Corpo (To Be Printed)

Corporation Code
MJGAMBON
CORPORATION
- artificial being, created by operation of law,
having the right of succession, and powers, attributes
and properties expressly authorized by law.
CORPORATION
Operation of law
CREATION
DURATION
ATTRIBUTES/CHARACTERISTICS OF CORPORATION
Artificial being;
Created by operation of law;
Having the right of succession;
It has powers, attributes, properties expressly
authorized by law.
LBC EXPRESS VS CA.
As general rule, CORPORATION being an artificial

being, existing only in contemplation of law is
NOT ENTITLED TO MORAL DAMAGES. Exception:
o If the corporation has a good moral
reputation that is debased (it is merely an
obiter dictum [Mambulao Lumber vs PNB
22 SCRA 359]);
o In cases of libel/slander or any form of
defamation (Article 2219 [7]).
CORPORATION vs. PARTNERSHIP
MEMBERS
LIMITATION
BINDING POWERS
SUCCESSIONAL RIGHT
TRANSFERABILITY
PARTNERSHIP
Mere agreement o
the parties
Limited to 50 yrs but Exist for indefinit
subject to extension period except thos
created for a certa
purpose. Upon th
performance
o
which
partnersh
dissolves
Atleast
5 2 or more natur
incorporators
persons
(natural
person
only)
except
corporation sole
Can only exercise No limitiation a
powers
and long as it is in th
functions expressly agreement and no
granted by law and contrary
to
law
those necessary and morals,
goo
incidental
to
its customs, public o
existence
order
Can
transact In the absence o
business
only any agreement, an
though the Board of partner can bind th
Directors
partnership
It
has
right
of None. It is based o
succession
trust & confidence.
SH
can
transfer, A partner canno
TYPE THE DOCUMENT TITLE 1
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MJGAMBON
share, assign his
shares without the
consent of the other
Liability is limited to
the extent of their
subscription
T,S,A without
STOCK
theCORP
NON-STOCK CORP
consent of the
other
Exists primarily for profit. Thus, Does not exist primarily fo
any profits gained can be profit. Thus, profits obtaine
LIABILITY
Liable pro rata
distributed
with
as dividends among cannot
be
distributed
a
all their property
stock holder except for corporate dividends BUT they are used fo
except
expansion
limited
necessary for the the furtherance of their purpose
partnership sustenance of the corporation.
DISSOLUTION
Consent of the State Mere agreement to
is
necessary
to dissolve
CIR VS.
theCLUB FILIPINO, INC. DE CEBU
dissolve
partnership (non-stock
is
corporation)
sufficient
Club that derived profits from the operation of
its bar and restaurant does not necessarily
I. CLASSES OF CORPORATION
convert it into profit making enterprise. The bar
and restaurant are not necessary adjunct of the
1. STOCK CORPORATION corporations which have
club to foster its purpose and the profits derived
capital stock divided into shares and are
therefrom are necessarily incidental to the
authorized to distribute the holders of such
primary object of developing and cultivating
shares, dividends or allotments of the surplus
sports for the healthful recreation and
profits on the basis of the shares held.
entertainment of the SH and members.
2. NON - STOCK CORPORATION are those where
What is determinative of whether or not the
no part of their income is distributable as
Club is engaged in such business is its object or
dividends to its members, trustees or officers
purpose as stated in the AOI or by-laws.
subject to the provisions on dissolution.
CORP CREATED BY SPECIAL LAW OR CHARTER (sec. 4
CCP)
STOCK CORP vs. NON-STOCK CORP
Sec. 4. Corporations created by special laws or

charters.Corporationscreatedbyspeciallawsor
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charters shall be governed primarily by the
provisions of the special law or charter creating
them or applicable to them, supplemented by the
provisions of this Code, insofar as they are
applicable.
All GOCCs, operate under the special law or

charter such that registration with SEC is not
required for them to acquire legal and juridical
personality.
PNOC-ENERGY DEVT CORP vs. NLRC
Under the former rule, employees of GOCC,

whether created by special law or under the
General Corporation Law are governed by the
Civil Service Law and not by the Labor Code.
Under the present rule, the test in determining
whether a GOCC is subject to the Civil Service
Law is the manner of its creation, such that
government corporations created by special
charter are subject to its provisions while those
incorporated under the General Corporation law
are not within its coverage.
o Corp created by special charter (has
chater of its own) governed by such
charter
o Corp created under Corp Code governed
by such Code.
II.
OTHER CLASSES OF CORPORATIONS
A. Private and Public Corporation

Private Corp those formed for some private
purpose, benefit, or aim. They are created for the
immediate benefit and advantage of the individuals
composing it and their franchise may be considered as
privileges conferred by the State to be exercised and
enjoyed by them in the form of corporation.
Public Corp those formed or organized for the
State or any of its political subdivisions and which
have for their purpose the general good and welfare.
Those created by the State as its own device

and agency for the accomplishment of its own
public purpose.
The following instances are NOT ipso facto public

corporation:
Mere fact that the undertaking in which the corp
is engaged in is one which the State itself might
enter into as part of its public work;
Fact that the State granted property or special
privileges to a corp doesnt render it public;
Stocks in the corp are held but the governement
doesnt make it public.
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TRUE TEST of the nature of the corporation whether

public or private is found in relation of the body to the
State.
NATIONAL
REVENUE
COAL
vs.
COLLECTOR
OF
INTERNAL
The mere fact that the government happens to

be a majority stockholder doesnt make it a
public corporation.
B. Ecclesiastical or Religious and Lay Corporations

Ecclesiastical Corp are comporsed exclusively of
ecclesiastics organized for spirtual purposes or for
administering ptoprties held for religious ones.
Lay Corp are those established other than religion.
They exist for secular or business purpose and may be
classified further as eleemosynary or civil.
i. Eleemosynary Corp created for charitable and
benevolent purpose, i.e those organized for
maintaining of hospitas amd houses for the sick
or aged or poor.
ii. Civil Corp organized not for the purpose of

public charity but for the benefit, pecuniary or
otherwise, of its members.
C. Aggregate and Sole Corporations

Aggregate Corp those composed of number of
individuals vested with corporate powers
Sole Corp those that consist of one person only and
who is made as bodies corporate and politic in order
to give them some legal capacity and advantage
which they cannot have. (sec 110 CCP)
It is formed by the chief archbishop, bishop, priest,
minister, rabbi, or other presiding elder of religious
denomination or sect.
D. Closed and Open Corporations

Closed Corp those whose shares of stock are held by
limited number of persons like the family or other
closely-knit group. (limited SH) sec 96 CCP
Limitation:
i. Not more than 20 specified persons
ii. Cannot sell or transfer its share to the general
public
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NOTE: i & ii must be stated in the AOI in order to be
considered as Closed Corp.
Open Corp formed openly to accept outsiders as SH
or investors. Unlike Closed Corp, they are authorized
to list in the stock exchange and offer their shared to
the public.
E. Domestic and Foregin Corporations

Domestic Corp those that are organized under the
Philippines laws, either by legislative act (special law)
or under the general provision of the Corporation Law.
Foreign Corp those formed or organized under any
laws laws other than those of the PH and whose law
allows Filipino citizens and corp to do business in its
own country.
F. Parent or Holding Companies and Subsidiaries

and Affiliates
Parent or Holding Companies corp that confine their

acitvites to owning stock in, and supervising
management of other companies.
It usually owns a controlling interest in the
companies whose stocks it holds. Thus, it control
its subsidiaries with regard to the power and
authority to elect management.
Investment Companies, on the other hand, are
active in the sale or purchase of shares of stock ot
securities, parent or holding companies have a
passive portfolio and hold the securities merely for
purposes of control and management.
Subsidiary Corp those which another corp owns
atleast majority of the shares, thus have control.
In effect, it is a corp under the control of another corp
which is the holding company.
Affiliates or Sister Companies are corporation
which are subject to common control and operated as
part of a system since the stockholdings of a corp is
not substantial enough to control the former.
NOTE: A subsidiary has an independent and
separate juridical personality, distinct from that of its
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parent company hence any claim or suit against the
latter does not bind the former and vice versa.
G. Quasi and Quasi-public Corporations

Quasi Corp the term applies to public bodies or
municipal societies, i.e. townships, countries school
districts, road or highway district, though not vested
with the general powers of the corp.
They possess some corporate functions and
attributes but they are PRIMARILY POLITCAL
SUBDIVISIONS and their corporate functions are
granted to enable them more readily to perform
their public duties.
Quasi-Public Corp (known as public service
corporations) private corp that have been acceted
from the State the grant of frnachise or contract
involving the performance of public duties.
H. De Jure and De Facto Corporations

De Jure Corp juridical entites created in the
strict/substantial compliance with the statutory
requirement of incorporation and whose rights to
exists as such cannot be attacked even by the State in
a quo warranto proceedings.
De Facto Corp those exist by virtue of an irregularity

in the organization or from some omission to comply
with the condition precedents by which the de jure
corpo are created, BUT there was a colorable
compliance with the requirements of law under which
they might lawfully incorporated. Its existence can be
attacked by a direct action of quo warranto
proceedings.
Requisites for De Facto Corp: (C-U-Gf)
i. An attempt, in GF, to form a corp or a colorable
compliance with law;
ii. A user of corporate powers;
iii. Good faith in claiming to be and doing business
as a corp.
Purpose of Recognition of De Facto Corp:
It is necessary to promote the security of
business
transactions
and
to
eliminate
arguments over the irregularities.
MUNICIPALITY OF MALABANG vs. BENITO
In cases where a de facto municipal corp was

recognized as such despite the fact that the
statute creating it was later invalidated, the
decision could fairly be made to rest on the
consideration that there was some other valid
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law giving corporate vitality to the organization.

DE FACTO (Pelaez case)
persons to deal with it as such are estopped to deny

the representation to their prejudice.
On the other hand, the mere fact that a

municipal corp was organized at the time when
the statue had not been invalidated cannot
conceivable make it a de facto corporation as
there is NO other valid statue to give color of
authority to its creation. (check Ladia book)
EXCEPTION: SALVATIERRA vs. GARLITOS when there

is fraud in the transaction.
I. Corporations by Estoppel (sec 21 CCP)

All persons who assume to act as a corp knowing it to
be without authority to do so shall be liable as general
partners for all debts, liabilities and damages incurred
or arising as a result thereof. PROVIDED, however, that
when any such ostensible corporation is sued on any
transaction entered by it as a corp or on any tort
committed by it, it shall NOT be allowed to use as a
defense its lack of corporate personality.
those which are do defectively formed as NOT
EITHER de jure or de facto corp BUT which are
considered as corp in relation only to those who
cannot deny their corporate existence due to
their agreement, admission, or conduct.
GR: those who participate in holding out an
association as a corporate body and thereby induced
TEST to determine WON the agents of the association

are estopped is when the acts relied upon must be
equivalent to a representation or admission of
corporate existence.
** AS TO THIRD PARTIES contracting with a pretended
corporation is estopped to deny its existence in a suit
filed by the alleged corp to enforce the contract. It is
because a party who enters into a contract with an
assumed corp may be considered to admit it to be a
corporation.
The Doctrince of Estoppel applies against a third party
only when he tries to escape liability on a contract
from which he has benefited on the irrelevant grounds
of defective corporation. (INTERNATIONAL EXPRESS
TRAVEL & TOURS SERVICES, INC. vs. CA)
LOZANO vs. DELOS SANTOS
Corporation by estoppel is founded on the
pronciple of equity and is designed to prevent
injustice and unfairness.
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It applies when persons assume to form a

corporation and exercise corporate functions
and enter into business relations with the third
persons. Where there is NO third person
involved and the conflict arises only among
those assuming to form a corp, who has
knowledge that it has not been registered, there
is NO corp by estoppel.
denying the same in an action arising out of

such transaction YET this doctrine is NOT
applicable where fraud takes part in the said
transaction.
ALBERT vs. UNIVERSITY PUBLISHING CO., INC.
One who has induced another to act upon his

willful misrepresentation that a corp was duly
organized and existing under the law, cannot,
thereafter set up against his victom the principle
of corp by estoppel.
Thus, a person acting or purporting to act on
behalf of a corporation which as no valid
existence
assumes
such
privileges
and
obligations and becomes personally liable for
contracts entered into or for other act performed
as such agent.
SALVATIERRA vs. GARLITOS (exception to the rule)
While as GR a person who has contracted with

an assoc in such a way as to recognize its
existence as a corporate body is estopped from
A corp cannot be held liable for the personal

indebtedness of a SH even if he should be its
president and conversely, a SH cannot be held
personally liable for a financial obligation by the
corp in excess of his unpaid subscription.
(Doctrine??)
ASIA BANKING CORP vs. STANDARD PRODUCTS CO.,

INC.
In the absence of fraud, a person who has

contracted or otherwise dealt with an
association in such a way as to recognize and in
effect admits its legal existence in any action
leading out or involving such contract unless its
existence is attacked for causes which have
arisen since making the contract or other
dealing relied on as an estoppel and this applies
to both foreign or domestic corp. (Doctrine of
Estoppel applies to both domestic or foreign
corp, in the absence of fraud)
GEORG GROTJAHN GMBH & CO vs. ISNANI
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The doctrine of estoppel applies to BOTH foreign

and domestic corp.
If the corporation by estoppel exists and enter into a

contract with a third party, the latter has 3 possible
REMEDIES:
i. File suit against the ostensible corporation to
recover from the corp properties;
ii. File the case directly against the associates
personally who held out the association as
association as a corp; and
iii. Against BOTH the ostensible corp and persons
forming it, jointly and severally.
III.
FORMATION
CORPORATION
AND
ORGANIZATION
STAGES IN THE LIFE OF CORPORATION (C-R-D)

i. creation;
ii. reorganization or quasi-reorganization; and
iii. dissolution and winding up.
For purposes of creation, there are 3 stpes: (P-I-O)
1. Promotion
2. Incorporation
3. Organization and Commencement of Business
OF
PROMOTIONAL STAGE is undertaken by the

organizers or promoters who bring together persons
interested in the business venture.
Question is who is liable on these contracts?
Generally, promoters will be held personally liable on
contracts made by him for the benefit of a corp he
intends to organize. This liability CONTINUES even
after the contemplated corporation is formed UNLESS
there is NOVATION or other agreement to release him
from liability.
REASON: Promoters could not act for a projected
corporation since that which had no legal existence
could have no agent.
(A corp is deemed to exist upon issuance of the AOI by
the SEC)
EXCEPTION TO THE RULE:
i. He may make a continuing offer on behalf of the
corp, which if accepted, will become a contract;
ii. The promoter may make a contract at the time
binding himself, with the understanding that if
the corp, once formed, accepts the contract, he
will be relieved of responsibility;
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iii. The promoter may bind himself personally and
assume the responsibility of looking to the
proposed corp when formed, for reimbursement.
PROCESS OF INCORPORATION
(drafting preparation submission filing issuance)
It includes the drafting of AOI, preparation and
submission of additional and supporting documents,
filing with the SEC and the subsequent issuance of the
Certificate of Incorporation.
CONTENTS of AOI (sec 14 CCP)
i. Name of the corp;
ii. Specific purpose/s for which the corp is being
incorporated. Provided, a NONSTOCK corp may
not include a purpose which would change or
contradict its nature as such;
iii. Place where the principal office of the corp is to
be located;
iv. Term for which the corp is to exist BUT not
exceeding 50 years;
v. Names,
nationalities
and
residences
of
incorporators;
vi. Numberof directores/trustees which shall not be
less than 5 but not more than 15;
vii.Names, nationalities and residences of the

persons who shall act as directors/trustess until
the first regular directors/trustees are duly
elected;
viii.
If its STOCK CORP, the amount of
authorized capital stock (ACS) in PH currency,
number of shares into which it is divided, and IN
CASE OF PAR VALUE SHARES, the par value of
each, the names, nationalities and residences of
original subscribers, and the amount subscribed
and paid by each on his subscription, and if
some or all of the share are without par value,
such fact must be stated;
ix. If its NON STOCK, the amount of its capital, the
names,
nationalities
and
residences
of
contributors and the amount contributed by
each; and
x. Such other matters as not inconsistent with law.
Also, SEC shall NOT accept AOI of any stock corp
UNLESS accompanied by a sworn statement by the
treasurer elected by subscribers showing that:
i. 25% of the ACS of the corp has been subscribed,
and
ii. at least 25% of the total subscription has been
fully paid to him in actual cash and/or in
property the fair valuation of which is equal to at
least 25% of the said ubscription,

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iii. such paid up capital being not less than 5K
pesos.
CORPORATE NAME: (sec 18 CCP)
b.
NOTE: A corporation, once formed, cannot use any

other name, unless it has been amended in
accordance with law as well as difficulties of
administration and supervision.
c.
RATIONALE OF SEC 18:

d.
Avoidance of fraud upon the public which would

have the occassion to deal with the enitity
concerned;
Avoidance of the evasion of legal duties and
obligations;
Reduction of difficulties of administration and
supervision over corporations.
LIMITATION IN
(GUIDELINES)
THE
e.
f.
USE OF CORPORATE NAMES
a. the law requires the corp to append the

word
Corporation/Incorporated
or
Corp/Inc. to its proposed name;
-corp shall be used if the business
has not yet been in operation.
g.
h.
- inc shall be used if the business

is
already
in
operation
and
subsequently
converted
to
corporation. (noted by: mj)
if the proposed name contains a word
already used as part of the firm name, the
proposed name must contain TWO OTHER
WORDS different and distinct from the
name of the company already registered;
name or surname is used as part of corp
name, there must be a basis for the use of
such name;
if the name used is that of another person,
consent of the latter or his heirs must be
secured and submitted to SEC;
if the corp name contains initials, the
meaning thereof must be indicated in the
verification slip or explanation to the
effect that it is merely a coinage and no
meaning at all;
if the corp is a subsidiary of a foreign
entity, the word Philippines/Phils must
be attached in the corp name;
the word State, Maharlika and Barangay
CANNOT be used as part of a business
name
because
they
are
reserved
exclusively for government use;
Banking Laws prohibit the use of word
Banks, Banking, Bankers and Buildind

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Loans Association or word of similar
import UNLESS duly licensed by the
Monetary Board of BSP.
EXCEPTION: Philippine National Bank
(BNP) because it was created by the law
itself. It is a GOCC.
i. Rural Bank Act prohibits the use of the
word Rural Banks as part of the corp
name UNLESS authorized to use the same;
j. Act No. 6212 disallows the use of
National as part of corp name DOING
BUSINESS AS BANKERS, BROKERS OR
SAVING INSTITUTIONS. However, heroes
may be allowed provided it is NOT national
heroes;
k. RA 8556 prohibits the use of the words
Finance and Financing unless the
entity is to be organized as such under the
said law;
l. For commercial or business purpose, it
prohibits the use of the words United
Nations or Bureau either full or
abbreviated form;
m. RA 1582 reserves the exclusive use of the
words Engineers and Architects for
professional partnership;
n. SEC prohibits the use of the word design
or designers IF the ENTIRE corp name
would confusingly signify that

engaged in technical concern.
it
is
RED LINE TRANSPORTATION CO. vs.. RURAL TRANSIT

CO.
The law gives a corporation NO express or

implied authority to assume another name,
which is set apart from it and protected by law.
Otherwise, if any corp could assume at pleasure
as an unregistered trade name, the name of
another corp, this practice would result in
confusion of administration and supervision.
UNIVERSAL
MILLS, INC.
MILLS
CORP
vs.
UNIVERSAL
TEXTILE
Universal Textile Mills, Inc and Universal Mills

Corp, are they confusingly similar?
They are NOT identical BUT they are confusingly
similar because they have SIMILARITY of
PURPOSE under the 2nd amendment of its AOI.
LYCEUM OF THE PHILS INC vs. CA
Doctrine of Secondary Meaning it is a

word/phrase originally incapable of excussive?
appropriation (usually generic) with reference to
an article in the market, because of
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geographically or otherwise descriptive, might
nevertheless have been used so long and so
exclusive 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
become to mean that the article was his
product.
PHILIPS EXPORT B.V. vs. CA
General Rule, each corp must have a name by

which it s to sue and be sued and do all legal
acts. A corp can no more use a corp name
already acquired so as to mislead the public and
injure another.
To come within the scope, 2 requisites must be
proven:
o That the complainant acquired PRIOR
RIGHT OVER THE USE OF SUCH CORP
NAME;
o The proposed name is either:
(I-D/C similar-P deceptive)
i. Identical;
ii.
Deceptively or confusingly similar to
that of any existing corp; and
iii.
Patently deceptive, confusing and
contrary to law.
As to the 1st requisite, the right to the

exclusive use of a corp name is determined by
PRIORITY OF ADOPTION.
As to the 2nd requisite, the determination of
existence of confusing similarity in corp names is
(TRUE TEST) whether the similarity is such as to
MISLEAD a person using ordinary care and
discrimination. (Proof of actual confusion need not be
shown. It suffices that confusion is probably or likely
to occur.)
AMENDMENT OR CHANGE OF CORP NAME
EFECTS: Any change upon a corporate identity
or name does not affect the rights of the corporation
or lessen or add to its obligations. A mere change in
the name of the corp, either by legislative act or by
the SH does not affect the identity of the corp. Thus,
it is in NOT a new corp nor the successor of the
original corporation. It is the SAME corporation with
different name, and its character is NOT changed.
The power to amend the charter necessarily includes
power to alter/change the name of the corp subject to
the limitation imposed by law and rules & regulation
implementing the same.
Amendment of AOI which are governed by
special law, there must be a favorable

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recommendation from the appropriate govt
agency. (sec 17 CCP, last paragraph)
NOTE: If the act done is not those in the purpose

clause or under the doctrine of limited capacity, the
act is ultra vires.
PHILIPPINE INSURANCE CO. vs. HARTIGAN

Reasons for requiring the purpose clause:
A change in the corporate name does not make

a new corp. It has no effect on the identity of the
corp, or on its property rights or liabilities. The
corp continues responsible in its new name for
all debts or other liabilities which it had
previously contracted or incurred.
THE PURPOSE CLAUSE

The statement of the objects or purpose or
powers in the charter (AOI) results practically in
defining the scope of the authority of the corporate
enterprise.
Doctrine of Limited Capacity or Theory of
Special Capacities
-- no corporation shall possess or exercise any
corporate powers, EXCEPT those:
i. conferred by law (express);
ii.
those implied from express powers; and
iii.
those as are necessary or inicidental to the
exercise of the powers so conferred.
1. in order that the SH shall know within what lines

of business his money is to be put at risk; (SHs
money put at risk)
2. so that the Board of Directors (BOD) and
management may know within what lines of
business they are authorized to act (BODs
authority to act);
3. so that anyone who deals with the company
may ascertain whether a contract or transaction
into which he contemplates entering is one
within the general authority of he management.
(anyone may ascertain if the corp is acting
within
the
general
authority
of
the
management.)
NOTA BENE:
No limitation as to number of purpose BUT

theres a guideline provided if theres more than
one purpose (sec. 14 CCP) Also, such purpose
must be lawful. Hence, the SEC is duty bound to
determine the legality of the purpose/s before it
issues the certificate of registration.

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A corporation may NOT be formed for the

purpose of practicing a profession, i.e. law,
medicine or accountancy. They are reserved
exclusively for professional partnerships.
Carriage of mails CANNOT be a purpose of

corporation UNLESS a special franchise has been
granted to it.
The RETAIL TRADE BUSINESS shall exclusively

belong to
Filipinos where the corporate
capital is less than $2.5M or its peso
equivalent. However, exact $2.5M foreigners
are allowed to incorporate.
Corp with foreign equity are NOT allowed to
engage in the restaurant business BUT a corp
with such foreign equity can pursue such
undertaking IF IT IS INCIDENTAL or inconnection
with HOTEL or INN-KEEPING BUSINESS.
Management consultants, advisers
and/or
specialist must submit the personal information
sheet of the incorporators and directors in order
that SEC may be able to determine WON the
applicant corp is qualified.
For bonded warehousing companies, an

undertaking to comply with the General Bonded
Warehousing Act must be submitted along with
the AOI.
PRINCIPAL OFFICE (sec 14 CCP)

Principal office must be located within the PH. It
must also indicated in the AOI (complete address). The
law, however, does not require a statement as to the
place of corporate operations and, therefore, may be
dispensed with.
Purpose of statement of the location of the principal
office:
1. Necessary as to where the chattel mortgage of
shares should be registered (registration of
chattel mortgage);
2. Venue of actions;
3. Service of summons; and
4. Determination of validity of meeting of SH or
members.
CLAVECILLA RADIO SYSTEM vs. ANTILLON

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Service of summons must be given to those

specified under the law and in the principal
office of the corp. In case given to the proper
officer BUT NOT in the prinicipal office NOT
VALID. (i.e. residence of the President of the
corp not valid)
TERM OF EXISTENCE
As a rule, a corporation can sue or be sued and
transact its business only while it possesses a juridical
personality. Once it ceases to exist, its legal
personality also expires and could not thereafter, act
in its own name for the purpose for of prosecuting its
business.
EXCEPT For purposes of:
1. prosecuting and defending suits for or against it;
and
2. by enabling t gradually settle and close its
affairs. (liquidation purposes, 3years limitation
of its it ceased to exist).
A corporation shall EXIST for a period of 50 yrs, in
the absence of express terms of duration in the AOI. It
may, however, be extended for another 50yrs by any
single instance by amendment of AOI PROVIDED no
extension can be made earlier than 5yrs prior to
the original or subsequent expiry date UNLESS there
are justifiable reasons for an earlier extension as may

be determined by SEC.
Procedure for amendment of corp term (ordinary
amendment)
1. approval by majority vote of the BOD;
2. written notice of the proposed action and time
and place of meeting shall be served to each SH
either by mail or personal service;
3. ratification by SH representing at least 2/3 of the
OCS;
4. in case of extension, no extension can be made
earlier than 5 yrs EXCEPT for justifiable reasons
for earlier than 5 yrs.
5. In case of extension, the dissenting SH may
exercise its appraisal right under the conditions
prescribed in sec 81&82.
ALHAMBAR CIGAR & CIGARETTE MFG. CO. INC vs. SEC
The privilege of extension is purely statutory.

As a rule, the corp is ipso facto dissolved as
soon as the time expires. So where the
extension is by amendment of the AOI, the
amendment must be adopted before that time.
When the corp life of the corp was ended, there
was nothing to extend.
INCORPORATORS and CORPORATORS

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Corporation Code
MJGAMBON
Incorporators are those SH or members mentioned in

the AOI as originally forming and composing the corp
and who are signatories thereof.
investment purposes, nationality requirement is

necessary. nationality of the controlling SH.
(Commercial Law Review, Sundiag p. 169)
DIRECTORS and TRUSTEES
Corporators are those persons who compose the corp

at any given time and need not be among those who
execute the AOI at the start of formation.
NOTE: An incorporator may be considered as
corporator provided he continues to be a SH or
member BUT not all corporators are incorporators.
A minor can be a corporator provided they are

represented
by their
guardian.
Also
a
corporation may likewise be a corporator, i.e.
holding companies.
RULE: A corporation, however, CANNOT be an
incorporator
for the law provides that
incorporators must be NATURAL PERSONS. (NOT
ABSOLUTE)
EXCEPTION:
cooperatives
and
corporation
primarily organized to hold equities in rural
banks.
The law does not provide for citizenship

requirement BUT only residency requirement.
Except in cases of:
(1) war and for (2)
GENERAL RULE (GR): AOI must indicate the number of

directors or trustees which shall not be less than 5 but
not more than 15.
EXCEPTION:
1. non-stock educational corporations though not
less than 5 but not more than 15 SHOULD BE
DIVISIBLE BY 5;
2. close corp where all SH are considered as
members of BOD thereby ALLOWING 20
MEMBERS in the board (20 person max
corporators);
3. sole corporation (only one).
QUALIFICATION of directors/trustess in domestic corp:
1. Every director must own atleast 1 share of
capital stock of the corp which he is a director,
which share shall stand in his name in the books
of corp;
2. Majority of the directors/trustessof all corp must
be residents of the PH. (in cases of aliens,
residency requirement must be satisfied except
corp exclusively reserved for Filipinos, .i.e Retail

7
Corporation Code
MJGAMBON
Trade Business capital less than $2.5M or its
peso equivalent)
NOTE: Every alien may be elected as director provided
the residency requirement is met. Aliens, however,
may not qualify as directors or elected as such if the
corp is exclusively reserved to Filipino citizens.
Subscribed Capital Stock means total number of

shares and its total value for which there are contracts
for their acquisition/subscription.
Paid Up Capital Stock/Paid-in Capital Stock actual
amount which has been actually contributed or paid to
the corp in consideration of the subscription made
thereon.
DISQUALIFICATIONS: (NOT ABSOLUTE)

Consideration of Stock (sec 62 CCP)
No person (1) convicted of final judgment of an
offense punishable by imprisonment for a period of
6years or (3) a violation of this code committed
within 5 years PRIOR to the date of his
election/appointment shall qualify as director, trustee,
or officer (DTO) of any officer.
NOTE: Dis/Qualifications are not absolute. It may ,
however, be subject to additional disqualification
provided it is in the by-law of the corp.
CAPITALIZATION:
Authorized Capital Stock (ACS) maximum amount
fixed in the AOI to be subscribed and paid by the
subscribers. OR the maximum number of shares the
corp can issue.
1. Actual cash paid;

2. Property received by the corp & necessary for its
use at a fair valuation;
3. Labor performed to the corp;
4. Previously incurred indebtedness by the corp;
5. Amounts transferred from unrestricted retained
earnings (URE) to stated capital;
6. Outstanding shares in exchange for stocks in the
event of reclassification.
NOTE: Promissory notes and future services are
NOT allowed to be used as consideration for the
issuance of shares as their realization are NOT certain.
NOTE: Where the consideration is other then cash or
consist of intangible property, the valuation thereof
shall be determined by the incorporators or the BOD,
subject to the approval of SEC.

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Corporation Code
MJGAMBON
The value of tangible properties may be determined

either by means of:
1. Appraisal report of independent appraiser;
2. Zonal valuation; or
3. Market value indicated in the Real Estate Tax
Declaration.
NOTE: Set off or satisfaction of debt due from

corp is a lawful and valid consideration for the
issuance of stock as provided in the Code.
The value of intangible properties shall initially

determined by the:
1. Incorporators;
2. BOD subject to the approval of the SEC.
ISSUE PRICE OF NO PAR VALUE SHARES may be fixed

in:
1. AOI;
2. By the BOD pursuant to the authority conferred
upon it by AOI;
3. By-laws;
4. In the absence thereof, by the SH representing
atleast majority of OCS
The SEC is NOT precluded from requiring the corp to

submit an appraisal report of an independent
appraiser to determine the true value of said property.
Labor performed may also be the basis for the
issuance of stocks as long as they are capable of
valuation and are fairly valued.
True Value Rule motives or intent of those making
the valuation are disregarded and the sole and
decisive factor question is WON the property or
services are in fact worth the value placed on them.
Good Faith Rule is based on the proposition that the
value of property or services is a matter about which
there can be an honest difference.
Shares of stock shall not be issued in exchange

of PN or future service
Shares of Stock interest or right which the owner has

in the management of the corp and in the surplus
profits and, in case of dissolution, in all of its assets
remaining after the payment of its debts.
NOTE: Corporations are NOT required to classify the
shares. The only purpose of classifying the shares is to
insure the compliance with constitution or legal
requirement.
** No share may be deprived of voting rights EXCEPT:
1. those classified and issued as preferred ; and

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Corporation Code
MJGAMBON
2. redeemable shares; UNLESS the issuance of
founder shares. 1 & 2 has no voting rights
except sec 6 CCP
Provided further, there shall always be a class of share
which have complete voting rights. (please refer to
sec 6 CCP) The following are instances when NONVOTING shares MAY VOTE:
1. amendment of AOI;
2. adoption and amendment of by-laws;
3. increase/decrease of capital stock;
4. sale or disposition of all or substantially all of
corporate property;
5. merger/consolidation of corp;
6. investments of funds in another corp;
7. corp dissolution.
Purpose of Classification of Shares:
1. to specify and define the rights and privileges of
the SH;
2. for regulation and control of the issuance of
shares of stock;
3. as a management control device;
4. to comply with the statutory requirements (as
to nationalize industries);
5. to better insure return on investment which can
be affected through the issuance of redeemable
shares or preferred shares;
6. for flexibility in price.

Common Stock:
i. most commonly issued shares of stock of a
corporation;
ii. one which entitles its owner to an EQUAL PRO
RATA division of profits;
iii. It usually carries the right to vote.
Preferred Stock:
i. stock that gives the holder the preference over
the holder of common stocks with respect to
payment of dividends and/or the distribution of
capital upon liquidation;
ii. no voting rights EXCEPT sec 6 CCP;
iii. They are presumed non-participation. Thus, no
right over common shares beyond their stated
preference.
Preferred Share are subject to LIMITATIONS:
1. Can be issued only with stated par value;
2. Preference must be stated in the AOI and in the
certificate of stock. Otherwise, pro-rata or equal
sharing.
COMMULATIVE PREFERRED SHARES OF STOCK those
that entitle to the owner thereof to the payment not
only of current dividends BUT also back dividends not

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Corporation Code
MJGAMBON
previously paid whether or not during the past years,
dividends were paid or declared.
NON-COMMULATIVE PREFERRED SHARES those
which grant the holders of such shares only to the
payment of current dividends BUT not back dividends.
GR: Under the PH jurisdiction, shares of stock are
presumed NON-COMULATIVE because under the
express provision of law that shares are presumed to
be equal in all respects UNLESS otherwise stated in
the AOI and in the certificate stock.
EXCEPTION: In order to be cumulative, the same must
be expressly provided in the AOI and certificate of
stock.
EARNED
CUMULATIVE
DIVIDEND CREDIT TYPE
In effect, it gives the preferre

SH the right to annual profi
and leave the directors n
discretion
to
withho
dividends.
OR Gives the holder the right t
arrears in dividends IF ther
were profits earned during th
previous years BUT dividend
were not declared.
Cumulative Shares vs Dividend Credit Type
CUMULATIVE SHARES
DIVIDEND CREDIT TYPE
Entitles to back dividends which Entitled to dividends which wer
Principal Types of NON-Cumulative Preferred
were DECLARED
NOT DECLARED
Shares of Stock:
Entitles the holder to dividends Profits
were
earned
BU
which were declared
dividends were not declared
DISCRETIONARY DIVIDEND TYPE
Gives the holder of shares the
right to have the dividends paid
thereon in a particular
PARyear
and NON-PAR VALUE SHARES
depending on the judgment or
discretion to the BOD. Par Value Shares those whose value is fixed in the
MANDATORY IF EARNED TYPE
Impose a positive duty
AOI. on
directors to declare dividends
every year when profits
are
Function:
earned.

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Corporation Code
MJGAMBON
1. To fix the minimum subscription OR original
issue price of the shares; and
2. Indicates the amount, which the original
subscribers are suppose to contribute to the
capital as the basis of the privilege of profit
sharing with limited liability.
NOTE: the par value indicated in the AOI and
certificate of stock MAY NOT be the true value of the
shares BECAUSE the same may fluctuate depending
on the liability and net worth of the corp.
Thus, to arrive at a TRUE VALUE of the shares,
determination of the net worth must be made and
dividing the same by the number of outstanding
shares.
No Par Value Shares issued price are not stated in
the certificate of stock BUT which may be fixed in the
AOI or by the BOD when so authorized by the said AOI
or by-laws. In the absence thereof, by the SH
themselves.
Limitation to the Issuance of NO par value
shares:
a. Shares, once issued, are deemed fully paid.
Thus, non-assessable;
b. Consideration for its issuance should not be less
than 5 pesos;
c. The entire consideration for its issuance

constitutes capital. Hence, not available for
dividend declaration;
d. They cannot be issued as preferred shares;
e. They cannot be issued by banks, trust
companies, insurance companies, public utilities
and bldg. and loan association.
Advantages of issuance of No par value shares:
i. Flexibility in price EXCEPT only that it shall not
be issued at less than Php5;
ii. Results to evasion of the danger of liability upon
watered stock;
iii. Since they are deemed fully paid and nonassessable, there is a disappearance of personal
liability on the part of the holder thereof for
unpaid subscription.
FOUNDERS SHARES (sec 7 CCP)
REDEEMABLE SHARES those issued by a corp subject
to redemption as may be provided by the terms of
subscription contract. (sec 8 CCP) (may be redeemed
through purchased or taken up by the corporation
upon the expiration of a fixed period, regardless of the
existence of unrestricted retained earnings in the
books of the corporation)
2 Types of Redeemable shares:

2
Corporation Code
MJGAMBON
i. Optional;
ii. Mandatory.
GR: A corp may acquire its own shares if it has an
URE.
Exception: Redemption of redeemable shares.
TREASURY SHARES are shares of stock which have
been issued and fully paid for, but subsequently
reacquired by the issuing corp by PURCHASE,
REDEMPTION, DONATION, or through some OTHER
LAWFUL MEANS.
Shares in treasury (while in treasury), they have

NO votiong right BECAUSE they are NOT
considered as outstanding shares. If they are
reissued, however, they can already vote.
GR: Corps are NOT REQUIRED to provide restriction or

preferences in the transfer of shares in AOI.
If the corp would want to put restriction, it must

be indicated in the AOI and stock certificate.
Failure to do so, such restriction/preferences
would not bind the purchser in GF even if its
indicated in the by-laws.
EXCEPTION: In CLOSE CORP they are REQUIRED to

provide restriction and preferences. It must be stated
in the AOI, stock certificate and by-laws. Otherwise, it
will not bind purchaser in GF.
Purpose of restrictions and preferences:
May serve as protection of the corp and SH
thereof from other persons.
CAPITAL REQUIREMENT (sec 12 & 13 CCP)
25% of ACS in the AOI must be subscribed at the

time of incorporation.
25% of the TOTAL SUBSCRIPTION must be paid
upon subscription. The balance shall be paid in
installments in the fixed dates in the contract of
subscription. In the absence thereof, upon CALL
for the payment by the BOD.
NO TRANSFER CLAUSE
It must be included in the AOI

It is necessary in a nationalized corp or those
corp engage in the activity reserved, fully or
partially, to citizens of the PH.
In order to enable the State to determine
whether such a corp would contribute to the
sound balance development of the PH economy.

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Corporation Code
MJGAMBON
EXECUTION CLAUSE
Part of the AOI where the incorporators sign the

document with an indication as to where it was
signed and when the same was executed.
The signatures of the incorporators as witnessed
by two disinterested persons are important as
the AOI serves as a contract between the
signatories thereof, by and among themselves,
with the corp, and the latter with the State. (3
Fold Contract)
d. Percentage of ownership has not been complied

with as required by existing laws or the Consti.
COMMENCEMENT OF CORPORATE EXISTENCE
GR: Corp commences to exist is RECKONED at

the time of issuance of its certificate of
incorporation.
EXEPT: Corporation Sole commence to exist
upon filing of verified AOI and other documents
required.
CAGAYANG FISHING DEVELOPMENT vs, SANDIKO

GROUNDS FOR DISAPPROVAL OF AOI (sec 17 CCP)
The SEC may reject the AOI if the same is not in
compliance with the requirements set by law.
PROVIDED that the commission shall give the
incorporators a reasonable time within which to
correct/modify the objectionable portion of the AOI.
The following are GROUNDS FOR DISAPPROVAL: (NOT
EXCLUSIVE)
a. AOI is not substantially in accord with the
prescribed form;
b. Purpose
of
the
corp
are
patently
unconstitutional, illegal, immoral and contrary to
govt rules and regulation;
c. Treasurers Affidavit is false;
The sale made by Tabora to plaintiff company

was effected on May 31, 1930 at a time the said
company was not yet incorporated. It was so
incorporated only on October 30, 1930.
A corporation shold have a full and complete
organization and existence, as an entity BEFORE
it can enter into contract or transact business
would seem to be self-evident. A corp, until
organized, has no being, franchises or faculties.
Nor do those engaged in bringing it into being
have any power to bind it by contract, unless so
authorized by the charter, there is no corp, nor
does it possess franchise or faculties for it to
exercise , until it acquires full existence.

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Corporation Code
MJGAMBON
ORGANIZATION AND COMMENCEMENT OF BUSINESS
(sec 22 CCP)
A. CORPORATE ORGANIZATION
Formal Organization refers to the process of
structuring the corporation to enable it to effectively
pursue the purpose for which it was organized.
corp powers CEASE and the corp shall be

DEEMED DISSOLVED.
If a corp has commenced the transaction of its
business but continuously inoperative for a
period of at least 5YRS, the same shall be a
ground for the suspension or revocation of its
corp franchise or cert of registration.
It includes the following:

1. Organizational meeting of the SH to elect it
BOD;
2. Adoption of by-laws, if not simulatenously filed
with AOI, and its subsequent filing with the SEC
must be within 1 month from the issuance of
incorporation;
3. Organizational meeting of the BOD elected to
elect the corp officers, adoption of corp seal,
accepting
pre-incorporation
subscriptions,
establishing
principal
office,
and
other
necessary steps to transact legitimate business.
NOTE: Does NOT APPLY (EXCEPTION) if the failure to

organize, commence, or fails to continuously operate
is due to the causes BEYOND THE CONTROL OF THE
CORP as may be determined by the SEC.
NOTE: Strict compliance with the organizational

requirement imposed by law is NOT required.
Substantial compliance therewith is sufficient.
The code requires that the corp, upon issuance of

the certificate of registration, is required to
commence its transaction within 2yrs from the
date of its incorporation. Otherwise, it is
deemed dissolved.
If a corp does not formally organize and

commence the transaction of its business
WITHIN 2YRS from the date of incorporation, its
B. COMMENCEMENT OF BUSINESS/TRANSACTION
Commencement of the transaction of corporate
business means that the corporation has actually
functioned and engaged in the business for which it
was organized.

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Corporation Code
MJGAMBON
Except: if its failure is due to causes beyond the
control of the corp as may be determined by the
SEC.
V.
THE
INCORPORATE
AMENDMENTS
CHARTER
AND
ITS
Corporate charter signifies an authority from the

sovereign power, bestowing right, and is often used
convertibly with the term act of incorporation, where
the corporation was formed under a special act of
legislature, and with the AOI, when the corporation
was formed under the general law.
Charter of a Corporation is regarded as a 3-FOLD
CONTRACT:
(between S&C, C&SH, among SHs)
1. between corp and the State insofar as it
concerns its primary franchise to be and act as a
corp;
2. between the corp and SH insofar as it governs
their respective rights and obligations;
3. between and among SH as far as their
relationship with one another is concerned.
NOTE: Charter is NOT synonymous with AOI. Also

charter is NOT synonymous with franchise.
Charter consist of AOI and other relevant laws under
which it is created, or the Corp Code itself inclusive of
the by-laws adopted thereunder and all other
provisions of statute governing them.
Franchise applies to the right or privilege itself to be
and act as a corporation or to do certain act WHILE
Charter applies to the instrument by which the state
vests such right or priviliege.
A franchise may either be:
1. primary; or
2. secondary.
CORPORATE ENTITY THEORY
the corp is possessed with personality separate

and distinct from the individual SH or members
and is not affected by the personal rights,
obligations & transaction by the latter. (SULO NG
BAYAN INC vs. GREGORIO ARANETA INC)
CARAM vs. CA
In the absence of proof of existence of fictitious

corporation to justify the principal SH to be held

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Corporation Code
MJGAMBON
liable, the bona fide corporation should alone be
liable for its corporate acts as duly authorized by
its directors and officers.
RUSTAN PULP & PAPER MILLS, INC vs. IAC
Officers of the corp who entered into and signed
a contract in his official capacity, cannot be
made liable thereunder in his individual capacity
in the absence of stipulation to that effect due
to the personality of the corp being separate
and distinct from the person composing it.
CRUZ vs. DALISAY
It is well settled doctrine, both in law and in
equity that as legal entity a corp has a
personality distinct and separate from its
individual SH or members. The mere fact that
one is president of a corporation does not render
the property he owns or possess the prop of the
corp, since the president, as individual and the
corporation are separate entities.
PALAY INC vs. CLAVE
As a GR, a corp may not be made to answer for
acts or liabilities of its SH or members.
As EXCEPTION, the veil of corp fiction may be

pierced when it is used as:
1. Shield to further an end subversive justice; or
2. For purposes that could not have been
intended by the law created it; or
3. To defeat public convinience, justify wrong,
protect fraud, or defend a crime; or
4. To perpetuate fraud or confuse legitimate
issues; or
5. To circumvent the law or prpetuate
deception.
In the case at bar, one cannot be made liable for

the liability of the corp because he appears to
be the controlling SH. Mere ownership by a
single SH or by another corp of all or almost all
of the capital stock of the corp is NOT sufficient
ground for piercing the corporate fiction.
SORIANO vs. CA
Piercing the corporate veil of the corp can be

done to attach its officers only if the same is
used for fraudulent, unfair and illegal manner. In
the absence of these, the corp cannot be
pierced.
PIERCING THE VEIL OF THE CORPORATE FICTION

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Corporation Code
MJGAMBON
The doctrine is NOT absolute because the applicability

of corporate entity theory is confined to legitimate
transactions and is subject to equitable limitations to
prevent its being used as a cloak or cover for fraud or
illegality, or to work an injustice.
The juridical personality of the corp is but a legal

fiction
introduce
for
the
PURPOSE
of
convenience and to subserve the ends of justice.
However if it is used to:
a. Defeat public convenience;
b. Justify wrong;
c. Protect fraud;
d. Defend crime;
e. Used to evade taxes;
f. When necessary for the protection of
creditors, or even perpetuate deception
the
law
will
disregard
its
juridical
personality and thus, regard it as a mere
association of the persons.
PALACIO vs. FELY TRANSPORTATION COMPANY
ISSUE: WON the corporation can be held liable

subsidiarily for the civil liability of the employer.
Employer and the corporation may be regarded
as one and the same person. It is evident that
the employers purpose in forming the corp was
to evade his subsidiary civil liability resulting

from the conviction of his driver-employee.
This conclusion is borne out by the fact that the
incorporators of the corporations are employers
wife, son and two daughters. Thus, it is believe
that this is a case where the corp should not be
considered as separate and distinct personality
from its members because to allow it would be
to sanction the use of the fiction of corp entity
as a shield to further end subversive justice.
MARVEL BUILDING CORP vs DAVID

YUTIVO & SONS C. vs. CTA
CIR vs. NORTON & HARRISO CO.

Well settled rule that the ownership of all of a
corp by another corp does not breed an identity
of corporate interest between two companies
and be considered as a sufficient ground for
disregarding the distinct personalities. However,
when the other corporation is merely used as an
adjunct, business conduit or alter ego, of the
other, the fiction of corporate entity may be
disregarded.

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Corporation Code
MJGAMBON
LA CAMPANA COFFEE FACTORY vs KAISAHAN NG MGA
MANGGAGAWA SA LA CAMPANA.
The attempt to make the two factories appear

as two separate businesses, when in reality,
they are but one, is but a device to defeat the
ends of law and should not be permitted to
prevail.
EMILIO CANO ENTERPRISE, INC. vs. CIR

Closed
family
corporation
where
its
incorporators and directors belong to single one
family. Thuse, here is an instance where the
corporation and its members can be considered
as one. And to hold such entity liable for the
acts of its members is not to ignore the legal
fiction but merely to give meaning to the
principle that such fiction cannot be invoked if
its purpose is to use it as a shield to further an
end subversive of justice.
because to allow it would be made as a shield to

confuse the legitimate issues.
CLARPAROLS vs. CIR
Where the corporation was a continuation and
successor of the first entity, and its emergence
was skillfully timed to avoid the financial liability
that already attached to its predecssor. Both
predecessor and successor were owned and
controlled by Claparrols and there was no break
in the succession and continuity of the same
business. Therefore, it is very obvious that the
2nd corporation seeks protective shield of a
corporate fiction whose veil could and should be
pierced as it was deliberately and maliciously
designed to evade its financial obligation to its
employees.
NATIONAL FEDERATION OF LABOR UNION vs. OPLE
TELEPHONE ENGINEERING SERVICE CO, vs. WCC
Sister companies operating under one single

management and housed in the same building.
The employees are interchangeable. Thus,
corporate entity theory should be disregarded
Where the second corp seeks the protective

shield of the corp fiction to achieve its illegal
purpose, it should be pierced as it was
deliberately and maliciously to evade financial
obligation to its employees.
As Libra/Dolphin Garmens is but an alter ego of
the old emploer, Lawman Industrial, the former
must bear the consequences of the latters

9
Corporation Code
MJGAMBON
unfair acts by reinstating the petitioner to their
former positions without loss of seniority rights.
AC RANSON LABOR UNION-CCLU vs. NLRC
Where the incorporators and directors belong to

a single family, the corporation and its members
can be considered as one in order to avoid its
being used as an instrument to commit justice.
CONCEPT BUILDERS INC. vs. NLRC
Where one corporation is so organized and

controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of
the other, the fiction of the corporate entity of
the instrumentality may be disregarded
PROVIDED the following must be present in
order to determine that the second corp is
adjunct or mere alter ego of the other:
a. Domination of control, not only of
finances but of policy and usiness
practice in respect to the transaction;
b. The control must have been used to
commit fraud, perpetuate the violation
of a statutory or ther positive legal
duty;
c. Such control is the proximate cause of
the injury/unjust loss complained of.
MCCONNEL vs. CA
CEASE vs. CA
WHEN PIERCING THE CORPORATE VEIL IS NOT
JUSTIFIED
REMO vs. IAC
In the absence of cogent basis of intent to

defraud anyone, piercing of corp fiction cannot
be made.
DEL ROSARIO vs. NLRC
For the separate and juridical personality of a

corp to be disregarded the wrongdoing must be
clearly
and
convincingly
established.
Wrongdoing is NOT presumed.
An intent to evade payment of his claims cannot
be implied from the expiration of Philsas license
and delisting.
AS DISTINGUISHED FROM THE CASES OF:

a. La Campana Coffee Factory, Inc. they had one
office, one management, and a single payroll for
both businesses. The laborer of Guagua factory

0
Corporation Code
MJGAMBON
and
the
coffee
factory
were
also
interchangeable;
b. Claparrols Both corp were substantially owned
and controlled by the same person and there
was no break or cessation in operations.
Moreover, all assets of the steel and nail plant
were transferred to the new corp;
c. AC Ransom it would appear that Ransom
foreseeing the possibility of payment of back
wages to the 22 strikers, organized Rosario Corp
to replace ransom, with the latter to be
eventually phased out if the 22 strikers win the
case.
YU vs. NLRC
AMENDMENT OF CORPORATE CHARTER (sec 36 CCP)
Amendment of AOI
INDPHIL TEXTILE MILL WORKERS UNION vs. CALICA
The fact that the businesses of the private

respondent and Acrylic are related, that some of
the employees of the private respondent are the
same persons manning and providing for
auxiliary services to the units of Acrylic.
As distinguished from the case of Umali vs. CA,
the legal corp entity is disregarded only if it is
sought to hold the officers and SH directly liable
for a corp debt or obligation. IN THE INSTANT
CASE, if the petitioner does not seek to impose
a claim against the members of the Acrylic.
PNB vs. RITRATTO GROUP, INC.
The mere fact that a corp owns all of the stocks

of nother corp, taken alone is NOT sufficient to
justify their being treated as one entity.
By MAJORITY VOTE of BOD/Trustees and

WRITTEN ASSENT of the SH of at least 2/3
of OCS w/o prejudice to dissenting SH
Stock Corp and or vote or assent of at least 2/3
of the members if it be a non-stock.
In the absence of majority vote of BOD/T, only
written assent would be necessary for
ORDINARY AMENDMENT.
EFFECTIVITY of Amendment of AOI:
Upon approval of the SEC; or

From the filing date with the SEC, if the latter did
not act upon within 6 months (reckon from filing
date). This, however, does NOT apply in:
a. Increasing or decreasing the capital
stock;
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b. Shortening of the corporate term
In other words, it applies only in cases of
ORDINARY amendment.
GR: Any provision stated in the AOI is subject to

amendment.
EXCEPT: fait accompli matters beyond the powers or
authority of the corp to change, alter or modify.
STEPS for an Effective Amendment of AOI.

a. Resolution by at least majority of the BOD/T;
b. Vote or written assent of the SH representing at
least 2/3 of the OCS or 2/3 of the members, in
case of non-stock corp (non-voting shares are
included in determining the voting and quorum
requirement);
c. Submission and filing of amendments with the
SEC:
i. copy of the original and amended AOI
ii. copy thereof, duly certified under oath by the
corp secretary and a majority of the
directors/trustees stating the fact that such
amendments have been duly approved by
the required vote of the SH
iii. favorable recommendation of the appropriate
govt agaency.
VI.
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS

(sec 23 CCP)
The corp vests unto the BOD/T the authority to: (E-CC)
1. exercise corporate powers;
2. conduct all business; and
3. control and hold all properties of the corp.
Board of Directors (BOD) is the supreme authority in
matters of management of the regular and ordinary
business affairs of the corp. Their authority,
HOWEVER, does not extend to the fundamental
changes in the corporate charter which belong to the
SH as a whole.
NOTE: Ordinary amendments shall be governed

by sec 16; special amendments governed by sec
37
&
38
(extend/shorten
corp
term
and
increase/decrease capital stock)
The SH may have all the profits BUT shall turn

over the management of the corp to the BOD.
Terms of Directors (Subject to Extension)

Stock Corp Director
1yr;
NS Corp Director 3yrs;
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Educational or Non Profit Inst. 5yrs.
As a rule, CORPORATE POWERS are exercised by
the BOD.
Exception, the BOD may DELEGATE such powers to
either
1. Executive committee; or
2. Officials; or
3. Contracted managers.
GR: Corp is bound by the acts of its corp officers if
they act within the scope of their powers and these
are the following:
1. Express powers (doctrine of limited capacity);
2. Incidental powers which are reasonable and
necessary to carry out the corp purpose/s;
3. Inherent powers or act that go with the office;
4. Apparent powers;
5. Powers arising out of customs, usage, or
emergency.
as a person competent to bind the corp, or had

acquiesced in a contract and retained the
benefit supposed to have been conferred by it,
the corporation will be bound, notwithstanding
with the actual authority may never have been
granted.
The public is NOT supposed nor required to

know the transactions which happen around the
table where the corp BOD/SH are from time to
time convoked.
It is therefore reasonable in a case where an

officer of a corp ha made a contract in its name,
that the corp should be required, if it denies his
authority, to state such defense in its anwer.
Failure to do so shall have the effect of
eliminating the question of his authority from
the case.
RAMIREZ vs. ORIENTALIST CO.
If a man is found acting for a corporation with

the external indicia of authority, any person not
having notice of want of authority, may usually
rely upon those appearances; and if it be found
that the director had permitted the agent to
exercise that authority and thereby held him out
BARRETO vs LA PREVISORA FILIPINA
Settled rule is that a contract between the

corp and third person must be made by the
director and not by the SH. Thus, if there
where a meeting of the SH is called for the

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purpose of passing on the proprietary of making
a corp contract, its reslolutions are at most
advisory and not binding on the BOD.
VOTING TRUSTS (sec 58 CCP)
One or more SH of stock corp may create a voting
trust for the PURPOSE of conferring upon a trustees/s
the right to vote and other pertaining to the shares for
a period NOT EXCEEDING 5 yrs at any one time.
EXCEPT in the case of loan agreement, said voting
trust may exceed the 5yr period BUT shall
automatically expire upon full payment of the loan.
Voting Trust Agreement (VTA) must be: (W-N-S-F)
i. In writing;
ii. Notarized; and
iii. Shall specify the terms and conditions thereof;
iv. Must be filed with the SEC.
Otherwise, VTA shall be ineffective and unenforceable.
NATURE: VTA results in the separation of the voting
rights of the SH from his other rights, i.e. right to
receive dividends, right to inspect books of the
incorporation, right to sell certain interests in the
assets of the corp.
TESTS in order to DISTINGUISH PROXYY FROM VTA:
1. Voting rights of stock are separated from other

attributes of ownership;
2. Voting rights granted are intended to be
irrevocable for a definite period of time;
3. Principal purpose of the grant of voting rights is
to acquire voting control of the corp.
NOTE: Parties in VTA:
1. SH/Director beneficial title;
2. Trustee legal tie.
** Beneficial ownership may be transferred by issuing
a voting trust cert.
LEE vs. CA
ISSUE: SH and at the same time director of a

corp enters into a VTA, can such SH-director be
still a director of the said corp?
The answer must be qualified. If the director
transfer his all shares to the trustee in the VTA,
the director can no longer be qualified to be as
such UNLESS he still owns atleast one share of
stock in his own right which shall stand in his
name on the books of the corp.
Settled rule that inorder to be a director, what is
material is the legal title to NOT beneficial title
over the shares.

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DETECTIVE & PROTECTIVE BUREAU vs. CLORIBEL
GR: the BOD shall serve for a term of 1yr until

their successors are elected and qualified. This
means that if NO election is conducted or no
qualified candidate is elected, the incumbent
director shall continue to act as such in a holdover capacity until an election is held and a
qualified candidate is so elected.
one candidate as many votes as the number of

directors to be multiplied by number of his shares
shall equal OR he may disribue them on the same
principle as among as many candidates as he shall
see fit. PROVIDED no delinquent stock shall be
divided.
Number of directors X number of shares = number of
right to give the vote.
ELECTION AND VOTING
REASON why cumulative voting is a matter of right, is

to allow minority SH to have a rightful representation
in the BOD.
At all election of directors/trustees, there must be

preset, either in person or by representative
authorized to act by written proxy. MAJORITY
OWNERS of OCS.
If theres no capital stock, MAJORITY MEMBERS
entitled to vote.
In case of NON-STOCK CORP, members of the corp

may cast as many votes as there are trustees to be
elected but may not cast more than one vote for one
candidate.
In STOCK CORP, every SH shall be entitled to vote by

either in person or by proxy the number of shares
standing, at the time fixed in the by-laws, in his own
name.
Where the by-laws are silent, at the time of election
Cumulative Voting SH may vote such number of
shares for as many persons as there are directors to
be elected OR he may cumulate said shares and give
As to the MEETINGS, any meeting of the SH/members

called for an election may adjourn from day to day or
from time to time BUT not sine die or indefinitely if NO
election is held as when the required quorum is NOT
obtained.
CORPORATE OFFICERS (sec 25 CCP)
Immediately after the election of the BOD, the
directors of a corp must formally organize by the
election of the following:

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1. President who shall be a director;
2. Treasure need not be a director;
3. Secretary need not be a director BUT must be
a resident and citizen of PH.
4. Other officers as may be provided by the bylaws.
GR: Any two or more positions may be
concurrently by the same person.
EXCEPT: No one shall act as:
i. President and Secretary;
ii. President and Treasurer, at the sametime.
held
As a rule, the President elects other officer EXCEPT

in NonStock Corp and Closed Corp where it is the SH
elects other officer.
Validity and Binding Effect of Actions of Corporate
Officers
Quorum requirement for a valid board meeting is the
MAJORITY of the number of the board fixed in the AOI.
GREATER MAJORITY, however, may required in the
AOI. If thats the case, the latter shall prevail.
To have a valid corporate act, decision of at least
majority of the directors/trustees present at the
meeting. EXCEPTION: election of corporate officers
where the voting requirement is majority of all the

member of the board.
Any action of the board without a meeting and

without the required voting and quorum
requirement will NOT bind the corporation
UNLESS ratified, expressly or impliedly.
Express Ratification is made through a formal
board action
Implied Ratification is made through
silence/acquiescence;
acceptance
and/or
retention of benefits; or by recognition or
adoption.
Individual directors can be considered as agents of the

corp and although they cannot bind the corp by their
individual acts there are EXCEPTIONS:
i. Delegation of corporate authority;
ii. Where expressly confereed;
iii. Where the officer is clothed with apparent
authority.
YAO KA SIN TRADING vs. CA
Settled rule is that although an officer or agents

acts without, or in excess of his actual authority
if he acts within the scope of an apparent
authority with which the corp has clothed him by
holding out or permitting him to appear as
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having authority, the corp is bound thereby in

favor of a person who deals with him in good fait
in reliance on such apparent authority.
Apparent authority may result from:
a. The general manner by which the corp
holds out an officer or agent as having
power to act;
b. The acquiescence in his acts of a
particular
nature,
with
actual
or
constructive notice thereof, whether
within/without the scope of his ordinary
powers.
LOPEZ REALTY, INC vs. FOTENCHA
GR: A corp should act in the manner and within

the formalities, if any, prescribed by its charter
or by the general law.
The action of the BOD during meeting, which
was illegal for lack of notice, may be ratified
either expressly, by the action of the directors in
subsequent legal meetings or impliedly by the
corporations subsequent course of conduct.
(EXCEPTION)
REMOVAL & FILLING UP OF VACANCIES (sec 28 CCP)

A. REMOVAL
Requirements for the removal of director:

1. Removal should take place at general/special
meeting duly called for that purpose;
2. Removal must be by vote of the SH representing
at least 2/3 of the OCS/members entitled to vote
in cases of non-stock corporation;
3. There must be previous notice to SH.
The meeting must be called by:
1. Secretary;
2. On order of the President;
3. On the written demand of the SH representing
majority of the OCS or majority of the members
entitled to vote.
The law grants the PROPER COURT, the power

and authority to hear and decide cases
involving controversies in the election or
appointment of directors, trustees, officers, or
managers
of
such
corporation,
partnership/association.
In case of DEADLOCK in a CLOSE CORP, the SEC
is authorizdto isse orders as it deems
appropriate.
B. VACANCIES
1. If the vacancies results from:
a. Removal;

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b. Expiration of the term;
c. Death, resignation or abandonment,
theres an increase in number o directors
(other grounds); and
d. Where the remaining directors do not
constitute a quorum,
-- it may be filled by a vote of the SH in a
meeting, regular or special, duly called for that
purpose.
2. If the vacancies result from cases NOT reserved
to the SH/members, the majority of the
remaining directors shall be necessary to fill up
for such vacancy.
NOTE: Any change in the constitution of the BOD/T

must be reported to the SEC (sec 26 CCP)
The Secretary or any other officer of the corp

shall submit to the SEC the names, nationalities
and residences (NNR) of the directors, trustees
or officers (DTO) elected.
It must be made within 30 days after the
election.
If the DTO should resign, die or in any other
manner cease to hold office, the following shall
report such fact to the SEC:
a. Heirs of the deceased DTO;

b. Secretary; or
c. Any other officer of the corp; or
d. The DTO himself,
In the second instance, it must
immediately to the SEC.
be
filed
Objective: to give the public information of the nature

of the business, and operational status of the corp so
that those dealing with it and those who intend to do
business may know the facts concerning the
corporations financial resources and business
responsibility.
** Tenure of the director filling up a vacancy shall
only be for the unexpired term of his predecessor in
office. If the successor is, however, not qualified he
continues to hold the office in a hold-over capacity
and shall cease after the election of the qualified
successor.
COMPENSATION OF DIRECTORS (sec 30 CCP)
GR: Directors
compensation
are
NOT
entitled
to
receive
any
REASON TO THE GR: the officers are usually filled up

by those chieftly interested in the welfare of the
institution by virtue of their interest in stock or other

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advantages, and such interest are presumed to be the
motive for executing duties of the officee without
compensation.
EXCEPT: for reasonable per diems unless the by-laws

so provide.
NOTE: They may receive compensation by:
a. the vote of the SH representing at least a
majority of the OCS; and provided
b. that their yearly compensation shall not
exceed 10% of the net income before
income tax of the corp; or
c. if the director concerned performs special
or extra-ordinary service (means outsie
the regular duties of a director).
NOTE: Courts will not generally undertake to review
the fairness of official salaries unless wrongdoing and
oppression or possible abuse of fiduciary position is
shown.
A showing of fraud, BF, oppression or wastage of

corp assets is required to call for the
interference of the courts.
Much weight is given to the action of the SH,
and the by-laws is supported by the
presumption of regularity and continuity.
If a bonus payment has no relation to the value

of services for which it is given, it is in reality a
gift in part, and the majority GH have NO power
to give away corp property against the protest
of the minority.
CENTRAL COOPERATIVE EXCHANGE vs. TIBE, JR.
Directors of corporations presumptively serve

without compensation and in the absence of an
express agreement or a resolution thereto, NO
claim can be asserted.
No recovery for compensation UNLESS expressly
provided for, when a director serves a president
or vp, as sec or treas or cashier, as member of
executive committee, as chairman of a bldg
committee, or similar offices.
Thus, directors assigning themselves additional
duties acted within their power BUT by voting
for themselves compensation for additional
duties, they acted beyond the scope of their
power.
WESTERN INSTITUTE OF TECHNOLOGY vs. SALAS
The phrase as such directors is not without

significance for it delimits/determine the scope
of the prohibition to them for services performed
purely in their capacity as directors or trustees.
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The unambiguous implication is that, the

members
of
the
board
may
receive
compensation, in addition to reasonable per
diems, when they render services to the corp in
a capacity other than as dirctors/trustees.
In the case at bar, the Board Reso granted
monthly compensation to private respondents
not in their capacity as members of the Board
but rather as officers of the corp, more
particulary as Chairman, VC, Treas, Sec of the
company.
GOVT vs. EL HOGAR FILIPINO
The power to fix the compensation is left to the

sole discretion of the sorp, to be determined in
its by-laws.
LIABILITY OF CORPORATE OFFICERS

GR: Corp dirctors, officers and agents are NOT
generally liable for obligations incurred by the corp
through their acts if they did so:
i. Within the scope of their authority; and
ii. In GF
TRAMAT MERCANTILE INC vs. CA
EXCEPTION: (Instances where DTO may be held
personally liable)
1. He assents to patently unlawful act of the corp;

or
2. For bad faith; or
3. Gross negligence in directing its affairs; or
4. For conflict of interest, resulting in damages to
the corp, its SH or third persons;
5. He assents to the issuance of watered stocks
6. He agrees to hold himself personally and
solidarily liable with the cor with the corp;
7. He is made, by specific provision of law, to
personally anwer for his corp action.
LLAMADO vs. CA
Where the check is drawn by a corporation,

company, or entity, the person or persons who
actually signed the check in behalf of such
drawer shall be liable under this Act. (BP 22)
UICHICO vs. NLRC
In LABOR cases, corporate directors and officers

are solidarily liable with the corp for the
termination of employment of corporate
employess done with malice pr in badfaith.
THREE-FOLD
DUTY
OF
CORPORATION (sec 31 CCP)
DIRECTORS
TO
THE

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1. Duty of Obedience refers to assenting either
willldully or knowinglym to patently unlawful
acts thereby making the responsible director
jointly and severally liable for damages.
2. Duty of Diligence directors are required to
manage corporate affairs with reasonable care
and prudence bec liability of is not limited to
willful breach of trsut but also extends to
negligence.
Degree of Diligence: degree of care and
diligence, which an ordinary prudent
director could reasonably be expected
to exercise in a like position under the
similar circumstances.
Business Judgment Rule states that the questions of
policy and management are left solely to the honest
decision of the BOD and the courts are without
authority to substitute its judgment as against the
former.
Reason for the rule: Because their duties DO NOT
make them insurer of the property of the corp NOR
guarantors that the enterprise undertaken by the corp
shall be successful.
MONTELIBANO vs. BACOLOD MILLING, CO. INC.
Director is not liable for misconduct of

co-directors or other officers UNLESS he
connives/participates in it; or he is
negligent in not discovering or acting to
prevent it.
TEST to determine: Absent of actual
knowledge of the wrongful activities on
the part of co-directors, the same
cannot be imputed on the other
director unless in the exercise of
reasonable
care
attending
his
responsibilities he should have been
aware of suspicious circumstances
demanding corrective action.
3. Duty of Loyalty --- directors are considered in

equity as bearing a fiduciary relation to the corp
and its SH.
Instances where Duty of Loyalty is Violated:
1. When a director/trustee acquires any personal
or pecuniary interest in conflict with his duty as
such director or trustee;
2. When he attempts to acquire/s, in violation of
his duty, any interest adverse to the corporation
in respect to any matter which has been
reposed in him in confidence;

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3. When he, by virtue of his office, acquires for
himself business opprtuniy which should belong
to the corp, thereby obtaining profit (forbidden
profits) to the prejudice of such corp.
Forbidden profits directors and officers are fiduciary
representatives of the corp and as such they are not
allowed to obtain any profit, commisision, bonus, or
gain for their official actions.
Corporate Opportunity Doctrine it places a director
of a corp in the position of a fiduciary and prohibits
him from seizing a business opportunity and/or
developing it at the expense and with the facilities of
the corporation. He cannot appropriate to himself a
business opportunity which in fairness should belong
to the corporation.
Sec 31
Makes the director liable to the
account for profits if he
attempts to acquire/s any
interest adverse to the corp in
respect to any matter reposed
in him in confidence.
STRONG vs. REPIDE

SELF-DEALING DRECTORS
One who deals or transact business with his own
corporation.
Such dealings are voidable.
A contract of the corp with one or more of its directors
is VOIDABLE, at the option of such corp UNLESS all the
ff are present:
i. That the presence of such director/trustee in the
board meeting in which the contract which the
contract was approved was not necessary to
constitute a quorum for such meeting;
ii. That the vote of such director/trustee was not
necessary for the approval of the contract;
iii. That in case of an officer, the contract has been
previously authorized by the BOD.
If any of i and ii is absent such contract may be

Sec 34
ratified by:
If director acquires for himself
a vote of at least 2/3 of the OCS/members;
a. the
business opportunity which should
PROVIDED that
belong to the corporation, he
is disclosure of the adverse interest of the
b. full
bound to account for such profits
directors/trustees involved is made at such
unless his act is ratified by the SH
meeting: PROVIDED that
owning/representing at least 2/3
c. ofthe contract is fair and reasonable under the
OCS.
circumstances.

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PRIME WHITE CEMENT CORP vs. IAC
In the absence of express stipulation, a contract

entered into by its President ay still bind the
corporation if the Board should ratify the same,
expressly or impliedly.
Furthermore,
even
in
the
absence
of
express/implied authority by ratification, the
President as such may as a general rule, bind
the corp by a contract in the ordinary course of
business, provided that the same is reasonable
under the circumstances. They apply where the
president or other officer, purportedly acting for
the corp, is dealing with a third person.
A director holds a position of trust and as such,
he cannot sacrifice the latter to his own
advantge and benefit.
MEAD vs. MC CULLOUGH
While a corp remains solvent, there is no reason

for a director/officer, by the authority of a
majority of SH, may NOT deal with the corp, loan
its money or buy property from it, in like manner
as strangers.
So long as purely private corp remains solvent
its directors are agents or trustees for the SH.
They owe no duties or obligation to others. BUT
the moment the corp becomes insolvent its
directors are trustees of all creditors, whether

they are members of the corp or not, and must
manage its prop and assets with strict regard to
their interest and if they themselves are
creditors while the insolvent corp is under their
management they will not be permitted to
secure themselves by purchasing the corp
property or otherwise any personal advantage
over other creditors.
Nevertheless, a director or officer may in GF and
for an adequate consideration purchase from a
majority of directors or SH the prop even of an
insolvent corp, and a sale thus made to him is
valid and binding upon the minority.
INTERLOCKING DIRECTORS
Interlocking director is a director in one corp who
deals/transact business with another corp of which he
is also a director.
GR: A contract between two or more corp having
interlocking directors shall NOT be invalidated on that
ground alone.
EXCEPT: the contract is tainted with fraud and not fair
and reasonable.
Such contract is voidable if the interest of the

interlocking
director
is
substantial

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(stockholdings exceeds 20% of the OCS) and his
interest in the other corp is merely nominal
(stockholdings is 20% and below). it shall be
valid provided the following conditions are
present:
i. The presence of such director/trustee in
the board meeting in which the contract
was approved was NOT necessary to
constitue a quorum;
ii. The vote of such director/trustee was NOT
necessary for the approval of the contract;
iii. Contract is fair and reasonable.
Where any of i & ii is absent the contract can be
ratified by vote of SH representing at least 2/3 OCS or
2/3 of the member in case of non-stock PROVIDED
that
i. Full discretion of the adverse interest of
the directors/trustees is made on such
meeting;
ii. The contract is fair and reasonable. (sec
32 CCP)
Contract is valid, if the interlocking directors

own substantial interest in both corp.
SUITS BY STOCKHOLDERS/MEMBERS
1. Derivative Suit those brought by one or more

SH/members in the name and on behalf of the
corp:
a. to redress wrongs committed against it;
b. protect of vindicate corp rights whenever
the officials of the corp refuse to sue, or
the ones to be sued, or has control of the
corp.
Requisites:
a. party bringing the suit should be a SH as
of the time of the transaction complained
of;
b. has exhausted intra-corporate remedies;
and
c. the cause of action actually devolves on
the corp and not the particular SH bringing
the suit;
d. minority of the SH must allege in his
complaint before the proper forum that he
is suing under a derivative cause of action
on behalf of the corp and all other SH.
2. Individual/Personal Suit those brought by the
SH in his own name against the corp when a
wrong is directly inflicted against him.
3. Representative/Class Suit those brought by the
SH in behalf of himself and all other SH similarly

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situated when a wrong is committed against a
group of SH.
GR: BOD may institute proceeding against all

accountable persons in order to protect & preserve the
assets of corp.
RATIONALE: To allow any SH institute a case would
result to violate the doctrine of corporate entity and
may result to multiplicity of suits. Also would violate
the settled rule that all corp powers should be
excercised by the BOD.
PASCUAL vs. OROZCO
Right to sue on behalf of the corp (derivative

suit) must depend upon when, how, and for
what purpose he acquired the shares which he
now owns.
Settled rule that a SH in a corp who was not
such at the time of the transaction complained
of (not yet SH at the time of the suit), or whose
shares had not devolved upon him since by
operation of law, can not maintain suits of this
character, UNLESS such transactions continue
and are injurious to the SH or affect him
specially in some other way.
EVERETT vs. ASIA BANKING CORP

(exception to the GR)
GR: SH cannot ordinarily sue in equity to redress

wrongs done to the corp BUT that the action
must be brought by the BOD.
EXCEPTION: if the corp is under the complete
control of the principal defendants in the case.
Thus it ispbvious that a demand upon the BOD
to institute action and prosecute the same
effectively would have been useless, and the
law does not require litigants to perform useless
acts.
REPUBLIC BANK vs. CUADERNO
Settles rule that an individual SH is permitted to

institute a derivative or representative suit on
behalf of the corp wherein he holds stock in
order to protect or vindicate corp rights,
whenever the officials of the corp refuse to sue
or who are one to be sued. Or hold the control of
the corp. In such actions, the suing SH is
regarded as nominal party with the corp as the
real party in interest.
The corp should be made a party, either as
party-plaintiff or defendant, in order to make the
courts judgment binding upon it, and thus, bar
fututre litigation of the same issues.
WESTERN INSTITUTE OF TECHNOLOGY vs. SALAS

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Requirement for derivatives suits to prosper is

that the minority SH who is suing for and on
behalf of the corp must allege in his complaint
before the proper forum that he is suing on a
derivative cause of action on behalf of the corp
and all other SH.
SEC shall have exclusive jurisdiction over
derivative suits, being inta-corporate dispute.
REYES vs. TAN
GAMBOA vs. VICTORIANO
EVANGELISTA vs. SANTOS
Any benefit or damages shall pertain to the

corp. This is because a derivative suit is
instituted for and in behalf of the corp and not
for the protection or vindication of a right/s of a
particular SH.
EXECUTIVE COMMITTEE (sec 33 CCP)

The BOD may delegate the powers and functions that
may be fully delegated t other corp officers or agents
for convenience and appropriate action on matters

that may require immediate attention.
The said committee may act and bind the corp by a
majoriy vote of all its members EXCEPT the following:
a. Approval of ay action for which SHs approval is
required;
b. The filling of vacancies in the board;
c. Amendment or repeal of by-laws or the adoption
of new by-laws;
d. Amendment or repeal of any resolution of the
board which by its express terms is not so
amenable or repealable; and
e. Distribution of cash dividends.
VII.
CORPORATION POWERS AND AUTHORITY (sec

36 CCP)
A corp merely exist by virtue of a grant by the

State and may, therefore, only exercise such
powers, authority or functions that the State
allows it to do.
Thus, the statement of the objects, purposes or
powers in the AOI results in defining the scope
of the authorized corp enterprise or undertaking.
It limits the actual authority of the corp

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Classes of Corporate Authority:

1. Those expressly granted or authorized by law
inclusive of corp charter or AOI;
2. Those impliedly granted as are necessary in
carrying out of the express powers;
3. Those that are incidental.
The following are the EXPRESS Powers of the
Corporation:
1. To sue and be sued in its corp name;
2. Power and capacity of succession by its corp
name for the period of time stated in the AOI or
the certfcate of incorp;
3. To adopt and use a corp seal;
4. To amend its AOI;
5. To adopt by-laws, not contrary to moral, or
public policy and to amend and repeal the same;
6. In case of SC, to issue or sell stocks to
subscribers and to sell treasury stocks and to
admit member to the corp, if it be NSC;
7. To purchase, receive, take or grant, hold,
convey, sell, lease, pledge, mortgage, or
otherwise deal with such real and personal prop;
8. To enter into merger or consolidation;
9. To make reasonable donations, provided that no
corp. domestic or foreign, shall give donations in
aid of any political party, or candidate, or for

purposes of partisan political activity;
10.
To establish pension, retirement, and other
plans for the benefit of its DTO, and employees;
and
11.
To exercise other powers as may be
essential or necessary to carry out its purpose.
Other powers expressly granted by law are the
following:
a. Power to extend/shorten corp term;
b. Power to increase/decrease capital stock;
c. Power to incure, create or increase bonded
indebtedness;
d. Power to deny pre-emptive rights;
e. Power to acquire own shares;
f. Power to invest corp funds in another corp;
g. Power to declare dividends;
h. Power to enter into management contract.
POWER TO SUE AND BE SUED
Generally, in any legal action, the rules governing
jurisdiction and venue of actions filed by or against an
individual likewise apply to suits filed for or against a
corp.

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As to the VENUE of action, it is well settled rule that
the same must be instituted at the place of the
principal office of the corp.
Residence of the corp is the place of its
office.
principal
And the same must be served at the

corporations principal office. Otherwise, it is
invalid.
Service of Summons upon Domestic Private Juridical

Entity service of summons may be made upon the
President, Managing Partner, General Manager,
Corporate Secretary, Treasurer, or In-house Counsel.
(EXCLUSIVE)
Strict compliance with the mode of service is

necessary to confer jurisdiction of the court over
a corporation.
EB VILLAROSA & PARTNER CO., LTD. vs. BENITO
DELTA MOTOR SALES CORP vs. MANGOSING

the corporation. It must be served on any of the
following,:
i. President;
ii. General Manager;
iii. Managing Partner;
iv. Secretary;
v. Treasure; and
vi. In-house Counsel
The purpose is to render it reasonably certain

that the corporation will receive prompt and
proper notice in an action against it or to insure
that the summons be served on a representative
so indicated with the corp that such person will
know what to do with the legal papers served on
him.

a corp. The officer upon whom service is made
must be one who is named in the statue;
otherwise, the service is invalid.
POWER OF SUCCESSION
It means that it persis to exists to exit despite

the death, incapacity, civil interdiction or
withdrawal of the SH.
It has the capacity of continuity of existence
despite the changes on the persons who
compose it. Thus, the personality continues
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MJGAMBON
despite the change of SH, member board
members or officers.
POWER TO ADOPT AND USE CORPORATE SEAL
The right is merely permissive. Because the

corp seal performs no further function than to
impart prima facie evidence of the due
execution
by
the
corp
of
a
written
document/obligation.
A corp may exist without a seal.
POWER TO AMEND AOI
Amendment of AOI is a matter of right

A corporations created by special law, however,
may not be amended as a matter of right
POWER TO ADOPT BY-LAWS

Corp are empowered to adopt its corp by-laws
but in fact requires a corp formed or organized
under it to so adopt its by-laws not contrary to
law, moral, or public policy, within 1 month from
receipt of official notice of issuance of certificate
of incorporation or registration.
POWER TO ISSUE/SELL STOCKS AND ADMIT MEMBERS
This power is an inherent right of any stock corp

created by this Code EXCEPT only as it may be
regulated by law or by the AOI.
The admission as well as termination of
members is a prerogative granted by law to nonstock corp and the manner, requirements or
procedure for such admission or termination
may be contained in itaws.
POWER TO ACQUIRE/ALIENATE PERSONAL PROPERTY
The corp is empowered to acquire or alienate

properties provided that it must be acquired,
held or conveyed as the transaction of the
lawful business of the corp may reasonably and
necessarily require.
GR: The Constitution provides that private corp may

not hold alienable lands of the public domain (except
agricultural lands) but only by lease for a period not
exceeding 20yrs renewable for not more than 25yrs,
and not exceeding 1000 hectares.
EXCEPTON:
DIRECTOR OF LAND vs. CA
Corp may register alienable public lands if it has

been held by it, personally or through his
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Corporation Code
MJGAMBON
predecessor in interest, openly, continuously
and publicly within the prescribed statutory
period of 30yrs under the Public Land Law, as
amended, since it is converted into private
property by mere lapse of completion of said
period.
POWER TO MAKE REASONABLE DONATIONS
A pure gift of funds or property by a corp not created
for charitable purpose is not authorized and would
constitute a violation of the rights of its SH UNLESS it
is empowerd by the statute.
employees is a power expressly granted by law to all

corp registered under the general provision of the
Corp Code.
Scope of the power:
a. Corp may furnish medical care and other aid to
its officials employees as is necessary to enable
the corp to fittingly carry out its purposes and
business;
b. It may include any act to promote the
conveience, welfare, and benefit of the
employees or officers.
REPUBLIC vs. ACOJE MINING COMPANY, INC.
GR. Pure gift of funds or property by a corp NOT

created for charitable purposes is not authorized.
EXCEPTION:
i. The donation is reasonable;
ii. It must be for public welfae or for hospital,
charitable, scientifict, cultutral or similar
purpose; and
iii. It shall not be in aid of political party/candidate,
or for purposes of partisan political party.
POWER TO ESTABLISH PENSION, RETIREMENT, AND
OTHER PLANS
The power to establish pension, retirement and other
plans for its directors, trustees, officers and
Although not expressly authorized to do so a

corp may become a surety where the particular
transaction is reasonably necessary or proper to
the conduct of its business, and here it is
undisputed that the establishment of local post
office is reasonable and proper adjunct to the
conduct of the business of appellant company.
Indeed such post office is a vital improvement in
the living condition of its employees and
laborers who came to settle in its mining camp
which is far from the postal facilities or means of
communication accorded to people living in a
city or municipality.

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POWER TO EXERCISE SUCH OTHER
ESSENTIAL OR NECESSARY TO CARRY
PURPOSES (IMPLIED POWERS)
POWERS
OUT ITS
Powers incident are those that attach to the corp from

the date of its incorporation which may likewise be
said to be inherent to corporate existence.
a.
b.
c.
d.
Acts in the usual course of business;

Acts to protect debts owing to the corp;
Embarking in a different business;
Acts in part or wholly to protect
employees; and
e. Acts to increase businees.
or
aid
TERESA ELECTRIC AND POWER vs, PSC

As to powers essential or necessary to carry out the
corporate purpose or purposes, no uniform rule has
been laid down as to what would constitute
reasonably necessary to the exercise of the corps
express powers. It depends upon its particular facts
and circumstances and upon the nature of the power
granted.
Settled rule is that the corp has authority to do what
will legitimately tend to effectuate the express
purposes and objects; that it may ordinarily do all
things that are convenient, suitable, or necessary to
enable it to fully perform the undertaking designated
in its AOI and for which it was organized.
TEST TO BE APPLIED: WON the act in question is in
direct and immediate furtherance of the corporations
business, fairly incident to the express powers and
reasonably necessary to their existence.
Implied Powers which the Corp may exercise:
NATIONAL POWER CORPORATION vs. VERA
The NPC was created and empowered not only

to construct, operate, and maintain power
plants, reservoirs, transmission, lines and other
works BUT ALSO to exercise such powers and do
such thing as may be reasonably necessary,
useful, incidental, or auxiliary to accomplish its
purpose.
In determing WON the NPC falls within the
purview of the above provision, the court must
decide WON a logical and necessary relation
exists between the act questioned and the
corporate purpose expressed in the NPC charter:
a. For if the act done which is lawful in itself
and not otherwise prohibited; and
b. Is done for the purpose of corporate ends;
and

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c. Reasonably contributes to the promotion
of those ends in a substantial and not in a
remote and fanciful sense, it may be fairly
considered within the corps charter
powers.
POWERS vs. MARSHALL
Expansion of the school facilities, which is to be

done by improving old and/or constructing new
ones, is an ordinary business transaction well
within the competence of he BoT to act upon.
Being directly related to the purpose of
elevating and maintaing the schools standard of
instruction, which is ordained in fact by PD No.
732, the expansion cannot result in any radical
or fundamental change in the kind of activity
being conducted by the school that miht require
the consent of the members composing it.
Since the collection of the development fee had
been approved by the BoT if the International
School, Inc., it was a valid exercise of the
corporate power of the Board and was binding
upon all other members of the corp.
POWER TO INCREASE/DECREASE CAPITAL STOCK;

CREAT, INCUR/INCREASE BONDED INDEBTEDNESS
Requirements and Procedure should be complied with

in increasing or decreasing the corp capital:
a. Approval by majority vote of the BOD;
b. Ratification by the SH representing 2/3 OCS at a
meeting duly called for that purpose;
c. Prior written notice;
d. A certificate in duplicate must be signed by
majority of the directors, countersigned by the
chairman, and secretary of the SHs meeting;
e. In case of INCREASE capital stock, 25% of such
increased capital must be subscribed and that at
least 25% of the amount subscribed must be
paid;
f. In case of DECREASE in capital stock, the same
must not prejudice the right of the creditors;
g. Filing of the certificate of the increase and
amended articles with SEC; and
h. Approval thereof by the SEC.
Methods in Increasing the Capital Stock of a
Corporation:
1. Increasing the par value of existing number of
shares without increasing the number of shares;
2. Increasing the number of existing shares without
increasing the par value thereof;
3. Increasing the number of existing shares and at
the same time increasing the par value shares.

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NOTE: In case of decrease of capital stock, the
methods are the opposite of the above rules.
In decreasing the capital stock of the corp, varied
reasons or purposes exist to warrant the same. It may
either be:
i. To reduce or wipe out existing deficit where no
creditors would thereby be affected;
ii. When the capital is more than what is necessary
to procreate the business or reduction of capital
surplus;
iii. To write down the value of its fixed assets to
reflect there present actual value.
Trust Fund Doctrine which states that subscriptions
to capital of the corporation constitute a fund which
the creditors have a right to look up to for the
satisfaction of their claims.
PHILIPPINE TRUST COMPANY vs. RIVERA
A corp has no power to release an original

subscriber to its capital stock from the obligation
of paying for his shares, without a valuable
consideration for such release; and as against
creditors a reduction of the capital stock can
take place only in the manner
under the
conditions prescribed by the statute or the
charter of the AOI.
MADRIGAL & COMPANY vs. ZAMORA
POWER TO DENY PRE-EMPTIVE RIGHTS (sec 39 CCP)

Pre-emptive Right is right granted by law to all exiting
SH of a stock corp to subscribe to all issue or
disposition of shares of any class, in proportion to their
respective stockholdings, subject only to the
limitations imposed under the sec 39 of CCP.
The PURPOSE being to enable the stockholdings to
retain his proportionate control in the corp and to
retain his equity in the surplus.
Basis of this right: -- the preservation, unimpaired and
undiluted, of the SH relative and proportionate voting
strength and control, that is, the existing ratio of their
proprietary interest and voting power in the corp.
Pre-emptive Right is NOT available in the following;
EXCEPTIONS:
a. when the shares to be issued to comply with
laws requiring stock offering or minimum stock
ownership by the public;
b. when the shares issued in GF WITH the approval
of the SH representing 2/3 OCS either:

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i. in exchange for property needed for
corporate purpose;
ii. shares issued in payment of previously
contracted debts;
c. in case the right is denied in the AOI;
d. if one of the SH does not want to exercise his
pre-emptive right, the other shareholders are
not entitled to purchae the corresponding shares
of the shareholder who declined. BUT if nobody
purchased the same and later on the board reissued the shares , the pre-emptive right
applies.
NOTE: The exception will not apply to SH of a close
corp because under sec 102 CCP, pre-emptive right
shall extend to all stock corp to be issued including
reissuance
of
TS
whether
for
money,
property/personal services or in payment of corp
BENITO vs. SEC
GR: the pre-emptive right is recognized only

with respect to new issue shares, and not with
respect to additional issues of originally
authorized shares.
POWER TO SELL OR DISPOSE CORPORATE ASSETS (sec

40 CCP)
Requirement and Procedure of Power to Sell or

Dispose corp assets:
a. Resolution by majority vote of the BOD/T;
b. Authorization from the SH representing at least
2/3 of the OCS or 2/3 members entitled to vote;
c. Ratification of the SH/members must be made at
a meeting duly called for that purpose;
d. Prior written consent of the proposed action and
of the time and place of meeting must be made
addressed to all SH of record;
e. Sale of assets shall be subject to the provisions
of existing laws on illegal combinations and
monopolies;
f. Any dissenting SH shall have the option to
exercise his appraisal right.
The above requirement will NOT APPLY if the sale
DOES NOT involve all or substantially all of the assets
of the corp as to render it incapable of continuing the
business or accomplishing the purpose for which it
was incorporated.
GR: Where one corp sells or otherwise transfers all its
assets to another corp, the latter is not liable for the
debts and liabilities of the transferor.
EFFECTS: the transferee/buyer of all or substantially
all of the assets will NOT be liable for the debts of the
transferor.

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EXCEPTION:
i. If theres an express assumption of liabilities;
ii. Consolidation or merger;
iii. If the purchase was in fraud of creditors;
If the seller becomes a continuation of the seller.
(EDWARD J NELL CO vs. PACIFIC FARMS, INC)
ISLAMIC DIRECTORATE OF THE PHILIPPINES vs. CA
For the sale to be valid, the majority vote of the

legitimate BOT, concurred in by the vote of at
least 2/3 of the bona fide members of the corp
should have been obtained.
POWER TO ACQUIRE OWN SHARES (sec 41 CCP)

Condition in order for the corp to acquire its own
shares:
a. The capital is not thereby impaired;
b. It should be for a legitimate and propoer
cooperative objectives;
c. Condition of the corp affairs warrant it;
d. The transaction is designed and carried out in
GF and without prejuice to the right of creditors
and SH;
e. There in intended and there results no undue
advantage to a few favored SH at the expense
of the remainder;
f. The rights of the creditors are not jeopardized;

g. There must be surplus profits to reacquire the
same.
The corporation may acquire its own shares provided
that it is for a legitimate corporate purpose and that
the corp has an URE. Provided further that the
reacquisition of shares shall not be limited to the
following instances:
a. To eliminate fractional shares arising out of
stock dividends;
b. To collect/compromise an indebtedness to the
corp, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent
shares sold during said sale; and
c. To redeem redeemable shares.
NOTE: the corp must at all time have Unrestricted
Retained Earnings (URE) NOT ABSOLUTE
EXCEPTION:
1. redemption of redeemable shares where the
corp ay so acquire is shares regardless of the
existence URE;
2. exercise of SH to compel close corp to
purchase his shares.
** Where a corp acquires its own shares either by
purchase, surrender, donation, or forfeiture, the

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shares are NOT thereby extinguished UNLESS it is
acquired by the corp with the intention ad may
thereafter be issued.
While in the possession of the corp, they are

considered as Treasury Shares. they have no
voting rights and dividend right.
If the corp has NO intention of reissuing them,
the reacquired share maybe retired and
cancelled and thereby removed from issue
effectively reducing the number of shares stated
in the AOI.
Basis for Limiting Share Purchases : the necessity of

imposing safeguards against the depletion of a corp of
its assets and impairment of its capital needed for the
protection of creditor.
Trust Fund Doctrine subscription of the capital stock
of the corp constitute a fund which the creditors have
the right to look up to for the satisfaction of their
claims.
STEINBERG vs. VELASCO
May invest its funds means that an investment in the

form of money, stock, bonds, and other liquid assets
does not include real properties or other fixed assets.
Requirements and Procedure for VALID Investment of
Funds:
a. Resolution by majority of the BOD/T;
b. Ratification by the SH representing at least 2/3
OCS/members, in case on non-stock;
c. The ratification must be made at a meeting duly
called for that purpose;
d. Prior written notice of the proposed investment;
e. Any dissenting SH shall have the option to
exercise his appraisal right.
NOTE: The ratification or approval of the SH is NOT
ABSOLUTE. It applies only to investments that are
beyond the corporations primary purpose.
DELA RAMA vs. MA-AO SUGAR CENTRAL CO., INC.
When the investment is necessary to accomplish

its purpose/s as stated in the AOI, the approval
of the SH is NOT necessary.
POWER TO INVEST FUNDS (sec 42 CCP)

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GOKONGWEI, JR. vs. SEC
Mere ultra vires acts or those which are not

illegal and void ab initio, but they are not merely
within the scope of the APO, are merely voidable
and may become binding and enforceable when
ratified by the SH
POWER TO DECLARE DIVIDENDS (sec 43 CCP)

Dividends are corporate profits set aside, declared
and ordered by the BOD to be paid to SH, in
proportion of their respective capital.
The law requires that dividends are to be

declared out of the URE of the corp.
URE means the undistributed earnings of the corp

which have not been allocated for any managerial,
contractual, or legal purposes and which are free for
distribution to the SH as dividends.
It is well-settled that a corp has NO power to

declare dividends if its paid up capital is not
maintained or impaired.
The capital represent a trust fund which, at all
times, must be kept intact for the protection of
the creditors who have the right to rely on such
subscription and the paid-up capital for the

satisfaction of their claims.
Types of Dividends
1. Cash Dividends those that are payable in
lawful money or currency;
2. Property Dividends those that are paid in the
form of property instead of cash;
3. Stock Dividends refer to the corps shares of
stock itself or the certificates evidencing it.
GR: The BOD has exclusive authority as to WON the
corporation declare cash or property dividends.
EXCEPTION: Stock Dividends the approval of the SH,
representing 2/3 OCS is required.
EFFECT in Declaration of Dividends:
1. As to Cash or Property Dividends reduce corp
assets to the extent og dividends declared;
2. As to Stock Dividends increase the subscribed
paid up capital of the corp.
Authority to Declare Dividends.
GR: members of the BOD are te managers of the corp,
the power or authority to declare dividends is vested
in the BOD.

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It is absolute as long as they act in the exercise

of an honest and impartial judgment.
NOTE: Judgment of the BOD is conclusive EXPECT in

BF, or for dishonest purpose/act fraudulently,
oppressively, unreasonably, or unjustly or abuse of
discretion can be shown so as to impair the rights
complaining of the SH to their just proportion of
corporate profits.
Essntial test of BAD FAITH:: if the policy of the
directors is indicated by their personal interest rather
than the corporate welfare. In other words, there is a
conflict of interest.
When Dividend Rights Vest::
The right of the SH to be paid dividends vests as soon
as they have been lawfully and finally declared by the
BOD.
GR: NO revocation of dividends
EXCEPT:
a. It has not been officially communicated to the
SH in case of cash/property dividends;
b. Revocable anytime prior to distribution stock
dividends.
NOTE: Any dividend already declared when shares are

transferred belongs to the owner of the shares at the
time of the declaration. A subsequent transfer of such
stock would not carry with it the right to dividends
which have been declared but not yet paid.
** The declaration of dividends provides that it shall
be payable to the SH of record on specified future date
(unless agreed to the contrary). Therefore, whoever is
the registered owner on the specified record date is
entitled to the dividends.
NEILSON & CO., INC vs. LEPANTO CONSOLIDATED
MINING CO.
POWER TO ENTER INTO MANAGEMENT CONTRACT (sec

44 CCP)
Requirement for VALID Management Contract:
a. Resolution of the BOD;
b. Approval by the SH representing a majority of
the OCS/members of both the managing and
managed corporation;
c. The approval of the SH/members must be made
at the meeting called for that purpose;
d. The contract shall not be for a period longer
than 5yrs for any one term EXCEPT those which

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relate to exploration, development or utilization
of natural resources.
NOT ONLY majority BUT also by 2/3 of the OCS
/members would be required for the approval of
management contract under the following instances:
i. Where the SH representing the same interest of
both the managing and managed corporation
own or control more than 1/3 of the OCS of the
managing corp;
ii. Where majority of the members of the BOD of
the managing corp also constitute the majority
director of the managed cop;
iii. Where the contract would constitute the
management or operation of all or substantially
all of the business of another corp.
ULTRA VIRES ACT (sec 45 CCP)
Ultra-vires acts are those that can not be excuted or
performd by the corp because they are not within its
xpress, inherent, or implied powers as defined by its
charter or AOI.
If it acts beyond such power or authority, the

act thus performed is ultra-vires allowing
collateral attack upon the authority of the corp
to engage in such particularity endeavor.
Any transaction which is fairly incidental or

auxillary to the main business of the corp may
be undertaken it is NOT ultra-vires act UNLESS
expressly prohibited/illegal.
Ultra-vires Acts vs. Illegal Acts

Ultra-vires Acts
May no be necessariy be illegal
BUT merely acts beyond the
power of the corp to perform.
Merely voidable which may be
enforced
by
performace,
ratification or estoppel.
Illegal Acts
Those acts that are contrary t
law, morals, public policy o
order.
Acts are void and cannot b
validated.
Effects of Ultra-vires Act

1. On the Corp itself the proper forum may
suspend or revoked, after proper notice and
hearing, the franchise or certificate of
registration
of
he
corp
for
serious
misrepresentation as to what the corp can do or
is doing to the great damage or prejudice od the
general public
2. On the Rights of the SH a SH may bring either
an individual or derivative suit to enjoin a
threatened ultra-vires act or contract. liability
will depend on whether they acted in GF and

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with reasonable diligencein entering into
contract.
3. On the immediate parties
i. Executed Contract courts will not set
aside with such contracts;
ii. Executoy Contract no enforcement even
at the suit of either party (unenforceable)
iii. Partly executed and Partly executory
principle of unjust enrichment shall apply.
PRIVANO vs. DELA RAMA STEAMSHIP CO.
Donations which the corp has seen fit to give to

the children of the late Enrico Privano from the
point of view of the power of the corp as
expressed in its AOI. It may perhaps be argued
that the donation given to the children is so
large and disproportionate that it can hardly be
considered a pension or gratuity that can be
placed on a par with the instances abovementioned, BUT this argument overlooks one
consideration:
o The gratuity given was NOT merely
motivated by pure liberality or act of
generosity BUT by a deep sense of
recognition of the valuable services
rendered by late Privano which had
immensely contributed to the growth of
the corp to the extent that from its humble
capitalization it blossomed into a multimillion corporation that it is today.

CARLOS vs. MINDORO SUGAR CO.
When a contract is NOT on its face necessarily

beyond the scope of the power of the corp by
which it was made, it will, in the absence of
proof to contrary, be presumed to be valid.
Corp are presumed to contract within their
powers. The doctrine of ultra-vires, when
invoked for or against a corp, should no be
allowed to prevail where it would defeat the
ends of justice or work a legal wrong.
JAPANESE WAR CLAIMANTS ASSOC. vs. SEC
The AOI authorize the collection of fees from

members; BUT they do not autorize the corp to
engage in the business of registering and
accepting war notes for deposit and collecting
fees from such service.
The contention that the association has
authority to accept and collect fees for
reparation claims for civilian casualties and
other injuries is beyond the powers of the
association as embodied in its AOI. It has
absolutely no relation to the avowed purpose of

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the association to work for the redemption of
war notes.
CRISOLOGO-JOSE vs. CA
The NIL which holds the accommodation party

liable on the instrument to a holder for value,
although such holder at the time of taking the
instrument knew him to be only on an
accommodation does not include nor apply to
corp which are accommodation parties. This is
bec the issue or indorsement of negotiable
paper by a corp without consideration and for
the accommodation of another is ultra-vires
By way of EXCEPTION, an officer or agent of a
corp shall have the power to execute or indorse
a negotiable paper in the name of the corp for
the accommodation of a third person only IF
specifically authorized to do so.
Corollarily, corp officers have no power to
execute for a mere accommodation a negotiable
instrument of the corp for their individual debts
or transactions arising from or in relation to
matters in which the corp has no legitimate
concern.
VIII.
BY-LAWS (sec 46 CCP)
By-laws are rules and ordinances made by a corp for

its own government; to regulate the conduct and
define the duties of the SH or memberstowards the
corp and among themselves.
Ways and Rules in Adoption of By Laws
A. After the issuance of certificate of incorporation
1. Must adopt by-law within 1 month after the
issuance of cert of incorporation;
2. Must be an affirmative vote of MAJORITY
OCS/members;
3. The by-laws shall be signed by the SH;
4. The same must be kept in the principal office
subject to inspection of SH during office
hours;
5. Copy thereof, duly certified by the majority of
the directors/trustees countersigned by the
secretary, shall be filed with SEC which shall
be attached to the AOI.
B. Prior to the issuance of certificate of
incorporation or Upon submission of AOI with
SEC.
1. By-laws shall be approved and signed by ALL
the INCORPORATORS; and
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2. Submission with SEC together with AOI (it
must be adopted on the same date of
submission of AOI)
NOTE: SEC shall not accept for filling the by-laws or
amendment thereto of any bank, banking institution,
building and loan association, trust company,
insurance company, public utility, educational
institution, or other special corp governed by special
UNLESS accompanied by a certificate of the
appropriate agncy to the effect that such by-laws or
amendments ae in accordance with law.
Effectivity of By-Laws:
it shall take effect upon the issuance by the SEC
of a certification that the by-laws are not
inconsistent with law.
hearing, although it will NOT result to an outright

demise or dissolution of the corp.
Elements of Valid By-laws:
1. It must not be contrary to law, public policy, or
morals;
2. It must not be consistent with the AOI;
3. It must be general and uniform in its effect or
applicable to all alike or those similarly situated;
4. It must not impair obligation and contract or
vested rights;
5. It must be reasonable.
In case of discrepancy between AOI and by-laws, AOI

prevails.
Two Modes of Amendment of By-laws (sec 48

CCP)
1. By majority vote of the directors/trustees and
the majority vote of the OCS/members in
nonstock corp at a regular or special meeting
called for that purpose;
2. By the BOD alone when delegated by 2/3 of the
OCS/ 2/3 members in non-stock corp, which are
entitled to vote.
This delegated power is revoked
whenever
a
majority
of
the
OCS/members
shall
vote
at
a
regular/special meeting.
FAILURE to adopt by-laws, may result to suspension or

revocation of its corp franchise after proper notice and
LOYOLA GRAND VILLAS HOMEOWNERS ASSOC INC vs.

CA
Contents of By-laws (sec 47 CCP)

By-laws may be necessary for the government of the
corp BUT they are subordinate to the AOI as well as
the corp code.

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Failure to file by-laws within the period does not

imply the demise of the corp.
Settled that by-laws may be necessesary for the
govt of the corp BUT these are subodinate to the
AOI as well as to the CCP and related statute.
NO automatic dissolution of the corp simply
because the incorporators failed to abide by the
required filing of by-laws. The SEC, in case of
failure to file by-laws on time, may impose
penalty but it is merely imposition of an
administrative fine without affecting the corp
existence of the erring firm.
GOVERNMENT vs. EL HOGAR FILIPINO
FLEISCHER vs. BOTANICA NOLASCO INC.
As GR the by-laws are valid if they are

reasonable and calculated to carry into effect
the objects of the corp and not contrary to the
general policy f the laws of the land.
By laws are INTENDED merely for the protection
of the corp, and prescribe regulation and NOT
restriction.
The jus dispodendi, being an incident of the
ownership of property, the general rule is that
every owner of corp shares has the same
uncontrollable right to alienate them which
attached to the ownership of any other species

of prop.
A SH has no obligation to refrain from selling his
shares at the sacrifice of his personal interest, in
order to secure the welfare of the corp, or to
enable another SH to make gains and profits.
Upon failure of a quorum at any annual meeting

the directorate naturally holds over and
continues to function until another directorate is
chosen and qualified. Unless the law or the
charter of a corp expressly provides that an
office shall become vacant at the expiration of
the term of office for the which the officer was
elected, the general rule is to allow a hold over
until his successor is duly qualified.
Mere failure of the corp to elect officer does not
terminate the terms of existing officers nor
dissolve the corp. It results that the practice of
directorate of filling vacancies by the action of
directors themselves is valid.
GOKONGWEI JR vs. SEC
Settled rule that corps have the power to make

by-laws declaring a person employed in the

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IX.
service of a rival company to be ineligble for the

corps BOD. (valid)
This is based upon the principle that where the
director is so employed in the service of a rival
company, he cannot serve both, but must
betray one or the other.
It is also well-settled that corp officers are not
permitted to use their position of trust and
confidence to further their private interests.
MEETINGS (sec 49 CCP)
3. It
4. It
A. STOCKHOLDERS MEETING (sec 50 CCP)

Requisites for Valid SHs meeting:
1. It must be held on the fixed date in the by-laws
or in accordance with law;
Exceptions where annual meeting cannot be
held on time for some valid and meritorious
reasons, i.e. force majeure or the inability to
obtain the required quorum.
2. There must be prior notice given;
Regular meeting 2 weeks; Special 1 week
(NOT ABSOLUTE) unless by-laws provide
otherwise.
Failure to give prior notice renders the
resolution made voidable at the option of the
SH who was not notified.
Notice may be waived, expressly or impliedly.

o Implied waiver the fact that a SH
attended the meeting even without
prior notice.
o Express waiver
must be held at the proper place;
Meetings of SH must be held in the
city/municipality where the PO of the corp is
located EXCEPT non-stock corp
must be called by the proper party;
BOD has the authority to call for the meeting,
regular or special. However, the President of
the corp presides at the meeting.
Who are authorized to call for a meeting?

a. Person/s authorized under the by-law provision;
b. In the absence of any provision in the by-laws,
the President;
c. By the secretary on order of:
a. the President; or
b. on written demand of the SH representing
majority of the OCS/members entitled to
vote; or
c. the SH/member making the demand if
there is or the secretary refuses to do so;
PONCE vs. ENCARNACION

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5. Quorum and voting requirements must be met.

Basis of determining quorum:
a. In case of Stock Corp, total subscription of
the SH, irrespective of the amount paid by
them;
b. In case of Non-Stock Corp, total number of
registered voting members;
NOTE: Where a quorum is once present to organize a
SH meeting, it is not broken by subsequent withdrawal
of a part or fraction of the SH, whether present in
person or in proxies.
Types of SHs meeting
1. Regular meeting; requirements:
a. It shall be held annually on a date fixed in
the by-laws, if not fixed, on any date of
April of every year (reason for April: point
in time the audited financial statement
have been preprared by the auditors)
b. There must be written prior notice to all
SH/members of record at least 2 weeks
prior to the meeting unless period is
required by the by-laws.
2. Special meeting; requirements:
a. It shall be held at anytime deemed
necessary;
b. There must be written prior notice to all

SH/members of at least 1 week unless
otherwise provided in the by-laws;
NOTE: Notice of any meeting may be
expressly or impliedly, by any SH/member.
waived,
d. On order of the proper forum.

In the absence of the authorized person to call for a
meeting, the SEC upon petition of a SH/member and
upon showing of good cause, may issue an order to
the petitioning SH/member directing him to call a
meeting of the corp by giving prior notice required by
the by-laws or the law.
The presiding officer shall preside thereat
until at least a majority of the SH/members
present have chosen one of their number as
presiding officer.
GR: SH have no power to act as or for the corp
EXCEPT: at a corp meeting called and conducted
according to law.
REASON: the need to protect the SH by providing
them with notice of meeting and giving them
opportunity to attend the meeting discuss the issues
and vote.

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NOTE: teleconference on directors meeting is valid.
B. DIRECTORS/TRUSTEES MEETING (sec 53 CCP)

Types of D/Ts meeting:
1. Regular meeting shall be held monthly
unless the by-laws provides otherwise.
2. Special meeting may be held anytime upon
the call of the President or as provided in the
by-laws.
NOTE: Directors meeting, regular or special, may be
held anywhere in or outside of the PH unless the bylaws provide otherwise.
Notice of meeting, regular or special, must be sent to
every director at least 1 day prior to the scheduled
meeting unless otherwise provided by the by-laws.
Purpose of Notice
To determine the legality and binding effect
of the resolution passed thereon.
If notice requirement not complied with, the
meeting is illegal and will not bind the corp.
EXCEPTION: A special meeting is valid without notice
where the directors are all present or where they
consent to the meeting. presence in the meeting
tantamounts to waiver of the want of notice.
STOCKHOLDERS RIGHT TO VOTE AND MANNER OF

VOTING
Right to vote is a right that is inherent in and
incidental to the ownership of corporate stock, and as
such, it is a property right.
It is a right which cannot be deprived of, nor can
be impaired by either the legislature or by the
corp without his consent, through amendment of
the charter or AOI or by-laws.
GR: A SH can vote his shares the way he pleases
Except it is restricted by law, AOI, or the by-laaws of
the corp. Among the EXCEPTIONS are the ff:
a. Non-voting shares are not entitled to vote;
b. Treasury shares;
c. Shares of stock of declared delinquent;
d. Unregistered transferees of shares of stock.
NOTE: Treasury shares shall have no voting rights.
REASON: to prevent the incumbent directors or
officers of the corp from perpetuating themselves as
such or prolong their stay in the office by voting on
the shares of stock reacquird by it.

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PROXY AND OTHER REPRESENTATIVE VOTING (sec 58
CCP)
Proxy is properly the authority given by the
SH/member to another to vote for him at a SHs
meeting/
As a rule, Directors/Trustees are NOT allowed to

vote for proxy BEC they are elected as such for
their expertise in the management of the corp.
GR: Proxy voting is a right granted by law to all SH

entitled to vote in Stock Corp.
EXCEPT: 1. Non-stock corp; 2. in a stock corp, the bylaw may prohibit the use of proxies.
Requisites for Valid Proxy:
1. it must be in writing;
2. signed by the SH/member or his duly authorized
representative;
3. filed on or before the scheduled meeting with
the corp secretary.
*Notarization is not required for its validity.
Types of Proxies
1. General gives general power of attorney to

vote for directors and all ordinary matters that
may properly come before a meeting.
2. Limited restricts the authority to vote on
specified matters only and may direct the
manner in which the vote will be cast.
A proxy is REVOCABLE unless complied with an
interest and revocation need not be made by formal
notice in writing.
Proxy may be expressed to the:
i. Proxy holder;
ii. Election committee;
iii. By a subsequent proxy to another; or
iv. By sale of the shares.
(For VTA refer to Chapter VI. Page xxviii)
VOTING TRUST
Beneficial owner ceases to be
the SH of record of the corps ice
the shares are transferred to the
trustee
Vote as owner of the shares
Beneficial owner is disqualified
to be a director in a voting trust
PROXY
Legal title remains
beneficial owner
with
th
Votes merely as agent

Owner of the shares may b
elected as such since legal tit
thereof remains with him
Purpose is to acquire voting Purpose is to secure voting an
control over the corp
quorum requirements

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Subscription
contract any contract for the acquisition
Revocable UNLESS coupled
with
of unissued stock in an existing corp or a corp still to
interest it becomes irrevocable
be formed shall be deemed a subscription.
Trustee can act and vote at any Can vote only for specified
meeting during the duration of meeting
NOTE: Theres no distinction between purchase and
VTA
subscription.
VTA may exceed 5yrs
Shorter duration and may
not
exceed 5yrs
** Aissubscription
contract need not be in writing such
Must be notarized and filed with Need not be notarized nor
it
that an oral contract of subscription is valid and
SEC
required by law
enforceable under the statute of fraud.
irrevoable
NATIONAL INVESTMENT $ DEVT CORP vs. AQUINO
Corp is not a privy in the VTTA. Hence, it has no

locus standi/personality to enforce the VTA by its
SH.
X. STOCKS AND STOCKHOLDINGS

Way to become a SH:
1. By contract of subscription with the corp;
2. By purchase of treasury shares from the corp;
3. By purchase or acquisition of shares from
existing SH.
Subscription mutual agreement between the
subscribers to take and pay for the stocks of a corp.
Subscription may be made upon:

1. Conditional Subscription ore one made upon a
condition precedent, does not make the
subscriber amenable or render him to pay the
amount of his subscription, until performance or
fulfillment of the action.
2. Subscription Upon Special Terms an absolute
condition making the subscriber a SH, rendering
him liable as such, as soon as the subscription is
accepted.
NOTE: In case of doubt as the the subcriptions, it
should be considered as an absolute subscription upon
special terms.

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Also, conditional subscriptions are valid PROVIDED

1. there is nothing in the charter prohibiting the
same; and
2. the conditions are not such as to render their
performance beyond the powers of the corp or
in violation of law or contrary to public policy.
TRILLANA vs. QUEZON COLLEGE INC.
PRE-INCORPORATION SUBSCRIPTIONS (sec 61 CCP)

Pre-incorp
Subscription
make
reference
to
subscriptions for shares of stock of a corp still to be
formed. (mandatory)
Subscription of shares of a corp still to be
formed shall be irrevocable for a period of at
least 6months from the date of subscription
EXCEPT: all of other subscribers consent to
revocation OR the incorporation of said corp fails
to materialize within the period.
EXCEPTION to EXCEPTION: No pre-incorporation
subscription may be revoked after the
submission of AOI to SEC.
Post-incorp Subscription are those made or executed
after the formation or organization of the corp.
NOTE: Stock issuance is generally the initial and

primary source of corporate capital. Corp earnings
may also be a source of corp funds if it is reinvested or
ploughed back to the company.
Issue generally employed to indicate the making of a
share contract or contract of subscription, that is,
transaction by which a person becomes the owner of
shares and by which new share contracts are created.
Par or Issue Price merely indicates the amount which
the original subscribers are supposed to contribute to
corp capital as the basis of the privilege of profit
sharing with limited liability.
NOTE: Set off or satisfaction of debt due from corp is a
lawful and valid consideration for the issuance of stock
as provided in the Code.
Amounts transferred from URE to stated capital refer
to the declaration and distribution of stock dividend
where corporate earnings are capitalized rather than
being distributed as cash dividend.
Outstanding shares exchanged for stock in the event
of reclassification or convention speaks of shares of
stock surrendered to the corp in exchange for new or
different type of shares.

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NOTE: Promissory notes and future services are NOT

allowed to be used as consideration for the issuance
of shares as their realization are NOT certain.
consideration of a proportionate right to participate in

dividend and other distributions.
Certificate of Stock is the piece of paper or
document which evidences the ownership of shares
and a convenient instrument for the transfer of title.
NATIONAL EXCHANGE CO., INC. vs. DEXTER
GR: Agreement between a corp and a particular

subscriber, by which the subscription is not to
be payable , or is to be payable in part only is
illegal and void as in fraud of other SH or
creditors or both and cannot be either enforced
by the subscriber or interposed as a defense in
an action on the subscription.
The stipulation which obligates the corp to pay
nothing for the shares except as dividends may
accrue upon the stock is illegal, In the
contingency that no dividends are declared and
paid, there is no liability at all. This is a
discrimination in favor of the particular
subscriber and, hence, the stipulation is
unlawful.
CERTIFICATE OF STOCK AND THEIR TRANSFER (sec 63

CCP)
Share of Stock profit sharing contract, a series of
units of interest and participation in a corp in
NOTE: Shares of stock are personal properties and the

owners have absolute right to transfer the same to
anyone they please subject only to reasonable charter
provisions.
Shares of stock so issued are personal property
and may be transferred by delivery of the
certificate or certificates indorsed by the owner
or his attorney in fact or other person legally
authorized to make the transfer.
No transfer of stock shall be valid EXCEPT as
between parties, UNTIL the transfer is recorded
in the books of corp.
No shares of stock against the which the cor
holds any unpaid claim shall be transferable in
the books of the corp. Thus, No certificate of
stock shall be issued until the full amount of his
subscription
together
with
interest
and
expenses, if any is due, has been paid.
Requisites for the Issuance of Certificate of Stock:
1. It must be signed by the President/VP and
countersigned by the secretary or asst. sec.;

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2. It must be sealed with corp seal; and
3. The entire value should have been paid.
Holders of subscribed shares not fully paid which are
not delinquent shall have all the rights of a SH.
** Issuance of stock cert is not a condition sine qua
non to consider a subscriber a SH. The moment his
subscription becomes effective, he becomes a SH for
all intents and purposes EXCEPT only that he cannot
be issued stock cert until full amount of his
subscription is paid.
Instances when a SH may not be able to exercise his
right as such:
1. When his shares are declared delinquent;
2. When he exercises his appraisal right.
NOTE: A certificate of stock is NOT regarded as
negotiable even if it is endorsed in blank. it is merely
quasi-negotiable.
** The Rule on Non-Negotiability of Certificate of Stock
is subject to the equitable principles of estoppel. the
doctrince which states that a bona-fide purchaser of
such certificate will acquire no better title to the
shares than his transferor had, and that he took the
shares subject to all rights, remedies, and defenses
which the true and lawful owner may have no matter
how innocent or ignorant the purchaser or transferee

may have been, will have no application where
estoppel governs.
NOTE:
1. Transfer of shares AND recorded in the
books of corp is VALID as to the corp and 3rd person;
2. Transfer of shares WITHOUT recording in the
books of corp is VALID only between parties.
Effects of NonRegistration:
a. Cannot enjoy the status of SH;
b. Cannot vote nor be voted for; and
c. Will not be entitled to dividends.
Purpose of Registration:
a. To enable the transferee to exercise all the right
of a SH; and
b. To inform the corp of any change in shares of
ownership.
Registration is NECESSARY for the following reasons:
a. To enable the corp to know who its SH are;
b. To enable the transferee to exercise his rights as
SH;
c. To afford the corp an opportunity to object or
refuse registration of the transfer;
d. To avoid fictitious and fraudulent transfers; and

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e. To protect creditors who have right to look upon
SH, in case of non payment or watered shares,
for the satisfaction of their claims.
** The duty of corporate secretary to record the
transfer of shares is MINISTERIAL. Hence, refusal or
failure to do so, mandamus will lie.
RURAL BANK OF SALINAS vs. CA
As a rule, no restriction as to whom the stocks

may be transferred. The only LIMITATION is
when the corp holds any unpaid claim against
the shares intended to be transferred.
The right of a transferee/assignee to have the
stocks transferred to his name is an inherent
right flowing from his ownership of the stocks.
Thus, whenever a corp refuses to transfer and
register stock, mandamus will lie to compel the
officers of the corp. to transfer said stock in the
books of the corp.
Instances Mandamus will NOT lie:

The contract of pledge does not make him the
owner of the shares pledged.
o Further, the contract of pledged contained
a common proviso which states that in the
event of failure of the pledgor to pay the
amount within a period of 6months from
date thereof, the pledgee is hereby

authorized to foreclose the pledge upon
the said shares of stock hereby created by
selling the same at public/private sale
with/without notice to the pledgor, at
which case the pledgee may be the
purchaser at his option, and the pledgee is
hereby authorized an empowered at his
option to transfer the said shares on the
books of corp.
There is no showing that there was an attempt
to foreclose or sell the shares through public or
private auction. Therefore, ownership of the
shares could not have passed to him.
Modes of Transferring of Shares of Stock

1. By endorsement of the stock cert COUPLED with
delivery (if the corp has already issued a stock
cert);
2. By duly notarized deed. (if theres no stock cert
issued.)
EMBASSY FARMS vs. CA
No delivery of indorsed shares of stock cannot

effectively transfer to otger person or his
nominees the undelivered shares of stock.
For an effective transfer of shares of stock the
mode and manner of transfer as prescribed by

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law must be followed. As the law provides that
shares of stock may be transferred by delivery
to the transferee of the certificate properly
indorsed. However, no transfer of stock shall be
valid, EXCEPT, as between parties until the
transfer is properly recorded in the books of the
corp.
RAZON vs. IAC
Indorsement of the certificate of stock is

mandatory requirement for an effective transfer
of certificate of stock.
NOTE: The right to transfer shares of stock may not be

unreasonably restricted or prohibited. The SC held the
every owner of corp shares has the same
uncontrollable right to alienate them and is under no
obligation from selling them at his sacrifice and for the
welfare and benefit of the corp and other SH.
**Unreasonable restriction as rule is NOT allowed. The
right to transfer may, however. Be regulated to give
the corp protection against colorable or fraudulent
transfer or to enable it to know who its SH are.
SEC allows preferential rights to existing SH and/or
corp, giving them the first option to purchase the
shares of a selling SH within a reasonable time bit
exceeding 30days provided that the same is contained

in the AOI.
*Restrictions must be made in the AOI and should be
subject to reasonable terms and conditions.
EXCEPTION: In CLOSE CORP they are REQUIRED to
provide restriction and preferences. It must be stated
in the AOI, stock certificate and by-laws. Otherwise, it
will not bind purchaser in GF.
Other restrictions on the right to transfer shares would
include:
a. It is not valid, except as between parties, until
recorded in the books of corp;
b. Shares of stock against which the corp hold any
unpaid claim shall not be transferable in the
books of corp;
* Unpaid claims refer to claims arising
from unpaid restriction and not to any
indebtedness which a SH may owe the corp such
as monthly dues.
c. Restrictions required to be indicated in the AOI,
by-laws and stock cert in Close corp;
d. Restrictions imposed by special law;
e. Sale to aliens in violation of maxmum ownership
of shares under the Nationalization Laws;
f. Those covered by reasonable agreement.
LAMBERT vs. FOX

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GR: Stipulation in the contract suspending the

power to sell is an illegal stipulation. EXCEPTION:
the power to sell has a beneficial purpose,
results in the protection of the corp as well as of
the individual parties to the contract, and is
reasonable as to the length of time of
suspension.
RURAL BANK OF SALINAS vs. CA
As a rule, no restriction as to whom the stocks

may be transferred. The only LIMITATION is
when the corp holds any unpaid claim against
the shares intended to be transferred.
The right of a transferee/assignee to have the
stocks transferred to his name is an inherent
right flowing from his ownership of the stocks.
Thus, whenever a corp refuses to transfer and
register stock, mandamus will lie to compel the
officers of the corp. to transfer said stock in the
books of the corp.
* transfer, in transfer of stock cert, refers to

ABSOULUTE and UNCONDITIONAL transfer to warrant
registration in the books of the corp in ordr to bind the
latter and other 3rd person.
GR: Shares of corp stock, the owner of such may

dispose of them as he sees fit.
MONSERRAT vs. CERON
Only transfer or ABSOLUTE CONVEYANCE of

ownership of the title to a share need be
entered and noted upon the books of the corp in
order that such transfer may be valid.
Therefore, a chattel mortgage is not the transfer
hich transfer should be entered and noted upon
the books of a corp in order to be valid, and
which means the absolute and unconditional
conveyance of the title and ownership of a share
of stock.
CHUA GUAN vs. SAMAHANG MAGSASAKA INC.
Two ways for Executing a Valid Chattel Mortgage

which shall be effective against third persons.
o First, the possession of the property
mortgage must be delivered to and
retained by the mortgage; and
o Second, without such delivery the
mortgage must be recorded in the proper
office/s of the register/s of deeds.
If the chattle mortgage of shares of stock of a
corp may validly made without the delivery of
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possession of the prop to the mortgage and the

mere registration of the mortgage is sufficient
constructive notice to third parties.
** As to the proper registration of the mortgage,
GR: the mortgage shall be registered in the
province where the mortgagor resides at the
time of making the same OR EXCEPT (1)if the
person is non-resident, in the place where the
property is situated; and (2)if the prop is
situated in different province, in which the
mortgagor resides, the mortgage shall be
recorded in BOTH in the province of mortgagors
residence and place where the prop is situated.
The situs of shares of stock is at the domicile of
the owner/corp. As a rule, for purposes of
execution, attachment, and garnishment, it is
not the domicile of the owner of stock cert BUT
the domicile of the corp which is decisive. The
prop in the shares may be deemed to be
situated in the province in which the corp has its
principal office or place of business.
If the province is also the domicile of owners
domicile, a single registration is sufficient. If not,
the chattel mortgage should be registered BOTH
at the owners domicile and in the province
where the corp has its principal office.
PADGETT vs. BABCOCK & TEMPLETON
Shares of stock being regarded as property, the

owner of such shares may, as a rule, dispose of
them as he sees fit UNLESS (1) the corp has
been dissolved, or (2) unless the right to do so
is properly restricted, or (3) the owners
privilege of disposing his shares has been
hampered by his own action.
A SH cannot be controlled or restrained from
exercising his right to transfer by the corp or its
officers or by other SH, even though the sale is
to a competitor of the company, or to a
insolvent person, or even though a controlling
interest is sold to one purchaser.
NAVA vs. PEERS MARKETING
A corp cannot release an original subscriber

from paying his shares without a valuable
consideration or without the unanimous consent
of SH.
Well settled rule that without certificate of stock,
which is the evidence of owership of corp stock,
the assignment of corp shares is effective only
between parties to the transaction.
The delivery of stock cert is essential for the
protection of both the corp and its SH.
RURAL BANK OF LIPA vs. CA

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MJGAMBON
Requisites for a Valid Transfer of Shares:

a. There must be delivery of stock cert;
b. The certificate must be endorsed by the
owner or his atty in fact or other person
legally authorized to make transfer;
c. To be valid against third parties, the
transfer must be recorded in the books of
the corp;
Non-compliance therewith, assignment is valid
only between parties. Consequently, the
assigness cannot enjoy the status of a SH;
cannot vote not be voted for, and will not be
entitled to dividends in so far as the assigned
shares are concerned.
TAN vs. SEC

Exception to the rule that delivery of stock cert
is necessary.
o Where it appears that the person sought
to be held as SH are officers of the corp
and have the custody of the stock book.
WON vs. WACK WACK GOLF & COUNTRY CLUB,INC.
The moment the certificate of stock was

assigned, the right to have the assignment
registered commenced to exist BUT it would not
follow that said right should be exercise

immediately or within the a definite period. As it
is already observed, there is no fixed period for
registering an assignment.
Statute of Limitations will not apply.
FORGED AND UNAUTHORIZED TRANSFERS

Forged and Unauthorized Transfer means what is
forged is the transfer of the certificate of stock from
the true and lawful owner to another person.
Unauthorized Issuance of Stock Cert refers to the act
in issuing the certificate, either fraudulently or by
mistake.
EFFECT of Forged or Unauthorized Transfer:
The purchaser will acquire NO title as against
the lawful owner thereof by virtue of the
doctrine of non-negotiability of certificates of
stock.
However, subsequent purchaser in gf took the
shares not by virtue of a forged or unauthorized
sale BUT on reliance of the genuineness of the
cert issued by the corp OR by virtue of the
representation made by the corp that the same
is valid and subsisting and that the person
named therein is SH. He may, therefore, compel

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Corporation Code
MJGAMBON
the corp to recognize him as a SH, or claim
reimbursement and damages against the latter.
4. In the guise of stock dividends when there are

no surplus profis of the corp.
WATERED STOCKS (sec 65 CCP)

One which is issued by the corp as fully paid-up
shares, when in fact the whole amount of the value
thereof has not been paid in full. (PROHIBITED)
Effects of issuance of watered stocks (Evil Effects):

1. The corp is deprived of its capital thereby
hurting
its
business
prospects
financial
capability and responsibility;
2. SH who paid their subscriptions in full are
injured and prejudiced by the reduction of their
proportionate interest in the corp;
3. Present and fututre creditors are deprived of the
corp assets for the protection of their interest.
Any director/officer of the corp consenting to the

issuance of stocks for a consideration less than its par
or issued value or for a consideration in any form
other than cash, valued in excess of its fair value, or
who having t=knowledge thereof, does not fortwith
express his objection in writing and file the same with
the corp sec, shall SOLIDARILY LIABLE with the SH
concerned to the corp and its creditors for the
difference between the fair value received at the time
of issuance of the stock and the par or issued value of
the same.
Fraud or Misrepresentation Theory liability is based

on the false representation made by the corp and the
SH concerned to the creditors that the true par value
or issued price of the shares has been paid or
promised to be paid in full.
Effects of Issuance of Watered Stocks:
Watered Stock may be issued in either of the following

ways:
1. For a monetary consideration less than its pr or
issued value;
2. For a consideration in property, valued in excess
of its FMV;
3. Gratuitously or under agreement that nothing
shall be paid at all;
a. As to the Corp when the corp is guilty of

ultra-vires/illegal acts, the State may institute a
quo warranto proceedings to forfeit its charter
for the misuse/abuse of its franchise.
b. As between the Corp and the SH
subscription is void. To render it valid and
effective, the subscriber is liable to pay the full
issued value.

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MJGAMBON
c. As to the Consenting SH they are estopped
from raising any objection thereto.
d. As to the Dissenting SH they may be
compelled the payment of the water in the stock
solidarily against the responsible and consenting
directors/officers.
e. As to the Creditors they may be enforced of
the difference in he price or the water in the
stock
solidarily
against
the
responsible
directors/officers and the SH concerned;
f. As against of the Watered Stock same
right as that transferor.
If, however, a cert of stock has been issued and duly
indorsed to a bona fide purchaser, without knowledge,
actual or constructive, the latter cannot be held liable,
at least as against the corp, since he took the shares
on reliance of the misrepresentation made by the corp
that the stock cert is valid and subsisting.
ENFORCEMENT OF PAYMENT OF SUBSCRIPTIONS
Unpaid Subscription shall be paid either:
1. On the date/s fixed in the contract of
subscription;
2. On the date/s that may be specified by the BOD
pursuant to a call declaring any or all unpaid
portion thereof to be so payable.
Two Possible Remedies to Eforce Payment of Unpaid

Subscription:
1. By board action in accordance wih the precedure
laid down is sec sec. 67-69 of the Code; anf
2. By collection case in court.
** Failure/refusal of the court to enforce or collect
payment of unpaid subscription will NOT prevent the
creditors or the receiver of the corp to institute a court
action to collect the unpaid portion thereof. BEC the
capital of the corp. is the basis of the credit of and
financial responsibility of the corp. (Trust Fund
Doctrine)
PAYMENT OF BALANCE SUBSCRIPTIONS: (sec 67 CCP)
1. Payment shall be made UPON the call
(anytime) of the BOD as it may deem necessary
EXCEPT the contract of subscription provides;
2. Payment of UNPAID subscription shall be made
on:
a. The stated in the call made by the Board;
or
b. The date stated in the contract of
subscription.
**Failure to pay on such date render the entire
balance due and payable and and shall make the SH
liable for interest at the legal rate UNLESS a different
rate of interest is provided in the by-laws.

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MJGAMBON
If within 30days from the said date of payment
of the balance no payment is made, ALL stocks
covered by said subscription shall become
DELINQUENT and shall be subject to sale
UNLESS the BOD orders otherwise.
The delinquent stock shall be sold at PUBLIC

AUCTION to such bidder who shall offer to pay the full
amount of the balance together with accrued interest,
costs of advertisement and expense of sale, for the
smallest number of shares. (Highest Bidder)
DELINQUENCY SALE (sec 68 CCP)

1. The BOD may, by resolution, order:
a. the sale of delinquent of delinquent stock
and
b. shall specifically state the amont due on
each subscription
c. plus all accrued interest, and
d. the date, time and place of the sale which
shall not be less than 30 days nor more
tha 60 days FROM the date the stocks
become delinquent.
2. Notice, with a copy of the reso, shall be sent to
every delinquent SH either personally or by
mail.
3. Publication by once a week for 2 consecutive
weeks in a newspaper of general circulation in
the province or city where the principal office of
the corp is located. NOTE: Publication of notice
of call is NOT required unless the by-laws
provide otherwise.
** Should there be NO BIDDER at the public auction,

the corp may bid for the same PROVIDED theres URE
except redeemable shares or in Close Corp, and the
total amount due shall be credited as paid in full in the
books of the corp. The shares so purchased by the
corp shall be vested in the latter as treasury shares.
MODE of SELLING the DELINQUENT STOCK:
Summarized Procedure:
1. The BOD, by formal Resolution, declares the
whole or any percentage of unpaid subscriptions
to be due and payable on a specified date.
Howver, if the contract of subscription provides
for the date/s when payment is due, NO call
by the board is necessary.
2. The SH concerned are given notice of the Board
Reso by the corp either personallu or by
registered mail. Publication of notice of call is
not required unless the by-laws provide
otherwise. Notice is not likewise necessary if
the contract of subscription stipulates a specific

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Corporation Code
MJGAMBON
date when an unpaid portion is due and
payable.
3. Payment shall be made on the date specified in
the call or on the date provided in the contract
of subscription.
4. Failure to pay on the date required in the call or
as specified in the contract of subscription will
render the entire balance due and payable and
making the SH liable for interest.
5. If within 30days from the date stated in the call
or in the contract of subscription no payment is
made, all stock covered by the subscription shall
become delinquent and shall be subject to
delinquency sale.
6. The Board, bby resolution, orders the sale of
delinquent stock stating the amount due and the
date, time and place of the sale.
7. The sale shall be made not less than 30 days
nor more than 60 days from the date the stocks
become delinquent.
8. Notice of sale, with copy of reso should be sent
to every delinquent SH either personally or
registered mail.
9. Publication of notice of sale must be made once
a week for 2 consecutive weeks in the
newspaper of general circulation in the province
where the principal office is located.
10.
Sale at public auction if NO payment is
made by the delinquent SH in favor of the
bidder who offered to pay the full amount of the

balance in the subscription for the smallest
number of shares.
11.
Registration or transfer of the shares of
stock in the name of the bidder and
corresponding issuance of the stock cert
covering the shares successfully bidded.
12.
If there be any remaining shares, the
same shall be credited in favor of the bidder
who shall be entitled to the issuance of a
certificate of stock covering such shares.
13.
If there is NO bidder, the corp may bid
PROVIDED theres URE except redeemable
shares or in Close Corp, and the total amount
due shall be credited as paid in full in the books
of the corp.
14.
The shares so purchased by the corp shall
be vested in the latter as treasury shares.
WHEN SALE MAY BE QUESTIONED (sec 69 CCP)
NO ACTION to recover delinquent stock can be
sustained upon the ground of (1) irregularity or defect
in the sale, or (2) in the sale itself of delinquent stock
UNLESS the party seeking to maintain such action:
1. First pays to the party holding the stock sum
for which the same was sold, with interest
from the date of the sale at the legal rate;
and

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2. It is commence by the filling of a complaint
within 6 months from the date of sale.
b. by action in court as provided in sec 49

CCP nothing in this Act shall prevent
the directors from collecting, by action
in any court of proper jurisdiction, the
amount
due
on
any
unpaid
subscription, together with accrued
interest and costs and expenses
incurred.
Call is a condition precedent before the right of

action accrues OR before the SH declares to be
delinquent, upon call and non-payment of the same.
However, NO call is necessary if the contract of
subscription provides for a date/s when payment is
due, or when the corp has become insolvent.
DE SILVA vs. ABOITIZ & CO.

VELASCO vs. POIZAT
A stock subscription is a contract between the

corp and the subscriber and courts will not
enforce it for or against either. It is a rule that a
subscription of shares of stock does not require
an express promise to pay the amount
subscribed, as the law implies promise to pay on
the part of the subscriber.
The subscriber is as much bound to pay the
amount of the share subscribed by him as he
would be able to pay any other debt, and the
right of the company to demand payment is no
less incontestable.
2 REMEDIES FOR ENFORCEMENT OF STOCK
SUBSCRIPTION:
a. permitting the corp to put up the
unpaid stock and dispose of it for the
account of the delinquent subscriber;
It is discretionary on the part of the BOD to

declares the unpaid shares delinquent or collect
or enforce payment of the same despite the
provision of the by-laws of the corp.
LINGAYEN GULF ELECTRIC POWER, INC. vs. BALTAZAR
As a rule, NOTICE of any CALL for the payment

of unpaid subscription should be made not only
personally but also by publication. the reason
for this is not only to assure notice to all
subscribers but also to assure equality and
uniformity in the assessment on SH.
EXCEPTION to the rule: when the corp becomes
INSOLVENT, with the proceedings instituted by
the creditors to wind up and distribute its assets,
NO call is necessary before the institution of
suits to collect unpaid balance on subscription.

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MJGAMBON
BUT when the corp is SOLVENT,

call is
mandatory.
Therefore, the GR: a valid and binding
subscription for stock of a corporation cannot be
cancelled so as to release the subscriber from
liability thereon without the consent of all the
SH/subscribers.
EXCEPTION:
1. When theres a bona fide compromise;
2. To set off a debt due from the corp;
3. Release supported by consideration, will be
effectual as against dissenting SH and
subsequent and xisting creditors.
APOCADA vs. NLRC
NLRC has no jurisdiction to determine such intracorporate dispute between the SH and the corp
as in the matter of unpaid subscriptions.
Assuming the NLRC has jurisdiction with the
case, the unpaid subscriptions are not due and
payable UNTIL a call is made by the corp for
payment. No doubt such set off was NOT a
lawful basis, if not premature.
PNB vs. BITULOK SAWMILL INC.
It is established doctrine that subscriptions to

the capital of a corp constitute a fund to which
creditors have a right to look for satisfaction of
their claims and that the assignee in insolvency
can maintain an action upon any unpaid stock
subscription in order to realize assets for the
payment of its debts,
A corp has NO power to release an original
subscriber to its capital stock from the obligation
of paying his shares, without a valuable
consideration for such release; and as against
creditors a reduction of the capital stock can
take place only in the manner and under the
conditions prescribed by the statute or the
charter or the AOI.
EDWARD KELLER
MARKETING, INC.
&
CO.
LTD.
vs.
COB
GROUP
As to the liability of the SH, it is settled that a SH

is personally liable for the financial obligations of
a corp to the extent of his unpaid subscription.
Effect of Delinquency (sec 71 CCP)

No delinquent stock shall be voted for or be entitled
to vote or to representation at any SHs meeting NOR
shall the holder thereof be entitled to any of the rights

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of a SH except the rights to dividends in accordance
with the provisions of this Code, intil and unless he
pays the amount due on his subscription with accrued
interest,
and
the
costs
and
expenses
for
advetisement, if any.
As to the right of the SH to receive dividends,
(sec 43) any cash dividends DUE on delinquent SH
shall first be applied to the unpaid balance on his
subscription PLUS costs and expense WHILE stock
dividends shall be withheld until his unpaid
subscription is paid in full.
Sec 72 holders of subscribed shares NOT fully paid
which are not delinquent shall have all the rights of a
SH. (correlate to sec 43 CCP) The only exception to
this rule is that shares of stock not fully paid is NOT
entitled to be issued certificate of stock.
RULE ON LOST OR DESTROYED CERTIFICATES (sec 73
CCP)
1. The registered owner of certificate of stock shall
file with the corp an affidavit in triplicate setting
forth:
a. the circumstances as to how the
certificates were lost, stolen or destroyed;
b. the number of shares represented by such
certificate;
c. the serial number/s of the certificate/s;

and
d. the name of the corp which issued the
same.
2. After verification, the corp shall publish a notice
in a newspaper of general circulation in the
principal office of the corp, once a week for 3
consecutive weeks at the expense of registered
owner of the certificates which has been lost,
stolen, or destroyed.
o The notice shall state the following:
i. Name of the corp;
ii. Name of the registered owner
iii. Serial number of the said
certificate/s
iv. Number of shares represented by
such certificate/s
v. After the expiration of 1 year
from the date of its last
publication, the right to make a
contest to such certificate shall
be barred and the corp shall
cancel
in
its
books
the
certificate/s of stock and issue in
lieu thereof new certificate/s of
stock
vi. UNLESS the registered owner files
a bond effective for a period of 1

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Corporation Code
MJGAMBON
year in which case a new
certificate of stock shall be issued
even before the expiration of
1year period PROVIDED that if a
contest has been presented to
said corp or if an action is
pending in court regarding the
ownership of said certificates, the
issuance of the new certificate
shall be suspended until the final
decision by the court regarding
the ownership of said certificates.
EXCEPT: in case of fraud, BF, or negligence on the
part of the corporation and its officers, NO action may
be brought against any corp which shall have issued
certificat/s of stock in lieu of those lost, stolen, or
destroyed cert stock.
RATIONALE of the Rule:
To avoid duplication of cert stock; and
Avoidance of fictitious and fraudulent transfers.
It is intended for the protection of the corp
against damage from whatever source arising
from the issuance of duplicate certificate.
RIGHTS OF SH:
a. Right to vote and be voted upon
personally or by proxy (sec 50&58);
b. Right to enter into a VTA (sec 50);
either
c. Right to receive dividends and to compel

declaration of dividends (sec 43);
d. Right to transfer shares subject only to
reasonable restrictions (sec 63);
e. Right to be issued cert of stock for fully-paid
shares (sec 64);
f. Right to exercise pre-emptive rights (sec 39);
g. Right to exercise their appraisal right (sec 81, 42
and 105);
h. Right to institute and file derivative suits;
i. Right to recover shares of stock unlawfully sold
for delinquency (sec 69);
j. Right to inspect books of the corp (sec 73);
k. Right to be furnished by most recent financial
statement of the corp (sec 75);
l. Right to be issued a new stock certificate in lieu
of the lost or destroyed stock cert (sec 73);
m. Right to have the Corp dissolved (sec 118 to 121
& 10d, in close corp);
n. Right to participate in the distribution of assets
of the corp upon dissolution (sec 122);
o. IN CASE OF CLOSE CORP, Right to petition the
SEC to arbitrate in the event of deadlock (sec
104);
p. IN CASE OF CLOSE CORP, Right to withdraw
thereform, for any reason, and compel the corp
to purchase its shares (sec 105)
OBLIGATIONS and LIABILITIES OF SH:

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a. To pay to the corp the balance of his unpaid

subscriptions subject to the provision of sec 76
to 70;
b. To pay interest on his unpaid subscription IF
required by the by-laws or by the contract of
subscription (sec 66);
c. To answer to the creditors for the unpaid portion
of his subscription;
d. To answer the water in his stocks (sec 65);
e. To be liable, as general partners, for all debts,
liabilites and damages of on determinable corp
(sec 21 corp by estoppel);
f. To be personally liable for torts;
XI.
CORPORATE BOOKS AND RECORDS (sec 74 CCP)
The following shall be KEPT and MAINTAINED by the

Corp:
a. Records of all business transactions;
b. Minutes of all meetings of SH/members and of
the directors or trustess setting forth in detail
the date, time and place of meeting, how
authorized, the notice given whether the same
be regular or special, and if special, the purpose
thereof shall be specified, those present and
absent, and every act done or ordered done
thereat which must likewise be kept at the
principal office of the corp; and
c. Stocks and Transfer Book showing the names of

the SH, the amount paid or unpaid on all stocks
for which subscription has been made
Right to Financial Statements (sec 75 CCP)
Within 10 days from receipt of a written request

of any SH/member, a corp shall furnish its most
recent financial statement which shall include:
o A balance sheet as of the end of taxable
year; and
o Profit or loss statement for said taxable
year
showing in reasonable detal its assets and
liabilities and the result of its operation.
However, if the paid up capital is less than 50K

the financial statements may be certified under
oath by the treasurer or any responsible officer
of the corp.
NOTE: Right of the SH to inspect and examine corp

books is NOT absolute whereas the right of the
DIRECTOR/TURSTEE to inspect/examine corp books is
ABSLOUTE, UNQUALIFIED and WITHOUT REGARD TO
ANY MOTIVE
Reason: the director supervises, directs and manages
the corp business and it is necessary that he be

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Corporation Code
MJGAMBON
equipped with all information and data with regard to
the affairs of the corp.
NOTE: The right of the SH to examine corp books
extends to a wholly owned subsidiary which is
completely under the control and management of the
parent company. BUT if the 2 entities (subsidiary and
parent) are legally being operated as separate and
distinct entities, there is no such right of inspection on
the part of the SH of the parent company.
Defenses Available by the Corp (Defenses to Escape

Liablity)
a. Person demanding has improperly used any
information
secured
through
any
prior
examination of the records;
b. SH was not acting in GF or for a legitimate
purpose in making his demand; or
c. The right is limited by special law or law of its
creation.
PHILPOTTS vs. PHILIPPINE MANUFACTURING CO
The right of SH are entitiled to inspect books and

records of the corp BUT may NOT gain access to
highly sensitive and confidential information.
This include among others:
a. Marketing strategies and pricing structure;
b. Budget for expansion and diversification;
c. Research and development; and
d. Sources of funding, availability of personnel,
proposals of mergers/tie-ups with other firms.
Should a SH Unjustifiably refused the right to inspect
the corp books, he has the following remedies:
a. Mandamus;
b. Damages either against the corp or the
responsible officer who refused the inspection;
c. Criminal complaint for violation of his right to
inspect.
The right of inspection given to a SH can be

exercised by himself or by any proper
representative/attorney-in-fact. The right may
be regarded as personal in the sense that only
SH may enjoy it; BUT the inspection and
examination may be made by another.
Otherwise, it would be unavailing in many
instances.
PARDO vs. HERCULES LUMBER, CO.
The general right given by the statute may not

be lawfully abridged to the extent attempted in
this resolution. It may admitted that the officials
in charge of a corp may deny inspection when
sought at UNUSUAL hours or other IMPROPER
CONDITIONS; but neither the executive officer

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Corporation Code
MJGAMBON
nor the BOD have the power to deprive a SH of
the right altogether. (Instances when the right to
inspect may be denied)
VEGARUTH vs. ISABELA SUGAR CO.
Right of inspection is NOT to be denied on the

ground that the director or SH is on UNFRIENDLY
terms with the officer of the corp whose
abstracts and memoranda of documents books
and papers as an incident to the right of
inspection but cannot, without an order of court
be permitted to take books from the office of the
corp.
GOKONGWEI vs. SEC
The SHs right of inspection of the corps books

and records is based upon their ownership of the
assets and property of the corp. It is, therefore,
incident of ownership of the corp property
whether this interest or ownership be termed an
equitable ownership, a beneficial ownership or
quasi-ownership. The right is predicated upon
the necessity of self-protection.
In other words, the inspection has to be
germane to the petitioners interest as SH and
has to be proper and lawful in character and not
inimical to the interest of the corp.
Where a corp owns approximately no property

except the shares of stock of subsidiary corp
which are merely agents or instrumentalities of
the holding company, the legal fiction of distinct
corp entity may e disregarded and the books,
papers and documents of all corp may be
required to be produced for examination.
Failure by the corp to grant the same,
MANDAMUS may be proper remedy to compel
the corp to inspect BOTH subsidiarys and
parent corporations books upon proof of
sufficient control or dominion by the parent
showing the relation of principal.
Mandamus will not lie where the the subsidiary
corp is a separate and distinct corp domiciled
and with its books and records in another
jurisdiction; and is not legally subject to the
control of parent company although it owned a
vast ajority of the stocks of the subsidiary.
GONZALES vs. PNB
Conditions sine qua non in invoking the right to

inspect and examine the books and records of
the corp are the following:
o It must not have been guilty of using
improperly
any
information
secured
through a prior examination; and

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Corporation Code
MJGAMBON
o That the person requesting it must not
have been guilty of using improperly any
information secured through a prior
examination; and
o That the person asking for such
examination must be acting in GF and for
a legitimate purpose.
NOTE: PNB is not an ordinary corp. Having charter of
its own, it is not governed, as a rule, by the charter
and not by the CCP. Thus, even if privatized SH cannot
inspect UNLESS the charter has been repealed.
XII. MERGER AND CONSOLIDATION (sec 76 CCP)

Two Common Types of Corporate Reorganization
1. Merger two or more corp may merge into a
single corp which shall be one of the constituent
corporations.
a. A union effected by absorbing one or more
existing corp by another which survives
and continures the combined business.
2. Consilidation two or more corp may
consolidate into a new corp which shall be the
consolidated corp.
a. Uniting or amalgamation of two or more
existing corp to form new corp. It signifies
a union as necessarily results in the
creation of a new corp ad the termination

of existence of the old ones.
AIM/OBJECTIVE
o To put the company upon sound financial
basis and to enable it to take care of its
obligations thereby avoiding liquidation or
bankruptcy.
The BOD/T of EACH corp shall approve the plan of
consolidation/merger setting forth the following:
a. The names of the corp to merge or consolidate;
b. The terms of merger or consolidation and the
mode of carrying the same into effect;
c. A statement of the changes, if any, in the AOI of
the surviving corp in case of merger BUT in case
of consolidation, all the statements required to
be set forth in the AOI for corp organized under
this Code.
d. Other provision with respect to the proposed
merger or consolidation as are deemed
necessary or desirable.
VOTING REQUIREMENTS for SH APPROVAL: (sec 77
CCP)
a. Majority vote of each BOD of the constituent
corp;
b. Submission for SHs approval of each corp t a
separate meetings duly called for that purpose;

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Corporation Code
MJGAMBON
c. Notice of meeting must be given 2weeks prior
the date of meeting which include a
copy/summary
of
the
plan
of
merger/consolidation.
d. Affirmative vote of SH of atleast 2/3 of
OCS/members entitled to vote, in case of NS.
Any Amendment to the plan of merger/consolidation
may be made PROVIDED such amendment is
approved by majority vote of the respective BOD/T of
all constituent corp and ratified by the affirmative vote
of the SH representing atleast 2/3 OCS/members, in
case of NS.
Articles of Merger or Consolidation (sec 78 CCP)
After the approval by the SH, articles of merger or
articles of consolidation shall be executed by EACH
constituent corporations, to be signed by the
president OR vp AND certified by the secretary or asst.
secretary of each corporation setting forth:
1. The pln of merger or consolidation;
2. As to stock corp. the number of shares
outstanding, or in the case of NS, the number of
members; and
3. As to each corp, the number of shares or
members voting for and against such plan,
respectively.
Requirements and Procedure

merger or consolidation
to
accomplish
a. The BOD/T of each constituent corp shall

approve a plan of merger or consolidation
setting forth sec 76;
b. Approval of the plan by the SH representing 2/3
of the OCS or 2/3 of member in non-stock corp
of each corp at a separate corp meetings called
for that purpose;
c. Prior notice with a copy of summary of the plan
of merger or consolidation shall be given to all
SH at least 2 weeks before the scheduled
meeting;
d. Execution of Articles of Merger/Consolidation by
each constituent corp to be signed by the
president or vp and certified by the sec or asst
secretary of each corp in accordance with sec
78;
e. Submission of Articles of Merger/Consolidation in
QUADRUPLICATE to the SEC subject to the
requirement of sec 79 (inclusion of favorable
recommendation
of
government
agency
concerned);
f. Issuance of the certificate of merger or
consolidation by SEC at which time the merger
or consolidation shall be effective.

9
Corporation Code
MJGAMBON
Effects of Merger/Consolidation
a. There will be single corp.
i. In case of merger, the surviving corp;
ii. In case of consolidation, the consolidated
corp (new corp);
b. The termination of corporate existences of the
constituent
corp
except
that
of
the
survinving/consolidated corp;
c. The surviving or consolidated corp will possess
all the rights, privileges, immunities, and powers
shall be subject to all duties and liabilities of a
corp organized under the Code;
d. The surviving/consolidated corp shall possess all
right, privileges, immunites and franchise of the
constituent corp and all property and all
receivables due including subscriptions to
shares and otger choses in action, and every
interest of, or belonging to or due to the
constituent corp shall be deemed transferred to
and vested in such surviving or consolidated
corp without further act and deed.
ASSOCIATED BANK vs. CA
In case of merger, although there is a dissolution

of the absorbed corp, there is no winding up of
their affairs or liquidation of their assets,
because the surviving corp AUTOMATICALLY
acquires all their rights, privileges and powers,

as well as their liabilities.
X. APPRAISAL RIGHT
Appraisal right is the method of paying a SH for the
taking of his property. It is a right to withdraw from a
corp and demand payment of the FMV of his shares
after dissenting from any corp acts which involves
fundamental changes in corporate structure. (sec 81
CCP)
PURPOSE: to protect the property rights of dissenting
SH from actions by the majority SH which alters the
ature and character of their investment.
Instances of Appraisal Right: (NOT EXCLUSIVE)
1. In case of amendment of AOI has the effect of
restricting the rights of any SH or class of shares
or of authorizing preferences in any resect
superior to those of outstanding shares of any
class, or of extending or shortening the corp
term of existence;
2. In csdr og dslr, lease, exchange, mortgage, or
pledge (SLEMP) or orher disposition of all or
substantially all of the corp property;
3. In case of merger or consolidation.
(NOT EXCLUSIVE) Other Instances:
0
Corporation Code
MJGAMBON
It may also cover situation involving investment

of fund in another corp or business or for any
other purpose other than its primary purpose.
(see sec 42)
In a close corp, the SH has unbridled right to
compel the corp buy his shares at a value which
shall not be less than the par or issued value.
Procedure and requirements for valid exercise of
appraisal right:
1. The SH must have voted against the proposed
action in any of the instances allowed by law for
the exercise of appraisal right;
2. The written demand for payment must be made
by the dissenting SH within 30 days after the
date on which the vote was taken thereon.
a. NOTE: Failure to make demand within the
period shall be deemed to be a waiver on
the part of the SH concerned to exercise
his appraisal right.
3. Surrender of the certificate of stock by the
dissenting SH for notation in the corp books and
the payment by the corp of the FMV of said

shares prior to the date on which the vote was
taken;
4. The fair value of the shares of the dissenting SH
must be paid by the corp ONLY IF it has URE in
its books to cover such payement.
a. If NO URE, the dissenting SH may not be
able to effectively exercise his right.
(Whats the effect?)
5. Upon payment of the shares by the corp, the
dissenting shall transfer his shares to the corp.
Effect of Demand and Termination of Right:
From the time of demand for payment of the fair
value of a SHs shares until either:
o The abondment of the corp action
involved; or
o The purchase of the said shaeres by the
corp

1

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Corporation Code

LBC EXPRESS VS CA.

As general rule, CORPORATION being an artificial

CORPORATION vs. PARTNERSHIP

TYPE THE DOCUMENT TITLE 1

Sec. 4. Corporations created by special laws or

All GOCCs, operate under the special law or

PNOC-ENERGY DEVT CORP vs. NLRC

Under the former rule, employees of GOCC,

OTHER CLASSES OF CORPORATIONS

A. Private and Public Corporation

Those created by the State as its own device

The following instances are NOT ipso facto public

TYPE THE DOCUMENT TITLE 3

TRUE TEST of the nature of the corporation whether

The mere fact that the government happens to

B. Ecclesiastical or Religious and Lay Corporations

ii. Civil Corp organized not for the purpose of

C. Aggregate and Sole Corporations

D. Closed and Open Corporations

TYPE THE DOCUMENT TITLE 4

E. Domestic and Foregin Corporations

F. Parent or Holding Companies and Subsidiaries

Parent or Holding Companies corp that confine their

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G. Quasi and Quasi-public Corporations

H. De Jure and De Facto Corporations

De Facto Corp those exist by virtue of an irregularity

In cases where a de facto municipal corp was

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law giving corporate vitality to the organization.

persons to deal with it as such are estopped to deny

On the other hand, the mere fact that a

EXCEPTION: SALVATIERRA vs. GARLITOS when there

I. Corporations by Estoppel (sec 21 CCP)

TEST to determine WON the agents of the association

TYPE THE DOCUMENT TITLE 7

It applies when persons assume to form a

denying the same in an action arising out of

ALBERT vs. UNIVERSITY PUBLISHING CO., INC.

One who has induced another to act upon his

SALVATIERRA vs. GARLITOS (exception to the rule)

While as GR a person who has contracted with

A corp cannot be held liable for the personal

ASIA BANKING CORP vs. STANDARD PRODUCTS CO.,

In the absence of fraud, a person who has

GEORG GROTJAHN GMBH & CO vs. ISNANI

TYPE THE DOCUMENT TITLE 8

The doctrine of estoppel applies to BOTH foreign

If the corporation by estoppel exists and enter into a

STAGES IN THE LIFE OF CORPORATION (C-R-D)

PROMOTIONAL STAGE is undertaken by the

TYPE THE DOCUMENT TITLE 9

vii.Names, nationalities and residences of the

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NOTE: A corporation, once formed, cannot use any

RATIONALE OF SEC 18:

Avoidance of fraud upon the public which would

USE OF CORPORATE NAMES

a. the law requires the corp to append the

- inc shall be used if the business

TYPE THE DOCUMENT TITLE 1