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 can not 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 stockholders 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 attorney-
in-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 can not 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 can not 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 can not 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 co-mingled. 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 can not 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. Domestic and foreign

4. Open and close
5. Parent and subsidiary
6. Corporation sole and corporation aggregate
7. Public and private
8. Government owned and controlled corporation

i. Chartered GOCC
ii. Non-Chartered GOCC

Congress can not 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 can
not 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
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 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
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)

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 by-laws 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 can not 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 can not 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)

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 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 can not 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.

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
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. Powers of the executive committee

ii. Limitations on the power of the executive committee

F. Corporate Powers

1. How Exercised

a. By the Shareholders
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 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

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 my 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

a. 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
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 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

4. Ultra Vires Acts

a. instances
b. Applicability of Ultra Vires Doctrine
c. Consequences of Ultra Vires Acts
G. Meetings

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 of directors 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 by-laws 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 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 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 wholly-owned 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 can not
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 intra-corporate 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. 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

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 Pre-
Subscription 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
 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
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
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 transferor-stockholder may
rightfully bring suit to compel performance. But the transferor, even though he may be
the controlling stockholder of the corporation can not 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

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 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 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 intra-corporate 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.

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

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 can not 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 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 down-line 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)]

1. Exempt Securities.
2. Exempt Transactions
C. Procedure for Registration of
Securities
D. 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
voted 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

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 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 ex-
parte (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.

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 can not 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 can not 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

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, 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 intra-corporate 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 non-payment 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 of Directors to create additional
officers, i.e., General Manager and the alleged subsequent passage of a
board resolution to that effect can not 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 can not 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 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