Corporation Law (02/09/17)

OWNERSHIP OF PRIVATE LANDS (Article XII, Section 7)

Register of Deeds of Rizal v Ung Sui Si Temple

Donation of land to an unincorporated religious organization
literal application of the Control Test
Nationality of the corporation is determined by the nationality of the controlling
interests
Why are we talking up Ung Sui Si? Only the trustees are chinese, all the
members are Ilocanos(??) what
Is a non-stock unincorporated religious organization allowed to own private land?

Roman Catholic Apostolic Administrator v LRC and the Register of Deeds

RELIGIOUS CORPORATIONS ZZZ
Corporation Sole ONLY HAS ONE MEMBER
Under the corporation law, it was authorized to own land
60% requirement is subject to vested rights which preceded the Constitution
As for the Constitutional requirement in the ownership of private lands > Look
into the nationalities of the lay members and not the sole incorporator
60.5% of the Catholics in Davao are Filipinos so the Roman Catholic Church is
allowed to own land
A corporation sole registered under the Philippine Laws has NO NATIONALITY
WHY? The Roman Catholic Church existed as a corporation long before the
Constitution, it is a corporation by prescription cannot be subjected to the Philippine
Constitution because it is an international entity
Recognition by law that the RCC is a corporation sole only of something which
existed before the promulgation of the Constitution
Main doctrine of the case is not applicable outside the Roman Catholic Church
Nationality of a corporation sole is not based on the registered members but by
the congregation (those who have something to do with religion)
Corporation sole is only the administrator, and not the real owner of the private
land involved
ROMAN CATHOLIC DECISION PREVAILS

New SEC Control Test

Gamboa v. Teves (READ GAMBOA V TEVES)

Prior to the Foreign Investments Act 91, the 60-40 requirement under the
Constitution, you reckon it with all the subscribed capital
FIA - VOTING SHARES DAPAT
Gamboa went to the SC saying that the term capital in the Constitutional
limitation should only refer to the common shares because yun lang yung may voting
share
Court agreed with Gamboa - 60% voting equity
Ability to control who would sit in the board of directors is consistent with the
nationalization test (intent of the framers to limit foreign intervention in public utilities,
mass media, etc

Basically. Nationality based on the control test: 60% of each class of shares shall be of
Filipino nationality SEPARATELY (whether voting/preferred)
beneficial test was not in the original case > rationalization does not appear in
any of the case hahahahaha puta besh ang labo naman nila
SEC adopted the interpretation and issued an administrative ruling which applied
the Gamboa decision (SEC Memorandum Circular No. 8, Series of 2013)

Sec. 2. All covered corporations shall, at all times, observe the constitutional or
statutory ownership requirement. For purposes of determining compliance therewith,
the required percentage of Filipino ownership shall be applied to BOTH (a) the total
number of outstanding shares of stock entitled to vote in the election of directors;
AND (b) the total number of outstanding shares of stock, whether or not entitled to
vote in the election of directors.

SEC followed the original resolution did not follow the rationalization (puta besh
basahin mo ito sa origs plz ty)

Roy III v. Herbosa

Questioned the constitutionality of SEC Memorandum Circular
What was stated did not conform with what was stated in the Gamboa resolution
Beneficial interest - it should not only include registered voting interest but also
the beneficial interests
Only thing required under the dispositive is the voting shares and therefore why
was it okay to do a 2nd test (Gamboa)
HANGGANG DITO KAILANGAN NG CLARIFICATION
SEC as administrative agency has the power to issue regulations to
develop the law hahahahaha and develop policy in the exercise of their quasi-
legislative power (charing)
SEC ADDED ADDITIONAL RESTRICTIONS - went above and beyond the fallo
of the Gamboa d/r
7-6 decision, so its possible that Roy III will not survive (depende daw sa money
of PLDT wtf)

Narra Nickel Mining v Redmont Consolidated Mines

Decided after SEC decision, before Roy III
CA deemed them to be foreign corporations
Unlawful corporate layering - all 3 corporations are foreign applying the strict test
(proportionate interests)
Strict test/Liberal test - just mathematical formulations but they would still not be
qualified to operate when there is a distinction with voting and non-voting (CLV:
REALLY??!)
Must comply with the 60% requirement and can it automatically operate public
utilities(The answer of course is no.)
 YOU CANNOT COMPUTE MATHEMATICALLY THE ACTUAL C O N T R O L
Even if it complies with the mathematical computation, if walang tunay na control
over the corporation (both voting and beneficial) there is still a violation of the
constitution

GAMBOA RULE - one engaged in a nationalized industry

Process are resolved what (no 60% winner take-all)

For purposes of investment - DOJ-SEC Memorandum - Grandfather rule

JURIDICAL ENTITY AND PIERCING THE VEIL

4 Great attributes which make the corporation the most efficient way of
conducting business in the PH

Strong Juridical Personality - Primary doctrine of separate juridical personality

(Section 2)
It is created only by the State, it can only be undone through a special
proceeding with the State (SEC)
Strong because it is durable
It can go out in the business because it has capacity to contract as a separate
person being able to contract on its own
Exercise the legislative power to grant separate juridical personality and police
power of centralized management in order to allow the board of directors to act on
behalf of the corporation (agents of the principal: corporation)
Section 23 of the Corporation Code

SJP > Limited Liability

Limited liability rule springs from RELATIVITY OF CONTRACTS (consent of the
corporation is given, the Ks it entered into or liabilities it has undertaken, cannot be
ascribed to the stockholders except to the extent of their contribution to the corporation)
Similar to liabilities of the limited partners
Commercial rendering of the limited liability
Necessary, commercial, and logical consequence

Free Transferability - no delectus personae

No mutual agency, unlike in partnership law
Stockholders do not have the power to manage, PASSIVE INVESTORS
Section 63

Allow the business enterprise to be able to go out on the world as a person with a
capacity to contract
NASA BOOK ITO - consequences/doctrines arising out of the SJP of a corporation
1. Property of the corp is its own, stockholders are not co-owners of the property
(and vv)
2. Obli of the SH do not pertain to the corp (and vv)
3. Rights granted to the corp cannot be exercised or enjoyed personally by the SH
and even the BoD (pertain to the corporation)
4. Just because 99% or even 100% of the equity is owned by one person, does not
break the juridical personality (and vv) - integrity of separate existence
5. Just because a subsidiary is 100% owned by another does not mean the same
JP with the mother corp; If the only thing an individual/entity has is controlling interest,
still sep JP
6. Individual CoA of the corp cannot be asserted by the individual SHs (and vv)
7. Torts - only the corp can claim the tort and not the individual SH (they have no
standing AT ALL)

SJP is meant to achieve the ends of justice!

to achieve commercial ends (What) to pursue business enterprise (thats why the
corporation is a medium)
If you try to use the means for any other end which is not the achievement of
justice, it would not w o r k.
Meant to pursue LEGITIMATE BUSINESS ENDSZZZ
The moment you use it for something intended, its not strong at all!

PIERCING THE VEIL OF CORPORATE FICTION

The moment the corporation is used not for a legitimate business purpose
(commit crime/fraud/mere instrumentality/etc) FICTION WILL GIVE WAY and the
corporation will be treated as a mere aggregation of the people/SHs
Limited liability will cease to function!!! Will make the actors behind the
transaction personally liable to the transaction, or 2 corporations will be treated as one
PTV - common law doctrine
Piercing is basically an equitable remedy (repercussions)
Can only be availed of as a remedy of LAST RESORT (parang SC HAHAHAHA)
Can only be availed of in order to render equity (wtf u dont say) not to create a
right, not to create a cause of action
Can only be resorted to to prevent fraud not to commit fraud
Bases must be proved with clear evidence
Essentially a judicial power
Effects are res adjudicata

Once Piercing The Veil Doctrine is applied to a case, the Separate Juridical
Personality is pierced. (TOTOO BA DEAN)
Breaks limited liability
Actors become liable with their separate properties and the corporate properties
become liable for the personal obligations of the individual SHzzz
As to 2 corporations, they would be merged as if they are one enterprise (non-
liability of one corporation is broken, privity as regards contractual obligations is shared)
 RES ADJUDICATA - PIERCING ONLY HAPPENS TO RENDER JUSTICE TO
THE SEPARATE CASE (for purposes of the issues in the case!!!)
PROVE BY ACTUAL AND CLEAR EVIDENCE THE FACT OF FRAUD
(SOMETHING SOMETHING)
In order to prevent fraud and not commit it! (Same with Statute of Frauds)
Even if there is fraud committed, when the person invoking is not a victim (he
knew the circumstances) you cannot ask for PTV
Can only be invoked by an innocent victim!
Equitable remedy - cannot be used to create a right, it is meant to right a wrong
(render justice)

Corporation Law (02/28/17)

Bernas v Cinco - By-laws do not have extramural effect.

GR: Not binding to the public, failure to comply as regards transaction with the public
cannot invalidate acts done in good faith

CHAPTER 8: CORPORATE POWERS AND AUTHORITY

AOI constitutes a K between corporation and the state
As a proposition: People having no knowledge of the provisions of the AOI are
not bound by the same.
Countervailing theory: (di ko nakuha k)
Bound by the fact that the law provides for certain things provided in the AOI
Institutional basis of the Corporation Code

Express - given by the Corporation Code (Section 36), AOI, and other statutes

Give me all the clauses in the AOI except Santa Claus

EXPRESS POWERS FROM THE AOI: Primary and Secondary Purpose Clause
Primary - a line of business (this corporation is set out to engage in
telecommunicationsetc)
Always a line of business
Secondary - can be a line of business or a special power of attorney

Implied - necessary or convenient/commercial consequences of the express powers

that it has
Incidental - attached to the corporation by virtue of its separate juridical personality

AOI may embody the constitution and by-laws, BUT NOT THE OTHER WAY
AROUND!!!!!!!!
AOI is the highest form of contract!
Section 36 of the Corporation Code
Power to sue and be sued in its corporate name (surplusage, kasi incidental
power siya from the SJE of the corporation)
Power of succession by its corporate name for the period of time stated in the
AOI and certificate of corporation (express) Sec 2 and 36(2)
Adopt and use a corporate seal (incidental power siya from the power of the
corporation with regard to the administration of the business)
Amend the AOI (express, you cant touch the charter without the state granting
you to do so, so hindi incidental)
Adopt by-laws (incidental, every corporation has the capacity to manage/govern
the internal matters, and self-preservation)
Stock - issue or sell stocks and sell treasury stocks; non-stock - admit members
(incidental)
Deal with properties (incidental)
Mergers or consolidations (express, legislative power siya so without a specific
grant, hindi pwede iexercise)
Reasonable donation (incidental)
Pension, retirement, and other plans for the employees, directors, trustees,
officers, and employees (incidental)

Everything done without authority cannot be binding except if done with good faith.

Corporation Law (03/04/17)

Cumulative Voting
Permit minority interests to gain proportional representation on the board of
directors roughly commensurate with their share of ownership
MANDATORY - stated in the Code (versus straight voting)

XYZ Inc. - 5 MAN BOARD

ACS - 100,000 shares
Par value - Php 10.00 per share

SCS - 80,000 shares

Par value - 800,000.00

PCS - 40,000 shares

Par value - 400,000.00

X Group* - subscribed 20,000 shares fully paid (total subscription 200k paid up)
Y Group - subscribed 10,000 shares 1/2 paid (total subscription 50k)
Z Group - subscribed 10,000 shares 1/4 paid (total subscription 25k)

*Goes to you saying he wants to control the company

Distribution of shares
 It is not payment of subscription that gives you standing as stockholder,
but the subscription.
Dividend same as voting, entitlement to dividend is based on the fact that you
are a stockholder of the company and not on the value of what you paid but what you
have subscribed

Cumulative Voting - mandated to stock corporations for minority SHs to be

represented in the board
not the default but is the ONLY RULE IN STOCK CORPORATIONS
in non-stock corporations in the absence of a stipulation, straight voting

DHondt Remainders Table (ARALIN ITO)

Will give you what is sure and what is optimal
Tell you what youre sure of winning and how you should vote in order to get
more
How to maximize without sacrificing at all
Underscoring represents the chances!!!! (highest unencircled value)
Every underscore represents a chance.
If there is a tie, look in the by-laws for the provision on the breaking of a tie.

What you do when you dont understand the lesson? You doodle. (Villanueva, 2017)
Why? Bakit ginawa mo akong uto-uto. HAHAHHAHAHAHAHA

FIDUCIARY DUTIES OF THE BOARD TO THE CORPORATION

Duty of Diligence
Duty of Obedience - follow the instructions of the principal
Duty of Loyalty

Diligence - diligence of a good father of a family/prudent man

Fiduciary relation of the Board of Director with respect to the stockholders - BUSINESS
TRUST

Stakeholders - basta nagcacater sa public to come in

Quasi public corporation
Jurisprudential corporate governance - stakeholder theory

Corporation Law (04/06/17)

CLOSE CORPORATIONS

Statutory Requirements (Section 96)

MUST BE STATED IN THE ARTICLES OF INCORPORATION
All the issued stock of all classes shall be held of record by not more than 20
persons
All the issued stock of all classes are subject to one or more specified
restrictions on transfer permitted by Title XII - right of first refusal to the
corporation or to the other stockholders
Shall not list in any stock exchange or make any public offering of any of its
stock of any class - stocks cannot be publicly held (never enlisted in the PSE)

Shall not be deemed a close corporation when at least 2/3 of the voting
stock/voting rights is owned or controlled by another corporation which is not a
close corporation within the meaning of the Code

Offered publicly - not listed in the stock exchange; you can sell it to persons
outside the 20

Convergence of Ownership and Management

The stockholders are deemed to be the managers and there is no need for
the Board in order to manage the affairs of the Corporation
Unlike in a normal corporation wherein it is the Board which would have the
management
DO AWAY WITH THE BUSINESS JUDGMENT RULE IN A NORMAL
CORPORATION
Features of a close corporation is closer to a partnership than an ordinary
corporation

Superiority of Contractual Intents on Proprietary Matters pursued through the

juridical vehicle
In an ordinary corporation, a stockholder has no say in proprietary matters since
all the powers are exercised by the board under Section 23, but in a close corporation,
since they are also the managers of the corporation, they would have a greater
stake in the management of the assets, rights, and obligations
CC - is the closest you can get between a partnership and a corporation
Every partner has a say on every matter that would be decided whether it is
proprietary or not!
You dont have to leave the management of the corporate acts to the Board
SH are granted a voice in the manner of conducting a business

Rationale for the use of Close Corporation as a vehicle of pursuing business

Idea of CC is not well-marketed
Created for the purposes of ending disputes among family members when
it comes to business
Merges the best features of a partnership and the corporation as a means of
pursuing a business venture
Delectus personae - right of first refusal; but there is
still a way to invite new partners without the need to
dissolve the corporation as long as you follow the rule
of ROFR
Problems with the Statutory Definitions
Large portions of closely-held corporations left out which are in effect de facto
close corporations
Requisites existing but not enumerated in AOI
Requisites enumerated in AOI but not complied with
Paper Test and Factual Test

De Facto Close Corporations

Manuel Dulay: there was a finding on the part of the trial court that when you look
at the composition of the corporation and the manner by which they were acting what
they intended to create is a closed corporation
Dulay all managers in both a closed and ordinary corporations cannot be
made personally liable for valid and binding corporate acts
In an ordinary corporations - the only managers are part of the Board
In a closed corporation - the stockholder may manage
But it doesnt mean that the liability of the stockholders are enlarged;
corporate creditors cannot go beyond corporate properties as long as the
SHs/managers did not exceed their powers
In a CC - the stringent rules on board/SH approval does not exist!
Naguiat - in the absence of corporate properties, you can go after the
properties of the highest ranking officers
If what is involved is not a close corporation, can the president be made
liable?

WHAT MAKES A CLOSE CORPORATION A CLOSE CORPORATION? - THE

MARRYING OF THE BEST CHARACTERISTICS OF A PARTNERSHIP AND THE
CORPORATION
Give away some of the powers of the board of directors to the stockholders
Factual test! You can still apply the provisions on CC to de facto corporations

ROFR - required in closed corporations!! Allowed also in ordinary corporations -

as long as it is written in the AOI
Ordinary - option to put restrictions only in the form of ROFR (sale of shares of stock in
the form of right of first refusal)
Does not go against the free transferability of shares as long as it is not
restrictive

Shares of stock - restriction of free transferability is ROFR as long as it is written

in AOI; must also be annotated in the certificate of stock (for ordinary
corporations)
Memorize institutions which are not allowed to be close corporations so
that youll apply the provisions on ordinary corporations

Section 98 KAHIT NASA AOI LANG BINDING NA SYA. No need to be actually

contained in the by-laws and the certificate of stock

No need for SH meeting/board meeting, because it is presumed that everyone knows

what to do and what to consent to.

Corporation Law (04/11/17)

Corporate Officers
BoD - agents of the corporation
BJR - transactional and personal branch

Public Policy: all corporate powers are vested in the board of directors
Except:

When can the courts be deemed to have authority to overturn? Grave abuse of
discretion (admin/consti law parlance)
WHEN IT ACTS WITHOUT BUSINESS JUDGMENT
Tribunal must be disinterested
When he acts with fraud/malice/bad faith
If there is no fault/bad faith/malice even when there is negli

The pursuit of business is the pursuit of risk.

(PARANG PAGIBIG)

Assumption of risk is part of the endeavor to pursue business.

When do they act without business judgment? Section 31, 32

Enter into contracts breaching their fiduciary duties of loyalty, diligence, or
obedience!
Not in the position to exercise due diligence
Possible for them to be personally liable

Even though they are supposed to take the risk, they are not supposed to be negligent.

If the board, through the corporation, is an agent bound by 3 fiduciary duties

He knows that all he gets is beneficial ownership

Relationship of board to the SH is one of trust

Duty of loyalty and diligence
No obedience! Because board holds title to the property

Management - appointed by the Board to exercise the prerogatives of the board

Senior officers
What is management with respect to the corporation? SUB-AGENTS
BOD cannot unburden itself with the responsibilities imposed upon it
Appointment of a sub-agent is plenary in character except in the executive committee
Responsibility of agent to the acts of the sub-agent LIABLE (corporate
governance says that the D2D management of corp is with management, board is the
one responsible to the SHs)

Management vis-a-vis SH and the public - subtrustees

as plenary as the liability of the board of directors

WHO ARE CORPORATE OFFICERS

Determine who are bound by fiduciary duties
Determine who are corporate officers within the BJ rule of the board to hire and
fire

When is a position deemed to be an officer position/when is it not?

Rank and file - definitely not managers/sub-agents; although k of
agency/employment are both k of services, agent has the capacity to enter into juridical
acts to bind the principal, employee cannot!
Does not represent the employer in the legal way. Not bound by the fiduciary duties!
Supervisors/ Department/Floor Managers - do they have the power to bind the
corporations in juridical acts/contracts?
Who are within the BJ of the board to hire and fire

For being stupid? You cannot be fired.

Gurrea v Lezama***
The ones mentioned in the statute or the by-laws are deemed to be officers of
the corporation
Can the by-law provision be constituted in order to restrict business judgment?
No. WHY NOT?
If it restricts business judgment rule? VOID
Only the corporation code that can require the stockholder ratification

3 principles governing validity of the by-law provision

Goes against laws/consti/AOI
unreasonable
discriminatory
UNLESS OTHERWISE PROVIDED BY THE CODE

By-laws CANNOT CONTRAVENE SECTION 23!!!

Manager whose position is not in the by-laws wanted the corp to take up JV in a mining
business, manager said ako nalang (parang si Basha!!!!!)
When the board learned upon this, they said that he violated the duty of loyalty?
He is only an employee, he cannot be made

True officer breaches his duty of loyalty?

 Clawback doctrine
Losses all his commissions even when he has already earned it

Not an agent for he has no power to enter into juridical relations on behalf of the
principal

In life, you will have many conflicts of interest situations but that does not mean that you
have sinned already.

Dichotomy in the test of officership

8. Moment an officer is placed in the by-laws it means that corporation deems it
really important and it is a corporate officer!!!
9. If they use the Gorrea doctrine as a means to put everyone in that area, you
cannot use the by-law provision to undermine the security of tenure clause

It is the explanation that makes you an Atenean.

T/F. Provision in the by-laws to the president that delegates the power to appoint
corporate officers is void. TRUE. Delegation must be through a resolution and not
through the by-law.
WHY? Board must act as a body!!!!! Only the board can bind the corporation.

Corporation Law (04/18/17)

For safety measure, indicate the RoFR clause in the by-laws and the stock
certificates (pagawa ng sarili ha wag bumili sa national bookstore)

How do you nominate directors in a closed corporations?

(Difference between the election of board of directors between a stock corporation and
a closed corporation)
Always appointed by the SHs
No difference with regard to the election of the board of directors
One of the formalities which may be waived the stockholder meeting intended
for the election of the board (but not really a difference since it can still be forgone in a
stock corporation)

In a close corporation (SEC 97) - SH may be held liable as board of directors

if they choose to do so merger of the rights and obligations between the board
of directors and the stockholders
(Realistically speaking) You can never be able to file your GIS with the SEC
without electing the board of directors
There are board of directors sitting, but not elected formally.
But you do not forego with the entirety of the board of directors wala lang
board meeting needed to appoint the people to govern the corporation
Formalities need not be complied with
 Nothing in the corporation code states that you do not need to elect a board of
directors in a close corporation

IN A STOCK CORPORATION - the board is elected by ALL OF THE SHs

Cumulative voting

IN A CLOSE CORPORATION - you can provide that certain group of

people would only be allowed to vote for limited number of directors
Can provide for classification of directors which may be voted upon by a
particular classification of shares
In reality SHAREHOLDER AGREEMENT - indicate that group a specific
group can vote for a specific number of directors only
May be used in a regular stock corporations as well
Section 100 - still binding on the corporation and the stockholders

AOI may provide for the appointment of officers

Board meetings unnecessary - presumed that whatever the managers do is with

the acquiescence of the board
SEC should not take it against the corporation if there is no paper minutes
because that is the very essence of the close corporation
no need for the formalities required in regular stock corporations

Pre-emptive rights
Extend to all stock to be issued
Offer the treasury shares to the members of the corporation

Deadlocks and dissolutions

Give SEC multiple powers to fix the situation which is regularly not
available to a normal stock corporation (MEMORIZE POWERS OF SEC WHEN IT
COMES TO CLOSE CORPORATIONS)
Cancel/alter provisions of the AOI
Cancel/alter/enjoin any resolution or other act of the BOD (exception to the
bj rule)
Direct or prohibit any act of the corporation or its BOD - power to directly
manage the affairs of the corporation
Require purchase of the fair value shares of any SH (buy back the shares
exception to the trust fund doctrine)
Appoint provisional director
Dissolve the corporation
Grant other reliefs as may be warranted

Ong Yong v. Tiu - could have actually plotted the power of the SEC when it comes to
close corporations

NON-STOCK CORPORATIONS, FOUNDATIONS, AND COOPERATIVES

Misnomer because they can have stocks
They dont have stockholders, they only have members

Diff between non-stock and regular stock? Purpose for which it is intended
NS - eleemosynary purposes
S - purpose of earning profits

Contractual Failure - in a regular stock corp - k is to get profits so it is easy to

determine whether or not the purpose is achieved
NS - eleemosynary purpose; you cannot determine if you have met the
maximum potential, undeterminable! cannot equate them with a stock
corporation because there is no margin on w/n you are charitable/educational
enough

The profits can never be distributed to the members must always be provided in
the AOI!
You give out to the society as the true purpose
AS LONG AS IT IS NOT FOR PROFIT

ELEMENTS OF A NSC
Eleemosynary - not an exhaustive list as long as its created for the benefit of the
society
Non-distribution of profits

if there are provisions in the AOI contradicting the 2 elements of a NSC IT IS A

REGULAR STOCK CORPORATION
There are specific rules applicable to NSC and vv

Is earning profits contradictory to the non-stock characteristics of a NSC

it is allowed to engage in profitable business only if it is necessary or
essential to carry out the eleemosynary purposes for which it was organized

for stock - BOD - cannot earn salary but can receive per diems
for NSC - BOD - what is prohibited is the declaration of dividends but you can still give
workers/employees their salaries and the per diems to the board of directors

Regular SC - cannot vote by registered mail

Difference between Stock and Non-Stock Corporations!!!!!!

10. Even if there is an authorized capital stock it would automatically make it a SC!!
As long as the 2 elements of NSC is there, it is a NSC
11. Difference between BoD and BoTrustees
D - name of the board of SC
T - dealing with NSC
Corporation Law (04/20/17)

Review of Nationality Test

FINALS - computation cumulative voting and nationality test

Recit 40
Midterms 20
Finals 40

Nationality Test
Test is on the target company
Importance of knowing the nationality of the corporation
Nationality determines which law applies to them, determines the power to
tax them, regulate the business enterprise

Primal Test: Place of incorporation test (Section 123 of the CC)

Corporation is a creature of the state under whose laws it has been registered
Basis is the theory of concession - within the power of the state to regulate
It is wrong under IL and rudiments of due process for a state to regulate a
corporation which has not been incorporated under its laws
Always the test. IT CANNOT BE SKIPPED.
Always come in to play whenever you try to determine the nationality
True test of nationality is the place of incorporation test

2nd Test: Control test

Used in certain areas/industries/activities is limited by the constitution or
laws for Filipino corporations! (must have been registered under the SEC)
Basically for nationalized industries
FOR QUALIFICATION TO ENGAGE IN NATIONALIZED ACTIVITIES
Subject corporation (owned by individuals) - follow the nationality of the
individual stockholders (minimum of 60% for public utilities)
DISQUALIFICATION TEST. Does not reverse itself.
No difficulty in trying to determine qualification of the owners

A (Pinoy 60%) B (American 40%) > Target Corporation

(PoIT) then (CT)

Target corporation
A (Pinoy 10) B (American 10) 123 Corp (80) > Target corporation
Must determine nationality of 123 Corporation (must be incorporated under PH
laws and 60% must be Pinoy owned)
Same principle in the wartime test (if the corporation is incorporated under the
laws of a foreign country)
Theory under the control test - business enterprise sought to be regulated
because of nationalization laws
Doctrine of centralized management is the underlying theory BE of any
corporation is always controlled by the BoD which can only be elected by the SH
Must have controlling shares in order to control the board
Equity sought to be Filipinos because they would be the ones who will elect the trustees

Why is it 60% as the minimum threshold? In a corporate setting, majority always

wins. 60% takes control smallest number in a 5-man board 3 would be
elected by the 60% clear majority, anything less than 60% would not have been
clear
ENSURES FILIPINOS CAN TAKE CONTROL
2 will never be heard in decision making because 3 will always outvote 2

If the target corporation is owned by another corporation, you need to

grandfather.
In order to determine the nationality of the 80% owned by the corporation
You always use the grandfather rule even if things are clear
Place of incorporation test then CT
Foreigners can invest up to 40% in a public utility

Grandfather rule is constant whenever you have an investee

which is a corporation wherein you should determine the
ownership of the corporation
A (Pinoy 10) B (American 10) 123 Corp (80) > Target corporation
123 Corporation A (Pinoy 60) B (Foreigner 40)
Determine proportionately owned by the corporation
Pinoy (60 x 80) 48% (with regard to the target corporation)
Foreigner (40 x 80) - 32% (with regard to the target corporation)
NOT AUTHORIZED TO ENGAGE IN PH UTILITY

So the target corporation is actually 10 + 48 = 58 owned PH and 10 + 32 = 42

owned foreigner! Cannot engage in public utility.

VOTING AND NON-VOTING EQUITY (Gamboa

test)
Manage the flow of benefits as well
Since consti does not distinguish, voting + non-voting equity (BEFORE)
For the strict test, control and benefit must go to the PH
Foreigners can invest in public utilities UP TO 40%!!!
 SEC-DOJ ruling = 60 = 100 - for purposes of investment
In trying to determine the character/nationality of the investment
Whole investment will be deemed filipino if its above 60%
RULE DOES NOT REVERSE ITSELF. ANYTHING LESS THAN 59 IS
PROPORTIONAL

1991 FIA - for purposes of investments in PH companies defined who is a Philippine

national
Domestic corporation wherein 60% of the equity (VOTING) is owned by filipinos
Even corporations incorporated abroad (at least 60% filipino owned) are deemed
to be filipino nationals > IN DEFIANCE OF THE PoIT

GAMBOA V TEVES 1 DECISION

It is not high-time to decide what capital means
Ensure that control and enjoyment of the nationalized industries must be given to
Philippine citizens
Centralized management!
Intent of the consti - put the control of nationalized industries to filipinos
60% RULE VOTING EQUITY LANG YUNG REQUIRED MAGING FILIPINO
OWNED
PLDT COMMON SHARES - HELD BY AMERICANS, PREFERRED HELD BY
FILIPINOS
Went to discuss the benefits
CAPITAL COVERS ONLY VOTING SHARES. The rest was just berating the set-
up of PLDT it had only 1 test, common shares o n l y
If its voting shares, it is almost held by Filipinos

GAMBOA V TEVES 2 RESOLUTION

MR! Hindi lang voting shares. Determine the beneficial investment.
Include all types of shares (voting + non-voting) shall be included
BUT THE MR IS DISMISSED WTF

12. GAMBOA IS NOT A DOCTRINE ADDRESSED TO THE FATHER COMPANY

but to the target company w/n it would be allowed to engage in a public utility
based on the voting equity

SEC did not follow the resolution

ROY III V HERBOSA - SEC MEMORANDUM

GF rule tended to follow the target company rule

NARRA CONFIRMED THE DOJ-SEC RULE

Narra took cognizance of the DOJ-SEC Rule for purposes of determining the
character of the investment of an investee company in the target company
Affirmation that the old DOJ-SEC Rule still applies
Determine ACTUAL CONTROL
 If there are indications that the Filipino ownership is a dummy only apply
strict??
Do not apply the 60=100 rule

If there is doubt, both of them would not apply.

If there is no doubt, apply strict/liberal

Narra, after the Gamboa, affirmed the applicability of the 60=100 rule
Problem: Do you need to determine per kind of share?

EW: PH voting 40, US preferred 60

How do you characterize the 50 holding in Zambal
Of the 50 in Zambal, how much is foreign how much is filipino?

Is Gamboa a test for target company only?

ROY III MR - MAIN TEST OF DETERMINING CONTROL TEST - VOTING SHARES

2ND TEST OF BENEFICIAL OWNERSHIP - removable by the SEC

GAMBOA TESTS > VOTING SHARES

WHAT DOES IT MEAN WHEN WE TALK ABOUT BENEFICIAL SHARES MEANS
YOU ARE NOT A DUMMY
RULE 1 SECTION 1 OF FIA

CONSTITUTIONAL TEST FOR THE DETERMINATION OF THE NATIONALITY OF

THE CORPORATION FOR PURPOSES OF THE NATIONALIZED INDUSTRIES
Voting shares
60% of the voting shares of the target company is all that is needed.
GAMBOA DOCTRINE - COVERED BY SEC MC 8-13 - FOR THE TARGET
COMPANY ONLY

A foreign company may invest in a nationalized industry!!!! Up to 40%

Corporation Law (04/20/17)

Corporate Dissolution and Liquidation

Corporate Contract Law

I. Pre-Incorporation Level - Promoters K
Apply the rules on agency

II. Post-Incorporation Level - Ks entered into on behalf of an existing corporation (even

at least on the minds of the contracting parties)
Corp by estoppel/de facto corporation doctrine
All of these have been developed to promote the sanctity of the contractual
commitment of the corporations

III. DISSOLUTION AND LIQUIDATION LEVEL

Greatest public policy at this level: TRUST FUND DOCTRINE
It is the interest of the creditors that are protected
Upon dissolution, the creditors are first in line with regard to the corporate assets
Only upon satisfaction of the corporate debts can the SHs be given their shares
SHs took the risk that if anything goes wrong, they will be the ones to answer for it.
For creditors, it is a loan. THEY EXPECT TO BE PAID. Its a contractual obligation
Most important thing is to protect the creditors at the time of the
dissolution of the corporation
Ks entered subsequent to the dissolution creating additional obligations cannot
be respected so that the claims of the creditors at the time of dissolution will not be
diluted

Dissolution is a point in time

Point in time whereby the corporation ceases to be a juridical person for
purposes of a going concern
It does not cease to be a juridical person
Management/BoD does not cease to have corporate powers
SHs does not cease to be owners
JURIDICAL PERSON REMAINS INTACT BUT WITH ONLY THE POWER TO
LIQUIDATE ITS OWN AFFAIRS
Any act done in pursuit of a going concern is VOID even when entered with a person
believing in good faith
WHY? To honor that contract would be to create an additional creditor Fiduciary
obligation of the board and management to carry out liquidation for the benefit of the
creditors (TRUST FUND DOCTRINE)
Everything the corporation does would be for liquidation

Voluntary Dissolution
no creditors affected
Administrative application with SEC saying that the board of directors (approved by 2/3
capital stock) that they are dissolving the character
In rem. There must be notice and publication
Once corporation is dissolved, liquidation will follow as a matter of course.

with creditors affected

Becomes a quasi-judicial
Petition filed with the SEC
Is it possible that it would end up with dissolution? YES. SEC has no power to
compel people to stay together whether as a business association
SEC has power to appoint a receiver when there are affected creditors

shortening of corporate life

Prior to the life of the corporation, amend the AOI and shorten the corporate life
Affidavit of assumption that the majority stockholders would shoulder the corporate
debts
CANNOT BE PREVENTED unless it is a pro forma application

expiration of corporate term

Allow 50 years to lapse without renewing the corporate term

Involuntary Dissolution
Quo warranto proceeding - direct proceeding brought by the state against the
corporation in order to forfeit its charter
Direct attack! Otherwise, under the de facto doctrine, one cannot attack the legality if
not in a direct proceeding
Quo warranto are not accepted by the courts! Dapat last recourse lang.
Can only be allowed on serious grounds
An idle mind is the devils workshop.

De Jure v De Facto Dissolution

De Jure - attacks juridical personality of the corporation, turns BE one for liquidation
De Facto - attacks only the business enterprise; cease the operations, does not
affect the juridical entity, what it does is that although the juridical entity is there, they
would not operate the business enterprise; does not trigger liquidation

Liquidation is a process

VOLUNTARY DISSOLUTION
All of the assets are liquified and distributed to the creditors in satisfaction of debt
and distribution to the stockholders (net asset of the corporation)
Would continue to exist 3 years after dissolution - power will only be used to
liquidate the assets
After 3 years, the corporation would cease to exist AT ALL
But does not mean that the business enterprise would cease to exist as
well

HOW IS LIQUIDATION DONE?

Board is given 3 years within which to liquidate, after the 3 years board
would not have power anymore
Entering into a trust relationship (essentially contractual in nature, manner of
disposition wherein naked title is separated from beneficial title)
Receivership. Judicial process wherein the receiver is appointed by the court.

Theoretically speaking, board can no longer liquidate.

During the 3 year period, ownership/naked title would be given to the
trustees
TRUSTEE AND RECEIVER ARE NOT BOUND BY THE 3 YEAR RULE
TRUSTEE SINCE HE IS NOW THE OWNER
If one of the officers take an asset for himself - creditor may go after the corporation

GELANO V CA. Counsel de officio.

Dismiss the case because there is no party still existing (plaintiff)
Trustee can begin to proceed with handling the liquidation even after the
expiration of the 3 year
LAWYER CAN BE A TRUSTEE because the lawyer handled the property
(mali daw sc)
Whoever has custody can continue the case beyond the 3 year period
Board can be a trustee under Gelano doctrine and can continue to proceed with
liquidation

Corporation Law (05/04/17)

Foreign Corporations
Service of summons
Any foreign corporation doing business in the PH can be served summons
resident agent, government officer, or any officer
Any person you present to the public as representing your corporation would be enough
for the service of summons

Facilities - if a FC is not doing business in the PH, it CAN SUE ON AN ISOLATED

TRANSACTION
Signetics - against the facilities obiter! hindi naman isolated transaction yung ganap

In order to sue a foreign corporation, (IN PRACTICE) indicate facts to show that
the corporation is doing business in the Philippines in the service of summons

Continuity and substantive test must always concur for the doing business test
Continuity and substantive are just coined by CLV HAY NAQ SIR U NA PO :))))))

Rules do not apply because of the foreign investments act

Corporation Law (05/09/17)

Rights of the Stockholders

For mandamus to lie against the corporate secretary

Notarized deed of assignment (deed of sale) - inchoate right when you sell the
shares of stock
In the deed of assignment, there must be an instruction to the corporate
secretary to transfer the shares in the name of the transferee; (Silent yung deed of
assignment) instruction from the original stockholder to transfer the shares
Original stock certificates
 (DST)

Batong buhay case - there is no proof as to the amount of speculative damages which
was claimed by the petitioners

RIGHT TO DIVIDENDS - can only be declared by the board of directors

SEC can never force the BoD to declare dividends, they can only impose
sanctions
Not the approval of stockholders but the declaration of the board > only
then would the right to dividends would arise

RIGHT TO VOTE - AOI, By-laws, Corporation code

GR: Right to vote
E: Stock - provided in the AOI; restrict the right to vote, or remove it through the
classification of shares as a preferred one (as long as provided in AOI)
Non-stock - provided in the AOI

Is there a way for SH to be restricted in its right to vote? YES. Contractual obligation
(VTA, pooling agreements)

VTA - you let go of your right to vote

Proxy enlarges your right to vote

Right to vote may be taken away in the AOI but there are instances wherein even
non-voting shares are required to vote (yung kailangan ng 2/3 majority ratification
of stockholders) exception to the general rule; even the non-voting stock
should be included in the voting

Joint ownership, when would a mortgagor/pledgor/administrator be allowed to vote on

behalf of the owner of the stocks
Only people with personal relation with the corporation can be allowed to
vote!

Treasury Shares
Always ask for SEC approval para dun sa mga di makakapunta ganyan, video
conference area

Quorum
by-laws and AOI may provide for a higher quorum requirement for certain acts

Voting Trust Agreement

Corporation has to actually put that the transfer from trustor/beneficiary to the trustee by
virtue of the voting right agreement so that after the 5 year period, the stocks will be
placed back to the name of the original owner

Remedies available when they dont allow you to inspect the documents - criminal
sanctions under section 144 (for corporate officers and directors only)

Appraisal Rights - memorize which corporate acts are subject to the appraisal
rights
ask the corporation to buy you out