1. TELECONFERENCING
Actual user or exercise in GF of corporate powers upon it by
a. Valid in the Philippines under RA 8792. However,
Memorandum Circular No. 15 imposes electronic or tape
recording of the proceedings. There will be no violation of
the Anti-Wire Tapping Act (RA 4200)
b. Expert Travel Tours v Korean Airlines
i. Board meetings done through teleconferencing,
video conferencing, etc is allowed provided it
complies with
ii. RA 8792 – e-commerce act
iii. Guidelines stated by the SEC in memo circular #15
c. It should be emphasized that participation of directors in
meetings through teleconferencing and video conferencing
may be deemed acceptable only when adequate
safeguards have been accordingly set in place. Meetings of
this nature should be properly recorded and the
appropriate tapes and discs properly stored for
safekeeping. (SEC Opinion No. 26, March 22, 2003)
d. In the Philippines, teleconferencing and video-conferencing
of members of the BoD of private corporations is a reality
in light of RA 8792. The SEC Memorandum Circular No. 15,
providing the guidelines to be complied with related to
such conferences. (Expertravel & Tours v. CA, 2005)
2. CORPORATION BY ESTOPPEL, DE FACTO CORPORATION
Sec. 20. De facto corporations. - The due incorporation of any
corporation claiming in good faith to be a corporation under this Code,
and its right to exercise corporate powers, shall not be inquired into
collaterally in any private suit to which such corporation may be a party.
Such inquiry may be made by the Solicitor General in a quo warranto
proceeding.
Requisites
1. A valid law under which a corp with powers assumed might be
incorporated
2. A bona fide attempt to organize a corporation under such law
3.
law
DIRECT ATTACK/COLLATERAL ATTACK OF CORP EXISTENCE
DEFINED
1. DIRECT ATTACK
• One whereby the state, in a proceeding brought for that
purpose, attacks the existence of an association claiming to be
a corp
• Can only be instituted by the Solicitor General by quo warranto
proceedings
2. COLLATERAL ATTACK
• One whereby corporate existence is questioned in some
incidental proceedings not provided by law for the express
purpose of attacking the corporate existence
Example:
• Upon failure of A to pay his debt, X corp sued A. Can A
interpose the deense that X, being a DF corp, has no capacity
to contract and sue under its own name?
o NO!
o A is attacking X corp collaterally
o Defense of A = merely incidental to main action which
is to enforce the contract of X with A
o Can only be inquired into directly in a QW proceeding
instituted by the SG
RULE AGAINST COLLATERAL ATTACK
1. RATIONALE
• Based on public policy (not of equitable estoppel)
• Indi right is not invaded; it is the State’s right and authority
which are invaded and usurped
• It would produce endless confusion and hardship and probably
destroy the corporation if the legality of its existence could be
questioned in every suit
• Interest of public and essential to the validity of business
transactions
2. E: WHEN RULE NOT APPLICABLE
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 • When the lack of right or the wrongdoing of the corp is in issue
because in violation of public policy or of express or implied
statutory requirement, such as denial of its right to enforce
contracts entered into without compliance with prohibitions of
express or implied statutory or public policy
• Ex. Defendant may question the personality of a foreign corp
transacting business in the Phil to maintain a suit on the ground
that it is not duly licensed to do business in the Phil
WHEN CORP NOT EVEN A DE FACTO CORP
GR: If DF corp = individuals CANNOT raise the objection collaterally
DIRECT OR COLLATERAL ATTACK
• If failure to comply with condition precedents prevents the
coming into existence of a DF or DJ corp = ✓question may be
raised collaterally or directly and by priv indi or by the state
o E: Unless there is something to operate as an estoppel
• Question: W/N there is a corp DF
o If yes = x object
o If no = ✓ object
ESTOPPEL AS DEFENSE
• Where there is not even a corp DF, a private person may,
according to many cases, be barred from raising the objection
on the ground that he is estopped by his conduct
• As by having dealt with the pretended corp as a corp or by
having held it out to the public as a legally constituted corp
Sec. 21. Corporation by estoppel. - All persons who assume to
act as a corporation knowing it to be without authority to do so shall
be liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided, however, That when
any such ostensible corporation is sued on any transaction entered by
it as a corporation or on any tort committed by it as such, it shall not
be allowed to use as a defense its lack of corporate personality.
ESTOPPEL TO DENY CORPORATE EXISTENCE
• An unincorporated association which represented itself to be a
corp = estopped from denying its corporate capacity in a suit
against it by a 3rd person who relied in GF on such
representation
CORPORATION BY ESTOPPEL WITHOUT DE FACT EXISTENCE
• In other jurisdictions, the rule is that a corp must at least have
DF existence before there can be estoppel to deny its
existence
• BETTER RULE: Estoppel prevails notwithstanding that not all
the 3 requisites necessary to constitute a DF corp are present
• COE may arise even if no DF corp exists
• A COE has no real existence in law
• X DJ or DF
• “Mere fiction existing for the particular case and vanishing
where the element of estoppel is absent”
• Existence may be attacked by any 3rd party
o E: Where the attacking party is estopped to treat the
entity other than as a corp
• Exists only between the persons who misrepresented their
status and the parties who relied on the misrepresentation
• In order for one to be estopped to deny the corporate
existence of an organization, he must have contracted or dealt
with it as a corp
• See illustration page 202
ESTOPPEL OF PERSONS DEALING WITH A CORP
• Applies to both domestic as well as foreign corporations
• The STOCKHOLDERS OR MEMBERS - who participated in
holding it out as a corporation = estopped or precluded to
deny its existence against creditors to escape liability for corp
debts or for unpaid subscription to stocks
• A corp which continues its business instead of liquidating its
affairs after the expiration of the corporate term = corporation
by estoppel
o For the purpose of being sued on its contracts
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 o X Corp DF because it is no longer existing in fact and in
law
§ E: Only for purpose of liquidating its affairs
• THIRD PERSONS who deal with such corp recognizing it as
such and the PRETENDED CORP ITSELF – estopped from
denying its corp existence and raising the defense of lack of
corp personality for contracts or torts
• ALL PERSONS NOT STOCKHOLDERS OR MEMBERS – who
assume to act as a corp knowing it be without authority to do
so = ✓ liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof
PERSONS LIABLE AS GENERAL PARTNERS
• “All persons who assume to act as a corp” = liable as gen
partners
• Include persons who attempt, but fail, to forma corp and who
carry on business under the corp name = DF partnership
among them is created
4. DEFINE:
a. IDENTITY DOCTRINE
i. If the plaintiff can show that there was such unity of
interest and ownership that the independence of the
corporations had in effect ceased or had never begun,
and adherence to the fiction of separate identity would
serve only to defeat justice and equity by permitting
the economic entity to escape liability arising out of an
operation of one corporation for the benefit of the
whole enterprise (Aquino, 2011)
b. INSTRUMENTALITY RULE
i. Calls for the application of the test consisting of 3
requisites:
1. Control, not mere majority or complete control,
but complete domination, not only of finances
but of policy and business practice in respect
to the transaction attacked so that the
corporate entity as to this transaction had at
the time no separate mind, will or existence of
its own;
2. Such control must have been used by the
defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other
positive legal duty, or dishonest and, unjust act
in contravention of plaintiff's legal rights; and,
3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss
complained of (Aquino, 2011)
c. ALTER EGO DOCTRINE
i. It must be shown that there is unity of interest and
ownership that the separate personalities of the
corporation and the individual no longer exist and that
if the acts are treated as those of the corporation alone,
an inequitable result will follow (Aquino, 2011).
d. TRUST FUND DOCTRINE
i. It holds that the assets of the corporation as
represented by its capital stock are “trust funds” to be
maintained unimpaired and to used to pay corporate
creditors in the sense that there can no distribution of
such assets among the stockholders without provision
being first made for the payment of corporate debts
and that any such disposition of its fraud on the
creditors of the corporation who extend credit to the
corporation on the faith of its outstanding capital stock
and thus, void.
ii. GR: A corporation has generally no power to purchase
its own shares of stock except otherwise provided in
the Code.
iii. RATIO: Necessity of protecting the interests of existing
creditors who may be adversely affected by the stock
purchase which may operate to reduce its capital stock
to the extent of the shares purchased without
complying with the formalities required.
e. BUSINESS JUDGMENT RULE
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 i. GR: Business judgment rule- courts cannot undertake
to control the discretion of the BOD about
administrative matters as to which they have the
legitimate power of action and contracts intra vires are
binding upon the corporation and courts will not
interfere.
ii. EXC: unless such contracts are so unconscionable and
oppressive as to amount to wanton destruction of the
rights of the minority.
5. CASE DOCTRINES
a. FRANCISCO MOTORS V CA
i. The personality of the corp and those of its
incorporators, directors and officers in their personal
capacities should be kept separate.
ii. The claim for legal fees against the concerned
individual incorporators, officer and directors = X
properly directed against the corp
iii. Instead of holding certain individuals responsible for
the alleged corporate acts, the situation is reversed. It
is the petitioner as a corp which is being order to
answer for personal liability of directors, officers and
incorporators
iv. In short, the corporation is not liable for personal
liabilities of its directors, officers and incorporators
v. No piercing of the corporate veil
b. CRUZ V DALISAY
i. There mere fact that one is the president of the
corporation does NOT render his property the
property of the corporation since the president and the
corp are separate entities
ii. No piercing of the corporate veil
c. SEVENTH DAY ADVENTIST V NORTH EASTERN MINDANAO
i. Requisites of a de facto corporation
1. The existence of a VALID LAW under which it
may be incorporated
2. An attempt in GF to incorporate and
3. Assumption of corp powers
ii. It is not a de facto corporation because there was no
bona fide intention to organize.
iii. No filing AOI and did not issue certificate of
incorporation
iv. Not a de facto corporation
d. GRACE CHRISTIAN HIGH SCHOOL
i. Section 23 - Director must be elected among the
stockholders or members, not appointed, and only for
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 a period of 1 year and until their successors are elected
and qualified
ii. No vested right as permanent director
iii. The members merely tolerated petitioner’s
representative and tolerance cannot be considered
ratification
iv. Practice, no matter how long continued, cannot give
rise to any vested right if contrary to law
e. WESTERN INSTITUTE V SALAS
i. Members of the board may receive compensation as an
OFFICER or when they render services to the
corporation in a capacity other than as director or
trustee, but not as a director or BOD member only
f. SANTOS V NLRC
i. GR: The corporate directors, trustee or officers are not
personally liable for the acts of the corporation
ii. EXC:
1. He assents to:
a. a patently unlawful act of a corp or;
b. for bad faith or gross negligence in
directing its affairs or
c. for conflict in interest resulting in
damages to the corporation, or its SH
or other persons
2. He consents to the issuance of watered
stocks or who having knowledge thereof,
does not forthwith file with the corp sec his
written objection thereto
3. He agrees to hold himself personally and
solidarily liable
4. He is made, by a specific provision of the law,
to personally answer for his corporate actions
iii. In this case, petitioner does not fall under any of the
exceptions. Hence he is not personally liable.
g. PNB V ANDRADA
a.
i. The question of whether a corporation is a mere alter
ego is one of fact. Piercing the veil of corporate fiction
may be allowed only if the following elements concur:
1. control — not mere stock control, but
complete domination — not only of finances,
but of policy and business practice in respect
to the transaction attacked, must have been
such that the corporate entity as to this
transaction had at the time no separate mind,
will or existence of its own;
2. such control must have been used by the
defendant to commit a fraud or a wrong to
perpetuate the violation of a statutory or other
positive legal duty, or a dishonest and an unjust
act in contravention of plaintiff's legal right;
and
3. the said control and breach of duty must have
proximately caused the injury or unjust loss
complained of. We believe that the absence of
the foregoing elements in the present case
precludes the piercing of the corporate veil.
ii. GR: a corporation that purchases the assets of another
will not be liable for the debts of the selling
corporation, provided the former acted in good faith
and paid adequate consideration for such assets,
iii. E: when any of the following circumstances is present:
1. where the purchaser expressly or impliedly
agrees to assume the debts,
2. where the transaction amounts to a
consolidation or merger of the
corporations,
3. where the purchasing corporation is merely a
continuation of the selling corporation, and
4. where the transaction is fraudulently entered
into in order to escape liability for those
debts.
SALAFRANCA V PHILAMLIFE
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 a.The amended BLs should not impair existing
obligations and contracts
b. In the case at bar, the amendment that the petitioner’s
term be coterminous with that of the BOD = X valid =
crude, devious and an attempt to circumvent the
security of tenure of the EE
c. Admittedly, the right to amend the by-laws lies solely
in the discretion of the employer, this being in the
exercise of management prerogative or business
judgment. However this right, extensive as it may be,
cannot impair the obligation of existing contracts or
rights. If private respondent wanted to make the
petitioner's position co-terminus with that of the Board
of Directors, then the amendment must be effective
after petitioner's stay with the private respondent, not
during his term. Obviously, the measure taken by the
private respondent in amending its by-laws is nothing
but a devious, but crude, attempt to circumvent
petitioner's right to security of tenure as a regular
employee guaranteed under the Labor Code.
b. CHUA V. CA
a. DERIVATIVE SUIT – it is a suit by a SH to enforce a
corp action where the RPI is the corporation and the
SH merely initiates the suit on behalf of the corp
because the BOD did not do it
b. 2 REQUSITES OF DS:
i. SH should allege in his complaint that he is
filing a DS
ii. That such complaint should implead the
corporation itself as an indispensible party –
name of the corporation should be in the
caption of the case
c. Private respondent asserts that she filed a derivative
suit in behalf of the corporation. This assertion is
inaccurate. Not every suit filed in behalf of the
corporation is a derivative suit. For a derivative suit to
prosper, it is required that the minority stockholder
suing for and on behalf of the corporation must allege
in his complaint that he is suing on a derivative cause of
action on behalf of the corporation and all other
stockholders similarly situated who may wish to join
him in the suit. It is a condition sine qua non that the
corporation be impleaded as a party because not only
is the corporation an indispensable party, but it is also
the present rule that it must be served with process.
The judgment must be made binding upon the
corporation in order that the corporation may get the
benefit of the suit and may not bring subsequent suit
against the same defendants for the same cause of
action. In other words, the corporation must be joined
as party because it is its cause of action that is being
litigated and because judgment must be a res judicata
against it.
c. LYCEUM OF THE PHILIPPINES V CA
a. The corporate names of the institutions are “identical
with, or deceptively or confusing similar”. Both carry
the name “Lyceum” but it is NOT CONFUSINGLY
SIMILAR because the GEOGRAPHICAL LOCATION
was appended to the word “Lyceum.”
b. Under the doctrine of secondary meaning, a word or
phrase originally incapable of exclusive appropriation
with reference to an article in the market, because
geographical or otherwise descriptive might
nevertheless have been used so long and so exclusively
by one producer with reference to this article that the
word or phrase has come to mean that the article was
his produce
c. In this case, although the appellant has been using the
word Lyceum for a long time, it does not mean that
said word has acquired secondary meaning because
the appellant failed to prove that it has been using the
same word by itself to the EXCLUSION of others.
d. We do not consider that the corporate names of
private respondent institutions are "identical with, or
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 deceptively or confusingly similar" to that of the
petitioner institution. True enough, the corporate
names of private respondent entities all carry the word
"Lyceum" but confusion and deception are effectively
precluded by the appending of geographic names to
the word "Lyceum." Thus, we do not believe that the
"Lyceum of Aparri" can be mistaken by the general
public for the Lyceum of the Philippines, or that the
"Lyceum of Camalaniugan" would be confused with
the Lyceum of the Philippines.
e. Under the doctrine of secondary meaning, a word or
phrase originally incapable of exclusive appropriation
with reference to an article in the market, because
geographical or otherwise descriptive might
nevertheless have been used so long and so exclusively
by one producer with reference to this article that, in
that trade and to that group of the purchasing public,
the word or phrase has come to mean that the article
was his produce
f. while the appellant may have proved that it had been
using the word 'Lyceum' for a long period of time, this
fact alone did not amount to mean that the said word
had acquired secondary meaning in its favor because
the appellant failed to prove that it had been using the
same word all by itself to the exclusion of others. More
so, there was no evidence presented to prove that
confusion will surely arise if the same word were to be
used by other educational institutions.
6. PREEMPTIVE RIGHTS
a. Q: What is “pre-emptive right”?
i. A: Whenever the capital stock of a corporation is
increased and new shares of stock are issued, the
new issue must be offered first to the stockholders
who are at the time the increase was made in
proportion to their existing shareholdings and on
equal terms with other holders of the original
stocks before subscriptions are received from the
general public.
b. Right extends only to new issues of shares arising from any
increase of capital stock effected under Sec. 38;
c. May also be available with respect to issues or disposition
of unissued shares belonging to the original stock of the
corporation;
d. It also extends therefore to unsubscribed portion of the
capital stock and even to treasury shares.
e. When shares of stock are sold by the holder after an
increase of the capital stock has been voted, the purchaser
acquires, the same right of preference in subscribing for or
purchasing the new stock as was possessed by the
transferor.
i. EXC: Where the assignors have previously
exercised their pre-emptive rights to subscribe new
issues.
f. Right is not absolute as it admits of certain exceptions.
g. Q: What is the reason for the grant of right?
i. A: It aims to safeguard the right of a stockholder to
preserve unaltered and unimpaired his
proportionate influence and interest in the
corporation and the relative value of his holdings. It
is to protect from impairment and dilution the
basic rights of the existing stockholders in the
corporation—to voting control, to dividend
payments, and to the net assets of the corporation.
h. Q: Who can make the waiver of such right?
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 i. A: Being a personal right, the waiver should be
given individually by the stockholder concerned or
by another by way of a special power of attorney.
It cannot be made by the corporation itself through
a stockholder’s resolution.
i. The right may be denied by:
i. The articles of incorporation or an amendment
thereto;
ii. Exceptions under Sec. 39.
j. Q: Shares to which the right is not available?
i. Shares to be issued in compliance with laws
requiring stock offerings or minimum stock
ownership by the public;
ii. Shares to be issued in good faith with the approval
of stockholders representing 2/3 of the
outstanding capital stock in exchange of property
needed for corporate purposes; and
iii. Shares to be issued in good faith with the approval
of the stockholders representing 2/3 of the
outstanding capital stock in payment of previously
contracted debt.
k. RATIO:
i. Practical convenience and necessity;
ii. Exercise of discretion of the BOD in making new
issues of shares to enable the corporation to carry
on the corporate business.
l. If the unissued shares corresponding to one stockholder
are not subscribed or purchased by him within the period
fixed for the exercise of his pre-emptive right, he is
deemed to have impliedly waived his right to subscribe to
the same or to the balance if he subscribes only to a
portion.;
m. The unsubscribed shares may be offered to the public on
first-come, first-served basis or to any person acceptable to
the corporation without violating the pre- emptive right of
such stockholders.
n. As a matter of policy, SEC considers it sound corporate
practice to offer always the remaining shares to
stockholders of record whenever practical and feasible
before offering them to the public.
o. Q: What is the time within which the right may be
exercised?
i. A: GR: Fixed in the resolution authorizing the
increase of capital stock.
ii. Majority of the stockholders have a right to fix the
time to suit themselves and the interests of the
corporation. The only limitation upon the exercise
of the prerogative is that every stockholder shall
be treated alike and shall be afforded a reasonable
opportunity to subscribe.
p. A shareholder’s pre-emptive right is his option to allotment
shares before new shares are offered to others.
q. Q: When does this doctrine apply?
i. A: It applies when a corporation increases its
capital stock by declaring a stock dividend.
ii. It does not apply where the shares belong to the
original capital stock of the corporation
unsubscribed or indisposed of, inasmuch as such
shares constitute a part of the assets, and may be
sold either to stockholders or to strangers as the
stockholder may deem best even without notice to
stockholders.
r. Q: What is the underlying basis of this right to pre-emptive
right?
i. A: To maintain the relative and proportionate
voting strength and control of existing
shareholders. It is aimed to maintain the existing
ratio of the shareholder’s interest and voting
power in the corporation (Aquino, 2011).
s. Q: What does this right cover?
t. A:
i. All issues and disposition
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 ii. Issuance of the unsubscribed shares which are part
of the original capital stock and the increase of
capital stock
iii. Disposition of Treasury shares (Aquino, 2011)
u. If the shares are offered and are not subscribed or
purchased by shareholders and later the shares are being
offered the same, there is no pre-emptive right with
respect to the latter offer of shares.
v. The pre-emptive right is not available when shares are
issued in exchange for shares in another corporation if the
same is the result of a merger to which the corporations
are parties.
w. Q: Can this pre-emptive right be waived?
i. A: A stockholder who neither desires nor intends to
buy any of the stocks being offered may waive
such right. In which event, the shares may be
offered to any interested persons acceptable to
the corporation (Aquino, 2011).
x. Q: Describe the nature of this pre-emptive right.
i. A: It is only a personal right, hence, such waiver
should be given individually by the stockholders
concerned or he can authorize somebody to
execute the same for and in his behalf by way of a
special power attorney.
y. Q: Can this right be transferred?
i. A: The right to subscribe to new issues and
disposition may be transferred by the shareholder.
1. GR: The pre-emptive right is transferable.
2. EXC: Unless there is an express restriction
in the AOI.
7. SEC. 40
a. Sale, etc. must be approved by the BOD or BOT;
b. The action of the BOD/BOT must be authorized by the
vote of stockholders representing at least 2/3 of the
outstanding capital stock including holders of non-voting
shares or 2/3 of members, as the case may be;
c. The authorization must be at a stockholder’s or members’
meeting duly called for that purpose after written notice.
d. It shall be subject to the provisions of existing laws on
illegal combinations and monopolies;
e. Under Bulk Sales law, the sale, etc. of all or nay portion of a
stock of goods, merchandise, provisions or materials
otherwise than in the ordinary course of business is
declared fraudulent and void as to CRs of the vendor
unless specified formalities are observed such as the giving
of a list of CRs to whom said vendor may be indebted.
f. A corporation may sell all its assets without necessarily
dissolving or terminating its existence.
g. The only way the transfer can proceed without prejudice to
the creditor is to make the assignee assume liabilities of
the assignor, unless the CRs who did not consent to the
transfer choose to rescind the transfer on the ground of
fraud.
h. Q: What is the liability of the purchasing corporation?
i. GR: The purchasing corporation is not liable for the
debts and liabilities of the transferor provided that
the latter acted in good faith and paid adequate
consideration for such assets.
ii. EXC:
1. Where the purchaser expressly or impliedly
agrees to assume such debts;
2. Where the transaction amounts to a
consolidation or merger of the
corporations;
3. Where the purchasing corporation is
merely continuation of the selling
corporation;
4. Where the transaction is entered into
fraudulently in order to escape for such
debts.
i. Board is given the right to decide upon the terms and
conditions of the transaction: -consideration -rate
j. Subject to the approval of the stockholders or members;
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 k. After the approval, the Board may nevertheless, abandon
the transaction without further action or approval of the
stockholders or members but subject to the rights of third
parties;
l. If the property sold constitutes merely a part of the assets
of the corporation, even if substantial, and the sale thereof
will nit render the corporation incapable of continuing its
business, the BOD or BOT may dispose of the same as it
may deem convenient without need of approval of the
stockholders or members of the corporation.
m. Non-stock - The vote of the majority of the trustees will be
sufficient authorization for the corporation to enter into
any transaction authorized by Sec. 40
n. Any disposition which does not involve all or substantially
all of the corporate assets does not require the approval of
the stockholders and members and would not entitle any
dissenting stockholder to exercise his appraisal right.
o. To determine if the sale is made in the ordinary course of
business, the test is not the amount involved but the
nature of the transaction.

8. 100% REQUIRED FILIPINO PERCENTAGE

a. Media
b. Retail
c. Security guard agency

10