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BUSINESS ORGANIZATION II TRANSCRIPT

From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17


ADDU-Law

NOV 17, 2016 Acosta, M. Capital markets you’ve heard of the stock exchange-
that is the equities market, you’ve heard of bonds- that
We will study the: is the long term credit markets, you’ve heard of money
markets- that’s also credit markets but for short term;
1.Corporation Code (BP 68), Instrument that mature within one year.
2.Securities Regulation Code (BP 902-A), t
3,The soon to be amended Real Estate xx Law, How many of you, when you’re surfing you have this
pop up earn 100k by trading dollars there are personal
Commentaries-you can use De Leon or Villanueva, just testimonies. It’s everywhere it’s popping up. It’s even
do not use Campos. publish in the daily print.

The SEC comes up with a decision it wants to forget


because it’s based on ignorance; I was surprised this SEC has a memorandum that is illegal, we don’t have
morning that it came up with a decision again citing that any futures exchange trading in the Philippines that is
decision of the Supreme Court, it’s a laughing stock. Did one capital market we don’t have futures contract or
you know that the Philippines still has no approval or foreign exchange contracts. So if you have the foreign
membership with the Associations of Securities exchange denominated debt and you want to hedge
Commission of the xx there are some that are almost your debt managing ka ba, mangutang ka ron 100M
backward. dollars, nagong nangutangman kag 100M dollars, 100M
They are still based on paper certificate of shares; the yen, because in Japan now you are paid to borrow you
whole world is a really digital forms of evidence of don’t pay interest, its negative interest rate in Japan
ownership. Why is that? Herbosa said because there is now; mudeposito kag kwarta sa bangko ikaw maoy
no budget. If there’s no budget, there might as well be mubayad sa bangko aron dawaton imong deposito,
no SEC. Tao gani ka pagcarsones, unggoy gani that’s negative interest, muingon kag kalooy sa mga
maghubo. Tao ka mag ingon ka wa man koy budget di Hapon, kalooy gud, kaluy-I imong kaugalingon because
wa kay carsones nya unggoy ta ka. the effect of that practice is the deposits in the banks of
Japan has grown, mao ng ngilngig nga nasud 25 years
The costs on transactions in SEC is one of the greatest na halos negative growth in the economy sige ingon
barriers for investments; very expensive to be trading on recession wa jud matarog ang ilang panginabuhi, the
paper shares, you have to physically deliver certificate same standard of living, gangisi gihapon ang Hapon.
of stock. It has to be verified and so on for it can be
cancelled just a 3-day gap so many things can happen
in 3 days. That’s why checks, there is now same-day So when you borrowed yen and you are thinking can I
clearance in US, in Europe, wherever jurisdiction you go pay this 5 years from now when it matures when I am
through same-day clearance. Now even if they are still earning in pesos, normally in business they call it
using paper checks that’s already step facsimile to hedging your loan amount you try to get a futures
clearing xx and its digital representation is enough to contract somebody will sell you yen at the price that you
clearing, securing. Here there is still no same-day bought the yen when you borrowed it, that’s hedging,
clearing, the xx like it because they had an allowance of that’s called forward cover; imo ng protektahan daan but
a day and a half, but, it’s a mark of backwardness. if you do that here engage in foreign exchange trading,
 History that is illegal according to the memorandum of the
Bangko Sentral and then it quotes this case which our
So you are studying history, if you stick to our capital markets associations here would like to forget
Corporation Code you study history so I suggest get Junapal vs CA? Where the Supreme Court stated in
hold of Sarbanes-Oxley Law that is the forefront of this wise the payments made under said contract where
corporation law. Sarbanes-Oxley, this is the law that payments of different in prices arising out of the rise or
congress is discussing as to what amendments to be fall in the market price above or below the contract price
introduced, it’s just talking about removing the negative thus making it purely gambling and declared null and
investment lists in the constitution. void by law.
Just give me one example, because of the lobbying of
the Lopez family that particular provisions in our
constitution are requiring that media be 100% Filipino Let us say you bought dollars, at the time you borrowed
that secured the dominance of the Lopez in ABS CBN. the dollars the exchange rate was 45 to a peso you are
How myopic can you be, a country will xx itself to incest going to pay that 5 years from now so when you got
for more than half a century. Filipinos can only inform your dollar exchanged it in pesos used it in your plant
Filipinos. That was allowed. Now nobody wants to you got 1 is to 45, 5 years from now you’re going to pay
change the constitution because it’s a legacy of Cory your debt in dollars, how will you fund your payment of
Aquino for all her rectitude was zero up here. Her heart debt, you are earning in pesos you have to buy dollars
was in the right place her mind was bonkers. but what happens if the dollar is now rising vis a vis the
peso what is the exchange rate now? 49.20 supposed it
Another piece, read that so you will know the issues and hits 55 5 years from now how do you protect yourself
weep. because you’re earning in pesos?

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

You try to get a forward contract; find somebody who China, they give tea, and what did they give them in
will sell you dollars at 45 five years from now. You buy return? Opium. They sold opium to China, that’s how
that. Five years later when your loan matures it’s time they enslave China for quite some time. But then they
for you to pay. If the actual exchange rate is 42 to a have mother nature to contend with so many of the
dollar do you still need that futures contract? No more, ships coming back crashed, they lose their cargo. If you
because it’s cheaper to buy dollars than to use the lose the ship, you lose it all. At least that was the fate of
contract. loans on bottomry. Then when you have bigger and
bigger ventures, like the opening of the Suez Canal,
But supposed 5 years from now, the dollar has gone up Panama Canal, it took decades, whose willing to put
to 55 pesos to 1 dollar and here you have somebody money there? That’s the corporation now. That is Mr.
who will sell it you at 45, ginansya kag 10 pesos per Nobel, what was the product of Nobel? Dynamite, that is
dollar. That fellow who obligates himself to sell you 55 how he acquired his millions by blowing up the canal.
per dollar will only give you 10 pesos to settle that Corporate risk, so much so that risk and loss has even
account, get it? Since anyway you have to produce the become profitable.
45. That is how futures contract is settled in Chicago, in
Amsterdam, in London. But our Central Bank says it is
null and void. Makauuwaw ning desisyona. That’s the
way how futures contract are settled. Ignoy ning kasuha Now, here is bad corporation, this is what you should
nani. You go to London’s futures exchange you check, not do, or if you do it, do it well. January 11, 2016 case,
University of Mindanao Inc. v. Bangko Sentral ng
that is how they settle it. Read that and weep.
Pilipinas G.R. No.194964-65, the Torres made the UM
We are in the rear guard action, they say Russia was by shares of their bank then the bank get into trouble, to
saved by the onslaught of the war machines of get advances from the Bangko Sentral, the BSP wanted
Germany when they attack because Russia was collaterals so Torres put as collateral UM properties.
backward; they did not have too many roads so when Since the bank of Torres could not pay, had the bank
the Germans attacked them they went to places where eventually got bankrupt, the BSP wanted to execute
there were no roads, what happened? When winter from the collaterals but the stockholders bought it, ultra
came and the earth became soggy the war machines vires, UM does not have the power to mortgage
become stuck there and they became sitting docks company property to guaranty another corporation’s
target to the Russian army and that’s how they lose half obligation. So it’s either Torres is under a very good
a million fighting men. Kumpleto pa to ilang dalan dali legal counsel or the BSP is stupid as most government
lang unta to nila nacontrol. entities are. They lose money because they did not
have the correct collateral. BSP lose the case. It’s on
When the financial crisis hit the world in 2012 kita nag
record that Torres monkey around with the property of
kinagamyang samad, ngano man? We are not that the university because it is for profit. Read that case
exposed enough to have that many wounds. Tago again and weep.
nalang ta kay wa man tay futures contract, our stock
market negligible.
The biggest traded instruments are “bond, the biggest Now you are familiar with the provision in the
traded instruments are so called over the counter bill Constitution that says only Filipino nationals can own
that is, credit default swaps. Those are the biggest. I’ve real property or corporations whose capital 60% is
never see a credit default swap here. There are owned by Filipinos. Years ago , the great PNoy signed
estimated to be 60B of credit default swaps alone. into law on May 24, 2013 R.A. 10574 or otherwise
known as An Act Allowing the Infusion of Foreign Equity
Now you came to this class and say what will I do when in capital of Rural Banks amending R.A. 7353.
I do not have any background in accounting, in banking, Foreigners can now own up to 60% foreign capital of
I am a strictly PolSci guy, what do I do? My word to you rural banks. Then again Pres. PNoy signed R.A. 10641
is- be an educated man; read the business pages and an act allowing the full entry of foreign banks in the
then go to google, anything you don’t understand google Philippines. They are allowed by at least one bank
it. xxx universal bank or commercial bank and own it 100%
Corporation law is the missing aspect of modernization; even if they own real property. There has been no
the world did not jump from the Industrial Revolution into challenge yet to that, just as there has been no
the modern contemporary world just because of challenge as to why AXN Fox Media are now operating
technology. It was technology that was harness used in our, they are 1005 foreign-owned.
under the corporate structure of limited liability. Without
limited liability there could have been no progress.
Because business is very dicey; you can lose your shirt Why is it that there is no challenge because it was
in so many ventures and there must be limited liability. defeated in Ridon et. al. v. AXN Networks Phil. GR
no. 210885 En Banc resolution per curiam August
The ancient way to meet the harsh reality of risk in 26, 2014. Part of your assignment is to look for a copy
business before was loans on bottomry. You lose the of this resolution because there is no copy of this in the
bottom then you are forgiven. If you lose your bottom SCRA. Why is there no copy? You tell me. Why did no
that’s the East India Trading Company from London to

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

member of the court sign it as if it’s a death sentence or GR No. 125027


a dismissal of a judge that’s the only time the Supreme
Court signs per curiam decisions. Because frankly the A sole proprietorship does not possess a juridical
SC is ashamed of this decision. Why? Long story. personality separate and distinct from the personality of
the owner of the enterprise.] The law merely recognizes
So, you can use any commentator, what do I suggest, the existence of a sole proprietorship as a form of
you read that which is helpful to you that which you business organization conducted for profit by a single
understand. If your mind is still hungry for individual and requires its proprietor or owner to secure
understanding then go surf the internet. Suddenly licenses and permits, register its business name, and pay
you’re caught in insider trading. What is insider trading? taxes to the national government. The law does not vest a
Read all about it. separate legal personality on the sole proprietorship or
Alright by way of introduction, let’s take up business empower it to file or defend an action in court.
organizations because you have taken up corporation in Thus, not being vested with legal personality to file
civil law but you took it up as a contract now we are this case, the sole proprietorship is not the plaintiff in this
taking it as an organization, a platform for further case but rather Loreta Guina in her personal capacity. In
contracts. In fact, the way they call it is a vehicle, the fact, the complaint in the lower court acknowledges in its
corporation is a vehicle. What other vehicles are there? caption that the plaintiff and defendant are Loreta Guina
There are sole proprietorship, partnership, joint and Anita Mangila, respectively. The title of the petition
accounts, business trust, joint ventures cooperatives before us does not state, and rightly so, Anita
and finally you have the corporation which the most Mangila v. Air Swift International, but rather Anita Mangila
sophisticated vehicle. v. Loreta Guina. Logically then, it is the residence of
private respondent Guina, the proprietor with the juridical
personality, which should be considered as one of the
TYPES OF BUSINESS ORGANIZATIONS. proper venues for this case.
So to understand the corporation, we put it against the
range of these other business organizations.

Now, Bohol Trading you have to register that name with


I. SOLE PROPRIETORSHIP the local business bureau office. A proprietor’s true
name is already registered with the civil registrar upon
birth but the proprietor is required to register his
A person who personally conducts business under his business’ name other than his true name with the
name. The business is under an organization composed Bureau of Trade Regulation and Industry. That is his
of the proprietor himself and his employees, but it has firm name. if not registered, the proprietor cannot use
no personality separate and distinct form the proprietor. the sign saying Bohol Trading, he cannot print receipts
The sole proprietorship does possess a juridical saying Bohol Trading.
personality and has no legal personality to file or defend
an action in court. But a corporation does not have to register its name
with the local business bureau. Why? Because its name
So you go over to Uyanguren and you go there to Bohol is already registered with the Securities and Exchange
Trading because you need to buy a lagaraw, but then Commission. When does it need to register a name? If it
after you pay for it and bring it home- it does not cut. It’s uses other names than its corporate name. Naa may
a lousy lagaraw so you want to return it, it cannot cut nagreperesent nimo diha Jollibee, its description etc,
anything, it cannot even hurt your husband, so you want you register it in the patents office, trademark.
to return it and they refuse to accept it and you feel that
you’ve been a victim of a legal fraud so you sue Bohol Davao Doctors Hospital that is registered with local
Trading. Can you do that? No, Bohol trading is a single registry of the bureau, why? Because that is not the
proprietorship, it does not have a personality so you name of the corporation. What is the name of the
have to go to the proprietor, who is the proprietor then corporation of Davao Doctors Hospital? Clinica Hilario
you look at the receipt and it’s there- proprietor Mr. so & Inc. she’s still alive, she still go there. Clinica Hilario Inc.
so 100% Boholano. So you file a claim with the fiscal that is the corporate name of Davao Doctors Hospital.
office, serve it to Bohol Trading. Serving it to Bohol And that name, Davao Doctors, is now a misnomer,
Trading, is that proper service? No, that is not proper why? Because the real controlling interest is no longer
service; the proper service is in the residence of the Davao Doctors, it is now Makati Medical Center, that’s
single proprietor; that is the holding in Anita Mangila v. now controlling, another corporation.
CA 387 SCRA 162 G.R. No. 125027. Nagtinda siya dra,
So, proprietors, what is the advantage of proprietors in
lahi iyang gipuy-an, adto ka serve sa iyang gipuy-
single proprietor? If you are a single proprietor whatever
an dili sa iyang tindahan-that is not the proper venue for
you can think of, you can go into as a business. Ikaw
service.
man magbuot; whatever you can think of.
Anita Mangila VS CA

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

If you’re a corporation, you cannot go into any kind of Muingon ka, samok man kayo na Fr., that’s very
business; you can only do business that is denominated ordinary muingon ka, nagtangay mi corpo, mao na
in your purpose clause-that is one of the disadvantages cuentas en participacion na, kanang corpo-corpo. Adto
of a corporation that is as to purpose with respect to a kag Diwalwal kannag mga tag iyag tunnel naa na silay
single proprietor. Single proprietor of course is, can last pandawat ug kwarta kay mahutdan man jud kag kwarta
only as your single proprietor’s natural life. The moment ana mao nay tawag nilay corpo disabuse your mind that
he dies, what happen to him? What happens to his corpo is corporation. Corpo2x cuentas en participation
properties? It is perforce by law either subjected to because you only know the respective owner of the
testate proceedings or intestate proceedings. No matter tunnel, kanang mga tao nga mubutang ug kwarta dinha
how big it is, that’s the end. But the corporation might be accidental partnerships na, ngano man? Kay ako man
little troublesome but it can have perpetual existence; naghatag ug gasoline gamit nila didto sa ilalom nya di
technical speaking. You can have perpetual existence man sila kabayad, so naapil nako. Kuha silag bomba sa
because the death of the stockholders is not the end of tubig kay tubig man tung sa ilawm, nya malumos to sila,
the corporation. That is the same with partnership. You nya namalit ug bomba sa hardware nya kay di naman
know of course, the death of the partner what is the sila kabayad, di apil nasad ko corpo na ko. Corpo na
consequence? As a vehicle, it’s the end of partnership, corpo, informal partnership.
partnership is dissolved. Why? Because partnership is
based on confidence and trust; there is no purpose Kana gyung corpo na lisud kayo sudlan, unsa man?
clause, whatever the partners decide they do well and Pirmi jud na mag-away- treasure hunting.kannag corpo
good. But, a partnership can last as long as the shortest sa treasure hunting. Wa jud koy nailhan nga corpo sa
lifespan of a partner. Kinsay kinakatiguwangan nga treasure hunting nga wa mag-away, away na kay ngano
partner, ug kabliton na siya sa Gino okay pabalikon na man? Wa man juy treasure. Naa lang jud sa huna-huna
siya sa iyang gigikanan wan a, human ng partnership. nila ang teasure. They suspect each other.
Nov 18 2016 Tongo, K.
Exam Coverage: 1-22
II. PARTNERSHIP
23 is already Board of Director. So this is the first part
of course are created by consent of the parties, they do and the heart of the first part is section 6.
not have to register unless it is a so called partnership
with limited liability in which case there must be a You have to know section 6 like the back of your hand.
general partner that requires registration. Where should Section 6 is a kilometric provision and you have to
it be registered? It should be registered also with outline it if you want to know it. So when you are already
Securities and Exchange Commission. practicing and somebody will ask you, “can we provide
for this kind of shares?” You will know the answer right
away.
III. JOINT ACCOUNTS
You know the big four in accounting, Pricewaterhouse
it is Code of Commerce terminology “cuentas en Coopers, Deloitte Touche Tohmatsu, Ernst & Young,
participacion”. It is a contract whereby merchant made and KPMG, they are now internationally embarking on
interest themselves in transactions with other merchants legal services. They have their own lawyers. Why?
contributing thereto the amount of capital they may Because there is no more growth in accounting. Those
agree upon and participating in the favorable and that can pay the big four have already, under the big
unfavorable results thereof in the proportion that they four, they are just stealing from each other. Nag away
may determine. That’s under Article 239 of the Code of away lang na sila. tulo ka tu-ig, KPMG, sunod na sad
Commerce. Cuentas en participacion is an accidental kuhaon ang Ernst & Young, mao nan a. So wa na silay
partnership; there is no indication to the public that there growth. So they are beginning to go to the legal
is an existing arrangement because only the ostensible services. What is the logic? The logic is this is the next
partner is conducting the business. There is no juridical area of growth. So they are running slump against the
personality separate and distinct form the ostensible legal firms. Mga dagko kaayo Mckenzie, running against
partner, there is no commercial name common for them and the law firms are scared sheep because they
participants that they adapt in the joint accounts; it’s just are incomplete. If you are auditing somebody then you
the ostensible partners’ name that is there. And as to will have relationship over the years, then you begin to
the management, it’s just the general partners, the be trustworthy and so it is little step towards getting
ostensible partners who faces the public, conducts the them for legal services.So that is a problem now.
transaction. But, the silent partners, they are bound by
this transactions that is cuentas en participacion. It’s Here in the Philippines, the big four, their correspondent
only between the two of you. You hold an evidence that auditing firms are starting their legal services arms. So
you put money to this venture and he agrees that you once again, against the horizon of business vehicles,
pay the venture. business platforms, in other words the base from which
you conduct further contracts and transaction, that is a
point of view of business organizations. That is why we

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

are taking up these business organizations, seven of Incorporated man. Makadakop ka anang San Miguel
them so that we can appreciate the business Incorporated uniya imong ibutang diha provisional
organization that is they corporation. name, imo lang gi change ang iyahang name, di man,
wa man na siya. It just exist in contemplation of law.
The key to your understanding is to understand
abstraction. So it is very important that you will get the name
correctly before you can charge a corporation.
 What is an abstraction?
Simple kaayo na, those are the fundamentals. Mao ng
It is a process of the mind by which you disentangled masayop ng UM, because they have not understood the
certain contents and latch on to that which is common, basic essence of the abstraction known as the
and by that which is common you will arrive at an corporation.
understanding.
Im giving this to you so that you will have some
Let’s say there are four cars. That is an abstraction. appreciation of what we have to deal with.(notes) When
Why? Because right there is a Toyota, a Nissan, a we take up other business organizations, very simple it
Volkswagen and a Subaru. You look at each one of can be understood, there is as much a physical referent
them, you take away their being Subaru, there being as it is absent in a corporation.
Nissan, Volkswagen, and Toyota and just latch on to the
kernel which is their ‘carness’. Then you can understand  A partnership
it as four cars, not as Toyota, Nissan, Subaru and
Volkswagen, but four cars. There are partners, actual live bodies. In fact if a live
body dies that is the end of the organization. It is
Now you will eliminate all the cars and you will say there dissolved.
are four. Four what? Four! That is the ultimate
abstraction. Four, just four. What is the content of that?  Cuentas en participacion or joint account.
That is distinctly human.
There is an ostensible partner, there could be hundreds
Ang iro, ang iring bisan ang unggoy na ngilngig kaayo di of partners that put in money but they are not apparent
makaingon ana. That is abstraction. That is a product of to the public. It is only the personality of the ostensive
mental process. Now when you say a corporation, partner. There is no juridical personality taking up all the
corporate investments that is placed. There is no
 What is a corporation? separate business name. Not everyone participates in
the management. Only the ostensive partner
It exists in the mere contemplation of law. It has no participates. Only the ostensive partner can be sued by
referent. You have a referent. You occupy space. You and is liable to persons transacting with the former. In
exert weight. You are out there and there is something partnership, all general partners may be liable even up
about you which is xx cant do anything about because to the extent of their personal properties and may
you are out there. therefore be sued by third persons. But in a joint
account, it is only the extensive partner.
 Where is a corporation?
Examples: kanang mag tunnel, that is a joint account.
San Miguel corporation, mao ba na? kanang naay Kanang fishing sa general santos, joint account na.
karatula dira? That is a sign that there is a corporation. kanang mamulawan, joint account na. Only the
But where is it? Suwayi. Kung wala ka kaila sa imong ostensive person is the known entity as the public is
akusado na nangawat, mahimo nimong ikiha nga si concern. But as far as the investor and the general
‘John Doe’ wa nimo siya mailhi, wa nimo makit-i. Karon partner, they have obligations to each other, they have
na nadakpan nimo siya, motion to amend the an understanding as to how they will divide the profits,
information. Simple! That is just a formal correction. as to how they will share the loss, as to the right of the
That is not a violation of a fundamental right. Nadakpan investors to veto certain actions that are taken by the
naman, ang iyang ngalan diay, si Alannn Bicoy. Mao na ostensive partner.
iyang ngalan. So imbis na People of the Philippines vs
John Doe, provisional name, tangtangon na na, Alan Alright, another so-called organization is a business
Bicoy.Mao na na siya trust.

Karon mukiha kag corporation, sayop imong ngalan na IV. BUSINESS TRUST
nabutang, unya service-an nimo ang corporation ug
summons, pero sayop imong ngalan. Unsa may tubag What is prominent in the civil code is an implied trust.
sa corporation na imong iserve-an ug summons? Ang There are many instances of implied trust. If you are a
tubag niya, motion to dismiss for lack of cause of action. seller of a merchandise and the buyer overpays you, to
Muingon siya “ Dili man na ako!” that is not San Miguel the extent of the overpayment you are a trustee holding
Corporation, ang imong pagkiha diha San Miguel it for the benefit of the customer who overpay you. That

5
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

is an implied trust. The customer who overpaid has the sure that it does not going to happen, the
right to comeback later on and ask for the amount in governing board must manage the fund. It has
excess of which he paid. You have a duty to safeguard to entrust it to an asset manager, normally a
that amount. You cannot say later ‘uy! Nasayop man bank-- a trustee. So the corporation is a trustor,
kog butang sa , niya pag abri nako wala naman dinha, it creates the retirement fund for the benefit of
sorry ha.” Can that excuse you of liability? No. You can the employees, officers, directors of the
lose all your money but you cannot lose the money of corporation, those are the beneficiaries and
another which you hold in trust. then it must engage the services of a trustee to
manage the fund.
The rules governing property held in trust are more
stringent than the rules that you exercise over your So when you have a business trust you have three
personal property. So nawani nimo, too bad bayran parties, the trustor, the trustee and the beneficiary. Now,
nimo sa imong kaugalingong kwarta, because you have question,
the duty to hold it in favour of the one who overpaid you.
That is business trust—implied trust.  Does a business trust have a personality?

 Now we come to express trust. No. It does not have a business personality.

You are taking up business tax. One of the provisions in  But does the business trust have a tax
the National Internal Revenue of an ongoing concern identification number (TIN)?
such as corporation is, it has the right to put up
retirement fund in favour of its employees, the officer Yes. It has. The BIR requires that it has its own TIN. It
and members of the board of directors. It can put up a pays its own taxes from the earnings of its investments,
retirement fund to answer for retirement benefits unless it is tax exempt. But even if it is tax exempt it
according to its retirement rules. If your retirement is by must continually year after year file a tax return,
the age of 55 then by the time you reach the age of 55 because tax exemption does not exempt you from filing
then you are entitled to the retirement benefits of the a tax return.
rules of the corporation.
So, you are not a person yet you have a TIN. Let it not
 Now, before you can put up retirement fund be said that personality is necessary in order that you
what do you need? are identified with the BIR. Bisan multo ka, mubayad
kag tax kung naa kay TIN. The BIR does not care
1. First, you need the approval of the National whether you have actual, real, or ghostly existence as
Internal Revenue. The Bureau of Internal long as you have TIN, you are subjected to, at the very
Revenue must approve your plan. And then the least, a tax return.
BIR requires that the plan must be an
irrevocable plan. Dili mahimo na muingon ang  Suppose the business trust acquires
coporation, “500 million atong igahin dinhi para property, under whose name is the title of
sa retirement plan” unya naglisod na ang the property to be bought?
corporation, “asa na ta mangita? Ay diri ta sa
retirement plan, huwaman nato.” No you So we have a trust fund. Let us say Henry Sy invested
cannot. It must be irrevocable. Dili na in sovereign bonds of the Republic of the Philippines,
‘irevoowwcable’, I-‘re-və-kə-bəl. Dili na nimo treasury warrants. Ug mupalit siya ug treasury warrant
mabawi. Those are the rules you have to kang kinsa man ng ngalan ibutang? Ibutang nimo ‘San
satisfy before the Bureau. Miguel Retirement Fund’? There is no such person.
Under whose name is it? It is under the name of the
2. Second, the beneficiaries of the fund must be trustee. So property can be disposed of, acquired by the
represented in the governing body of the business trust and it pertains to the business trust. But
retirement fund. So, if it is for the general rank- because it has no personality, it is in the name of the
and-file then there must be a representative in trustee in trust for the business trust. Kuha mog civil
the Board that oversees. There must be law, anang trust, di gyud na I explain kay wa man na
representation for the rank-and-file. Ofcourse, ning agi anang ga explain ana ninyo. Wa may
there will be members of the board, there will experience ana. Wa kasabot ana.
be officers, etc. but there must be
representation from the beneficiaries. Example: Ikaw, you are Henry sy, Daghan kag mga
apo, nag awas awas na imong mga kwarta, di na gani
3. Third, the company cannot manage its own nimo ma ihap. Now mu ingon ka “I want to put up a trust
retirement fund. Why? Because it has its own fund for each of my grand children.” Why? “I want them
interest and the interest of that fund might be to be secured. I want them to finish in the best schools.
sacrificed in order for its own personal interest If they have the talent to qualify in Oxford or Cambridge,
to be safeguarded. Now mahutdan ug kwarta, they should have enough money to go there and study
manguha didto, bunluton dinhi, No. To make where Isaac Newton studied and Stephen Hawkings.

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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Mao nay lisod sudlan. Dili ng Stanford, Harvard, cannot enter into joint ventures why? Because of the
Cambrdige, suwayig sulod. Entrance exam pa lang now Section 23 of the Corporation Code
knock out ka na. naa may latin! Inintsik unta! The
members of the communist party dependence cannot Section 23 of the Corporation Code mandates that all
go there ecause they do not have latin. Kinahanglan powers are excercised ___, assets, rights are
muskwela kag gradeschool to highschool interno ka. possessed by the Corporation, through the board of
Public schools in England which are very private, directors. So there can be no one higher than the board
mutuon kag latin, a little .. of greek. They say if you have of directors to direct a corporation.
some greek or latin, you have pedigree . You know how
to recite the Odes of caesar. Section 23. The board of directors or trustees. –
Unless otherwise provided in this Code, the
 Now supposed you passed on properties as corporate powers of all corporations formed
part of the trust, How do you do it? under this Code shall be exercised, all business
conducted and all property of such corporations
You have to execute an instrument of conveyance of controlled and held by the board of directors or
that property to the trustee, for the benefit of the trustees to be elected from among the holders of
particular beneficiary. Henry Sy ka, daghan kag yuta, stocks, or where there is no stock, from among
naa kay yuta corner Pioneer and Edsa, 1000 sqm, the members of the corporation, who shall hold
Gusto nimo ibutang anang trust fund sa isa sa imong office for one (1) year until their successors are
apo. Anak ni rubina. Pila may anak ni Rubina? Usa ray elected and qualified. (28a)
anak ni Rubin. Ang amahan ana dean sa lawschool sa
University of Palawan. Himus himus na lawschool. Every director must own at least one (1) share of
the capital stock of the corporation of which he
What do you do? You convey it to the trustee in trust. is a director, which share shall stand in his name
So you execute. Why do you need to convey it? on the books of the corporation. Any director
Because for tax purposes, unless you make it an who ceases to be the owner of at least one (1)
irrevocable trust, irrevocable trust means in law a blind share of the capital stock of the corporation of
trust. Kadungog namo anang blind trust? Mao nay which he is a director shall thereby cease to be a
pasabot anang irrevocable trust. Then it is no longer director. Trustees of non-stock corporations
part of your corpus of wealth and possessions. It is must be members thereof. A majority of the
separate taxable entity. When you die it is not part of directors or trustees of all corporations
your estate, it already belongs beneficially to the organized under this Code must be residents of
beneficiary.Pictularly(?) it belongs to the trustee. He has the Philippines
command over it in accordance with the so-called
articles of trust, kay gisuwant man nimo, articles of trust
ug unsa imong gustong buhaton ining mga kwarta you
invested, the trustee can engage it, and etc.

When does the trust end? When he reaches the age of When you enter into a joint venture, the corporation no
35? 32? 33? Or 40? By the time he reaches the age of longer become supreme because it must abide by the
40 then the trustee will turn over everything to the decision of others that entered into the venture. So that
beneficiary. That is the end of the explicit business trust. was the thinking. But then necessity forced us. And so
the Supreme Court came up with the decision in
IV. JOINT VENTURE Aurbach vs Sanitary Wares Inc allowing corporations
to enter into joint ventures.
It is an association of persons or companies jointly
undertaking some commercial enterprise. Generally all  Where is joint venture very common?
contribute assets and share risks. It requires of
community of interest in the performance of the subject. Joint ventures are very common in oil and gas projects.
A right to direct and govern the policy connected Oil and gas projects costs so much money, that even if
therewith and duty which may be altered by agreement, you are Exxon which used to be one of the most
to share both in profit and losses. valuable corporations in the world market value, you
cannot survive without joint ventures. If you bid,
 What are the features of joint venture? solohon nimo ang isa ka exploration, that is all the
exploration that you can do because it is so expensive.
As to applicable provisions, the joint venture is actually So what will you do? You invite others to come in so
a form of partnership and should thus be governed by that not all your venture capital, you risk capital will be
the law on partnership under our jurisdiction. put it one basket.

Second, Corporations can now enter into Joint Venture Supposed you decide to look for oil in iced Siberia,
agreements. Before there was an old 1920s Mahal kaayo, iced naman. Why all of a sudden have
pronouncement of the Supreme Court that corporations decided to do this? Because your technicians, your

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

scientists are there saying, “The GPS data, our satellite The highest body of the corporation is the board of
data is pointing to the existence of oil and natural gas, directors or the board of trustees. The highest body of a
we just don’t know. But mathematically this is the cooperative is the general assembly of cooperative
computation. So if you don’t go there, somebody else members. No matter how many shares you have you
will.” So if you are big now you might not be later if only have one vote because what you want to achieve is
someone goes ahead with you. That’s why they go in a social end. It does not matter how many shares you
there. have. You just have one vote. That is why if you are a
member of the cooperative you need not be paid the
When Obama pronounced the boycott against Russia minimum wage if you work for the cooperative, because
because Putin annexed Crimea, they delayed it for four the good of the cooperative is as much your good. It is
days before Exxon, chevron, and etc could find positive exempt from minimum wage.
confirmation of their drilling in the polar cap of Siberia. VI. CORPORATIONS
Hapit naman sila, duol naman sila ka-igo. That is one
kilometer of sea and then two kilometres of earth at the Section 2. Corporation defined. – A corporation is
bottom of the sea. Hapit naman sila ka-igo. Pagkaigo an artificial being created by operation of law,
na nila, sirhan na nila sa taas, sirhan na nila sa ubos. having the right of succession and the powers,
Wa man sila kahibaw unsa kadaghan ana. But they attributes and properties expressly authorized by
cannot do it by themselves. It is too expensive. They law or incident to its existence. (2)
have to get joint ventures.
I would like to caution you, you will read in some other
What is the most expensive project, business venture commentaries that a corporation is an artificial person.
in the Philippines? The most expensive is Malampaya. No. Its personality is as real in law as yours and mine. It
Shell which is the majority owner operator of this joint is its being that is artificial. It is not its personality. If you
venture put in a pittance of 4 Billion US dollars for that disregard the personality because it’s artificial, then you
and has been supplying natural gas and cutting our will suffer consequence of ignorance.
petroleum bill by one-half to produce 60-40 Philippine
Grid. But that is Shell, Oriental petroleum, Chevron, the So a corporation is an artificial being created by
Philippine government, but the share of the Philippine operation of law. The second phrase points to what
government cannot be accounted for. What happened Mr.Cesar Villanueva says, is the theory of concession.
to it? Naay resibo ang joint venture na ning bayad sila The basic undermine nucleus is the consent of the
sa Philippine government but nobody knows where it state. That is what makes it a corporation. If the consent
is. of the State is not there then there is no corporation.
That is what Villanueva says. That is .. because there
So by necessity there has to be joint ventures. are other competing theories that underlie a corporation.
Another business venture
But for this purpose, created by operation of law let us
first accept that theory, the theory of concession.
V. COOPERATIVES
 When does the corporation begin to exist?
RA 9530 ART. 3. General Concepts. - A
cooperative is an autonomous and duly It is not like a partnership. The moment the partners
registered association of persons, with a common come together and they agree and put in money then
bond of interest, who have voluntarily joined the partnership exists. It is by the agreement of the
together to achieve their social, economic, and parties.
cultural needs and aspirations by making
equitable contributions to the capital required, You are incorporators and there must be atleast five
patronizing their products and services and incorporators to register a corporation. You have come
accepting a fair share of the risks and benefits of to an agreement and you put in your subscription form
the undertaking in accordance with universally and .. corporation shares and you agree and you have
accepted cooperative principles. an interim treasurer holding it for and in behalf of the
corporation to be formed. But the SEC does not give
you a certificate of incorporation, what happens?
Muingon ka, ‘now there is an implied partnership’, is that
 Cooperatives for business. true? That is not what the Supreme Court says.

It may engage in business but it might not be the lowest If there is a failure to incorporate, there is no certificate
price product producer its aim is social, to achieve a of incorporation issued by the Securites and Exchange
lawful common social or economic end. It is social. Commission, there is no corporation, there is no implied
partnership then you have to give back all the
 What it is its biggest difference with a contribution. Even if a piece of real property is deeded
corporation?

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

to the corporation to be formed that is considered null payments of the corporatio


and void and it goes back to the donor. debts of the n are
partnership. liable only
Operation of law--having the right of succession and the to the
powers, attributes and properties expressly authorized extent of
by law or incident to its existence. their
unpaid
(2nd hour) Abad, I, subscripti
on or
 Partnership vs. Corporation payment
of
The usual differentiation or distinctions between corporate
partnership and corporation are Contractual in nature. debts*
Some instances are as follows: 5. Effects of The death, While the
death, insolvency, death,
insolvency, insanity or civil insolvency,
insanity or civil interdiction of a insanity or
PARTNERSHIP COPRORATI interdiction general partner civil
ONS dissolves the interdiction of
1. Parties you need 2 or You need partnership a
more persons not less stockholder,
than 5 nor does not
more than affect the
15 corporation’s
incorporator existence.
s to form a 6. Power to  A partner  A
corporation. Dissolve the may dissolve the corporation
2.Basis of Based on the A corporation business partnership by cannot be
creation: agreement of the is created by organization his act or dissolved
parties, there is Operation of withdrawal. without the
Consensuality. It Law and its approval of
follows the existence  Sa the board
general rules on begins from partnership, it of directors
contracts where and after the is very easy( to and 2/3
they are perfected date of dissolve) confirmator
by mere consent issuance of its y votes of
Certificate of the
Incorporation stockholder
3. Term of While a s, voting
existence Just like the corporation and non-
contract, may be voting, and
partnerships may organized consent of
be organized for only for 50 the State.
an indefinite years, it is  While to
period of time, renewable for dissolve a
(Article 1785, CC). periods not corporation
But in reality, a exceeding 50 is more
partnership, lasts years for an complicate
as long as the indefinite d
shortest lifetime of number of 7.  A partner  while in a
a partner, times. So a Transferability cannot transfer corporation
because once a corporation, of Interest. his interest in ; the
partner dies, then is capable of the partnership stockholder
the partnership is an indefinite without the may
consumed. term of consent of the transfer his
existence, other partners shareholdi
legally.  Consequently, ngs without
a person the
4. Liability of General partners While cannot consent of
Constituents are liable with stockhold become a the
their properties for ers in a partner without stockholder

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

the consent of s subscriptions, if you have a balance that you have


the other  While a not yet paid, and then the corporation goes
partners person can bankrupt, the creditors of the corporation can run
become a after you as subscriber, up to your own personal
stockholder property to the extent of your unpaid balance plus
of the accrued interest on the balance of your
corporation subscription. That is the extent of a stockholders or
with the subscribers liability.
consent of
the other
stockholder **Now, there might be some restrictions as to the
s.** transferability of shares, but such restrictions
8. the scope of  A partnership  A cannot be more onerous, according to the
the powers may do corporation corporation code, than a grant to the corporation or
anything by the may the other stockholders the right of first refusal. If
agreement exercise they fail to exercise that, then the stockholder is
among the such free now to resort to anyone. But the essence of
partners. powers as shares in the corporation is that they are
 If you are may be transferrable. In other words, you cannot provide
partners, you granted by in the articles and by laws of the corporation that
can enter into law on its the shares of a certain corporation cannot be
any business Articles of transferred, because that is the essence of a
as long as you Incorporati corporation – transferability of shares.
agree. on or those
implied
therefrom, Now, to emphasize to you how important that
or those transferability of shares is, you have to read the case of
incidental JJ Summit vs. Court of Appeals, 345 S 143. (?)
thereto.
 . If you are JG Summit vs. Court of Appeals
partners, [G.R. No. 124293. September 24, 2003]
you can
enter into JG Summit is the holding company of Mr.
any Gokongwei. Here is the story:
business
as long as Baseco Bataan Shipyard Inc. was formed during
you agree. the heydays of Marcos. From the behest money of the
 But a Romualdez, they then sought out a partner, Mitsubishi in
Corporatio Japan and then they formed a shipbuilding, ship repair in
n is limited Bataan, Baseco. Now, the Japanese wanted security, so
to their the Japanese entered into a right of first refusal
purpose agreement with the Romualdez.
clause.
As to Unless otherwise While in a The Romualdez were unable to pay their debt
Representation: agreed upon, corporation, with the (PNB) Philippine National Bank’s investment
each partner may only those arm or the NIDC (National Investment and
act upon for and officers or Development Corporation), the PNB was still a
bind the persons GOCC. So as a consequence, NIDC took over the
partnership authorized by shares of the Romualdez. By that time, the
the board of Romualdez have already disappeared together with
directors for Marcos and ran into the hills of wherever. When
and bind the NIDC took over, it foreclosed all the debts.
corporation.
Now, NIDC wanted to liquidate the assets, so it
was already Cory Aquino’s term. They made an auction
sale of the Romualdez shares now owned by NIDC. The
one who won the bid was JG Summit, using the so called
debt equity swap.
*So, to be accurate, it is not the stockholders
number on what they put in to the corporation, but  The way you could participate in the bidding is
what he has committed to pay to the corporation. by paying the dollar denominated loans of the
That is the extent to his liability. As to your unpaid Philippines and you get certain credits and you
brought it with you and that is what you use to

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

exchange for the shares in the NIDC. Mubayad  Ownership (stockholder)


ka og utang sa Pilipinas na grabe kadaghan for  Management (board of directors)
Marcos really put us in debt.  Implementation (employees)

So JJ Summit won. But when JJ Summit was The stockholder is an Owner, but he has an indirect
about to consolidate its title for the shares, Mitsubushi interest into the corporation. The board of directors are
said, “wait a minute, there is a right of first refusal in the elected, but they are Management, they create policy.
books of the corporation, that none of us can sell to 3rd Now the employees of a corporation are the
parties without giving the other a chance to buy.” So implementors, they implement the policy determined by
therefore, Mitsubishi says we are exercising such right, the management.
we do not have to offer a higher price, we just have to
equal the price at which JG Summit won. Now, who questions whether the implementation is
correct or not? It is not the implementors. If these were
Whereupon, JG Summit went straight to the CA single proprietors, ikaw ray magbu-ot og ni succeed ba
and sought an Injunction on a question of law. According ka or dili, and many times, you cannot admit that you
to JG Summit, the right of first refusal signed by the fail, kay conflict of interest ma na.
parties is null and void, because if it were allowed, the
entire corporation, which owned land, and facilities That is not the case in a corporation, because the
adhered to the land, they could no longer hold that implementor is judged by the policy maker, and the
because it would be completely foreign owned. Diba? policy maker is judged by the owner stockholders.
Mitusbishi is foreign owned, at that time it was only 40%
Mitsubishi and 60% Romualdez, then NIDC. Those 3 separations make for a better business
possibility. In other words, now you can have objective
Issue: Whether the right of first refusal was null and void criteria and measurement of business performance. If it
because if it is allowed then what would result would be is a partnership, kamo kamo lang mag determine sa
no longer a Filipino Corporation, is that correct? policy, and the partnership will also execute it, and then
you review yourself, in the end, that cannot stand.
Held: No. Supreme Court says, you are wrong JG
Summit. Mitsubishi can still exercise its right of first The Lloyds of London was a partnership, 50 general
refusal, in which case, it will have to disenfranchise itself partners. It used to be the biggest reinsurance company
of the land, maybe sell it to a 3rd party because it is no in the world, until something like 10 years ago, they
longer qualified to own land, or it could also sell its right finally decided that they cannot stand as a partnership,
of first refusal to another Filipino Corporation, because they finally have to reconstruct it and form a corporation,
that in itself is a distinct right. You can sell your right of and that is how it began.
first refusal. The one who can buy, can exercise, for and
in behalf of Mitsubishi, the right that has been transferred To me, that is the telling difference between a
to it – that is a distinct right! corporation and other lesser forms of business
organizations – the distinction between ownership,
So, that is important to pay attention to. You read management and implementation – it makes for a
that case because these were no bantam weights of fight more standard and objective way of measuring a
between ACCRA, SYCIP-Salazar etc. And the Supreme business on-going entity. It is on-going, dili man nimo
Court, it was a valid agreement of right of first refusal. mahimo ingnan ang business na hunong, gadagan
mana pirmi. This is one thing you would realize when
you look at financial statements; it is always “as of a
Alright, transferability of shares, that is the essence of a certain date” whether it be a balance sheet or a profit
corporation, the shares are transferrable. and loss statement. It is only technically correct “as of”
that certain date only, not of the following day or the day
Now, these are contractual differences. These before that. There is a date to it, it is a snapshot of an
are not differences of business organizations. What is on-going concern, because the assets are always
the difference between a partnership or joint ventures, increasing or decreasing, its payments and cash flow is
as to the plat forms of doing further transactions, as a always moving. Financial statements are always
business organization? This is where a corporation is a relevant even it is only as of a certain date.
result of creative necessity. Because of tremendous
risk, you have to manage the business so that you
would have a limited liability. You can also have that in
partnership if you are not a general partner. But then, in ATTRIBUTES OF A CORPORATION.
a corporation, ownership is separated from
management, is separated from implementation.  There are 5 attributes of a corporation.

 Those are the 3 distinct functions that are 1. It is an artificial being.


separate in a corporation: 2. It has a legal personality or judicial
capacity on its own, separate and

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

distinct from that of its constituents  The board of directors would pass a resolution,
(whether it be the stockholders or it may state “be it resolved, as it is hereby
members of the corporation). resolved, that a corporation shall open a bank
3. It is created by operation of law. It is the account at BPI Recto, with the following
law that creates it. It is a creature of the signatories, and resolves further that any single
law. If there is no law, there is no one of the signatories aforementioned can sign
corporation. up to 10,000, any 2 can sign higher than
4. It has the right of succession. It succeeds 10,000 but lower than 100,000, etc.” Then the
itself. It may change its name but it is still bank knows what the corporation wants. There
the same artificial being and it continues is this resolution certified by the corporate
to hold possession of its assets. It secretary of the corporation. So that is one of
continues to answer its obligations. the important points of the first attribute.
5. It has the powers, attributes and
properties expressly authorized by law or  Criminal liability consequence.
incident to its existence.
Not having a physical existence, a corporation
 Three (3) kinds of powers of a corporation: cannot be imprisoned. It is incapable of intent, hence
it cannot commit felonies punishable under the
1. Express Revised Penal Code. It may be fined, but the fines are
2. Implied a consequence of the officers being prosecuted for
3. Incidental powers violation of the law and only if the law says so. A good
example of that is PD 115 - Trust Receipts Law. Such
The most important of these 3 is the Incidental powers, law expressly provides that if the violation or offense is
why? Because it is definitive of a corporation, the fact committed by a corporation, partnership, association or
that it can sue or be sued means that it is a person. other juridical entity, the penalty provided for in the said
Because what is a person as described in the Civil law shall be imposed upon the directors, officers,
Code? A person is one who is a subject of rights and employees or other officials therein responsible for the
obligations. If you have no rights, you are not a person. offense committed, without prejudice to the Civil
If you have no obligations, you are not a person. Liability arising xxx.

You are familiar with this Trust Receipts Law, naa may
Now, let us begin with this first attribute: trust so sa ato pa tulo ka party ang involved.

1st attribute: The corporation is an  You go to the bank to loan money, you are JP
ARTIFICIAL BEING. Printing Inc., and you want to open a letter of
credit because you want to import a printing
If it is an artificial being, a corporation can act only press.
through natural persons, it cannot act by itself. Why?  Unya ang bangko, muingon, unsaon man
Because it is artificial, it does not have hands, mouth or nimo pagbayad ana. Unya ana ang JP,
feet. It just exist in the contemplation of the law, kanang halin sa printing kay naa nakoy mga
therefore it requires agents. And who are its agents? kontrata dinhia oh – Ateneo yearbook etc,
The constituents, primarily, of the corporation, the daghan na kaayo musalig nako. Ana ang
stockholders, officers and members of the board of bangko, sige salig ko nimo pero pirma ka og
trustees. trust receipt.
 Sa ato pa, it is the bank who imports the
The natural person is as essential to the corporation as printing press and it is entrusted to you and
testimonial evidence is essential to all evidence. you pay by instalments to the bank, but it is
Testimonial evidence testifies the act, the object owned by the bank. And the proceeds that
evidence cannot testify, also the documents, they you generate from the printing press, you hold
cannot testify. That is why we have to pay attention to it in trust for the bank, mao nang imo na
formalities in a corporation, because a corporation ibayad sa bangko.
does not act by itself.  And if you should not turn over, there is a
violation of trust and the same amounts to
You, as an ordinary person, can do anything, Estafa, a criminal offense. Kaingon ba nako
makapanluwa ka, makapanghingog-mu ka, di man ka og utang? Utang lagi, pero labaw pa sa utang
kinahanglan og permiso ana. It might be uncool or kay dili mana imoha. It is the corporation that
against civility but you have all the power to do it, unless has assumed this trust.
you are in Singapore.
 If the corporation fails to turn over the
remittance that is agreed upon in the trust
But if you are a corporation, to do anything, how does a
receipts, what happens? There is criminal
corporation do that?
liability and the officers, agents and collectors

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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

of the corporation would be subject to the We have been looking at the attributes of the
criminal penalties according to the trust Corporation as it is discernable from the definition of a
receipts law. Because a corporation has no corporation found in Section 2.
corporeal reality, dili mana mapreso. It is an
artificial being, therefore it is the officers under 1st Attribute: The Corporation is an artificial
the law that will suffer criminal penalties.
being.
 Now, are corporations entitled to moral
damages?  Implications of being an Artificial Being:

Moral damages are the result of besmirch reputation, a.) Its number 1 implication of it artificial
sleepless nights, serious anxiety, katong tanan nga being is that It cannot act by itself.
imong giagwanta, bayran ka ana, the moral damages
awarded to you is to enable you to buy entertainments For a corporation to act it requires the agency of the
to assuage the pain in your heart which you have to Natural Persons. That is why you have the board of
endure, aron ma menus menusan ang inagulo sa imong Directors. And the Board of Directors acts by passing
kasing kasing. a resolution. Some acts of the board are incomplete
that require the ratification of sometimes the majority,
Naa bay kasing kasing ang corporation? Wala man. And sometimes 2/3 of the stockholders/members of the
here you have the SC, all of a sudden coming out, corporation. But all of that means that the artificial
saying that corporations may be awarded moral being that is the Corporation requires the action of
damages because of besmirch reputation. Although it natural persons, its agents.
has no heart, it has a name and the name is hurt,
defamed.
What is a further corollary to that? To pay
The whole purpose of moral damages is to buy attention to formalities. Is there a resolution? There
entertainments, to assuage your pain, lingaw lingaw ba, might have been no meeting, but there is a resolution
tambal sa kasakit. Sayup na si Justice Carpio sa and it is signed by all the directors, in which case, there
iyahang decision, sayop na. You read Manresa and was a meeting even if there was no meeting. Table
Sanchez Roman on moral damages to know its nature. Minutes. WHY? Nobody can object anymore because
Punitive damages, that is the term, but moral damages, they signed. So for all intents and purposes, there was a
that is wrong. The old doctrines stands ha. Because the meeting even if in fact there was no meeting. Because
decision of Carpio is just in Division. The decision in no one can prove anymore that there was no meeting,
ABS-CBN Broadcasting Corporation vs. Court of because everybody signed. So, on the practical level, if
Appeals En Banc (1999) still stands. you are the secretary of board of directors, trustees or
corporate secretary of the corporation, more important
 Corporations cannot claim moral damages at to you is the formality rather than reality. Because the
all. Moral damages are awarded to enable the formality tells you what reality is, not the other way
injured party to obtain means, diversion or around.
amusements that is served to obviate the
moral suffering it has felt. The award of moral Aha man mas importante sa imo kung pila ang
damages cannot be granted in favour of nitambong sa meeting or pila man ang nipirma dinha,
corporations, because being an artificial being, niboto siya sa resolution. Wala pa gani meeting, wala na
and having existence only on legal papirmahon na nimo sila. Pag human nilag pirma,
contemplation, it has no feelings, no emotions, bahalag masunog na sila, maunsa na sila diha, naa nay
no senses. pirma. Humana. Paminaw mo ini kay dili ni isulti sa libro.

November 23,2016 Ching, K.  Why is that the essence?

Assigning this case to you beforehand, Because precisely a corporation is an artificial


being. It does not have a physical referent. Wala mana.
Hain manang corporation, wala mana. It exists in mere
Y-I LEISURE PHILIPPINES, INC., YATS
the contemplation of the law.
INTERNATIONAL LTD. AND Y-I CLUBS AND
RESORTS, INC., Petitioners, v. JAMES YU, So that is that is the first very important
Respondent. (770 SCRA 56) G.R. No. 207161, implication as to how a corporation acts.
September 08, 2015 EN BANC Decision

REPUBLIC OF THE PHILIPPINES

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

The Republic of the Philippines is a As I told you, as a General Rule, if you go to the original
Corporation. It’s just a public corporation. purpose of Moral Damages, which is to enable a person
to purchase entertainments, and diversions or
 How does it Act? amusements that will serve to obviate the moral
suffering that is experienced, that is not true with a
There are different levels in which by which it corporation.
acts. The most level by which it acts is BY PASSING A
LAW. If there is no law, then the Republic cannot act. Why? Because a Corporation does not suffer. And
Like spending money. How do you Spend money? Kuot because it does not suffer, concomitantly it cannot be
ka sa bulsa,kung naa kay kwarta, makaspend ka, kung entertained.
wala gani kay kwarta, dili ka makaspend. Gawas kung
mangawat ka diha. There are 2 recent cases in DIVISION where
JUSTICE CARPIO says that the Corporation is
 The Republic, how does it spend money? entitled to moral Damages if its name is
defamed. That is OBITER DICTUM, because 1.)
First: IT PASSES A LAW. APPROPRIATIONS. It is only a Division.

It is itemized up to certain level. After the law is 2.) The standing doctrine in so far a Decision en
passed, it is signed by the President. Then the Banc of the Supreme Court ABS-CBN
President chief executive executes the law. Mao gani CORPORATION vs. COURT OF APPEALS 301
gitawag siyag executive kay siya muexecute ana, siyay SCRA 572 (1999).
mugasto ana gawas sa portion na solely earmarked for
Congress,for the Judiciary, for the constitutional The corporation cannot claim
commission etc. But most is done by the executive. moral damages at all. That is also the
Without the appropriations law, there cannot be an same holding of Manresa and Sanchez
expenditure. If there is an expenditure without an Roman.
appropriation law, its not covered by the appropriations
law, what is it? It is a CRIME. It is malversation.

Declaring A Holiday. CONSTITUTIONAL PROTECTIONS OF THE


ARTIFICIAL BEING THAT IS THE CORPORATION
 How does the Republic declare a Holiday?
1.) A corporation’s property cannot be taken
Sometimes there is a law that is passed. Mao ni ang without just compensation.
lista, dose ka adlaw regular holiday. Naa na sa
administrative code and then it is also incorporated into
the Labor Code. This 12 holidays. But can it declare a Why? Because he is a person. No person shall be
holiday even if there is no law? The President has a deprived of life, liberty or property nor shall any person
prerogative. The President issues an Executive Order. be denied of the equal protection of the law. Private
On such a day, they called they called special events, property shall not be taken for public purpose without
non-working holiday. That is also a law. Even if you just compensation.
declare a holiday, you will need a sort of formality. A
corporation, it acts by legislation. It acts by passing What did Sanchez Roman say? When does a thing
a law. That is why, legislation is very important. become a property? What is the difference between
propiedad and causa. Causa is a thing. Propiedad is
b. Criminal liability property. Muebles is movables.

GENERAL RULE: Because the Corporation is A thing has not been subject to private
an Artificial Being, it has NO Criminal Liability. It cannot appropriation. Property has been subject to
be put in jail. There might certain special laws that appropriation. A thing, that’s causa. Naay buwaya diha
declare where xxx the Criminal act is a corporation such nagdagandagan sa Agusan, is that a property or a
as in Trust Receipts Law, then the officers and all those causa? That is a causa because nobody owns it. How
who acceded to the act are themselves Criminally liable. do you own it? If it’s a wild thing, the mode of acquisition
And then the Corporation is also made Criminally liable of ownership is occupation. And your ownership is not
by the penalty of a FINE. once and for all because the moment you lose
occupation over the wild thing, it ceases to be your
c. Moral damages property. It reverts to be a thing.

 Can an artificial person be entitled to Moral Pwede ba nimo siya na makiha (referring to the
Damages? new owner of the buwaya kay nakawala daw ang
buwaya kay nagbaha ug naa nakakuha na lain)? NO.
Because the extent of his ownership lasts for as long as

14
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

you have actual occupation and control over that wild and the nationality of the Corporation from the
animal. **chika about domesticated animals like dogs citizenship of the majority of the stockholders in time of
with papers** war even if they are incorporated under Philippine Law.
That is the case of FILIPINAS COMPANA DE
If the Corporation has a property and it is taken for SEGUROS vs. CHRISTERN HUENEFELD AND CO.
public purpose, the Coporation has to be paid just INC (G.R. NO L-2294, MAY 25,1951, 89 PHIL 54).
compensation because property is something that is Landmark case.
appropriated by ownership that is protected under the
Constitution.  What is the reason for this rule?

2.) A Corporation is protected against According to the Supreme Court, the reason
unreasonable Searches and Seizures for this rule is simple. If this rule were not present then it
is easy for our enemies to insure themselves, their
properties with Philippine Insurance Companies and if
STONEHILL vs. DIOKNO 20 SCRA 339 (1967) we seek to destroy them, bomb them, we will just pay
from our insurance companies. Kadakong tinonto ana,
-Very famous landmark case. mura kag gigisa sa imong kaugalingong mantika. So the
Supreme Court says that it cannot be the rule. The
moment it is war, then you adopt the wartime test. That
the controlling citizenship of the stockholders becomes
BUT… The corporation has NO Right against the Citizenship of the corporation and the corporate
Self-Incrimination. fiction will be pierced. So it is no longer a Philippine
Corporation by the incorporation test. It is now the
Why? Because the Corporation cannot testify. National of the Country of which the majority of the
Wala man baba ang Corporation, unsaon pag testify. Stockholders are citizens.
The officers, the agents can testify and they have the
right against Self-Incrimination as to themselves. And 3rd Test. Domicile Test
they cannot speak for the Corporation and say that they
refuse to testify because they might incriminate their  What is the Domicile of the Corporation?
corporation, they cannot do that.
The nationality of the corporation is determined by the
 HOW TO DETERMINE THE state where it is domiciled. The domicile of the
NATIONALITY OF THE CORPORATION corporation is the place where its principal office or
place of business is situated. That is one of the
1. Place of Incorporation Test requirements in the Articles of the Corporation, you
2. Wartime Test have to put the specific address of the Corporation.
3. Domicile Test Where is it. That is the new rule now. Maybe the
4. Nationality Test implementing rules of the Corporation Code, before you
just have to put down the City, where your principal
 The Corporation is an artificial being, office is. Why? Because if you think transferring, you
artificial as it is, DOES IT HAVE A will have to amend the articles.
NATIONALITY?
Now, The Securities and Exchange
YES. And there are several rules as to the nationality of Commission insist that you must put down the actual
the corporation. address, just be specific. The specifics of the address of
the corporation. So the principal office of the corporation
1st Test/Rule: Place of Incorporation Test. is the Domicile of the Corporation. The place where its
principal office or place of business is situated. Section
The Rule in the Corporation Code specifically 14 of the Corporation Code. The transfer by itself does
Section 123 which says that the place of incorporation is not amount to a violation of the (Not Clear: anti-
the nationality of the Corporation. That is called the dummy?).
Place of Incorporation Test.
4TH Test. Control Test
GENERAL RULE (under the Corporation Code): it is
considered that National of the Country under whose There is another test of Nationality. The other
laws it was incorporated. test of nationality is constitutional and it is the
CONTROL TEST.
2nd Test: Wartime Test.
And there is a Landmark case for this which
This test is only available during wartime. was asked in the recently concluded 3rd Sunday bar
During war time, if the controlling stockholders are examination in commercial law. Why? Because the
enemies, then veil of the corporate fiction will be pierced

15
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

ponente of this decision is no other than the Chairman so called the Grandfather Rule. It can stretch all the
of the bar examination. way.

You do not therefore need any dummies to


create a foreign corporation to be controlling a Filipino
NARRA vs. REDMONT , GR 195580, January 28, corporation. Why?
2015, second resolution of the Supreme Court from
it previous decision in NARRA vs. REDMONT (Father refers to the illustration.) Tan awa ra gud ni,
April 21,2014, Third Division penned by JUSTICE 60% ini is owned by a corporation that is 60 Filipino / 40
VELASCO. Special third Division. foreign. 40% foreign here, is the same 40% foreign
here. Actually in reality, they have 24% here.

Computation

40% x 60% = 24%

40% + 24% = 64%


Illustration:
Labaw naka, foreign nani. Butangan pa jud
nimo diri ug lain, labaw na.

60 % FILIPINO 40% FOREIGN There are certain acts of the corporation which
requires not only the majority vote of the board of
 directors or board of trustees but also 2/3 vote of
ratification of the stockholders or member. 2/3. How
60 % FILIPINO 40% FOREIGN much is that percentage wise? That is 66.66%.

 Kini hapit nani (referring to the 64%). Kung


naa kay 2 tiers, duha ka ang-ang, naa kay 64% proxy
60 % 40% nalang imong pangitaon, nga 2.2 of the shares, proxy
FILIPINO FOREIGN nalang kung naay kuyog muboto nimo, ratified nana.
Pero kung naa paka diri, wala nakay kinahanglan na
proxy. Kumpleto naka,sobra naka sa 66.66%. So
abogado ka, mubuhat kag corporation for foreigners,
mangita pa gani kag dummy, hina ka. Wala ka kahibalo
sa imong corporation law. Ug imong mathematics dili
kaabot sa percentage…either you are deficient
numerically or you are a poor lawyer. Makabuhat man
 This is the so-called GRANDFATHER RULE. ka ani.

The Constitution says that you are considered  What is the Issue in NARRA vs. REDMONT?
a Filipino Corporation, for purposes of ownership of land
and engaging in public utilities and so on, in other - Niingon ang Supreme Court kay Redmont
words, under the omnibus investment act., if your capital that you apply the grandfather rule if there is already a
is 60% Filipino, it means 40% maximum foreign. 60% Filipino ownership and 40% Foreign. Then you
examine the 60% Filipino. But if there is no 60/40
What happens if some of the stockholders in proportion, there is 50/50 you do not use the
the 60 % Filipino is also a corporation? How will you grandfather rule anymore. You must first determine the
determine the nationality of the shares of stock own by 60/40. Kung naa gani proportion na ingnana then you
the corporation? The shares of stock are considered as can examine what is the ownership composition of the
100% Filipino if it is also own by a corporation, 60 % of 60%. That is the primacy of the SC ruling.
the capital is Filipino and only 40% maximum is foreign.
Next case you have read is the very famous case of:
But let us say it is owned 50% Filipino and
50% foreign, instead of 60% Filipino and 40% 1.) GAMBOA vs. TEVES En Banc June
Foreign owning the 60 %, it is 50 % Filipino and 50% 28,2011 652 SCRA 690.
Foreign, what happens? 2.) Second Resolution, HEIRS OF WILSON
GAMBOA vs. TEVES, October 9, 2012
This 60% only 30% will be considered as more than a year later still written by Senior
Filipino because only 50 % of the Corporation is owning Justice Carpio. En Banc, resolution by the
the 60% is Filipino. Therefore 50% of 60 is 30. That is Supreme Court.

16
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

 What is the issue of this case? ownership of properties and the SC shut down the
interference of RTCs that were issuing restraining
The issue is what was the 60%. Is it all the orders. This is what the SC said, In PCGG vs. PENA,
shares? Or is it voting shares? That is the issue. this court describe the rule of Marcos as well-
entrenched plundering regime of 20 years and noted the
Ruling: magnitude of the past regimes organized pillage and the
ingenuity of the plunderers and pillagers with the
2011: Carpio says that capital in the Constitution assistance of the experts and best legal minds available
means VOTING SHARES. That is in his first resolution in the market. The evidence presented in this case
in 2011. reveals one more instance of this grand scheme. This
Court guardian of the high standards and noble
2012: But in 2012, he says the 60% in the main opinion, traditions of the legal profession has thus before it an
not in the dispositive portion, he says that the 60% must opportunity to undo, even if only to a certain extent, the
be verified if all the classes of shares. That is what damage that has been done.
Carpio said. It must be verified in all the shares. So the
SEC, this is what Carpio says in the second resolution, Twice this was said by the Court En Banc. All
in short the 60/40 ownership requirement in favor of the you have to do is read the ratification cases. Javellana
Filipino Citizens must apply separately to each class of vs Executive Secretary.
shares whether common, preferred, non-voting or
preferred voting, or any other class of shares. Wilson vs. Gamboa is 145 pages. Read that.
And Read Yuchengco vs. Sandiganbayan 479 SCRA
That is not in the dispositive portion, that is in 1 January 20,2006, this is where the Supreme Court
the main opinion. In the dispositive portion, it is still declared that this jump shares of line holdings
Voting Shares. So the SEC is now in a quandary how corporation which is supposed to be one of the
will it implement the decision of the Supreme Court. substantial stockholders of PIT, Philippine
Telecommunications Investment Corporation which is
This is what the SEC said, Securities and the holding company of PLDT. The Supreme Court
Exchange Commission Office of the General declared that this prime is Marcos shares and it is the
Counsel, OPINION #8 SERIES OF 2013 Section 2, product of Graft and Corruption, and so therefore the
All covered corporations shall at all times observe Government. They bid it out to the highest bidder then
the Constitutional or statutory ownership the costs, it was Pangilinan’s group that won the
requirement for purposes of determined compliance bidding. Gamboa questioned it, according to Gamboa
therewith the required percentage of Filipino this is a violation of 60/40. The SEC said 60/40 is based
ownership shall be applied to both, the total number on the entire issued share and not just voting shares.
of standing shares of stock entitled to vote in the Gamboa said: No , it is the voting shares. They go
elections of the Directors and total number of straight to the Supreme Court. And the SC says, it is the
outstanding shares of stock whether or note entitled voting shares and in the main opinion also the other
to vote in the election of Directors. shares. So everybody has to change because the SEC
has approved the so many corporation, ABS-CBN,
The SEC did not say all the classes but the SEC Buenget, Meralco, etc.
only said over-all issued shares whether voting of non-
voting and voting shares whether they be common or Here comes the case of RIDON vs. AXN
preferred. NETWORKS PHILIPPINES ET AL GR No.
210885 August 26,2014 RESOLUTION EN
 How did this case originate? BANC, And signed only by the CLERK Of
Court, Enriquita P. Vidal who says there was
This case originated with Wilson Gamboa, a such a resolution. Very good resolution, in
lawyer from Bacolod who simply just went straight to the accordance with law.
Supreme Court and questioned the ownership structure
of the PLDT. So, to understand Wilson vs. Gamboa, you
must read the even longer case of :
Two petitions filed in the Supreme Court by
YUCHENGCO vs. SANDIGANBAYAN 479 SCRA 1
Congressman Ridon and Atty. Jonas Julius Ceasar
January 20, 2006 EN BANC by JUSTICE CARPIO-
Asura under rule 65 of the rules of court. Straight to the
MORALES.
SC just like Gamboa. The SC DISMISSED their petition
by a per curiam vote. Why did they not signed it?
Because they had entertained Gamboa who went
straight to the Supreme Court . Uwaw man kaayo sila.
This is where the Supreme Court quotes the
Nganong dili mani nila inetertainon na si Gamboa kay
case of PCGG vs. Pena. This is when the Marcoses
nidiretso. That is why this is no longer in SCRA.
challenged the action of sequestration of different
shares of the Corporation all over the country. Their

17
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

 The Supreme Court says that you cannot stockholders, separate and distinct from your members
come to the Supreme Court straight. Why? if you are a non-stock non-profit corporation.

1.) You are asking us to cancel the legislation Again, if you are a cooperative, the cooperative
of this foreign broadcasting companies on the basis of also has a personality separate and distinct from the
the xxx in the constitution. This court is not a trier of members of the cooperative. What office in the
facts. The question is why did you handle the petition of government grants the consent of the state? Certificate
Gamboa? When your dispositive portion is even of registration is issued by the Cooperatives
conditional the requirement xxx is 60% voting shares Development Authority. So, the Cooperative Code is a
owned by the foreigners then it should be disciplined by general enabling law.
the SEC. They cannot say that there is no finding yet.
The HLURB is also a general enabling law
**Story about the ownership structure of the Marcoses because if you are an association of persons seeking
properties were. ** your home lots for housing purposes, where do you
register? You don’t register with the SEC. You register
November 24, 2016 Duco, L. with the HLURB.

All you have to meet to be a person if you’re a I have seen so many associations, home seekers
natural person is to be born. You can be granted of Balut Island Home, Seekers of Maa. You look at any
provisional personality while you are still in your native district there is a Home Seekers Association and every
place, and that is the only native place, in the womb of single one of them is problematic. And what is the
your mother, provided you are born later. That is what is solution of HLURB? They just appoint the Barangay
taught in family law. All you have to meet is to be born. Captain as the head of the Home Seekers Association.
So what happens? The Barangay Captain appoints all
Now, you have an intrauterine law that is less than his relatives, from his wife all the way to his housemaid.
enabling you to become a viable fetus to be brought out. As a member of the Board, he is a king. He controls,
If you have to be born, you must survive for at least 24 and all the contributions cease. Kita ka gani anang mga
hours. If you don’t survive, then you are deemed not to tawo na ga yukop na sa pamilya na anang nag muno sa
have been born. You were never a person. association, gusto pa ka mucontribute? Nakit-an na na
nimo na pirti nang daghana sa pamilya na nag lingkod
If somebody donated to you while you were in the dinha, wa na maundang na ang contribution.
womb of your mother, and you were expelled when you Maundang.
were not yet viable, and you did not live 24 hours, what
happens to the donation? The donation is Let me give you a practical advise. The ordinary
unenforceable. It is void. It is as if there was no donation man in the street, he does not care about the facts or
at all that was completed. It remains with the donor. the law. He cares about meaning. Pangutan-on nimo
siya
 What is required for a juridical person to
be a person? ‘Nihatag na ka sa contribution nimo? Wa pa man
ka muhatag.’
To be person, first there must be a general enabling law
that allows you to become a person by the consent of ‘Nihatag ko.’
the state. There must be a general enabling law.
Disabuse your minds that the only general enabling law ‘Kinsa may imong gitagaan?’
is the Corporation Code. There are many other general
enabling laws. ‘Si Biring kay mao man nay among silingan, mao
man na siyay nag house to house namo na kinanglan
 What is an example other than the mu join ta sa housing association. Kana si Biring nag
Corporation Code? ingun.’ Karun gihatag niya kay Biring. Sa panahon pa sa
organization, si Biring maoy organizer. Wa man siya
The Labor Code is a general enabling law mapili. Unya sige man siyag padayun og pangulekta.
because it creates a union, and a union is a juridical
person. Its personality is separate and distinct from that ‘Nganung nag padayun man kag hatag kay
of its members. And you become a union the moment Biring?’ ‘Nganung di man nako siya masaligan na
the Department of Labor-Bureau of Labor Relations magkulob siyag mag hayang kaila man ko niya. De
issues a registration certificate. didto nako ihatag. Katong mga officials wa man ko kaila
nila.’
Now, you are a person in contemplation of law.
Corporation, you register with the corporation or you ‘Wa day ka mutambong sa meeting.’
register as a general partnership of limited liability, you
have a juridical person separate and distinct from that of ‘Nitambong ko sa meeting pero daghan
your partners, separate and distinct from your kaayog tawo naalimoot ko, niuli ko sa amo.’

18
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

‘Pagka way hinungdan nimo na member. Boto AN ACT TO PROMOTE FOREIGN INVESTMENTS,
ka unta.’ ‘Pirti na mang daghana nila syaro dili igo pa PRESCRIBE THE PROCEDURES FOR
ang mga boto nila na pirti namang daghana namo. REGISTERING ENTERPRISES DOING BUSINESS IN
Nganung muapil pa man kog boto2x dinha na naa man THE PHILIPPINES, AND FOR OTHER PURPOSES
koy biko na akong ibaligya unya pag abre sa
eskwelahan dinha sa atbang.’ So, the Foreign Investments Act of 1991 defines a
Philippine National as number one:
You see? There is a difference between meaning and Section 3. Definitions. - As used in this Act:
fact and the law, and the ordinary man does not care a) The term "Philippine national" shall mean...
about fact or law until there is a controversy. a corporation organized under the laws of the
Philippines of which at least sixty percent (60%)
When is there a controversy? ‘Aha na man day of the capital stock outstanding and entitled to
tong mga contribution?’ vote is owned and held by citizens of the
Philippines;
‘Ingun ka naa kay daghang pondo? Aha na man
tong atong pondo?

Wa na. Di na ta makalawig. Mura na tag barko na Remember Gamboa v. Teves, the SC has said:
walay angkla, walay timon, wa mag andar ang makina,
na gi tuya2x na lang sa balud. Asa na man ta paingun?
Paingun na ta didto sa mga bato kay gilamba ta sa Gamboa v. Teves G.R. No. 176579 June 28,
balod kay wa na tay renda, wa na tay timon, wa na tay 2011
angkla.’ Unya kay wa naman, iya dayung tan-awun sa
Constitution and By-Laws. “All collections must be This 60% is computed on the basis of voting stock and
evidenced by a receipt.” “Only those authorized to as implemented by the SEC, also the over all issued
collect can do so.” “Those who collect and unauthorized stock of the corporation, voting and non voting.
are violating the Constitution and By-Laws.”

‘Sa ato pa nanikas day ni si Biring. Nanikas day si


Biring nako.’
Second:
Wala na. Dinha pa sila mutultul sa balaod kung Section 3. Definitions. - As used in this Act:
nagkaguliyang na. Wa pa gani mag kaguliyang, walay a) The term "Philippine national" shall mean...
bali ang balaod. a corporation organized abroad and registered as
doing business in the Philippines under the
Ow, you think I am saying this only because they Corporation Code of which 100% of the capital stock
are poor people? That is the same thing in corporations. entitled to vote belongs to Filipinos is considered a
For as long as there is no fight, nobody will read the Filipino corporation.
Constitution and By-Laws of the corporation. The
moment there is a conflict, then everybody goes to the
Constitution and By-Laws and they start from there. Too Remember, it is incorporated outside of the
late. Agree naman silang tanan, walay resolution. Pag Philippines but it subsequently obtains a license in the
tan-aw pa, wa may incharge, sila man tanan, pag tan- Philippines from the SEC to do business. That is
aw sa titulo na ilang gipalit naa man diay annotation, oh equivalent to being incorporated under the laws in the
di gubot. Philippines according to the Foreign Investments Act of
1991.
So, when it is an artificial being, you have to pay
special attention to formalities. Because the artificial And third, the corporation that is incorporated in
being, the only it can act is through its agents, and the the Philippines that complies with the grandfather rule is
agents can only act upon proper authorization. There considered a Filipino corporation. Grandfather rule.
are some authorizations that can be done by the Board
of Directors or Board of Trustees, and there are other I hope you have began to read Narra v. Redmont
acts that must be done with the concurrence of the G.R. No. 195580 January 28, 2015 penned by Justice
stockholders or members of the corporation. Velasco.

Now, control test, the SC has said that the control  What is the relation between the
test presupposes compliance with the incorporation test. grandfather rule and the control test?
That means it is not only 60/40 Filipino, it is also
incorporated under Philippine laws. Why? Because that The SC made a pronouncement; you do not begin
is the requirement of the Corporation Code. with the grandfather rule. First to determine is it 60%
owned by the Filipinos? If prima facie a corporation is
Republic Act No. 7042 June 13, 1991 60% owned by Filipinos, then you can go ahead and

19
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

examine it according to the grandfather rule. Who are we have several ship-building corporations.
these Filipinos? If there are corporations owning the
60% attributable to Filipino, then those corporations Now, what happened? The Romualdezes
owning those shares must be atleast 60/40 Filipino. abandoned PHILSECO. Why? Because they could no
That’s when you examine by using the yardstick of the longer pay the loan. And so, NIDC, the investment arm
grandfather rule. Dili kay mangita naka daan anang of PNB, foreclosed on the shares. And when they
grandfather rule. ‘Kinsa may stockholders?’ Dili. offered it for sale by public auction, there was no
bidder. So by default, NIDC became the owner. In
So you begin with, and here, I am jumping the gun, most cases, when banks foreclose property, especially
the stock and transfer book. That is where the record of if the property is an ongoing concern, nobody will bid
ownership of shares of stocks are, the stock and for it. So it ends up with the bank holding the property
transfer book. Where is that kept? Corporation Code that is auctioned to satisfy the mortgage amount. So
says it is kept in the principal office of the corporation. NIDC na ron tag-iya. If the government decides ‘We
will liquidate it, ibaligya na lang nato’. ‘We will hold
 Is there any exception to the rule? another bidding, this is 3 years later after the
foreclosure.’ ‘We will work another bidding. This time
There is. If the corporation engages the services of a you will not bid with money. You will bid with credits.’
stock and transfer agent. Why? Because the What credits? You pay the dollar-denominated loans
stockholders are so numerous that the corporation to the Philippines, and then you get the receipt of the
cannot take care of it. Theoretically, the stockholders’ payments and you use that to bid for the government-
meeting of PLDT will be bigger than the pontifical mass sequestered shares of the Marcos regime. That was
of Pope Francis. Why? Because the stockholders of how JG Summit, Gokongwei, won ownership over PCI
PLDT are over 2 million persons. Asa man sila mag Bank. The Lopezes and the Gokongweis combined.
meeting? Adto na sila mag meeting sa Banahaw room They put up the credits, dollar credits, and then they
anang Mandarin Hotel. Ka gamay ra gud ana. Unsaun won, and they controlled PCI Bank.
pag kasulod anang 2 million? Dili. Kay ikaw duha, tulo
lang ka shares imong PLDT, dinha ka mag puyo sa This PHILSECO, JG Summit paid some loans
Tupi, Cotabato. Unya mulupad ka pa didto sa Manila and then with the credits, he won the bid. After it was
muattend lang anang meeting when your vote hardly announced that he won the bid, Kawasaki surfaced
counts? Normally, you appoint a proxy. and said ‘We have a right to first refusal agreement
with the former owners of the shares of stocks that
Now, think of General Motors. How many were bidded out. We agreed that before we could sell
stockholders does General Motors have? If you count, our shares to 3rd parties, we must offer it to the other
the mutual funds that owned General Motors shares, party.’ If Kawasaki wanted to sell his 40%, he must
they say, the number of stockholders is about 16 million, first offer it to NIDC. If NIDC sells its 60%, it must first
and yet, with 3 percent of the outstanding shares of offer it to Kawasaki. So Kawasaki says ‘We are now
General Motors, you control General Motors. 3% lang equaling the price at which JG Summit won the
ang gikinahanglan mucontrol. In other words, the wider bidding, and we will pay for the shares.’ Whereupon,
the spread of corporate share ownership, the easier it is JG Summit went to the CA on injunction to stop the
to control. exercise of Kawasaki of his right of first refusal. That is
the same as a Qualified Swiss Challenge. In other
Now, but we refer you to the case of words, you do not have to raise the amount at which
the bidder won. You just have to equal it. Because that
is how the right of first refusal is exercised. If you are 2
parties, 40/60, ang 60 gusto mubaligya. To get the
J.G. Summit Holdings, Incorporated v. CA 450 correct price, he looks for a 3rd party. Ka agree na gani
SCRA 169 (2005). sila anang 3rd party, pahibaw-un niya ning isa. Ingnun
niya ‘Oh, naa nay mupalit nako, mao ning presyuha,
This is a corporation that is divided 60% Filipino are you exercising your right of first refusal?’ Muingon
and 40% foreign. The 40% foreign ownership is ganig dili, kay mahal rana, oh di mabaligya na niya,
Kawasaki Corporation of Japan who became a partner but he has waived his right of first refusal.
of the Marcos cronies when they set up PHILSECO.
PHILSECO was the holding company of Bataan Now, the argument of JG Summit is Kawasaki’s
Shipyard Company that engaged in ship repair and right of first refusal is null and void. Why? Because if
also some ship building. 60% Filipino-Romualdez, he exercises it, he becomes 100% owner of all the
behest loans-Marcos, nag utang, gipautang silag shares of stocks of PHILSECO, and PHILSECO
kwarta sa PNB. PNB at that time was still a ceases to be a Philippine corporation. it can no longer
government owned and controlled corporation. own the land where all the ship-buiding and ship-repair
Through NIDC, nakahuwam silag kwarta-60% capital. is conducted. So it cannot be that he can exercise his
Kinsay ilang partner, Kawasaki-40%. Kawasaki right of first refusal.
provided the technical know-how of shipbuilding and
ship repair. Pilipino, apil dinha, so much so that now Now, the CA did not uphold JG Summit. So JG

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Summit went to the SC on certiorari. The SC says; PNOY signed it into law. The Congress passed it,
despite what it says in the Constitution. What is the duty
The agreement of co-share holders Kawasaki and of the President? To uphold the Constitution. Is he
NIDC, both PHILSECO share holders, to mutually upholding the Constitution? Obviously, the Congress
grant this right to each other as one of the terms of the that passed that law, cannot impeach him, because they
JVA, by itself does not constitute a violation of the are the same ones who passed the law. Now, it is a new
provisions of the Constitution limiting land ownership Congress, he is nowhere to be found. He cannot be
to Filipinos and Filipino corporations. As PHILYARDS impeached. He has finished his term. Can they impeach
correctly puts it, if PHILSECO still owns land, the right Duterte because he is obviously not doing away with
of first refusal can be validly assigned to a qualified this law? Nganu man na nila gi pass bisan naa nang
Filipino entity in order to maintain the 60%-40% ratio. Constitution?
This transfer, by itself, does not amount to a violation
of the Anti-Dummy Laws, absent proof of any You know what happened, the ASEAN met. And they
fraudulent intent. have decided no more restrictions in banking as to all
members. So, you allow us to come in 100% in your
country, you are also allowed in all the ASEAN
It was with the sanction of the State that the right countries. They agreed by that solution. Ang Philippine,
of first refusal was granted to each other. So, the SC kung di siya mu pass ana, what happens to PNB in
says Kawasaki could have sold the right of first refusal. Singapore, BDO in Bangkok and Malaysia? Di mag
It is a right that has commercial value. It could have sold silibi. We will not be allowed to do business. What
it to another Filipino corporation. happens to the Filipinos there who send remittances to
the Philippines? They can still send remittance to
So, this is an important case because our mind foreign banks but that is a missed business opportunity
jumps ahead of what corporation law allows. If the result of Philippine banks. That is what happens.
is no longer 60/40, then you can adopt to it. If it will
become 100% foreign for instance, now, foreigners can Sooner or later, international pressures begin to
purchase 100% of the outstanding capital stock of a uni- shape our corporation law. This is one field in law where
bank or a commercial bank. What happens with the legislation is behind. The practice is way ahead of the
purchase right? A uni-bank which owns real property, legal reality.
what happens to it? Does it cease to own real property?
The law specifically says if certain properties that are Alright, I leave it to you to look for the listings of the
held as collateral are executed upon in an execution corporations under the Constitution and the law which
sale, do not allow foreign stockholders like:

 Can the corporation who is now 100% 1. Mass media


foreign, can it purchase it, become the 2. Retail and service establishments with paid-up
winner of the bid by default, and thus own capital of less than 2.5 million dollars
land? Can it? 3. Private security agencies
4. Small-scale mining corporations
And the law says yes, they can do it, for as long as 5. Utilization of natural resources
they sell it after 5 years from and after the time that they 6. Cockpits
consolidate the ownership over this collateral.

 Is that a violation of the Constitution?  How do they circumvent the utilization of


natural resources by 100%?
Read these laws. REPUBLIC ACT No. 10574 AN
ACT ALLOWING THE INFUSION OF FOREIGN It is the case of
EQUITY IN THE CAPITAL OF RURAL BANKS,
AMENDING REPUBLIC ACT NO. 7353, OTHERWISE
KNOWN AS "THE RURAL BANK ACT OF 1992″, AS
AMENDED, AND FOR OTHER PURPOSES. Then you B’laan Tribal Association
have REPUBLIC ACT NO. 10641 AN ACT ALLOWING Incorporated v. Ramos 445 SCRA
THE FULL ENTRY OF FOREIGN BANKS IN THE G.R. No. 127882
PHILIPPINES, AMENDING FOR THE PURPOSE
REPUBLIC ACT NO. 7721. They can acquire This is horrendous. This is 1 up to 471. So, it is
ownership or own up to 100% of the voting stock of an 470 pages. Beneficial ownership.
existing bank. They can invest in up to 100% of the
voting stock of a new banking subsidiary incorporated This is the gist of the decision:
under the laws of the Philippines. And they can Beneficial ownership has been defined as
establish branches with full banking authority. July 18, ownership recognized by law and capable of
2014. being enforced in the courts at the suit of the
beneficial owner.61 Black's Law Dictionary

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

indicates that the term is used in two senses: and conditions as may be provided by law. In cases
first, to indicate the interest of a beneficiary in of water rights for irrigation, water supply, fisheries,
trust property (also called "equitable ownership"); or industrial uses other than the development of
and second, to refer to the power of a corporate water power, beneficial use may be the measure and
shareholder to buy or sell the shares, though the limit of the grant.
shareholder is not registered in the corporation's
books as the owner.62 Usually, beneficial The State shall protect the nation’s marine wealth in
ownership is distinguished from naked its archipelagic waters, territorial sea, and exclusive
ownership, which is the enjoyment of all the economic zone, and reserve its use and enjoyment
benefits and privileges of ownership, as against exclusively to Filipino citizens.
possession of the bare title to property.

Kining mga ‘naked ownership’, that is civil law  Realty companies and other
term. Common law term is ‘titular ownership’. That is corporations that own private lands article 12
equivalent to ‘naked ownership’. You are the named section 7 of the constitution
owner, and yet you are not the beneficial owner. What
the SC allowed are contracts in the development of
natural resources entered into with foreigners provided
that the benefits go to mostly the Philippine *. Titular SECTION 7. Save in cases of hereditary succession,
ownership does not matter. Beneficial ownership is what no private lands shall be transferred or conveyed
matters. Beneficial and titular ownership. Naked and except to individuals, corporations, or associations
equitable ownership. Civil law term versus common law qualified to acquire or hold lands of the public
term. domain.

November 25, 2016 Montefolca, C

We took up the list of corporations that are fully The exception is the condominium corporation which
nationalized corporation that is they must be composed can be owned 100% by foreigners.
of 100% Filipino or Filipino corporation owned.
 Culture production milling processing trading
 25% foreign equity allowed in corporations repair of rice and corn and byproducts. PD 194
that are engaged in private recruitment as amended by RA 8762
whether for local or overseas employment
thats under PD442 the Labor Code. Adjustment companies – In the Commonwealth of UK
they are called business valuators. In American
 Construction and repair of locally funded parlance they are called appraisers. Sa ato they are
works under commonwealth act 541 called adjusters. Mabangga gani ka mao na sila ang
Contruction of defense related structures. mutan-aw sa damage, mu assess sa damage.They are
supposed to be independent of insurance companies.
 40% foreign equity allowed in the That is more in theory than in practice. Insurance
exploration development and utilization of companies select their own adjuster. Adjusting
natural resources article 12 section 2 of the companies must be at least 40% foreign equity.
constitution
The problem is once you get into big insurance that
SECTION 2. All lands of the public domain, waters, require reinsurance. Example PAL they insure a plane,
minerals, coal, petroleum, and other mineral oils, all no local insurance company can accept the full value of
forces of potential energy, fisheries, forests or the policy xxx so they have to reinsure it. In order to
timber, wildlife, flora and fauna, and other natural reinsure it the foreign insurance company will not accept
resources are owned by the State. With the it unless their policy includes arbitration. Not the courts
exception of agricultural lands, all other natural in the Philippines they don’t trust the courts.
resources shall not be alienated. The exploration,
development, and utilization of natural resources So there is an arbitration clause. Do they accept the
shall be under the full control and supervision of the testimony in the arbitration courts of local adjusters?
State. The State may directly undertake such They do not trust the local adjusters. So you must also
activities, or it may enter into co-production, joint accept foreign business valuators or appraisers. That is
venture, or production-sharing agreements with an international designation. Just like certified public
Filipino citizens, or corporations or associations at accountant, thats a designation. certified business
least sixty per centum of whose capital is owned by evaluators, that is the designation. You have to pass an
such citizens. Such agreements may be for a period exam. In the US you have chartered appraisers you also
not exceeding twenty-five years, renewable for not have to pass an exam. What is your use? You become
more than twenty-five years, and under such terms advisers lets say in mergers and acquisitions. If you

22
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

acquire a company, that company that you are about to which was a little bit distant from the city. So nagbaylo
acquire has its own financial advisers part of the sila. Ang mga madre hatag nila ang property sa bishop
financial advisers iare business valuators. They will say and the bishop gave his proeprty to the sisters. That’s
“This is the true value of this particular factory” they why UIC is there. Ibabaw sa bankerohan.
break down. The acquirer will also say “No, that is not
the true value” we have our own vusiness valuators. When the sisters registered their piece of property no
They have to thresh it out because value is other than problem kay puros man sila Filipino way problema ang
fixed. So this whole thing that adjustment companies ROD. But when the Bishop registered the property in
become more solid because they are filipinos only the name of Roman Catholic Bishop of Davao, the ROD
misguided Filipinos believe this. If you believe it then who was atty quitain the mother of judge quitain, one of
you suffer the consequences of ignorance. the first law graduates of UP, very good catholic, she
declined because she says the Bishop is a Canadian
 40% foreign equities allowed in all businesses citizen and he cannot own property. Now, at that time
sauna and steam bath houses massage clinics the only way you can appeal the action of the ROD is to
and similar establishments under RA 7040. raise the issue in consulta with the Land Registration
Commission. The LRC upheld the ROD quitain that’s
Now it says here the old listing 60% foreign equity now why the Roman C atholic Apostolic Administrator of
this can be 100% foreign equity. Financing companies, Davao City had to go to the SC on a question of law.
investment houses because these are normally allied The court ruled:
businesses run by the universal banks and universal
banks can be 100% foreign owned. The corp sole’s nationality is not determined by the
bishop because it is only an administrator. What is
 CORPORATION SOLE determinative for the nationality of a corporation
sole? It is the majority of the nationality of the
There is a corporation where the SC says the nationality congregation. The SC said that the court takes
of the constituent of the corporation is not determinative judicial notice that majority of the catholics in davao
of the nationality of that corporation. What is that are Filipinos. So therefore even if the bishop is a
corporation? That is a Corporation sole. (Father talks canadian citizen, the land can be registered under
about his experience in the seminary; weak when it the roman catholic apostolic administrator because
comes to english pronunciation “TH” LOL) he is a mere administrator. The real beneficial
owners are the catholics in davao city. The one that
Corporation sole. Contradiction in terms. How can there composes the corporation, his/her nationality does
be a corporation and it is only one person that makes up not determine the nationality of the corporation.
the corporation? Namely the rabbi, bishop, elder, in a
religious organization. That is the case. We inherited it
from the Napoleonic Code. Because Napoleon did not
choose to challenge the authority of the Catholic These are landmark cases. It Is good for you to read
Church. That is how he managed to stay in power. He those cases. I would suggest you really read those
respected it. So he put up a structure that the bishops cases, there is another pronouncement there that the
were actually potemplates (?). They did not have board many commentaries just pass over mainly the
of directors. They decided on their own. They were like significance of the bishop corporation sole. According to
princelings. So the entity known as corporation sole was the SC the bishop is the fulcrum or the focus of all
born. church properties. It is passed on from congregation to
congregation because there is a bishop. If there were
Fast forward some 700 years and you have the case of no bishop it would have been loaned and divided and
the congregation will be fighting over it. But because
there is a bishop it remains whole and intact and it can
be passed on from generation to generation.
Roman Catholic Apostolic Administrator v ROD of
Davao 102 Ph 596 1957 So the bishop as a corporation sole is not just the
administrator, it is the fulcrum forthe passing on of
What happened there? You have taken up land titles common church property.
and deeds. You took up this case. This is a landmark
case. The issue here is a deed of exchange. Once Another case that I suggest you read is the celebrated
piece of property exchange for another piece of case of
property. The property of the diocese of Davao which
was along Bankerohan was exchanged with a piece of Barlin v Ramirez
property of the RVM sisters in catalunan grande that G.R. No. L-2832 November 24, 1906
was given by the sorianos. The bishop here, bishop
thibault who was still an apostolic administrator at that This is where the SC made that unusual pronouncement
time when this case was filed did not want to erect his that there is a corporation in the Philippines unlike any
seminary just above the market, he wanted a place other corporation and it is the only corporation that is a

23
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

corporation by prescription. It did not register it did not dispose without need of the permission of the
incorporate but it is a corporation by prescription congregation. That is the concession given by Napoleon
because it antedates the republic itself that passed the to the Catholic church.
laws of the corporation. That is the Roman Catholic
Church. The Sc says there that It is part and parcel of  Doctrine of Legal Entity
the culture and social fabric of the PH. That is the fact
according to the SC. It is an institution that antedates We go now to the second attribute fo a corporation
the government of the Philippines. namely that it has a separate personality of its own. It is
called the Doctrine of Legal Entity it means that a
The issue there is can government funds be expended corporation is a juridical person with personality a
to print out these post office stamps that depicts the separate and distinct from that of each shareholder. It
international Eucharistic congress. That is the issue also means that the stock holders of a corporation are
because that is establishment of religion according to different from the corporation itself.
those who attack it. Barlin was the bishop at the time of
Manila. The SC said suwayi atake ang Christmas. The consequences of having a separate legal
christmas is not just religious it is already cultural. personality are the following: (Sorry but father did not
Suwayi ayaw pag hatag ug gift sa imong anaksa give an enumeration)
christmas. Mangita kag away? Kabaw ko ana kay
follower kong quiboloy. Suwayi.( lols. Mag butang man Stockholders are not the owners of the corporate
gani si quiboloy ug christmas decoration. Christmas is properties and assets. The interest of the stock holders
already cultural. In the same way the SC said that over the properties of the corporation is merely
Eucharistic congress is a reality. Recognition in a stamp inchoate. Hence stockholders have no personality to
of a reality that is socially and culturally established in intervene in collection a case covering the loans of the
the PH is not establishment of religion because the corporation.
Catholic church is now a corporation by prescription that
is the only corporation by prescription Common language says siya ang tag-iya anang
corporation, kinsay tag iya sa cebupac? Gokongwei
mana, but actually and legally, it is the corporation that
owns it, all the assets. Now if gokongwei is 60% owner
What is the corporation of the Society of Jesus in the of cebu pac what does that mean? He has an interest in
Philippines? The corporation of the SJ in the Philippines the corporation. Why do we call it interest? Because it is
is Isabela Cultural Corporation. That is the corporate conditional namely that if this corporation is dissolved
name of the Jesuits in the Philippines. The first Jesuits and it has enough assets to pay for its debts and there
came here with Legaspi and they were employees of is a remainder asset left, then that asset is his after all
the crown. They were receiving salaries from the king as the just and legal obligations have been paid.
cultural officers and the entity they were representing Gokongwei walking along by himself technically has no
was the cultural foundation of Queen Isabela. Isabela, ssignificance. Who has significance? It is the Board of
ang nag-unang lungsod hain ang Abu Sayaf sa Basilan. Directors under Section 23. Unless otherwise provided
What is the capital of the biggest town? Isabela. Mao by law, the board of directors shall exercise all the
nang ang patron sa Zamboanga gidala man na gikan sa powers of the corporation. All properties shall be held by
Espanya Nuestra Seńora Virgen Del Pilar. (Insert long the board. It does not say main stockholder. So that is
chika about europe “I hope I have encouraged you to the doctrine of legal entity.
take a trip to spain”LOL)

So we have found out that there is this corporation


whose nationality is not dictated by the constituents of Section 23. The board of directors or trustees. –
the corporation. You know one classification of a Unless otherwise provided in this Code, the
corporation is constituents. If you have a stock and profit corporate powers of all corporations formed under
corporation or a non-stock non-profit corporation it has this Code shall be exercised, all business
multiple constituents its really a true corporation conducted and all property of such corporations
because you have memebrs of stock holders but when controlled and held by the board of directors or
you come to this particular corporation, a corporation trustees to be elected from among the holders of
sole which cannot be other than a religious corporation stocks, or where there is no stock, from among the
there is only one constituent. It’s a contradiction, it is not members of the corporation, who shall hold office
a corporation. It is a corporation because of the for one (1) year until their successors are elected
congregation that it is supposed to administer but the and qualified. (28a)
congregations is not a constituent of the corporation. if
the bishop disposes property he does not have to Every director must own at least one (1) share of the
consult the congregation. Why? Because it is governed capital stock of the corporation of which he is a
by its own laws. Canon law allows the bishop to dispose director, which share shall stand in his name on the
of church proeprty internally, it has to ask permission books of the corporation. Any director who ceases
from rome. But that is internal. Under PH law he can to be the owner of at least one (1) share of the

24
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

capital stock of the corporation of which he is a If you are a corporation, you have a president and he is
director shall thereby cease to be a director. authorized by a resolution to borrow 1m for and in
Trustees of non-stock corporations must be behalf of the corporation. You go to the bank and bring
members thereof. A majority of the directors or your Financial Statements, 10 years of financial
trustees of all corporations organized under this statements and the bank will look through it whether
Code must be residents of the Philippines you have the cash generating capacity and finally when
the bank is convinced, it says ‘okay we will lend you the
There is no better way to illustrate than this relatively amount but we would like you, Mr. president since you
current case of are the owner of 70% of the outstanding capital stock to
also be personally and solidarily responsible for this
Koji Yasuma v Heirs of Cecilio de Villa and East loan.’ Is that allowed?
cordillera mining corporation 499 scra 466 Aug 22,
2006 This is a case decided 2nd div penned by Justice  Corporation manghuwam ug kwarta, ingon
Corona. pud nimo ang overwhleming majority stock
holder will also sign. Is that allowed?
Cecilio obtained loans from the petitioner Koji Yasuma
of 1.1 Million and then another 100k and another 100k That is not only allowed, that is standard practice to
and his loans were secured by properties mortgaged prevent the whole idea of the controlling stock holder
and these were the properties of East Cordillera Mining from hijacking the loan. Kuha-on niya ang proceeds sa
Corp. To make the story short, he was unable to pay the loan unya way mu abot ana sa corporation. 70% gud
debt. Yasuma went to court for money claims, he iyaha. So there is no resolution that he cannot pass by
impleaded East Cordillera Mining and Cecilio S. De his own strength to vote because 70% of the board is
Villa. They were declared in default and so they his and in a stockholders meeting 70% that is more than
executed on the mortgage. 2/3 which is the highest qualified majority required for
Upon execution of the mortgage, the corporation said the ratificaiton of a stockholders. 2/3 ra manang kinatas-
there was no authority to mortgage. It is true that de villa an. Which is 66.6% so mao na ang bangko maniguro
is the president but he was not able to obtain any jud. Stockholder ka, you are both solidarily liable. In that
resolution from the board of directors to mortgage the case, the doctrine of separate personality is no longer
property and to incurr that loan. It was a personal loan. applicable because the stockholder has signed that he
himself is obligated to the same obligation as the
Now the question is did the Corporation benefit from the corporation
amounts borrowed? Yes. Did the corporation receive
the amount? Yes. So why can’t the corporation now be Naa may property sa corporation nga gi mortgage is
liable? Here is the curious defense of the corporation. that not proof that this is an obligation of the
The corporation said “We received we did not know it corporation? Cecilio de villa mortgage corporate
was a loan. We thought it was an investment by cecilio property of east cordillera, is that not proof that it is the
De villa and since the operation ended up in failure obligation of the corporation? Ang theory diri what is a
because of landslide, there was a storm etc. That is the mortgage? A mortgage is a subsidiary contract is it not?
xxx of a bona fide investment. We have nothing to A subsidiary contract does not exist if there is no
repay” primary contract. The primary contract is a loan. The
subsidiary contract is a mortgage it is another contract.
The SC said a corporation may be subjected to an act Usa ra man lagi kabuok ang papel na suwatan ana?
which is not allowed or not with the prior approval of the ngano mag subsidiary man nga naa may primary?
corporation but the corporation may ratify the Kanang gi suwatan nga papel mao ng instrument
unauthorized acts. Did the admission of the receipt of kanang contract mao kanang kasabutan. An instrument
funds constitute ratification on the part of the corporation like a single piece of paper may have so many
so that now they are actually liable for the loan? The SC contracts. There is a distinction. Kanang mga tao nga
said NO. they received it as an investment. So there is a ga laroy2 dinha makakita silag ginotaryohan maka ingon
distinction. Cecilio, the president, he could have acted sila nga kontrata ni. Dili lang, Basaha na. It can be that
for and in behalf of the corporation if there was a there are many contracts there. There is a distinction
resolution. There is no resolution! Both before and after between an instrument and a contract.
the receipt of the value there was no resolution And
then this Japanese Kohi Yasuma kept writing to Cecilio. Now, the SC says here, there is no proof or evidence
He did not write directly to the corporation and say pay that there was a distinct and specific approval by the
the debt. When he tried to enforce the obligation he board to mortgage corporate property. Why does it need
wrote to De Villa only. When he filed the case he specific authority to mortgage? If you are an officer of a
impleaded the corporation. So this brings out the good corporation and in the by laws it says you will be the
idea of the separate and distinct personality of the signatory for and in behalf of the corporation if the
corporation and that of its stock holders. corporation enters into a contract. Is that not sufficient
authority to you to mortgage and to sign for and in
behalf of the corporation?

25
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

A mortgage by itself is a distinct act of disposition it is interest and other charges. You have already made a
not an act of administration. It is the same as sale. In a promise.
sale you must have a specific authority that is why it is
called if you are selling somebody else’s property what “Procured to be paid” There is paid-up capital, there is
is it called? SPA. Special Power of Attorney. Kung naay issued shares and there is capital that is procured to
special naa puy power of attorney nga di special. What be paid which is the balance of a subscription of
is that authority? That is authority to administer. It is shares. I hope you understand that. Daghan nag mga
special because you are disposing you are acting as if buang na doctor diha sa Davao Doc, nag-subscribe
you own it. Remember, ownership is a bundle of rights. naman sila di na sila kabayad di na kuno sila mubayad
(enumerates all the jus) so for those acts of disposition sa ilang susbscription balance. Ngano man tawon
be careful if you are from the bank pangita-a dayun ang dong? Subscribe ka subscribe unya di man diay ka
authority for this corporate property. katugma ana? We will later on examine the remedies of
corporation for so called delinquent shares. So you
If you are on the corporation side, and you are the might confuse that as linking the personality of the
lawyer of the president make sure that the president corporation and the stockholder, there is no longer any
cannot be accused of acting beyond his powers. He difference? No! It is because of a contract of
must have the authority from the board. There must be subscription.
a resolution from the board. Ikaw in house counsel ka,
di ka kabalo na kinahanglan diay ug resolution xxx. Di 2nd Exception: Liabilities of the stockholders are
ka kabaw musuwat ug resolution. ‘Wa man gud na not personal liability or debts of the corporation
gitudlo sa law school.’ English ra man na. Be it resolves and vice versa.
as it is hereby resolved that and then you put it in a
positive form a resolution in a positive form not negative. Again here is the issue on forum shopping certification
in
2nd hour Sadsad, A.
Pet Plans Inc v CA (2004)

The President of Pet Plans was impleaded because he


 Are there exceptions to the so called is the ex-officio President of Pet Plans and it is a labor
business entity rule where the personality case so he is just impleaded in his official capacity as
of the corporation is considered no longer such and no specific claim or charge against him in his
distinct from the stockholder’s or the personal capacity. The Labor Arbiter however comes up
member’s personality? with a decision holding the President in his personal
capacity as jointly and solidarily liable with the
YES. corporation for the money claims of the employees. So
the President therefore became a real-party-in-interest.
1st Exception: Contract of Subscription He became a distinct party from that of the corporation.
The corporation appealed. Pag-appeal nila ni-submit
Some say that a stockholder who has not yet paid fully sila ug certication of non-forum shopping. The
his subscription to shares of stock and the corporation corporation since it is a juridical person has to execute
goes bankrupt, then the entire amount of his this CNFS through a natural person: the President. So
subscription becomes due and demandable the President signs the CNFS. Pero siya karon party
immediately. So if he does not pay the creditors of the naman siya? He should file his own CNFS. Wa man
corporation can file a money claims complaint with the siya mu-file. Pagsaka niya sa NLRC, “As to you,
court and run after the subscriber. Can the subscriber President, bayad na ka kay wa man ka mu-appeal”
can say “I have not yet fully paid because the balance Ingon siya “Ni-appeal ko, naa dinha! Ni-pirma ko.” Can
has not yet become due.” There is no call from the you not consider that as substantial compliance? No
Board of Directors for the balance to be paid but the because your personality is not the same. You are
bankruptcy of the corporation is a legal call. signing there for and in behalf of the corporation. For
your own, since you appealed, you should have
 Why is it a legal call? submitted your own CNFS. Kaduha ka mu-pirma diha.
One in a representative capacity and the other for your
Because when you subscribe to shares of stock you own behalf.
promise that you will answer for this much of the capital
of the corporation and you are held to your promise. In
other words, that is in the Articles of Incorporation and Bantayi intawon na kay sayop na sa abogado. Nag-
that is for the whole world to rely upon - that this amount tinanga ang abogado sa Pet Plans!”
is already answered for by the subscribers and you are
one of those who say you will answer for this much and Rights belonging to the corporation cannot be invoked
you have not yet paid in full. So when you will be sued, by the stockholders or directors and officers even if the
you will be sued up to your personal property to the later owns substantial majority of the shares in that
extent of the balance of the unpaid subscription plus corporation - That is the holding of Stonehill v Diokno.

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ADDU-Law

The officers objected to the infirmity of the warrant but If you’re an affiliate, you are unconsolidated with the
the warrant was infirm because it gave the address of owning corporation. The owning corporation just has
the corporation as the address of Stonehill. The SC later equity in you financial statements.
on reviewed itself. It should have been the corporation
itself, who objected, not the officers. They should have
objected formally – pass a resolution that you will
contest the formal validity of that warrant. Summary:

 Exceptions to the legal entity doctrine Mother corp owns


Wholly-owned At least 95% of OSC
I. Piercing the veil of the corporate entity Subsidiary More than 50% of OSC
Affiliate Less than 50% of OSC

There are two kinds of piercing:


Landmark cases on Piercing the Veil of Corporate
1st Kind: Two corporations are considered by the SC as Entity:
one: one is a parent and one is a subsidiary. When the
separate personalities are cancelled or pierced and only Francisco v Mejia 2001 When any or a combination of
one corporation is considered with personality that is all these factors are present then the veil of the
piercing the veil. corporate entity may pierced with respect to a subsidiary
corporation:
US v Milwaukee Refrigerator Transit (US case, 1907)
1. The parent corporation owns all the or most of the
capital stock of the subsidiary
2. The parent and subsidiary corporation have common
When the notion of legal entity is used to defeat public directors or officers
convenience, justify wrong, protect fraud or defend 3. The parent finances the subsidiary
crime, the law will regard the corporation as a mere 4. The parent company subscribes to all the capital
association of persons and it will disregard the separate stock of the subsidiary or otherwise causes its
juridical entity. incorporation
5. The subsidiary has grossly inadequate capital
6. The subsidiary has substantially no business except
Just because you are a mother corporation and you own with the parent corporation or no assets except those
99% of the shares of stock of a subsidiary, that is not a conveyed to or by the parent corporation
reason to pierce the corporate veil of separate entity. 7. The papers of the parent corporation or in its
There must be either defeating public convenience, statements of its officers, the subsidiary is described as
justifying wrong, protection of fraud, defending crime a department or division of the parent corporation for its
and disregarding the law, then you can pierce the veil. business or financial responsibility is referred to as the
If it is not there, there is no piercing of the veil. parent corporation’s own.
8. The parent corporation uses the property of the
When you say wholly owned corporation how much of subsidiary as its own and
the outstanding capital stock is there? If you own 95% of 9. The directors or executives of the subsidiary do not
the outstanding capital stock then you are wholly- act independently in the interest of the subsidiary but
owned. That corporation, 95% of which is owned by take their orders from the parent corporation.
another corporation is wholly-owned. Why not 100%? 10. The formal legal requirements of the subsidiary are
Because later on you will find out that to form a not observed.
corporation you need 5 incorporators. One might own
95% but there must be 4 others who own at least one
share standing in their name. If you own more than 50%  What is an example of the formal legal
of the outstanding capital stock, what are you? You are requirement of a subsidiary which are not
a subsidiary of the mother corporation that owns more observed?
than 50%. If the mother corporation owns less than
50%, what is that corporation called? It is called an The subsidiary might not have its own bank account. It’s
affiliate. just in the ledger of the parent company. In other words
it is commingled with the funds of the parent company.
So those are the terminologies. Why is it important? It is The corporation must have its own separate bank
important for accounting purposes and to tell the account because it is a separate person. It has its own
financial story of these corporations. Because if you are TIN. It must have its own separate account.
wholly-owned or you are a subsidiary, your financial
statements is consolidated with the mother corporation.

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Let’s take the case of a corporation and a dominant In the British Virgin Islands. So in the papers you first
stockholder. sell it there. So you pay your export tax on the basis of
that price. That’s all paper work because the bananas
 When do you “pierce the veil” and say there directly go to Japan. It does not pass by the British
is no corporation? Virgin Islands. That is transfer pricing and that is what
the UN wants to put an end to because it is a systematic
That is described in: evasion of tax that is worldwide. So many governments
lose taxes because of this particular practice.

 Business Enterprise Transfers

PNB v Andrada Electric and Engineering Co (2002) You have a business sold to another entity and then the
issue is: Is the transferee liable for the debts and
Elements when the corporation’s veil is pierced on the obligations of the original transferor? In other words, are
ground that the corporation is a mere alter-ego: their separate personality recognized by law? Or there
is none? The transferee has the same liabilities as the
(1) Control - not mere stock control, but complete transferor? That is the issue and that is called the
domination -- not only of finances, but of policy and Business Enterprise Transfers Rule which was dealt
business practice in respect to the transaction attacked, with by the SC En Banc in Y-I Leisure Phil Inc v
must have been such that the corporate entity as to this James Yu (Sept 8 2015) penned by Justice Mendoza.
transaction had at the time no separate mind, will or The case enunciates the general rule which was taken
existence of its own; from

(2) Such control must have been used by the defendant Nell v Pacific Farms (1965) En banc.
to commit a fraud or a wrong to perpetuate the
violation of a statutory or other positive legal duty, or a According to the SC in the Nell Doctrine generally
dishonest and an unjust act in contravention of plaintiff’s where one corporation sells or otherwise transfers all its
legal right; and assets to another corporation, the latter is not liable for
the debts and liabilities of the transferor EXCEPT:
(3) The said control and breach of duty must have
proximately caused the injury or unjust loss (1) Where the purchaser expressly or impliedly
complained of. agrees to assume such debts;
(2) Where the transaction amounts to a
consolidation or merger of the corporations;

 What is the extent of legal effects of *FGN: Because if there is a merger, the surviving
piercing the veil? corporation which is the “merged corporation” or the
“new corporation” that is formed after the merger, it is by
The SC has held in Koppel Inc. v Yatco (1946) that the law liable for all the obligations of the original constituent
application of the piercing doctrine to a particular case corporations no matter how many there are.
does not deny the corporation of legal personality for
any and all purposes but only for the particular (3) Where the purchasing corporation is merely a
transactions or instances for which the doctrine was continuation of the selling corporation; and
applied. (4) Where the transaction is entered into
fraudulently in order to escape liability for such debts.
Kasagaran ini ang mag-sugod ana BIR, like Yutivo
Imported Cars of the US. After 1848, it sold it to the its
own wholly-owned Yutivo Marketing Corporation. Then So these are the four exceptions which make the
Yutivo Marketing Corp sold it individually to the general transferee liable for the obligations of the transferor.
public. At that time there was still no VAT. At that time Normally the transfer puts an end to the obligation of the
there was sales tax. Sales tax is the tax you impose on transferor. But if any of these conditions is complied
the first sale of a manufactured or imported good. Now, with, then the transferee is liable.
if the corporation will sell it to it’s own corporation that is The respondent in this case James Yu bought shares of
what is called simply transfer-pricing. Barato kaayo stock and land in Mt Arayat Development Corp. Bayran
imong baligya ani, gamay ra ang sales tax. Pero niyag installment. After paying it for 10 years he goes
pagbaligya na nimo didto, mao na to ang tinuod na over and there is no development. Wala diay! So ngadto
presyo, naa naman to’y sales tax. Here’s a well-known siya sa Mt Arayat Dev’t Corp, pag-adto niya ingon man
secret: Everybody does it. sila “Wa naman mi. We have sold it to Y-I Leisure.”
(chika ni Father about OCWs who are victims of this
If you are TADECO and you sell bananas to Japan. You scheme) Mao nang si James Yu, gi-kiha niya ang
first sell it to your own corporation but it is outside the transferor ug ang transferee. The defense of the
jurisdiction of the Philippines. Where is it incorporated? transferee is simple: I am an innocent purchaser for

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BUSINESS ORGANIZATION II TRANSCRIPT
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ADDU-Law

value. There was no fraud. Is fraud essential when you certification in his appeals the liability of the corporation
postulate the purchase and acquisition of the entire was still considered by the Civil Code. Rights enjoyed
business, including goodwill, so as to subsume all the by the corporation cannot be invoked by the
liabilities of the transferor. That is the issue. And the SC stockholders, directors, or officers, even if the latter
said, no need. There is no need to postulate any fraud. owns substantially the majority of the shares of the
If you purchase an entity or substantially all of its corporation and as an exception to the doctrine of the
property, you are continuing the business and because legal entity you have to unveil the corporate entity. The
you continue you are liable for all the past liabilities of landmark cases are PNB vs. ___ and 362 SCRA 216
the transferor. 2001 and PNB vs. Andrada Electric and Engineering
Company 381 SCRA 244 2002

You have the Business Enterprise Transfers;


Taas-taas ning desisyuna, I’ll give you a secret, basaha
ang concurring opinion ni Leonen. Mas klaro kaysa The General Rule is that the transferee corporation
language ni-ining Mendoza. does not usually have the obligation of the
transferor corporation.
December 01, 2016 Casan, J.
And then there are exceptions to that rule:
We are now on the
If the effect of such transfer is a merger or
II. 2nd attribute of a corporation of which it has a consolidation, the corporation code itself says that the
personality separate and distinct from that of its surviving corporation in a merger/consolidated
constituents whether they be stockholders or corporation in case of a consolidation is liable for all the
whether they maybe members, The Doctrine of liability of the constituent corporation by participating in
Legal Entity. the merger/consolidation

And then, there is this, Y-I Leisure Phil Incorporated


vs. James Yu 770 SCRA 56, Gr. 207161 September
The interest of the stockholders over the properties 08, 2015, an EN BANC decision by Mendoza, that
of the corporation is merely inchoate; hence the where realty development corporation transfers its
stockholders have no personality to intervene in a assets to another realty property development
collection case covering the loans of the corporation. corporation, and the realty property development
The liability of a corporation towards a bank for a loan corporation essentially conducts its business without
cannot embrace the stockholders as may liable as the corporation, then that corporation will be liable for the
corporation. However if the bank has made these liabilities of the transferor corporation. There is no need
principal stockholder, a co-signatory in the loan, then by to postulate that the transfer was done in order to
that modem the liability of the corporation is the same escape the original liabilities and obligations of the
liability of the principal stockholders. transferor corporation.

You will find out later that it is a standard practice of Alright, we come to the
the banks. They will look for the principal stockholders
of the corporation especially if the corporation is not III. 3rd attribute of a corporation; it is created by
listed, it is privately held, the shares are raffled and sold operation law.
in the stock market so normally there are one or two
stockholders who control the corporation. They are at
least 66% owners of the outstanding shares. Now that is
This is generally called the CONCESSION
the case, normally the corporation will say you should
THEORY, the life of a corporation is a concession made
be solitarily liable with the corporation. That is the only
by the state. It is a principle that recognizes that a
way the corporation can pre-empt any desperation
corporation is an artificial creature without any existence
move by the principal stockholder from escaping the
until it has been given the consent by the state acting
obligation of the corporation.
by a law or an general enabling act such as the
So, liabilities of the stockholders does not make Corporation Code.
personally liable for the liabilities if the corporation vice
Now, Under Corporation created by law not by
versa. The stockholders are not liable to any corporate
operation of law, those corporations directly created by
acts unless otherwise provided by law. And I have told
congress though the enactment of a special law that
you about the forum-shopping certification in Plans
becomes the charter of that corporation, they are called
incorporated vs. CA, the president’s failure to provide
public corporations. For such corporation to be
his non-forum shopping signed by him or made in his
created, it must be for public purpose. Private
own behalf meant a judgment as to him became final.
corporations cannot be created by specific legislative
But in the commission because he signed for and in
act. This is the rule in the case of
behalf of the corporation a non-forum shopping

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ADDU-Law

National Development Corporation vs. Philippine munoz-palma. You read there dissenting opinions. That
Veterans Bank is where law embraces philosophy. You read their
192 SCRA 257 1990. decisions. So that you will not forget.

You know in that case, there was a very Now under exceptions to the general rule that
smooth talking former professor in the School of for a corporation to be organized there must be a
Business in UP to convince so many UP Professors and general enabling law, there are exceptions.
Retirees to put their money with him because he was
putting up his new agricultural corporation called ( The first exception is so called De facto
AGRix Inc) but then it turn out that Agrix Inc. was a Corporation that is found in the section 20.
scam. And you would think that all these UP Ph.D’s will
see though all these but you know “Greed is as
universal as Gravity” so they fell to this smooth talking
professor and he took the money and lost their money. Section 20. De Facto Corporations- The due
Now it was Marcos who was the head and incorporation of a de facto corporation claiming in
Marcos seen the opportunity to win the University of the good faith to be a corporation under this Code, and
Philippines Community, So what did he do? He put out its right to exercise corporate powers, shall not be
the presidential decree creating the new Agrix inquired into collaterally in a private suit to which
Corporation. He ordered the Philippine Veterans Bank such corporation may be a party. Such inquiry may
order to supply capital and then the purpose of the new be made by the Solicitor General in a quo-warranto
Agrix Corp was similar to the purpose of the old Agrix proceeding.
who are the stockholders? Those who lost money in the
original Agrix venture who are professors of UP.  What is a de facto corporation?

Now the new Agrix Corp just had the obligation There are FOUR ELEMENTS OF A DE
to pay back Philippine Veterans bank. Now that was FACTO CORPORATION.
challenged.
1.) There is a law under which such
How can a law create a corporation not for corporation has been lawfully formed.
public purpose but to save these failed investors? 2.) There is a bonafide attempt to organize
under colorable compliance with the
The Supreme Court said, Congress cannot conditions of the law. So these de facto
enact a law creating a private corporation though a corporations actually filed articles of
special charter. Since private corporation cannot have incorporation with the Securities and
special charters, it follows that congress cannot create Exchange Commission.
private corporation. 3.) The corporate assumes corporate
powers. It acts as if it were a corporation.
4.) It was issued a certification of
incorporation but it has a fatal defect. The
That was the decision in the case of NDC vs. corporation has a fatal defect which goes
Philippine Veterans Bank 192 SCRA 237, 1990. into the heart of it being a corporation.
Because it is fatally defective, it is not a
Nangisug na ang Supreme Court kay 1990 corporation, even if it has a certificate of
naman. Wala na si Marcos. When did Marcos Fly away? incorporation.
1986. As I often tell my students, The Supreme Court
has many times been tested and has been found
wanting. It is the weakest structure of the government.  What is an example of a de facto
It is only the lawyers who are lifting up the Supreme corporation?
Court because it has continued to maintain respect.
There are at least 2 en banc decision of Supreme Court Sawajaan vs. CA- 459 SCRA 516 2005-the
decisions describing Marcos build as bureaucracy, the corporation this is a subdivision homeowners
scale of which that has not been known to this nation. corporations. La vista homeowner’s subdivision, ivery
That was the decision of the Supreme Court in the case famous right next to Loyola heights near ADMU. That is
of Pena vs. PCGG and Yuchienco vs. Teves. En where Gloria Macapagal Arroyo lives, that is where Kit
Banc. What was the latest ruling of the Supreme Court Tatad lives, that is where Mr. Ching lives. Who is this
en banc? They say Marcos can be buried with the Mr. Ching? He is the owner of the biggest incoprated
heroes. What happened in the en banc decisions in the poultry in the Philippines. He smells some eggs
past? The court has a short memory or chooses not to because he produces a million eggs a day.    He
remember. (Father continued his sharing about Marcos has a house there and so on.
and the latest decision of the Supreme Court about the
Marcos Burial) There were so many great justices who But what happened when they organized this
are so good. You read them. Teehankee, Cecilia subdivision homeowner’s organization? They forgot to

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submit by-laws. You know under the corporation code have misled the public that you are a corporation, you
you can submit by-laws upon application or within 30 cannot back tract now and say that you are really not a
days after the issuance of the certificate of corporation. You are liable. That is a corporation by
incorporation. But they did not file. So, all there estoppel under section 21.
meetings are questionable, all there resolutions are
questionable, they did not have rules as to when their
regular meetings are, their special meetings, how do
you call a meeting, what is the number of days for Section 21. Corporation by estoppel- All
notice, etcetera,. persons who assume to act as a
corporation knowing it to be without
That is where the Supreme Court said, a authority to dos o shall be liable as
corporation which failed to submit its by-laws on time general partners for all debts, liabilities,
may be considered a de facto corporation whose right to and damages incurred or arising as a
exercise its corporate powers may not be attacked result thereof; provided however, that
collaterally in a suit to which a corporation may be a when any such ostensible corporation is
party. sued on any transaction entered by it as a
corporation or on any tort committed by it
Let us say the La Vista homeowners Association as such, it shall not be allowed to use as a
Inc. enters into a contract with it a construction defense its lack of corporate personality
corporation which construct sidewalks and gutters and it
does not perform so La Vista files a collection case and One who assumes an obligation to an
then construction company will say, we do not have to ostensible corporation as such cannot
answer you, we do not have to respond because you resist performance thereof on the ground
are not a corporation, you do not have by-laws, that is a that there was in fact no corporation. (n)
collateral attack on the validity of the corporation,
that is not allowed even if you are a de facto
corporation. What is needed is that you institute is
separate and distinct action to attack the corporation So both the estopped constituents of an ostensible
because you cannot a subject a de facto corporation to corporation and those who incur liabilities towards that
a collateral attack. corporation, they are not allowed to raise as a defense
the lack of a corporate personality. They are estopped
Remember that I told you that it’s also the role of a that is why it is called corporation by estoppel.
Labor Organization. The registration of a legitimate
labor organization cannot be a subject of a collateral (Sharing about the common practice in Manila
attack; it must be attacked in a separate proceeding. wherein the leases posted in the classified ads of the
Now, why is that called an exception to the rule of newspaper by a corporation will demonstrate an
separate, distinct personality by operation of law? Why example of corporation by estoppel. A person
is it an exception to the Consensual Doctrine of the misrepresents himself to be part of the corporation and
state? It is because the law provides that the will lease the property to another person. The subject
government must come out of its way to protect the property will be leased to many lessees in a day which
fatally defective corporation so as to maintain the will cause the legal controversy. Father mentioned that
stability of commercial transactions. That is an say if for instance the transactions will be caught by the
exception to the so-called Principle of Concession. CCTV and the persons who misrepresents will be
charged of estafa, they cannot deny any more the
Again, another exception is a corporation by existence of the corporation)
estoppel. A corporation by estoppel is when a
corporation assumes to act as a corporation knowing it The law says they will be liable as general partners
to be without authority to do so, such ostensible for all the debts, liabilities and damages arising as a
corporation shall not be allowed to deny its corporate result of this corporation by estoppel.
personality and such person shall be liable a as general
partners for all its liabilities and damages incurred or  So is there a corporation? No.
arising as a result therefrom, here, in a corporation by  Is there a liability even if it is not duly
estoppel, there is really no corporation, they have not constituted as a corporation? Yes.
file the articles of incorporation, the SEC has not issued  Who are liable? The people who acted as
a certificate of incorporation, what happened? They just such. They are liable.
put a “karatola” there that they are incorporated but they
are not. Diba ang principle sa corporation kay there will only
be a corporation if the state will give its consent by a
Now when they are being made to stand up for certificate of incorporation. Wala man kaha, why is it
the obligations they assume, they will say that they are that it is as if it is a corporation? This is an exception
not a corporation, you are not allowed to hide behind to the doctrine state consent as the basic principle
your non-existence because you are estopped, you

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of a corporation, otherwise if we do not do this agency. Because it can be subject of commerce, it


those which are not corporations will abuse. can be subject of levy and execution together and
including all property necessary for the enjoyment
 Now, what are the instances where the thereof. (Example failure to pay the loan, the bank
principle of a corporation by estoppel can execute the buses together with the franchise
cannot be invoked? with the approval of LTFRB subject to
qualifications to maintain and grant the franchise)
1.) It cannot be invoked by a person who
misrepresented the corporation as duly
organized. The principle of estoppel can be But the franchise to exist as a corporation cannot
invoked against such person but not in favor of be for sale precisely the reason for the law to have a
such person. general enabling act is to put an end to existing as a
2.) The principle of estoppel cannot be used to corporation for consideration.
any person who takes no part except to
subscribe for stock in the proposed corporation Ato pa Hari pa ang mubuhat ug decree na
which was never legally formed. Hence, he corporation na mo then Lagyan nila ang hari unya mu
cannot be liable as a partner of those who issue dayun siya na corporation na mo. Dili gani ka
engaged in business under the name of the suod sa Hari ug wala gani ka kwarta dili ka ma-
pretended corporation. So innocent victim, ni corporation. Mao na ang gibuhat run in the Constitution
subscribe gyud siya pero wala tuod na it is already forbidden to that you can exist as a private
corporation. He cannot have the liabilities of a corporation by direct legislation. No. It is just by
general partner. complying with the requirements of a general enabling
3.) Corporation by prescription. I told you about act. That is the reason. So primary franchise and
this in the case of Parlin versus Ramirez 7 secondary franchise, the right to exist as a corporation
Phil 41 where a body of men, have been for a and the right to conduct some public utility service which
long time in the exercise of a corporate is a secondary franchise.
powers. A presumption arises of an ancient
charter granted to the predecessors making December 2, Enriquez, A
the exercise of such powers by them lawful
and valid. An example is a Roman Catholic So we were into constituents of a corporation.
Church as pronounced in that case. From now on henceforth you should envision the
Articles of Incorporation. Articles of Incorporation is
basically a contract. It begins with, ‘Know All Men By
 Now we come to the distinction of Primary these presents’ an ancient form which is held a tacit
Franchise and Secondary Franchise. amount it will _______, but is the secret of attorney’s
fees in the Philippines. So we still continue to maintain
The primary franchise also called the general the use of that formula. All contracts now begin with
franchise. It is the right to exist as a corporation which “Know All Men by these Presents”. In the US, the
right is present in the individuals who composed the emphasis is ordinary English. In the Philippines, if it is
corporation and not in the corporation itself. So if you ordinary, it must not be a legal document.
are the incorporators and the law says that there must
be five not more than fifteen. The incorporators as a So, Section 5 says, “Corporators, incorporators,
body politic, to them are vested a primary franchise stockholders and members.”
which is the right to exist as a corporation.
Section 5. Corporators and incorporators,
Secondary franchise is also a special franchise. stockholders and members. - Corporators are
It is a right and privilege conferred upon an existing those who compose a corporation, whether
corporation such as the right to engage in public bus as stockholders or as members.
transportation let us say from Davao City to Tagum. You Incorporators are those stockholders or
pay for that franchise with the LTFRB. Where is the right members mentioned in the articles of
to hold such franchise vested? It is in the corporation. incorporation as originally forming and
Example Yellow Bus. That corporation own the composing the corporation and who are
franchise to buy 15 buses between Davao City and signatories thereof.
Tagum.
Corporators in a stock corporation are called
 What is the difference between two? stockholders or shareholders. Corporators in
a non-stock corporation are called members.
1.) Primary - It cannot be transferred and cannot (4a)
be subject of commerce.

2.) Secondary-Maybe transferred for


consideration with the consent of the government

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Point view, they are that are of the articles of Section 15. Forms of Articles of Incorporation. -
incorporation that can never be amended. Unless otherwise prescribed by special law, articles
of incorporation of all domestic corporations shall
The list of incorporators plus the fact that they sign comply substantially with the following form: xxx
there, because they assume personal liability of any
misrepresentation of the articles to the general public
because the articles become a public document. They
become a public document.

Originally, they are contracts. But since that is required So there is a form that is outlined in Section 15. And all
by the government office of Securities of Exchange that is needed is substantial compliance. Now, how do
Commission, the moment you submit it, it becomes a you know that it is substantial? You will know that it is
public document and any non-disclosure or substantial when the categories include obligations.
misrepresentation and untruthful statement if they are … Like, “corporators in stock corporations are called
constitutes falsification of document punishable under stockholders or shareholders.” So, you better call your
the Revised Penal Code. stockholders or shareholders by item on that name. You
cannot say unit holder; that is no longer substantial
That is why, if you are a minor, you cannot be an compliance. Because you escape liability. Because it
incorporator. Can they own shares of stock of a … does not say in the Corporation Code ‘unit holders’, it
(primitive) corporation subscription. If you know a says ‘stockholders or shareholders’. Therefore, you
corporation that is about to be formed, then you have to stick to the categories that are provided in the
subscribe to those shares. provisions.

 You are a minor. Can you subscribe to Again, you can use Filipino in writing your Articles of
those shares? Incorporation. You are so nationalistic. You like to put it
in Filipino. The Articles of Incorporation may be written
Yes, you can. Because age does not matter for in any of the official languages of the Philippines.
purposes of being a stockholder. You might require an
adult to help you exercise your rights. You might require “Section 14. Contents of the articles of
a guardian as to your property, but there is nothing that incorporation. - All corporations organized
prohibits you from being a subscriber. There must be an under this code shall file with the Securities
adult who help you to guarantee the succeeding and Exchange Commission articles of
payments of the subscription, if the subscription is by incorporation in any of the official languages
instalment. There are subscriptions of shares, as we will duly signed and acknowledged by all of the
later find out, that cannot be by instalments. incorporators, containing substantially the
following matters, except as otherwise
So, if after the corporation is formed, one of the prescribed by this Code or by special law:
incorporators becomes notorious, and commits a xxx”
grievous public anomaly, your corporation will be known
as having been formed by the notoriously well-known
public criminal. You would like to erase his name!
So, in any of the official languages, theoretically you can
put it in Filipino. I challenge you suwayi pag buhat diha
Can you do that? You cannot. So you better choose
in Filipino pag file dinha sa SEC tanawon nato na ug
your incorporators very well, because you cannot
pag buhat diha sa sign forms tan-awon nato ug
change a historical track. That is the only item in the
mugawas ban a ang imong certificate of incorporation. I
Articles of Incorporation which cannot be amended
have yet to read Articles of Incorporation in Filipino.
because it is historical. “Know all men by these
Wala pa gyud ko’y nakit-an. Sobra na akong 30 anyos
presents, we, the undersigned incorporators on this day
pagka abogado, wa pa jud koy nakitan. I have read
formed this corporation under the following condition:”
decisions of the Supreme Court in Filipino. Every year
during Linggo ng Wika, the Supreme Court comes out
Then you begin to put the condition. The name of the
with one decision in Filipino.
corporation shall be, then there’s the name. The term of
incorporation shall be - it is outlined by an identification
Tan-awa, suwayi ug naa ba silay decision involving
(card).
Rerva Troncal.
Corporators in a stock corporation are called
So, if the Corporation Code says, what is required is
stockholders or shareholders. Corporators in a non-
substantial compliance, the categories, the technical
stock corporation are called members. So, let me bring
terms, cannot be substituted. Because if they’re
to your attention the following provisions:
substituted, then they can claim that they are not
covered by the obligations and conditions. So,

33
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

‘stockholders, shareholders, members,’ you have to by that requirement in the Corporation Code,
stick to those terms. because I am not a Trustee, I am an elder,
board of elder, So I am not covered.
 What is the rule with respect to
incorporators? So to opiate (oviate?) that possibility the SEC
will stick to the substantial requirement. The
Only natural persons may be incorporators of name of the corporate body should be board of
incorporations, or at least five of them should be trustees in a non-stock corporation.
individuals.
2. Of legal age
 What is the reason for the rule?
3. At least five(not less than), but not more
The incorporators guarantee to the world that the than 15
Articles of Incorporation are true. And if it turns out that
they are false, the incorporator may be held civilly and Exceptions:
criminally liable therefore. A corporation cannot be held  Section 110. Corporation Sole
accountable in that manner. So, the incorporator MUST  More than 15 may form a cooperative.
BE a natural person. (General Cooperatives.)
 More than 15 may form a civic
Qualifications: organization (Jaycees, Lions)
 More than 15 may form an
1. Natural Person educational corporation.
 The merger or consolidation of banks
Exceptions: may allow at least 21 incorporators
4. Majority of whom are residents of the
 Registered coops may be incorporators Philippines.
of rural banks under PD 175 (If it is a
rural bank, it could be incorporated by Why? So that they are in the reach of
registered coops) the legal reach of the Philippines. If you are
not a resident, you may not be within the
I don’t know if you still remembered Cooperative reach of the law. The arm of the law may be
Rural Bank of Davao City. It went bankrupt. But long, but it cannot extend beyond the
because it is a rural bank it could have been territorial jurisdiction.) You must be majority
incorporated by registered coops not necessarily residents.
natural persons.
5. Must own or be a subscriber to at least
 Corporations primarily organized to own one share of capital stock of the
a ___ Rural Banks may be incorporated corporation.
by rural banks. In which case, rural banks
are not natural persons. Corporations
may be incorporators of non-stock
corporations. Section 138. Designation of governing boards. - The
provisions of specific provisions of this Code to the
 Stockholders or shareholders. Owners of contrary notwithstanding, non-stock or special
shares in a corporation which have corporations may, through their articles of
capital stock. incorporation or their by-laws, designate their
governing boards by any name other than as board
Members, corporators of non-stock of trustees. (n)
corporations. Directors and trustees. The board
of directors is the government body in a stock
corporation. The board of trustees is the
governing body of a non-stock corporation. The Corporate Officers. There are supposed to be three
board exercises powers of incorporation, the original corporate officers.
board of trustees may be disseminated by some
other name but not board of directors. This is  The president who shall be director,
according to Sec. 113 Miscellaneous Provision.  The treasurer who may or may not be
director,
But again, I challenge you, file a non-stock non-  The secretary who shall be a resident and
profit corporation and your equivalent of board citizen of the Philippines.
of trsustees, you use another name, you will not
get approved by SEC, because there is a And then Section 63 mentions two additional officers,
chance that you can say that “ I am not covered namely: the vice president and assistant secretary.

34
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

The by-laws provide for other officers two or more So the Board of Directors determine the officers. The
positions may be held by the same person. Except that Board of Trustees does not determine the officers. It is
no one shall act as president and treasurer at the same the members themselves directly who can elect.
time.
There is a category that you should remember.
 What is the significance that these officers
are named in the articles?  Who is an executive director? Who is a
non-executive director?
The significance is, even if they are not mentioned or
not provided for in the by-laws you may see their Stock and profit Corporation- A non-executive director
position. Remember the by-laws are the internal rules of is a director that has no lined position in the corporation.
the Corporation. Suppose there is a provision there is a He does not help in the department. He does not
provision for a chairman, but there is no President. Can manage any particular function.
you institute an office of a president of the corporation?
Yes, because it is found in Section 63 of the Corporation An executive director is one who has responsibility in
Code. There is no provision for the vice president, can the management. So, a general manager who is made
you set up a vice president? Yes because that is found the president of the corporation and such president
in Sec 63 of the Corporation Code. So, there being having been given the title of Chief Executive Officer
mention in the Corporation Code makes them available (CEO) means that he is an executive director. He is not
to all corporations to be installed. a non-executive director. He has overall responsibility
on the business of the corporation.
Now, in a stock corporation, the power to determine who
the officers should be, and the power to elect them are It is not here in the Corporation Code but the Securities
lodged in the Board of Directors. In those matters, the and Regulation Code, may require certain corporation
stockholders have no say. Corporate officers are an independent director.
elected by a majority of all the members.
 What conditions are required according to
In non-stock corporations: Unless otherwise provided in the Securities Regulation Code?
the Articles of Incorporation or the by-laws, officers of
non-stock corporations may be elected by the members  If you are a corporation that is 50M in
directly. That is Section 92. assets or at least 200 stockholders with at
least 100 stockholders owning 100 shares,
you are required to have an independent
director.
Section 92. Election and term of trustees. -
Unless otherwise provided in the articles of  If you are a corporation that has sole
incorporation or the by-laws, the board of securities that require to be registered in
trustees of non-stock corporations, which the Securities and Exchange Commission.
may be more than fifteen (15) in number as For instance you brought bonds and those
may be fixed in their articles of bonds are required to be registered in the
incorporation or by-laws, shall, as soon as SEC, then must have an independent
organized, so classify themselves that the director.
term of office of one-third (1/3) of their
number shall expire every year; and  If you are a bank, into a public utility,
subsequent elections of trustees comprising then you must have independent director.
one-third (1/3) of the board of trustees shall
be held annually and trustees so elected  How many independent directors?
shall have a term of three (3) years. Trustees
thereafter elected to fill vacancies occurring 20% or 2 directors whichever is less, in no case less
before the expiration of a particular term than two. That is the requirement of the Securities and
shall hold office only for the unexpired Exchange Commission.
period.
Read SEC Memorandum Circular No. 6 - 2009, which
No person shall be elected as trustee unless detains the requirement of independent directors that
he is a member of the corporation. governance of a division of corporations.

Unless otherwise provided in the articles of You must be independent; you must not be connected
incorporation or the by-laws, officers of a with a corporation in any way as a consultant or by
non-stock corporation may be directly lesion in the key offices of the corporation.
elected by the members. (n)

35
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Except for your shareholdings and there is a The English type of underwriting: an underwriting
TIPPING (Limit?) in the amount of shares you agreement that is made before the shares are brought
can own in that corporation. into the public. That in the event the public does not
take all of the numbers mentioned in the agreement, the
This was introduced by the Sarbanes Oxley Law in US, underwriters will take the shares which the corporation
from hencefort, after the Sarbanes Oxley law everybody does not take. So guaranteed ang sale. This applies
followed it. And Sarbanes Oxley Law was passed also to other types of securities such as bonds. In
because of the excesses in the different corporations in consideration of this engagement, the underwriter
the US in the 1990’s. And so those excesses, principally receives a fee or commission / discount. So, who are
the Hendron Corporation, this requirement of an those underwriters’ agreement? BDO, universal banks ,
independent director …. The shortcut for Sarbanes BPI with a securities arm, Metro bank. So, we have
Oxley is SOX. The moment you sell bonds or ADRs underwriters who have investment banks.
(Asian Depository Receipts) in New Yor, right away you
must comply with the SOX. But what is a promoter? Dinhi sa Pilipinas murag wala
naman tay promoter. If you are ABS-CBN, if you would
Meralco, ABS CBN - all those corporations comply. That like to share, sell ADLs, you need foreign accounts. But
is why now, one of the essential officers of the you are a media corporation, which must be 100%
corporation is the compliance officer. Filipino. So, what does ABS CBN do?

I remember in the late 90’s naguol ang SGV kay gipang PCB in an intermediary corporation which houses,
pirate tanan nilang accountant,kinsa may nag pirate?
Let us say 2 million shares of ABS-CBN. PCB then
All these many corporations that are compelled to have issues ADRs (Asian Depository Receipts). What happen
Compliance Officers, and many of those are shared to the 2 Million ABS-CBN shares? These corpus of
corporations. Kay wa naman silay makuha didto sa shares is securitized, they have a mother security
States. Makakuha ba diay ka didto ug CBA nga naa capital. And it says “for every one of this ABS-CBN
didto nga star (puyo) sa Panama and Barbados, para shares, there is one ADR. Each ADR has the right of
maka compliance officer ka ananag mga ginatawag nila dividends of 1 ABS-CBN corporation shares. An ADR
nga shared corporation? Wala may mangadto. 50K US therefore, except for the naked title which remains, it is
dollars ug tagaan ka ug mapuy-an... tapos slave worker the PCB that therefore …everything is .. especially the
ka sa SGV, tax free pa jud na sa Barbados… sige lang right to the fruits of these shares.
ka ug bikini. (more chika about migration of the
accountants). Where do you sell these? You sell these in New York
Stocks Exchange. At what price is this sold? Normally it
Compliance Officers, daghan naman kailangan ireport, is sold there at the equivalent peso to the dollar price of
because the corporations are now subjected to scrutiny. ABS-CBN. There is a foreign exchange element.

So, we have gone through the main officers, Unya, ug matulog ka gani dire sa Pilipinas mag trading
constituents of a corporation. But there are still other man sila sa New York. Mamata sila sa NY mag trading
personalities that we have to be familiar with. What are man ta dinhi. So there is a time gap.
those? And they are not found in the Corporation Code
but they are just as important. If you can take advantage of the time gap, dakog
development, musakag kali tang presyo dinhi, unya sila
I am talking about a promoter and an underwriter. didto sa NY wala pa man sila nag trading. Pagka sayo
sa buntag ana place dayon ka sa imong order, and
Many can understand what an underwriter is - basically kuhaon nimo. Nasipyat, ug maka ginansya ka sa
he is a salesman who sells shares of the corporation. If Foreign exchange, that is called ARBITRAGE.
it is a corporation still to be formed, it is a pre-
incorporation subscription. Then, these underwriters, Unsaon man na nimo actually to sell these in NY when
they enter into contracts with the issuer (that is, the there are something like over a hundred thousand
corporation issues its shares of stocks and other issues it is not exchanged? Unsaon man nimo pag get
securities). the interest of all those investors? Who are the
investors?
 There are three types of contracts that they
may be issued: The insurance companies, the hedge funds, the
different institutional investors of the sovereign funds.
1. The English type of underwriting; Unsaon man nimo? You need a promoter. Kanang
2. The Burn commitment type; and promoter imo ng bayran siya. Siya na muabag ug
3. The TEST EFFORTS type dakong hall… siya na muarange sa tanang caterer, siya
na musuwat anang tanang mga funds, na dali mo dire
kay naa koy I present ninyo. Siyay mangimbitar.
Promoter ba.

36
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Ngano man na muduol nganha, kay mao man nay iyang mga dagkong business nila. Ni-a sila diri sa Philippines.
trabaho. Sige na siyay panawag sa different funds, They bought 30% of the hospitals of the Metro Pacific.
nganhi mo dire mu invest dinhi, kay bag-ong negosyo, Kuyawan naman sila kay wala na silay mga supply ug
google, facebook… sila man nay mag introduce. Mao mga nurses ug doctors. Ilang population growth is below
na silay promoter. Manuwat na sila, manuol sila, pag zero, fertility na below zero. Naa na guy government
abot sa investors kinsa may makigsulti nila dire… ah program na matchmaking. Aron manganak sila. Naay
ang mga bigwits sa ABS-CBN… naa na silay slides, naa incentive. Ang mga tao dili naman manganak.
na silay presentation, mao ng ginatwag nila nga “road Problemado sila ana. Nagka-anam ug katigulang ang
show”. “This is our company, this is the mga tao. So where will they get the personnel to take
capitalization,the developing market, average income, care of the health of their senior citizens that are
disposable income, marketing sa advertisement… growing. The only segment that is growing. Naay silay
naglingkod na sila dinha, nag lingkod ang president, supreme fund. Pila may population anang Singapore?
treasurer ug kinsa pa ng officer ug ang mga inverstors. It’s just slightly 3 Million people. Dako pang Hong Kong.
Pag human dinha, mangaon na na sila. Kadtong magpa Hong Kong is close to 7 Million. Mangutana ka, hain
bilin after mangaon,mao nay seryoso. Pero kadtong man ang supreme fund sa Pilipinas? It’s all in our
misibat, ah wa ganahi nimo. Tanaw sa menu unsa ilang dreams. Damgo ra!
ganahan, human na sila. Kay naa man silay explains
account, kay mao man ni silang ang with the big bucks, What’s the difference between a share stock in ABS-
kay sila man ang maka invest. CBN and an ADR? The underlying asset on which the
value of the ABS-CBN shares are measured are actual,
Pagtalikog ana nila, human na silag panga-on ah, nay physical and intellectual property assets. Naay
kanang ingon nila, kanang mga dagko kayo, naa na properties ang ABS-CBN. Naa silay equipment,
silay CALPERS. CALPERS is California Public apparatus pang-broadcasting. Those are part (of it).
Employees Retirement System. Dagko na na. How Then they have intellectual property. But here, the
much are you talking about? Close to 400 Million ADRs, the underlying asset of the ADR is another
CALPERS. Statistically they are required to before you security, and that is the share of stock of ABS-CBN. So,
invest you are a nobody, you cannot afford their laws. that is why an ADR belongs to the general genre of a
Di ka mahimo na mag invest ka lang sa US bagsak sa derivative that is called a derivative. It is traded in the
US e di goodbye ang CALPERS, daghan kayo na sila New York Stock Exchange. It is bought and sold in the
mga sundalo, mangita ug kung asa mag invest. Mao na New York Stock Exchange.
sila ang tawagon sa promoter. Dali mo dili. Gamay gani
ka, ABS-CBN, ang ipadala nila ana, mga junior. Dagko Remember, there are over 100,000 issues traded in the
kaayong tingog. Kana kunong mga dagkong tingog New York Stock Exchange because that is really where
kanang promotion, wa kanay labot. the center of capital funding is. Maskig unsa gyud imong
kalagot sa mga Amerikano, naa gyud didto ang kwarta.
Unya muingon ka dako kanang CALPERS, huna hunaa Why? Because it is the safest place to have your
lang ng NORWAY SOVEREIGN FUND. Ila man ng money. They respect ownership and transaction. They
NSF, di na sila mahimos himos. Naa na na silay are predictable and organized.
sovereign fund. Why because their constitution says
“Whatever proceeds from oil and gas, cannot be You have promoters and underwriters. Muingon kag
extended because it is not only owned by the citizens of ngano dili na lang man na isahon? Kanang promoter ug
Norway today, but the citizens still unborn. So the underwriter. Di man na mahimo. Kanang underwriter,
constitution requires them to preserve the proceeds of mao na ang salesman gyud na mubaligya. Kanang
their natural resources. promoter, mao ra nay ga-advertise. Magkuyog ba na
sila? Di man na magkuyog. Mao nang maglahi ang
Di na nila magasto. Ang ila lang magasto ang kita sa marketing ug sales. Hain may labaw, sales or
nag tubo sa ilang sovereign funds. How much now is marketing? Kanang sales, naa na dinha ang point of
the sovereign funds of Norway? It is now close to 1 acquisition. Pila diskwento, unsaon nimo pagbayad, asa
billion US dollars. Manlimbawot imong balahibo. That’s ka mangita ug ibayad. Kanang mga underwriters, mao
why their education now is number 1 in the world. Not na silay mu-suggest. ‘Ingani ka musulod sa market.
Japan, not China, not the US. Class size, 10 students. Aron dili ka mabigla, gusto gyud nimo makitan ang
Mao na ang mga studyante didto, they know three tinuod nga presyo, you scale up. Dako-dako man ka,
languages. Naa pay uban tag-unom, pito ka languages musulod ka didto, musaka dayon ang presyo.’ Mao na
nahibalan. They are almost in a natural basis. Three- sila ang mu-advise.
fourths of their graduates go to STEM- Science
Technology Engineering Math. Kinsa may gagasto ana? Ang promoter, mao nay muingon didto ‘tanawa ning
Kanang kita sa ilahang Supreme Fund. Kuyaw! ABS-CBN, icompare ni sa telco sa Indonesia.’ But then
you are talking about intangibles. So, there is a whole
Tanawa nang Singapore. That is one of the divisions of different world of explaining to do. That is why they are
their Sovereign Fund. TEMASEK. Mao nay controlling included in the persons or characters in shares of stock.
investment corporation sa Singapore Airlines, Singapore
Development Bank, Singapore Telecom. Kana mao ang

37
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Tanawa ra gud na sa Pilipinas. The SSS, theoretically 8. If it be a stock corporation, the amount of its
can invest abroad. But. It’s always … under Nationalist authorized capital stock in lawful money of the
groups. Ngano man mo mamalit ug shares of stock Philippines, the number of shares into which it is
didto sa gawas, na dinhi sa Pilipinas, kinahanglan man divided, and in case the share are par value shares, the
ta ., targeton na nila dinhi. Kining investment, there is no par value of each, the names, nationalities and
nationality. Tanawa na run oh, ang Peso, niubos na. residences of the original subscribers, and the amount
Ang dollar… 50 pesos na gud to 1 dollar. There was a subscribed and paid by each on his subscription, and if
time when it was 43 or 44. Unsaon man padaganon some or all of the shares are without par value, such
anang inflation, if you do not have investments in fact must be stated;
dollars. Kinsa may kaluluyon? Di ang mga members sa
SSS. Tungod kay nationalist ra lagi dinhi. Ngano 9. If it be a non-stock corporation, the amount of its
tanawon man na nimo? There are rules in investment capital, the names, nationalities and residences of the
and you cannot be an exception just because you think contributors and the amount contributed by each; and
Filipino… pagka way hinungdan. Mao nay mabaw ra
kaayo. 10. Such other matters as are not inconsistent with law
and which the incorporators may deem necessary and
The forcefulness, cogency and volume of their voice is convenient.
directly inverse with the content of their agreement.
The Securities and Exchange Commission shall not
 FORM AND CONTENTS OF THE ARTICLES accept the articles of incorporation of any stock
OF INCORPORATION corporation unless accompanied by a sworn statement
of the Treasurer elected by the subscribers showing that
Let us go through the contents of the Articles of at least twenty-five (25%) percent of the authorized
Incorporation. There are two provisions here on the capital stock of the corporation has been subscribed,
Articles of Incorporation. There is a description of the and at least twenty-five (25%) of the total subscription
content and form. Section 15 is the Form of the Articles. has been fully paid to him in actual cash and/or in
Section 14 is the contents. property the fair valuation of which is equal to at least
twenty-five (25%) percent of the said subscription, such
Sec. 14. Contents of the articles of incorporation. - paid-up capital being not less than five thousand
All corporations organized under this code shall file with (P5,000.00) pesos.
the Securities and Exchange Commission articles of
incorporation in any of the official languages duly signed Sec. 15. Forms of Articles of Incorporation. - Unless
and acknowledged by all of the incorporators, containing otherwise prescribed by special law, articles of
substantially the following matters, except as otherwise incorporation of all domestic corporations shall comply
prescribed by this Code or by special law: substantially with the following form:

1. The name of the corporation;


ARTICLES OF INCORPORATION
2. The specific purpose or purposes for which the
corporation is being incorporated. Where a corporation OF
has more than one stated purpose, the articles of
incorporation shall state which is the primary purpose __________________________
and which is/are he secondary purpose or purposes:
Provided, That a non-stock corporation may not include (Name of Corporation)
a purpose which would change or contradict its nature
as such; KNOW ALL MEN BY THESE PRESENTS:

3. The place where the principal office of the corporation The undersigned incorporators, all of legal age and
is to be located, which must be within the Philippines; a majority of whom are residents of the Philippines,
have this day voluntarily agreed to form a (stock)
4. The term for which the corporation is to exist; (non-stock) corporation under the laws of the
Republic of the Philippines;
5. The names, nationalities and residences of the
incorporators; AND WE HEREBY CERTIFY:

6. The number of directors or trustees, which shall not FIRST: That the name of said corporation shall be
be less than five (5) nor more than fifteen (15);
".............................................., INC. or
7. The names, nationalities and residences of persons CORPORATION";
who shall act as directors or trustees until the first
regular directors or trustees are duly elected and SECOND: That the purpose or purposes for which
qualified in accordance with this Code; such corporation is incorporated are: (If there is

38
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

more than one purpose, indicate primary and (In case all the share are without par value):
secondary purposes);
That the capital stock of the corporation
THIRD: That the principal office of the corporation is is.......................... shares without par value. (In case
located in the City/Municipality some shares have par value and some are without
of............................................, Province par value): That the capital stock of said corporation
of................................................., Philippines; consists of....................... shares of
which...................... shares are of the par value
FOURTH: That the term for which said corporation of............................. (P.....................) PESOS each,
is to exist is............... years from and after the date and of which............................... shares are without
of issuance of the certificate of incorporation; par value.

FIFTH: That the names, nationalities and residences EIGHTH: That at least twenty five (25%) per cent of
of the incorporators of the corporation are as the authorized capital stock above stated has been
follows: subscribed as follows:

NAME NATIONALITY RESIDENCE Name of Subscriber Nationality No of Shares


Amount
.........................................................................................
.................... Subscribed Subscribed

......................................................................................... .........................................................................................
.................... .........

......................................................................................... .........................................................................................
.................... .........

......................................................................................... .........................................................................................
.................... .........

......................................................................................... .........................................................................................
.................... .........

SIXTH: That the number of directors or trustees of .........................................................................................


the corporation shall be............; and the names, .........
nationalities and residences of the first directors or
trustees of the corporation are as follows: NINTH: That the above-named subscribers have
paid at least twenty-five (25%) percent of the total
NAME NATIONALITY RESIDENCE subscription as follows:

......................................................................................... Name of Subscriber Amount Subscribed Total Paid-


.................... In

......................................................................................... .........................................................................................
.................... .............

......................................................................................... .........................................................................................
.................... .............

......................................................................................... .........................................................................................
.................... .............

......................................................................................... .........................................................................................
.................... .............

SEVENTH: That the authorized capital stock of the .........................................................................................


corporation is................................................ .............
(P......................) PESOS in lawful money of the
Philippines, divided into.............. shares with the par (Modify Nos. 8 and 9 if shares are with no par value.
value of.................................. (P.......................) Pesos In case the corporation is non-stock, Nos. 7, 8 and 9
per share. of the above articles may be modified accordingly,
and it is sufficient if the articles state the amount of

39
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

capital or money contributed or donated by until my successor has been duly elected and
specified persons, stating the names, nationalities qualified in accordance with the by-laws of the
and residences of the contributors or donors and corporation, and that as such Treasurer, I hereby
the respective amount given by each.) certify under oath that at least 25% of the authorized
capital stock of the corporation has been
TENTH: That...................................... has been elected subscribed and at least 25% of the total
by the subscribers as Treasurer of the Corporation subscription has been paid, and received by me, in
to act as such until his successor is duly elected cash or property, in the amount of not less than
and qualified in accordance with the by-laws, and P5,000.00, in accordance with the Corporation Code.
that as such Treasurer, he has been authorized to
receive for and in the name and for the benefit of the .......................................
corporation, all subscription (or fees) or
contributions or donations paid or given by the (Signature of Treasurer)
subscribers or members.
SUBSCRIBED AND SWORN to before me, a Notary
ELEVENTH: (Corporations which will engage in any Public, for and in the City/Municipality
business or activity reserved for Filipino citizens of................................. Province
shall provide the following): of........................................., this............ day
of........................, 19.......; by...........................................
"No transfer of stock or interest which shall reduce with Res. Cert. No..................... issued at................
the ownership of Filipino citizens to less than the on....................., 19.........
required percentage of the capital stock as provided
by existing laws shall be allowed or permitted to
recorded in the proper books of the corporation and NOTARY PUBLIC
this restriction shall be indicated in all stock
certificates issued by the corporation." My commission expires on.........................., 19.......

IN WITNESS WHEREOF, we have hereunto signed Doc. No...............;


these Articles of Incorporation, this.................. day
of............................., 19.......... in the City/Municipality Page No...............;
of......................................., Province
of................................................, Republic of the Book No..............;
Philippines.
Series of 19..... (7a)
........................................................................................
First, the name of the Corporation.
........................................................................................
 What are the rules with respect to the name
................................................ of a Corporation?

(Names and signatures of the incorporators) 1. You cannot use a name that is already
appropriated by another;
SIGNED IN THE PRESENCE OF: 2. Nor can you use a name that is similar to a
protected name. So the rule of confusingly similar
........................................................................................ or similarly confusing;
3. If you put up a Corporation, the Word Corporation
(Notarial Acknowledgment) or Incorporated must be part of the name. You can
no longer have a Corporate Name without those
two words;
TREASURER'S AFFIDAVIT 4. You cannot use the word now Philippines. Gone
are the days when you can use the word
REPUBLIC OF THE PHILIPPINES ) Philippines, Republic. Those are names that are
already appropriated by the Sovereign.
CITY/MUNICIPALITY OF ) S.S.
Now, when you go to the SEC here, you will give the
PROVINCE OF ) name that you have chosen and they will check it
immediately in their databank in Manila. Then you will
I,..................................., being duly sworn, depose get that the name is still unappropriated. You can pay
and say: 100 Pesos, it will remain open for you for 1 month,
because we already reserved it for you. Within 1 month
That I have been elected by the subscribers of the you must produce the Articles of Incorporation bearing
corporation as Treasurer thereof, to act as such that name. Now, if the 1 month is consumed and you

40
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

have not come up with the Articles of Incorporation, tung duha ka words and then the secondary meaning is
what happens? You will check again in Manila, and if it the shoes that Ang Tibay makes. Nahimo na ng Ang
is still vacant, then they will extend it to you for another Tibay. Kay ingon nila, si Ang ang nagpatibay. Put them
30 days. Why? Because before, and with many together, it assumes a secondary meaning.
incorporators will say that when you file the Articles of
Incorporation, you must give your consent that the name From the FT: We have said that the phrase "Ang Tibay,"
can be changed in case the name is found out to be being neither geographic nor descriptive, was originally
already appropriated. That is no longer the case, you capable of exclusive appropriation as a trade-mark. But
can already reserve the name because there is now a were it not so, the application of the doctrine of
way of consolidating the data of all names. secondary meaning made by the Court of Appeals could
nevertheless be fully sustained because, in any event,
Now, there is one case which I am recommending that by respondent's long and exclusive use of said phrase
you should read. with reference to his products and his business, it has
acquired a proprietary connotation.
ANG MGA KAANIB SA IGLESIA NG DIOS KAY
KRISTO HESUS, H.S.K. SA BANSANG PILIPINAS, Mao na run ang Lhullier, naa na man nay Trademark
INC., vs. IGLESIA NG DIOS KAY CRISTO JESUS, karon. Pera Padala. Together it assumes a secondary
HALIGI AT SUHAY NG KATOTOHANAN meaning. Mao na ang service na gihatag sa
kadaghanan. It has a secondary meaning now because
G.R. No. 137592, December 12, 2001 a new word has been created.

This is the case of Brother Eddie. Si Brother Eddie Over in Tagum, there’s a Corporation there, dako
insisted na magbuhat siya ug iyahang simbahan. Pero kaayo. Ang pangalan sa Corporation, Tamay Lang, Inc.
gusto niya gamiton ang kanang mga pulong Haligi at (Note: not sure at all if mao ni) Kita na mo na? If you
Suhay ng Katotohanan. But it is already used by his want a name of the corporation, na sigurado gyud ka
former church. So he added H.S.K. Haligi at Suhay ng nga wala pa na-appropriate, ibutang ug binisaya or
Katotohanan. But the SEC did not allow it. Confusingly tagalog. Then you put them together then it’s the
similar or similarly confusing. And it was upheld by the Doctrine of Secondary Meaning. Then that name will be
Supreme Court. So Bro. Eddie lost the case. appropriated.

From the FT: Parties organizing a corporation must If the Corporation Name contains initials and the
choose a name at their peril; and the use of a name explanation must accompany the Articles stating the
similar to one adopted by another corporation, whether meaning of the same and their relevance or the reason
a business or a nonprofit organization, if misleading or for the use thereof. Unsa may ngalan sa imong
likely to injure in the exercise of its corporate functions, Corporation? RAMCAR, Inc. Unsa man na? You must
regardless of intent, may be prevented by the put an explanation. RAMCAR stands for Ramon Caro.
corporation having a prior right, by a suit for injunction The first few letters of the name and the service is used
against the new corporation to prevent the use of the to come up with the name of the Corporation. So you
name. must explain.

Ngano makadaog man ang Beer na Beer ni Lucio Tan. The use of the words … and Barangay are already
Unya si Bro. Eddie, Haligi at Suhay ng Katotohanan, prohibited. And if the name or the surname of a person
wala. If you want to know, read the case. is used as part of the Corporate Name, the
Incorporators must have a basis for such name or
Now, there is this so-called Doctrine of Secondary surname. For instance the name or the surname may be
Meaning. That rule begins with this: ordinary words that of one of the incorporators. If the name is that of
cannot be appropriated. Why? Because if you another person, the consent of that person must be
appropriate the word, then nobody can use it. Unsa may submitted.
ngalan sa imong corporation? Pera Padala, Inc. Pera,
imuha na na! Wa nay makagamit ana kay imuha The word NATIONAL cannot be used anymore as part
naman. So you cannot register it as your corporate of the Corporation.
name. But words can represent a secondary meaning
especially ordinary words that are put together.  What is the significance of the principal
place of business?
The example is Ang Tibay Case, 74 Phil 50.
There is now a new circular issued by the SEC. It is no
ANA L. ANG VS TORIBIO TEODORO longer enough to put down the city alone where the
G.R. No. L-48226 December 14, 1942 principal office is. You must put the specific address, the
number, the street. Ang nakadaot lang ana, kung gamay
It’s a trademark for the shoes and it’s also the name ka nga corporation unya dili naka maka-afford (sa rent)
of the Corporation that makes the shoes. The shoes are so mubalhin ka, you have to amend your Articles of
called ‘Ang Tibay.’ But not two words. Gidugtong niya Incorporation. Because after you transfer, that is no

41
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

longer truthful because that is no longer your address of Secondary: ‘To establish, maintain and operate a
your principal office. So you have to amend and to funeral parlor.’
amend the Articles is very cumbersome. You need
majority vote of the Board of Directors/Trustees. So you Cannot be. That is not compatible.
have 2/3 vote.. and the stockholders voting and non-
voting and all the members of the corporation. You have The purpose must be legal purpose. Former
to file, pay the filing fee. Congressman Cabangbang put up a Corporation. The
purpose of which is to establish a movement that will
But now, that is required of the corporations. Now, the support the transformation of the Republic of the
significance of the principal place of the office of the Philippines into the 52nd state of the United States. Mao
corporation is that it determines service of summons or na iyahang purpose. Pwede gani na sa Recto. In 1981,
service of court processes. It determines venue of court pag-abot nako dinhi naa dako nga karatula dinha sa
cases involving the corporation. So, if you do not serve may Gaisano, Congressman Cabangbang’s statehood
it in the principal office, then there is no proper service. movement. So magbutang siya ang corporation. It was
shut down by the SEC. It is unconstitutional according to
The next item to principal office is the SEC, asking for a foreign government to take over
the Philippines. Ngano man sad to si Cabangbang nga
 The specific purpose of the corporation. abugado man unta to? Iya na lang untang gi-ingon ‘The
The Purpose Clause. purpose of this Corporation is to conduct research and
alike studies on the propriety of the Philippines being a
What should you know? If it is a Stock and Profit 52nd State of the United State.’ Iyaha untang
Corporation, you must distinguish Primary Purpose from gibutangan, study, di magstudy ta tanan. Research.
Secondary Purpose. If it is a Non-Stock, Non-Profit, There is no limitation as to what you can research.
there is no need to distinguish Primary Purpose and
Secondary Purpose. Another purpose which the SEC has held to be immoral,
‘The purpose of this Corporation is to aid single Filipinas
 Why is there a need to distinguish Primary in search for their foreign soulmates.’ Mail-order brides.
Purpose from Secondary Purpose in a According to the SEC that is immoral. Why are there so
Stock and Profit Corporation? many sites like these being …? They are all foreign-
based websites. They are not from the Philippines
Because the law says that if a Corporation engages the because in the Philippines you are not allowed to
business of the Secondary Purpose, you cannot do so engage in the business of facilitating mail-order brides
without first obtaining: that is immoral. So those are the rues with respect to
purpose.
1. Approval of the majority of the Board of Directors;
2. The confirmatory vote of 2/3 of the stockholders Now, it is the purpose that determines whether or not
voting and non-voting. the Articles of Incorporation will require the
endorsement of an appropriate governmental agency. If
That is what Section 6 of the Corporation Code says. So you are establishing a school for primary and secondary
you must distinguish Primary Purpose and Secondary education, then you will need first the endorsement of
Purpose. DEPED because the SEC will not act on your Articles of
Incorporation if the DEPED will not endorse it.
 How should you state Primary Purpose?
If you’re putting up like Aboitiz, a coal-fired power plant,
Primary Purpose must be stated specifically. With then you will need the endorsement of the Department
specificity according to the Supreme Court. You cannot of Energy and Department of Environment and Natural
just put it in general terms. ‘The Purpose of the Resources. If you are opening a bank, even the smallest
Corporation is to make money: Lots of it.’ Is that specific rural bank, then you will need the endorsement of the
already? No, that is not specific. ‘The purpose of this Bangko Sentral ng Pilipinas.
corporation is to establish, maintain, operate a Cement
Factory.’ So, specific. Now, there are so many supervising and overseeing
Philippine offices that almost all corporations now will
Now, the Rule also requires that the Primary Purpose require the endorsement. Now, Quiboloy, the school
and Secondary Purpose must be compatible. You Jose Maria College is opening or has opened a law
cannot have a Primary Purpose that is incompatible with school. What governmental agency must endorse? Very
the Secondary Purpose. few know it. It’s the LEB. Legal Education Board, which
until last year put up a moratorium to the opening of law
Primary: ‘To organize, establish and maintain a hospital schools for something like 3 years. There was no law
for the purpose of diagnosing disease, treating disease school that was allowed to open for the past 3 years. So
and all manner of therapy, etc.’ no more law schools. I am in agreements. But finally the
LEB relented and allowed. One of the first to be opened

42
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

is the Jose Maria College that is now operating as the dissolution. Mao na silay mamaligya. With the approval
newest law school in the Davao Region. of the Court.

Now, if you are opening a daycare center for preschool You know, the dissolution of the corporation is two
kids, who endorses your application? There is no need stages, first the SEC approves the dissolution. How? By
for any endorsement, because they are not yet in formal examining the formalities. Was there a majority vote of
education. Mao nang every nook and cranny, there is a the directors? Was there a 2/3 confirmation by the
preschool. Dili man gud na kinahnglan ug endorsement stockholders or members? Has there been notice to all
sa DEPED or bisang unsa na government agencies. creditors? Is there a plan for liquidation, etc.? Once the
SEC approves that, it endorses it to the Intra-Corporate
In foreign countries to be able to take care of children, Court. The SEC cannot handle the liquidation part.
you have to be licensed. To take care of children. Why? Because the SEC is the office of limited, not
Ibutang nimo ang mga bata sa daycare center, ang mga general jurisdiction.
tao dira lisensyado na. Ikaw, wala man tay mga
lisnesya, Ibilin nato sa maid ang bata, way training na. The corporation enters into many contracts, contract of
That is why the approach of daycare centers is also like sale, contract of lease, contract of use. So many
that. No government endorsement. Just the SEC. contracts. Who has jurisdiction over those nominate
contracts in the Civil Code? The regular courts. That is
 What is the term of corporate existence? why the dissolution has to be passed on to the regular
courts after the approval of the SEC.
The term of the corporation, the maximum term is 50. It
can be 40, 30, or 20. 50 years. You can extend the term  CLASSIFICATION OF SHARES
by amending the Articles of Incorporation. But you
cannot do that until it is 5 years prior to the expiration of In general, we come now to the Section on capital.
the original or subsequent term. 45 years na lang gani, Authorized capital, subscribed capital, paid-up capital
5 years na lang nabilin, you can file an amendment to and shares of stock. That is Section 6, the heart of the
extend to another 50 terms. Unless you have a good Corporation Code. Classification of shares: par value
reason, compelling reason, the SEC will allow you to shares, no par value shares; voting share, non-voting
extend the term earlier. What could that reason be? shares; preferred shares, common shares.
Suppose you go to the bank as a corporation and you
will borrow money, and you propose to borrow money Sec. 6. Classification of shares. - The shares of stock
for 10 years. So the bank says ok, hand me your of stock corporations may be divided into classes or
Articles and Bylaws. Pagtanaw sa bylaws, 7 years na series of shares, or both, any of which classes or series
lang diay mo. Sumala sa inyong Articles of of shares may have such rights, privileges or restrictions
Incorporation, you will expire in 7 years. How can we as may be stated in the articles of incorporation:
give you a 10-year loan? Wa na mo dinha pag panahon Provided, That no share may be deprived of voting
sa pagbayad. Nagplano diay mo nga dili mubayad. So rights except those classified and issued as "preferred"
you will apply for an amendment early because the bank or "redeemable" shares, unless otherwise provided in
will not release you your 10-year loan. The SEC will this Code: Provided, further, That there shall always be
allow that even if the rule is that you should be applying a class or series of shares which have complete voting
for an amendment only within the last 5 years of the rights. Any or all of the shares or series of shares may
original term. have a par value or have no par value as may be
provided for in the articles of incorporation: Provided,
Remember, there are many cases now, if your term however, That banks, trust companies, insurance
ends 50 years, you have 3 more years to wind up. What companies, public utilities, and building and loan
does that mean? You begin to sell all corporate associations shall not be permitted to issue no-par value
property. Why? The first obligation is to meet your just shares of stock.
and valid obligation. You have to pay your creditors.
You cannot pay them with assets. You have to liquidate Preferred shares of stock issued by any corporation
the assets and you will pay. If you are Stock and Profit may be given preference in the distribution of the assets
Corporation, whatever remains will be divided among of the corporation in case of liquidation and in the
the stockholders or shareholders. That is called distribution of dividends, or such other preferences as
liquidating dividends. may be stated in the articles of incorporation which are
not violative of the provisions of this Code: Provided,
Question, during those 3 years that you are allowed to That preferred shares of stock may be issued only with
wind up, can you file an amendment with the SEC to a stated par value. The board of directors, where
extend the term? The Supreme Court has said, no authorized in the articles of incorporation, may fix the
more, you cannot. Why? Because during those 3 years terms and conditions of preferred shares of stock or any
you are no longer operating as an ongoing.. you are no series thereof: Provided, That such terms and
longer operating as a corporation. You are just winding conditions shall be effective upon the filing of a
up. Sige na lang man kag pamaligya. There is no more certificate thereof with the Securities and Exchange
Board there. What do you need? You need a Trustee in Commission.

43
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Shares of capital stock issued without par value shall be Now, no-par value shares, there is no stated value.
deemed fully paid and non-assessable and the holder of Because there is no stated value, when you issue as a
such shares shall not be liable to the corporation or to corporation your shares, the entire consideration that is
its creditors in respect thereto: Provided; That shares received is considered whole and complete, no more
without par value may not be issued for a consideration can be required of you to _____. So that there can be
less than the value of five (P5.00) pesos per share: no subscription of no-par value share by installment.
Provided, further, That the entire consideration received
by the corporation for its no-par value shares shall be Par-value shares have par-value and issued value.
treated as capital and shall not be available for The issued value is the value that the corporation
distribution as dividends. receives in exchange for the shares of stock that are
issued. The corporation cannot issue par-value
A corporation may, furthermore, classify its shares for shares for less than the par-value. If the par-value let
the purpose of insuring compliance with constitutional or us say is 1 peso per share, the corporation cannot issue
legal requirements. shares for the consideration of 90 centavos instead of 1
peso. It must be at least 1 peso. It can be more, 2
Except as otherwise provided in the articles of pesos, 3 pesos. But it cannot be less than 1 peso.
incorporation and stated in the certificate of stock, each
share shall be equal in all respects to every other share. If it is no par-value shares, you issue it as a
corporation, you cannot issue it for the
Where the articles of incorporation provide for non- consideration less than 5 pesos if it is no par-value
voting shares in the cases allowed by this Code, the shares. If you will issue it for the minimum, 5 pesos,
holders of such shares shall nevertheless be entitled to that must be paid whole and complete times the
vote on the following matters: number of shares issues to you, completely. So it
will be fully-paid and considered non-assessing.
1. Amendment of the articles of incorporation;
Section 6 says only par value shares may be classified
2. Adoption and amendment of by-laws; as voting or non-voting. Par-value shares may be
classified as preferred or redeemable shares. And
3. Sale, lease, exchange, mortgage, pledge or other only preferred or redeemable shares may be
disposition of all or substantially all of the corporate deprived of voting rights. So therefore, no par-value
property; share are always voting shares because they cannot
be classified as preferred or redeemable shares.
4. Incurring, creating or increasing bonded
indebtedness;

5. Increase or decrease of capital stock; Dec. 7, 2016 Romero, R

6. Merger or consolidation of the corporation with Section 14. Contents of the articles of incorporation.
another corporation or other corporations; – All corporations organized under this code shall
file with the Securities and Exchange Commission
7. Investment of corporate funds in another corporation articles of incorporation in any of the official
or business in accordance with this Code; and languages duly signed and acknowledged by all of
the incorporators, containing substantially the
8. Dissolution of the corporation. following matters, except as otherwise prescribed
by this Code or by special law:
Except as provided in the immediately preceding
paragraph, the vote necessary to approve a particular 1. The name of the corporation;
corporate act as provided in this Code shall be deemed
to refer only to stocks with voting rights. 2. The specific purpose or purposes for which the
corporation is being incorporated. Where a
 What is par value? corporation has more than one stated purpose, the
articles of incorporation shall state which is the
Par Value is stated value. It was what is … there. Now, primary purpose and which is/are the secondary
what is the consequence if you classify shares in your purpose or purposes: Provided, That a non-stock
corporation as par value shares? That means: You can corporation may not include a purpose which would
sell your shares. You can issue your shares, on change or contradict its nature as such;
installment, you are given your subscription, later on,
the balance will be may demand of (?). You are already 3. The place where the principal office of the
a stockholder. For as long as the shares are not corporation is to be located, which must be within
delinquent, you can vote the entire number of shares in the Philippines;
the subscription.
4. The term for which the corporation is to exist;

44
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

5. The names, nationalities and residences of the this restriction shall be indicated in all stock
incorporators; certificates issued by the corporation."

6. The number of directors or trustees, which shall xxx


not be less than 5 nor more than 15;

7. The names, nationalities and residences of


persons who shall act as directors or trustees until I’m giving you several actual Articles of Incorporation.
the first regular directors or trustees are duly What you do is you go over Sec 14 and Sec 15, which
elected and qualified in accordance with this Code; says what the Articles of Incorporation should contain.
And then you look at the true existing articles and be
8. If it be a stock corporation, the amount of its able to explain what this says because that will
authorized capital stock in lawful money of the determine whether you understand the law and the
application. This has been approved by the SEC. So
Philippines, the number of shares into which it is that’s what you should do so it will not be theoretical. Dili
divided, and in case the share are par value shares, ng sige ra kag memorize unya wa ka kasabot!
the par value of each, the names, nationalities and
residences of the original subscribers, and the I will also give you the certificate of filing, the amended
amount subscribed and paid by ach on his Articles of Incorporation of BDO Universal Bank, and the
subscription, and if some or all of the shares are amended Articles of Incorporation of Ayala Corporation.
without par value, such fact must be stated; I will also give you the obituary notice of Mercedes
Zobel McMicking, who passed away at the age of 90.
9. If it be a non-stock corporation, the amount of its
capital, the names, nationalities and residences of This frail lady, until 2005, controlled Ayala Corporation.
the contributors and the amount contributed by Many of them say that the capital structure of Ayala,
each; and from the decision of the SEC in 1990 when Ayala listed
itself as a corporation, it wanted to bring down the
10. Such other matters as are not inconsistent with number of board of directors from 15 to 5, and it was
law and which the incorporators may deem opposed and the Ayalas lost in the SEC. Instead of
necessary and convenient. going up to the Supreme Court, they went into a
compromise and the result is this amended Articles of
The Securities and Exchange Commission shall not Incorporation. Instead of brining it to 5, they were able to
accept the articles of incorporation of any stock bring it down to 7.
corporation unless accompanied by a sworn
statement of the Treasurer elected by the
subscribers showing that at least 25% of the
authorized capital stock of the corporation has been (Zobel de Ayala family tree chismis)
subscribed, and at least 25% of the total
subscription has been fully paid to him in actual Now the one who controls Ayala Corporation is a
cash and/or in property the fair valuation of which is rehabilitated drug addict. The controlling chair now is
equal to at least 25% of the said subscription, such Inigo Zobel de Ayala. He is also a big officer of New
paid-up capital being not less than P5,000.00 pesos. Frontiers, the controlling corporation of San Miguel
Corporation. Why is he controlling in Ayala? Because
McMicking willed the very big division of her shares of
stock, which constituted 58% of outstanding shares of
Section 15. Forms of Articles of Incorporation. – stock per stirpes.
Unless otherwise prescribed by special law, articles
of incorporation of all domestic corporations shall  What is per stirpes?
comply substantially with the following for:
A: Regardless of the number of ultimate beneficiaries, it
xxx must be divided between the direct beneficiaries.

ELEVENTH: (Corporations which will engage in any Kani siya, kinamanghuran mani si Mercedes sa
business or activity reserved for Filipino citizens grandparents ni Augusto Zobel de Ayala. So it should
shall provide the following): be divided according to her number of brothers. Mao
man to iyang gusto. Daghan man karon ang igsuon ni
"No transfer of stock or interest which shall reduce Augusto, edi nanipis na ang ilang number of shares.
the ownership of Filipino citizens to less than the Katong si Enrique Zobel de Ayala, isa sa iyang mga
required percentage of the capital stock as provided igsuon, gipugos mag minyo sa ilang first cousin, to
by existing laws shall be allowed or permitted to be maintain their properties in Batangas. They had 2
recorded in the proper books of the corporation and children. One was mentally challenged, and the other is
Inigo Zobel de Ayala. But Inigo is the guardian of the

45
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

properties of the sister who is mentally retarded. So he up just a 5 million corporation (Corporation B). If you
now controls Ayala Corporation. It’s not the people who don’t have 5 million, all you need is 4 million. The other
are president, or chairman, or what, who controls. It is 1 million will come from your partners. Now, out of this,
Inigo Zobel de Ayala. you go to the bank and you borrow 1.1 billion. But why
would the bank lend you 1.1 billion when you are only a
I am giving you copies of the certificate of filing of 5 million corporation? Because you will tell them that
amended Articles of Incorporation of Metro Pacific you control Corporation A and Corporation B. So
Investments Corporation. Corporation B will now buy 51% of Corporation A using
that 1.1 billion and these shares will be pledged to the
 What does it mean when something is bank and the earnings of the shares will pay the bank.
underlined in the Articles of Incorporation?
Where did the 1.1 billion go? It went to Mr. Salim. Siya
Refer to Sec 14 and 15 man ang owner anang Corporation A. Pero karon, siya
gihapon muboto dinhi sa Corporation B. Unsa man siya
 Now if someone tells you, “I want to share diri sa Corporation B? He is about 75% owner of this
all my shares in the corporation but I still corporation. But 51% of Corporation A, muingon dayon
want to control it, what should I do?” siya, this corporation will now go public. Mag IPO (Initial
Public Offering) siya of the 49% of Indofood. And
because it is a profitable corporation, it sells its shares
at 100% premium. If you have a par value of 5, you sell
it at 10. Where does the money go? It still goes to Mr.
Salim.
Indofood
So what happened? The entire corporation has been
(Corporation A) Corporation B sold and yet he still controls it because he still has 51%.

You now appreciate what a corporate vehicle is. All


along Ayala Avenue in Makati, which is THE address for
a business office, all along, there are no individual
owners. There are only corporate owners in Ayala. Now
who is the biggest owner of business properties in Ayala
Avenue? It’s not Ayala anymore. Ayala sold it a long
time ago. Ayala has properties in the Ayala Business
BANK District, but those big establishments, no more! He has
sold it. Who is the biggest land owner? JAKA
Incorporated.

Now can you imagine what the going rate is in Ayala?


(Background of Indofood) Per square meter is P600,000! Can you imagine the
capital gains tax when you sell that? Now if this piece of
Indofood was given a monopoly for the importing of land, let’s say that the sizes there in Ayala are about
wheat for Indonesia. So it was the only one licensed to 2,000 square meter. So ang value now would be 1.2
make wheat into flour. That is for 240 million people. So billion. Magkano na capital gains tax nyan?! Now if a
it was a monopoly for flour for around 25 years, and piece of property is sold by a corporation, but instead of
therefore it also became a monopoly of instant noodles. selling the property, you sell the corporation, who will
So it makes 40 billion packets of noodles every year. know? Does the ROD know? Does the BIR know? Once
Because it mills wheat, it also produces wheat bran. you have a property, the value of which is around 30-40
And because it produces wheat bran, it has a whole million, it is already profitable to organize a corporation
island, 1 hour from Singapore but still a part of to hold it.
Indonesia. They also have 200,000 sows. They supply
20% of pork in Singapore. How do you find workers to  What is the purpose of the corporation
raise pigs when Indonesia is a Muslim country? There is here?
a part of Indonesia that is not Muslim. What is that part?
BALI. So they have different workers from Bali work in A: To hold title to property. So you sell the corporation
this island in Indonesia called Bintang Island. Every day and you can just amend the name of the corporation.
there are barges going to Singapore bringing these 7 That is the fascinating thing about a corporate vehicle.
month pigs. So that is Indofood. I’m telling you this because you will not find this in De
Leon! Ako ra may musulti ug tinuod!
So Salim (the CEO of Indofood) says “I want to sell all
these shares of stocks in Indofood but I want to control Now if you are a listed corporation, the rules are
it.” So somebody taught him how to do it. Let us say different. There is more scrutiny. Like for instance, if you
Indofood is a 2 billion corporation. My advice is you set buy 5% of the outstanding capital stock of a listed

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

corporation, immediately you have the obligation to for the next year. So the next year, it will be
disclose to the Philippine Stock Exchange who the entitled to dividends in arrears plus the
beneficial owner of the shares of stocks is. But there is preferred dividends because it is cumulative.
still a method of escape, but you can only postpone
because the Philippine Stock Exchange is obliged under
the SEC to investigate. Some people escape by doing a You should read Nielsen vs SEC.
done-through transaction.
[Transcriber’s note: I’m not sure if this is included in the
 What is a done-through transasction? case list given by Fr Gus, but I could not find the G.R.
number/details of this case ]
A: Instead of buying through an agent here in the
Philippines, mutawag kag agent na naa sa Nielsen vs SEC.
gawas/abroad. Mutawag kag, let’s say, you have an
investment bank account in Singapore. And you order This case involves a gold mining company. This Nielsen
them “Buy me San Miguel stocks”. Use 2 layers. So was a legendary geologist. Pirme makakita ug gold!
Singapore, your bank, and the investment bank, will find Now since Nielsen was so sought after, then this gold
the corresponding broker in Singapore, who will make company in Baguio entered into a contract with him.
the order to the broker in the Philippines. They made an agreement that such gold company will
give 10% straight of the net income after Nielsen has
In excess of 5%, what will the broker here say when discovered the gold. Nielsen agreed and eventually they
asked if who is the beneficial owner? He will say that it did find gold. So the company declared dividends, but
is a broker abroad. Iinvestigate na sad na and that will 10% of the dividends should go to Nielsen because the
take time because it is beyond the jurisdiction of the corporation is committed. Pero naa may nag object.
Philippines. Madugay na. Abtan na ug pila ka tuig. By Why did they object? Because Nielsen was not a
that time, probably you have already constructed the stockholder.
necessary corporate vehicles that will suit your need.
That is what you mean by a done-through transaction.

So you have to master shares of stock. Q: Can he be given 10% dividend of the net profit?

Shares can only be non voting if they are specifically A: NO.


deprived of voting rights BOTH in the articles and in the
certificate of stock. General rule: Only shareholders are entitled to
dividends. Non shareholders are not entitled to
Common shares of stock is always voting and it can such dividends.
never be non voting. Where is that provided? In Sec 6.
Only Sec 6 says that if you deprive shares, it must be The pronouncement of the lower court said that only the
preferred or redeemable. Only these shares may be shareholders can receive dividends. So Nielsen’s case
deprived of voting rights. Now when you say common, it elevated to the SC.
must always be voting.
So the SC said that the contract is valid but the SC also
Now if there are preferred, redeemable, or common, said that Nielsen cannot get 10% of the dividend. The
and there is no other stipulation in the articles, then ALL measure of how much he is recompensed is 10% of the
of them have voting rights. net profit as agreed upon, but it should be charged
against the expenses of the corporation because only
We have several kinds of preferred, such as: shareholders are entitled to dividends. Non
shareholders are not entitled to dividends.
 Cumulative preferred
If it is guaranteed by another corporation, then the
 Participatory/participating preferred - If it is preferred dividend that is guaranteed is part of the
participating, it receives its preferred rate of expense of that corporation.
dividends plus it joins the common stock in
dividing up whatever dividend is remaining. So  Common Shares
it participates with the common shares.
Practically it gets 2 dividends, the preferred Voting and it has a junior right to preferred shares. So
dividend which is given ahead, and what the even if dissolution, the remainder assets of the
common dividend receives. This is guaranteed corporation, once divided, the payout is first to the
by a 3rd party, not the corporation. No preferred shareholder. And if there is something left to
corporation can guarantee a dividend. the common stockholder. So you are a junior proprietary
interest in the corporation.
 Guaranteed preferred – preferred dividend,
not disbursed in a given year, and is stipulated  Redeemable Shares

47
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Redeemable within the period of time. There is You exchange your being preferred for the
redeemable at the option of the holder and there is voting rights of the common shares. Within a
redeemable of the option of the corporation. given period of time, you are allowed to convert
your shares from one category like preferred,
 At the option of the holder – the SC has said which is non-voting, to common shares with
that if it is a bank, even if you are the holder voting rights.
and you have the choice, you cannot compel
the bank to redeem your shares even if it has
matured. This is because the bank cannot do
this unilaterally. It requires the prior permission Remember that in convertible, at the time of issuance in
of the Banko Sentral. the articles and in the by laws, there is already a fixed
conversion ratio. Let’s say that for every 1 preferred, it is
convertible to 1 common share. Fixed na siya.
o So even if by contract, you can Sometimes there could be a different ratio, but that
demand the redemption, that it is still already depends. But normally this is fixed in the articles
subject to the approval of the BSP. and in the bylaws.
 Redeemable at the option of the
corporation – The corporation may redeem Dec 8, 2016 Banal JM
redeemable shares (by pack? Inaudible, sorry)
regardless of the existence or the non-  When is a corporation’s existence, legally
existence of surplus profits or unrestricted commenced?
retained earnings.
Section 19. Commencement of corporate existence.
– A private corporation formed or organized under
If there is no unrestricted retained earnings, then what is this Code commences to have corporate existence
the corporation using to redeem redeemable shares? It and juridical personality and is deemed
is using capital stock. So when it redeems it with capital incorporated from the date the Securities and
stock, then the entire articles of incorporation no longer Exchange Commission issues a certificate of
becomes true because you have used that which you incorporation under its official seal; and thereupon
have received for the shares and given it out to the the incorporators, stockholders/members and their
shareholders. The capital stock is reduced. But this is successors shall constitute a body politic and
allowed because in the articles it says “redeemable corporate under the name stated in the articles of
shares”. Now when you do that, you must amend the incorporation for the period of time mentioned
articles to reduce the authorized capital then you reduce therein, unless said period is extended or the
subscribed capital, and then you reduce the paid corporation is sooner dissolved in accordance with
income to reflect the extent of which the capital stock law. (n)
was given back to stockholders by way of redemption.
And then you retire the shares.
So, it is from the date the SEC issues a certificate of
But if you use surplus, capital stock is not impaired. The incorporation.
redeemable shares become --- (?? Inaudible sorry!  )
They may be issued even at the price lower than par Ex: The Certificate of Incorporation is issued to
value because there is no impairment of the capital December 8, 2016 but the date in the certificate of
stock by releasing those shares. Those shares have incorporation is November 8.
already been paid and the capital remains in the
corporation. What was used to buy it is surplus profits.  When did the corporation begin to exist?
So there is no untruthful statement in the Articles of
Incorporation. The Trust Fund Doctrine is not violated. Pagbantay mo ini kay pagmoingon gani the date
issuance, the SEC says the date on the certificate of
 Convertible Shares incorporation is presumed to be the date of
issuance. Wa nimo madawat, the SEC says its your
It may be: fault, but the date stated there is presumed to e the date
of issuance.
- Preferred convertible – non voting. Kung
preferred gani ka, voting, unya convertible, so Wa man nako madawat? Wa man nimo kwaa! Now,
ngano mag convert pa man ka kung voting na why is that important?
ka?
That is important because of what section 22
says. Section 22 says effects of non-use of corporate
General Rule: But normally, convertible charter and continuous inoperation of the corporation.
shares have no voting rights. This article talks about two things: non use and
continuous inoperation, it says:

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Section 22. Effects on non-use of corporate charter and then you attached what ever evidence you have,
and continuous inoperation of a corporation. – If a news paper articles, certification from the military, etc.
corporation does not formally organize and that you cannot continue and the SEC might allow you
commence the transaction of its business or the an extension of time within which to organize or resume
construction of its works within 2 years from the business operation. Remember its 2 – 5, two years to
date of its incorporation, its corporate powers cease begin, 5 years of continuous inoperation. Daghan na,
and the corporation shall be deemed dissolved. there are many corporations that happen that way, they
However, if a corporation has commenced the ceased to be inexistence because it has stop.
transaction of its business but subsequently
becomes continuously inoperative for a period of at  What happens is, when you form and
least 5 years, the same shall be a ground for the organize, there are many things to be done.
suspension or revocation of its corporate franchise
or certificate of incorporation. 1. First of all, you call a stock-holder’s meeting.
It must be a valid stock-holder’s meeting, at
least, if your articles of incorporation does not
“Date of its incorporation”, is the date that is written in say what the quorum is, then you follow the
the incorporation certificate issued by the SEC. You Corporation Code, at least a majority of the
count date, true, it is issuance but technically it is issued stockholders, or if it is a non-stock, non-profit,
upon the date that it is placed on the certificate of the majority of its members. Majority is 50% + 1.
incorporation. They must be present, then they elect the board
of directors or if they are non-stock non-profit,
A corporation is dissolve: they elect the board of trustees and the officers
of the corporation. Now, as soon as they elect,
(1) If it does not organize within 2 years, there are already officers, they will pass a
(2) If it does not commence its works within two couple of resolutions.
years from the date of issuance of the
incorporation. A resolution to open a bank account, current
But then it says, “However, if a corporation has and savings account and to what bank it will be
commenced the transaction of its business but opened with, etc.
subsequently becomes continuously inoperative”,
niundang ang corporation, the board no longer meets, it 2. Second, they will pass a resolution,
no longer files financial statements with the BIR and as designating a treasurer and who ever he or she
a consequence it no longer files financial statements will engage to register the corporation with the
with the SEC. Why? Because there are no transactions. BIR, to obtain a TIN. Sya na ang magda ana sa
Why is there no transactions? Because the FBA has resolution because when you go to the BIR and
taken over the plantation in Masina (example of a you are negotiating or transacting business for a
corporation). juridical person, a corporation, they will require
an authority because you are acting for the
corporation.

Section 22. x x x So, at the end of the fiscal year, found at the very least,
“For a period of at least 5 years, the same in the by-laws, that is the reckoning period of the
shall be a ground for the suspension or revocation accounting period that is 12 months, not necessarily
of its corporate franchise or certificate of exactly like the calendar year. It could struggle two
incorporation”. calendar years, like the Ateneo de Davao University
which has the fiscal year which is June 1 to may May
This provision shall not apply if the failure 31, to coincide with the academic year because that is
to organize, commence the transaction of its the cash flow of the university; it goes with the academic
businesses or the construction of its works, or to year. But many businesses are the same as the
continuously operate is due to causes beyond the calendar year. So that is placed in the by-laws, if you do
control of the corporation as may be determined by not have by-laws yet, then when you organize, the order
the Securities and Exchange Commission. of business in the organizational meeting, you must
come up with by-laws.

There are two ways you can adopt by-laws: you can
So if you cannot comply with this then you must send a
formal notice, either the president of the corporation or either already adopt it, in which case, it is the
the secretary sends the formal notice that they are in incorporators (who drafted the by-laws) and you file it
continuous inoperation. along with the articles of incorporation. So, when the
certificate of incorporation is issued, you already have
Ex: because our rubber plantation has been your by-laws.
taken over the Abu Sayyaf, so we cannot go over there,

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

But if you don’t have the by-laws, then that is Gamit-gamit ka laing ngalan. You do not use
one of the things you decide during the organizational “stockholders” or “shareholders”, you use “unit holders”.
meeting. You are not substantially complying. You do not use
appropriate words, technical words.
Again there are two ways by which you will adapt in
an organizational meeting. (1) One, you will vote and
discuss the by-laws. (2) But the stockholders or the
members can delegate the drafting of the by-laws to the 2. That the purpose or purposes of the corporation
board of the directors and now you will require a higher are patently unconstitutional, illegal, immoral, or
majority vote, two-thirds of the outstanding capital stock contrary to government rules and regulations;
or two thirds of the members of the corporation, then it
will be the board of directors or trustees who will draw
up the by laws. Then you will fill it again. Right there you can see so many grounds.

So by-laws, election of officers then you will report this 1. 52nd state of the US – unconstitutional.
to the SEC. Now at the end of the fiscal year you have
to come up with balance sheet and profit and loss 2. Illegal – the purpose is to propagate a plantation of
statement. You will submit that to the BIR and then you cannabis, in the hope that it will be legalized in the near
will get a copy that is already submitted to the BIR, future. Wa man ko mugamit ngtanom lng man ko,
stamped by the BIR then you will go to the SEC to file it. pareha ran man na. Nag-import ra man ko pero wa man
Unahon gani nimo nang SEC na wala pay tatak sa BIR, nako gamita, importation of prohibited drugs is already
ilabay ran na sa SEC because the SEC will not accept an offence.
financial statements unless it has gone thru with the
BIR. 3. That the Treasurer's Affidavit concerning the
amount of capital stock subscribed and/or paid is
Now, when you ceased operation, you do not file false;
any file any financial statements. That is when the
SEC will know that you are not operating because you
are not filing any financial statements.
That means that the SEC has already verified the
treasurer’s affidavit. Gitawgan nya ang banko, because
 Grounds to reject or disapprove
you execute a waiver is it not? Together with the
treasurer’s certificate, the interim treasurer executes a
Sec. 17. Grounds when articles of incorporation or waiver of his right to secrecy of bank deposit under
amendment may be rejected or disapproved. – The existing laws. So the SEC checks it.
Securities and Exchange Commission may reject
the articles of incorporation or disapprove any Remember the contributions that are made, or paid-up
amendment thereto if the same is not in compliance subscriptions, is kept by the treasurer for and in-behalf
with the requirements of this Code. of the corporation still to be formed. So the corporation
is not yet there, it is just the interim treasurer who is the
Provided, that the Commission shall give the trustee and he waives his right of secrecy of bank
incorporators a reasonable time within which to deposit, because he is technically just a custodian, an
correct or modify the objectionable portions of the administrator. Now if the SEC calls the bank, “this is the
articles or amendment. SEC” they explained and they cite the waiver, “now can
you tell me is there this deposit and how much is there
entrust for this corporation, and the treasurer-trustee is
So, what does this tell you? If you are rejected with your this?”
articles of incorporation, there is no res judicata. You
can keep re-filing it. In fact the SEC is told to tell those “Wala man diri sa amo”, og mutubag ana ang banko ky
who are filing what the defect is, and to modify the manager nagluch ang janitor diay to ang nakatubag.
articles so as to conform. That’s way you have to go to the SEC and present there
the deposit slip and tell the SEC and the SEC will call
 What are the usual grounds for again or you ask the bank manager to call back the
disapproval? SEC, because it is your burden of proof to show that
there is really that much payment from the bank
The following are grounds for such rejection or already deposited for the corporation.
disapproval:
1. That the articles of incorporation or any
amendment thereto is not substantially in
accordance with the form prescribed herein; 4. That the percentage of ownership of the capital
stock to be owned by citizens of the Philippines has

50
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

not been complied with as required by existing laws In Section 6, that is the first of the instances
or the Constitution. enumerated thereto where non-voting shares may vote.

No articles of incorporation or amendment to 1. Amendment to the article of incorporation.


articles of incorporation of banks, banking and
quasi-banking institutions, building and loan Go to Section 16 and then you will find out that there are
associations, trust companies and other financial two ways by which the stockholders register there two-
intermediaries, insurance companies, public thirds votes or assent to the amendments to the AOI.
utilities, educational institutions, and other Take note in Sec. 6, it is amendment to the AOI.
corporations governed by special laws shall be
accepted or approved by the Commission … 2. Adoption and amendment of by-laws.

When it comes to AOI its only amendment it is


That is from an examination of the Articles of not adoption and amendment because AOI is the
Incorporation (AOI). Ex: If it is stated their that the principal work of the incorporator. The original articles
foreigners have more than 60 percent and it is a are filed by the incorporators, subsequently, this are
corporation reserved for citizens of the republic, then the amended when there are already functioning
SEC has no choice but to deny the corporation. You will stockholders and members. But, when it comes to by-
be told DENIED! Because of this defect; correct this laws, the stockholders or members, may participate in
defect. Nakasala kana ba ana? Wa pa! You correct it; adapting the by laws and in amending the by-laws.
you put more Filipinos, and then file it. Many times the
SEC will not even give you a flat written disapproval of Alright Section 16, two ways by which the
you application for incorporation, they will just tell you stockholders or members can participate in the
“ihatag og balik ang imong papel, usbon nimo”. amendment of articles. It says, (1st way to amend),
“may be amended by a majority vote of the board of
They like people to register, why? Because directors or trustees”, when they say majority vote of the
there are fees. You know what they say? There are only majority vote of the board of directors or trustees,
three SEC offices in the whole country that is viable on according to the SEC, this is absolute majority not
the basis of fees. NCR main office, Cebu and Davao majority of the quorum. The number of the board is
office, the rest are all subsidized office, nay always odd; 5, 7, 9, 11, 13 and 15, you cannot have
Zamboanga, naay Bicol, naay Ilo-ilo, but so many of even numbers because you could have a deadlock.
them are not viable financially.
Now, if the board it must be majority vote of the
So, I’d like to point out to you Section 16 - Amendment board of directors or trustees (and take note) and
of Articles of Incorporation. the vote or written assent of the stockholders
representing at least 2/3 of the outstanding capital
Section 16. Amendment of Articles of Incorporation. stock without prejudice to the appraisal right of
– Unless otherwise prescribed by this Code or by dissenting stockholders in accordance with the
special law, and for legitimate purposes, any provisions of this Code.
provision or matter stated in the articles of
incorporation may be amended by a majority vote of Note: the 1st way to amend the articles of
the board of directors or trustees and the vote or incorporation is by majority vote;
written assent of the stockholders representing at
least 2/3 of the outstanding capital stock, without The 2nd Way TO AMEND the articles of
prejudice to the appraisal right of dissenting incorporation is by way of written assent.
stockholders in accordance with the provisions of
this Code, or the vote or written assent of at least We will take up appraisal right later but
2/3 of the members if it be a non-stock corporation.
The original and amended articles together shall  What does vote or written assent means?
contain all provisions required by law to be set out
in the articles of incorporation. Such articles, as Vote means there is social congress, there are sent
amended shall be indicated by underscoring the notices of the meeting and then they gather together in
change or changes made, and a copy thereof duly a meeting and then they vote. Written assent, the
certified under oath by the corporate secretary and stockholders are just sent letters and they are told check
a majority of the directors or trustees stating the YES if you are in agreement, check NO if you’re not in
fact that said amendment or amendments have been agreement with this amendment. Now, when the two-
duly approved by the required vote of the thirds majority of the stockholders have checked YES,
stockholders or members, shall be submitted to the the amendment is passed. It is thru the treasurer that it
Securities and Exchange Commission. is sent back.
xxx

51
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

 What happens if less than two-thirds the capital and also introduce the new category for
assents? preferred non-voting shares or (2) do we break it up?
We increase the capital first and then, depending upon
Then you have to keep on writing to get them back, the response of the people, we convert the new
because that is required by law. common shares, some of it into preferred shares.

Now, the next question is Unsa man itubag nimo ana kung ikaw ang secretary and
the in-house counsel?
 When is it voting and when is it written
assent? Kaisahon lang gani na nimo, you must call a
meeting because increase or decrease of capital stock
It is voting if it is any of the instances provided in is under section 6. So, you must have a meeting and
section 6. It is written assent if it is not one of those (8) when you vote to increase, you must also vote for the
instances mentioned in section 6. creation of new preferred non-voting shares. You must
be sure that the two-thirds of the stockholders will
approve the preferred voting shares.
Section 6. Classification of shares. – x x x
Where the articles of incorporation provide for non- Why?
voting shares in the cases allowed by this Code, the
holders of such shares shall nevertheless be Because they may approve the increase of
entitled to vote on the following matters: capital stock because they can see from the financial
statements that it’s making money and it need a new
1. Amendment of the articles of incorporation; capital but how about the new preferred non-voting
2. Adoption and amendment of by-laws; shares? Will they allow it?
3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate Kung ikaw existing stockholder ka muingon ka,
property; muhulam ko og kwarta aron mupalit ko niini preferred
shares because its making money, unya muingon ka
4. Incurring, creating or increasing bonded ngano dili man ni voting? Ngano non-voting man ni?
indebtedness; Gusto ka og voting aron muincrese imong voting shares
dinha sa corporation diba?
5. Increase or decrease of capital stock;
If you break-it up; first you put an increase, you make
6. Merger or consolidation of the corporation with the stockholders vote and later on, you propose an
another corporation or other corporations; amendment reclassifying the common shares into
preferred voting shares, do you still need a meeting?
7. Investment of corporate funds in another
corporation or business in accordance with this No more, you just need written assent. Dili gani ka
Code; and sigurado makakuha kag vote mas mayo ang written
assent kay mahimo man nimo personally serve na,
8. Dissolution of the corporation. signan niya, sigurado ka na makuha pero kung voting,
unsa man, secret ballot man na, dili ka makasigurado.
XXX
Remember the rule I told you, you do not call a meeting
I’ll give you a problem: unless you know the result of the meeting (beforehand).
Ingon ka regular meeting man, wala man ka sigurado,
Suppose the corporation is capitalized at 1 pangita og postponement ka nang regular meeting unya
million, at 1 peso par value and only common stocks is ayoha nana daan na masigurado ka sa resulta nianang
provided in the articles. At the end of 10 years, the 1 meeting. You can ask for a postponement man of lets
million is completely subscribed and paid up and the say, regular annual meeting, if you are not sure of the
corporation is now in need of raising capital. Now the results.
board says maybe we should introduce preferred non-
Alright, we have discussed founder’s shares, in other
voting shares. It is preferred non-voting shares because
those who are controlling might not be able to catch up words, you can classify some of the shares as:
with later capital increases, so they will lose control of
the corporation. So you raise capital and yet your voting Founder’s shares – and for the period of 5 years those
rights remain the same. shares will have the exclusive right to vote and be voted
for positions in the board of directors.
So, the corporation’s board of directors calls the in-
house counsel, the secretary of the board and ask his It’s not the same in the State of Delaware; in
opinion. How do we go about this? Can we (1) introduce the State of Delaware it is unlimited. So what did Mr.
the amendment once and for all, usa ka buok, increase Henry Ford do before he went public? He created his

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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

own founders shares, and this shares, it was provided in practice of an emergency exceptional interventionist
the articles that he has 10x the voting right of the aspect that is written in the corporation in favor of
ordinary common Ford shares, so that until now, the the sovereign. Dagko man gud kau ang ilang
Fords still controls Ford Motors Company. Chrysler, investments.
General Motors wala nana, the original owners have lost
control, it’s now owned by investment banks but Ford For instance, Total, gusto nila iincrease ang maternity
still controls. Why? He has this founder’s share with 10x leave nila from 2 years to 3 years and then they want to
voting rights. shorten the work week, its already 37 working- hours,
and they want to shorten it further so that in effect you
Now the problem is the Fords already reached really have a 3-day weekend. This is the unions moving
fifth generation, og naay usa ka Ford muingon ibaligya and then they have productivity because they have
nana akong shares ky gusto na nako icash, unya unsa many machines, computerized, so many of them can
may buhaton sa Ford Foundation(the heirs of Ford work at home especially the white collar workers, but
incorporated it) who holds those shares. For those who the Golden Share blocked it. So this will be fought by
want to liquidate their shares, the Ford Foundation from the legislators because there is no Golden Shares there.
its accumaulated dividens, it began to buy ordinary
Ford or common shares and then it reaps, naa silay So at least you know what a Golden Share, a
pondo unya naa ko noy muingon ibaligya na nako ang founder’s share is and you also know what a Bearer’s
akong shares, adto nila kwaa dito. Kadto ila ibaligya, Share is.
kwartahon nila unya kato ila ihatag, so dili makwaan
ilang 10x-founders share. Mao nang nagpabilin lang Bearer’s Share– the name stockholder is not written on
japon sila as incorporators. the face of the certificate of stock. What is written there
is “who ever is in permanent possession of this
In the Philippines, the longest you can be in control, as certificate is the owner of the shares that it represents”.
founder’s share, is 5 years. The founder’s share if you
are the owner of the company, you have the exclusive
right to vote for and be voted for director of the company
for 5 years, after that pareho namo og voting rights. The distinction between the shares which are intangible
property and a certificate of stock which is tangible
Now, the other corporations nagsurvive, is that good for property and to which the shareholder also has a right to
the stock market? That there are shares with more have - the moment you have completed your payment
voting rights? That is inimical to equality is it not? But of the subscription fee.
why did Ford survived? Because it was extremely
profitable. And even now it has more than average
profitability.
“Believe you can and you’re halfway there”
But then let me tell you about the so called “Golden
Shares”. You know when Germany, Italy, France
Theodore Roosevelt
decided to privatized government corporations like the
electricity, telecoms, the petroleum, when they decided
to privatized it they will not really convince that it will be
good for the country, what did they do? They amended
the articles to provide what is called the Golden Shares.

 What is a Golden Shares?

Just Like the French petroleum company Total, the


French government has one golden share.

Golden Share - just one share of stock to be


continued to be held by the sovereign. It can veto
any fundamental action of the corporation by just
casting a vote. The proposed action is dead on its
tracks.

It is golden for the sovereign but trash for the


stockholders because the stockholders already want to
do something and the government says no, and it has
only one vote. That is why they say that the stock
market in Europe leaves much to be desired, it is not as
free as stock market as New York Stock exchange,
London, Singapore, Hong Kong, because of this

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