Corporatin
Law (Atty. Carlo Busmente) San Beda College - Alabang
MIDTERMS
1st SET
Doctrine of Corporate Entity (Identity Doctrine)
GOOD EARTH EMPORIUM vs. CA
A corporation has a personality distinct and separate from
its individual stockholders or members. Being an officer
or stockholder of a corporation does not make one’s
property also of the corporation, and vice-versa, for they
are separate entities. Shareowners are not the owners of
corporate property (or credits). The corporate debt or
credit is not the debt or credit of the stockholder, and
vice-versa.
CRUZ v. DALISAY
The mere fact that one is president of a corporation does
not render the property he owns or possess the property of
the corporation, since the president, as an individual, and
the corporation are separate entities.
Note: The Doctrine of Corporate Entity connotes two
scenarios. First, under Good Earth, the doctrine protects
the property of the corporation from any liabilities of its
officers or directors and the property. Second, under Cruz,
the doctrine protects the personal property of the officers
or directors from any liability of the corporation,
provided, that the liability of the corporation did not arise
from any ultra vires acts of the officers or directors.
Note: Even though a corporation is separate and distinct
from its officers or shareholders, when the interest of the
shareholder over a property of the corporation is under the
threat of being impaired or lost, the doctrine of corporate
entity may be disregarded and the shareholder has for him
the right to bring action in his own name.
BANK OF AMERICA vs. CA
Stockholders must sue in the name of the corporation.
However, being a party-in-interest, the court may allow
that such shareholders bring their action in their own
name and not as shareholders of the corporation, provided
they have a cause of action.
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Doctrine of piercing the corporate veil of corporate
entity or the Corporate Alter Ego Doctrine.
GEN RULE: The power to pierce the corporate veil
belong to the courts.
CRUZ vs. DALISAY
The power to pierce the corporate veil belongs to the
courts. When the Sheriff served the writ of execution
against a corporation over the properties of its president,
the Sheriff usurped a power that belonged to the court
when he chose to pierce the veil of corporate entity.
EXCEPTION: The labor arbiter may pierce the corporate
veil should a corporation be used commit unfair labor
practice.
DE LEON vs. NLRC
We find that the Labor Arbiter correctly applied the
doctrine of piercing the corporate veil to hold all
respondents liable for unfair labor practice and illegal
termination of petitioners' employment. It is a
fundamental principle in corporation law that a
corporation is an entity separate and distinct from its
stockholders and from other corporations to which it is
connected. However, when the concept of separate legal
entity is used to defeat public convenience, justify wrong,
protect fraud or defend crime, the law will regard the
corporation as an association of persons, or in case of two
corporations, merge them into one. The separate juridical
personality of a corporation may also be disregarded
when such corporation is a mere alter ego or business
conduit of another person. In the case at bar, it was shown
that FISI was a mere adjunct of FTC.
(As to persons) When the corporate veil may be pierced
LIPAT vs. PACIFIC BANKING CORP.
(Doctrine of Apparent Authority)
Whenever a corporation knowingly permits one of its
officers or any other agent to act within the scope of an
apparent authority (such as a special power of atty.), it
holds him out to the public as possessing the power to do
those acts; thus, the corporation will, as against anyone
who has in good faith dealt with it through such agent, be
estopped from denying the agent’s authority.
 Corporatin Law (Atty. Carlo Busmente)
(As to persons) When the corporate veil may not be
pierced
FRANCISCO MOTORS CORP. vs. CA
Instead of holding certain individuals or persons
responsible for an alleged corporate act, the situation has
been reversed. It is the corporation which is being ordered
to answer for the personal liability of a certain individual
directors, officers and incorporators concerned. Such
application of piercing the corporate veil has been turned
upside down because of its erroneous invocation.
***According to private respondent Gregorio Manuel his
services were solicited as counsel for members of the
Francisco family to represent them in the intestate
proceedings over Benita Trinidad’s estate. These estate
proceedings did not involve any business of petitioner***
Doctrine according to Atty. Busmente: In case of personal
liabilities of members or stockholders of a corporation,
the corporation cannot be held liable for such personal
liabilities. However, if it is the corporation who incurred
such liability then the members or stockholders may be
held liable.
(As to two or more corporations) When the corporate
veil may be pierced
a. Test in determining the applicability of the doctrine of
piercing the veil of corporate fiction (Requisites)
CONCEPT BUILDERS, INC. vs. NLRC
1. Instrumentality or control test. – 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. Fraud Test. – Such control must have been used 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 one’s legal rights.
3. Casual connection Test1. – The aforesaid control and
breach of duty must proximately cause the injury or
unjust loss complained of.
1 conclusion that actual dissolution took place. The two
There must be a casual connection between the fraud
committed through instrumentality of the corporate form and the
injury or loss suffered by the plaintiff must be established (De
Leon Book 2013. p.41 )
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The absence of any one these elements prevents ‘piercing
of the corporate veil.’ In applying the ‘instrumentality’ or
‘alter ego’ doctrine, the courts are concerned with reality
and not form, with how the corporation operated and the
individual defendant’s relationship to that operation.
b. Presumptions when the veil of corporate entity may be
pierced between two corporation.
PNB vs. ANDRADA ELECTRIC & ENG. CO.
General Rule: A corporation that purchases the assets of
another will not be liable for the debts of the selling
corporation, provided, the former acted in good faith, and
paid adequate consideration for such assets.
Exceptions:
(1) where the purchaser expressly or impliedly agrees to
assume such debts;
(2) where the transaction amounts to a consolidation or
merger of the corporations;
(3) where the purchasing corporation is merely a
continuation of the selling corporation;
(4) where the transaction is fraudulently entered into in
order to escape liability for those debts.
c. Application
REYNOSOS vs. CA
The defense of separateness will be disregarded where the
business affairs of a subsidiary corporation are so
controlled by the mother corporation to the extent that it
becomes an instrument or agent of its parent. But even
when there is dominance over the affairs of the
subsidiary, the doctrine of piercing the veil of corporate
fiction applies only when used to defeat public
convenience, justify wrong, protect fraud, or defend
crime. Mere allegation that a corporation is the alter ego
of the individual stockholders is insufficient.
AVON DALE GARMENTS, INC. vs. CA
Absent any showing that there was indeed an actual
closure and cessation of the operations of a corporation is
not enough to establish that a corporation is a separate and
distinct entity from the other. Mere filing of the Articles
of Dissolution with the SEC is not enough to support the
entities cannot be deemed as separate and distinct where
there is a showing that one is merely the continuation of
the other.
 Corporatin Law (Atty. Carlo Busmente)
Two entities cannot be deemed as separate and distinct
where there is a showing that one is merely the
continuation of the other. In fact, even a change in the
corporate name does not make a new corporation. It has
no effect on the identity of the corporation, or in its
property, rights, or liabilities.
FIRST PHIL. INTERNATIONAL BANK vs. CA
The corporate veil cannot be used to shield a blatant
violation of the prohibition against forum-shopping.
Shareholders, whether suing as the majority or as the
minority in a derivative suit, cannot be allowed to trifle
with court processes. To rule otherwise would be to
encourage corporate litigants to use their shareholders as
fronts to circumvent the stringent rules against forum
shopping.
Doctrine of Equality of Shares means that in the absence
of any provision in the articles of incorporation and in the
certificate of stock to the contrary, all stocks, regardless
of their class nomenclature, enjoy the same rights and
privileges and subject to the same liabilities.
2nd SET
Limitations upon use of corporate name:
1. Trade name of another corporation;
2. Similarity with another trade name;
3. Prohibited use of certain words, as provided by law or
is incapable of exclusive appropriation;
4. Must contain the word “Corporation” or “Incorporated”
or the their abbreviations;
5. Use of a person’s full name or surname.
INDUSTRIAL REFRACTORIES CORP. vs. CA
[GR No. 122174. October 3, 2002]
Confusing and deceptive similarity of corporate names
are prohibited under Section 18 of the Corporation Code.
Petitioner’s corporate name is “Industrial Refractories
Corp. of the Phils.” while respondent’s is “Refractories
Corp. of the Phils.” Obviously, both names contain the
identical words “Refractories”, “Corporation” and
“Philippines.” The only word that distinguishes one from
another is the word “Industrial” which merely identifies a
corporation’s general field of activities or operations.
These two corporate names are patently similar that even
with reasonable care and observation, confusion might
arise. Furthermore, both cater to the same clientele, i.e.,
the steel industry.
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Doctrine of Secondary Meaning is a word or phrase
originally incapable of exclusive appropriation with
reference to an article on the market, because
geographically or otherwise descriptive, might
nevertheless have been used so long and so exclusively by
one producer with reference to his article that, in that
trade and to that branch of the purchasing public, the
word or phrase has come to mean that the article was his
product.
a. Application
LYCEUM OF THE PHIL., INC. vs. CA
The petitioner’s use of the word "Lyceum" has not been
attended with the exclusivity essential for applicability of
the doctrine of secondary meaning. The use of the word
"Lyceum" was in truth shared with the Western
Pangasinan Lyceum and a little later with other private
respondent institutions which registered with the SEC
using "Lyceum" as part of their corporation names. There
may well be other schools using Lyceum or Liceo in their
names, but not registered with the SEC.
De Facto Corporations
Requisites:
1. There must be a valid law under which a corporation
might be incorporated;
2. A bona fide attempt to organize a corporation; and
3. Actual use in good faith of the corporate power.
NOTE: When a Certificate of Incorporation has been
issued, it becomes a de jure corporation beginning from
the date of issuance of said certificate.
HALL vs. PICCIO
The due incorporation of any corporations claiming in
good faith to be a corporation under this Act and its right
to exercise corporate powers shall not be inquired into
collaterally in any private suit to which the corporation
may be a party, but such inquiry may be had at the
instance of the Attorney-General.
Difference of de facto corporation and corporation by
estoppel: In a de facto corporation, there is a bona fide
attempt to organize a corporation, whereas, in a
corporation by estoppel, those composing the corporation
have no intention of having their corporation registered
with the SEC.
 Corporatin Law (Atty. Carlo Busmente)
Corporation by Estoppel
a. When it arises
LIM vs. PHIL. FISHING GEAR INDUSTRIES, INC.
1. An unincorporated association, which represented itself
to be a corporation, will be estopped from denying its
corporate capacity in a suit against it by a third person
who relied in good faith on such representation. It cannot
allege lack of personality to be sued to evade its
responsibility for a contract it entered into.
2. A third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation
may be barred from denying its corporate existence in a
suit brought against the alleged corporation.
b. When it cannot be invoked
INT’L. TRAVEL EXPRESS & TOURS, INC. vs. CA
The doctrine of corporation by estoppel applies to a third
party only when he tries to escape liability on a contract
from which he has been benefited on the irrelevant
ground of defective incorporation. In the case at bar, the
doctrine is mistakenly applied since the petitioner is not
trying to escape liability from the contract but rather is the
one claiming from the contract.
LOZANO vs, DE LOS SANTOS
Corporation by estoppel is designed to prevent injustice
and unfairness. It applies when persons assume to form a
corporation and and enter into business relations with
third persons. Where there is no third person involved and
the conflict arises only among those assuming the form of
a corporation, who therefore know that it has not been
registered there is no corporation by estoppel.
c. The Principle of Estoppel is applied to protect persons
against from those who benefited through their
misrepresentations; Exception.
SEVENTH DAY ADVENTIST vs. NORTHEASTERN
MINDANAO [GR No. 150416, July 21, 2006]
The donation could not have been made in favor of an
entity yet inexistent at the time it was made. Nor could it
have been accepted as there was yet no one to accept it.
3rd SET
Business Judgment Rule – the courts cannot undertake
control the discretion of the board of directors or trustees
about administrative matters and contracts entered into,
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as long as it acts in good faith, unless, the contracts are
so unconscionable and oppressive as to amount to a
wanton destruction of the rights of the party.
Delegation Theory – the directors are the officers and
agents of the corporation, representing the interest of
those who own shares of stock, and as such, they can bind
the corporation, provided, they act within the scope of
their authority.
Who may be members to the board
GRACE CHRISTIAN HIGH SCHOOL vs. CA
The board of directors of corporations must be elected
from among the stockholders or members. There may be
corporations in which there are unelected members in the
board to sit as ex officio members. But they cannot claim
a vested right to sit in the board on the basis of “practice”
or by acquiescence. Practice, no matter how long
continued, cannot give rise to any vested right if it is
contrary to law.
Who may not be members of the board
GOKONGWEI vs. SEC
"Every corporation has the inherent power to adopt by-
laws 'for its internal government, and to regulate the
conduct and prescribe the rights and duties of its members
towards itself and among themselves in reference to the
management of its affairs.'" In this jurisdiction under
section 21 of the Corporation Law, a corporation may
prescribe in its by-laws "the qualifications, duties and
compensation of directors, officers and employees."
The by-laws which prohibit a director of a corporation
from serving at the same time as a director of a competing
corporation is a valid exercise of authority.
General Rule: Only positions provided in the Code,
Articles of Incorporation or in the By-Laws may be
elected or appointed into office.
Exception:
NACPIL vs. INTERNATIONAL BROADCASTING
The "by-laws may and usually do provide for such other
officers," and that where a corporate office is not
specifically indicated in the roster of corporate offices in
the by-laws of a corporation, the board of directors may
also be empowered under the by-laws to create additional
officers as may be necessary.
 Corporatin Law (Atty. Carlo Busmente)
INTER-ASIA INVESTMENTS vs. CA
An officer of a corporation who is authorized to purchase
the stock of another corporation has the implied power to
perform all other obligations arising therefrom such as
payment of the shares of stock.
***By allowing its president to sign the Agreement on its
behalf, petitioner clothed him with apparent capacity to
perform all acts which are expressly, impliedly and
inherently stated therein.***
4th SET
Compensation of Directors
WESTERN INST. OF TECH., INC. vs SALAS
Directors or trustees are not entitled to salary or other
compensation when they perform nothing more than the
usual and ordinary duties of their office. There are only
two (2) ways by which members of the board can be
granted compensation apart from reasonable per diems:
(1) when there is a provision in the by-laws fixing their
compensation; and (2) when the stockholders agree to
give it to them. Members of the board may receive
compensation, in addition to reasonable per diems; when
they render services to the corporation in a capacity other
than as directors/ trustees.
Contracts entered into by directors
PRIME WHITE CEMENT CORP. vs. IAC
A director's contract with his corporation is not in all
instances void or voidable. If the contract is fair and
reasonable under the circumstances, it may be ratified by
the stockholders provided a full disclosure of his adverse
interest is made as provided in Section 32 of the
Corporation Code.
Maxim:
Omnis Ratihabitio Retro Trahitur et Mandato
Aequiparatur
Every consent given to what has already been done, has a
retrospective effect and equals a command
Liability of directors or officers
SPOUSES DAVID vs. CONSTRUCTION INDUSTRY
As a general rule, the officers of a corporation are not
personally liable for their official acts unless it is shown
that they have exceeded their authority. However, the
personal liability of a corporate director, trustee or officer,
along with corporation, may so validly attach when he
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assents to a patently unlawful act of the corporation or for
bad faith or gross negligence in directing its affairs.
MALAYANG SAMAHAN NG MGA
MANGGAGAWA NG M.GREENFIELD vs. RAMOS
The rule is that obligations incurred by the corporation,
acting through its directors, officers and employees, are
its sole liabilities. True, solidary liabilities may at times
be incurred but only when exceptional circumstances
warrant such as, generally, in the following cases:
Under Section 31:
1. Willfully or knowingly assent to patently unlawful acts
of the corporation;
2. Gross negligence or bad faith in directing the affairs of
the corporation; and
3. Acquiring any personal or pecuniary interest in conflict
with their duties as directors or officers
Other Instances:
4. When he is made liable by a specific provision of law
5. When he agrees to hold himself personally and
solidarily liable with the corporation (SANTOS vs.
NLRC)
Doctrine of Corporate Opportunity
When a director who, by virtue of his office, acquires for
himself a business opportunity which whould belong to
the corporation, thereby obtaining profits to the prejudice
of such corporation us guilty of disloyalty and should,
therefore, account to the later for all such profits by
refunding the same, notwithstanding that he risked his
funds in the venture.
5th SET
DEE vs. SEC
The power to issue shares of stocks in a corporation is
lodged in the board of directors and no stockholders
meeting is required to consider it because additional
issuance of shares of stocks does not need approval of the
stockholders. Consequently, no pre-emptive right of the
stockholders was violated by the issuance of the new
shares.
Note: Sec. 39 provides “[a]ll stockholders of a stock
corporation shall enjoy pre-emptive right to subscribe to
all issues or disposition of shares of any class, in
proportion to their respective shareholdings, unless such
right is denied by the articles of incorporation or an
 Corporatin Law (Atty. Carlo Busmente)
amendment thereto..” The right extends not only to new
issues of shares arising any increase of capital stock
effected under Section 38, but may also be available with
respect to “all issues or disposition” of unissued shares
belonging to the original stock of the corporation. Hence,
it extends to the unsubscribed portion of the capital stock
and even to treasury shares (De Leon 2013 p.355).
There is no pre-emptive right when the authorized capital
shares were previously offered.
MCLEOD vs. NLRC
Gen. Rule: Where a corporation sells or otherwise
transfers all of its assets to another corporation, the latter
is not liable for the debts and liabilities of the transferor,
provided the latter acted in good faith and paid adequate
consideration for such assets
Exceptions:
(1) where the purchaser expressly or impliedly agrees to
assume such debts;
(2) where the transaction amounts to a consolidation or
merger of the corporations;
(3) where the purchasing corporation is merely a
continuation of the selling corporation;
(4) where the transaction is fraudulently entered into in
order to escape liability for those debts.
PNB vs. ANDRADA ELECTRIC
1. Gen. Rule: A corporation that purchases the assets of
another will not be liable for the debts of the selling
corporation, provided the former acted in good faith, and
paid adequate consideration for such assets.
Exceptions:
(1) where the purchaser expressly or impliedly agrees to
assume such debts;
(2) where the transaction amounts to a consolidation or
merger of the corporations;
(3) where the purchasing corporation is merely a
continuation of the selling corporation;
(4) where the transaction is fraudulently entered into in
order to escape liability for those debts.
Trust Fund Doctrine
The assets of a corporation as represented by its capital
stock are “trust funds” to be maintained unimpaired and
to be used to pay corporate creditors. No distribution of
assets may be made among the stockholders without being
first made for the payment of corporate debts. Should
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there be any distribution of assets to the prejudice of the
creditors of a corporation, is null and void.
Islamic Directorate of the Philippines vs. CA, GR No.
117897, May 14, 1997
Where a corporate body never gave its consent, thru a
legitimate governing board, to a deed of absolute sale, the
subject sale is void for lack of consent and thus, produces
no effect whatsoever.
Effect of declaration of stock dividend
NIELSON CO., INC. vs. LEPANTO MINING CO.
Section 16 of the Corporation Law, “Stock dividends
cannot be issued to a person who is not a stockholder in
payment of services rendered.”
- “No corporation shall issue stocks or bond except in
exchange for actual cash paid to the corporation or for
property actually received by it…or for profits earned
by it but not distributed among its stockholders or
members.”
- Stocks issued in exchange for cash or property are
issued for capital generation and can be issued to a
non-stockholder.
- Stock dividends should be considered as 1.) a dividend,
and 2.) an enforced use of the dividend money to
purchase additional shares at par.
- A dividend is defined as the portion of the profits of the
enterprise which the corporation sets apart for ratable
division among the holders of the capital stock.
- As such, stock dividends can only be granted to existing
stockholders in proportion to their shares.
Hydro Resources Contractors Corp. vs. NIA, GR No.
160215, November 10, 2004
The CA erred in ruling that Cesar L. Tech’s act of signing
the Joint Computation was an ultra vires act. It must be
noted that the Administrator is the highest officer of the
NIA. Furthermore, Hydro has been dealing with NIA
through its Administrator in all of its transactions with
respect to the contract and subsequently the foreign
currency differential claim. The NIA Administrator is
empowered by the contract to grant or deny foreign
currency differential claims. It would be preposterous for
the NIA Administrator to have the power of granting
claims without the authority to verify the computation of
such claims.
6th SET
 Corporatin Law (Atty. Carlo Busmente)
Loyola Grand Villas Association Inc. vs. CA, GR No. 117188,
August 7, 1997
Automatic corporate dissolution for failure to file the by-
laws on time was never the intention of the legislature.
Section 46 reveals the legislative intent to attach a
directory, and not mandatory, meaning for the word
''must" in the first sentence thereof. The second paragraph
of the law which allows the filing of the by-laws even
prior to incorporation. This provision in the same section
of the Code rules out mandatory compliance with the
requirement of filing the by-laws "within 1 month after
receipt of official notice of the issuance of its certificate From the foregoing general principle, has provided two
of incorporation by the Securities and Exchange
Commission." It necessarily follows that failure to file the government is granted the authority to vote the shares:
by-laws within that period does not imply the "demise" of
the corporation. Although the Corporation Code requires
the filing of by-laws, it does not expressly provide for the
consequences of the non-filing of the same within the
period provided for in Section 46. Nonetheless, failure to
file them within the period required by law by no means
tolls the automatic dissolution of a corporation.
China Banking Corporation vs. CA, GR No. 117604,
March 26, 1997
In order to be bound, the third party must have acquired
knowledge of the pertinent by-laws at the time the
transaction or agreement between said third party and the
shareholder was entered into. Therefore, it is the generally
accepted rule that third persons are not bound by by-laws,
except when they have knowledge of the provisions either
actually or constructively. For the exception to the general
accepted rule that third persons are not bound by by-laws
to be applicable and binding upon the pledgee, knowledge
of the provisions of the By-laws must be acquired at the
time the pledge agreement was contracted. Knowledge of
said provisions, either actual or constructive, at the time
of foreclosure will not affect pledge’s right over the
pledged share.
Salafranca vs. Philamlife Village Homeowners
Association, Inc. et al., 300 SCRA 469
At that time, Salafranca already enjoys security of tenure
because he is already a regular employee. It is true that
PVHAI has the right to amend its by-laws but such
amendment must not impair existing contracts or rights.
In this case, the provision that Salafranca’s position shall
be co-terminus with the appointing Board impairs his
right to security of tenure which has already vested even
prior to the amendment of the by-laws in 1987.
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7th SET
Republic of the Philippines vs. COCOFED et al., GR
Nos. 147062-64, December 14, 2001
General rule is that the registered owner of the shares of a
corporation exercises the right and the privilege of voting.
This principle applies even to shares that are sequestered
by the government, over which the PCGG as a mere
conservator cannot, as a general rule, exercise acts of
dominion.
clear “public character” exceptions under which the
(1) Where government shares are taken over by private
persons or entities who/which registered them in their
own names, and
(2) Where the capitalization or shares that were acquired
with public funds somehow landed in private hands.
The exceptions are based on the common-sense principle
that legal fiction must yield to truth; that public property
registered in the names of non-owners is affected with
trust relations; and that the prima facie beneficial owner
should be given the privilege of enjoying the rights
flowing from the prima facie fact of ownership.
Chua vs. CA, GR No. 150793, November 19, 2004
Not every suit filed in behalf of the corporation is a
derivative suit. For a derivative suit to prosper, it is
required that:
(1) The minority stockholder suing for and on behalf of
the corporation must allege in his complaint that he is
suing on a derivative cause of action on behalf of the
corporation and all other stockholders similarly situated
who may wish to join him in the suit;
(2) It is a condition sine qua non that the corporation be
impleaded as a party because not only is the corporation
an indispensable party, but it is also the present rule that it
must be served with process. In other words, the
corporation must be joined as party because it is its cause
of action that is being litigated and because judgment
must be a res adjudicata against it.
EXPERT TRAVEL & TOURS vs. CA
In this age of modern technology, the courts may take
judicial notice that business transactions may be made by
individuals through teleconferencing. Teleconferencing is
interactive group communication (three or more people in
 Corporatin Law (Atty. Carlo Busmente)
two or more locations) through an electronic medium. In
general terms, teleconferencing can bring people together
under one roof even though they are separated by
hundreds of miles. This type of group communication
may be used in a number of ways, and have three basic
types: (1) video conferencing; (2) computer conferencing;
and (3) audio-conferencing.
8th SET
Ramon Lee vs. CA, GR No. 93695, February 1992
Voting trust agreement is an agreement in writing
whereby one or more stockholders of a corporation
consent to transfer his or their shares to a trustee in order
to vest in the latter voting or other rights pertaining to said
shares for a period not exceeding five years upon the
fulfillment of statutory conditions and such other terms
and conditions specified in the agreement. The five year-
period may be extended in cases where the voting trust is
executed pursuant to a loan agreement whereby the period
is made contingent upon full payment of the loan.
The most immediate effect of a voting trust agreement on
the status of a stockholder who is a party to its execution
— from legal titleholder or owner of the shares subject of
the voting trust agreement, is he becomes the equitable or
beneficial owner.
Ong Yong vs. Tiu, GR No. 144476, February 2002
Pre-subscription agreement is any contract for the
acquisition of unissued stock in an existing corporation or
a corporation still to be formed shall be deemed a
subscription within the meaning of this Title,
notwithstanding the fact that the parties refer to it as a
purchase or some other contract.
In the instant case, the rescission of the Pre-Subscription
Agreement will effectively result in the unauthorized
distribution of the capital assets and property of the
corporation, thereby violating the Trust Fund Doctrine
and the Corporation Code, since rescission of a
subscription agreement is not one of the instances when
distribution of capital assets and property of the
corporation is allowed.
MIDTERM EXAMS: (2014 and 2015)
I. MULTIPLE CHOICE
(These are mere recollection of the questions. Hence, only
concepts are provided)
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Q: Is a board meeting held through a teleconference
allowed?
A: Expert Travel & Tours v. CA
Q: X bought from Y Corporation 10 shares with a par
value of 100 pesos per share and a guaranteed annual
interest of 5%. After 4 years, Y Corporation declared cash
dividends. How much will X receive? (a) 2,000Php (b)
50Php (c) 200Php or (d) None of the above
A: (Suggested Answer) B, 200 pesos. Rationale:
Dividends on par value shares are made at a stated
percentage of the par value or at a fixed amount per
share. Guaranteed stock is sometimes used as
synonymous with preferred stock on which the payment is
guaranteed. The guaranty merely means that the holders
are entitled to specified dividends if there are profits out
of which dividends may be paid. Computation: The par
value of each share is P100, multiplied by the percentage
of 5% which he is guaranteed to receive equals P5. Then,
multiply the value with his number of shares (10 shares),
you get P50. Many argued that it should be 200Php
because of the phrase “guaranteed annual interest”
accruing during the 4 year period. I disagree. The board
has the power when to declare dividends. Since it
declared dividends only after 4 years, no right was vested
upon X to receive any accumulated profits earned for the
past 3 years. The guarantee provided in X’s shares is that
he is insured of receiving his dividends ahead of holders
of common shares.
Q: What are the tests for a valid voting trust agreement?
A: (a) Makes possible a unified control of the affairs of
the corporation by binding stockholders to vote as a unit;
(b) Makes possible for a majority group of shareholders
who transferred their individual holdings to a voting
trustee to dispose of their shares and still retain control
of the corporation through the voting trustee.
Other valid purposes:
(a) to assure continuity of policy and management;
(b) to enable the owners of the majority of the stock to
control the corporation;
(c) to vest and retain the management of the corporation
in the persons originally promoting it;
(d) to prevent a rival concern from acquiring control of
the corporation;
(e) to carry out a proposed sale of the corporation’s
assets and to facilitate its dissolution;
(f) to enable two holding companies to operate jointly a
corporation controlled by them;
 Corporatin Law (Atty. Carlo Busmente)
(g) to effect a plan for reorganization of the corporation
in financial difficulty or in bankruptcy proceedings; and
(h) to aid a financially embarrassed corporation to obtain
a loan and protect its creditors.
II. PRINCIPLES
1. Identity Rule - The defense of separateness will be
disregarded where the business affairs of a subsidiary
corporation are so controlled by the mother corporation to
the extent that it becomes an instrument or agent of its
parent. But even when there is dominance over the affairs
of the subsidiary, the doctrine of piercing the veil of
corporate fiction applies only when used to defeat public
convenience, justify wrong, protect fraud, or defend
crime. Mere allegation that a corporation is the alter ego
of the individual stockholders is insufficient (Reynoso v.
CA).
2. Instrumentality Rule - 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 (Concept Builders v.
NLRC).
3. Alter Ego Doctrine (Doctrine of Piercing the Veil of
Corporate Entity) - A corporation is an entity separate
and distinct from its stockholders and from other
corporations to which it may be connected. But, this
separate and distinct personality of a corporation is
merely a fiction created by law for convenience and to
promote justice. So when the notion of separate juridical
personality is used to defeat public convenience, justify
wrong, protect fraud or defend crime, or is used as a
device to defeat the labor laws, this separate personality
of the corporation may be disregarded or the veil of
corporate fiction pierced. This is true likewise when the
corporation is merely an adjunct, a business conduit or an
alter ego of another corporation (Concept Builders, Inc. v.
NLRC).
4. Trust Fund Doctrine - The assets of a corporation as
represented by its capital stock are “trust funds” to be
maintained unimpered and to be used to pay corporate
creditors. No distribution of assets may be made among
the stockholders without being first made for the payment
of corporate debts. Should there be any distribution of
assets to the prejudice of the creditors of a corporation, is
null and void.
5. Business Judgment Rule - The courts cannot
undertake control the discretion of the board of directors
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or trustees about administrative matters and contracts
entered into, as long as it acts in good faith, unless, the
contracts are so unconscionable and oppressive as to
amount to a wanton destruction of the rights of the party.
III. ESSAY
QUESTION NO. 1: ECE Corporation owned a parcel
of land. FHM Corporation surreptitiously entered the
premises and took possession of the land. ECE
Corporation filed an action for the recovery of
possession of the land against FHM Corporation. A
writ of execution was issued against FHM Corporation
ordering FHM Corporation to return the land, but
FHM Corporation refused. A supervening event
occurred when FHM Corporation bought the
controlling interest over ECE Corporation. As the
holder of the controlling shares, FHM Corporation
demands that the property be turned over to it. Is the
contention of FHM Corporation correct?
ANSWER NO. 1: NO! In the case of Good Earth
Emporium v. CA, the Supreme Court held that he
stockholders or member are in no legal sense the owners
of corporate property (or credits), which is owned by the
corporation as a distinct person.
While a share of stock represents a proportionate interest
in the property of the corporation, it does not best the
owner thereof (even assuming that/he is the controlling
shareholder) with any legal right or title to any of the
properties of the corporation owned by the latter as a
distinct juridical person (Saw v. CA).
QUESTION NO. 2: Out of the 100,000 shares of a
corporation, only 50,000 shares are subscribed. A
board resolution was passed whereby it declared that
the remaining 50,000 will be issued to the public. Peter
owns 5,000 shares in the corporation. Raising his pre-
emptive right, Peter demands that he be allowed to
subscribe to the remaining 50,000 in proportion to
what he already owns. Is the demand of Peter proper?
ANSWER NO. 2: YES! Sec. 39 provides “[a]ll
stockholders of a stock corporation shall enjoy pre-
emptive right to subscribe to all issues or disposition of
shares of any class, in proportion to their respective
shareholdings, unless such right is denied by the articles
of incorporation or an amendment thereto..” The right
extends not only to new issues of shares arising any
increase of capital stock effected under Section 38, but
may also be available with respect to “all issues or
disposition” of unissued shares belonging to the original
stock of the corporation. Hence, it extends to the
 Corporatin Law (Atty. Carlo Busmente)
unsubscribed portion of the capital stock and even to
treasury shares (De Leon 2013 p.355). The purpose of the
right is to protect impairment and dilution the basic rights
of the existing stockholders of the corporation (infra.
p.356).
QUESTION NO. 3: Joker Corporation is engaged in
printing business. 75% of its corporate assets are
money deposited in the bank. The remaining 25% are
mostly printing machines and some office equipment.
The majority of the board of directors decided to sell
of all the printing machines. Jack, a shareholder in
Joker Corporation, contends the action of the Board
of Directors as invalid. He alleges that the action of the
Board requires the affirmative assent of the
shareholders owning at least 2/3 of the outstanding
capital stock. Is the contention of Jack correct?
ANSWER QUESTION NO. 3 YES! Under Section 40,
“a corporation may, by a majority vote of its board of
directors, sell, lease, exchange, mortgage, pledge or
otherwise dispose of all or substantially all of its property
and assets, upon such terms and conditions and for such
consideration x x x as its board of directors may deem
expedient, when authorized by the vote of the
stockholders representing at least 2/3 of the outstanding
capital stock x x x.” Under the second paragraph of the
same provision, “A sale or disposition shall be deemed to
cover substantially all the corporate property and assets if
thereby the corporation would be rendered incapable of
continuing business or accomplishing the purpose for
which it was incorporated.”
QUESTION NO. 4: XYZ Corporation is engaged in
the business of sales of real properties. A land was sold
to Vito. However, Vito defaulted in his payment. XYZ
Corporation filed a case for collection of sum of money
against Vito. In his answer, Vito contends that XZY
Corporation has not submitted any by-laws with the
SEC and consequently, a de facto corporation.
Therefore, XYZ Corporation has no capacity to bring
action against him. Is Vito’s defense proper?
ANSWER NO. 4: NO! In a case decided by the Supreme
Court, it held that, at the very least, by its failure to
submit its by-laws on time, the corporation may be
considered a de facto corporation whose right to exercise
corporate powers may not be inquired into collaterally in
any private suit to which such corporations may be a
party. Moreover, a corporation which has failed to file its
by-laws within the prescribed period does not ipso facto
lose its powers as such. The SEC Rules on
Suspension/Revocation of the Certificate of Registration
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of Corporations, details the procedures and remedies that
may be availed of before an order of revocation can be
issued. There is no showing that such a procedure has
been initiated in this case. Therefore, even though the
corporation is a de facto corporation, it can still exercise
its corporate powers until revoked by the SEC. With its
corporate powers undiminished, it has the power and
capacity to sue or be sued in its corporate name.
IV. DOCTRINES
a. Francisco Motors v. CA
b. Cruz v. Dalisay
c. Seventh Day Adventist v. Northeastern Mindanao
d. Grace Christian High School v. CA
e. Western Institute vs. Salas
f. Santos v. NLRC
g. PNB v. Andrada
h. Salafranca v. Philamlife
i. Chua v. CA
j. Lyceum of the Philippines v. CA
V. BONUS
Give at least 5 corporations which requires 100% Filipino
equity. (Suggested Answer)
a. Educational Corporations
b. Corporations engaged in mass media industry
c. Corporations engaged in advertising industry
d. Corporations engaged in retail trade
e. Corporations engaged in the operation of a private
detective, watchman or security guard agencies
f. Rural Banks
FINALS
1st SET
1. Nava vs. Peers Marketing Corp.
A stock subscription is a subsisting liability from the time
the subscription is made. The subscriber is as much bound
to pay his subscription as he would be to pay any other
debt.
SEC. 63 (2). No share of stock against which the
corporation holds any unpaid claim shall be transferable
on the books of the corporation.
 Corporatin Law (Atty. Carlo Busmente)
No clear legal duty on the part of the officers of the
corporation to register the 20 shares in Nava's name.
NOTE: Baltazar case: There was partial payment
= entitled to vote the said shares. In the case at bar, there
was no payment. Therefore, not entitled.
2. Lim Tay vs. CA
The duty of the corporate secretary to record transfers of
stocks is ministerial. He cannot be compelled to do so
when the transferee’s title to said shares has no prima
facie validity or is uncertain. A pledgor, prior to
foreclosure and sale, does not acquire ownership rights
over the pledged shares and thus cannot compel the
corporate secretary to record his alleged ownership on the
basis of the contract of pledge.
Assignment is not sufficient to effect the transfer of
shares since there was no endorsement of the certificate of
stock by the owners. The rule is that delivery of the stock
certificate duly endorsed by the owner is the operative act
of transfer of shares.
3. Rural Bank of Lipa City vs. CA
SEC. 63. Shares of stocks so issued are personal property
and may be transferred by delivery of the certificate or
certificates endorsed by the owner or his attorney-in-fact
or other person legally authorized to make the transfer.
The Deed of Assignment is not sufficient to effect the
transfer of shares since there was no endorsement of the
certificate of stock by the owners.
Requisites:
1. Delivery of stock certificate;
2. Endorsed by the owner;
3. Recorded in the books of corporation to be valid against
third parties.
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4. Ponce vs. Alsons Cement Corporation
SEC. 63. No transfer, however, shall be valid, except as
between the parties, until the transfer is recorded in the
books of the corporation showing the names of the parties
to the transaction, the date of the transfer, the number of
the certificate or certificates and the number of shares
transferred.
Without such recording, the transferee may not be
regarded by the corporation as one among its stockholder
and the corporation may legally refused the issuance of
stock certificates in the name of the transferee.
2nd SET
5. Gonzales vs. PNB
The right of inspection granted to a stockholder are the
following: the records must be kept at the principal office
of the corporation; the inspection must be made on
business days; the stockholder may demand a copy of the
excerpts of the records or minutes; and the refusal to
allow such inspection shall subject the erring officer or
agent of the corporation to civil and criminal liabilities. It
is now expressly required as a condition for such
examination that the one requesting it must not have been
guilty of using improperly any information secured
through a prior examination, and that the person asking
for such examinations must be "acting in good faith and
for a legitimate purpose in making his demand."
6. Associated Bank vs. CA
Section 79 requires the approval by the SEC of the
articles of merger, which, in turn, must have been duly
approved by a majority of the respective stockholders of
the constituent corporations. The same provision further
 Corporatin Law (Atty. Carlo Busmente) San Beda College - Alabang
states that the merger shall be effective only upon the (5) If necessary, the SEC shall set a hearing, notifying all
issuance by the SEC of a certificate of merger. The corporations concerned at least two weeks before.
effectivity date of the merger is crucial for determining
when the merged or absorbed corporation ceases to exist; (6) Issuance of certificate of merger or consolidation.

and when its rights, privileges, properties as well as

Clearly, the merger shall only be effective upon the
liabilities pass on to the surviving corporation.
issuance of a certificate of merger by the SEC, subject to
its prior determination that the merger is not inconsistent
7. Mindanao Savings & Loan vs. Willkom
with the Corporation Code or existing laws. Where a
The steps necessary to accomplish a merger or
party to the merger is a special corporation governed by
consolidation, as provided for in Sections 76, 77,78, and
its own charter, the Code particularly mandates that a
79 of the Corporation Code, are:
favorable recommendation of the appropriate government

(1) The board of each corporation draws up a plan of agency should first be obtained.

merger or consolidation. Such plan must include any

amendment, if necessary, to the articles of incorporation
8. Babst vs. CA
of the surviving corporation, or in case of consolidation,
It is settled that in the merger of two existing
all the statements required in the articles of incorporation
corporations, one of the corporations survives and
of a corporation.
continues the business, while the other is dissolved and all

(2) Submission of plan to stockholders or members of its rights, properties and liabilities are acquired by the

each corporation for approval. A meeting must be called surviving corporation.

and at least two (2) weeks’ notice must be sent to all

stockholders or members, personally or by registered 3rd SET

mail. A summary of the plan must be attached to the

notice. Vote of two-thirds of the members or of 9. Turner vs., Lorenzo Shipping Corp.

stockholders representing two-thirds of the outstanding A stockholder who dissents from certain corporate actions

capital stock will be needed. Appraisal rights, when has the right to demand payment of the fair value of his or

proper, must be respected. her shares. This right, known as the right of appraisal, is
expressly recognized in Section 81 of the Corporation
(3) Execution of the formal agreement, referred to as the Code, to wit:
articles of merger o[r] consolidation, by the corporate
Instances of appraisal right. — Any
officers of each constituent corporation. These take the
stockholder of a corporation shall have the
place of the articles of incorporation of the consolidated
right to dissent and demand payment of the
corporation, or amend the articles of incorporation of the
fair value of his shares in the following
surviving corporation.
instances:

(4) Submission of said articles of merger or consolidation

1.In case any amendment to the articles of
to the SEC for approval.
incorporation has the effect of changing or

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 Corporatin Law (Atty. Carlo Busmente)
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.
10. Cua Jr. vs. Ocampo
Sec. 42.Power to invest corporate funds in
another corporation or business or for any
other purpose. — Subject to the provisions of
this Code, a private corporation may invest its
funds in any other corporation or business or
for any purpose other than the primary
purpose for which it was organized when
approved by a majority of the board of
directors or trustees and ratified by the
stockholders representing at least two-thirds
(2/3) of the outstanding capital stock, or by at
least two-thirds (2/3) of the members in case
of non-stock corporations, at a stockholders'
or members' meeting duly called for the
purpose. Written notice of the proposed
investment and the time and place of the
meeting shall be addressed to each
stockholder or member at his place of
residence as shown on the books of the
corporation and deposited to the addressee in
the post office with postage prepaid, or served
personally; Provided, That any dissenting
stockholder shall have appraisal right as
provided in this Code: Provided, however,
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That where the investment by the corporation
is reasonably necessary to accomplish its
primary purpose as stated in the articles of
incorporation, the approval of the
stockholders or members shall not be
necessary.
4th SET
Membership; Freedom to Associate
STA. CLARA HOMEOWNER’S ASSN. v. GASTON
The constitutionally guaranteed freedom of association
includes the freedom not to associate. The right to choose
with whom one will associate oneself is the very
foundation and essence of that partnership. It does not
include the right to compel others to form or join one. A
person cannot be compelled to become members of a non-
stock non-profit corporation by the simple expedient of
including them in its Articles of Incorporation and By-
laws without their express or implied consent. The
membership may be to the mutual advantage of both
parties to promote their common welfare. But that is
possible only if the owners voluntarily agree to become
members of the association.
The Home Insurance Guaranty Corporation exercises
limited jurisdiction over homeowners' disputes. The law
confines its authority to controversies that arise from any
of the following intra-corporate relations: (1) between and
among members of the association; (2) between any
and/or all of them and the association of which they are
members; and (3) between the association and the state
insofar as the controversy concerns its right to exist as a
corporate entity.
Exception to Freedom to Associate; Implied Consent
PADCOM vs. ORTIGAS CENTER ASSN.
As lot owner, petitioner is a regular member of the
Association. No application for membership is necessary.
If at all, acceptance by the Board of Directors of the
association is a ministerial function considering that
petitioner is deemed to be a regular member upon the
acquisition of the lot pursuant to the automatic
membership clause annotated in the Certificate of Title of
the property and the Deed of Transfer. Petitioner was
never forced to join the association. It could have avoided
such membership by not buying the land from its
predecessor. It voluntarily agreed to be bound by and
respect the condition, and thus to join the Association.
 Corporatin Law (Atty. Carlo Busmente) San Beda College - Alabang
Termination of Membership 5th SET
LONG v. BASA
It must be stressed that the basis of the relationship
11. San Juan Structural and Steel Fabrication vs. CA
between a religious corporation and its members is the
latter's absolute adherence to a common religious or A close corporation is one where the articles of
spiritual belief. Once this basis ceases, membership in the
incorporation provide that:
religious corporation must also cease. Thus, generally,
there is no room for dissension in a religious corporation.
And where, as here, any member of a religious The number of stockholders shall not exceed 20, or (2) a
corporation is expelled from the membership for
espousing doctrines and teachings contrary to that of his preemption of shares is restricted in favor of any
church, the established doctrine in this jurisdiction is that stockholder or of the corporation, or (3) listing its stocks
such action from the church authorities is conclusive upon
the civil courts. The Corporation Code leaves the matter in any stock exchange or making a public offering of such
of ecclesiastical discipline to the religious group stocks is prohibited.
concerned.
(In author’s own words) Otherwise said, the basis of
the relationship between a non-stock corporation and its The Mere ownership by a single stockholder or by
members is the latter's absolute adherence to the another corporation of all or nearly all of the capital stock
principles and/or purposes of the latter, as provided in its
articles of incorporation and by-laws. Once this basis of a corporation is not of itself sufficient ground for
ceases, membership in the non-stock corporation must disregarding the separate corporate personalities
also cease. Where any member is expelled from the
membership for espousing principles and acts contrary to
that of the corporation, the established doctrine in this
jurisdiction is that such action from the authorities is
conclusive upon the civil courts. The Corporation Code
leaves the matter of discipline to the corporation 12. Dulay vs. CA
concerned. Under a close corporation, a board resolution authorizing
the sale or mortgage of the subject property is not
Determination Quorum of Board of Trustees
necessary to bind the corporation for the action of its
TAN v. SYCIP
president. A corporate action taken at a board meeting
For STOCK corporations, the "quorum" referred to in
Section 52 of the Corporation Code is based on the without proper call or notice in a close corporation is
number of outstanding voting stocks. For NONSTOCK
deemed ratified by the absent director unless the latter
corporations, only those who are actual, living members
with voting rights shall be counted in determining the promptly files his written objection with the secretary of
existence of a quorum during members' meetings. Dead
the corporation after having knowledge of the meeting.
members shall not be counted.
In stock corporations, shareholders may generally
transfer their shares. Thus, on the death of a shareholder, 6th SET
the executor or administrator is vested with the legal title
to the stock and entitled to vote it, until a settlement and
division of the estate is effected. On the other hand, 13. Iglesia Evangelica Methodista vs. Bishop Lazaro
membership in and all rights arising from a nonstock
corporation are personal and non-transferable, unless the There is no point to dissolving the corporation sole of one
articles of incorporation or the bylaws of the corporation member to enable the corporation aggregate to emerge
provide otherwise. In other words, the determination of
whether or not "dead members" are entitled to exercise from it. Whether it is a non-stock corporation or a
their voting rights through their executor or administrator, corporation sole, the corporate being remains distinct
depends on those articles of incorporation or bylaws.
from its members, whatever be their number. The increase
in the number of its corporate membership does not

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 Corporatin Law (Atty. Carlo Busmente) San Beda College - Alabang
change the complexion of its corporate responsibility to to circumvent the real purpose of the constitution.
third parties. The one member, with the concurrence of
They cannot be considered as aliens because they have
two-thirds of the membership of the organization for
no nationality at all. In determining, therefore, whether
whom he acts as trustee, can self-will the amendment. He
the constitutional provision requiring 60 per centum
can, with membership concurrence, increase the technical
Filipino capital is applicable to corporations sole, the
number of the members of the corporation from “sole” or
nationality of the constituents of the diocese, and not
one to the greater number authorized by its amended
the nationality of the actual incumbent of the parish,
articles.
must be taken into consideration.

14. Roman Catholic Apostolic Admin of Davao vs. LRC

A corporation sole is a special form of corporation usually 7th SET

associated with clergy, designed to facilitate the exercise

of the functions of ownership of the church, which was 15. Vesagas vs. CA

regarded as the property owner. It consists of one person The Corporation Code establishes the procedure and other

only, and his successors (who will always be one at a formal requirements a corporation needs to follow in case

time), in some particular, who are incorporated by law in it elects to dissolve and terminate its structure voluntarily

order to give them some legal advantages particularly that and where no rights of creditors may possibly be

of perpetuity which in their natural persons they could not prejudiced.

have. Through this legal fiction, church properties

In order that the SEC can take cognizance of a case, the
acquired by the incumbent of a corporation sole pass, by
controversy must pertain to any of the following
operation of law, upon his death not to his personal heirs
relationships: a) between the corporation, partnership or
but to his successor in office. A corporation sole,
association and the public; (b) between the corporation,
therefore, is created not only to administer the
partnership or association and its stockholders, partners,
temporalities of the church or religious society where he
members, or officers; c) between the corporation,
belongs, but also to hold and transmit the same to his
partnership, or association and the state as far as its
successor in said office.
franchise, permit or license to operate is concerned; and
A corporation sole or "ordinary" is not the owner of the
d) among the stockholders, partners or associates
properties that he may acquire but merely the
themselves. The fact that the parties involved in the
administrator thereof and holds the same in trust for
controversy are all stockholders or that the parties
the church to which the corporation is an organized
involved are the stockholders and the corporation does not
and constituents part. Being mere administrator of the
necessarily place the dispute within the loop of
temporalities or properties titled in his name, the
jurisdiction of the SEC. Jurisdiction should be determined
constitutional provision requiring 60 per centum
by considering not only the status or relationship of the
Filipino ownership is not applicable. The said
parties but also the nature of the question that is the
constitutional provision is limited by it terms to
subject of their controversy.
ownership alone and does not extend to control unless
the control over the property affected has been devised

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 Corporatin Law (Atty. Carlo Busmente)
16. Gelano vs. CA
A corporation that has a pending action and which cannot
be terminated within the 3-year period after its dissolution
is authorized under Section 78 to convey all its property
to trustees to enable it to prosecute and defend suits by or
against the corporation beyond the 3-year period. The
trustee may commence a suit, which can proceed to final
judgment even beyond the three-year period.
The word "trustee" as used in the corporation statute must
be understood in its general concept, which could include
the counsel to whom was entrusted in the instant case, the
prosecution of the suit filed by the corporation. The
purpose in the transfer of the assets of the corporation to a
trustee upon its dissolution is more for the protection of
its creditor and stockholders. Debtors like the petitioners
herein may not take advantage of the failure of the
corporation to transfer its assets to a trustee.
17. Philippine Veteran Bank Employees Union vs. Vega
Liquidation, in corporation law, connotes a winding up or
settling with creditors and debtors. It is the winding up of
a corporation so that assets are distributed to those
entitled to receive them. It is the process of reducing
assets to cash, discharging liabilities and dividing surplus
or loss. It is crystal clear that the concept of liquidation is
diametrically opposed or contrary to the concept of
rehabilitation, such that both cannot be undertaken at the
same time. To allow the liquidation proceedings to
continue would seriously hinder the rehabilitation of the
subject rank.
Rehabilitation contemplates a continuance of corporate
life and activities in an effort to restore and reinstate the
corporation to its former position of successful operation
and solvency.
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18. Tan Tion Bio vs. CIR
It is true that sections 77 and 78 of our Corporation Law
contemplate that corporate existence can be prolonged
only for three years from and after the termination of the
corporate term, for the purpose of winding up its affairs.
The government cannot insist on making a tax
assessment against a corporation that no longer exists
and then turn around and oppose the appeal
questioning the legality of the assessment precisely on
the ground that the corporation is non-existent, and has
no longer capacity to sue.
The officers and directors of a defunct corporation are
proper parties in interest in so far as they may be held
personally liable for the unpaid deficiency assessments
made against the defunct corporation.
19. Rebollido vs. CA
The law provides that a corporation whose corporate term
has ceased can still be made a party to suit. Under
paragraph 1, Section 122 of the Corporation Code, a
dissolved corporation shall nevertheless be continued as a
body corporate for three (3) years after the time when it
would have been so dissolved, for the purpose 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, but not for
the purpose of continuing the business for which it was
established."
8th SET
20. Facilities Management Corp vs. Dela Rosa
If a foreign corporation, not engaged in business in the
Philippines is not barred from seeking redress from courts
in the Philippines, a fortiori, that same corporation cannot
claim exemption from being sued in the Philippine courts
 Corporatin Law (Atty. Carlo Busmente)
for acts done against a person or persons in the
Philippines.
The act by a non-resident foreign corporation of recruiting
Filipino workers for its own use abroad constitutes in the
law doing business in the Philippines.
21. Home Assurance vs. Eastern Shipping
Section 69 of the Corporation Law imposed a penal
sanction imprisonment for not less than six months nor
more than two years or payment of a fine not less than
P200.00 nor more than P1, 000.00 or both in the
discretion of the court. There is a penalty for transacting
business without registration. And insofar as litigation is
concerned, the foreign corporation or its assignee may not
maintain any suit for the recovery of any debt, claim, or
demand whatever.
22. Eriks Pte Ltd. Vs. CA
Sec. 133 of the Corporation Code prohibits not merely
absence of the prescribed license, but it also bars a foreign
corporation "doing business" in the Philippines without
such license access to our courts. A foreign corporation
without such license is not ipso facto incapacitated from
bringing an action. A license is necessary only if it is
"transacting or doing business" in the country.
The test to determine whether a foreign company is
"doing business" in the Philippines”, thus: The term
implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of
the functions normally incident to, and in progressive
prosecution of, the purpose and object of its
organization."
What is determinative of "doing business" is not really the
number or the quantity of the transactions, but more
importantly, the intention of an entity to continue the
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body of its business in the country. The number and
quantity are merely evidence of such intention. The
phrase "isolated transaction" has a definite and fixed
meaning. i.e. a transaction or series of transactions set
apart from the common business of a foreign enterprise in
the sense that there is no intention to engage in a
progressive pursuit of the purpose and object of the
business organization. Whether a foreign corporation is
"doing business" does not necessarily depend upon the
frequency of its transactions, but more upon the nature
and character of the transactions.
Subsequent acquisition of the license will cure the lack of
capacity at the time of the execution of the contract.
23. Hutchison Ports Philippines vs. SBMA
A single act or transaction may be considered as “doing
business” when a corporation performs acts for which it
was created or exercises some of the functions for which
it was organized. Participating in the bidding process as in
the case at bar constitutes “doing business” because it
shows the foreign corporation’s intention to engage in
business here in the Philippines.
It is in the performance by a foreign corporation of the
acts for which it was created, regardless of volumes of
business, that determines whether a foreign corporation
needs license or not.
24. MR Holdings vs. Bejar
The mere ownership by a foreign corporation of a
property in certain state, unaccompanied by its active use
in furtherance of the business for which it was formed, is
insufficient in itself to constitute “doing business”.
a) If a foreign corporation does business in the Philippines
without a license, it cannot sue before the Philippine
courts; b) if a foreign corporation is not doing business in
the Philippines, it needs no license to sue before
 Corporatin Law (Atty. Carlo Busmente)
Philippine courts on an isolated transaction or on a cause
of action entirely independent of any business transaction;
and c) if a foreign corporation does business in the
Philippines with the required license, it can sue before
Philippine courts on any transaction. Apparently, it is not
the absence of the prescribed license but the "doing (of)
business" in the Philippines without such license which
debars the foreign corporation from access to our courts.
9th SET
25. Sumndad Vs. Harrigan
The cause of action is for the collection of a sum of
money. The Supreme Court ruled that the main issue of
the totality of the complaint filed by Harrigan is whether
or not he is entitled to collect the loan and not whether or
not he was defrauded by BBCHI. The mere use of the
phrase “in fraud of creditors” does not, ipso facto, throw
the case within SEC’s jurisdiction
26. Oredain V. Bf Homes
Action for Reconvenyance in the RTC Does Not
Involve Intra-Corporate Dispute
Section 5.2 of RA 8799 transferred exclusive and original
jurisdiction of the SEC over actions involving intra-
corporate controversies to the courts of general
jurisdiction or the appropriate RTC. In the transition, all
intra-corporate cases pending in the SEC, which were not
ripe for adjudication as of August 8, 2000, were turned
over to the RTC. Thus, "whether or not the issue is intra-
corporate, it is now the [RTC] and no longer the SEC that
takes cognizance of [and resolves cases involving intra-
corporate controversies]
27. Velarde Vs. Lopez
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In applying the doctrine of piercing the veil of corporate
fiction, the following requisites must be established: (1)
control, not merely majority or complete stock control;
(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 acts in
contravention of plaintiff's legal rights; and (3) the
aforesaid control and breach of duty must proximately
cause the injury or unjust loss complained of.
The existence of interlocking directors, corporate officers
and shareholders is not enough justification to pierce the
veil of corporate fiction in the absence of fraud or other
public policy considerations.
28. Timeshare Realty Vs. LAO
Requirement of registration of securities. — (a) No
securities, except of a class exempt under any of the
provisions of Section five hereof or unless sold in any
transaction exempt under any of the provisions of Section
six hereof, shall be sold or offered for sale or distribution
to the public within the Philippines unless such securities
shall have been registered and permitted to be sold as
hereinafter provided.
29. Union Bank Vs. SEC
The mere fact that petitioner, in regard to its banking
functions, is already subject to the supervision of the BSP
does not exempt the former from reasonable disclosure
regulations issued by the SEC. These regulations imposed
on petitioner as a banking institution listed in the stock
market are meant to assure full, fair and accurate
information for the protection of investors, imposing such
regulations is a function within the SEC’s jurisdiction.
That petitioner is under the supervision of the Bangko
Sentral ng Pilipinas (BSP) and the Philippine Stock
 Corporatin Law (Atty. Carlo Busmente) San Beda College - Alabang
Exchange (PSE) does not exempt it from complying with reasonable terms, giving them the opportunity to sell their
the continuing disclosure requirements embodied in the shares at the same price as those of the majority
assailed Rules. Petitioner, as a bank, is primarily subject shareholders.
to the control of the BSP; and as a corporation trading its Jurisprudence has it that an advisory opinion of an agency
securities in the stock market, it is under the supervision may be stricken down if it deviates from the provision of
of the SEC. It must be pointed out that even the PSE is the statute.
under the control and supervision of respondent.
32. Abacus Securities Vs. Ampil
To prevent indirect violations of the margin
30. Onapal Vs. CA requirements under Section 23 hereof, the
The court is convinced that the parties never really broker or dealer shall require the customer in
intended to make or accept delivery of any commodity. nonmargin transactions to pay the price of the
The trading contract signed by private respondent and security purchased for his account within such
Albert Chiam is a contract for the sale of products for period as the Commission may prescribe,
future delivery. The written trading contract in question is which shall in no case exceed three trading

not illegal but the transaction between the petitioner and days; otherwise, the broker shall sell the
the private respondent purportedly to implement the security purchased starting on the next trading
contract is in the nature of a gambling agreement and is day but not beyond ten trading days following
void. the last day for the customer to pay such
The trading contract/transaction in question is not what purchase price, unless such sale cannot be
the parties call it but what the law defines it to be. effected within said period for justifiable
reasons. The sale shall be without prejudice to
the right of the broker or dealer to recover any
31. Cemco Holdings Vs. National Life Insurance deficiency from the customer.
Tender offer is a publicly announced intention by a
person acting alone or in concert with other persons to
acquire equity securities of a public company. A public
33. Phil. Veterans Bank Vs. Callangan
company is defined as a corporation, which is listed on an
A "public company" as "any corporation with a class of
exchange, or a corporation with assets exceeding P50,
equity securities listed on an Exchange or with assets in
000,000.00 and with 200 or more stockholders, at least
excess of Fifty Million Pesos (P50, 000,000.00) and
200 of them holding not less than 100 shares of such
having two hundred (200) or more holders, at least two
company. Stated differently, a tender offer is an offer by
hundred (200) of which are holding at least one hundred
the acquiring person to stockholders of a public company
(100) shares of a class of its equity securities."
for them to tender their shares therein on the terms
specified in the offer. Tender offer is in place to protect
34. Sec. Vs. Interport Resources
minority shareholders against any scheme that dilutes the
Beneficial owner has been defined in the following
share value of their investments. It gives the minority
manner:
shareholders the chance to exit the company under

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Corporatin Law (Atty. Carlo Busmente)
San Beda College - Alabang

First, to indicate the interest of a beneficiary in trust

property (also called "equitable ownership"); and second,
to refer to the power of a corporate shareholder to buy or
sell the shares, though the shareholder is not registered in
the corporation's books as the owner. Usually, beneficial
ownership is distinguished from naked ownership, which
is the enjoyment of all the benefits and privileges of
ownership, as against possession of the bare title to
property.
INSIDER TRAINING: The law makes it unlawful for an
“insider” to communicate material nonpublic information
about a company and its securities to any person whom
the passer of the information knows or has reason to
believe will likely buy or sell those stocks on the basis of
such information.
An insider is defined as a company that issues securities;
or a director or officer of that company; or a person
whose relationship or former relationship to the issuer
gives or gave him access to material information about
the company and its stocks that is not generally available
to the public.
It also includes a government employee, or officer of an
exchange or clearing agency who has access to similar
information, and any person who learns such information
through any of the entities mentioned.
The tips that insiders are prohibited from disclosing in
private are those that would influence an investor to sell
his existing stocks or buy more of them, or buy the stocks
of other companies.

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