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CORPORATION LAW FINAL EXAM SAMPLEX ANSWER KEY

San Juan Petitioner claims that Motorich is a close corporation. We rule that it is not.
Structural and (See Sec. 96 for definition of a close corporation.)
Steel vs CA The articles of incorporation of Motorich Sales Corporation does not
contain any provision stating that (1) the number of stockholders shall not
DOCTRINES exceed 20, or (2) a preemption of shares is restricted in favor of any
stockholder or of the corporation, or (3) listing its stocks in any stock
exchange or making a public offering of such stocks is prohibited. From its
Gonzales vs As may be noted, among the changes introduced in the new Code with articles, it is clear that Respondent Motorich is not a close corporation.
PNB respect to the right of inspection granted to a stockholder are the Motorich does not become one either, just because Spouses Reynaldo and
following: Nenita Gruenberg owned 99.866% of its subscribed capital stock. The
(1) the records must be kept at the principal office of the corporation; [m]ere ownership by a single stockholder or by another corporation of all or
(2) the inspection must be made on business days; nearly all of the capital stock of a corporation is not of itself sufficient
(3) the stockholder may demand a copy of the excerpts of the records or ground for disregarding the separate corporate personalities." So, too, a
minutes; and narrow distribution of ownership does not, by itself, make a close
(4) the refusal to allow such inspection shall subject the erring officer or corporation.
agent of the corporation to civil and criminal liabilities.

However, while seemingly enlarging the right of inspection, the new Code Manuel Dulay Petitioner corporation is classified as a close corporation and consequently
has prescribed limitations to the same. It is now expressly required as a Enterprise vs a board resolution authorizing the sale or mortgage of the subject property
condition for such examination that the one requesting it: CA is not necessary to bind the corporation for the action of its president. At
(a) must not have been guilty of using improperly any information any rate, a corporate action taken at a board meeting without proper call
secured through a prior examination, and that or notice in a close corporation is deemed ratified by the absent director
(b) (b) the person asking for such examinations must be "acting in good unless the latter promptly files his written objection with the secretary of
faith and for a legitimate purpose in making his demand." the corporation after having knowledge of the meeting which, in this case,
petitioner Virgilio Dulay failed to do. Petitioners' claim that the sale of the
subject property by its president, Manuel Dulay, to private respondents
Babst vs CA At the outset, the preliminary issue of BPI's right of action must first be spouses Veloso is null and void as the alleged Board Resolution No. 18 was
addressed. ELISCON and MULTI assail BPI's legal capacity to recover their passed without the knowledge and consent of the other members of the
obligation to CBTC. However, there is no question that there was a valid board of directors cannot be sustained. The sale of the subject property to
merger between BPI and CBTC. It is settled that in the merger of two private respondents by Manuel Dulay is valid and binding.
existing corporations, one of the corporations survives and continues the
business, while the other is dissolved and all its rights, properties and
liabilities are acquired by the surviving corporation. Hence, BPI has a right Vesagas vs CA The requirements (for dissolution) mandated by the Corporation Code
to institute the case a quo. should have been strictly complied with by the members of the club. The
records reveal that no proof was offered by the petitioners with regard to
the notice and publication requirements. Similarly wanting is the proof of
Padcomm As lot owner, PADCOM is a regular member of the Association. No the board members' certification. Lastly, and most important of all, the SEC
Condominium application for membership is necessary. If at all, acceptance by the Board Order of Dissolution was never submitted as evidence.
vs Ortigas of Directors is a ministerial function considering that PADCOM is deemed to We rule that the present dispute is intra-corporate in character. In the first
be a regular member upon the acquisition of the lot pursuant to the place, the parties here involved are officers and members of the club.
automatic membership clause annotated in the Certificate of Title of the Respondents claim to be members of good standing of the club until they
property and the Deed of Transfer. Neither are we convinced by PADCOM's were purportedly stripped of their membership in illegal fashion.
contention that the automatic membership clause is a violation of its Petitioners, on the other hand, are its President and Vice-President,
freedom of association. PADCOM was never forced to join the association. respectively. More significantly, the present conflict relates to, and in fact
It could have avoided such membership by not buying the land from TDC. arose from, this relation between the parties. The subject of the complaint,
Nobody forced it to buy the land when it bought the building with the namely, the legality of the expulsion from membership of the respondents
annotation of the condition or lien on the Certificate of Title thereof and and the validity of the amendments in the club's by-laws are, furthermore,
accepted the Deed. PADCOM voluntarily agreed to be bound by and within the Commission's jurisdiction.
respect the condition, and thus to join the Association.
Tan Tion vs The creditor of a dissolved corporation may follow its assets once they Eriks Pte Ltd. "Doing business" - The term implies a continuity of commercial dealings
CIR passed into the hands of the stockholders. The dissolution of a corporation vs CA and arrangements, and contemplates, to that extent, the performance of
does not extinguish the debts due or owing to it. A creditor of a dissolved acts or works or the exercise of some of the functions normally incident to,
corporation may follow its assets, as in the nature of a trust fund, into the and in progressive prosecution of, the purpose and object of its
hands of its stockholders. An indebtedness of a corporation to the federal organization.
government for income and excess profit taxes is not extinguished by the
dissolution of the corporation. What is determinative of "doing business" is not really the number or the
quantity of the transactions, but more importantly, the intention of an
That the hands of the government cannot, collects taxes from a defunct entity to continue the body of its business in the country. The number and
corporation, it loses thereby none of its rights to assess taxes which had quantity are merely evidence of such intention. The phrase "isolated
been due from the corporation, and to collect them from persons who by transaction" has a definite and fixed meaning. i.e. a transaction or series of
reason of transaction with the corporation hold property against which the transactions set apart from the common business of a foreign enterprise in
tax can be enforced and that the legal death of the corporation no more the sense that there is no intention to engage in a progressive pursuit of
prevents such action than would the physical death of an individual prevent the purpose and object of the business organization. Whether a foreign
the government from assessing taxes against him and collecting them from corporation is "doing business" does not necessarily depend upon the
his administrator who holds the property which the decedent had formerly frequency of its transactions, but more upon the nature and character of
possessed. the transactions.

By securing a license, the foreign entity would be giving assurance that it


Facilities If a foreign corporation, not engaged in business in the Philippines is not will abide by the decisions of our courts, even if adverse to it. This Court
Management barred from seeking redress from courts in the Philippines, a fortiori, that has ruled that subsequent acquisition of the license will cure the lack of
Corporation same corporation cannot claim exemption from being sued in the capacity at the time of the execution of the contract.
vs Dela Rosa Philippine courts for acts done against a person or persons in the
Philippines.
Summdad vs The mere use of the phrase "in fraud of creditors" does not, ipso fact,
The act by a non-resident foreign corporation of recruiting Filipino workers Harrigan throw the case within SEC's jurisdiction. The amended complaint filed by
for its own use abroad constitutes in the law doing business in the Harrigan does not sufficiently allege acts amounting to fraud and
Philippines. misrepresentation committed by respondent corporation.

Test of "doing business": Whether the foreign corporation is continuing the Equally unavailing is petitioner's contention that the case involves an intra-
body or substance of the business or enterprise for which it was organized corporate controversy, or one between the corporation and its stockholder
or whether it has substantially retired from it and turned it over to another. transposing it within the domain of the SEC. It should be noted that the
issue has become moot and academic because with Republic Act No. 8799,
Securities Regulation Code, it is now the Regional Trial Court and no longer
Home On validity of contracts of unlicensed foreign corporations - Contract the SEC that has jurisdiction. Under Section 5.2 of Republic Act No. 8799,
Insurance vs enforceable upon compliance with the law - "Where there is a prohibition original and exclusive jurisdiction to hear and decide, cases involving intra-
Eastern with a penalty, with no express or implied declaration respecting the corporate controversies have been transferred to a court of general
Shipping Lines validity or enforceability of contracts made by qualified foreign jurisdiction or the appropriate Regional Trial Court.
corporations, the contracts are enforceable upon compliance with the law.

It is not necessary to declare the contract null and void as against the erring
foreign corporation. The penal sanction for violation and the denial of
access to our courts and administrative bodies are sufficient from the
viewpoint of legislative policy. The lack of capacity at the time of the
execution of the contracts is CURED by the subsequent registration of the
licensed foreign corporation.
DEFINITIONS ESSAY

CONCESSION THEORY ELECTION OF PRESIDENT


It is a principle in the creation of corporations, under which a corporation is an artificial Section 25. Corporate officers, quorum. - Immediately after their election, the directors of a
creature without any existence until it has received the imprimatur of the State acting corporation must formally organize by the election of a president, who shall be a director, a
according to law, through the SEC. The life of the corporation is a concession made by the treasurer who may or may not be a director, a secretary who shall be a resident and citizen of
State. the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or
more positions may be held concurrently by the same person, except that no one shall act as
Section 19 of the Corporation Code provides for the commencement of corporate existence, president and secretary or as president and treasurer at the same time.
that— “A private corporation formed or organized under this Code commences to have
corporate existence and juridical personality and is deemed incorporated from the date the The directors or trustees and officers to be elected shall perform the duties enjoined on them
SEC issues a certificate of incorporation under its official seal x x x.” by law and the by-laws of the corporation. Unless the articles of incorporation or the by-laws
provide for a greater majority, a majority of the number of directors or trustees as fixed in the
articles of incorporation shall constitute a quorum for the transaction of corporate business,
RECIPROCITY and every decision of at least a majority of the directors or trustees present at a meeting at
The right of reciprocity, being one of the elements of a foreign corporation, means that the which there is a quorum shall be valid as a corporate act, except for the election of officers
laws by which the foreign corporation is organized allows Filipino citizens and corporations to which shall require the vote of a majority of all the members of the board.
do business in its own country or state. Directors or trustees cannot attend or vote by proxy at board meetings. (33a)

COMMODITY FUTURES CONTRACT Section 26. Report of election of directors, trustees and officers. - Within thirty (30) days after
As defined in the case of Onapal vs CA, this refers to an agreement to buy or sell a specified the election of the directors, trustees and officers of the corporation, the secretary, or any
quantity and grade of a commodity at a future date at a price established at the floor of the other officer of the corporation, shall submit to the Securities and Exchange Commission, the
exchange. names, nationalities and residences of the directors, trustees, and officers elected. Should a
director, trustee or officer die, resign or in any manner cease to hold office, his heirs in case of
his death, the secretary, or any other officer of the corporation, or the director, trustee or
BUSINESS OPPORTUNITY officer himself, shall immediately report such fact to the Securities and Exchange Commission.
Under the doctrine of corporate opportunity, a director who, by virtue of his office, acquires (n)
for himself a business opportunity which should belong to the corporation, thereby obtaining
profits to the prejudice of such corporation, is guilty of disloyalty and should, therefore,
account to the latter for all such profits by refunding the same, notwithstanding that he risked Section 27. Disqualification of directors, trustees or officers. - No person convicted by final
his funds in the venture. judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a
violation of this Code committed within five (5) years prior to the date of his election or
appointment, shall qualify as a director, trustee or officer of any corporation. (n)
INSIDER TRADING
In the concurring opinion of Justice Tinga in the case of SEC vs Interport Resources, “insider
trading” was defined as involving the trading of securities based on knowledge of material
information not disclosed to the public at the time. Such activity is generally prohibited in REFUSAL TO ISSUE STOCK CERTIFICATE
many jurisdictions, including our own, though the particular scope and definition of "insider (1) Every stockholder has a right to have a proper certificate issued to him as soon as he has
trading" depends on the legislation or case law of each jurisdiction. complied with the conditions which entitle him to one as by payment for his shares or the
like.
a. suit for specific performance of an express or implied contract
 a stockholder may, however, sue instead for damages where specific
performance cannot be granted, or
 in some instance, may rescind his contract of subscription and recover the
consideration paid
b. petition for mandamus when appropriate
(2) But one who has no subscription contract with a corporation cannot compel the
corporation to issue certificates of stock for the shares paid for by him where certificates
for the said shares had already been issued in the name of an officer of the corporation
with whom the plaintiff had agreed on a joint venture to be conducted in the name of the
corporation and to whom the payment was given, his remedy being against such officer. OTHER POSSIBLE QUESTIONS
(British American Engineering Corporation vs Alto Surety & Insurance Co.)
SUPREME COURT DEFINITION OF “DOING BUSINESS”
Batas Pambansa Blg. 68, otherwise known as “The Corporation Code of the Philippines,” is
silent as to what constitutes doing” or “transacting” business in the Philippines. Fortunately,
REFUSAL TO PAY OUTSTANDING BALANCE IN SUBSCRIPTION jurisprudence has supplied the deficiency and has held that the term “implies a continuity of
Section 67. Payment of balance of subscription. - Subject to the provisions of the contract of commercial dealings and arrangements, and contemplates, to that extent, the performance
subscription, the board of directors of any stock corporation may at any time declare due and of acts or works or the exercise of some of the functions normally incident to, and in
payable to the corporation unpaid subscriptions to the capital stock and may collect the same progressive prosecution of, the purpose and object for which the corporation was organized.”
or such percentage thereof, in either case with accrued interest, if any, as it may deem In Mentholatum Co. Inc., vs. Mangaliman, this Court laid down the test to determine whether
necessary. a foreign company is “doing business,” thus:
“ x x x The true test, however, seems to be whether the foreign corporation is continuing
Payment of any unpaid subscription or any percentage thereof, together with the interest the body or substance of the business or enterprise for which it was organized or whether it
accrued, if any, shall be made on the date specified in the contract of subscription or on the has substantially retired from it and turned it over to another.” (MR Holdings vs Bajar)
date stated in the call made by the board. Failure to pay on such date shall render the entire
balance due and payable and shall make the stockholder liable for interest at the legal rate on
such balance, unless a different rate of interest is provided in the by-laws, computed from What is determinative of "doing business" is not really the number or the quantity of the
such date until full payment. If within thirty (30) days from the said date no payment is made, transactions, but more importantly, the intention of an entity to continue the body of its
all stocks covered by said subscription shall thereupon become delinquent and shall be business in the country. The number and quantity are merely evidence of such intention. The
subject to sale as hereinafter provided, unless the board of directors orders otherwise. (38) phrase "isolated transaction" has a definite and fixed meaning, i.e. a transaction or series of
transactions set apart from the common business of a foreign enterprise in the sense that
there is no intention to engage in a progressive pursuit of the purpose and object of the
business organization. Whether a foreign corporation is "doing business" does not necessarily
REQUIREMENTS OF CLOSE CORPORATION depend upon the frequency of its transactions, but more upon the nature and character of
Section 96. Definition and applicability of Title. - A close corporation, within the meaning of the transactions. (Eriks Pte. Ltd. vs CA)
this Code, is one whose articles of incorporation provide that: (1) All the corporation's issued
stock of all classes, exclusive of treasury shares, shall be held of record by not more than a
specified number of persons, not exceeding twenty (20); (2) all the issued stock of all classes
shall be subject to one or more specified restrictions on transfer permitted by this Title; and TENDER OFFER
(3) The corporation shall not list in any stock exchange or make any public offering of any of Tender offer is a publicly announced intention by a person acting alone or in concert with
its stock of any class. Notwithstanding the foregoing, a corporation shall not be deemed a other persons to acquire equity securities of a public company. A public company is defined
close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or as a corporation which is listed on an exchange, or a corporation with assets exceeding
controlled by another corporation which is not a close corporation within the meaning of this P50,000,000.00 and with 200 or more stockholders, at least 200 of them holding not less than
Code. 100 shares of such company. Stated differently, a tender offer is an offer by the acquiring
person to stockholders of a public company for them to tender their shares therein on the
Any corporation may be incorporated as a close corporation, except mining or oil companies, terms specified in the offer. Tender offer is in place to protect minority shareholders against
stock exchanges, banks, insurance companies, public utilities, educational institutions and any scheme that dilutes the share value of their investments. It gives the minority
corporations declared to be vested with public interest in accordance with the provisions of shareholders the chance to exit the company under reasonable terms, giving them the
this Code. opportunity to sell their shares at the same price as those of the majority shareholders.

The provisions of this Title shall primarily govern close corporations: Provided, That the
provisions of other Titles of this Code shall apply suppletorily except insofar as this Title
otherwise provides.

DOCTRINE OF SEPARATE ENTITY


A corporation is a legal or juridical person with a personality separate and apart from its
individual stockholders or members and from any other legal entity to which it may be
connected.