Q: What are the jurisprudential rules related to the consequences of not

obtaining license by a foreign corporation?

A:
1. Doctrine of isolated transactions foreign corporations, even unlicensed ones can sue
or be sued on a transaction or series of transactions set apart from their common
business in the sense that there is no intention to engage in a progressive pursuit of
the purpose and object of business transaction (Eriks Pte. Ltd. v. CA, G.R. No. 118843,
Feb. 6, 1997)
1. In pari delicto rule in the case of TopWeld manufacturing vs. ECED S.A. (G.R. No. L
44944, Aug. 9, 1985), the court denied the relief prayed for by petitioner when it ruled
that the very purpose of the law was circumvented and evaded when the petitioner
entered into the said agreements despite the prohibition contained in the questioned
law. The parties were considered as being in pari delicto because they equally violated
R.A. No. 5455.
1. Doctrine of Estoppel the party is estopped from questioning the capacity of a foreign
corporation to institute an action in our courts where it had obtained benefits from its
dealings with such foreign corporations and thereafter omitted a breach or sought to
renege its obligations (Merrill Lynch v. CA, G.R. No. 978160, July 24, 1992)
Q: What is the doctrine of apparent authority?
A: If a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an
apparent authority, it holds him out to the public possessing the power to do those acts; and thus, the corporation
will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the
agents authority.
Q: What is the trust fund doctrine?
A: The subscribed capital stock of the corporation is a trust fund for the payment of debts
of the corporation which the creditors have the right to look up to satisfy their credits, and
which the corporation may not dissipate. The creditors may sue the stockholders directly
for the latters unpaid subscription.
Q: What are the exceptions to the trust fund doctrine?
A: The Code allows distribution of corporate capital only in these instances:
1. Amendment of the AOI to reduce authorized capital stock;
2. Purchase of redeemable shares by the corporation regardless of existence of
unrestricted retained earnings;
3. Dissolution and eventual liquidation of the corporation.

Q: What are the consequences if the liquidation is not terminated within the 3
year period?
A:
st the corporation which were initiated prior to the expiration of the 3year
1. Pe
period shall continue. (Gelano v. CA, G.R. No. L39050, Feb. 24, 1981)
ndi
2. New actions may still be filed against the trustee of the corporation even after th
ng
before the affairs of said corporation have been finally liquidated or settled by th
sui
No. L18956 Apr. 27, 1972)
ts
3. A corporation which has a pending action which cannot be finished within the 3
for
convey all its property, including pending choses of action, of a trustee to enable
or
suits by or against the corporation beyond the 3year period. Where no trustee i
ag
prosecuted and represented the interest of the corporation may be considered a
ain
least with respect to the matter in litigation (Gelano v. CA, G.R. No. L39050, Feb

also be
creditors
permitted
of the
to continue
corporation
as who were not paid may follow the property of the
trustees
corporation
to complete
thatthe
may
liquidation.
have passed to its stockholders unless barred by
(Clemente
prescription
v. CA, G.R.
or laches
No. 82407,
or disposition of said property in favor of a purchaser in
Mar. 27,
good
1995)
faith.
4. Th
e

Q: What is the rationale behind the 3year period?

A: The continuance of a corporations legal existence for three years for the purpose of
enabling it to close up its business is necessary to enable the corporation to collect the
demands due it as well as to allow its creditors to assert the demands against it.
Bangko Sentral as lender of last resort.
A.) Because the reasons why the BSP is the lender of last resort is necessary in the
banking sector can be applied to the government bond market analogously. Just like
banks that lend long-term while borrowing short-term, governments have highly
illiquid assets like infrastructure and maturing debt. If they do not succeed in rolling
over their debt they become illiquid just as banks that run out of liquidity and are not
supported by a lender of last resort. The distrust of investors can then increase the
rates the government has to pay on its debt, which in a self-fulfilling way leads to a
solvency crisis. Because banks hold the greatest proportion of government debt, not
saving the government may make it necessary to save the banks in turn. The most
important mandate of BSP to be a lender of last resort in the government bond
markets is to prevent banks from being pushed into a bad equilibrium.
Conservator vs. Receiver

Insider Trading
C) Insider trading is commonly referred to as the use of confidential information about
a business gained through employment in a company or a stock brokerage, to buy
and/or sell stocks and bonds based on the private knowledge that the value will go
up or down. It is a crime under the Securities and Exchange Act. However, the term
actually includes both legal and illegal conduct. The legal version is when corporate
insidersofficers, directors, and employeesbuy and sell stock in their own
companies. When corporate insiders trade in their own securities, they must report
their trades to the SEC.

Intra-Corporate Dispute Jurisdiction

The SECs jurisdiction under Section 5 of PD No. 902A (intracorporate disputes) has been
transferred to the appropriate RTC, pursuant to Sec. 5.2 of SRC.
Planholders Creditors
No, the planholders are not correct. Under the Interim Rules ( Section 1, Rule 4 ),
claim shall include all claims or demands of whatever nature or character against a
debtor
or
its
property,
whether
for
money
or
otherwise.

Creditor shall mean any holder of a claim. Hence, the claim of petitioners for
payment of tuition fees from CAP is included in the definition of claims under the
Interim Rules. G.R. No. 171681

(16) EXECUTIVE COMMITTEE

Q: What is an executive committee?
A: A body created by the bylaws and composed of not more than three
members of the board which, subject to the statutory limitations, has all
the authority of the board to the extent provided in the board resolution or
bylaws. The committee may act by a majority vote of all of its members
(Sec. 35).
Note: An executive committee can only be created by virtue of a
provision in the bylaws and that in the absence of such bylaw provision,
the board of directors cannot simply create or appoint an executive
committee to perform some of its functions. (SEC Opinion, Sept. 27, 1993)
A person not a director can be a member of the executive committee but only in a
recommendatory or advisory capacity.
Q: Are the decisions of the executive committee subject to appeal
to the board?
A: No. However, if the resolution of the Executive Committee is invalid,
i.e. not one of the powers conferred to it, it may be ratified by the board
(SEC Opinion, July 29, 1995).
Q: What are the limitations on the powers of the executive
committee?
A: It cannot act on the following:
1. Matters needing stockholder approval
2. Filling up of board vacancies
3. Amendment, repeal or adoption of bylaws
4. Amendment or repeal of any resolution of the Board which by its
express terms is not amendable or repealable
5. Cash dividend declaration. (Sec. 3)

Derivative suit one brought by one or more stockholders or members

in the name and on behalf of the corporation to redress wrongs committed
against it or to protect or vindicate corporate rights, whenever the officials
of the corporation refuse to sue or are the ones to be sued or hold control
of the corporation. The requisites are as follows:
a. There should be an existing cause of action in favor of the corporation;
b. Refusal of the corporation to file an action despite demand from the
stockholder.
c. The party filing the suit must be a stockholder at the time of the
objectionable acts or transactions occurred unless such transactions are
continuing in nature; and

d. The action must be brought in the name of the corporation which must
be alleged
Note: The stockholder is only nominal party in a derivative suit. The real
party in interest is the corporation.
Incorporation
GR: Filipino citizenship is not a requirement.
XPN: When engaged in a business which is partly or wholly nationalized where majority
must be residents
Q: What are the required number and the qualifications of incorporators in a stock
corporation?
A:
1. Natural person
2. GR: Not less than 5 but not more than 15
XPN: Corporation sole
Of legal age
Majority must be residents of the Philippines
Each must own or subscribe to at least one share. (Sec.10)
Q: What is the doctrine of piercing the veil of corporate fiction?
A: It is the doctrine that allows the State to disregard the notion of
separate personality of a corporation for justifiable reason/s.
Note: This is an exception to the Doctrine of Separate Corporate Entity.
Q: What are the effects of piercing the veil?
A: Courts will look at the corporation as an aggregation of persons undertaking the business
as a group.
Elements of Alter Ego
Corporation; piercing the corporate veil; alter ego theory. In this connection,
case law lays down a three-pronged test to determine the application of the alter ego
theory, which is also known as the instrumentality theory, namely:
(1) Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and
unjust act in contravention of plaintiffs legal right; and

(3) The aforesaid control and breach of duty must have proximately caused the injury
or unjust loss complained of.
VIII.
In the November 2010 stockholders meeting of Greenville Corporation, eight (8)
directors were elected to the board. The directors assumed their posts in January 20
ll. Since no stockholders' meeting was held in November 2011, the eight directors
served in a holdover capacity and thus continued discharging their powers.
In June 2012, two (2) of Greenville Corporation's directors- Director A and Director B
-resigned from the board. Relying on Section 29 of the Corporation Code, the
remaining six (6) directors elected two (2) new directors to fill in the vacancy caused
by the resignation of Directors A and B.
Stockholder X questioned the election of the new directors, initially, through a lettercomplaint addressed to the board, and later (when his letter-complaint went
unheeded), through a derivative suit filed with the court. He claimed that the vacancy
in the board should be filled up by the vote of the stockholders of Greenville
Corporation. Greenville Corporation's directors defended the legality of their action,
claiming as well that Stockholder X's derivative suit was improper.
Rule on the issues raised. (8%)
A:
1. Vacancies filled up by stockholders or members, if it is due to
a. Removal
b. Expiration of term
c. Grounds other than removal or expiration of term, e.g. death, resignation,
abandonment, or disqualification where the remaining directors do not
constitute a quorum for the purpose of filling the vacancy
d. If the vacancy may be filled by the remaining directors or trustees but the
board refers the matter to stockholders or members; or
e. increase in the number of directors
1. Vacancies filled up by the remaining directors constituting a quorum or
by the members of the board if still constituting a quorum, at least a
majority of them are empowered to fill any vacancy occurring in the
board other than by removal by the stockholders or members,
expiration of term or increase in the number of board seats. (Sec. 29)
Note: A director elected to fill vacancy shall serve the unexpired term. (Sec. 29)

VI
X is a Filipino immigrant residing in Sacramento, California. Y is a Filipino residing in
Quezon City, Philippines. Z is a resident alien residing in Makati City. GGG

Corporation is a domestic corporation - 40% owned by foreigners and 60% owned by

Filipinos, with T as authorized representative. CCC Corporation is a foreign
corporation registered with the Philippine Securities and Exchange Commission.
KKK Corporation is a domestic corporation (100%) Filipino owned. S is a Filipino, 16
years of age, arid the daughter of Y.
a. Who can be incorporators? Who can be subscribers? (2%)
b. What are the differences between an incorporator and a subscriber, if there
are any? (2%)
c. Who are qualified to become members of the board of directors of the
corporation? (2%)
d. Who are qualified to act as Treasurer of the company? (2%)
e. Who can be appointed Corporate Secretary? (2%)

Q: Who are the corporate officers?

A:
1. President Must be a director at the time the assumes office, not at the
time of appointment;
2. Treasurer May or may not be a director; as a matter of sound
corporate practice, must be a resident
3. Secretary Need not be a director unless required by the bylaws; must
be a resident and citizen of the Philippines; (Sec. 25); and
4. Such other officers as may be provided in the bylaws.
Note: An officer is also considered a corporate officer if he has been
appointed by the board of directors. (Easycall Communications Phils., Inc.
v. Edward King, G.R. No. 145901, Dec. 15, 2005)
Any two or more positions may be held concurrently by the same person, except that no one
shall act as president and secretary or as president and treasurer at the same time. (Sec. 25)
IX
A, B, C, D, E are all duly elected members of the Board of Directors of XYZ
Corporation. F, the general manager, entered into a supply contract with an American
firm. The contract was duly approved by the Board of Directors. However, with the
knowledge and consent of F, no deliveries were made to the American firm. As a
result of the non-delivery of the promised supplies, the American firm incurred
damages. The American firm would like to file a suit for damages. Can the American
firm sue:
a. The members of the Board of Directors individually, because they approved
the transaction? (2%)
b. The corporation? (2%)

c. F, the general manager, personally, because the non-delivery was with his
knowledge and consent? (2%)
d. Explain the rules on liabilities of a corporation for the act of its corporate
officers and the liabilities of the corporate officers and Board of Directors of a
corporation acting in behalf of the corporation. (4%)

(Doctrine of Apparent Authority)

Q: When does the act of the officers bind the corporation?

A:
1.
2.
3.
4.

If it is provided in the bylaws

If authorized by the board
Under the doctrine of apparent authority
When the act was ratified

Doctrine of Apparent Authority

A: If a corporation knowingly permits one of its officers, or any other
agent, to act within the scope of an apparent authority, it holds him out to
the public possessing the power to do those acts; and thus, the
corporation will, as against anyone who has in good faith dealt with it
through such agent, be estopped from denying the agents authority.
Q: When is the corporation estopped to deny ratification of
contracts or acts entered by its officers or agents?
A: Generally, when the corporation has knowledge that its officers or
agents exceed their power, it must promptly disaffirm the contract or act,
and allow the other party or third person to act in the belief that it was
authorized or has been ratified. Otherwise, if it acquiesces, with
knowledge of the facts, or if it fails to disaffirm, ratification will be implied.
(Premiere Development Bank vs. CA, G.R. No. 159352, Apr. 14, 2004)

Q: What are the instances when directors or trustees are solidary

liable with the corporation?
A:

1.
2.
3.
4.
5.

GR: The directors or trustees are not liable solidarily with the
corporation by reason of their separate and distinct personalities.
XPN:
Willfully and knowingly voting for and Assenting to patently unlawful
acts of the corporation; (Sec. 31)
Gross negligence or bad faith in directing the affairs of the corporation;
(Sec. 31)
Acquiring any personal or pecuniary Interest in conflict of duty; (Sec.
31)
Agreeing or stipulating in a contract to hold himself liable with the
corporation; or
By virtue of a specific provision of Law (Uichico vs. NRLC, G.R. No.
121434, June 2, 1997).

Note: When the officers of the corporation exceeded their authority, their
actions are not binding upon the corporation unless ratified by the
corporation or is estopped from disclaiming them (Reyes v. RCPI Credit
Employees Union, G.R. No. 146535, Aug. 18, 2006).
Q: When could a director be solidary liable with the corporation
for termination of employees?
A: Only when the termination is done with malice or in bad faith on the
part of the director. Without any evidence of bad faith or malice, directors
may not be held personally liable (Equitable Banking Corporation vs.
NLRC, GR No. 02467, June 13, 1997).
(11) PERSONAL LIABILITY

Q: What are the instances where a director may be held

personally liable?
A:
1. Willfully and knowingly voting for and Assenting to patently unlawful
acts of the corporation. (Sec. 31)
2. Gross negligence or bad faith in directing the affairs of the corporation.
(Sec. 31)
3. Acquiring any personal or pecuniary Interest in conflict of duty. (Sec.
31)
4. Acting without authority or in excess of authority or are motivated by
illwill, malice or bad faith, which gives rise to consequent damages.
(Lim vs. NLRC, G.R. No. 80685. March 16, 1989)
5. Consenting to the issuance of Watered stocks, or, having knowledge
thereof, failing to file objections with the secretary. (Sec. 65)
Q: When is a director or officer liable for a criminal offense?
A: Where a law requires a corporation to do a particular act, failure of
which on the part of the responsible officer to do so constitutes an offense,
the responsible officer is criminally liable therefore. The reason is that a
corporation can act through its officers and agents and where the business
itself involves a violation of law all who participate in it are liable. While
the corporation may be fined for such criminal offense if the law so
provides, only the responsible corporate officer can be imprisoned.
(People vs. Tan Boon Kon, 1930) However, a director or officer can be held
liable for a criminal offense only when there is a specific provision of law
making a particular officer liable because being a corporate officer by
itself is not enough to hold him criminally liable.
X
AAA Corporation is a bank. The operations of AAA Corporation as a bank was not
doing well. So, to avert any bank run, AAA Corporation, with the approval of the
Monetary Board, sold all its assets and liabilities to BBB Banking Corporation which
includes all deposit accounts. In effect then, BBB Corporation will service all deposits
of all depositors of AAA Corporation.
a. Will the sale of all assets and liabilities of AAA Corporation to BBB Banking
Corporation automatically dissolve or terminate the corporate existence of
AAA Corporation? Explain your answer. (5%)
b. What are the legal requirements in order that a corporation may be dissolved?
(5%)

Q: What is meant by dissolution?

A: It is the extinguishment of the franchise of a corporation and the
termination of its corporate existence.