COURSE/CASE OUTLINE IN CORPORATION LAW AND SRC

DEAN NILO T. DIVINA

I. The Corporation Code
A. Corporation
1. Definition
A corporation is an artificial being created by operation of law with the right of
succession and the powers, attributes and properties expressly granted by law or
incident to its existence.
1.a Distinguished from other forms of business organizations
2. Attributes of a Corporation
3. Doctrine of Separate Legal Entity
a. The corporation has a juridical personality separate and distinct from the
stockholders, directors, and officers composing it.
Where a corporation, through its president, entered into a contract with
another for the exclusive right to publish his book but the corporation failed to
pay the contract price, the judgment rendered against the corporation may be
enforced against the president who participated all through-out the hearings
when it turned out that the corporation is not duly registered with the
Securities and Exchange Commission. The real defendant in a suit against a
corporation with no valid existence is the person who has control of its
proceedings. Albert vs. University Publishing Company, Inc., 13
SCRA 84 (1965)
When the corporation ( BR Sportswear, Inc. ) which the plaintiff erroneously
impleaded in a collection case was not the party to the actionable agreement
and turned out to be not registered with the Securities and Exchange
Commission, the judgment may still be enforced against the corporation ( BB
Footwear, Inc. ) which filed the answer and participated in the proceedings,
as well as its controlling shareholder who signed the actionable agreement in
his personal capacity and as a single proprietorship doing business under the
trade name and style of BB Sportswear Enterprises. Benny Hung vs BPI
Finance Corporation . G.R. No. 182398, 20 July 2010
The President of a sports association which is registered with the Securities
and Exchange Commission but which did not comply with the statutory
requirements under related laws to be able to acquire a legal personality is

personally liable for the airline tickets he purchased from a travel agency even
though it is for the benefit of the athletes who are members of the sports
association. Any person acting or purporting to act on behalf of a corporation
which has no valid existence becomes personally liable for contract entered
into and for other acts performed as such agent. International Express
Travel & Tours vs. Court of Appeals, 373 SCRA 474 (2002)
b. As a juridical person, the corporation has the right to be protected by
constitutional guarantees, like unreasonable search and seizure. However, a
corporation has no right against self-incrimination
c. The stockholders are not personally liable for the debts of the corporation and
vice-versa. Stockholders are not liable for corporate acts. They can only be held
liable for unpaid subscriptions unless they too are directors and officers. In which
event, they can be held liable in those cases provided by law and jurisprudence
where personal liability attaches.
d. The stockholders are not the owners of corporate property and assets. Neither
are they entitled to the possession thereof nor allowed to intervene in litigation
involving corporate property. The right of the stockholders to corporate property is
only inchoate to ripen into full ownership only in cases of dissolution and liquidation
and distribution of properties as allowed by law like reduction of capital stock and
redemption of redeemable shares.
Properties registered in the name of the corporation are owned by it as an
entity separate and distinct from its members. While shares of stock
constitute personal property, they do not represent property of the
corporation. The corporation has property of its own. A share of stock only
typifies an aliquot part of the corporations property, or the right to share in its
proceeds to that extent when distributed according to law and equity but its
holder is not the owner of any part of the capital of the corporation. A
corporation can therefore sue to recover real property being occupied by its
former president (who was also a significant stockholder) for it has a juridical
personality separate and distinct from its stockholders even though in the
past the corporation allowed the president to enjoy the possession of the
property. Boyer Roxas vs. Court of Appeals, 211 SCRA 470
(1992)
Where the lawyer of the controlling stockholder of the corporation advised
another stockholder that he could obtain possession of certain corporate
properties by way of return for his equity investment but the lawyer acted

without board approval, the advice is not binding on the corporation even
though it had the approval of the controlling stockholder. The doctrine of
piercing the veil of corporate fiction cannot be invoked on the sole ground that
the presence of other stockholders in the corporation was only for the
purpose of complying with the statutory minimum requirements on number of
directors. Ryuichi Yamamoto vs. Nishino Leather Industries,
Inc. and Ikuo Nishino 551 SCRA 447 (2008)
The acquisition by a corporation of the substantial and controlling shares of
stocks in two other corporations merely represents a proportionate or aliquot
interest in the properties of the two corporations and does not make it the
owner of the property which is legally owned by the two corporations as
distinct juridical persons. As such, the acquirer corporation is not entitled to
the possession of any definite portion of the property or any of the assets of
the other corporations. The representative designated by the corporations is
authorized to continue the possession of corporate properties despite change
in share ownership unless otherwise replaced by the corporations. Silverio
vs. Filipino Business Consultants, Inc. 466 SCRA 584 (2005)
e. Directors and officers are not liable for the acts they performed and contracts they
entered into in behalf of the corporation.
f. Circumstances not enough to warrant disregard of the separate juridical
personality of the corporation.
i. Ownership of controlling shares
In as much as the real properties included in the inventory of the estate of
a deceased stockholder are in the possession of and registered in the
name of the corporations, which under the law has a personality separate
and distinct from their stockholders, and in the absence of any basis to
shred the veil of corporate fiction, the presumption of conclusiveness of
said titles in favor of said corporations should stand undisturbed. Thus,
the inclusion in the estate of the deceased stockholder properties under
the name of various corporations was erroneous even though the
corporations were owned and controlled by the deceased stockholder
during his lifetime. Lim vs. CA, 323 SCRA 102 (2000)
The mere fact that Oate owned the majority of the shares of ECO is not
a ground to conclude that Oate and ECO are one and the same. Mere
ownership by a single stockholder of all or nearly all of the capital stock of

a corporation is not by itself sufficient reason for disregarding the fiction of

separate corporate personalities. Neither is the fact that the name ECO
represents the first 3 letters of Oates name a sufficient reason to pierce
the veil. A corporation may assume a name provided it is lawful. There is
nothing illegal in a corporation acquiring the name or as in this case, the
initials of one of its shareholders. Land Bank of the Philippines
vs. Court of Appeals, 364 SCRA 375 (2001)
If used to perform legitimate functions, a subsidiarys separate existence
may be respected and the liability of the parent corporation as well as the
subsidiary will be confined to those arising in their respective businesses.
When a borrower failed to pay credit accommodations granted by a
subsidiary of a banking corporation, the suit against the parent company
to direct it to re-compute the rescheduling of the interest to be paid and to
enjoin the foreclosure initiated by the parent company as attorney-in-fact
of the subsidiary will not prosper because the two corporations are
separate and distinct from each other. Aside from the fact that the lender
is a wholly-owned subsidiary, there is no showing that it is a mere
instrumentality of the parent company. The parent-subsidiary relationship
between the two corporations is not the significant relationship involved in
this case since the parent company was not sued because it is the parent
company of the lender. Rather, it was sued because it acted as attorneyin-fact of the lender in initiating the foreclosure proceedings. A suit against
an agent cannot without compelling reasons, be considered a suit against
the principal. PNB vs. Ritratto Group, Inc., 362 SCRA 216
(2001)
When an investor has a claim against a subsidiary of another corporation
which subsequently became the acquired corporation in a merger, the
claim against the subsidiary cannot be enforced against the surviving
corporation even though the latter corporation by virtue of the merger
acquired all the shares of the absorbed corporation. This is because the
fact that a corporation owns almost all of the stocks of another
corporation, taken alone, is not sufficient to justify their being treated as
one entity. Spouses Ramon Nisce vs. Equitable PCI Bank 516
SCRA 231 (2007)
ii. Common directors and similarity of business
The fact that the businesses of two corporations are related, as one
manufactures yarns while the other sells the same product; some

employees of one are the same persons manning and providing for
auxiliary services to the other, and the physical plants, offices and
facilities are situated in the same compound, are not sufficient to justify
the piercing of the corporate veil of either corporation. The legal corporate
entity is disregarded only if it is sought to hold the officers and
stockholders directly liable for a corporate debt or obligation and not when
the only issue is whether or not the rank and file employees working at the
second corporation should be recognized as a part of and/ or within the
scope of the bargaining unit of the first corporation. Indophil Textile
Mill Workers Union PTGWO vs. Calica, 205 SCRA 697
(1992)
g. Liability for Torts and Crimes
It can be held criminally liable for crimes. While a corporation cannot be
arrested, imprisoned or executed, it may be summoned, fined or ousted
by quo warranto proceedings from exercising its powers unlawfully.
h. Recovery of Moral Damages
A juridical person is generally not entitled to moral damages because
unlike natural persons it cannot experience physical suffering or such
sentiments as wounded feeling, serious anxiety, mental anguish and
mental shock. Nevertheless, if a corporations claim for moral damages
falls under section 7 Article 2219 of the Civil Code which authorizes
recovery of moral damages in cases of libel, slander or any form of
defamation, then moral damages may be awarded. This is because.
Article 2219 does not qualify whether the plaintiff is a natural or juridical
person. Therefore, a juridical person such as a corporation can validly
complain for libel or any other form of defamation and claim for moral
damages. Filipinas Broadcasting Network vs. Ago Medical
and Educational Center 448 SCRA 413 (2005)
As a rule, a corporation is not entitled to moral damages because, not
being a natural person, it cannot experience physical suffering or
sentiments like wounded feelings, serious anxiety, mental anguish and
moral shock. The only exception to this rule is when the corporation has
a reputation that is debased, resulting in its humiliation in the business
realm. But in such a case, it is imperative for the claimant to present proof
to justify the award. Thus, where the records are bereft of any evidence
that the name or reputation of a corporation has been debased as a result
of Meralcos act, which in this case is the disconnection of the electricity

supply to the building of the corporation ( without written notice ) due to

non-payment of differential billing representing unregistered consumption
for alleged tampering with the electric meter, the corporation is not entitled
to moral damages. Meralco v. TEAM Electronics Corp. 540
SCRA 62 (2007)
4. Doctrine of Piercing the Corporate Veil
a. Grounds for Application of Doctrine
The court must first acquire jurisdiction over the corporation or
corporations involved before its or their separate personalities are
disregarded; and the doctrine of piercing the veil of corporate entity can
only be raised during a full-blown trial over a cause of action duly
commenced involving parties duly brought under the authority of the court
by way of service of summons or what passes as such service. Kukan
International Corporation vs. Hon. Judge Amor Reyes,
G.R. No. 182729, 29 September 2010
However, in one case, Supreme Court ruled that if the RTC had sufficient
factual basis to conclude that the two corporations are one and the same
entity as when they have the same President and controlling shareholder
and it is generally known in the place where they do business that they
are one, the third party claim filed by the other corporation was set aside
and the levy on its property held valid even though the latter was not
made a party to the case. The judgment may be enforced against the
other corporation to prevent multiplicity of suits and save the parties
unnecessary expenses and delay. Gold Line Tours vs. Heirs of
Maria Concepcion Lacsa, GR No. 159108, 18 June 2012
b. Test in Determining Applicability
i. Fraud test
Where an operator of a bus transportation sold certificates of
public convenience under which he was authorized to operate
certain number of buses with a condition that he shall not for a
period of ten years from date of the sale apply for any TPU service
identical or competing with the buyer, the legal personality of the
corporation which he organized and controlled through his wife
and brother-in-law whose business competes with the buyer may
be disregarded, for clearly the legal fiction was being used to

evade the contractual restriction. Villa Rey Transit vs.

Ferrer, 25 SCRA 845 (1968)
Sale of corporate assets to another corporation organized
previously by the same officers of the vendor and engaged in the
same line of business, using the machineries of the vendor in the
same factory, is an instance where corporate veil should be
pierced, vis--vis, claim of laborers for backwages. A.C.
Ransom Labor UnionCCLU vs. National Labor
Relations Commission, 150 SCRA 498 (1987)
Piercing the corporate veil is warranted if in the middle of a labor
dispute, a corporation sold its franchise as well as most of its bus
units to a company controlled by the daughter of the controlling
shareholder of the assignor corporation where daughter is also a
director. It is evident that the transaction was made in order to
remove the corporations remaining assets from the reach of any
judgment that may be rendered in the unfair labor practice case
filed against it. Times Transportation Co., Inc., vs.
Sotelo, 451 SCRA 587 (2005)
ii. Alter ego or instrumentality test
The defense of separateness will be disregarded where the
business affairs of a subsidiary corporation are so controlled by
the mother corporation to the extent that it becomes an instrument
or agent of its parent. A subsidiary is considered a mere
instrumentality of the parent company if the latter determines the
personnel, administrative and finance policies, hires the
employees, and funds the operations of the former. The manager
of the subsidiary could therefore enforce his claim against the
parent company even though his employment is with the
subsidiary. Reynoso vs. Court of Appeals, 345 SCRA
335 (2000)
iii. Control test
(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 such that
the corporate entity as to this transaction had at that 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 or unjust act in contravention of plaintiffs legal right;
and (3) the aforesaid control and breach of duty must proximately
cause the injury or unjust loss complained of. Concept
Builders,
Inc.
vs.
National
Labor
Relations
Commission, 257 SCRA 149 (1996)
c. effects

While a third party mortgagor is liable only up to the extent of the

value of the mortgaged property, such third party mortgagor may be
required to pay the deficiency between the loan obligation and the
proceeds of the sale if it is only an instrumentality or alter ego of the
borrower corporation. The two corporations were treated as one
entity because of the following factors : a ) both corporations are
family corporations of the same controlling shareholder; b) the two
corporation share the same office and practically transact their
business from the same place; c ) they had a common President; d)
the promissory notes were signed by the same person as President
of the borrower corporation and President of the mortgagor
corporation; and, e ) the assets of the two corporations are comingled. Heirs of Fe Tan Uy vs. International Exchange
Bank, February 13, 2013
B. Classes of Corporations
1. Stock and non-stock
2. De jure, de facto, corporation by estoppel, corporation by prescription
In case the corporation fails to submit its by-laws on time, the same may be
considered a de facto corporation whose right to exercise corporate powers may
not be inquired into collaterally in any private suit to which such corporation may
be a party.
Moreover, a corporation which has failed to file its by-laws within the prescribed
period does not ipso facto lose its powers as such. The SEC Rules on
Suspension/Revocation of the Certificate of Registration of Corporations, details
the procedures and remedies that may be availed of before an order of
revocation can be issued. The revocation cannot be ordered if there is no
showing that such a procedure has been initiated. Sawadjaan vs. Court Of
Appeals 459 SCRA 516 (2005)

Where someone convinced other parties to contribute funds for the formation of a
corporation which was never formed, there is no partnership among them, and
the latter cannot be held liable to share in the losses of the proposed corporation.
Pioneer Surety & Insurance Corporation vs. Court of Appeal,
175 SCRA 668 (1989)
In dispute between the presidents of the two associations which agreed to
consolidate but were not actually consolidated, the proposed consolidated
corporation cannot be considered a corporation by estoppel, since there is no
third person involved and the two presidents knew the consolidated corporation
had not been registered. Corporation by estoppel is founded on principles of
equity and is designed to prevent injustice and unfairness, and where there is no
third party involved and the conflict arises only among those assuming the form
of a corporation, who know that it has not been registered, there is no corporation
by estoppel Lozano vs. Delos Santos, 272 SCRA 452 (1997)
A person who has reaped the benefits of a contract entered into by others with
whom he previously had an existing relationship is deemed to be part of said
association and is covered by the scope of the doctrine of corporation by
estoppel. Lim Tong Lim vs. Philippine Fishing Gear Industries,
Inc., 317 SCRA 728 (1999)
The persons who illegally recruited workers for overseas employment by
representing themselves to be officers of a corporation which they knew had not
been incorporated are liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof. People vs. Garcia, 271
SCRA 621 (1997)
3.
4.
5.
6.
7.
8.

Domestic and foreign

Open and close
Parent and subsidiary
Corporation sole and corporation aggregate
Public and private
Government owned and controlled corporation
i.
ii.

Chartered GOCC
Non-Chartered GOCC

Congress cannot enact a law creating a private corporation with a special charter.
Such legislation would be unconstitutional. Private corporations may exist only
under a general law. If the corporation is private, it must necessarily exist under a

general law. Feliciano vs. Commission on Audit, 464 Philippine

Reports 439 (2004)
Although the Philippine National Red Cross was created by a special charter, it
cannot be considered a government-owned and controlled corporation in the
absence of the essential elements of ownership and control by the government. It
does not have government assets and does not receive any appropriation from
the Philippine Congress. It is a non-profit, donor-funded, voluntary organization,
whose mission is to bring timely, effective and compassionate humanitarian
assistance for the most vulnerable without consideration of nationality, race,
religion, gender, social status or political affiliation. This does not mean however
that the charter of PNRC is unconstitutional. PNRC has a sui generis status.
Although it is neither a subdivision, agency, or instrumentality of the government,
nor a government-owned or -controlled corporation or a subsidiary thereof, so
much so that Gordon was correctly allowed to hold his position as Chairman
thereof concurrently while he served as a Senator, such a conclusion
does not ipso facto imply that the PNRC is a private corporation within the
contemplation of the provision of the Constitution, that must be organized under
the Corporation Code. The PNRC enjoys a special status as an important ally
and auxiliary of the government in the humanitarian field in accordance with its
commitments under international law. This Court cannot all of a sudden refuse to
recognize its existence, especially since the issue of the constitutionality of the
PNRC Charter was never raised by the parties. Liban vs. Gordon, GR No.
175352, January 10, 2011

A governmentowned or controlled corporation refers to any agency

organized as a stock or non-stock corporation vested with functions
relating to public needs whether governmental or proprietary in nature and
owned by the government through its instrumentalities either wholly or
where applicable as in the case of stock corporation to the extent of at
least 51% of its capital stock. When a stockholder ceded to the
government shares representing 72.4 % of the voting stock of the
corporation but subsequently clarified that it should be reduced to 32.4%,
the corporation shall not be considered government owned and controlled
until the quantification of shares is resolved with finality. Carandang
vs. Desierto, GR No. 148076, January 12, 2011
C. Nationality of Corporations
1. Place of Incorporation Test
2. Control Test

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3. Grandfather Rule
D. Incorporation and Organization
1. Promoter
a. Liability of Promoter
b. Liability of Corporation for Promoter's Contracts
2. Number and Qualifications of Incorporators
A corporation engaged in the business of selling optical lenses or eyeglasses and
which hires optometrists is not engaged in the practice of optometry because the
determination of the proper lenses to sell to its clientele entails the employment of
optometrists who have been trained precisely for this purpose. Samahan ng
Optometrists vs. Acebedo International Corporation, 270 SCRA
298 (1997); Acebedo Optical Company, Inc. 381 SCRA 293
(2002)
3. Corporate Name-Limitations on Use of Corporate Name
The Court cannot impose on a bank that changes its corporate name the
obligation to notify a debtor of such change absent any law, circular or regulation
requiring it. Such act would be judicial legislation. The formal notification is,
therefore, discretionary on the bank. Unless there is a law, regulation or circular
from the SEC or BSP requiring the formal notification of all debtors of banks of
any change in corporate name, such notification remains to be a mere internal
policy that banks may or may not adopt. Consequently, the defense that debtors
should first be formally notified of the change of corporate name before they will
continue paying their loan obligations to the bank is untenable. P.C. Javier &
Sons, Inc., v. Court of Appeals 462 SCRA 36 (2005)
To fall within the prohibition of the law regarding the use of corporate name under
Article 18 of the Corporation Code, two requisites must be proven, to wit:
1. that the complainant corporation acquired a prior right over the use of such
corporate name; and
2. the proposed name is either: (a) identical, or (b) deceptively or confusingly
similar to that of any existing corporation or to any other name already
protected by law, or (c) patently deceptive, confusing or contrary to existing
law.
Refractories Corporation of the Philippines (RCP) is confusingly similar with
Industrial Refractories Corporation of the Philippines. Being the prior

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registrant, RCP has acquired the right to use the word Refractories as part
of its corporate name. Industrial Refractories Corporation of the
Philippines vs. Court of Appeals, 390 SCRA 252 (2002)
4. Corporate term
5. Minimum capital Stock and Subscription Requirements
Since the paid-up capital is the portion of the capital which has been subscribed and
paid, the assets transferred to and the loans extended to a corporation should not be
considered in computing the paid-up capital of the corporation. Not all funds or
assets received by the corporation can be considered paid-up capital for this term
has a technical signification in Corporation Law. Such must form part of the
authorized capital stock of the corporation, subscribed and then actually paid up. The
same test should also be applied in determining if the paid-up capital of the
Corporation has been impaired so as to qualify it for exemption from the increase in
the minimum wage. MISCI-NACUSIP Local Chapter vs. National Wages
and Productivity Commission, 269 SCRA 173 (1997)
Considering that common shares have voting rights which translate to control, as
opposed to preferred shares which usually have no voting rights, the term "capital" in
Section 11, Article XII of the Constitution refers only to common shares. However, if
the preferred shares also have the right to vote in the election of directors, then the
term "capital" shall include such preferred shares because the right to participate in
the control or management of the corporation is exercised through the right to vote in
the election of directors. In short, the term "capital" in Section 11, Article XII of the
Constitution refers only to shares of stock that can vote in the election of directors. To
construe broadly the term capital as the total outstanding capital stock, including
both common and non-voting preferred shares, grossly contravenes the intent and
letter of the Constitution that the State shall develop a self-reliant and independent
national economy effectively controlled by Filipinos. A broad definition unjustifiably
disregards who owns the all-important voting stock, which necessarily equates to
control of the public utility. Gamboa v. Teves, et al.,G.R. No. 176579, June
28, 2011

If a corporation is engaged in a partially nationalized industry, issues a

mixture of common and preferred non-voting shares, at least 60 percent of the
common shares and at least 60 percent of the preferred non-voting shares
must be owned by Filipinos. Of course, if a corporation issues only a single
class of shares, at least 60 percent of such shares must necessarily be
owned by Filipinos. In short, the 60-40 ownership requirement in favor of
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Filipino citizens must apply separately to each class of shares, whether

common, preferred non-voting, preferred voting or any other class of shares.
Heirs of Wilson P. Gamboa vs. Teves, 682 SCRA 397(2012)
6. Articles of Incorporation
a. Nature and Function of Articles
b. Contents
The residence of the corporation is the place where the principal office is
located as stated in the articles of incorporation even though the
corporation has closed its office therein and relocated to another place.
Hyatt Elevators and Escalators Corporation vs. Goldstar
Elevators Philippines 473 SCRA 705 (2005)
c. Amendment
d. Non-Amendable Items
e. Grounds for Disapproval of Articles of Incorporation and
Amendments
7. Registration and Issuance of certificate of Incorporation
8. Adoption of By-Laws
a. Nature and Functions of By-Laws
b. Requisites of Valid By-Laws
c. Binding Effects
d. Allowable Provisions
A board resolution appointing an attorney-in-fact to represent the corporation in
the pre-trial is not necessary where the by-laws authorizes an officer of the
corporation to make such appointment xxx. Section 46 of the Corporation Code
which provides that no by-laws shall be valid without SEC approval applies only
to domestic corporations. Where the SEC granted a license to a foreign
corporation it is deemed to have approved its foreign enacted by-laws.
Citibank, N.A. vs. Chua, 220 SCRA 75 (1993)
Since by-laws operate merely as internal rules among the stockholders, they
cannot affect or prejudice third persons who deal with the corporation, unless
they have knowledge of the same. Thus, a provision in the by-laws authorizing
the chairman of the board of directors only to sign contracts will not affect the
validity of the contract of a teacher who had no knowledge of it. PMI College
vs. National Labor Relations Commission, 277 SCRA 462 (1997)

13

The legislative deliberations demonstrate that corporate dissolution for failure to

file the by-laws on time was never the intention of the legislature. There can be
no automatic corporate dissolution simply because the incorporators failed to
abide by the required filing of by-laws. The incorporators must be given the
chance to explain their neglect or omission and to remedy the same. Loyola
Grand Villas Homeowners Association (South) Association, Inc.
vs. Court of Appeals, 276 SCRA 681 (1997)
In order to be bound, a third party must have acquired knowledge of the pertinent
by-laws at the time the transaction or agreement was entered into. Thus, a
provision in the by-laws of a country club granting it a preferred lien over the
share of stock of a member for unpaid dues is not binding on the pledgee of the
same share of stock if the latter had no actual knowledge of it. China Banking
Corporation vs. Court of Appeals, 270 SCRA 503 (1997)
e. Amendment or Revision
E. Board of Directors and Trustees
1. Doctrine of Centralized Management

2.

Business Judgment Rule

The determination of the necessity for additional offices and/or positions
in a corporation, if authorized under the by-laws, is a management
prerogative which courts are wont to review in the absence of any proof
that such prerogative was exercised in bad faith or with malice. Similarly,
the Board of Directors may create an executive committee or other board
committees as part of its management prerogative provided that such
committees do not function as an executive committee as contemplated
by Section 35 of the Corporation Code, in which case, authority in the bylaws is required. Questions of policy or of management are left solely to
the honest decision of the board as the business manager of the
corporation, and the court is without authority to substitute its judgment for
that of the board, and as long as it acts in good faith and in the exercise of
honest judgment in the interest of the corporation, its orders are not
reviewable by the courts. Filipinas Port Services, Inc., v. Go et
al. 518 SCRA 453 (2007)

The Board of Directors of a corporation cannot validly delegate the

power to create a corporate office to the President, in the light of

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Section 25 of the Corporation Code requiring the Board of Directors

itself to elect the corporate officers. Verily, the power to elect the
corporate officers is a discretionary power that the law exclusively
vested in the Board of Directors, and cannot be delegated to
subordinate officers or agents. The Office of Vice President for
Finance and Administration created by the President of the
Corporation pursuant to the pertinent provision in the by-laws of the
corporation was an ordinary, not a corporate, office. Matling
Industrial and Commercial Corporation vs. Coros ,
G.R. No. 157802, 13 October 2010
3. Tenure, Qualifications and Disqualifications of Directors or
Trustees
A corporation is authorized to prescribe the qualifications of its directors.
A provision in the by-laws of the corporation that no person shall qualify or
be eligible for nomination for elections to the board of directors if he is
engaged in any business which competes with that of the Corporation is
valid, provided, however, that before such nominee is disqualified, he
should be given due process to show that he is not covered by the
disqualification. A director stands in fiduciary relation to the corporation
and its stockholders. The disqualification of a competition from being
elected to the board of directors is a reasonable exercise of corporate
authority. Sound principles of corporate management counsel against
sharing sensitive information with a director whose fiduciary duty to loyalty
may well require that he discloses this information to a competitive rival.
Gokongwei vs. Securities Exchange Commission, 89 SCRA
336 (1979)
The board of directors of corporations (in this case, homeowners
association) must be elected from among the stockholders or members of
the corporation. Thus, a provision in the amended by-laws of the
corporation stating that of the fifteen members of its board of directors,
only 14 members would be elected while the remaining member would be
the representative of an educational institution located in the village of
which the lot and home owners are member thereof, is invalid. Since the
provision is contrary to law, the fact that for 15 years it has not been
questioned cannot forestall a later challenge to its validity. The concept of
permanent board representation violates the one-year term limit of the
directors. Grace Christian High School vs. Court of Appeals,
281 SCRA 133 (1997)

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Any director who ceases to be the owner of least one (1) share of the
capital stock of the corporation of which he is a director shall thereby
cease to be a director. Since a director who executes a voting trust
agreement over all his shares ceases to be a stockholder of record in the
books of the corporation and ceases to be a director, he cannot be served
with summons intended for the corporation. Lee vs. Court of
Appeals, 205 SCRA 752 (1992)
4. Elections
a. Cumulative Voting/Straight Voting
b. Quorum
Quorum is based on the totality of the shares which have been subscribed
and issued, whether it be founders' shares or common shares. To base
the computation of quorum solely on the obviously deficient, if not
inaccurate stock and transfer book, and completely disregarding the
issued and outstanding shares as indicated in the articles of incorporation
would work injustice to the owners and/or successors in interest of the
said shares. The stock and transfer book cannot be used as the sole
basis for determining the quorum as it does not reflect the totality of
shares which have been subscribed, more so when the articles of
incorporation shows a significantly larger amount of shares issued and
outstanding as compared to that listed in the stock and transfer book.
Jesus V. Lanuza, et al. vs. Court of Appeals 454 SCRA 54
(2005)
5. Removal
6. Filling of Vacancies
The stockholders, and not the directors, shall elect those who will fill in the
vacancy created by the resignation of the hold-over board members. This
is because in this case the ground for the vacancy is expiration of term of
the hold-over directors and not resignation. Valle Verde Country
Club v. Africa, September 4, 2009
7. Compensation
Members of the board of directors may receive compensation in addition
to reasonable per diems in the following cases : 1. When there is a
provision in the by-laws fixing their compensation; 2. When the

16

stockholders representing at least a majority of the outstanding capital

stock at a regular or special stockholders meeting agree to give it to
them; and 3. When they render services to the corporation in any capacity
other than as directors Western Institute of Technology, Inc.
Vs. Salas, 278 SCRA 216 (1997)
8. Fiduciaries Duties and Liability Rules
Solidary liability will attach to the directors, officers or employees of the
corporation in certain circumstances, such as:
1. When directors and trustees or, in appropriate cases, the officers of a
corporation: (a) vote for or assent to patently unlawful acts of the corporation; (b)
act in bad faith or with gross negligence in directing the corporate affairs; and (c)
are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons;
2. When a director or officer has consented to the issuance of watered stocks
or who, having knowledge thereof, did not forthwith file with the corporate
secretary his written objection
3. When a director, trustee or officer has contractually agreed or stipulated to
hold himself personally and solidarily liable with the corporation; or
4. When a director, trustee or officer is made, by specific provision of law,
personally liable for his corporate action.
Before a director or officer of a corporation can be held personally liable for
corporate obligations, however, the following requisites must concur:
(1) the complainant must allege in the complaint that the director or officer
assented to patently unlawful acts of the corporation, or that the officer was
guilty of gross negligence or bad faith; and
(2) the complainant must clearly and convincingly prove such unlawful acts,
negligence or bad faith.
Thus, the President of the corporation cannot be held personally liable if the
complaint merely averred that he signed as a surety to secure the obligation of
the corporation and which surety turned out to be spurious. Heirs of Fe Tan
Uy vs. International Exchange Bank Feb 13, 2013

In the absence of malice, bad faith, or a specific provision of law making a

corporate officer liable, such corporate officer cannot be made personally
liable for corporate liabilities.

17

Furthermore, Article 212(e) of the Labor Code, by itself, does not make a
corporate officer personally liable for the debts of the corporation. The
governing law on personal liability of directors for debts of the corporation
is still Section 31 of the Corporation Code. - Alert Security and
Investigation Agency, Inc. vs. Balmaceda , G .R. No.
182397 September 14, 2011
Article 212(e) does not state that corporate officers are personally liable for the
unpaid salaries or separation pay of employees of the corporation. The liability
of corporate officers for corporate debts remains governed by Section 31 of the
Corporation Code. A director is not personally liable for the debts of the
corporation, which has a separate legal personality of its own. A director is
personally liable for corporate debts only if he wilfully and knowingly votes for or
assents to patently unlawful acts of the corporation or he is guilty of gross
negligence or bad faith in directing the affairs of the corporation. However, to
hold a director personally liable for debts of the corporation, and thus pierce the
veil of corporate fiction, the bad faith or wrongdoing of the director must be
established clearly and convincingly. Bad faith is never presumed. Moreover, bad
faith does not automatically arise just because a corporation fails to comply with
the notice requirement of labor laws on company closure or dismissal of
employees. The failure to give notice is not an unlawful act because the law does
not define such failure as unlawful. Such failure to give notice is a violation of
procedural due process but does not amount to an unlawful or criminal act.
Patently unlawful acts are those declared unlawful by law which imposes
penalties for commission of such unlawful acts. There must be a law declaring
the act unlawful and penalizing the act. Carag v. NLRC 520 SCRA 28
(2007)

The lawyer who signed the pleading, verification and certification against
non-forum shopping must be specifically authorized by the Board of
Directors of the Corporation to make his actions binding on his principal..
Maranaw Hotels and Resort Corporation v. Court of
Appeals, 576 SCRA 463 (2009)
The following officers may sign the verification and certification against
non-forum shopping on behalf of the corporation even in the absence of
board resolution, a) Chairperson of the Board of Directors; b ) President,
c ) General Manager, d ) Personnel Officer, e ) Employment Specialist in
labor case. These officers are in the position to verify the truthfulness and
correctness of the allegations in the petition. Mid Pasig Land and

18

Development Corporation v. Tablante, G.R. No. 162924,

February 4, 2010
The execution of a document by a bank manager called pagares which
guaranteed purchases on credit by a client is contrary to the General
Banking law which prohibits bank officers from guaranteeing loans of bank
clients. United Coconut Planters Bank vs. Planters Products
Inc. GR No. 179015, 13 June 2012
9. Responsibility for Crimes
10. Inside Information
11. Contracts
a. By self-Dealing Directors with the Corporation
b. Between Corporations with Interlocking Directors
i. Voidable character
The rule pertaining to transactions between corporations with interlocking
directors resulting in prejudice to one of the corporations does not apply
where the corporation allegedly prejudiced is a third party, not one of the
corporations with interlocking directors. Thus, when a mortgagee bank
foreclosed the mortgage on the real and personal property of the debtor
and thereafter assigned the properties to a corporation it formed to
manage the foreclosed assets, the unpaid seller of the debtor can not
complain that the assignment is invalid simply because the mortgagee
and the assignee have interlocking directors. Development Bank of
the Philippines vs. Court of Appeals, 363 SCRA 307
(2001)
ii. Ratification
12.

Executive Committee
i.
ii.

Powers of the executive committee

Limitations on the power of the
executive committee

F. Corporate Powers
1. How Exercised
a. By the Shareholders

19

b. By the Board of Directors

c. By the Officers
c.i. Officers of the Corporation

Statutory officers
Corporate officers
Ordinary officers of the corporation
When a bank, by its acts and omission, has clearly clothed its
manager with apparent authority to sell an acquired asset in the
normal course of business, it is legally obliged to confirm the
transaction by issuing a board resolution to enable the buyers to
register the property in their names. It has a duty to perform
necessary and lawful acts to enable the other parties to enjoy all the
benefits of the contract which it had authorized. Rural Bank of
Milaor vs. Ocfemia, 325 SCRA 99
The general rule remains that, in the absence of authority from the
board of directors, no person, not even its officers, can validly bind a
corporation. If a corporation, however, consciously lets one of its
officers, or any other agent, to act within the scope of an apparent
authority, it will be estopped from denying such officer's authority.
Where the Bank conducted business through its Account Officer, it is
presumed that the latter had authority to sign for the bank in the Deed
of Assignment. In this case, it is incumbent upon the Bank to show
that its account officer is not authorized to transact for the corporation.
Westmont
Bank
vs.
Inland
Construction
and
Development Corporation 582 SCRA 230 (2009)
The doctrine of apparent authority, had long been recognized in this
jurisdiction. Apparent authority is derived not merely from practice. Its
existence may be ascertained through 1) the general manner in which
the corporation holds out an officer or agent as having the power to
act, or in other words, the apparent authority to act in general, with
which it clothes him; or 2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof, within or beyond
the scope of his ordinary powers. Accordingly, the authority to act for
and to bind a corporation may be presumed from acts of recognition in
other instances, wherein the power was exercised without any
objection from its board or shareholders. Undoubtedly, the bank had
previously allowed its in-house counsel to enter into the first

20

agreement without a board resolution expressly authorizing him; to

sell corporate property thus and it had clothed him with apparent
authority to modify the same via the second letter-agreement. Thus,
the corporation is bound by the acts entered into by its in-house
counsel even though he was subsequently relieved of the position. It
is not the quantity of similar acts which establishes apparent authority,
but the vesting of a corporate officer with the power to bind the
corporation. Naturally, the third person has little or no information as to
what occurs in corporate meetings; and he must necessarily rely upon
the external manifestations of corporate consent. The integrity of
commercial transactions can only be maintained by holding the
corporation strictly to the liability fixed upon it by its agents in
accordance with law. What transpires in the corporate board room is
entirely an internal matter. Associated Bank vs. Sps. Rafael
and Monaliza Pronstroller 558 SCRA 113 (2008).

There would be an undue stretching of the doctrine of apparent

authority were we to consider the power to undo or nullify
solemn agreements validly entered into as within the doctrines
ambit. Although a branch manager, within his field and as to
third persons, is the general agent and is in general charge of
the corporation, with apparent authority commensurate with the
ordinary business entrusted him and the usual course and
conduct thereof, yet the power to modify or nullify corporate
contracts remains generally in the board of directors. Being a
mere branch manager alone is insufficient to support the
conclusion that he has been clothed with apparent authority to
verbally alter terms of written contracts, especially when viewed
against the telling circumstances of this case: the unequivocal
provision in the mortgage contract; the corporations vigorous
denial that any agreement to release the mortgage was ever
entered into by it; and, the fact that the purported agreement
was not even reduced into writing considering its legal effects on
the
parties
interests.
Banate
vs.
Philippine
Countryside Rural Bank (Liloan, Cebu), Inc., G.R.
No. 163825, July 13, 2010

2. General Powers, Theory of General Capacity

21

A corporation is not restricted to the exercise of powers expressly conferred upon it

by its charter but has the power to do what is reasonably necessary or proper to
promote the interest or welfare of the corporation. A corporation (NAPOCOR)
formed for the purpose of generating electrical power can undertake stevedoring
services to unload coal into its pier to be brought to and fuel its power plant, since
this is reasonably necessary for the operation and maintenance of its power plant.
National power Corporations vs. Vera, 170 SCRA 721 (1989)
A corporation cannot enter into a partnership contract but may engage in a joint
venture with other. Aurbach vs. Sanitary Wares Manufacturing
Corporation, 180 SCRA 130 (1989)
When the thrust of a complaint in on the ultra vires act of a corporation, that is,
that the complained act of a corporation is contrary to its declared corporate
purposes, the SEC has jurisdiction to entertain the complaint before it. Thus, when
the corporation engaged in pawnbroking even though its articles if incorporation
does not allow it, the complaint should be treated as a violation of the corporate
franchise. The jurisdiction of the SEC is not affected even if the authority to operate
a certain specialized activity is withdrawn by the appropriate regulatory body other
than the SEC. With more reason that we cannot sustain the submission of the
petitioner that a declaration by the Central Bank that it violated PD 114 (law on
pawnshop) is a condition precedent before the SEC can take cognizance of the
complaint against the petitioner. Pilipinas Loan Company, Inc. vs.
Securities and Exchange Commission, 356 SCRA 193 (2001)
3. Specific Powers, Theory of Specific Capacity
Power to Extend or Shorten Corporate Term
b. Power to Increase or Decrease Capital Stock or Incur, Create,
Increase
Bonded Indebtedness
c.
Power to Deny Pre-Emptive Rights
i. scope and coverage
ii. Exceptions
a.

d.

Power to Sell or Dispose of Corporate Assets

Where the remaining asset of a corporation was right to redeem parcels
of land that were foreclosed, the assignment of the right to redeem
requires, in addition to a proper board resolution, the affirmative votes of
the stockholders representing at least 2/3s of the outstanding capital
stock. There having been no stockholders approval, the redemption

22

made by the assignee is invalid. Pena vs. Court of Appeals, 193

SCRA 717 (1991)
e.

Power to Acquire Own Shares

f.

Power to Invest Corporate Funds in Another Corporation or

Business

g.

Power to Declare Dividends

h. Power to Enter Into Management Contract
Ultra Vires Acts
a. instances
b. Applicability of Ultra Vires
Doctrine
c. Consequences of Ultra Vires
Acts
G. Meetings
4.

1. Stockholders meetings
a. regular or special
i. When and Where
ii. Notice
b. Who Presides
c. Quorum
2. Board meetings
a. regular or special
i. when and where
ii. notice
iii. quorum
Three out of five directors of the board present in a special meeting do not
constitute a quorum to validly transact business when its by-laws requires
at least four members to constitute a quorum. Under Section 25 of the
Corporation Code, the articled of incorporation or by-laws may fix a
greater number than the majority of the number of directors to constitute a
quorum. Any number less than the number provided in the articles or bylaws cannot constitute a quorum; any act therein would not bind the
corporation; all that the attending directors could do is to adjourn. Pena
vs. Court of Appeals, 193 SCRA 717 (1991)
In a criminal case involving a lease-purchase agreement allegedly
disadvantageous to the government, the Sandiganbayan erred in
concluding that there was no such agreement entered into and thus
negating criminal liability since only three members out of seven signed

23

the minutes of the meeting. The non-signing by the majority of the

members of the Board of Trustees of the said minutes does not
necessarily mean that the supposed resolution was not approved by the
Board. The signing of the minutes by all the members of the board is not
required. There is no provision in the Corporation Code of the Philippines
that requires that the minutes of the meeting should be signed by all the
members of the board. The proper custodian of the books, minutes and
official records of a corporation is usually the corporate secretary. Being
the custodian of corporate records, the corporate secretary has the duty
to record and prepare the minutes of the meeting. The signature of the
corporate secretary gives the minutes of the meeting probative value and
credibility. Moreover, the entries contained in the minutes are prima
facie evidence of what actually took place during the meeting, People
of the Philippines vs. Hermenegildo Dumlao and Emilio
Lao 580 SCRA (2009).
3.Rule on Abstention
H. Stockholders and Members
1. Rights of a Stockholder and Members
a. doctrine of equality of shares
2. Participation in Management
a. Proxy
b. Voting Trust
c. Cases When Stockholders' Action is Required
i. by a majority vote
ii. by a two-thirds vote
iii. by cumulative voting
3. Proprietary Rights
a. Right to Dividends
b. Right of Appraisal

In order to give rise to any obligation to pay on the part of the

corporation, the dissenting stockholder should first make a valid
demand that the corporation refused to pay despite having
unrestricted retained earnings. Otherwise, the corporation could not
be said to be guilty of any actionable omission that could sustain
the action to collect. The collection suit filed by the dissenting
stockholder to enforce payment of the fair value of his shares is
premature if at the time of demand for payment, the corporation had
no surplus profit. The fact that the Corporation subsequent to the
demand for payment and during the pendency of the collection
case posted surplus profit did not cure the prematurity of the cause

24

of action. Turner vs. Lorenzo Shipping Corporation,

G.R. No. 157479, November 24, 2010
c. Right to Inspect
It would be more in accord with equity, good faith and fair dealing to
construe the statutory right of the stockholder to inspect the books and
records of the corporation as extending to books and records of its whollyowned subsidiary which are in the formers possession and control.
Gokongwei vs. Securities and Exchange Commission 89
SCRA 386 (1979)
d. Pre-Emptive Right
e. Right to Dividends
f. Right of First Refusal
4. Remedial Rights
a. Individual Suit
b. Representative Suit
c. Derivative Suit

A suit to enforce pre-emptive right in a corporation is not a

derivative suit because it was not filed for the benefit of the
corporation. Lim vs. Lim Y, 352 SCRA 216 (2001)
Personal injury suffered by the stockholders can not disqualify them
from filing a derivative suit on behalf of the corporation. It merely
gives rise to an additional cause of action for damages against the
erring directors. Goachan vs. Young, 354 SCRA 207
(2001)
The bare claim that the complaint is a derivative suit will not suffice
to confer jurisdiction on the RTC as a special commercial court if
the stockholder cannot comply with the requisites for the existence
of a derivative suit which are : a ) the party bringing suit should be a
stockholder during the act or transaction complained of, the number
of shares not being material; b ) the party has tried to exhaust intracorporate remedies; and c ) the cause of action devolves upon the
corporation; the wrongdoing or harm having been caused to the
corporation and not to the particular stockholder bringing the suit.
25

Reyes vs. Hon. RTC of Makati Branch 142, 561 SCRA

593 (2008)
The stockholder filing a derivative suit should have exerted all
reasonable efforts to exhaust all remedies available under the
articles of incorporation, by-laws, laws or rules governing the
corporation to obtain the relief he desires and to allege such fact
with particularity in the complaint. The allegation that the suing
stockholder talked to the other stockholder regarding the dispute
hardly constitutes all reasonable efforts to exhaust all remedies
available . The complaint should also allege the fact that there was
no appraisal right available under for the acts complained of and
that the suit was not a nuisance or harassment suit. The fact that
the corporation involved is a family corporation should not in any
way exempt the suing stockholder from the requirements and
formalities for filing a derivative suit. Yu vs. Yukayguan, 588
SCRA 589 (2009)
Petitioners seek the nullification of the election of the Board of
Directors for the years 2004-2005, composed of herein
respondents, who pushed through with the election even if
petitioners had adjourned the meeting allegedly due to lack of
quorum. Petitioners are the injured party, whose rights to vote and
to be voted upon were directly affected by the election of the new
set of board of directors. The party-in-interest are the petitioners as
stockholders, who wield such right to vote. The cause of action
devolves on petitioners, not the condominium corporation, which
did not have the right to vote. Hence, the complaint for nullification
of the election is a direct action by petitioners, who were the
members of the Board of Directors of the corporation before the
election, against respondents, who are the newly-elected Board of
Directors. Under the circumstances, the derivative suit filed by
petitioners in behalf of the condominium corporation in the Second
Amended Complaint is improper. Legaspi Towers 300, vs.
Muer, G.R. No. 170783, June 18, 2012
I. Capital Structure
1. Trust Fund Doctrine

26

The trust fund doctrine provides that subscriptions to the capital stock of a
corporation constitute a fund to which the creditors have a right to look for the
satisfaction of their claims. This doctrine is the underlying principle in the
procedure for the distribution of corporate capital only in three instances: 1)
amendment of articles of incorporation to reduce the authorized capital stock, 2)
purchase of redeemable shares by the corporation regardless of the existence of
unrestricted retained earnings, and 3) dissolution and eventual liquidation of the
corporation. Furthermore, the doctrine is articulated in Section 41 of the
Corporation Code on the power of the corporation to acquire its own shares and
in Section 122 on the prohibition against the distribution of corporate assets and
property unless the stringent requirements are complied with. Ong vs Tiu 401
SCRA 1 (2003)
2. Subscription Agreements
When a subscriber assigned properties and infused capital to the corporation
upon invitation of a majority stockholder and in exchange for shares of stock
under a pre-subscription agreement, the agreement cannot be rescinded since
subject matter of the contract was the unissued shares of the Corporation
allocated to the subscriber. Since these were unissued shares, the PreSubscription Agreement was in fact a subscription contract as defined under
Section 60, Title VII of the Corporation Code: Any contract for the acquisition of
unissued stock in an existing corporation or a corporation still to be formed shall
be deemed a subscription within the meaning of this Title, notwithstanding the
fact the parties refer to it as a purchase or some other contract.
A subscription contract necessarily involves the corporation as one of the
contracting parties since the subject matter of the transaction is property owned
by the corporation its shares of shock. Thus, the subscription contract was one
between the subscriber and the corporation and not between the stockholders.
Also, although one subscriber was adversely affected by the actions of the other
shareholder, rescission due to breach of contract is the wrong remedy for
personal grievances. The Corporation Code, SEC rules and even the Rules of
Court provide for appropriate and adequate intra-corporate remedies, other than
rescission. Rescission is certainly not one of them, especially if the party asking
for it has no legal personality to do so and the requirements of the law have not
been met. A contrary doctrine will tread on dangerous ground because it will
allow just any stockholder, for just about any real or imaged offense, to demand
rescission of his subscription and call for the distribution of some part of the

27

corporate assets to him without complying with the requirements of the

Corporation Code.
Rescission cannot also be deemed as a petition to decrease capital stock
because such action never complied with the formal requirements for decrease of
capital stock under Section 38 of the Corporation Code. No majority vote of the
board of directors was ever taken. Neither was there any stockholders meeting at
which the approval of stockholders owning at least two-thirds of the outstanding
capital stock was secured. Ong vs. Tiu, 401 SCRA 1 (2003)
J. Shares of Stocks
1. Nature of Stock
2.Subscription Agreements
3.Consideration for Shares of Stock
4.Watered Stock

i. Definition
ii. Liability of Directors for Watered Stocks
iii.Trust Fund Doctrine for Liability for Watered Stocks
iv.Situs of the Shares of Stock
5. Classes of Shares of Stock
Dividends cannot be declared for preferred shares which were guaranteed
a quarterly dividend if there are no unrestricted retained earnings. xxx
Interest bearing stocks, on which the corporation agrees absolutely to pay
interest before dividends are paid to common stockholders, is legal only
when construed as requiring payment of interest as dividends from net
earnings or surplus only. Republic Planters Bank vs. Agana, 296
SCRA 1 (1998)
6. Payment of Balance of Subscription.
a. Call by Board of Directors
b. Notice Requirement
c. Sale of Delinquent Shares
i. Effect of Delinquency
ii. Call by Resolution of the Board of Directors
iii. Notice of sale
iv. Auction Sale and the Highest Bidder
7. certificate of Stock
a. Nature of the certificate
b. Uncertificated Shares
c. Negotiability
d. Issuance
i. full Payment

28

ii. Payment Pro-Rata

e. Lost or Destroyed certificates
8.

Disposition and Encumbrance of Shares

a. Allowable Restrictions on the Sale of Shares
b. Sale of Partially Paid Shares
c. Sale of a Portion of Shares Not Fully Paid
d. Sale of All of Shares Not Fully Paid
e. Sale of Fully Paid Shares
f. Requisites of a Valid Transfer
In order for a transfer of stock certificate to be effective, the certificate
must be properly indorsed and that title to such certificate of stock is
vested in the transferee by the delivery of the duly indorsed certificate
of stock. Thus, where an incorporator organized a corporation and
certain number of shares was issued to a stockholder but the
certificate of stock covering said shares was in the possession of the
incorporator who refused to deliver the same to the heir of the
stockholder after the latter died, the stockholder of record should be
considered the owner of the shares since he did not indorse the
certificate in favor of the incorporator. The allegation that it was
delivered to him by the stockholder because he was the one who paid
for it does not hold. Razon vs. Intermediate Appellate
Court, 207 SCRA 234 (1992)
Section 63 of the Corporation Code provides that no transfer shall be
valid except as between the parties, until the transfer is recorded in the
books of the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of certificate or
certificates and the number of shares transferred. Said provision of law
strictly requires the recording of the transfer in the books of the
corporation and not elsewhere, to be valid as against third parties. The
unrecorded transfer of a propriety ownership certificate is not valid as
against the judgment creditor of the transferor who can therefore levy
the shares pursuant to a judgment despite the unrecorded transfer.
Garcia vs. Jomouad, 323 SCRA 424 (2000)
Pursuant to Section 63 of the Corporation Code, a transfer of shares of
stocks not recorded in the stock and transfer book of the corporation is
non-existent as far as the corporation is concerned. Without such
recording, the transferee may not be regarded by the corporation as
one among its stockholders and the corporation may legally refuse the
issuance of stock certificates in the name of the transferee even when

29

there has been compliance with the requirements of Section 64 of the

Corporation Code. The situation would be different if the petitioner was
himself the registered owner of the stock which he sought to transfer to
a third party, for then he would be entitled to the remedy of mandamus.
It has been made clear that before a transferee may ask for the
issuance of stock certificates, he must first cause the registration of the
transfer and thereby enjoy the status of a stockholder insofar as the
corporation is concerned. A corporate secretary may not be compelled
to register transfer of shares on the basis merely of an indorsement of
stock certificates. With more reason a corporate secretary may not be
compelled to issue stock certificates without such registration. Ponce
vs. Alsons Cement Corporation, 393, SCRA 602 (2002)
Upon the death of the stockholder, his heirs do not automatically
become the stockholders of the corporation. The heirs acquire standing
in the corporation only upon registration of the transfer of the
ownership of the shares in the books of the corporation. Puno v.
Puno Enterprises, September 11, 2009
g. Involuntary Dealings with Shares
9. Stock and Transfer Book
a. Contents
b. Who May Make Valid Entries
It is the corporate secretarys duty and obligation to register valid transfers
of stocks and if said corporate officer refuses to comply, the transferorstockholder may rightfully bring suit to compel performance. But the
transferor, even though he may be the controlling stockholder of the
corporation cannot take the law into his own hands and cause himself the
recording of the transfers of the qualifying shares to his nominee-directors in
the stock and transfer book of the corporation. Torres vs. Court of
Appeals, 278 SCRA 793 (1997)
K. Mergers and Consolidations
1. Definition and Concept
2. Constituent vs. Consolidated Corporation
3. Plan of Merger or Consolidation
4. Articles of Merger or Consolidation'
5. Procedure
6. Effectivity
7. Limitations
8. Effects

30

Even if it is true that the Monetary Board of the Central Bank of the
Philippines recognized the merger of two banks, the merger is still
incomplete without the certificate of merger duly issued by the SEC. The
issuance of the certificate of merger is crucial because not only does it bear
out SECs approval but it also marks the moment when the consequences
of a merger take place. By operation of law, upon the effectivity of the
merger, the absorbed corporation ceases to exist but its rights and
properties, as well as liabilities, shall be taken and deemed transferred to
and vested in the surviving corporation. Mindanao Savings and Loan
Association vs. Willkom, G.R. No. 178618, 11 October 2010
It is contrary to public policy to declare the former employees of the
absorbed corporation as forming part of its assets or liabilities that were
transferred to and absorbed by the surviving corporation in the Articles of
Merger. Assets and liabilities, in this instance, should be deemed to refer
only to property rights and obligations and do not include the employment
contracts of its personnel. A corporation cannot unilaterally transfer its
employees to another employer like chattel. Certainly, if the surviving
corporation as an employer had the right to choose who to retain among the
employees of the absorbed corporation, the latter employees had the
concomitant right to choose not to be absorbed by the corporation. Even
though the employees of the absorbed corporation had no choice or control
over the merger of their employer, they had a choice whether or not they
would allow themselves to be absorbed by the surviving corporation.
Certainly nothing prevented the employees of the absorbed corporation
from resigning or retiring and seeking employment elsewhere instead of
going along with the proposed absorption. Bank of the Philippine
Islands v. BPI Employees Union Davao Chapter, G.R. No.
164301, October 19, 2011
NB On motion for reconsideration, the SC held that it is
more in keeping with social justice to consider the
employees of the absorbed corporation the employees of
the surviving corporation even in the absence of a
provision in the articles of merger.
In the merger of two or more existing corporations, one of the combining
corporations survives and continues the business while the rest are
dissolved and all their rights, properties and liabilities are acquired by the
surviving corporation. Although there is dissolution of the absorbed
corporations, there is no winding up of their affairs or liquidation of their
assets because the surviving corporation automatically acquires all their
rights, privileges and powers, as well as their liabilities. All contracts of the

31

absorbed corporations, regardless of the date of execution, shall pertain to

the surviving corporation. Associated Bank vs. Court of Appeals,
291 SCRA 511
9. Distinguished from sale of all of the assets or business
L. Other Corporations
1. Close Corporations
a. Characteristics of a Close Corporation
A corporation does not become a close corporation just because a man and his wife
own 98.86% of its subscribed capital stock; So too, a narrow distribution of ownership
does not, by itself, make a close corporation. The features of a close corporation
under the Corporation Code must be embodied in the articles of incorporation. San
Juan Steel Fabricators vs. Court of Appeals, 296 SCRA 63
b. Validity of Restrictions on Transfer of Shares
c. Issuance or Transfer of Stock in Breach of Qualifying Conditions
d. When Board Meeting is Unnecessary or Improperly Held
Stockholders who are actively involved in the management or operation of the
business and affairs of a close corporation shall be personally liable for corporate
torts (such as failure to pay separation benefits of employees terminated for
authorized causes) unless the corporation has obtained adequate liability
insurance coverage. Naguiat vs. National Labor Relations
Commission, 269 SCRA 564 (1997)
e. Pre-Emptive Right
f. Amendment of Articles of Incorporation
g. Deadlocks
2. Non-Stock Corporations
a. Definition
b. Purposes
c. Treatment of Profits
d.Distribution of Assets upon Dissolution
e. Term

Although Sec. 108 of the Corporation Code, second paragraph thereof

sets the term of the members of the Board of Trustees of non-stock
educational corporation at five years, it likewise contains a proviso
expressly subjecting the duration to what is otherwise provided in the
articles of incorporation or by-laws of the corporation. That contrary

32

provision controls on the term of office. Thus, at the time of petitioners

removal, he was already occupying the office in a hold-over capacity, and
could be removed at any time, without cause, upon the election or
appointment of his successor. Barayuga v. Adventist University
of the Philippines,G.R. No. 168008, August 17, 2011
f. Distinguished with stock corporation
g. Conversion to stock and vice-versa
M. Dissolution and Liquidation
1. Modes of Dissolution
a. Voluntary
i. Where No Creditors Are Affected
ii. Where Creditors Are
Affected
iii. By Shortening of Corporate Term
b. Involuntary
i. By Expiration of Corporate Term
ii. Failure to Organize and Commence Business
Within 2 Years
from Incorporation
iii. Legislative Dissolution
iv. Dissolution by the SEC on Grounds under
Existing Laws
2. Methods of Dissolution
a. by the corporation itself
b. conveyance to a trustee within a 3-year period
c. by a management committee or Receiver
d. liquidation after three years
Pursuant to Section 145 of the Corporation Code, an
existing intra-corporate dispute, which does not constitute
a continuation of corporate business, is not affected by the
subsequent dissolution of the corporation. The dissolution
of the corporation simply prohibits it from continuing its
business. However, despite such dissolution, the parties
involved in the litigation are still corporate actors. The
dissolution does not automatically convert the parties into
total strangers or change their intra-corporate relationships.
Neither does it change or terminate existing causes of
action, which arose because of the corporate ties between
the parties. Thus, a cause of action involving an intracorporate controversy remains and must be filed as an
intra-corporate dispute despite the subsequent dissolution
of the corporation. Aguirre vs. FQB +7, Inc., GR
No. 170770, January 9 2013.

33

Although the cancellation of a corporations certificate of

registration puts an end to its juridical personality, Sec. 122
of the Corporation Code, however provides that a
corporation whose corporate existence is terminated in any
manner continues to be a body corporate for three years
after its dissolution for purposes of prosecuting and
defending suits by and against it and to enable it to settle
and close its affairs. Moreover, the rights of a corporation,
which is dissolved pending litigation, are accorded
protection by law pursuant to Sec. 145 of the Corporation
Code. Thus, corporations whose certificate of registration
was revoked by the SEC may still maintain actions in court
for the protection of its rights which includes the right to
appeal. Dissolution or even the expiration of the three-year
liquidation period should not be a bar to a corporations
enforcement of its rights as a corporation. Paramount
Insurance Corp. vs. A.C. Ordonez Corp, 561
SCRA 327 (2008)
To allow a creditors case to proceed independently of the
liquidation case, a possibility of favorable judgment and
execution thereof against the assets of the distressed
corporation would not only prejudice the other creditors
and depositors but would defeat the very purpose for which
a liquidation court was constituted as well. Barrameda
v. Rural Bank of Canaman, Inc., G.R. No.
176260, 24 November 2010
3.Religious Corporations
4.Educational corporations
N. Foreign Corporations
1. Bases of Authority over Foreign Corporations
i. Consent
ii. Doctrine of "Doing Business" (relate to
definition under the
Foreign Investments Act, R.A.
No. 7042)
2. Necessity of a License to Do Business
i. Requisites for Issuance of a license
ii. Resident Agent
3. Personality to Sue

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A foreign company that merely imports goods from a Philippine

exporter, without opening an office or appointing an agent in the
Philippines, is not doing business in the Philippines. Cargill,
Inc. vs. Intra Strata Assurance Corporation, G.R.
No. 168266, March 15, 2010
A foreign corporation doing business in the Philippines without
license may sue in Philippine courts a Filipino citizen or a
Philippine entity that had contracted with and benefited from it. A
party is estopped from challenging the personality of a corporation
after having acknowledged the same by entering into a contract
with it. The principle is applied to prevent a person contracting with
a foreign corporation from later taking advantage of its
noncompliance with the statutes, chiefly in cases where such
person has received the benefits of the contract. Global
Business Holdings, Inc. Vs. Surecomp Software
B.V., G.R. No. 173463, October 13, 2010
The appointment of a distributor in the Philippine is not sufficient to
constitute doing business unless it is under the full control of the
foreign corporation. If the distributor is an independent entity
which buys and distributes products, other than those of the
foreign corporation, for its own name and its own account, the
latter cannot be considered doing business. SteelCase vs.
Design International Selections, GR no. 171995,
April 18, 2012
4. Suability of Foreign Corporations
5. Instances When Unlicensed Foreign Corporations May
Be Allowed to sue
6. Grounds for Revocation of license
II. Securities Regulation Code
(R.A.No. 8799)
A. State Policy, Purpose
B. Securities Required to Be Registered

While the issuance of checks for the purpose of securing a loan to finance
the activities of the corporation is well within the ambit of a valid corporate
act, it is one thing for the corporation to issue checks to satisfy isolated

35

obligations and another for a corporation to execute an elaborate scheme

where it would comport itself to the public as a pseudo-investment house
and issue post-dated checks instead of stocks or traditional securities to
evidence the investments of its patrons. Gabioza vs. Court of
Appeals 565 SCRA 38 (2008)
A corporation is absolutely proscribed in selling and distributing
unregistered timeshare certificates unless it complies with the registration
requirements under the Securities Regulation Code. Timeshare
Realty Corporation vs Cesar Lao 544 SCRA 254 (2008)
For an investment contract to exist, the following elements, referred to as
the Howey test must concur: (1) a contract, transaction, or scheme; (2) an
investment of money; (3) investment is made in a common enterprise; (4)
expectation of profits; and (5) profits arising primarily from the efforts of
others. Thus, to sustain the SEC position in this case, PCIs scheme or
contract with its buyers must have all these elements.
An example that comes to mind would be the long-term commercial
papers that large companies, like San Miguel Corporation (SMC), offer to
the public for raising funds that it needs for expansion. When an investor
buys these papers or securities, he invests his money, together with
others, in SMC with an expectation of profits arising from the efforts of
those who manage and operate that company. SMC has to register these
commercial papers with the SEC before offering them to investors.
Network marketing, a scheme adopted by companies for getting people to
buy their products outside the usual retail system where products are
bought from the stores shelf and where the buyer can become a downline seller, earning commissions from purchases made by new buyers
whom he refers to the person who sold the product to him, is not an
investment contract. The commissions, interest in real estate, and
insurance coverage worth P50,000.00 are incentives to down-line sellers
to bring in other customers. These can hardly be regarded as profits from
investment of money under the Howey test. Securities and
Exchange Commission vs. Prosperity.Com, Inc., 664 SCRA
28(2012)]

36

1.
2.
C.
D.

Exempt Securities.
Exempt Transactions
Procedure for Registration of Securities
Prohibitions on Fraud, Manipulation
and Insider Trading
1. Manipulation of Security Prices
2. Short Sales
3. Fraudulent Transactions
4. Insider Trading
E. Protection of Investors
1. Tender Offer Rule
The coverage of the tender offer rule covers not only direct acquisition but
also indirect acquisition or any type of acquisition. Whatever may be the
method by which control of a public company is obtained either through
the direct purchase of its stocks or through indirect means, mandatory
tender offer rule applies. Cemco Holdings vs. National Life
Insurance Company, 529 SCRA 355 ( 2007 )
2. Rules on Proxy Solicitation
The solicitation of proxies must be in accordance with rules and
regulations issued by the SEC. The power of the SEC to investigate
violations of its rules on proxy solicitation is unquestioned when proxies
are obtained to vote on matters unrelated to the cases enumerated under
Section 5 of PD 902-A. However, when proxies are solicited in relation to
the election of corporate directors, the resulting controversy, even if it
ostensibly raised the violation of the SEC rules on proxy solicitation,
should be properly seen as an election controversy within the jurisdiction
of the RTC special commercial court. GSIS vs. Court of Appeals,
585 SCRA 679
3. Disclosure Rule
F. Civil Liability
G. Securities and Exchange Commission
1. Administrative and regulatory jurisdiction

37

The SEC has the power to recall and cancel a stock and transfer book
which was erroneously registered. Provident International
Resources Corporation vs Venus, 544 SCRA 540 (2008)
A public company, as contemplated by the SRC is not limited to a company
whose shares of stock are publicly listed; even companies whose shares are
offered only to a specific group of people, are considered a public company,
provided they meet the requirements provided for under Subsec. 17.2 of the
SRC, that is: any corporation with a class of equity securities listed on an
Exchange or with assets in excess of Fifty Million Pesos (P50,000,000.00) and
having two hundred (200) or more holders, at least two hundred (200) of which
are holding at least one hundred (100) shares of a class of its equity
securities.Philippine Veterans Bank v. Callangan, in her capacity
Director of the Corporation Finance Department of the
Securities and Exchange Commission and/or the Securities and
Exchange Commission, G.R. No. 191995, August 3, 2011

The RTC may take cognizance of the injunction suit. SECs jurisdiction does not
extend to the liquidation of a corporation. While the SEC has jurisdiction to order
the dissolution of a corporation, jurisdiction over the liquidation of the corporation
now pertains to the appropriate regional trial courts. This is the correct procedure
because the liquidation of a corporation requires the settlement of claims for and
against the corporation, which clearly falls under the jurisdiction of the regular
courts. The trial court is in the best position to convene all the creditors of the
corporation, ascertain their claims, and determine their preferences. Bank of
the Philippine Islands, as successor-in-interest of Far East Bank
and Trust Company, v. Eduardo Hong, doing business under the
name and style "SUPER LINE PRINTING PRESS," G.R. No.
161771, February 15, 2012
There are three distinct bases for the issuance by the SEC of the cease and
desist order (CDO). The first, allocated by Section 5(i) of the SRC, is predicated
on a necessity to prevent fraud or injury to the investing public. No other
requisite or detail is tied to this CDO authorized under Section 5(i).
The second basis, found in Section 53.3, involves a determination by the SEC
that any person has engaged or is about to engage in any act or practice
constituting a violation of any provision of this Code, any rule, regulation or order
thereunder, or any rule of an Exchange, registered securities association,
clearing agency or other self-regulatory organization. The provision additionally
requires a finding that there is a reasonable likelihood of continuing [or engaging

38

in] further or future violations by such person. The maximum duration of the
CDO issued under Section 53.3 is ten (10) days.
The third basis for the issuance of a CDO is Section 64. This CDO is founded on
a determination of an act or practice, which unless restrained, will operate as a
fraud on investors or is otherwise likely to cause grave or irreparable injury or
prejudice to the investing public. Section 64.1 plainly provides three segregate
instances upon which the SEC may issue the CDO under this provision: (1) after
proper investigation or verification, (2) motu proprio, or (3) upon verified
complaint by any aggrieved party. While no lifetime is expressly specified for the
CDO under Section 64, the respondent to the CDO may file a formal request for
the lifting thereof, which the SEC must hear within fifteen (15) days from filing
and decide within ten (10) days from the hearing.
It appears that the CDO under Section 5(i) is similar to the CDO under Section
64.1. Both require a common finding of a need to prevent fraud or injury to the
investing public. At the same time, no mention is made whether the CDO defined
under Section 5(i) may be issued ex-parte, while the CDO under Section 64.1
requires grave and irreparable injury, language absent in Section 5(i).
Notwithstanding the similarities between Section 5(i) and Section 64.1, it remains
clear that the CDO issued under Section 53.3 is a distinct creation from that
under Section 64.
The CDO as contemplated in Section 53.3 or in Section 64, may be issued exparte (under Section 53.3) or without necessity of hearing (under Section
64.1). Nothing in these provisions impose a requisite hearing before the CDO
may be issued thereunder. Nonetheless, there are identifiable requisite actions
on the part of the SEC that must be undertaken before the CDO may be issued
either under Section 53.3 or Section 64. In the case of Section 53.3, the SEC
must make two findings: (1) that such person has engaged in any such act or
practice, and (2) that there is a reasonable likelihood of continuing, (or engaging
in) further or future violations by such person. In the case of Section 64, the SEC
must adjudge that the act, unless restrained, will operate as a fraud on investors
or is otherwise likely to cause grave or irreparable injury or prejudice to the
investing public.
A singular CDO could not be founded on Section 5.1, Section 53.3 and Section
64 collectively. At the very least, the CDO under Section 53.3 and under Section
64 have their respective requisites and terms. It is an error on the part of the SEC
in granting the CDO without stating which kind of CDO as it is an act that
contravenes due process of law.

39

Also, the fact that the CDO was signed, much less apparently deliberated upon,
by only by one commissioner likewise renders the order fatally infirm.The SEC is
a collegial body composed of a Chairperson and four (4) Commissioners. In
order to constitute a quorum to conduct business, the presence of at least three
(3) Commissioners is required. GSIS vs. Court of Appeals 585 SCRA
679 (2009)

2. Intra-corporate
controversies
a. Cases of intra-corporate controversy
The Board of Directors of a corporation cannot validly delegate the power
to create a corporate office to the President, in the light of Section 25 of
the Corporation Code requiring the Board of Directors itself to elect the
corporate officers. Verily, the power to elect the corporate officers is a
discretionary power that the law exclusively vested in the Board of
Directors, and cannot be delegated to subordinate officers or agents. The
office of Vice President for Finance and Administration created by the
President of the Corporation pursuant to the pertinent provision in the bylaws of the corporation was an ordinary, not a corporate, office. Matling
Industrial and Commercial Corporation vs. Coros, G.R.
No. 157802, 13 October 2010
The stockholder filing a derivative suit should have exerted all reasonable
efforts to exhaust all remedies available under the articles of
incorporation, by-laws, laws or rules governing the corporation to obtain
the relief he desires and to allege such fact with particularity in the
complaint. The allegation that the suing stockholder talked to the other
stockholder regarding the dispute hardly constitutes all reasonable
efforts to exhaust all remedies available . The complaint should also
allege the fact that there was no appraisal right available under for the
acts complained of and that the suit was not a nuisance or harassment
suit. The fact that the corporation involved is a family corporation should
not in any way exempt the suing stockholder from the requirements and
formalities for filing a derivative suit. Yu vs. Yukayguan, 588 SCRA
589 (2009)
Petitioners seek the nullification of the election of the Board of Directors
for the years 2004-2005, composed of herein respondents, who pushed

40

through with the election even if petitioners had adjourned the meeting
allegedly due to lack of quorum. Petitioners are the injured party, whose
rights to vote and to be voted upon were directly affected by the election
of the new set of board of directors. The party-in-interest are the
petitioners as stockholders, who wield such right to vote. The cause of
action devolves on petitioners, not the condominium corporation, which
did not have the right to vote. Hence, the complaint for nullification of the
election is a direct action by petitioners, who were the members of the
Board of Directors of the corporation before the election, against
respondents, who are the newly-elected Board of Directors. Under the
circumstances, the derivative suit filed by petitioners in behalf of the
condominium corporation in the Second Amended Complaint is improper.
Legaspi Towers 300, Inc.,vs. Muer, et. al..G.R. No.
170783, June 18, 2012.
The Court held that the complaint for annulment of sale was properly filed
with the regular court, because the buyer of the property had no intracorporate relationship with the stockholders, hence, the buyer could not
be joined as party-defendant in the SEC case. To include said buyer as a
party-defendant in the case pending with the SEC would violate the then
existing rule on jurisdiction over intra-corporate disputes. Lisam
Enterprises vs. Banco De Oro G.R. No. 143264, APRIL 23,
2012.

Although the extrajudicial sale of the condominium unit (for nonpayment of condominium dues and assessment) has been fully
effected and that the petition of the owner questioning the sale has
been dismissed with finality, the completion of the sale does not bar
the condominium unit owner from questioning the amount of the
unpaid dues that gave rise to the foreclosure and to the subsequent
sale of the property. The propriety and legality of the sale of the
condominium unit is different from the propriety and legality of the
unpaid assessment dues. The latter partakes of the nature of an
intra-corporate dispute. Chateau De Baie Condominium
Corporation vs. Spouses Moreno, GR No. 186271,
February 23, 2011
Respondent was not a corporate officer of the corporation because
his position as General Manager was not specifically mentioned in
the roster of corporate officers in its corporate by-laws. The
enabling clause in the corporations by-laws empowering its Board

41

of Directors to create additional officers, i.e., General Manager and

the alleged subsequent passage of a board resolution to that effect
cannot make such position a corporate office. The Board of
Directors has no power to create other corporate offices without first
amending the corporate by-laws so as to include therein the newly
created corporate office. Though the Board may create appointive
positions other than the positions of corporate officers, the persons
occupying such positions cannot be viewed as corporate officers
under Section 25 of the Corporation Code. March II Marketing
vs Joson, GR No. 171993, December 12, 2011
A complaint filed by condominium unit owners against the
developer of the condominium for unsound business practice and
violation of the Master Deed and Declaration of Restrictions in that
the developer committed misrepresentations in its circulated flyers
and brochures as to the facilities and amenities that would be
available in the corporation is an intra-corporate controversy. Go
vs. Distinction Properties Development Corporation,
GR no. 194024, April 25, 2012
In ordinary cases, the failure to specifically allege the fraudulent
acts does not constitute a ground for dismissal since such a defect
can be cured by a bill of particulars. The above-stated rule,
however, does not apply to intra-corporate controversies. In cases
governed by the Interim Rules of Procedure on Intra-Corporate
Controversies a bill of particulars is a prohibited pleading. It is
essential, therefore, for the complaint to show on its face what are
claimed to be the fraudulent corporate acts if the complainant
wishes to invoke the courts special commercial jurisdiction. This is
because fraud in intra-corporate controversies must be based on
devises and schemes employed by, or any act of, the board of
directors, business associates, officers or partners, amounting to
fraud or misrepresentation which may be detrimental to the interest
of the public and/or of the stockholders, partners, or members of
any corporation, partnership, or association. The act of fraud or
misrepresentation complained of becomes a criterion in determining
whether the complaint on its face has merits, or within the
jurisdiction of special commercial court, or merely a nuisance suit.
Thus, the mere averment of fraud in the transfer of shares of stock
42

but without indicating in the complaint the specific acts constituting

of fraud is not sufficient to make the complaint within the ambit of
intra-corporate controversy.
Guy vs. Guy, G.R. No.
189486.September 5, 2012
b. Tests to determine intra-corporate
controversy
Under the Relationship Test, no doubt exists that the parties were
members of the same association, but this conclusion must still be
supplemented by the controversy test before it may be considered as an
intra-corporate dispute. Relationship alone does not ipso facto make the
dispute intra-corporate; the mere existence of an intra-corporate
relationship does not always give rise to an intra-corporate controversy.
The incidents of that relationship must be considered to ascertain whether
the controversy itself is intra-corporate. This is where the Controversy
Test becomes material.
Under the controversy test, the dispute must be rooted in the existence
of an intra-corporate relationship, and must refer to the enforcement of the
parties' correlative rights and obligations under the Corporation Code, as
well as the internal and intra-corporate regulatory rules of the corporation,
in order to be an intra-corporate dispute. These are essentially
determined through the allegations in the complaint which determine the
nature of the action. Gulfo v. Ancheta, G.R. No. 175301,
August 15, 2012
c. Doctrine of primary jurisdiction
Under the doctrine of primary jurisdiction, courts will not determine a
controversy involving a question within the jurisdiction of the
administrative tribunal, where the question demands the exercise of
sound administrative discretion requiring the specialized knowledge and
expertise of said administrative tribunal. The Securities Regulation Code
is a special law. Its enforcement is particularly vested in the SEC. Hence,
all complaints for any violation of the Code and its implementing rules and
regulations should be filed with SEC. Where the complaint is criminal in
nature, SEC shall indorse the complaint to the DOJ for preliminary
investigation and prosecution. Baviera vs. Standard Chartered
Bank 515 SCRA 170

43