate powers and capacity
- Dissolution Process
- Mergers and consolidations
-Licensing of foreign corporations

The main principle of having a corporation with a separate and distinct legal personality from those of its stockholders/member, directors and trustee, officers and
employees was unchanged.

SUBSTANTIAL CHANGES UNDER THE REVISED CORPORATION CODE

1. MATTERS PERTAINING TO CORPORATE LIFE AND EXISTENCE
PERPETUAL EXISTENCE—
Corporations now have perpetual existence or corporate term, UNLESS the AOI provides otherwise

In the case of existing corporation, UNLESS majority of the stockholders elect to retain the specific corporate term provided in its AOI and advised the SEC (Sec
11, RA 11232)

REVIVAL OF CORPORATE TERM –

A corporation whose term has expired may apply for a revival of its corporate existence, together with all the rights and privileges under its certificate of
incorporation and subject to all its duties, debts and liabilities existing prior to its revival. Upon approval by the SEC, the corporation shall be deemed revived and
a certificate of revival of existence shall be issued ( Sec 11, RA 11232)

2. MATTERS PERTAINING TO CORPORATE ESTABLISHMENT AND OPERATION

Incorporators –
Partnerships, associations or corporations, singly or jointly with others BUT NOT MORE THAN 15 may now be incorporators (Secs. 10, RA 11232)

MS. VALERIANO © 18
BUT IF SINGLY OR TO BE A ONE PERSON CORPORATION (“OPC”), incorporator must be a
(a) natural person
(b) Trust, or
(c) an estate (Secs 116, RA 11232)

May only have one incorporator BUT STILL NOT MORE THAN 15 ( Sec 10, RA 11232)

No more residency requirement for incorporators and directors ( Secs 10 and 22, RA 11232)

Professionals or partnerships or associations organized for the practice of a profession are not allowed to organized as a corporation (Sec 10)

Introduction of One Person Corporation (OPC) as a Type of Corporation (Secs 115 to 132) –
Allows the establishment of a corporation with a single stockholder but only for stock corporation.

Non-stock corporation cannot be an OPC

Who may form an OPC?

Only natural persons, trust, or an estate may form an OPC;

Banks, quasi-banks, preneed, trust, insurance, public and publicly-listed companies and non-chartered GOCCs may NOT incorporate an OPC

Professionals wanting to exercise their profession CANNOT form an OPC

Foreigners and non-residents may form an OPC

What is the capitalization requirement?

No minimum authorized capital stock EXCEPT as otherwise required by a special law

Foreigners need to comply with FIA requirement of USD 200,000 for domestic market enterprise

Who should constitute the OPC?

The single stockholder shall be the sole director and president of the OPC
The single stockholder CANNOT be corporate secretary
HOWEVER, he can be treasurer, PROVIDED, he posts a bond in a sum required by SEC, with a written undertaking to faithfully administer the OPC’s funds, and
to invest and disburse the same according to the AOI

OPERATIONAL REQUIREMENTS FOR AN OPC—

Within 15 days from issuance of certificate of incorporation, the OPC shall appoint a treasurer, corporate secretary and other offices as necessary and SEC is
notified of appointments within 5 days

Articles of Incorporation must be filed BUT there is NO NEED FOR BY-LAWS

Corporate name should indicate “OPC” either below or at the end of the corporate name

Nominee and alternate nominee stockholders are required to be designated who shall take the place of the single stock holder as director and manage the
corporation’s affairs in the event of death of the single stockholder.

Nomination may be withdrawn or may be changed at any time.

What is the effect to the OPC if the single shareholder dies?

The OPC must continue but the nominee or alternate nominee shall transfer the shares to the duly designated legal heir or estate within 7 days from receipt of
either an Affidavit of heirship or self-adjudication executed by the sole heir;

The heirs shall notify the SEC of the decision to either wind up and dissolve the OPC or to convert into an ordinary stock corporation.

Can an OPC be converted to an Ordinary Stock

Yes, an OPC can be converted to an Ordinary Stock Corporation. Conversion can be made through an application for the amendment of the AOI.

Can an Ordinary Corporation be converted to an OPC?

Yes, when a single stockholder acquires the stocks of an ordinary stock corporation, he may
apply for conversion into an OFC.

A certificate of filing of amended articles of incorporation should be issued by the SEC to reflect the conversion. OPC becomes legally responsible for the latter's
outstanding liabilities as of the date of conversion.

Liability of Single Stockholder on the OPC –

The single shareholder has burden of proving the OPC was adequately financed; and the property of the OPC is independent of the stockholder's personal property
— otherwise, the sole shareholder shall be jointly and severally liable for the debts and other liabilities of the OFC.

Principle of piercing the veil of corporate fiction shall apply.

3. MATTERS PERTAINING TO DIRECTOR’S AND OFFICER’S LIABILITY AND ACCOUNTABILITY

Duties of Directors/Trustees
 The directors or trustees elected shall perform their duties as prescribed by law, rules of good corporate governance, and by-laws of the corporation (Sec 23, RA

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11232)

Independent Directors/Trustees –

The board of the following corporations with public interest shall have independent directors constituting at least twenty percent (20%) of such board. (Sec. 22, R.
A. No. 11232)

Who is an independent director? –

An independent director is a person who, from shareholdings and fees received from the corporation, is independent of management and free from any business or
other relationship which could, or could reasonably be perceived to materially interfere with the exercise of independent judgment in carrying out responsibilities
as a director. (Sec. 22, R. A. No. 11232)

When is a corporation deemed to be vested with public interest? –

Corporations covered by Section 17.2 of RA 8799 (Securities Regulation Code)

Banks and quasi-banks, NSSLA’s, pawnshops, corporations engaged in money service business, pre-need, trust and insurance companies, and other financial
intermediaries, and

Other corporations engaged in business vested with public interest, as may be determined by the SEC, after taking into account relevant factors, such as the extent
of minority ownership, type of financial products or securities issued or offered to investors, public interest involved in the nature of business operations, and
other analogous factors.

Compensation of Directors—
Directors are prohibited from participating in the determination of their own per diems or compensation (Sec 29, RA 11232)

Rule on Self-Dealing Directors –

The rule is expanded to cover contracts of corporation with spouses and relatives fourth civil degree of consanguinity or affinity of a director of officer . (Sec. 31,
R. A. No. 11232)

A director who has potential interest in any related party transaction must recuse from voting on the approval of the related party transaction (Sec 52, RA11232)

Who are Corporate Officers? –

The corporate officers are..
(a) president, who must be a director;
(b) a treasurer, who must be a resident;
(c) a secretary, who must be a citizen
and resident of the Philippines, and
(d) such other officers as may be provided in the by-laws.

If the corporation is vested with public interest, the board shall also elect a compliance officer
(Sec. 24, R. A. No. 11232)

Duties of Officers –
The officers shall manage the corporation and perform such duties as may be provided by-laws and/or as resolved by the board of
directors. (Sec. 24, R. A. No. 11232)

Newly Identified Corporate Offenses

Unauthorized use of corporate name

(Sec. 159, R. A. No. 11232)

Violation of disqualification provision

(Sec. 160, R.A. No. 11232)

Violation of duty to maintain records

(Sec. 161, R. A. No. 11232)

Willful certification of incomplete, inaccurate, false or misleading statements or reports

(Sec. 162, R.A. No. 11232)

Collusion of an independent auditor

(Sec. 163, R. A. No. 11232)

Obtaining corporate registration through fraud. (Sec. 164, R. A. No. 11232)

Fraudulent conduct of business(Sec 165 RA 11232)

Acting as intermediaries for graft and corruption (Sec 166, RA 11232)

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Engaging intermediaries for graft and corrupt practices
(Sec. 167, R. A. No. 11232)

Tolerating graft and corrupt practices (Sec. 168, R.A. No. 11232)

Retaliation against whistleblowers (Sec. 169, R.A 11232)

Anyone who shall aid, abet, counsel, command, induce, or cause any violation of the Revised Corp. Code, rule, regulation, or order of the SEC shall be punished.
(Sec. 172, R. A. No. 11232)

Additional Grounds for disqualification

(a) for violating Securities Regulation Code
(b) found administratively liable for any offense involving fraud acts; and
(c) by a foreign court or equivalent foreign regulatory authority for similar acts, violations or misconduct resulting in conviction by final judgment (Sec 26, RA
11232)

4. MATTERS PERTAINING TO CORPORATE OPERATION AND ACTIVITIES

Operation and Activities Notice Of Stockholders/Members Meetings –

Written notice of regular meetings may be sent through the means of communications provided by by-laws, by electronic mail or other SEC
allowed manner.
 
at least 21 days (instead of 2 weeks)
(Secs. 49, R.A. No. 11232)

Voting of Stockholders/Members –
Stockholders or members are allowed vote
through remote communication or in
election Of directors, and in shareholders meetings.

Shareholders who participate through remote communication or in absentia are deemed present for purposes of quorum.

The right of a stockholder to vote by remote

communications or in absentia is recognized
in corporations vested with public interest, even provision is absent in its by-laws. (Secs. 23,
No. 11232)

Notice of Special Meetings –

Notice of Special Meetings may be sent electronically when allowed by the bylaws or done
with the consent of the stockholders, and in accordance with the rules and regulations of SEC— following purposes to:

extend or shorten corporate term(Sec 36, R.A. No. 11232)

increase or decrease its capital stock, or incur, create or increase any bonded indebtedness
(Sec. 37, R.A. No. 11232)

approve the sale of all or substantially assets of the corporation — (Secs. 39, R.A. No. 11232) or invest the corporate funds in another corporation or business
(Secs. 41 , R.A. No. 11232)

Use of Remote Communications Meetings

Directors or trustees who cannot physically or vote at board meetings can participate vote through remote communication such as video-conferencing,
teleconferencing, or alternative modes of communication.

Directors or trustees cannot attend or vote by proxy of board meetings (Sec 52, RA 11232)

Higher Voting Threshold –

A higher voting threshold, including the vote of majority of the independent directors, is required for certain contracts of directors or officers corporation vested
with public interest. (Sec, 31
(d), R.A. No. 11232)

Disclosure of Additional Information

Additional information must be provided by directors/trustees at their regular meetings (e.g. list of stockholders/members with voting assessment of corporation's
performance; financial report; dividend policy; directors/trustees profiles directors/trustees attendance report; and performance reports for the board;
compensation report; self-dealing directors and transactions). (Sec. 49, R.A. No. 11232)

Notice of Stockholders' Meeting –

Notice Of stockholders' meeting is required be accompanied by:
(i) the agenda for the meeting,
(ii) a proxy form;
(iii) the requirement procedures to be followed by a stockholder who elects to participate by remote communication absentia, if such is allowed:
(iv)the requirements and procedure for nomination and election, the meeting is for election of directors. (Sec.50, R.A. No. 11232)

Presiding Officer During Stockholders' Meeting –

The Chairman shall act as Presiding Officer, unless the by-laws provide otherwise. (Sec. 53, No. 11232)

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previously, it was the President designated as Presiding Officer by the old Corp. Code

Recognition of Expanded Right of Inspection

The Right of Inspection has been Expanded include the following:
a) AOI, By-laws and amendments
b) Current ownership structure and voting rights of the corporation, including stockholders or members, group structures, intra-group relations, ownership data,
beneficial ownership;
c) Names and Addresses of the board of
trustees and the executive officers,
d) A record of ail business transactions,
e) A record of the board and stockholders resolutions,
f) Copies of the latest reportorial requirements submitted to the SEC; and
g) The minutes of all meetings of stockholders or members, or of the board of directors or trustees — with more details required.

EXPANDED RIGHT OF INSPECTION

Inclusion in the Right of Inspection

The inspecting or reproducing party shall remain bound by confidentiality rules for trade secrets or processes under the "Intellectual Property Code of the Phils.",
as amended, the "Data Privacy Act of 2012", the SRC, and the Rules of Court.

The Right of Inspection is NOT open to a non- stockholder or non-member, or a competitor, director, officer, controlling stockholder or otherwise represents the
interests of competitor. (Sec. 73, R.A. No. 11232)

Actions requiring prior approval of the Competition Commission

sale or disposition of certain corporate assets.

(Secs. 39, R.A. No. 11232)

Increase or decrease in capital or incurring or

increasing any bonded indebtedness (Secs. 37,
R.A. No. 11232)

merger or consolidation of corporations. (Secs.

78, R.A. No. 11232)

Prohibition on Political Donation

Foreign corporations are not allowed to give donations in aid of any political party or candidate or for purposes of partisan activity. (Secs. 35 (i), R.A. No. 11232)

5. MATTERS PERTAINING TO SEC’s POWERS AND JURISDICTION

Visitorial powers over all corporations

SEC shall have the power to
examine and inspect records,
regulate and supervise activities;
enforce compliance: and impose sanctions;

The SEC may revoke certificates of incorporation if a corporation refuses or obstructs the SEC's visitorial powers, without justifiable cause.

Authority Over Certain Intra-Corporate Disputes

Remove a director elected despite disqualification, after notice and hearing. (Sec. 27, R. A. No. 11232)

Decide disputes pertaining to a denial of right of inspection or reproduction of corporate records. (Sec. 73, R. A. No. 11232)

SEC's Powers and Authority over Certain Intra-Corporate Disputes

Motu proprio or upon verified order the dissolution of a corporation on grounds provided in Section 138 of the Revised Corp. Code (R. A. No. 11232)

Alleged violation of the Revised Corporation Code, or of its rule, regulation or order (sec 154, RA 11232)

Other Powers
To issue subpoena (Sec. 155, R. A. No. 11232)

Exercise contempt powers (Sec. 157, R. A. No.

11232):

issuance Of permanent cease and desist order, suspension or revocation of the certificate of incorporation; and dissolution of the corporation and forfeiture of its
assets for violations of Revised Corp. Code, rules or regulations, or any of SEC's orders. (Sec. 159, R. A. No. 11232)

Who can issue restraining order or preliminary

against the SEC?

No court below the Court of Appeals shall have jurisdiction to issue a restraining order, preliminary injunction, preliminary mandatory injunction in any case,
dispute, or controversy
that directly interferes with the exercise of the powers, duties and responsibilities of the SEC falling exclusively within its jurisdiction. (Sec. 179, R. A. No. 11232

Case List in Insurance Law

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INTERPRETATION
Gaisano Cagayan, Inc. vs. Insurance Co. of North America, G.R. No. 147839, June 8, 2006
(Jhayperson Navarro)

When the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties, the terms are
to be understood literally just as they appear on the face of the contract

Malayan Insurance Corp. vs. CA, G.R. No. 119599, March 20, 1997, 270 SCRA 242, 254
(Melanie Sarabia)

A contract of insurance, being a contract of  adhesion, means that any  ambiguity  should be resolved against the insurer. “A strained interpretation which
is unnatural and forced, as to lead to an absurd conclusion or to render the policy nonsensical, should, by all means, be avoided.”

Diosdado C. Ty vs. Filipinas Compania De Seguros, et al., G.R. No. L-21821-22, May 31, 1966

The agreement contained in the insurance policies is the law between the parties. As the terms of the policies are clear, express and specific that only
amputation of the left hand should be considered as a loss thereof, an interpretation that would include the mere fracture or other temporary disability not
covered by the policies would certainly be unwarranted. The court cannot go beyond the clear and express conditions of the insurance policies.

Gulf Resorts, Inc. vs. Phil. Charter Ins. 485 SCRA 551
( Faith Balmonte)

“Fine print” or “contract of adhesion” rule cannot be applied when the parties’ intent to limit the coverage of the policy is not ambiguous.

Simon De La Cruz vs. The Capital Ins. and Surety Inc., G.R. No. L-21574, June 30, 1966

The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning, and are construed by the courts in their
ordinary and common acceptation. Thus, the terms have been taken to mean that which happen by chance or fortuitously, without intention and design,
and which is unexpected, unusual, and unforeseen.

BENEFICIARIES
Heirs of Loreto C. Maramag vs. Eva Verna De Guzman, et.al., G.R. No. 181132, June 5, 2009

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless
otherwise specified in the policy

Southern Luzon Employees’ Ass. v. Golpeo, et al., 96 Phil. 83

The plaintiff association is composed of laborers and employees and one of its purposes is mutual aid of its members and their dependents in case of
death. The association adopted a resolution allowing a member to name as his beneficiaries his common law wife and/ or children had with her. In this
case, the deceased member listed as his beneficiaries his common law wife and the latter's children. Held, that said beneficiaries are exclusively entitled to
the death benefit, the agreement between the deceased member and the association being analogous to an insurance.

Vda. de Consuegra v. GSIS, No. L-28093, January 30, 1971, 37 SCRA 315
The Insular Life Ass. Co., Ltd. v. Ebrado, No. L-44059, Oct. 28, 1977, 80 SCRA 181
The GSIS offers two separate and distinct systems of benefits to its members—one is the life insurance and the other is the retirement insurance. These two
distinct systems of benefits are paid out from two distinct and separate funds that are maintained by the GSIS; In the case of the proceeds of a life
insurance, the same are paid to whoever is named the beneficiary in the life insurance policy; The beneficiary of the retirement insurance can only claim
the proceeds of the retirement insurance if the employee dies before retirement. If the employee failed or -overlooked to state the beneficiary of his
retirement insurance, the retirement benefits will accrue to his estate and will be given to his legal heirs in accordance with law, as in the case of a life
insurance if no beneficiary is named in the insurance policy.

INSURABLE INTEREST
Sps. Nilo Cha and Stella Uy Cha, et. al. vs. Court of Appeals , et. al., G.R. No. 124520. Aug. 18, 1997

Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of
insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he
has no insurable interest and collecting the proceeds of said policy in case of loss of the property.

Gaisano Cagayan, Inc. vs. Ins. Co. of North America, G.R. No. 147839, June 8, 2006

Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. Indeed, a vendor or seller
retains an insurable interest in the property sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as
where he has a vendor's lien.

Vicente Ong Lim Sing, Jr. vs. FEB Leasing & Finance Corp., G.R. No. 168115, June 8, 2007
Section 17 of the Insurance Code provides that the measure of an insurable interest in property is the extent to which the insured might be damnified by loss
or injury thereof.

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CONCEALMENT
Great Pacific Life Ass. Corp. vs. CA and Medarda V. Leuterio ,G.R. No. 113899. Oct. 13, 1999

Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should
communicate it to the assured, but he designedly and intentionally withholds the same.
New Life Enterprises v. CA G.R. No. 94071, March 31, 1992, 207 SCRA 669
The insured is specifically required to disclose to the insurer any other insurance and its particulars which he may have effected on the same subject matter.

Ma. Lourdes S. Florendo vs. Philam Plans, Inc., et. al., G.R. No. 186983, Feb. 22, 2012

Insurance policies are traditionally contracts uberrimae fidae or contracts of utmost good faith. As such, it requires the applicant to disclose to the Insurer,
the conditions affecting the risk of which he was aware or material facts that he knew or ought to know.

Great Pacific Life Ass. Co. vs. CA and Ngo Hing, G.R. No. L-31845, April 30, 1979

The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute and perfect candor or openness and honesty; the absence
of any concealment or demotion, however slight, not for the alone but equally so for the insurer.

Saturnino vs. Phil. American Life 7, SCRA 316, 319

Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication
is due, in forming his estimate of the proposed contract, or in making his inquiries.

INSURANCE LAW

GOVERNING LAW
The Insurance Code (RA 10607)
-- signed into law last August 15, 2013
-- published in The Philippine Star, September 5, 2013

WHAT IS A CONTRACT OF INSURANCE?

A "contract of insurance" is an agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event. (Sec.21a, R.A. 10607)

ELEMENTS OF CONTRACT OF INSURANCE (PARIS)

There must be payment of consideration for the insurer's promise to indemnify the insured, known
as PREMIUM.

Insurer has ASSUMED THE RISK OF LOSS.

Insured is subject to RISK OF LOSS, DAMAGE OF LIABILITY. (LDL)

Insured must possess an interest of some kind on the person or thing insured which is generally susceptible to pecuniary estimation, known as INSURABLE
INTEREST.

Such assumption of risk is part of the general SCHEME TO DISTRIBUTE LOSSES.

CHARACTERISTICS OF INSURANCE (CAPUI)

Insurance contract is a CONDITIONAL contract

Insurance contract is an ALEATORY contract

Insurance contracts is a PERSONAL contract

Insurance contract is a contract of UTMOST good faith (uberrimae fidei)

Insurance contract is a contract of INDEMNITY (applies only to property insurance NOT TO LIFE INSURANCE)

HOW ARE TERMS IN INSURANCE CONTRACTS INTERPRETED?

Terms in insurance contracts are interpreted in their plain, ordinary and popular sense. (POP)

(SIDE NOTE: Simon De La Cruz vs. The Capital Ins. and Surety Inc., G.R. No. L-21574, June 30, 1966

The terms "ACCIDENT" AND "ACCIDENTAL", as used in insurance contracts, have NOT ACQUIRED ANY TECHNICAL MEANING, AND ARE CONSTRUED
BY THE COURTS IN THEIR ORDINARY AND COMMON ACCEPTATION. Thus, the terms have been taken to mean that which happen by chance or
fortuitously, without intention and design, and which is unexpected, unusual, and unforeseen)

IN CASE OF AMBIGUITY IN THE TERMS OF THE INSURANCE CONTRACT, HOW WilL SUCH AMBIGUITY BE RESOLVED?
Such ambiguity shall be resolved liberally in favor of the insured and strictly against the insurer.
RATIONALE OF THE RULE
The reason for rule is that the insured usually has no voice in the selection or arrangement of words employed, and language of the contract is selected great care
and deliberation by experts and legal advisers employed by and acting exclusively in the interest of the insurer. (Gulf Resorts Inc vs Phil Charter Insurance 485
SCRA 551)

PARTIES OF AN INSURANCE CONTRACT

1) Insurer

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2.) Insured
3.) Beneficiary

WHAT IS THE REASON FOR THE RULE AGAINST INSURING PUBLIC ENEMIES?
The purpose of war is to cripple the power and resources of the enemy and it is inconsistent that one country would destroy its enemy but only to repay such
destruction due to the insurance it issued against its enemy.

WHO IS A PUBLIC ENEMY?

A public enemy is a nation or its citizen who is at war with the Philippines

WHO IS A BENEFICIARY?
the person or party entitled to receive the benefits under the policy issued by the insurer.

WHAT ARE THE TYPES OF BENEFICIARY IN A LIFE INSURANCE POLICY?

REVOCABLE BENEFICIARY – is the beneficiary designated in the policy whose designation is not permanent and may be revoked by the insured.
In this case, the insured has not waived his right
to change the beneficiary that he designated in the policy.

IRREVOCABLE BENEFICIARY – is the beneficiary designated in the policy whose designation is permanent and may not be revoked by the insured.

In this case, the insured has expressly waived his right to change the beneficiary which he designated in the policy.

WHAT IS THE RULE ON THE DESIGNATION OF BENEFICIARY?

Anyone maybe designated as beneficiary in a life insurance contract except those who are forbidden by law to receive donation. (Art. 2012 New Civil Code)

UNDER ART. 739 OF THE CIVIL CODE, THE FOLLOWING DONATIONS SHALL BE VOID:
(1) Those made between persons who were guilty of adultery or concubinage at the time;
(2) Those made between persons found guilty of the same criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife, descendants and ascendants, by reason of his
office.

WILL COMMISSION OF ADULTERY OR CONCUBINAGE BE SUFFICIENT GROUND TO DENY A BENEFICIARY OF HIS LIFE INSURANCE
CLAIM?
Yes, persons who are guilty of adultery or concubinage are prohibited from becoming a beneficiary in a life insurance policy.

SUPPOSED A BENEFICIARY IS CHARGED FOR ADULTERY OR CONCUBINAGE, IS CONVICTION NECESSARY BEFORE SHE CAN BE
DENIED THE BENEFITS OF THE LIFE INSURANCE POLICY?
No, conviction is not required.
The guilt of the insured and the beneficiary may be proved by preponderance of evidence (Art 739, New Civil Code)

WHAT IS THE RULE WHEN THE BENEFICIARY PREDECEASED THE INSURED?

IF REVOCABLE  proceeds shall go to the estate of the insured
IRREVOCABLEproceeds shall go to the legal representatives of the beneficiary

WHAT IS THE RULE IN THE EVENT THE BENEFICIARY KILLS THE INSURED?
The INTEREST of a beneficiary in a life insurance policy shall be FORFEITED when the beneficiary is the principal, accomplice, or accessory in willfully about
the death of the insured; in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. (Sec.12)

WHAT IS INSURABLE INTEREST?

Insurable interest is the interest that a person has over certain persons or things where he has such relation or connection with, wherein he derive pecuniary benefit
or advantage from its preservation or will suffer pecuniary loss or damage from its destruction upon the happening of the event insured against.

INSURABLE INTEREST IS INDISPENSABLY NECESSARY.

 to prevent insurance policies from being executed as a gaming or wagering contract
 strengthen the principle that insurance contracts are contracts of indemnity

TO WHOM DOES A PERSON HAVE INSURABLE INTEREST?

(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly
or in part for education or support, or in whom he has a pecuniary interest;
(c) Of any person under a legal obligation to him
for the payment of money, or respecting property
or services, of which death or illness might delay
or prevent the performance; and
(d) Of any person upon whose life any estate or interest vested in him depends.

WHEN MUST INSURABLE INTEREST IN LIFE INSURANCE EXIST

Insurable interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs. (Sec.
19)
IS A BENEFICIARY IN A LIFE INSURANCE POLICY REQUIRED TO HAVE INSURABLE INTEREST ON THE LIFE OF THE INSURED?
No, the law does not require that the beneficiary must have insurable interest on the life of the insured. Thus, the insured may designate anyone, even a stranger to
be his beneficiary.

WHAT CONSIST INSURABLE INTEREST IN PROPERTY?

(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of which the expectancy arises.

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WHEN MUST INSURABLE INTEREST IN PROPERTY INSURANCE EXIST
Insurable interest in the property insured must exist when insurance takes effect, and when the loss occurs, but not exist in the meantime. (Sec. 19)

VALIDITY OF STIPULATION IN THE POLICY WAIVING INSURABLE INTEREST- Invalid

Every stipulation in a policy of insurance for the payment of loss whether the person insured has or has not any interest in the property insured or that the policy
shall be received as proof of such interest is void. (Sec. 25)

INSURABLE INTEREST IN LIFE INSURANCE AGAINST INSURABLE INTEREST IN PROPERTY INSURANCE

LIFE INSURANCE PROPERTY INSURANCE
Measure of indemnity not exclusively pecuniary exclusively pecuniary
Time when present when the insurance takes effect but need not exist when the insurane takes effect, and when the loss occurs but need not to
thereafter or when the loss occurs exist in the meantime

CONCEALMENT
A neglect to communicate that which a party knows and ought to communicate is called a concealment (Sec 26)
GR: If the concealment or misrepresentation is discovered before loss or death, the insurer can cancel the policy. If the discovery is after loss or death, the insurer
can refuse to pay.
XPN: The incontestability clause under paragraph 2 of Section 48 : After the policy of life insurance made payable on the death of the insured shall have been in
force during the lifetime of the insured for a period of two (2) years from the date of its issue or its last reinstatement, the insurer cannot prove that the policy is
void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent

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