Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:

Academic Year 2017-2018 Prof. Atty. Joanne L. Ranada

PART 1 Corporation having the rights of succession and

CORPORATION LAW OF THE PHILIPPINES
the powers, attributes and properties authorized
by law and incidental to its existence
I. INTRODUCTION
Based on the Doctrine of Limited Capacity, a
1. General corporation can only perform acts expressly
authorized by law and incidental to its existence.
2. Kinds of Business Organization
Section 36 of the Corporation Code confers the
 Sole Proprietorship
 Partnership following powers and attributes to a corporation:
 Joint Venture
 Corporation 1. to sue and be sued in its corporate name;

3. Historical Background 2. of succession by its corporate name within the

term of its existence states in its articles of
II. DEFINITION & ATTRIBUTES incorporation and certificate of incorporation;
 Definition – A corporation is an artificial 3. to adopt and use a corporate seal;
being (juridical person) created by
operation of law, having the right of
4. to amend its articles of incorporation in
succession and the powers, attributes
and properties expressly authorized by accordance with the Corporation Code;
law or incident to its existence.
5. to adopt by-laws, not contrary to law, morals, or
Corporation as an artificial being public policy, and to amend or repeal the same in
accordance with the Corporation Code;
 LBC Express vs. CA (236 SCRA 602)
- GENERAL RULE: A juridical person
6. for stock corporations, to issue or sell stocks
like a corporation is not allowed to
recover Moral damages based on to its subscribers in accordance with the
Art. 2217 of the Civil Code because Corporation Code; for non-stock corporations, to
it only covers moral damages which admit members;
include physical and mental injuries.
- A corporation has no feelings, no 7. to trade or deal with real and personal
emotions, and no senses; therefore, it
cannot experience physical suffering properties including securities and bonds of
and mental anguish. other corporations subject to the restrictions
prescribed by its articles of incorporation, by-
 Filipinas Broadcasting vs. Ago Medical laws, certificate of stock, the law and the
Center (GR No. 141954, January 17, 2005)
- EXCEPTION: A juridical person like a Constitution;
corporation is allowed to recover
Moral damages based Art. 2219(7) 8. to enter into merger or consolidation with
of the Civil Code because it covers other corporations;
moral damages on cases involving
libel, slander or any other form of 9. to make reasonable donations except in aid of
defamation. any political activity;
- A corporation can validly complain for
libel or any other form of defamation
10. to establish retirement plans for the benefit of
to recover moral damages because
Art. 353 of the Revised Penal Code its directors, trustees, officers and employees; and,
define libel as public and malicious
imputations tending to cause 11. to exercise powers essential or necessary to
dishonor, discredit, or contempt of a carry out its purpose(s) as stated in its articles of
natural or juridical person. incorporation.

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Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:
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III. CLASSIFICATION OF CORPORATIONS

PNOC-EDC vs. NLRC (201 SCRA
1. Stock vs. Non-Stock 487); Sec. 4 of the Corporation Code – A
corporation created by special law (or
Collector vs. Club Filipino de special charter) is governed by the law
creating it, and its employment
Cebu (5 SCRA 312); Sec. 3 of the
contracts are subject to the Civil
Corporation Code – A stock corporation Service Law. On the other hand, a
exists when its articles of incorporation corporation organized under the
provide that: (1) its capital stock is General Corporation Law is governed
by the Corporation Code, and its
divided into shares; and, (2) it is
employment contracts are subject to the
authorized to distribute dividends or provisions of the Labor Code.
surplus profits to the holders such shares.
All other corporations are non-stock. 3. Public vs. Private

Difference as to Stock Holders Meeting National Coal Corp. vs. CIR (146
SCRA 583) – A public corporation is one
A stock corporation is organized under a special law the
authorized to hold its stockholders purpose of which is to further the
meeting only within the city or general good and welfare; on the other
municipality where its principal office is hand, a private corporation is one
located; on the other hand, a non-stock organized either under a special law or the
corporation can hold its stockholders general corporation law the purpose of
meeting anywhere in the Philippines which is for some private purpose. The
provided it is expressed in their by-laws mere fact that the Government happens
(if not expressed, the provisions governing to be the majority stockholder of a
stock corporation applies per Sec. 87(2) of corporation does not make it a public
the Corporation Code). corporation. The law must express that
a corporation is not covered by the
Note: Metro Manila is
corporation law being a public
considered as one single City or
corporation.
Municipality per Sec. 51 of the
Corporation Code.
4. Ecclesiastical & Lay
Difference as to Manner of Voting
5. Aggregate & Sole
In a stock corporation, the
6. Close & Open
manner of voting is cumulative voting.
Neither its Articles of Incorporation nor 7. Domestic & Foreign
its By-Law cannot deny from its
stockholders the right to vote 8. Parent/Holding, Subsidiaries & Affiliates
cumulatively based the number of their
9. Public & Private
respective outstanding shares. Cumulative
Voting is a matter of right given to 10. Quasi-Public
stockholders by virtue of Sec. 24 of the
11. De jure vs. De facto – The reckoning
Corporation Code; on the other hand, in a point in determining whether a corporation
non-stock corporation, the manner of is De Jure or De Facto is the moment of
voting is straight voting. Its members are incorporation (that is, upon the issuance
entitled to cast only one vote per candidate of certificate of incorporation posing the
question: has the corporation
unless its articles of incorporation or by- substantially complied with the
laws allow cumulative voting. requirements of incorporation or not?
Whichever the answer, as long as it has
2. Created by special law
2

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Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:
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been incorporated in good faith (not court authorize a corporation to

being a corporation by estoppel, or one expressly or impliedly assume another
which has not intended to be duly name which was not appropriated to it;
incorporated prior to corporate more so if it was appropriated for
transactions) then its corporate another corporation because the latter
personality cannot be questioned and is expressly set apart for it and
necessarily will not be stripped of its protected by law as well. If any
corporate rights and privileges unless corporation could assume at its
the government does so, through a quo pleasure, as an unregistered trade
warranto (requiring a person, natural or name, a corporate name of another
juridical, to show, by what warrant, how corporation, such practice would result
come they are holding or exercising their in confusion, frauds and evasions, and
office or franchise) proceeding initiated by difficulties of administration and
the Solicitor General when they failed to supervision.
justify thereon the validity of their
incorporation. Universal Mills vs.
Universal Textile Mills (78 SCRA 62)
12. Corporations by Estoppel - Under the test of reasonable care
and observation, there is similarity
between corporate names if it arouses
any degree of confusion in the mind of
IV. FORMATION & ORGANIZATION the public which could mislead even
the customers, whether existing or
1. Process of Incorporation prospective.

2. Contents of the Articles of Incorporation Lyceum of the

Philippines vs. CA (219 SCRA 610)
a. Prefatory Paragraph - The corporate names of private
respondent institutions are not
b. Corporate Name "identical with or deceptively or
confusingly similar" to that of the
 Red Line Transport vs. Rural Transit (60 petitioner institution since the
Phil 549) circumstance involved has effectively
- A corporation cannot assume the precluded by the appending of
name of another corporation as its geographic names to the word
trade name. There is no law that "Lyceum."
empowers the Public Service
Commission or any court to - Taking up the etymological backdrop
authorize such usage. of the word "Lyceum", it has been
- The creation and continued associated with schools and other
existence of a corporation requires institutions providing public lectures
a certification of a distinctive name. and concerts and public discussions.
Section 11 of the Corporation Law Today, the word "Lyceum" generally
states that “the persons signing the refers to a school or an institution of
articles of incorporation and their learning. It is not unnatural to use this
associates and successors shall word to designate an entity which is
constitute a body politic and organized and operating as an
corporate, under the name stated in educational institution.
the certificate”. Moreover,
corporations can exercise its power of - It is claimed, however, by petitioner
succession only by its corporate name that the word "Lyceum" has acquired
(Sec. 13). This signifies that a a secondary meaning in relation to
corporate name is essential to the petitioner. For the application of the
existence of a corporation as it is only doctrine of secondary meaning,
authorized (by law) to transact there must be evidences to prove that
business only by its name. It cannot the business has continued for so long
change its name except in the manner a time that it acquired a good will of
provided by the Corporation Law. considerable value such that its
articles and produce have acquired a
- There is no law that nor may the well-known reputation, and confusion
Public Service Commission or any

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Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:
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will result by the use of the disputed residence at a time. The fact that it
name. maintains branch offices in some parts
of the country does not mean that it
Philipps Export B.V. vs. can be sued in any of these places.
CA (206 SCRA 457) To allow an action to be instituted in
- The statutory prohibition on identical any place where a corporate entity
or similar corporate names provided has its branch offices would create
by Section 18 of the Corporation Code confusion and work untold
requires two matters which must be inconvenience to the corporation.
proven, namely:
(1) that the complainant corporation
acquired a prior right over the use of SEC Memorandum
such corporate name; and Circular No. 6, Series of
(2) the proposed name is either: 2016
(a) Identical; or Omnibus Guidelines on
(b) Deceptively or confusingly Principal Office Address;
similar Address of each
to that of any existing corporation or to Incorporator, Director,
any other name already protected by Trustee or Partner
law; or , (c) patently deceptive,
confusing or contrary to existing f. Term of Existence
law.
- Proof of actual confusion or deception SEC Memorandum
of the public need not be shown. It Circular No. 21, Series of 2014
suffices that confusion is probably or Guidelines Governing the
likely to occur. For example, proof of Computation of Corporate Term
belonging to same or identical line of
business is enough. g. Incorporators

h. Directors/Trustees

SEC Memorandum i. Capitalization

Circular No. 21, Series
of 2013 i. Shares of stock and
Omnibus Guidelines and classification
Procedures on the Use
of Corporate and ii. Purpose of the
Partnership Names classification

SEC Memorandum Note: The capital of Non-

Circular No. 8, Series of Stock Corporations is called contributions.
2013 While Stock Corporation has authorized
Amendment on the capital stock, Non-Stock Corporation has
Guidelines and total contribution. As to voting rights,
Procedures on the Use while Stock Corporation derive it by
of Corporate and classification of shares under the condition
Partnership Names that there shall always be a class of
shares which have complete voting
c. Purpose Clause rights (but it is the general rule that no
share may be deprived of voting rights
e. Principal Office Address except "preferred" or "redeemable" shares,
unless otherwise provided in B.P. 68), on
Clavecilla Radio Systems the other hand, Non-Stock Corporations
vs. Antillon (19 SCRA 379) do not derive voting rights from
- The residence of a corporation is classification of shares since its capital
the place where its principal office is not divided into shares but it do so by
is established. It follows that the suit broadening, limiting or denying voting
against a corporation may properly be rights through its Articles of
filed in the place where its principal Incorporation or By-Laws (meaning it
office is located. A corporation, like a may allow cumulative voting through its
natural person cab only has one

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A.O.I. or By-Laws although it is not share may

generally allowed by default of the same). be deprived
of voting
As to distribution of capital rights
and/or income to corporators, while except
Stock Corporations derive its authority to "preferred"
do so by classifying its shares or
designating its par-value and, "redeemabl
distributing its earnings by declaration of e" shares.
dividends (distribution of capital only
happens in cases of dissolution after  Founders'
payments of debts and liabilities, or when Shares
the corporation resolved to decrease its
capital stock, and in other cases which  Redeemabl
may be allowed [in the future in case of e Shares
amendment] by B.P. 68 – Do not be
mistaken that distribution of capital is the  Treasury
same as payment of fair value of shares Shares –
by virtue of exercising Appraisal Right are
since the latter does not involve reacquired
distribution of excess capital to all shares of
shareholders but involves reacquisition of stocks
shares by the corporation from the issued and
shareholder(s) exercising said right, fully paid for.
thereafter re-classifying it as Treasury To
Shares and thereafter be re-issued at its reacquire
option); on the other hand, Non-Stock means the
Corporations derive its authority distribute stockholder
capital to its members (only since its s owning
earnings are not allowed to be distributed such shares
to members) by dissolution alone subject of stock
to rules on distribution and limitations transferred
provided by its Articles of Incorporation or it back to
By-Laws determining distributive rights the
and conditions requiring its return upon corporation
dissolution (do not confuse yourself that by means of
non-stock corporation may override the purchase,
rules by a plan of distribution to distribute redemption,
the total contribution back to the members donation or
because it would be inconsistent with the other lawful
said rules of distribution provided by means.
B.P.68 and because the purpose of a Treasury
distribution plan is not to return the shares have
contributions but to determine whom shall meaningful
be the beneficiaries of its transfer by virtue connection
of the purpose(s) for which the non-stock with
corporation was organized). Appraisal
Rights. The
 Common vs. corporation
Preferred may re-
Shares issue it at
their option.
 Par vs. No- Treasury
par Shares Shares are
not required
 Voting vs. to be
Non-voting classified in
Shares – the Articles
of
Voting Incorporatio
Rights: No n.

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Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:
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Asia Banking Corp. vs.

Standard Products (46 Phil 144)
Commissioner vs. Manning (66 International Express
SCRA 14) Travel vs. CA (343 SCRA 674)
Greorg Grotjahn vs.
iii. Capital requirements Isnani (235 SCRA 216)

Heirs of 6. Organization and Commencement of

Gamboa vs. Teves (GR No. 176579, Business
October 9, 2012)
a. Corporate organization
iv. Restrictions and
Preferences b. Commencement of Business
Transaction
Executive Order
No. 184 V. CORPORATE CHARTER AND ITS
Tenth Foreign AMENDMENTS
Investment Negative List
1. The Corporate Charter

j. No-transfer Clause a. Corporate Entity Theory

The corporation has a separate and
k. Treasurer distinct personality from its directors or
trustees and its corporate officers. Thus,
l. Undertaking to Change Name the latter group cannot be held personally
liable for acts done under the corporate
SEC Memorandum veil for and on behalf of the corporation
Circular No. 8, Series of 2012 and vice versa. Ownership of stock is not a
sufficient ground for disregarding the
m. Acknowledgment separate corporate personality.

n. Treasurer's Affidavit Neither is the corporation liable for the

personal acts of its directors, trustees and
3. Grounds for Disapproval corporate officers for acts done in their
own name except when third party
4. Commencement of Corporate transactions involve properties belonging
Existence to the corporation (in which the corporation
may cross-claim against its d/t/c.o).
Cagayan Fishing vs. Sandiko (65
Phil 233) Nor a corporation may bring an action for
and on behalf of its stockholders or
5. Defectively-formed corporations members for subject-matters belonging in
the personal capacities of the latter absent
a. De facto corporations any showing of interest by the former.

Municipality of Malabang Generally, the corporate veil may not be

vs. Benito (27 SCRA 452) pierced; however, under the following
Hall vs. Piccio (86 Phil exceptional circumstances coupled with
603) sufficient proof, the directors, trustees, and
the corporate officers may be held
b. Corporation by Estoppel personally liable for their acts solidarily
with the corporation and they cannot seek
Lozano vs. Delos Santos cover under the corporate veil:
(274 SCRA 452)
Albert vs. University 1. When the corporation is used
Publishing (13 SCRA 84) in the following badges of
Salvattierra vs. Garlitos fraud:
(103 Phil 757) a. as a shield to
Chiang Kai Shiek vs. CA further (any
(172 SCRA 389) wrongdoings or) an

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end subversive of Provided that, the third party

justice; has no knowledge of the
b. for purposes not defect.
intended by the law
that created it; Corporation by Estoppel, does it have a
c. to defeat public veil? How about corporations in its
convenience, to preparatory stage of incorporation? There
justify a wrong, to is no Veil when there is No Corporation. All
protect fraud, or to persons working together in the
defend a crime; preparatory stage of a corporation is
d. to perpetuate fraud personally liable for its obligations.
or to confuse
legitimate issues; A General partner is one who partakes in
e. to circumvent the the control of the business of their
law or to partnership (company) who is bound by
perpetuate the obligations thereof (pro rata with all
deception; their property after all partnership assets
f. to be an alter ego, have been exhausted) for the contracts the
to be an adjunct partnership has entered into or as
business conduit represented by him on behalf of the
for the sole benefit partnership.
of the stockholders.
(like a holding
company who has
no purpose but to
hold the profits of its
member-
corporations – but Sulo ng Bayan vs.
the law allows Araneta (72 SCRA 347)
holding companies
to a certain degree - Absent any showing of interest, a
[see corporation corporation has no personality to bring
code]). an action for and in behalf of its
stockholders or members for the
or in short, if the corporation purpose of recovering property which
is used for: (1) fraudulent, belongs to said stockholders or
unfair, or illegal purpose; members in their personal capacities.
and, (2) when the majority of
the directors took - It is a doctrine well-established and
advantage of the corporate obtains both at law and in equity that a
personality as a protective corporation is a distinct legal entity to
shield for any wrongdoing. be considered as separate and apart
from the individual stockholders or
2. When there is a stipulation in members who compose it, and is not
the third party contract to the affected by the personal rights,
effect that the d/t/c.o obligations and transactions of its
expressly binds itself stockholders or members. 4 The
(themselves) solidarily with property of the corporation is its
the corporation. property and not that of the
3. When the corporation is a stockholders, as owners, although
corporation by estoppel they have equities in it.
(wherein the persons acting
or purporting to act on behalf - Properties registered in the name of
of an ostensible corporate the corporation are owned by it as an
entity cannot deny the its entity separate and distinct from its
existence whether it is proven members. 5 Conversely, a corporation
or not and their personal ordinarily has no interest in the
properties may be made to individual property of its stockholders
answer for the purported unless transferred to the corporation,
corporate debt of such non- "even in the case of a one-man
existent corporation); corporation. 6

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Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:
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when necessary for the protection of

- The mere fact that one is president of creditors, in which case the veil of
a corporation does not render the corporate fiction may be pierced and
property which he owns or possesses the funds of the corporation may be
as property of the corporation, since garnished to satisfy the debts of a
the president, as individual, and the principal stockholder.
corporation are separate entities. 7 - The aforecited principle is resorted to
by the courts as a measure protection
- Similarly, stockholders in a for third parties to prevent fraud,
corporation engaged in buying and illegality or injustice. (this is the
dealing in real estate whose counterpart of IAET in Taxation Law).
certificates of stock entitled the holder
thereof to an allotment in the
distribution of the land of the
corporation upon surrender of their Caram vs. CA (151
stock certificates were considered not SCRA 372)
to have such legal or equitable title or - All persons who assume to act as a
interest in the land, as would support corporation shall be personally liable
a suit for title, especially against for any obligations contracted by the
parties other than the corporation. ostensible corporation (corporation by
estoppel). In contrast, a bona fide
- It must be noted, however, that the corporation shall have a separate and
juridical personality of the corporation, distinct personality from its
as separate and distinct from the (in)corporators.
persons composing it, is but a legal - Those who were involved in the initial
fiction introduced for the purpose of steps or preparatory stages of the
convenience and to subserve the incorporation of a corporation or those
ends of justice. 9 This separate who purported to act as a corporation
personality of the corporation may be shall be personally liable for the
disregarded, or the veil of corporate services it contracted with third parties
fiction pierced, in cases where it is for the benefit they obtained therefrom.
used as a cloak or cover for fraud or
illegality, or to work -an injustice, or - Persons who promote and those have put
where necessary to achieve equity the pieces together in order to create a
corporation or in order to purport an
- Thus, when "the notion of legal entity ostensible one are deemed to be persons
is used to defeat public convenience, who are involved in the initial steps of
justify wrong, protect fraud, or defend incorporation and has substantial control
crime, ... the law will regard the over its management. They are to be held
corporation as an association of personally liable during such preparatory
persons (the corporation will become stage since the juridical entity has yet to be
a partnership in this nature), or in the born or has been purportedly born only.
case of two corporations, merge them
into one, the one being merely - Mere financiers or investors whose
regarded as part or instrumentality of interest was to be invited and who were in
the other. fact persuaded have no personal liability
- The same is true where a corporation as they do not have a control over the
is a dummy and serves no business management affairs (they are like limited
purpose and is intended only as a partners).
blind, or an alter ego or business
conduit (like a holding company) for Rustan Pulp and Paper
the sole benefit of the stockholders. Mills vs. CA (214 SCRA 665)
- This doctrine of disregarding the - the President and Manager of a
distinct personality of the corporation corporation who entered into and
has been applied by the courts in signed a contract in his official
those cases when the corporate entity capacity, cannot be made liable
is used for the evasion of taxes (as in thereunder in his individual capacity in
the case of holding companies); or, the absence of stipulation to that
when the veil of corporate fiction is effect due to the personality of the
used to confuse legitimate issue of corporation being separate and
employer-employee relationship; or, distinct from the person composing it

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Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:
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(Bangued Generale Belge vs. Walter exceeded should it have been

Bull and Co., Inc., 84 Phil. 164). And performed in a manner more
because of this precept, Vergara's advantageous to the principal than
supposed non-participation in the
contract of sale although he signed that specified by him
the letter dated September 30, 1968 is - Art. 1883. If an agent acts in his
completely immaterial. The two own name, the principal has no
exceptions contemplated by Article right of action against the persons
1897 of the New Civil Code where with whom the agent has
agents are directly responsible are contracted; neither have such
absent and wanting.
persons against the principal.
- Art. 1897. The agent who acts as
In such case the agent is the one
such is not personally liable to the
directly bound in favor of the
party with whom he contracts,
person with whom he has
unless he expressly binds himself or
contracted, as if the transaction
exceeds the limits of his authority
were his own, except when the
without giving such party sufficient
contract involves things belonging
notice of his powers. (1725)
to the principal.
- Art. 1898. If the agent contracts in
The provisions of this article shall
the name of the principal,
be understood to be without
exceeding the scope of his
prejudice to the actions between
authority, and the principal does
the principal and agent. (cross-
not ratify the contract, it shall be
claims)
void if the party with whom the
- Art. 1887. In the execution of the
agent contracted is aware of the
agency, the agent shall act in
limits of the powers granted by the
accordance with the instructions of
principal. In this case, however, the
the principal.
agent is liable if he undertook to
In default thereof, he shall do all
secure the principal's ratification.
that a good father of a family would
(n)
do, as required by the nature of the
- Art. 1899. If a duly authorized
business
agent acts in accordance with the
- Art. 1888. An agent shall not carry
orders of the principal, the latter
out an agency if its execution would
cannot set up the ignorance of the
manifestly result in loss or damage
agent as to circumstances whereof
to the principal. (n)
he himself was, or ought to have
- Art. 1889. The agent shall be liable
been, aware. (n)
for damages if, there being a
- Art. 1900. So far as third persons
conflict between his interests and
are concerned, an act is deemed to
those of the principal, he should
have been performed within the
prefer his own.
scope of the agent's authority, if
- Art. 1896. The agent owes interest
such act is within the terms of the
on the sums he has applied to his
power of attorney, as written, even
own use from the day on which he
if the agent has in fact exceeded
did so, and on those which he still
the limits of his authority according
owes after the extinguishment of
to an understanding between the
the agency.
principal and the agent.
- Art. 1894. The responsibility of two
- Art. 1881. The agent must act
or more agents, even though they
within the scope of his authority.
have been appointed
He may do such acts as may be
simultaneously, is not solidary, if
conducive to the accomplishment of
solidarity has not been expressly
the purpose of the agency. (1714a)
stipulated. (1723)
- Art. 1882. The limits of the agent's
- Art. 1895. If solidarity has been
authority shall not be considered
agreed upon, each of the agents is
9

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Ktrl+ Corporation Law Notes (Business Organization II) Based on the Course Outline prepared by:
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responsible for the non-fulfillment the election of directors subject to the

of agency, and for the fault or rights privileges or restrictions of
negligence of his fellows agents, shares as classified in Article VII of
the Articles of Incorporation.
except in the latter case when the Cruz vs. Dalisay (152
fellow agents acted beyond the SCRA 482)
scope of their authority. - The tenor of the NLRC judgment and
- Art. 1911. Even when the agent has the implementing writ is clear enough.
exceeded his authority, the It directed Qualitrans Limousine
principal is solidarily liable with the Service, Inc. to reinstate the
discharged employees and pay them
agent if the former allowed the
full backwages. Respondent,
latter to act as though he had full however, chose to "pierce the veil
powers. of corporate entity" usurping a
- Art. 1910. The principal must power belonging to the court and
comply with all the obligations assumed improvidently that since the
which the agent may have complainant is the owner/president of
contracted within the scope of his Qualitrans Limousine Service, Inc.,
authority. they are one and the same. It is a
As for any obligation wherein the well-settled doctrine both in law and in
agent has exceeded his power, the equity that as a legal entity, a
principal is not bound except when corporation has a personality distinct
and separate from its individual
he ratifies it expressly or tacitly.
stockholders or members. The mere
- Art. 1918. The principal is not liable fact that one is president of a
for the expenses incurred by the corporation does not render the
agent in the following cases: property he owns or possesses the
(1) If the agent acted in property of the corporation, since the
contravention of the principal's president, as individual and the
corporation are separate entities.
instructions, unless the latter
Palay Inc. vs. Clave (124
should wish to avail himself of the SCRA 638)
benefits derived from the contract; - On the issue of personal liability of
(2) When the expenses were due to petitioner President, with the
the fault of the agent; corporation, to jointly and severally
(3) When the agent incurred them refund the respondent, it is basic to
note that a corporation is invested by
with knowledge that an unfavorable
law with a personality separate and
result would ensue, if the principal distinct from the persons composing it
was not aware thereof; as well as from that of any legal entity
(4) When it was stipulated that the to which it may be related. As a
expenses would be borne by the general rule, a corporation may not be
agent, or that the latter would be made to answer for acts or liabilities of
allowed only a certain sum. its stockholders or those legal entities
to which it may be connected and
- VICE VERSA.
-
- The board and the corporate officers - However, the veil of corporate fiction
are agents of the corporation, they may be pierced when it is used in the
exercise control over corporate affairs following badges of fraud:
through the corporate powers derived,
delimited and authorized by law 1) as a shield to further (any wrongdoings
(Corporation Code and other special or) an end subversive of justice;
laws) and the corporation’s articles of 2) for purposes not intended by the law that
incorporation and its by-laws for and created it;
on behalf of the corporation in their 3) to defeat public convenience, to justify a
fiduciary capacity. They answer wrong, to protect fraud, or to defend a
directly to the corporation and not to crime;
the stockholders per se. – general rule. 4) to perpetuate fraud or to confuse
Stockholders on the other hand legitimate issues;
delegates such authority to corporate
officers through their right to vote on
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5) to circumvent the law or to perpetuate - The fact that the subsequent sale was
deception; done for evasive purposes was
6) to be an alter ego, to be an adjunct strengthened due to the failure of the
business conduit for the sole benefit of defendant corporation to prove that it
the stockholders. has other property than the jeep (AC-
687).
- Sufficient proof must exist that the - The evidence, testimonial or anywise,
corporation was used to defraud would prove that the corporation was
others. Any stockholder cannot be used by its incorporators or members
made personally liable just because as a shield to protect their end which
he “appears to be the controlling is subversive of justice. Burden of
stockholder”. Mere ownership by a proof lies on the one who alleges the
single stockholder or by another same.
corporation is not of itself sufficient
ground for disregarding the separate Marvel Bldg. vs. David
corporate personality. (94 SCRA 376)
Yutivo and Sons vs. CTA
Soriano vs. CA (174 (1 SCRA 160)
SCRA 195) Commissioner vs. Norton
- In determining personal liability of & Harrison (11 SCRA 714)
corporate officers / directors: the La Campana Coffee vs.
general rule is that a corporation Kaisahan ng Manggagawa (93 Phil 160)
has a separate and distinct Emilio Cano vs. CIR (13
personality from its directors and SCRA 290)
officers; the exception is that the Telephone Engineering
protective mantle of the corporation’s vs. WCC (104 SCRA 354)
separate and distinct personality can Claparols vs. CIR (65
be pierced, and liability attaches SCRA 613)
directly to its officers and/or members- Nat'l Federation vs. Ople
stockholders, when the corporation is (143 SCRA 124)
used for: (1) fraudulent, unfair, or A.C. Ransom vs. CA
illegal purpose; and, (2) when the (150 SCRA 498)
majority of the directors took Concept Builders vs.
advantage of the corporate NLRC (257 SCRA 149)
personality as a protective shield for Mc Connel vs. CA (1
any wrongdoing. Burden of proof is on SCRA 722)
the party alleging the purpose of Tan Boon Bee vs.
defrauding and usage of the corporate Jarencio (163 SCRA 205)
veil as a protective shield for any Cease vs. CA (93 SCRA
wrongdoing. 483)
Wensha Spa Center, Inc.
vs. Yung. (GR No.
2. Piercing the Veil of Corporate Fiction 185122, August 10,
2010)
a. General Concept General Credit Corp. vs.
Alsons Development, et.
Palacio vs. Fely al. (GR 154975, January
Transportation Co. (5 SCRA 1011) 29, 2007)
- Generally, a corporation or a company
has a separate and distinct personality b. When not justified
from its members or incorporators.
However, if it was proved that the Remo, Jr. vs. IAC (172
fiction of corporate entity was used as SCRA 405)
a protective shield for evasive Del Rosario vs. NLRC
purposes or to further an end (187 SCRA 777)
subversive of justice, the above rule Indophil Textile Mills vs.
cannot be invoked by its members or Galica (205 SCRA 697)
incorporators and that the said group PNB vs. Ritratto Group
would be liable jointly and solidarily (362 SCRA 216)
with the corporation. Pacific Rehaus Corp. vs.
CA (719 SCRA 665)

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Yu vs. NLRC (245 SCRA Alhambra Cigar vs. SEC

134) (24 SCRA 269)
Francisco Motors - The corporate term lasts only for 50
Corporation vs. Court of years; but it may be extend for a
Appeals (GR. No. one-time extension of another 50
100812, June 25, 1999) years.
- When a corporate is undergoing
liquidation process due to its
3. Amendment of Corporate Charter dissolution, it will have a statutory
period of 3 years for the sole
4. Special Amendments purpose of settling and winding up
its corporate affairs including
5. Provisions subject to amendments prosecution of actions in relation
with its prior contracts and
a. Change in Corporate Name obligations. Its existence and
juridical personality to further
Phil. First Insurance vs. Hartigan transact business with third
(74 SCRA 2520) persons ceases.

- A Corporation effectively changes its VI. BOARD OF DIRECTORS / TRUSTEES

name only after "a copy of the articles
of incorporation as amended, duly 1. Powers of the Board
certified to be correct by the president
and the secretary of the corporation a. Classification of Powers
and a majority of the board of
directors or trustees” has been filed Ramirez vs. Orientalist
with the SEC Commissioner; only (38 Phil 634)
from the time of such filing, that
"the corporation shall have the - Section 28 of the Corporation Law
same powers and be subject to the states that corporate power shall be
same liabilities as if such exercised, and all corporate business
amendment had been embraced in conducted by the board of directors.
the original articles of This provision was not intended to
incorporation." confer an independent power unto any
- A Corporation should still conduct its members of the board to enter into a
business under the original name until contract binding upon a corporation
it has filed the amended articles of without the authority of the Board of
incorporation with the SEC Directors itself; this is a formal
Commission; it can only legally requirement that the board of directors
acquire the amended name after the has to meet before it can exercise its
filing was done. power to enter into a contract.
- Thereafter, prior causes of action However, the power to enter into a
transpiring during the usage of the corporate contract vested with the
original name should be filed by the Board of Directors does not
corporation under its new name to necessitate a conduct of a formal vote
enforce its rights existing at the before a contractual liability can be
time the change was made. attached to it; means other than
- The change in the name of a formal expression of its will can create
corporation is not a deprivation of its contractual liability. If it appears that a
right to bring an action for a cause member of the board acted and
which transpired when it bore its signed on behalf of the corporation,
former name. binding himself as the latter’s
guarantor, to enter into a contract
involving matters with utmost
Relevant SEC importance, the authority of the acting
Memorandum Circulars agent shall be binding even if there is
an allegation that no actual authority
b. Corporate Term was given provided that it is shown by
way if usage that the corporation has

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observed giving implied consent in the 8. Self-Dealing Directors

customary of its business transactions.
Prime White Cement vs. IAC (220
Barreto vs. La Previsora SCRA 1030)
(57 Phil 649) Mead vs. Mc Cullough (21 Phil 95)

b. Qualifications and 9. Interlocking Directors

Disqualifications
10. Derivative Suit
Lee vs. CA (205 SCRA
572) Pascual vs. Orozco (19 Phil 83)
Detective and Protective Everette vs. Asia Banking (49 Phil
Bureau vs. Cloribel (26 SCRA 256) 512)
Republic Bank vs. Cuaderno (19
2. Election and Voting SCRA 671)
Western Institute of Tech. vs.
Salas (supra)
3. Validity and Binding Effects of Actions San Miguel Corp. vs. Khan (176
of Corporate Officers SCRA 447)
Chase vs. Buencamino (136
Yao Ka Sin Trading vs CA (209 SCRA 365)
SCRA 763) Reyes vs. Tan (3 SCRA 198)
Lopez Realty vs. Fontecha (247 Gamboa vs. Victorino (90 SCRA
SCRA 183) 40)
Pua Casim vs. Neumark (46 Phil Evangelista vs. Santos (86 Phil
242) 387)
Yu Chuck vs. Kong Li Po (46 Phil
208) 11. Executive Committee
Francisco vs. GSIS (7 SCRA 557)
Board of Liquidators vs. Kalaw (20 VII. CORPORATE POWERS AND AUTHORITY
SCRA 987)
Buenaseda vs. Bowen & Co. (110 1. Classifications of Corporate Power
Phil 464)
a. Power to sue and be sued
4. Removal and Filling up of vacancies
Delta Motors vs.
Valle Verde Country Club vs. Mangosing (70 SCRA 77)
Africa (598 SCRA 201, September 2009) E.B. Villarosa & Partner
Co. vs. Benito (GR 14926, August 6, 1999)
5. Compensation of Directors
b. Power of Succession
Central Cooperative Exchange vs.
Tibe (33 SCRA 593) c. Power to Adopt and Use a
Western Inst. of Tech. vs. Salas Common Seal
(278 SCRA 216)
Gov't vs. El Hogar Filipino (50 Phil d. Power to Amend the Articles of
399) Incorporation

6. Liability Corporate Officers e. Power to Adopt By-Laws

Tramat Mercantile vs. CA (238 f. Power to Sell / Issue Stocks or

SCRA 214) Admit Members
Llamado vs. CA (270 SCRA 423)
Uichico vs. NLRC (273 SCRA 35) g. Power to Acquire / Alienate
Property
7. Three-fold Duty of Directors
Luneta Motors Co. vs.
Montelibano vs. Bacolod Murcia A.D. Santos Inc. (5 SCRA 809)
Milling (5 SCRA 36) Gov't. vs. El Hogar
Strong vs. Repide (41 Phil 947) Filipino (supra)

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Director of Lands vs. CA r. Power to Declare Dividends

(158 SCRA 568)
i. Types
h. Power to Adopt Plans of
Merger / Consolidation ii. When and to whom it
is vested
i. Power to make Donations
Nielson & Co. vs.
j. Power to establish Pension, Lepanto Consolidated Mining (26 SCRA
Retirement and other Plans 540)

Republic vs. Acoje s. Power to Enter into

Mining Co. (7 SCRA 361) Management Contracts

k. Implied Powers

Teresa Electric vs. PSC 2. Ultra Vires Acts

(21 SCRA 199)
National Power a. Consequences: on the
Corporation vs. Vera (170 SCRA 721) Corporation, on the immediate parties, on
Powers vs. Marshall (161 the stockholders
SCRA 176)
Privano vs. Dela Rama
l. Power to Extend / Shorten Steamship Co. (96 Phil 335)
Corporate Term Carlos vs. Mindoro Sugar
Co. (57 Phil 343)
m. Power to Increase / Decrease Japanese Warnotes
the Authorized Capital Stock; Claimants Assn. vs. SEC (110
Incur / Create Bonded Phil 540)
Indebtedness Crisologo - Jose vs. CA
(117 SCRA 594)
Philtrust vs. Rivera (44
Phil 469) VIII. BY- LAWS
Madrigal & Co. vs.
Zamora (151 SCRA 3550) Loyola Grand Villas Assn. vs. CA (276
SCRA 681)
n. Power to Deny Pre-emptive Govt vs. El Hogar Filipino (supra)
Rights Gokongwei vs. SEC (89 SCRA 336)

Benito vs. SEC (123 IX. MEETINGS

SCRA 722)
1. Stockholders' / Members' Meeting
o. Power to Sell / Dispose of
Assets Board of Directors vs. Tan (105
Phil 426)
Islamic Directorate of the Ponce vs. Encarnacion (91 Phil
Phils. vs. CA (272 SCRA 454) 81)
Edward Nell & Co. vs.
Pacific Farms (15 SCRA 415) 2. Directors' / Trustees' Meeting

p. Power to Acquire Own Shares SEC Memorandum Circular No.

15, Series of 2001
Steinberg vs. Velasco Board Meeting Through
Teleconferencing or
q. Power to Invest Funds Videoconferencing ("Tele/Video
Conferencing")
De la Rama vs. Ma-ao
Sugar Central (7 SCRA 247) 3. Right to Vote and Manner of Voting
John Gokongwei vs. SEC
(89 SCRA 336) a. Proxy and other representative
voting

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Velasco vs. Poizat (37 Phil 802)

NIDC vs. Aquino (160 De Silva vs. Aboitiz & Co. (44 Phil
SCRA 153) 755)
Lingayen Gulf vs. Baltazar (93
SEC Memorandum Phil 746)
Circular No. 4, Series of 2004 Apocada vs. NLRC (175 SCRA
Voting by Mail and One 442)
Share-One Vote Policy Lumanlan vs. Cura (59 Phil 746)
PNB vs. Bitulok Sawmill (33
IX. STOCK and STOCKHOLDERS SCRA 136)
Edward Keller vs. COB Group
1. Subscription Contract (141 SCRA 86)
Garcia vs. Suarez (67 Phil 441)
Trillana vs Quezon College (93
Phil 383) 8. Effects of Delinquency

SEC Memorandum Circular No. 9. Rights of Unpaid Shares

11, Series of 2016
Subscription Contracts 10. Lost or Destroyed Certificates

2. Pre-incorporation Subscription 11. Rights and Liabilities of Stockholders

National Exchange vs. Dexter (51 XI. CORPORATE BOOKS AND RECORDS
Phil 601)
1. Books and Records to be Kept
3. Certificates of Stock and their Transfer
2. Right of Inspection
Monserrat vs. Ceron (58 Phil 472)
Chua Guan vs. Samahang W.G. Philpotts vs. Phil. Mfg. Corp.
Magsasaka (62 Phil 472) (49 Phil 471)
Padgett vs. Babcock & Templeton Vegaruth vs. Isabela Sugar (57
(59 Phil 232) Phil 266)
Lambert vs. Fox (26 Phil 588) Gokongwei vs. SEC (supra)
Embassy Farms vs. CA (188 Gonzales vs. PNB (122 Phil 489)
SCRA 492)
Razon vs IAC (207 SCRA 510) XII. MERGER AND CONSOLIDATION
Rural Bank of Salinas vs. CA (210
SCRA 510) 1. Requirements and Procedure
Tay vs. CA (GR No. 126891,
August 5, 1998)
Rural Bank of Lipa vs. CA (366
SCRA 740) 2. Effects
Tan vs. SEC (206 SCRA 740)
Nava vs. PEERS Marketing (74 Associated Bank vs. CA (GR
SCRA 65) 123793, June 29, 1998)
Won vs. Wack Wack Golf (104 BPI vs. BPI Employees Union
Phil 466) (658 SCRA 569)
De los Santos vs. Mc Grath (95
Phil 577) XIII. APPRAISAL RIGHT

4. Forged and Unauthorized Transfers 1. Definition; when exercised

5. Issuance of Stock Certificates 2. Requirements and Procedure

Fua Cun vs. Summers 3. Effect

6. Watered Stocks 4. When Right ceases

7. Enforcement and Payment of Unpaid 5. Cost of appraisal

Subscriptions

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XIV. NON-STOCK CORPORATIONS 2. Religious Corporations

1. Definition; Purpose a. Corporation Sole

2. Membership and Voting Rights Roman Catholic

Apostolic Church vs. LRC (102 Phil 596)
Chinese YMCA vs. Ching (71 Director vs. CA (158
SCRA 463) SCRA 568)
Cebu Country Club vs. Republic vs. IAC (168
Elizagaque (542 SCRA 65) SCRA 165)

3. Trustees and Officers i. Filling up of Vacancies

Lions Club Int'l vs. CA (121 SCRA ii. Dissolution

621)
3. Religious Societies
4. Other references:

SEC Memorandum Circular No. 8,

Series of 2006 XVII. DISSOLUTION AND WINDING UP
Revised Guidelines on
Foundations 1. Methods of Dissolution

SEC Memorandum Circular No. 4, a. Expiration of Corporate Term

Series of 2013
Amendment of Part I (4) (A) & (B) PNB vs. CFI (209 SCRA
of SRC Rule 68, as amended 294)

SEC Memorandum Circular No. b. Voluntary Dissolution

10, Series of 2016
Guidelines on the Issuance of i. Where no creditors are
Certificate on the Nationality of Non-Stock affected
Corporations
ii. Where creditors are
XV. CLOSE CORPORATIONS affected

1. Definition; Permissive Provisions c. Shortening of Corporate Term

2. Effects of Breach of Qualifying d. Involuntary Dissolution

Provisions
Gov't vs. Phil. Sugar
3. Stockholders' Agreement Estate (39 Phil 15)
Gov't vs. El Hogar
4. When Board Meeting Not Necessary Filipino (supra)
Republic vs. Security
5. Pre-Emptive Right Credit (19 SCRA 59)
Republic vs. Visaya Land
6. Deadlocks (81 SCRA 9)
Financing Corporation vs.
7. Withdrawal of Stockholders / Teodoro (94 Phil 687)
Dissolution
2. Effects of Dissolution
Dulay Enterprises vs. CA (225
SCRA 678) Buenaflor vs. Camarines Sur
Naguiat Enterprises vs. NLRC Industry (108 Phil 427)
(268 SCRA 546) Cebu Port Labor Union vs. State
Marine (101 Phil 468)
XVI. SPECIAL CORPORATIONS Gonzales vs. Sugar Regulatory
Administration (174 SCRA 377)
1. Educational Corporations
3. Liquidation and Winding Up

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domestic corporations duly registered to do business,

National Abaca vs. Pore (2 SCRA and/or the exercise of rights as such investor; nor having
989) a nominee director or officer to represent its interests in
Sumera vs. Valencia (67 Phil 721) such corporation; nor appointing a representative or
Board of Liquidators vs. Kalaw (20 distributor domiciled in the Philippines which transacts
SCRA 987) business in its own name and for its own account;
Gelano vs. CA (103 SCRA 90)
Republic vs. Marsman (44 SCRA
481) Marshall-Wells vs. Elser (46 Phil
Chung Ka Bio vs IAC (163 SCRA 70)
534) Western Equipment vs. Reyes (51
Clemente vs. CA (242 SCRA 717) Phil 115)
Mentholatun vs. Mangaliman (72
XVIII. FOREIGN CORPORATIONS Phil 524)
Far East International vs. Nankai
1. Definition Kogyo (6 SCRA 725)
Swedish East Asia vs. Manila Port
2. Modes of Entry Services (25 SCRA 632)
General Garments vs. Director
3. Application of License (41 SCRA 50)

Subsidiary (FIA Form F-100) Facilities Management vs. Dels

Branch Office (FIA Form F-103) Osa (89 SCRA 131)
Representative Office (FIA Form Le Chemise Lacoste vs.
F104) Fernandez (120 SCRA 377)
Regional Operating Area Bulakhids vs. Navarro (142 SCRA
Headquarters 1)
Regional Area Headquarters Antam Consolidated vs. CA (143
SCRA 288)
4. Resident Agent Puma Sportshufabriken vs. IAC
(158 SCRA 233)
5. Effect of Doing Business Without a Communication Materials and
License Design vs. CA (260 SCRA 673)

Meaning of “doing-business” – the term is coined 6. Capacity to Sue

by several jurisprudences back then. As of now, the
Foreign Investments Act of 1991 has defined the Atlantic Mutual Insurance vs.
term. If you will analyze, the definition of the FIA Cebu Stevedoring (17 SCRA 1037)
seems to jive with the definition of a “non-resident Olympia Business Machines vs. E.
alien engaged in trade or business here in the Razon Inc. (155 SCRA 208)
Philippines” under the National Internal Revenue Time vs. Reyes (39 SCRA 303)
Code of 1997). Perhaps, the tax code got its
definition from FIA. 7. Laws Governing Foreign Corporations

The phrase "doing business" shall include soliciting M.E. Gray vs. Insular Lumber (67
orders, service contracts, opening offices, whether called Phil 139)
"liaison" offices or branches; appointing representatives
or distributors domiciled in the Philippines or who in any 8. Amendment of the License
calendar year stay in the country for a period or periods
totaling one hundred eighty [180] days or more; 9. Merger / Consolidation
participating in the management, supervision or control
of any domestic business, firm, entity or corporation in 10. Revocation of License
the Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements and 11. Withdrawal of License
contemplate 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 commercial
gain or of the purpose and object of the business XIV. MISCELLANEOUS PROVISIONS
organization: Provided, however, That the phrase "doing
business" shall not be deemed to include mere
investment as a shareholder by a foreign entity in PART 2

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PRESIDENTIAL DECREE 902-A Rule 19 Tender Offer; Mandatory Tender

Offer and Exemptions
I. Devices or Schemes Amounting to Fraud
Justee Terms Enterprise vs. SEC
II. Intra-Corporate Controversies (CA GR. SP. No. 48013, July 30, 1999)
China Banking vs. CA (270 SCRA
III. Controversies in the Election, Appointment or 503)
Removal of Directors / Officers People vs. Petralba (439 SCRA
158)
IV. Appointment of Management Committee, Board
or Body Rule 23 Reports to be Filed by Directors,
Officers and Principal Stockholders
R.J. Jacinto vs. FWCC (410 SCRA 140)
Sy Chim vs. Sy Siy Ho & Sons (480 SCRA IV. Title VII: Prohibitions on Fraud,
206) Manipulation and Insider Trading

Rule 24.1 Manipulative Practices

PART 3
SECURITIES REGULATION CODE Rule 24.2 Short Sales
2015 IMPLEMENTING RULES AND
REGULATIONS Rule 25 Option Trading

Rule 26 Fraudulent Transactions

I. Rule 3: Definition of Terms
Rule 27 Insider Trading
II. Rule 5: Powers and Functions of the
Commission
V. Title VIII: Registration of Securities Market
SEC Memorandum Circular No. 11, Series Professionals
of 2003
Supervision Over Registered Corporations Rule 28.1.1 Broker Dealer

III. Title III: Registration of Securities Rule 28.1.2 Registration Requirements

Rule 8.1 Registration Statement Rule 28.1.5 Registration of Salesmen and

Associated Persons of Broker Dealers
Rule 9.1 Exempt Securities
Rule 28.1.5.4 Registration Requirements
Rule 9.2 Other Exempt Transactions
VI. Title IX: Exchanges and other Securities
Rule 10.1 Exempt Transactions Trading Markets

Rule 10.1.7 Isolated Transactions Rule 38 Requirements on Nomination and

Election of Independent Directors
Rule 10.1.11 Qualified Buyers
SEC Memorandum Circular No. 9,
Rule 10.2 Limited Public Offerings and Series of 2011
other Exempt Transactions Term Limits for Independent
Directors
Rule 10.3 Application for Confirmation of
Exemption SEC Advisory dated 20 July 2015
Clarification on the Term Limits of
Rule 13 Suspension or Revocation of Independent Directors
Registration of Securities
SEC Advisory dated 31 March
Rule 14 Amendments to the Registration 2016
Statement and Prospectus Term Limits for Independent
Directors
Rule 15 Reportorial Requirements

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