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Course Outline Atty. Joanne L.

Ranada

Business Organization II 2nd Semester, AY 2018-2019

PART 1

CORPORATION LAW OF THE PHILIPPINES

I. INTRODUCTION

1. General

2. Kinds of Business Organization

• Sole Proprietorship

• Partnership

Mendiola vs Court of Appeals (497 SCRA 346) JM Tuason & Co., Inc. vs Bolanos
(95 Phil 106)

Facts: Petitioner Mendiola (ATM) entered into a Side Agreement with Pacfor (USA) who will
set up ar epresentative office in the Philippines. They named said office as Pacfor Phils in which
petitioner is the president. In the agreement, petitioner’s base salary and the company’s overhead
expenditures shall be borne by the representative office and shall be funded by
Pacfor/ATMbeing equally owned on 50-50 equity by ATM and Pacfor-USA.The Side
Agreement was later amended through a Revised Operating and Profit Sharing Agreement
where petitioner’s salary was increased. However, both agreements show that theoperational
expens es will be borne by the representative office and funded by all parties “as equal partners,”
while the profits and commissions will be shared among them.

Years later, petitioner wrote Pacfor’s VP for Asia seeking confirmation of his 50% equity
ofPacfor Phils to which Pacfor’s President replied that petitioner is not a part-owner, his
officebeing just a representative office, a “theoretical company with the purpose of dividing
theincome 50-50.

” He even stressed that the petitioner knew of this arrangement from beginning,having been the
one to propose to them the setting up of a representative office, instead of abranch office, to save
on taxes.

Issue:Whether or not a partnership or co-ownership exists between the parties.

Held: Petitioner is an employee of Pacfor and no partnership or co-ownership exists between the
parties. In a partnership, the members become co-owners of what is contributed to the firm
capital and of all property that may be acquired thereby and through the efforts of the members.
The property or stock of the partnership forms a community of goods, a common fund, in which
each party has a proprietary interest. In fact, the New Civil Code regards a partner as a co-owner
of specific partnership property. Each partner possesses a joint interest in the whole of
partnership property. If the relation does not have this feature, it is not one of partnership. This
essential element, the community of interest, or co-ownership of, or joint interest inpartnership
property is absent in the relations between petitioner and private respondent Pacfor. Petitioner is
not a part-owner of Pacfor Phils. Pacfor's President established this fact when he said that Pacfor
Phils. is simply a "theoretical company" for the purpose of dividing the income 50-50. He
stressed that petitioner knew of this arrangement from the very start, having been the one to
propose to private respondent Pacfor the setting up of a representative office, and "not a branch
office" in the Philippines to save on taxes. Thus, the parties in this case, merely sharedprofits.
This alone does not make a partnership. Besides, a corporation cannot become a member of a
partnership in the absence of express authorization by statute or charter. This doctrine is based on
the following considerations: (1)that the mutual agency between the partners, whereby the
corporation would be bound by the acts of persons who are not its duly appointed and authorized
agents and officers, would be inconsistent with the policy of the law that the corporation shall
manage its own affairs separately and exclusively; and, (2) that such an arrangement would
improperly allow corporate property to become subject to risks not contemplated by the
stockholders when they originally invested in the corporation. No such authorization has been
proved in the case at bar.

• Joint Venture

Aurbach vs. Sanitary Wares Manufacturing Corporation (189 SCRA 130)

Facts: Saniwares, a domestic corporation entered into an agreement with American Standard
Inc., a foreign group and some Filipino investors, in order to expand their business
internationally. The parties agreed that the business operations in the Philippines shall be carried
on by an incorporated enterprise and will be named “Sanitary Wares Manufacturing
Corporation.” Unfortunately, there came a deterioration of relations between the Filipino group
of investors led by Lagdameo and American group of investors regarding the export operations
of the company. Thereafter, the annual stockholder’s meeting was held with its primary agenda
is to elect the members of the board of directors. In the election of their board members, they
agreed that 3 of the 9 directors shall be designated by ASI while the other 6 shall be designated
by the Filipino stockholders. Dispute ensued when ASI invoked their right to cumulative voting
and nominated another candidate. This incident led the 2 groups to file before the SEC in
determining who were the duly elected directors of Saniwares. ASI group they have the right to
vote their additional equity under the Sec. 24 of the Corporation Code and further contend that
the actual intention of the parties was to form a corporation and not a joint venture. The
Lagdameo group argued otherwise and contend that they intended to enter into a joint venture.
Issue: Whether or not Section 24 of the Corporation Code is applicable to Joint Venture

Held: No. The legal concept of a joint venture is of common law origin. It has no precise legal
definition but it has been generally understood to mean an organization formed for some
temporary purpose. It is in fact hardly distinguishable from the partnership, since their elements
are similar community of interest in the business, sharing of profits and losses, and a mutual right
of control. The main distinction cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of continuity, while the joint
venture is formed for the execution of a single transaction, and is thus of a temporary nature.
This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law,
a joint venture is a form of partnership and should thus be governed by the law of partnerships.
The Supreme Court has however recognized a distinction between these two business forms, and
has held that although a corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others.

• Corporation

3. Historical Background

II. DEFINITION & ATTRIBUTES

LBC Express vs. CA (236 SCRA 602)

Facts: Adolfo Carloto, President- Manager of Rural Bank of Labason was instructed to go to
Central Bank Main’s office in Manila for the the rediscounting obligations of the Rural Bank of
Labason. He purchased a round-trip plane ticket to Manila and he asked his sister to send him the
rediscounting papers he needed and a pocket money worth 1,000 pesos thru LBC office at
Dipolog City. Unfortunately, the documents arrived but he did not received the pocket money he
expected. He made follow-ups regarding the money and even went to the LBC office at Dipolog
City. However, the money returned to him only after few days and he wasn’t able to go to
Manila for the time to settle the rediscounting obligations and consequently a penalty of 32,000
pesos was charged for the delay of settling the rediscounting obligations. According to Carloto
he suffered embarrasment and humiliatio of what happened he filed a suit against LBC for moral
damages and the reimbursement of 32,000 pesos. Later, Rural Bank of Labason impleaded in the
complaint as co-plaintiff and claim for the same relief. LBC, on the other hand, contend that
LBC, as a corporation and artificial being can’t recover moral damages.

Issue: Whether or not Rural Bank of Labason Inc. should be awarded moral damages.

Held: No. Moral damages are granted in recompense for physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. A corporation, being an artificial person and having existence
only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot
experience physical suffering and mental anguish. Mental suffering can be experienced only by
one having a nervous system and it flows from real ills, sorrows, and griefs of life — all of
which cannot be suffered by respondent bank as an artificial person.

Filipinas Broadcasting vs. Ago Medical Center (GR No. 141954, January 17, 2005)

Facts: Rima & Alegre were host of FBNI radio program “Expose”. Respondent Ago was the
owner of the Medical & Educational center, subject of the radio program “Expose” AMEC
claimed that the broadcasts were defamatory and owner Ago and school AMEC claimed for
damages. The complaint further alleged that AMEC is a reputable learning institution. With the
supposed expose, FBNI, Rima and Alegre “transmitted malicious imputations and as such,
destroyed AMEC reputation. FBNI was included as defendant for allegedly failing to exercise
due diligence in the selection and supervision of its employees. The trial court found Rima’s
statements to be within the bounds of freedom of speech and ruled that the broadcast was
libelous. It ordered the defendants Alegre and FBNI to pay AMEC 300k for moral damages.”

Issue: Whether or not AMEC is entitled to moral damages.

Ruling: Yes. A juridical person is generally not entitled to moral damages because, unlike a
natural person, it cannot experience physical suffering or such sentiments as wounded feelings,
serious anxiety, mental anguish or moral shock. Nevertheless, AMEC’s claim, or moral damages
fall under item 7 of Art – 2219 of the NCC.

This provision expressly authorizes the recovery of moral damages in cases of libel, slander or
any other form of defamation. Art 2219 (7) does not qualify whether the plaintiff is a natural or
juridical person. Therefore, a juridical person such as a corporation can validly complain for libel
or any other form of defamation and claim for moral damages. Moreover, where the broadcast is
libelous per se, the law implied damages. In such a case, evidence of an honest mistake or the
want of character or reputation of the party libeled goes only in mitigation of damages. In this
case, the broadcasts are libelous per se. thus, AMEC is entitled to moral damages. However, we
find the award P500,000 moral damages unreasonable. The record shows that even though the
broadcasts were libelous, per se, AMEC has not suffered any substantial or material damage to
its reputation. Therefore, we reduce the award of moral damages to P150k.

1. Advantages/disadvantages of the corporate form of business

2. Distinctions between a corporation and partnership

3. Government powers
III. CLASSIFICATION OF CORPORATIONS

1. Stock vs. Non-Stock

Collector vs. Club Filipino de Cebu (5 SCRA 312)

Facts: The Club Filipino, is a civic organization organized under the Philippine laws it owns
and operates a club house, a bowling alley, a golf course (on a lot leased from the government),
and a bar-restaurant where it sells wines and liquors, soft drinks, meals and short orders to its
members and their guests. The bar-restaurant was a necessary incident to the operation of the
club and its golf-course. The club is operated mainly with funds derived from membership fees
and dues. Whatever profits it had, were used to defray its overhead expenses and to improve its
golf-course. In 1951. as a result of a capital surplus, arising from the re-valuation of its real
properties, the value or price of which increased, the Club declared stock dividends; but no
actual cash dividends were distributed to the stockholders. In 1952, a BIR agent discovered that
the Club has never paid percentage tax on the gross receipts of its bar and restaurant. CIR
assessed against and demanded from the Club taxes allegedly due.

Issue: Whether or not Club Filipino is a stock corporation

Ruling: No. The Club was organized to develop and cultivate sports of all class and
denomination for the healthful recreation and entertainment of its stockholders and members.
There was in fact, no cash dividend distribution to its stockholders and whatever was derived on
retail from its bar and restaurants used were to defray its overhead expenses and to improve its
golf course.

For a stock corporation to exist, 2 requisites must be complied with:

(1) A capital stock divided into shares

(2) An authority to distribute to the holders of such shares, dividends or allotments of the surplus
profits on the basis of shares held.

In the case at bar, nowhere in the AOI or by-laws of Club Filipino could be found an authority
for the distribution of its dividends or surplus profits.Strictly speaking, it cannot, therefore, be
considered a stock corporation, within the contemplation of the corporation law.

The fact that the capital stock of the respondent Club is divided into shares, does not detract from
the finding of the trial court that it is not engaged in the business of operator of bar and
restaurant. What is determinative of whether or not the Club is engaged in such business is its
object or purpose, as stated in its articles and by-laws. It is a familiar rule that the actual purpose
is not controlled by the corporate form or by the commercial aspect of the business prosecuted,
but may be shown by extrinsic evidence, including the by-laws and the method of operation.
It is conceded that the Club derived profit from the operation of its bar and restaurant, but such
fact does not necessarily convert it into a profit-making enterprise. The bar and restaurant are
necessary adjuncts of the Club to foster its purposes and the profits derived therefrom are
necessarily incidental to the primary object of developing and cultivating sports for the healthful
recreation and entertainment of the stockholders and members. That a Club makes some profit,
does not make it a profit-making Club. As has been remarked a club should always strive,
whenever possible, to have surplus.

2. Created by special law

PNOC-EDC vs. NLRC (201 SCRA 487)

Facts: Danilo Mercado was an employee of Philippine National Oil Company- Energy
Development Corporation or PNOC-EDC. He was dismissed on the ground of serious acts of
dishonesty and violation of rules and regulations. Mercado filed a complaint of illegal dismissal
against PNOC- EDC before the NLRC. It ruled in favor of Mercado. PNOC-EDC questioned the
jurisdiction of NLRC on the ground that matters of employment affecting PNOC-EDC, a
government-owned and controlled corporation are within the jurisdiction of CSC.

Issue: Whether or not NLRC has jurisdicition

Ruling: Yes. Under the present state of the law, the test in determining whether a government-
owned or controlled corporation is subject to the Civil Service Law are the manner of its
creation, such that government corporations created by special charter are subject to its
provisions while those incorporated under the General Corporation Law are not within its
coverage."

Specifically, the PNOC-EDC having been incorporated under the General Corporation Law was
held to be a government owned or controlled corporation whose employees are subject to the
provisions of the Labor Code .

Hacienda Luisita, Incorporated vs PARC (GR No. 171101, July 5, 2011)

Facts: Tarlac Development Corporation or TADECO owned by Jose Cojuangco Sr., bought the
6,000 hectares land of Haciend Luisita in Tarlac and the sugar mill within the hacienda from the
original owner TABACALERA. Prior to the transfer of ownership, the Philippine government,
thru GSIS assisted and extended loans to TADECO for the payment of the land. One of the
conditions on the loan agreement between them was the lots comprising the hacienda shall be
distributed and sold to its tenants ten years after.
Marcos administration filed an expropriation suit against TADECO to surrender the Hacienda to
the then Ministry of Agrarian Reform so that the land can be distributed to the farmers at cost.
Tadec, on the other hand alleged that Hacienda Luisita does not have tenants, besides which
sugar lands––of which the hacienda consisted––are not covered by existing agrarian reform
legislations. The RTC rendered judgment ordering TADECO to surrender Hacienda Luisita to
the MAR.

In 1988, RA 6657 or the CARP law was passed. It is a program aimed at redistributing public
and private agricultural lands to farmers and farm workers who are landless. One of the lands
covered by this law is the Hacienda Luisita. In 1988, the OSG moved to dismiss the
government’s case against TADECO. The CA dismissed it, but the dismissal was subject to the
condition that TADECO shall obtain the approval of farm worker beneficiaries to the SDP Stock
Distribution Plan and to ensure its implementation Section 31 of the CARP Law which allows
either land transfer or stock transfer as two alternative modes in distributing land ownership to
the FWBs. Since the stock distribution scheme is the preferred option of TADECO, it organized
a spin-off corporation, the Hacienda Luisita Inc. (HLI), as vehicle to facilitate stock acquisition
by the farmers. Then the Presidential Agrarian Reform Council (PARC), led by then DAR
Secretary Miriam Santiago, approved the SDP of TADECO/HLI.

From 1989 to 2005, the HLI claimed to have extended those benefits to the farm workers. This
was contested by two groups representing the interests of the farmers – the HLI Supervisory
Group and the AMBALA. They claimed that they haven’t actually received those benefits in full,
that HLI violated the terms, and that their lives haven’t really improved contrary to the promise
and rationale of the SDOA. The DAR created a Special Task Force to attend to the issues and to
review the terms of the SDOA. On its resolution PARC) revoked HLI Stock Distribution Plan
(SDP) and placied the subject land in HL under compulsory coverage of the CARP of the
government. HLI assails the jurisdiction of the PARC to recall the SDOA. It argues that the
parties to the SDOA should now look to the Corporation Code, instead of to RA 6657, in
determining their rights, obligations and remedies. The Code, it adds, should be the applicable
law on the disposition of the agricultural land of HLI.

Issue: WHETHER OR NOT PARC HAVE JURISDICTION, POWER AND/OR AUTHORITY


TO NULLIFY, RECALL, REVOKE OR RESCIND THE SDOA

Ruling: Yes. It should abundantly be made clear that HLI was precisely created in order to
comply with RA 6657, which the OSG aptly described as the "mother law" of the SDOA and the
SDP. It is, thus, paradoxical for HLI to shield itself from the coverage of CARP by invoking
exclusive applicability of the Corporation Code under the guise of being a corporate entity.

Without in any way minimizing the relevance of the Corporation Code since the FWBs of HLI
are also stockholders, its applicability is limited as the rights of the parties arising from the SDP
should not be made to supplant or circumvent the agrarian reform program.
Without doubt, the Corporation Code is the general law providing for the formation, organization
and regulation of private corporations. On the other hand, RA 6657 is the special law on agrarian
reform. As between a general and special law, the latter shall prevail—generalia specialibus non
derogant. Besides, the present impasse between HLI and the private respondents is not an intra-
corporate dispute which necessitates the application of the Corporation Code. What private
respondents questioned before the DAR is the proper implementation of the SDP and HLI’s
compliance with RA 6657. Evidently, RA 6657 should be the applicable law to the instant case.

Tuna Processing, Inc. vs. Phil. Kingford Inc. (GR No. 185582, February 29, 2012)

Facts: Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters Patent, and an


Indonesian Patent, entered into a Memorandum of Agreement with 5 Philippine tuna processors
including Respondent Philippine Kingford, Inc. The MOA provides for the enforcing of the
abovementioned patents, granting licenses under the same, and collecting royalties, and for the
establishment of herein Tuna Processors, Inc. (TPI). Due to a series of events, the tuna
processors, including KINGFORD, withdrew from Petitioner TPI and correspondingly reneged
on their obligations. Petitioner TPI submitted the dispute for arbitration before the Internationa
lCentre for Dispute Resolution in the State of California, United States and won the case against
Respondent KINGFORD. To enforce the award, Petitioner TPI filed a Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City.
Respondent KINGFORD filed a Motion to Dismiss on the ground that Petitioner TPI lacked
legal capacity to sue in the Philippines. Petitioner TPI is a corporation established in the State of
California and not licensed to do business in the Philippines. PTI counters, however, that it is
entitled to seek for the recognition and enforcement of the subject foreign arbitral award in
accordance with Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004), the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards drafted during the
United Nations Conference on International Commercial Arbitration in 1958 (New York
Convention), and the UNCITRAL Model Law on International Commercial Arbitration (Model
Law), as none of these specifically requires that the party seeking for the enforcement should
have legal capacity to sue.

Issue: Whether or not Corporation Code or Alternative Dispute Resolution Act of 2004 should
apply.

Ruling: In the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian Reform
Council, this Court held:

Without doubt, the Corporation Code is the general law providing for the formation,
organization and regulation of private corporations. On the other hand, RA 6657 is the
special law on agrarian reform. As between a general and special law, the latter shall
prevailgeneralia specialibus non derogant.
Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in this
case as the Act, as its title - An Act to Institutionalize the Use of an Alternative Dispute
Resolution System in the Philippines and to Establish the Office for Alternative Dispute
Resolution, and for Other Purposes - would suggest, is a law especially enacted to actively
promote party autonomy in the resolution of disputes or the freedom of the party to make their
own arrangements to resolve their disputes. It specifically provides exclusive grounds available
to the party opposing an application for recognition and enforcement of the arbitral award.

Litonjua, Jr. vs. Eternit Corporation (490 SCRA 204)

Facts: The Eternit Corporation manufactures roofing materials and pipeproducts. 90% of the
shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a corporation
registered under the laws of Belgium. Glanville was the General Manager and President of EC,
while Delsauxwas the Regional Director for Asia of ESAC. In 1986, because of the political
situation in the Philippines the management of ESAC wanted to stop its operations and to
dispose the land in Mandaluyong City. They engaged the services of realtor/broker Lauro G.
Marquez. Marquez thereafter offered the land to Eduardo B. Litonjua, Jr. The Litonjua brothers
deposited US$1,000,000.00 with theSecurity Bank & Trust Company, and drafted an Escrow
Agreement to expeditethe sale. Meanwhile, with the assumption of Corazon C. Aquino as
President, the political situation improved. Marquez received a letter from Delsaux that the
ESAC Regional Office decided not to proceed with the sale. When informed of this, the
Litonjuas, filed a complaint for specific performance and payment for damages on account of the
aborted sale. Both the trial court and appellate court rendered judgment in favor of defendants
and dismissed the complaint. The lower court declared that since the authority of the
agents/realtors was not in writing, the sale is void and not merely unenforceable.

EC maintain that Glanville, Delsaux and Marquez had no authority from the stockholders of EC
and its Board of Directors to offer the properties for sale to the petitioners. Petitioners assert that
there was no need for a written authority from the Board of Directors of EC for Marquez
to validly act as broker. As broker, Marquez was not an ordinary agent because his only job as a
broker was to look for a buyer and to bring together the parties to the transaction. He was not
authorized to sell the properties; hence, petitioners argue, Article 1874 of the New Civil Code
does not apply.

Issue: Whether or not Marquez needed a writtent authority from Eternit Corporation for the sale
can be perfected

Ruling:
Yes. A corporation is a juridical person separate and distinct from its members or stockholders
and is not affected by the personal rights, obligations and transactions of the latter. It may act
only through its board of directors or, when authorized either by its by-laws or by its board
resolution, through its officers or agents in the normal course of business. The general principles
of agency govern the relation between the corporation and its officers or agents, subject to the
articles of incorporation, by-laws, or relevant provisions of law.
The property of a corporation, however, is not the property of the stockholders or members, and
as such, may not be sold without express authority from the board of directors. Physical acts, like
the offering of the properties of the corporation for sale, or the acceptance of a counter-offer of
prospective buyers of such properties and the execution of the deed of sale covering such
property, can be performed by the corporation only by officers or agents duly authorized for the
purpose by corporate by-laws or by specific acts of the board of directors.

Absent such valid delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of such director, are not binding on the
corporation. While a corporation may appoint agents to negotiate for the sale of its real
properties, the final say will have to be with the board of directors through its officers and agents
as authorized by a board resolution or by its by-laws. An unauthorized act of an officer of the
corporation is not binding on it unless the latter ratifies the same expressly or impliedly by its
board of directors. Any sale of real property of a corporation by a person purporting to be an
agent thereof but without written authority from the corporation is null and void. The
declarations of the agent alone are generally insufficient to establish the fact or extent of his/her
authority.

By the contract of agency, a person binds himself to render some service or to do something in
representation on behalf of another, with the consent or authority of the latter. Consent of both
principal and agent is necessary to create an agency. The principal must intend that the agent
shall act for him; the agent must intend to accept the authority and act on it, and the intention of
the parties must find expression either in words or conduct between them.

An agency may be expressed or implied from the act of the principal, from his silence or lack of
action, or his failure to repudiate the agency knowing that another person is acting on his behalf
without authority. Acceptance by the agent may be expressed, or implied from his acts which
carry out the agency, or from his silence or inaction according to the circumstances. Agency may
be oral unless the law requires a specific form. However, to create or convey real rights over
immovable property, a special power of attorney is necessary. Thus, when a sale of a piece of
land or any portion thereof is through an agent, the authority of the latter shall be in writing,
otherwise, the sale shall be void.

Phil. National Construction Corporation vs Pabion (GR No. 131715, December 8, 1999)

Facts: Ernesto Pabion and Louella Ramiro, claiming to be stockholders of the PNCC, filed with
the SEC a verified petition, therein alleging that since 1982 or for a period of twelve (12) years,
there has been no stockholders meeting of the PNCC to elect the corporations board of directors,
thus enabling the incumbent directors to hold on to their position beyond their 1-year term, in
violation of PNCCs By-Laws and the Corporation Code.Pabion and Ramiro, therefore, prayed
the SEC to issue an order ordering the officers of PNCC or, in the alternative, authorizing
petitioners, to call and hold a meeting of the stockholders for the purpose of electing new
directors

PNCC claimed that SEC has no jurisdiction over the petition because PNCC is a government-
owned corporation whose organizational and functional management, administration, and
supervision are governed by Administrative Order (AO) No. 59, issued by then President
Corazon Aquino on February 16, 1988. PNCC asserts that its board of directors does not hold
office by virtue of a stockholders election but by appointment of the President of the
Philippines, such petition can be regard as aninterference with the Presidents power of control
and appointment over government-owned and/or controlled corporations (GOCCs). PNCC added
that under Executive Order No. 399, series of 1951, a GOCC is not required to hold a general
meeting of stockholders but, instead, the general manager thereof is merely required to submit an
annual report to the President of the Philippines.

Issue: WHETHER OR NOT THE SEC HAS JURISDICTION TO ORDER PNCC TO HOLD A
STOCKHOLDERS MEETING FOR THE PURPOSE OF ELECTING THE MEMBERS OF ITS
BOARD OF DIRECTORS

Ruling: Yes. We concede that SEC has no jurisdiction over corporations of the first type --
GOCCs with original charter or created by special law -- primarily because they are governed by
their charters. But even this concession is not absolute, since the Corporation Code may apply
suppletorily, either by operation of law or through express provisions in the charter.

On the other hand, we have no doubt that over GOCCs established or organized under the
Corporation Code, SEC can exercise jurisdiction. These GOCCs are regarded
as private corporations despite common misconceptions. That the government may own the
controlling shares in the corporation does not diminish the fact that the latter owes its existence
to the Corporation Code. More pointedly, Section 143 of the Corporation Code gives SEC the
authority and power to implement its provisions, specifically for the purpose of regulating the
entities created pursuant to such provisions. These entities include corporations in which the
controlling shares are owned by the government or its agencies.

The Securities and Exchange Commission (SEC) has jurisdiction over corporations organized
pursuant to the Corporation Code, even if the majority or controlling shares are owned by the
government. Hence, it can competently order the holding of a shareholders meeting for the
purpose of electing the corporate board of directors. While the SEC may not have authority over
government corporations with original charters or those created by special law, it does have
jurisdiction over acquired asset corporations as defined in AO 59. Specifically, the Philippine
National Construction Company (PNCC) may be ordered by SEC to hold a shareholders meeting
to elect its board of directors in accordance with its Articles of Incorporation and By-Laws as
well as with the Corporation Code. The chairman and the members of the PNCC Board of
Directors hold office by virtue of their election by the shareholders, not by their appointment
thereto by the President of the Republic.

Republic vs. Paranaque (GR No. 191109, July 18, 2012)

Facts: The Public Estates Authority (PEA) is a government corporation created by virtue of P.D.
No. 1084 to provide a coordinated, economical and efficient reclamation of lands, and the
administration and operation of lands belonging to, managed and/or operated by, the government
with the object of maximizing their utilization and hastening their development consistent with
public interest.

By virtue of its mandate, PRA reclaimed several portions of the foreshore and offshore areas of
Manila Bay,including those located in Parañaque City. Parañaque City Treasurer issued
Warrants of Levy on PRA’s reclaimed properties based on the assessment for delinquent real
property for tax years 2001 and 2002. PRA, on the other hand, argued that It is not a GOCC
under the Administrative Code, nor is it a GOCC under Section 16, Article XII of the 1987
Constitution because it is not required to meet the test of economic viability.

It claimed that it is a government instrumentality vested with corporate powers and performing
an essential public service. Although it has a capital stock divided into shares, it may not be
classified as a stock corporation because it lacks the second requisite of a stock corporation: to
distribute dividends and allotment of surplus and profits to its stockholders. It may not be
classified as a non-stock corporation because it has no members and it is not organized
forcharitable, religious, educational, professional, cultural, recreational, fraternal, literary,
scientific, social,civil service, or similar purposes, like trade, industry, agriculture and like
chambers as provided in Section88 of the Corporation Code.

It was not created to compete in the market place as there was no competing reclamation
company operated by the private sector. Also, while PRA is vested with corporate powers under
P.D. No. 1084, such circumstance does not make it a corporation but merely an incorporated
instrumentality and that the mere fact that an incorporated instrumentality of the National
Government holds title to real property does not make said instrumentality a GOCC.

The City of Parañaque argued that since its creation PRA consistently represented itself to be
a GOCC on its very own charter. Has entered into several thousands of contracts where
itrepresented itself to be a GOCC. It argues that PRA is a stock corporation with an authorized
capital stock divided into 3 million no par value shares, out of which 2 million shares have been
subscribed and fully paid up. Section 193 of the LGCof 1991 has withdrawn tax exemption
privileges granted to or presently enjoyed by all persons, whether natural or juridical, including
GOCCs.

Issue: Whether or not petitioner is an incorporated instrumentality of the national government


and is, therefore, exempt from payment of real property tax
Ruling: Yes.

Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a
GOCC as follows:

SEC. 2. General Terms Defined. – x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or


non-stock corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock: x x x.

On the other hand, Section 2(10) of the Introductory Provisions of the Administrative Code
defines a government "instrumentality" as follows:

SEC. 2. General Terms Defined. –– x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. x x x

From the above definitions, it is clear that a GOCC must be "organized as a stock or non-stock
corporation" while an instrumentality is vested by law with corporate powers. Likewise, when
the law makes a government instrumentality operationally autonomous, the instrumentality
remains part of the National Government machinery although not integrated with the department
framework.

When the law vests in a government instrumentality corporate powers, the instrumentality
does not necessarily become a corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a government instrumentality
exercising not only governmental but also corporate powers.

Many government instrumentalities are vested with corporate powers but they do not
become stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a GOCC. Examples are the Mactan International Airport Authority,
the Philippine Ports Authority, the University of the Philippines, and Bangko Sentral ng
Pilipinas. All these government instrumentalities exercise corporate powers but they are not
organized as stock or non-stock corporations as required by Section 2(13) of the Introductory
Provisions of the Administrative Code. These government instrumentalities are sometimes
loosely called government corporate entities. They are not, however, GOCCs in the strict sense
as understood under the Administrative Code, which is the governing law defining the legal
relationship and status of government entities.
Correlatively, Section 3 of the Corporation Code defines a stock corporation as one whose
"capital stock is divided into shares and x x x authorized to distribute to the holders of such
shares dividends x x x." Section 87 thereof defines a non-stock corporation as "one where no part
of its income is distributable as dividends to its members, trustees or officers." Further, Section
88 provides that non-stock corporations are "organized for charitable, religious, educational,
professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar
purposes, like trade, industry, agriculture and like chambers."

Two requisites must concur before one may be classified as a stock corporation, namely: (1) that
it has capital stock divided into shares; and (2) that it is authorized to distribute dividends and
allotments of surplus and profits to its stockholders. If only one requisite is present, it cannot be
properly classified as a stock corporation. As for non-stock corporations, they must have
members and must not distribute any part of their income to said members.

In the case at bench, PRA is not a GOCC because it is neither a stock nor a non-stock
corporation. It cannot be considered as a stock corporation because although it has a capital stock
divided into no par value shares as provided in Section 7 of P.D. No. 1084, it is not authorized to
distribute dividends, surplus allotments or profits to stockholders. There is no provision
whatsoever in P.D. No. 1084 or in any of the subsequent executive issuances pertaining to PRA,
particularly, E.O. No. 525, E.O. No. 654and EO No. 798 that authorizes PRA to distribute
dividends, surplus allotments or profits to its stockholders.

PRA cannot be considered a non-stock corporation either because it does not have members. A
non-stock corporation must have members. Moreover, it was not organized for any of the
purposes mentioned in Section 88 of the Corporation Code. Specifically, it was created to
manage all government reclamation projects.

Furthermore, there is another reason why the PRA cannot be classified as a GOCC. Section 16,
Article XII of the 1987 Constitution provides as follows:

Section 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the common
good and subject to the test of economic viability. The fundamental provision above authorizes
Congress to create GOCCs through special charters on two conditions: 1) the GOCC must be
established for the common good; and 2) the GOCC must meet the test of economic viability. In
this case, PRA may have passed the first condition of common good but failed the second one -
economic viability. Undoubtedly, the purpose behind the creation of PRA was not for economic
or commercial activities. Neither was it created to compete in the market place considering that
there were no other competing reclamation companies being operated by the private sector. As
mentioned earlier, PRA was created essentially to perform a public service considering that it
was primarily responsible for a coordinated, economical and efficient reclamation,
administration and operation of lands belonging to the government with the object of
maximizing their utilization and hastening their development consistent with the public interest.

Manila International Airport Authority vs. CA (GR No. 155650, July 20, 2006)

Facts: The Manila International Airport Authority (MIAA) operates the Ninoy AquinoInternational
Airport (NAIA) Complex in Parañaque City.
As such operator, it administers the land, improvements andequipment within the NAIA Complex. In
March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061 to the
effect that the Local Government Code of 1991 (LGC) withdrew the exemption from real estate tax
granted to MIAA under Section 21of its Charter.

Thus, MIAA paid some of the real estate tax already due. In June 2001, it received Final Notices of Real
Estate Tax Delinquency from the City of Parañaque for the taxable years 1992 to 2001. The City
Treasurer subsequently issued notices of levy and warrants of levy on the airport lands and buildings. At
the instance of MIAA, the OGCC issued Opinion No. 147 clarifying Opinion No. 061,pointing out that
Sec. 206 of the LGC requires persons exempt from real estate tax to showproof of exemption. According
to the OGCC, Sec. 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax. MIAA,
thus, filed a petition with the Court of Appeals seeking to restrain the City of Parañaque from imposing
real estate tax on, levying against,and auctioning for public sale the airport lands and buildings, but this
was dismissed for having been filed out of time.Hence, MIAA filed this petition for review, pointing out
that it is exempt from real estate tax under Sec. 21 of its charter and Sec. 234 of the LGC. It invokes the
principle thatthe government cannot tax itself as a justification for exemption, since the airport lands and
buildings, being devoted to public use and public service, are owned by the Republic of the Philippines.

On the other hand, the City of Parañaque invokes Sec. 193 of the LGC, which expressly withdrew
the tax exemption privileges of government-owned and controlledcorporations (GOCC) upon the
effectivity of the LGC. It asserts that an international airport is not among the exceptions mentioned in
thes aid law.

Issue: Whether or not r MIAA is GOCC

Ruling:

No. MIAA is not a government-owned or controlled corporation but an instrumentality of the National
Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real estate tax.

MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is that
MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy, usually through a
charter. x x x (Emphasis supplied)

When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also corporate
powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority and the
levying of fees and charges. At the same time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive
Order."

Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with the
department framework. The MIAA Charter expressly states that transforming MIAA into a "separate and
autonomous body" will make its operation more "financially viable."

Many government instrumentalities are vested with corporate powers but they do not become stock or
non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a
government-owned or controlled corporation. Examples are the Mactan International Airport Authority,
the Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All
these government instrumentalities exercise corporate powers but they are not organized as stock or non-
stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative
Code. These government instrumentalities are sometimes loosely called government corporate entities.
However, they are not government-owned or controlled corporations in the strict sense as understood
under the Administrative Code, which is the governing law defining the legal relationship and status of
government entities.

3. Public vs. Private

National Coal Corp. vs. CIR (146 SCRA 583)

Facts: The National Coal Corporation was created on the 10th day of March 1917, by Act No.
2705, for the purpose of developing the coal industry in the Philippine Islands , in harmony with
the general plan of the government to encourage the development of natural resources of the
country, and to provide facilities therefore. By the said act, the company was granted the general
powers of a corporation and such other powers as may be necessary to enable it to prosecute the
business of developing coal deposits in the Philippine Islands of mining, extracting, transporting,
and selling the coal contained in said deposits. By the same law, the government of the
Philippine Islands is made the majority stockholder, evidently in order to ensure proper
government supervision and control and thus to place the government in a position to render all
possible encouragement, assistance, and help in the prosecution and furtherance of the
company’s business. On May 14, 1917, two months after the passage of Act no. 2705, creating
the national coal company, the Philippine legislature passed Act 2719, “to provide for the leasing
and development of coal lands in the Philippine islands.” On October 18, 1917, upon petition of
the national coal company, the governor-general, by proclamation no. 39, withdrew from
settlement, entry, sale or other deposition, all coal-bearing public lands within the province of
Zamboanga, Department of Mindanao and Sulu, and the island of Polillo, Province of Tayabas.
Almost immediately after the issuance of said proclamation the national coal company took
possession of the coal lands within the said reservation with an area of about 400 hectares,
without any further formality, contract of lease. Of the 30,000 shares of stock issued by the
company, the government of the Philippine islands is the owner of 29,809 shares, that is, of 99
1/3 per centum of the whole capital stock.

Issue: Whether or not plaintiff is a private corporation.

Held: Yes. The plaintiff is a private corporation. The mere fact that the government happens to
the majority stockholder does not make it a public corporation. Act 2705, as amended by Act
2822, makes it subject to all the provisions of the corporation law, in so far as they are not
inconsistent with said act. No provisions of Act 2705 are found to be inconsistent with the
provisions of the corporation law. As a private corporation, it has no greater rights, powers or
privileges than any other corporation which might be organized for the same purpose under the
corporation law, and certainly it was not the intention of the legislature to give it a preference or
right or privilege over other legitimate private corporations in the mining of coal. While it is true
that said proclamation no. 39 withdrew from settlement entry, sale or other disposition of coal-
bearing public lands within the province of Zamboanga, and the islands of Polillo, it made no
provision for the occupation and operation by the plaintiff, to the exclusion of other persons or
corporations who might under proper permission, enter upon to operate the coal mines.

4. Ecclesiastical & Lay

5. Aggregate & Sole

6. Close & Open

7. Domestic & Foreign

8. Parent/Holding, Subsidiaries & Affiliates

9. Public & Private

10. Quasi-Public

11. De jure vs. De facto

12. Corporations by Estoppel

IV. FORMATION & ORGANIZATION


1. Process of Incorporation

2. Contents of the Articles of Incorporation

a. Prefatory Paragraph

b. Corporate Name

Red Line Transport vs. Rural Transit (60 Phil 549)

Universal Mills vs. Universal Textile Mills (78 SCRA 62)

Lyceum of the Philippines vs. CA (219 SCRA 610)

Philipps Export B.V. vs. CA (206 SCRA 457)

SEC Memorandum Circular No. 14, Series of 2017 Consolidated Guidelines and Procedures on
the Use of Corporate and Partnership Names

SEC Memorandum Circular No. 9, Series of 2018 Amendment of the Guidelines and Procedures
on the Use of Corporate and Partnership Names

c. Purpose Clause

e. Principal Office Address

Clavecilla Radio Systems vs. Antillon (19 SCRA 379)

SEC Memorandum Circular No. 6, Series of 2016 Omnibus Guidelines on Principal Office
Address; Address of each Incorporator, Director, Trustee or Partner

f. Term of Existence

SEC Memorandum Circular No. 21, Series of 2014 Guidelines Governing the Computation of
Corporate Term

g. Incorporators

h. Directors/Trustees

i. Capitalization

i. Shares of stock and classification

ii. Purpose of the classification

• Common vs. Preferred Shares

• Par vs. No-par Shares


• Voting vs. Non-voting Shares

• Founders' Shares

• Redeemable Shares

• Treasury Shares

Commissioner vs. Manning (66 SCRA 14)

iii. Capital requirements

Article 225 Family Code of the Philippines

Heirs of Gamboa vs. Teves (GR No. 176579, October 9, 2012)

Narra Mining vs. Redmont Mining (21 April 2014; 28 January 2015)

iv. Restrictions and Preferences

Executive Order No. 65 Eleventh Foreign Investment Negative List

SEC Memorandum Circular No. 8, Series of 2013 Guidelines on Compliance with the Foreign-
Filipino Ownership Requirements Prescribed in the Constitution and/or Existing Laws by
Corporations Engaged in Nationalized and Partly-Nationalized Activities.

j. No-transfer Clause

k. Treasurer

l. Undertaking to Change Name

SEC Memorandum Circular No. 8, Series of 2012

m. Acknowledgment

n. Treasurer's Affidavit

3. Grounds for Disapproval

4. Commencement of Corporate Existence

Cagayan Fishing vs. Sandiko (65 Phil 233)

5. Defectively-formed corporations

a. De facto corporations

Municipality of Malabang vs. Benito (27 SCRA 452) Hall vs. Piccio (86 Phil 603)
b. Corporation by Estoppel

Lozano vs. Delos Santos (274 SCRA 452)

Albert vs. University Publishing (13 SCRA 84)

Salvattierra vs. Garlitos (103 Phil 757)

Chiang Kai Shiek vs. CA (172 SCRA 389)

Asia Banking Corp. vs. Standard Products (46 Phil 144)

International Express Travel vs. CA (343 SCRA 674)

Greorg Grotjahn vs. Isnani (235 SCRA 216)

6. Organization and Commencement of Business

a. Corporate organization

b. Commencement of Business Transaction

V. CORPORATE CHARTER AND ITS AMENDMENTS

1. The Corporate Charter

a. Corporate Entity Theory

Sulo ng Bayan vs. Araneta (72 SCRA 347)

Caram vs. CA (151 SCRA 372)

Rustan Pulp and Paper Mills vs. CA (214 SCRA 665)

Cruz vs. Dalisay (152 SCRA 482) Palay Inc. vs. Clave (124 SCRA 638)

Soriano vs. CA (174 SCRA 195)

2. Piercing the Veil of Corporate Fiction

a. General Concept

Palacio vs. Fely Transportation Co. (5 SCRA 1011)

Marvel Bldg. vs. David (94 SCRA 376)

Yutivo and Sons vs. CTA (1 SCRA 160)


Commissioner vs. Norton & Harrison (11 SCRA 714)

La Campana Coffee vs. Kaisahan ng Manggagawa (93 Phil 160)

Emilio Cano vs. CIR (13 SCRA 290) Telephone Engineering vs. WCC (104 SCRA 354)

Claparols vs. CIR (65 SCRA 613)

Nat'l Federation vs. Ople (143 SCRA 124)

A.C. Ransom vs. CA (150 SCRA 498)

Concept Builders vs. NLRC (257 SCRA 149)

Mc Connel vs. CA (1 SCRA 722)

Tan Boon Bee vs. Jarencio (163 SCRA 205)

Cease vs. CA (93 SCRA 483)

Wensha Spa Center, Inc. vs. Yung. (GR No. 185122, August 10, 2010)

General Credit Corp. vs. Alsons Development, et. al. (GR 154975, January 29, 2007)

b. When not justified

Remo, Jr. vs. IAC (172 SCRA 405)

Del Rosario vs. NLRC (187 SCRA 777)

Indophil Textile Mills vs. Galica (205 SCRA 697)

PNB vs. Ritratto Group (362 SCRA 216)

Pacific Rehaus Corp. vs. CA (719 SCRA 665)

Yu vs. NLRC (245 SCRA 134)

Francisco Motors Corporation vs. Court of Appeals (GR. No. 100812, June 25, 1999)

3. Amendment of Corporate Charter

4. Special Amendments

5. Provisions subject to amendments

a. Change in Corporate Name

Phil. First Insurance vs. Hartigan (74 SCRA 2520)


Relevant SEC Memorandum Circulars

b. Corporate Term

Alhambra Cigar vs. SEC (24 SCRA 269)

CRMD and SEC vs. Ching Bee Trading Corporation (GR No 205291)

VI. BOARD OF DIRECTORS / TRUSTEES

1. Powers of the Board

a. Classification of Powers

Ramirez vs. Orientalist (38 Phil 634) Barreto vs. La Previsora (57 Phil 649)

b. Qualifications and Disqualifications

Lee vs. CA (205 SCRA 572) Detective and Protective Bureau vs. Cloribel (26 SCRA 256)
Grace Christian High School vs CA (281 SCRA 133) Tan vs Sycip (499 SCRA 216)

2. Election and Voting

3. Validity and Binding Effects of Actions of Corporate Officers

Yao Ka Sin Trading vs CA (209 SCRA 763) Lopez Realty vs. Fontecha (247 SCRA 183) Pua
Casim vs. Neumark (46 Phil 242) Yu Chuck vs. Kong Li Po (46 Phil 208) Francisco vs. GSIS
(7 SCRA 557) Board of Liquidators vs. Kalaw (20 SCRA 987) Buenaseda vs. Bowen & Co.
(110 Phil 464)

4. Removal and Filling up of vacancies

Valle Verde Country Club vs. Africa (598 SCRA 201, September 2009)

5. Compensation of Directors

Central Cooperative Exchange vs. Tibe (33 SCRA 593) Western Inst. of Tech. vs. Salas (278
SCRA 216) Gov't vs. El Hogar Filipino (50 Phil 399)

6. Liability Corporate Officers


Tramat Mercantile vs. CA (238 SCRA 214) Llamado vs. CA (270 SCRA 423) Uichico vs.
NLRC (273 SCRA 35)

7. Three-fold Duty of Directors

Montelibano vs. Bacolod Murcia Milling (5 SCRA 36) Strong vs. Repide (41 Phil 947)

8. Self-Dealing Directors

Prime White Cement vs. IAC (220 SCRA 1030) Mead vs. Mc Cullough (21 Phil 95)

Course Outline Atty. Joanne L. Ranada


Business Organization II 2nd Semester, AY 2018-2019

Arellano University School of Law Donada corner Menlo Street Pasay City

9. Interlocking Directors

10. Derivative Suit

Pascual vs. Orozco (19 Phil 83) Everette vs. Asia Banking (49 Phil 512) Republic Bank vs.
Cuaderno (19 SCRA 671) Western Institute of Tech. vs. Salas (supra) San Miguel Corp. vs.
Khan (176 SCRA 447) Chase vs. Buencamino (136 SCRA 365) Reyes vs. Tan (3 SCRA 198)
Gamboa vs. Victorino (90 SCRA 40) Evangelista vs. Santos (86 Phil 387)

11. Executive Committee

VII. CORPORATE POWERS AND AUTHORITY

1. Classifications of Corporate Power

a. Power to sue and be sued

Delta Motors vs. Mangosing (70 SCRA 77) E.B. Villarosa & Partner Co. vs. Benito (GR
14926, August 6, 1999)

b. Power of Succession

c. Power to Adopt and Use a Common Seal

d. Power to Amend the Articles of Incorporation

e. Power to Adopt By-Laws

f. Power to Sell / Issue Stocks or Admit Members


g. Power to Acquire / Alienate Property

Luneta Motors Co. vs. A.D. Santos Inc. (5 SCRA 809) Gov't. vs. El Hogar Filipino (supra)
Director of Lands vs. CA (158 SCRA 568)

h. Power to Adopt Plans of Merger / Consolidation

i. Power to make Donations

j. Power to establish Pension, Retirement and other Plans

Republic vs. Acoje Mining Co. (7 SCRA 361)

k. Implied Powers

Teresa Electric vs. PSC (21 SCRA 199) National Power Corporation vs. Vera (170 SCRA 721)
Powers vs. Marshall (161 SCRA 176)

l. Power to Extend / Shorten Corporate Term

m. Power to Increase / Decrease the Authorized Capital Stock; Incur / Create Bonded
Indebtedness

Philtrust vs. Rivera (44 Phil 469)

Course Outline Atty. Joanne L. Ranada


Business Organization II 2nd Semester, AY 2018-2019

Arellano University School of Law Donada corner Menlo Street Pasay City

Madrigal & Co. vs. Zamora (151 SCRA 3550)

n. Power to Deny Pre-emptive Rights

Benito vs. SEC (123 SCRA 722) SEC OGC Opinion No. 11-41, 5 October 2011 The
Philippine Stock Exchange Inc.

SEC OGC Opinion dated 10 March 2000 Radio Philippines Network Inc. (RPN)

SEC OGC Opinion dated 30 September 1992 Industrial Security Consultancy and Management
Inc.

o. Power to Sell / Dispose of Assets

Islamic Directorate of the Phils. vs. CA (272 SCRA 454) Edward Nell & Co. vs. Pacific Farms
(15 SCRA 415)
p. Power to Acquire Own Shares

Steinberg vs. Velasco

q. Power to Invest Funds

De la Rama vs. Ma-ao Sugar Central (7 SCRA 247) John Gokongwei vs. SEC (89 SCRA 336)

r. Power to Declare Dividends

i. Types

ii. When and to whom it is vested

Nielson & Co. vs. Lepanto Consolidated Mining (26 SCRA 540)

s. Power to Enter into Management Contracts

2. Ultra Vires Acts

a. Consequences: on the Corporation, on the immediate parties, on the stockholders

Privano vs. Dela Rama Steamship Co. (96 Phil 335) Carlos vs. Mindoro Sugar Co. (57 Phil 343)
Japanese Warnotes Claimants Assn. vs. SEC (110 Phil 540) Crisologo - Jose vs. CA (117 SCRA
594)

VIII. BY- LAWS

Loyola Grand Villas Assn. vs. CA (276 SCRA 681) Govt vs. El Hogar Filipino (supra)
Gokongwei vs. SEC (89 SCRA 336)

- MIDTERMS -

Course Outline Atty. Joanne L. Ranada


Business Organization II 2nd Semester, AY 2018-2019

Arellano University School of Law Donada corner Menlo Street Pasay City

IX. MEETINGS

1. Stockholders' / Members' Meeting

Board of Directors vs. Tan (105 Phil 426) Ponce vs. Encarnacion (91 Phil 81)

2. Directors' / Trustees' Meeting


SEC Memorandum Circular No. 15, Series of 2001 Board Meeting Through Teleconferencing
or Videoconferencing ("Tele/Video Conferencing")

Expertravel & Tours, Inc. vs CA (GR No. 152393; 26 May 2005)

3. Right to Vote and Manner of Voting

a. Proxy and other representative voting

NIDC vs. Aquino (160 SCRA 153) Lanuza, et. al., vs. CA (GR No. 131394; 28 March 2005)

SEC Memorandum Circular No. 4, Series of 2004 Voting by Mail and One Share-One Vote
Policy

IX. STOCK and STOCKHOLDERS

1. Subscription Contract Trillana vs Quezon College (93 Phil 383)

SEC Memorandum Circular No. 11, Series of 2016 Subscription Contracts

2. Pre-incorporation Subscription

National Exchange vs. Dexter (51 Phil 601)

3. Certificates of Stock and their Transfer

Monserrat vs. Ceron (58 Phil 472) Chua Guan vs. Samahang Magsasaka (62 Phil 472) Padgett
vs. Babcock & Templeton (59 Phil 232) Lambert vs. Fox (26 Phil 588) Embassy Farms vs.
CA (188 SCRA 492) Razon vs IAC (207 SCRA 510) Rural Bank of Salinas vs. CA (210
SCRA 510) Tay vs. CA (GR No. 126891, August 5, 1998) Rural Bank of Lipa vs. CA (366
SCRA 740) Tan vs. SEC (206 SCRA 740) Nava vs. PEERS Marketing (74 SCRA 65) Won
vs. Wack Wack Golf (104 Phil 466) De los Santos vs. Mc Grath (95 Phil 577) Vicente Ponce
vs. Alsons Cement Corporation (GR No. 139802; 10 December 2002)

4. Forged and Unauthorized Transfers

5. Issuance of Stock Certificates

Fua Cun vs. Summers

6. Watered Stocks

Course Outline Atty. Joanne L. Ranada


Business Organization II 2nd Semester, AY 2018-2019

Arellano University School of Law Donada corner Menlo Street Pasay City
9

7. Enforcement and Payment of Unpaid Subscriptions

Velasco vs. Poizat (37 Phil 802) De Silva vs. Aboitiz & Co. (44 Phil 755) Lingayen Gulf vs.
Baltazar (93 Phil 746) Apocada vs. NLRC (175 SCRA 442) Lumanlan vs. Cura (59 Phil 746)
PNB vs. Bitulok Sawmill (33 SCRA 136) Edward Keller vs. COB Group (141 SCRA 86)
Garcia vs. Suarez (67 Phil 441)

8. Effects of Delinquency

9. Rights of Unpaid Shares

10. Lost or Destroyed Certificates

11. Rights and Liabilities of Stockholders

XI. CORPORATE BOOKS AND RECORDS

1. Books and Records to be Kept

2. Right of Inspection

W.G. Philpotts vs. Phil. Mfg. Corp. (49 Phil 471) Vegaruth vs. Isabela Sugar (57 Phil 266)
Gokongwei vs. SEC (supra) Gonzales vs. PNB (122 Phil 489)

XII. MERGER AND CONSOLIDATION

1. Requirements and Procedure

2. Effects

Associated Bank vs. CA (GR 123793, June 29, 1998) BPI vs. BPI Employees Union (658
SCRA 569)

3. Philippine Competition Act (RA 10667) and its Implementing Rules and Regulations

Acquisition, defined

Merger, defined

Rules on Mergers & Acquisitions (Sections 16-23)

Thresholds for Compulsory Notification

Prohibited Mergers & Acquisitions

Exemptions from Prohibited Mergers & Acquisitions


Merger of iPeople, Inc. and AC Education, Inc. CD No. 42-M-038/2018

Acquisition by The Walt Disney Company of Shares in Twenty-First Century Fox, Inc.
Commission Decision No. M-33-028/2018

Acquisition by Robinsons Retail Holdings Inc. of Shares in Rustan Supercenters Inc.


Commission Decision No. 28-M-024/2018

Course Outline Atty. Joanne L. Ranada


Business Organization II 2nd Semester, AY 2018-2019

Arellano University School of Law Donada corner Menlo Street Pasay City

10

Acquisition by Grab Holdings Inc. and MyTaxi.PH Inc. of Assets of Uber B.V. and Uber
Systems Inc. (PCC Case No. M-2018-001)

Acquisition by City Savings Bank, Inc. and Union Properties, Inc. of Shares in PETNET, Inc.
Commission Decision No. 16-M-014/2018

In the Matter of the Acquisition by Grab Holdings, Inc. and MyTaxi.PH, Inc., of Assets of Uber
B.V. and Uber Systems, Inc. Commission Order No. M-2018-001

Joint Venture between Robinsons Land Corporation and Shang Properties, Inc. Commission
Decision No. 11-M-008/2018

XIII. APPRAISAL RIGHT

1. Definition; when exercised

2. Requirements and Procedure

3. Effect

4. When Right ceases

5. Cost of appraisal

XIV. NON-STOCK CORPORATIONS

1. Definition; Purpose

2. Membership and Voting Rights

Chinese YMCA vs. Ching (71 SCRA 463) Cebu Country Club vs. Elizagaque (542 SCRA 65)

3. Trustees and Officers


Lions Club Int'l vs. CA (121 SCRA 621)

4. Other references:

SEC Memorandum Circular No. 8, Series of 2006 Revised Guidelines on Foundations

SEC Memorandum Circular No. 4, Series of 2013 Amendment of Part I (4) (A) & (B) of SRC
Rule 68, as amended

SEC Memorandum Circular No. 10, Series of 2016 Guidelines on the Issuance of Certificate on
the Nationality of Non-Stock Corporations

XV. CLOSE CORPORATIONS

1. Definition; Permissive Provisions

2. Effects of Breach of Qualifying Provisions

3. Stockholders' Agreement

4. When Board Meeting Not Necessary

Course Outline Atty. Joanne L. Ranada


Business Organization II 2nd Semester, AY 2018-2019

Arellano University School of Law Donada corner Menlo Street Pasay City

11

5. Pre-Emptive Right

6. Deadlocks

7. Withdrawal of Stockholders / Dissolution

Dulay Enterprises vs. CA (225 SCRA 678) Naguiat Enterprises vs. NLRC (268 SCRA 546)

XVI. SPECIAL CORPORATIONS

1. Educational Corporations

2. Religious Corporations

a. Corporation Sole Roman Catholic Apostolic Church vs. LRC (102 Phil 596) Director vs.
CA (158 SCRA 568) Republic vs. IAC (168 SCRA 165)

i. Filling up of Vacancies

ii. Dissolution
3. Religious Societies

XVII. DISSOLUTION AND WINDING UP

1. Methods of Dissolution

a. Expiration of Corporate Term

PNB vs. CFI (209 SCRA 294)

b. Voluntary Dissolution

i. Where no creditors are affected

ii. Where creditors are affected

c. Shortening of Corporate Term

d. Involuntary Dissolution

Gov't vs. Phil. Sugar Estate (39 Phil 15) Gov't vs. El Hogar Filipino (supra) Republic vs.
Security Credit (19 SCRA 59) Republic vs. Visaya Land (81 SCRA 9) Financing
Corporation vs. Teodoro (94 Phil 687)

2. Effects of Dissolution

Buenaflor vs. Camarines Sur Industry (108 Phil 427) Cebu Port Labor Union vs. State Marine
(101 Phil 468) Gonzales vs. Sugar Regulatory Administration (174 SCRA 377)

3. Liquidation and Winding Up

National Abaca vs. Pore (2 SCRA 989) Sumera vs. Valencia (67 Phil 721)

Course Outline Atty. Joanne L. Ranada


Business Organization II 2nd Semester, AY 2018-2019

Arellano University School of Law Donada corner Menlo Street Pasay City

12

Board of Liquidators vs. Kalaw (20 SCRA 987) Gelano vs. CA (103 SCRA 90) Republic vs.
Marsman (44 SCRA 481) Chung Ka Bio vs IAC (163 SCRA 534) Clemente vs. CA (242
SCRA 717)

XVIII. FOREIGN CORPORATIONS (read together with Retail Trade Law and Foreign
Investments Act)

1. Definition
2. Modes of Entry

3. Application of License

Subsidiary (FIA Form F-100) Branch Office (FIA Form F-103) Representative Office (FIA
Form F104) Regional Operating Area Headquarters Regional Area Headquarters

4. Resident Agent

5. Effect of Doing Business Without a License

Mentholatun vs. Mangaliman (72 Phil 524) Marshall-Wells vs. Elser (46 Phil 70) Bulakhids
vs. Navarro (142 SCRA 1) Swedish East Asia vs. Manila Port Services (25 SCRA 632)
Antam Consolidated vs. CA (143 SCRA 288) Facilities Management vs. Dels Osa (89 SCRA
131) Far East International vs. Nankai Kogyo (6 SCRA 725) Communication Materials and
Design vs. CA (260 SCRA 673) Western Equipment vs. Reyes (51 Phil 115) General
Garments vs. Director (41 SCRA 50) Puma Sportshufabriken vs. IAC (158 SCRA 233) Le
Chemise Lacoste vs. Fernandez (120 SCRA 377)

6. Capacity to Sue

Atlantic Mutual Insurance vs. Cebu Stevedoring (17 SCRA 1037) Olympia Business Machines
vs. E. Razon Inc. (155 SCRA 208) Time vs. Reyes (39 SCRA 303)

7. Laws Governing Foreign Corporations

M.E. Gray vs. Insular Lumber (67 Phil 139)

8. Amendment of the License

9. Merger / Consolidation

10. Revocation of License

11. Withdrawal of License

XIV. MISCELLANEOUS PROVISIONS

Course Outline Atty. Joanne L. Ranada


Business Organization II 2nd Semester, AY 2018-2019

Arellano University School of Law Donada corner Menlo Street Pasay City

13

PART 2 PRESIDENTIAL DECREE 902-A


I. Devices or Schemes Amounting to Fraud

II. Intra-Corporate Controversies

Medical Plaza Makati Condominium Corporation vs. Cullen (GR No. 181416; 11 November
2013)

III. Controversies in the Election, Appointment or Removal of Directors / Officers

IV. Appointment of Management Committee, Board or Body

R.J. Jacinto vs. FWCC (410 SCRA 140) Sy Chim vs. Sy Siy Ho & Sons (480 SCRA 206)

PART 3 SECURITIES REGULATION CODE 2015 IMPLEMENTING RULES AND


REGULATIONS

I. Rule 3: Definition of Terms

II. Rule 5: Powers and Functions of the Commission

SEC Memorandum Circular No. 11, Series of 2003 Supervision Over Registered Corporations

III. Title III: Registration of Securities

Rule 8.1 Registration Statement

SEC Memorandum Circular No. 13, Series of 2017 Rules and Regulations on Minimum Public
Ownership (MPO) on Initial Public Offerings.

Rule 9.1 Exempt Securities

Rule 9.2 Other Exempt Transactions

Rule 10.1 Exempt Transactions

Rule 10.1.7 Isolated Transactions

Rule 10.1.11 Qualified Buyers

Rule 10.2 Limited Public Offerings and other Exempt Transactions

Rule 10.3 Application for Confirmation of Exemption

Rule 13 Suspension or Revocation of Registration of Securities

Rule 14 Amendments to the Registration Statement and Prospectus

Rule 15 Reportorial Requirements


Rule 19 Tender Offer; Mandatory Tender Offer and Exemptions

Justee Terms Enterprise vs. SEC (CA GR. SP. No. 48013, July 30, 1999) China Banking vs.
CA (270 SCRA 503) People vs. Petralba (439 SCRA 158)

Course Outline Atty. Joanne L. Ranada


Business Organization II 2nd Semester, AY 2018-2019

Arellano University School of Law Donada corner Menlo Street Pasay City

14

Rule 23 Reports to be Filed by Directors, Officers and Principal Stockholders

IV. Title VII: Prohibitions on Fraud, Manipulation and Insider Trading

Rule 24.1 Manipulative Practices

Rule 24.2 Short Sales

Rule 25 Option Trading

Rule 26 Fraudulent Transactions

Rule 27 Insider Trading

V. Title VIII: Registration of Securities Market Professionals

Rule 28.1.1 Broker Dealer

Rule 28.1.2 Registration Requirements

Rule 28.1.5 Registration of Salesmen and Associated Persons of Broker Dealers Rule 28.1.5.4
Registration Requirements

VI. Title IX: Exchanges and other Securities Trading Markets

Rule 38 Requirements on Nomination and Election of Independent Directors

SEC Memorandum Circular No. 9, Series of 2011 Term Limits for Independent Directors

SEC Advisory dated 20 July 2015 Clarification on the Term Limits of Independent Directors

SEC Advisory dated 31 March 2016 Term Limits for Independent Directors

SEC Memorandum Circular No. 7, Series of 2018 Amendment to Rule 38.2.7 of the 2015 IRR of
the SRC

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