COMLAWREV SYLLABUS

ON
THE CORPORATION CODE

TITLE I GENERAL PROVISIONS

DEFINITIONS AND CLASSIFICATIONS

SEC 1

SEC 2 CORPORATION DEFINED***

Monfort Hermanos Agricultural Dev Corp v Monfort Inc 434 SCRA 27 (2004)
A complaint for forcible entry and retrieval of properties was filed by Salvatierra, an officer of MHADC, on behalf of the said corporation. The
respondent, however, alleged that Salvatierra had no capacity to sue on behalf of the corporation as the board resolution authorizing her to represent
MHADC was signed by board members not included in the General Information Sheet (GIS).
Q: Whether Salvatierra have the legal capacity to sue on behalf of the corporation? No. A corporation exercises its powers through its board of
directors and/or its duly authorized officers and agents who are duly elected. In turn, the GIS must state, among others, the names of the elected
directors and officers, together with their corresponding position title. In this case, the board resolution in question was signed by six signatories,
however, four of those signatories do not appear in the 1996 GIS of MHADC. Thus, absent any showing that the four signatories were lawfully
elected Members of the Board of MHADC, the board resolution issued by them could not be valid as to confer to her the authority to sue on behalf of
MHADC.

PSE v CA 281 SCRA 232

PALI, seeking to offer its shares to the public, filed an application with the PSE in order to facilitate the trading of its shares among investors. The
PSE denied PALI’s application due to the existence of various claims, issues and circumstances surrounding PALI’s ownership over its assets. The
SEC reversed the PSE’s decision.
Q1: Whether the SEC has jurisdiction over PSE? Yes. The SEC is given a general grant of jurisdiction and right of supervision and control over
all which are the grantees of primary franchises and/or a license or permit issued by the government to operate in the Philippines. This authority
springs from the fact that a corporation owes its existence to the concession of its corporate franchise from the state.
Q2: Whether the SEC was correct in reversing the PSE’s decision? No. As a rule, a corporation’s corporate and management decisions must not
be interfered with by the state. Questions of policy and of management are left to the honest decision of the officers and directors of a corporation,
and the courts are without authority to substitute their judgment for the judgment of the board of directors. The board is the business manager of the
corporation, and so long as it acts in good faith, its orders are not reviewable by the courts. Thus, notwithstanding the regulatory power of the SEC
over PSE, and the resultant authority to reverse the PSE’s decision, the SEC may exercise such power only if the PSE’s judgment is attended by bad
faith. Since the PSE was justified in denying the application due to the issues arising from the ownership of the said shares, the SEC should not have
reversed its decision.

Bache & Co Phil Inc v Ruiz 37 SCRA 823 (1971)

BIR agents served search warrants at Bache & Co.’s corporate office and seized six boxes of documents. The corporation prayed that the search
warrant be quashed and be considered null and void.
Q: Whether the corporation has the right to contest the legality of the search and seizure?Yes. A corporation is but an association of individuals
under an assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no constitutional immunities appropriate to
such body. Its property cannot be taken without compensation, it can only be proceeded against by due process of law, and it is protected against
unlawful discrimination.

Distinguish corporation from:

● a sole proprietorship
o SC Megaworld v Engr Parada et al GR 183804 Sep 11, 2013
Megaworld purchased electrical lighting materials from Genlite, a sole proprietorship, but failed to pay for the same. Engineer
Parada, the owner of Genlite, filed a complaint against Megaworld.
Q: Whether Genlite should be impleaded in the complaint? No. A sole proprietorship has no juridical personality separate
and distinct from that of its owner, hence need not be impleaded as a party in a civil case. Furthermore, there is no question that
Parada is the real party-in-interest who stands to be directly benefited or injured by the judgment in the complaint.

o Excellent Quality Apparel Inc. v Win Multiple Rich Builders Inc. 578 SCRA 272 (2009)
Excellent Quality Apparel entered into a contract with Multi-Rich Builders, which was a sole proprietorship represented by Chua
as its President and General Manager, for the construction of a garment factory. Meanwhile, Win Multi-Rich Builders was
incorporated also with Chua as its President and General Manager. Win filed a complaint for a sum of money against Excellent.
Excellent, in turn, filed a motion to dismiss on the ground that Win was not a party to the contract, hence it cannot institute the
case.
Q: Whether Win has legal personality to institute the case? No. The contract was executed between Multi-Rich and Excellent
and Multi-Rich was a sole proprietorship at the time. Hence, it is the sole proprietorship that is personally liable for all its debts
and obligations. In order for a corporation to be able to file suit and claim the receivables of its predecessor-in-business, in this
case a sole proprietorship, it must show proof that the corporation had acquired the assets and liabilities of the sole proprietorship.
Absent any showing that Multi-Rich is the predecessor-in-business of Win, it cannot be presumed that Multi-Rich has standing to
institute the case.
 o Business Name Act No. 3883
● partnership – Civil Code Art 1767
o Saludo v PNB GR 193138 Aug 20, 2018
SAFA Law Office, through Saludo as managing partner of SAFA, leased a floor of the PNB Financial Center but failed to pay its
monthly rental obligations. Hence, PNB sent a demand letter to SAFA. Saludo filed a complaint for accounting and/or
recomputation of unpaid rentals. PNB, in turn, filed a motion to include SAFA as it is an indispensable party.
Q1: Whether SAFA is partnership? Yes. SAFA Law Office was constituted as a partnership and thus acquired juridical
personality by operation of law. The perfection and validity of a contract of partnership brings about the creation of a juridical
person separate and distinct from the individuals comprising the partnership. It is this juridical personality that allows a
partnership to enter into business transactions to fulfill its purposes.
Q2: Whether SAFA is a real party-in-interest? Yes. SAFA Law Office is the party that would be benefited or injured by the
judgment in the suit before the RTC. Particularly, it is the party interested in the accounting and/or recomputation of unpaid
rentals and damages in relation to the contract of lease. It is also the party that would be liable for payment to PNB of overdue
rentals, if that claim would be proven. This is because it is the one that entered into the contract of lease with PNB. As an entity
possessed of a juridical personality, it has concomitant rights and obligations with respect to the transactions it enters into.

o Pioneer Insurance & Surety Corp v CA 175 SCRA 668 (1989)

Lim entered into a sales contract with Japan Domestic Airlines (JDA) for the sale and purchase of two aircrafts and spare parts,
with Pioneer Insurance as surety for the transaction. A chattel mortgage was executed by Lim in favor of Pioneer as security for
the latter’s suretyship. On the other hand, respondents Cervantes and Maglana contributed funds used in the purchase of the said
aircrafts and parts. These funds were supposed to be their contributions to a new corporation proposed by Lim, but which
corporation did not materialize. Later, Lim defaulted in his payment to JDA, thus Pioneer became liable as surety. Pioneer then
filed an action for judicial foreclosure with an application for a writ of preliminary injunction against Lim and respondents.
Q: Whether there is an implied partnership, thus making respondents liable? No. Ordinarily, persons cannot be made to
assume the relation of partners, as between themselves, when their purpose is that no partnership shall exist, and it should be
implied only when necessary to do justice between the parties; thus, one who takes no part except to subscribe for stock in a
proposed corporation which is never legally formed does not become a partner with other subscribers who engage in business
under the name of the pretended corporation, so as to be liable as such in an action for settlement of the alleged partnership and
contribution. Partnership relation between certain stockholders and other stockholders, who were also directors, will not be
implied in the absence of an agreement, so as to make the former liable to contribute for payment of debts illegally contracted by
the latter. In this case, there was no intention to form a partnership and the records show that the Lim was acting on his own and
not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts.

o “affiliation right”; “delectus personae”

● joint venture
o Kilosbayan Inc v Guingona 232 SCRA 110 (1994)
PCSO was granted the authority to conduct charity sweepstakes races, lotteries and other activities pursuant to R.A. 1169.
Berjaya Group Berhad, a multinational company, was interested in this venture and thus established the Philippine Gaming
Management Corporation (PGMC). PGMC and PCSO entered into a contract of lease and the former was authorized to operate
the country’s online lottery system. Kilosbayan protested the contract, arguing that it was in violation of R.A. 1169 which
prohibits PCSO from holding and conducting charity sweepstakes races, lotteries, and other similar activities in collaboration,
association, or joint venture with any person, association, company or entity, foreign or domestic.
Q:Whether the contract of lease is void it established a joint venture between PCSO and PGMC? Yes. The contract is not
in reality a contract of lease under which the PGMC is merely an independent contractor for a piece of work, but one where the
statutorily proscribed collaboration or association, in the least, or joint venture, at the most, exists between the contracting parties.
A joint venture is an association of persons or companies jointly undertaking some commercial enterprise; generally all
contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and
govern the policy in connection therewith, and duty, which may be altered by agreement to share both in profit and losses. In this
case, the only contribution the PCSO would have is its franchise or authority to operate the on-line lottery system; with the rest,
including the risks of the business, being borne by the proponent or bidder.

o Aurbach v Sanitary Wares Manufacturing Corp 189 SCRA 130 (1989)

American Standard, Inc. (ASI), a foreign corporation domiciled in the U.S., entered into an agreement with Saniwares and some
Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise under the name
of “Sanitary Wares Manufacturing Corp.” with ASI as minority and the Filipino investors as majority.
Q: Whether Saniwares is a joint venture? Yes. Saniwares is a joint venture as proven by the presence of two distinct
stockholder groups, and as evidenced by the contracts of parties. The rule is that whether the parties to a particular contract have
established among themselves a joint venture or some other relation depends upon their intention which is determined in
accordance with the interpretation and construction of contracts. In this case, the acts of the parties are indicators of their
intentions: the provisions of the agreement does not preclude the existence of two distinct groups of stockholders (ASI and the
Filipino investors); and the provisions in the agreement that the parties agreed to establish a joint venture and not a corporation.

● cooperatives – RA 9520
o Republic v Sunlife Assurance Company 473 SCRA 129 (2005)
Sun Life paid insurance premium tax and DST to the CIR. Later, the CIR rendered its decision in Insular Life Assurance v. CIR
which held that mutual life insurance companies are purely cooperative companies and thus, are exempt from the payment of
premium tax and DST. Sun Life then filed a claim for tax credit.
 Q: Whether Sun Life is a purely cooperative company, hence, exempt from said taxes? Yes. The Tax Code defines a
cooperative as an association “conducted by the members thereof with the money collected from among themselves and solely
for their own protection and not for profit.” Without a doubt, Sun Life is a cooperative engaged in a mutual life insurance
business. First, it is managed by its members. Second, it is operated with money collected from its members. Third, it is licensed
for the mutual protection of its members, and not for the profit of anyone.

Doctrine of Separate Juridical Personality

● Can it own property in its name?
o Wise v Man Sung Lung 69 Phil 309
Man Sun Lung & Co.’s properties were placed under preliminary attachment. The said company, however, alleged that these
were Man Sun Lung’s properties and that the CFI failed to distinguish between the natural person, Man Sun Lung, from the
corporation, Man Sun Lung & Co.
Q: Whether Man Sun Lung and Man Sun Lung has different legal personalities? Yes. Man Sun Lung is a natural person
and Man Sung Lung & Co., Inc is a legal person with a distinct and independent personality from Man Sun Lung. Since no
evidence was presented to prove that the properties seized by the were owned by Man Sun Lung, the presumption is that they
belong to Man Sun Lung & Co. as part of the assets of said mercantile entity.

● Is the corporate property the stockholder’s property?

o Mayor v Tiu GR 203770 Nov 23, 2016
Rosario passed away and her will was probated. Among the decedent’s alleged properties was the Primrose Hotel which was
leased by Mercury Drug and Chowking. In applying the doctrine of piercing the corporate veil, the probate court ordered the
lessees to deposit the unpaid rentals. Metrobank was also ordered to freeze the accounts of Primrose and to lock up the said
property in order to preserve the property until final disposition by the court.
Q: Whether the doctrine of piercing the corporate veil was correctly applied? No. The probate court failed to take note of
the fact that Rosario was not the absolute owner of Primrose, but only an owner of the shares thereof. Mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stocks of a corporation is not of itself a sufficient reason
for disregarding the fiction of separate corporate personalities. In this case, Primrose is a separate and distinct personality from
the estate of Rosario and the doctrine of piercing the veil cannot validly apply.

o Tee Ling Kiat v Ayala Corp et al GR 192530 Mar 7, 2018

The Sps. Dee, in their personal capacities, were sureties of a money market line transaction extended by Ayala. However, the
money market line was not paid, hence an action for collection was filed against the spouses. The court ruled in favor of Ayala
and it issued a notice of levy upon the properties registered in the name of Vonnel Industrial Park (VIP), as it was alleged that
Dee was an incorporator of VIP.
Q: Whether the VIP properties are Dee’s properties? No. Being a corporation, VIP is a juridical entity with personality
separate and distinct from Dee, its incorporator. As such, the court cannot levy on properties not owned by the Sps. Dee, who are
the judgment debtors in the present case.

o Saw v CA 195 SCRA 740

A collection suit was filed by Equitable Banking against Freeman, Inc. and Lian, its President and General Manager. A
compromise agreement was entered into between the parties but Freeman and Lian failed to comply with the same, hence
properties of Freeman were levied upon and sold at public auction. Petitioners Saw, et. al., stockholders of Freeman, moved to
intervene alleging that the loan transactions were not approved by 2/3 of the stockholders and that the compromise agreement
prejudiced their rights as stockholders.
Q: Whether or not petitioners’ have a right to intervene? No. To be permitted to intervene, a party must have a legal interest
in the matter in litigation, or in the success of either of the parties or an interest against both, or he must be so situated as to be
adversely affected by a distribution or other disposition of the property in the custody of the court or an officer thereof. While a
share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof
with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person.

● Is the liability of the corporation the liability of a stockholder?

o Lumanlan v Cura GR 39681 Mar 21, 1934
Lumanlan had unpaid subscriptions with Dizon & Co., hence, he was ordered to pay the deficiency of his subscription. Later, an
agreement was entered into by the creditors, directors and major stockholders that subscribers for the capital stock who were in
default should pay the creditors. As such, Lumanlan assumed some of the obligations and in return, the corporation agreed to
collect only 50% of the amount subscribed by him for stock. Notwithstanding the payment, Lumanlan was still ordered to pay the
deficiency of his subscription in full.
Q: Whether Lumanlan should be liable for the amount he was sentenced to pay the corporation notwithstanding the
agreement they entered into? No. Lumanlan is entitled to a credit of the amount that he paid to the creditors. Furthermore,
subscriptions to the capital of a corporation constitute a fund to which the creditors have a right to look for satisfaction of their
claims and that the assignee is insolvency can maintain an action upon any unpaid stock subscription in order to realize assets for
the payment of its debts. In addition, the Corporation Law clearly recognizes that a stock subscription is a subsisting liability
from the time the subscription is made, since it requires the subscriber to pay interest quarterly for that date unless he is relieved
from such liability by the by-laws of the corporation. The subscriber is as much bound to pay the amount of the share subscribed
by him as he would be to pay any other debt, and the right of the company to demand payment is no less incontestable.

o FRIA Secs 7, 58
o CC Secs 30, 99
 o Doctrine of Piercing the Corporate Veil**
▪ PNB v Hydro Resources GR 167530 Mar 13, 2013
DBP and PNB foreclosed on mortgages over properties of MMIC, which resulted to the former acquiring substantially
all the assets of MMIC and in the creation of the NMIC. NMIC engaged the services of Hercon and the former failed to
pay, hence a complaint was filed seeking to hold NMIC, DBP and PNB solidarily liable. DBP and PNB argues that
Hercon had no cause of action against them since NMIC’s juridical personality is separate from DBP and PNB.
Q: Whether there is sufficient ground to pierce the veil of corporate fiction? No. Piercing the corporate veil based
on the alter ego theory requires the concurrence of three elements: (1) control of the corporation by the stockholder or
parent corporation, (2) fraud or fundamental unfairness imposed on the plaintiff, and (3) harm or damage caused to the
plaintiff by the fraudulent or unfair act of the corporation. The absence of any of these elements prevents piercing the
corporate veil. In this case, the said elements are absent and here is no basis to hold that NMIC was a mere alter ego of
DBP and PNB. Thus,DBP and PNB may not be held solidarily liable with NMIC.

▪ Kukan Intl Corp v Hon Amor Reyes GR 182729 Sep 29, 2010
A complaint for a sum of money was filed against Kukan, Inc. At the middle of the trial, Kukan, Inc no longer
participated in the proceedings, hence it was declared in default and judgment was rendered against it. During
execution, properties of Kukan international corporation (KIC) was levied upon. KIC opposed, raising its separate
personality.
Q:Whether Kukan, Inc. and KIC should be regarded as one and the same entity pursuant to the principle of
piercing the veil of corporate fiction? No. The principle of piercing the veil of corporate fiction finds no application
to the instant case. In those instances when the Court pierced the veil of corporate fiction of two corporations, there was
a confluence of the following factors: (1) A first corporation is dissolved; (2) The assets of the first corporation is
transferred to a second corporation to avoid a financial liability of the first corporation; and (3) Both corporations are
owned and controlled by the same persons such that the second corporation should be considered as a continuation and
successor of the first corporation. Since the second and third factors are conspicuously absent, then there is no
compelling justification for disregarding the fiction of corporate entity separating Kukan, Inc. from KIC. Furthermore,
it was alleged that one Chan owns 40% of the common shares of both corporations. However, mere ownership by a
single stockholder or by another corporation of a substantial block of shares of a corporation does not, standing alone,
provide sufficient justification for disregarding the separate corporate personality. For this ground to hold sway in this
case, there must be proof that Chan had control or complete dominion of Kukan and KIC’s finances, policies, and
business practices; he used such control to commit fraud; and the control was the proximate cause of the financial loss
complained of by Morales. The absence of any of the elements prevents the piercing of the corporate veil. In this case,
the records do not show the presence of these elements.

▪ Pacific Rehouse Corp et al v CA et al GR 199687 Mar 24, 2014

Petitioner was a victor in an earlier case against EIB Securities. Having failed to execute against EIB, they went after
Export Bank, which is a corporation which owns virtually all the shares of stocks of EIB and in which exists
interlocking incorporators, directors and officers. In going after Export Bank, they claim that EIB is a mere alter ego of
Export Bank.
Q: Whether the alter ego doctrine applies in this case? No. Where one corporation is so organized and controlled
and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the
corporate entity of the instrumentality may be disregarded.The control necessary to invoke the rule is not majority or
even complete stock control but such domination of finances, policies and practices that the controlled corporation has,
so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. There must also be a
perpetuation of fraud behind the control or at least a fraudulent or illegal purpose behind the control in order to justify
piercing the veil of corporate fiction. In this case, the control allegedly exercised by Export Bank does not mean that
EIB was a mere instrumentality or a business conduit of the former such that the corporate fiction shall be disregarded.
Furthermore, there was no fraudulent intent behind the said control.

▪ Comm of Customs v Oilink International Corp GR 161759 Jul 2, 2014

URC and Oilink are companies that export oil into the country and which had interlocking directors. The
Commissioner of Customs (COC) demanded URC to pay its taxes on its oil imports. URC conveyed to the COC its
willingness to pay its liability through the collectibles of Oilink. The COC demanded Oilink to pay the tax liability of
URC but Oilink protested stating that it was not liable for URC’s deficiency taxes. The COC argues that Oilink was an
alter ego of URC and as such, the veil of corporate fiction must be pierced.
Q: Whether the corporate veil must be pierced? No. The COC did not sufficiently prove that Oilink was set up as
URC’s alter ego to avoid the payment of taxes. As such, the doctrine of piercing the veil cannot apply and the separate
juridical personalities of URC and Oilink must be respected.

● Is it liable for torts or crimes?

o See Sec 144
o James Ient et al v Tullett Prebon (Phil) Inc GR 189158 Jan 11, 2017
Tullet filed a complaint against the officers/employees of the Tradition Group for violation of Secs. 31 and 34 of the Corporation
Code which made them criminally liable under Sec. 144. Petitioners Ient, et. al. who were formerly President, Managing Director
and a member of Tullett's Board of Directors, were impleaded. It was alleged that these officers used their positions to orchestrate
a mass resignation of its entire brokering staff in order for them to join Tradition Philippines.
Q: Whether Sec. 144 of the Corporation Code applies to Secs. 33 and 34 of the said Code, thus, making it a penal offense
so that conspiracy can be appreciated and petitioners can be impleaded? No. A perusal of Sec. 144 shows that it is not a
purely penal provision. When it is a corporation that commits a violation of the Corporation Code, it may be dissolved in
 appropriate proceedings before the SEC. The involuntary dissolution of an erring corporation is not imposed as criminal
sanction, but rather it is an administrative penalty. On the other hand, Secs. 31 and 34 provide for civil and pecuniary liabilities
for the acts covered therein but what is significant is the fact that, of all these provisions that provide for consequences other than
penal, only Sec. 74 expressly states that the violation thereof is considered an offense under Section 144. Thus, the lack of
specific language imposing criminal liability in Secs. 31 and 34 shows legislative intent to limit the consequences of their
violation to the civil liabilities mentioned therein.

o EPG Construction Co., Inc v CA et al 210 SCRA 230

EPG and UP had a contract for the construction of the UP Law Library Building. After a few months after the completion of the
building, it was found that six air conditioning units were not functioning properly. EPG agreed to shoulder the expenses for the
repairs, but the said repairs were not done, hence UP shouldered the same and sought to reimburse the amount spent from EPG.
EPG refused and thus, UP filed a case against EPG and its president, De Guzman.
Q: Whether De Guzman should be held solidarily liable with EPG? No. A corporation is invested by law with a personality
separate and distinct from those of the persons composing it. An exception is when the official “had acted maliciously or in bad
faith,” in which event he may be made personally liable for his own acts. That exception is not applicable in the case at bar
because it has not been proved that De Guzman acted maliciously or in bad faith when, as President of EPG, he sought to protect
its interests and resisted UP’s claims.

o Ong v Sec of Justice 401 SCRA 648 (2003)

Ong, in representation of ARMAGRI, applied for letters of credit with Solidbank. When the trust receipts became due and
demandable, ARMAGRI failed to pay or deliver the goods to the bank, hence a complaint was filed against Ong for estafa.
Q: Whether Ong, as signatory of the trust receipts, is personally liable? Yes. Under the Trust Receipt Law, if the violation or
offense is committed by a corporation, partnership, association or other juridical entities, the penalty (imprisonment) shall be
imposed upon the directors, officers, employees or other officials or persons responsible for the offense. The reason for this is
that partnerships, associations or other juridical entities cannot be put in jail. However, it is these entities which are made liable
for the civil liabilities arising from the criminal offense. Furthermore,the person signing the trust receipt for the corporation is not
solidarily liable with the entrustee-corporation for the civil liability arising from the criminal offense. He may, however, be
personally liable if he bound himself to pay the debt of the corporation under a separate contract of surety or guaranty. In this
case, Ong did not sign in his personal capacity, hence he cannot be held solidarily liable.

o Ching v Sec of Justice 481 SCRA 609 (2006)

PMBI, petitioner, applied for a letter of credit with RCBC to finance its importation of assorted goods. Ching was the signatory
of the trust receipts on behalf of PMBI. When the trust receipts matured, petitioner failed to return the goods to respondent bank,
or to return their value amounting to P6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa against
petitioner in the Office of the City Prosecutor of Manila. City Prosecutor ruled that there is no probable cause to charge petitioner
with violating P.D. No. 115, as petitioner’s liability was only civil, not criminal, having signed the trust receipts as surety.

Q: Whether the Ching, as officer and signatory of the trist receipts, is criminally liable . Yes. Petitioner’s responsibility as
the corporate official of PBMI who received the goods in trust is premised on Section 13 of P.D. No. 115 or the Trust Receipts
Law. If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other officers
thereof responsible for the offense shall be charged and penalized for the crime. A corporation cannot be arrested and imprisoned;
hence, cannot be penalized for a crime punishable by imprisonment.

However, a corporation may be charged and prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes
both fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined

When a criminal statute designates an act of a corporation or a crime and prescribes punishment therefor, it creates a criminal
offense which, otherwise, would not exist and such can be committed only by the corporation. But when a penal statute does not
expressly apply to corporations, it does not create an offense for which a corporation may be punished.

● Can it recover moral damages?

o National Power Corporation v Philipp Brothers Oceanic Inc., GR 126204, Nov 20, 2001 (read dissent)
PHIBRO filed an action for damages against NAPOCOR alleging that the act of the latter in disqualifying the former in the
October 1987 bidding and in all subsequent biddings was tainted with malice and bad faith.

Q: Is NAPACOR liable for moral damages? No. SC ruled that NAPOCOR is justified in resisting PHIBROs claim for
damages. No bad faith was proven in disapproving PHIBRO’s pre-qualification to bid. Hence, NAPOCOR cannot be made liable
for actual, moral and exemplary damages.

Moral damages are not, as a general rule, granted to a corporation. While it is true that besmirched reputation is included in moral
damages, it cannot cause mental anguish to a corporation, unlike in the case of a natural person, for a corporation has no
reputation in the sense that an individual has, and besides, it is inherently impossible for a corporation to suffer mental anguish.

o Filipinas Broadcasting Network, Inc. v Ago Medical and Educational Center GR 141994 Jan 17, 2005
AMEC filed a complaint for damages against FBNI, Rima and Alegre for libelous statements made in Exposè, a radio
documentary program.

Q: Is the company entitled for moral damages? Yes. The SC ruled that the broadcasts were libelous per se and that AMEC
was entitled to moral damages. AMEC’s claim for moral damages falls under Art. 2219(7) of the Civil Code, which expressly
 authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Since the said provision does
not qualify whether the plaintiff is a natural or juridical person, a juridical person such as a corporation can validly complain for
libel or any other form of defamation and claim for moral damages.

o ABS CBN v CA 301 SCRA 589 (1999)

ABS-CBN filed a complaint for specific performance contending that VIVA did not comply with their perfected contract. In
view thereof, it also filed an injunction against RBC to enjoin the latter from airing the films that are subject to the contract
between ABS-CBN and Viva. RBS filed for counterclaim contending that it should be awarded moral damages.
Q: Is RBS entitled to moral damages? No, Supreme Court held that corporations are not entitled moral damages. award of
moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and mental anguish,
which call be experienced only by one having a nervous system.

Doctrine of piercing the corporate veil***

● Grounds for application of doctrine:
(1) To defeat public convenience
(2) Justify wrong
(3) Protect fraud (fraud cases)
(4) Defend crime
(5) Mere alter ego (alter ego cases –
▪ Marvel Building Corporation v Saturnino David GR L-5081 Feb 24, 1954
For Maria Castro’s failure to pay war profits taxes, the CIR sought to sell properties of her corporation, Marvel
Building. CIR alleges that she is the sole owner of such corporation and that the others are mere dummies.
Q: Is Marvel Building, a corporation, be considered an alter ego of Maria Castro, which warrants the piercing
of the corporate veil? Yes. The circumstances warrant the piercing of the corporate veil since she is the owner of all
the shares and was done for the purpose of evading taxes.

(6) Adjunct or business conduit

(7) Evade obligations to employees or relative to money judgment
(8) Confuse issues
(9) Circumvent law

o Optyman Manufacturing Corp v Security Bank GR 177984, Dec 3, 2014

Macford entered into a continuing suretyship agreement. Security Bank extended several letters of credit and trust receipts in
favor of Macford. However, Macford Macford did not turn over the proceeds of the sale of the goods or the goods themselves
upon the maturity of the trust receipts. Security Bank made several demands upon Macford to settle its standing obligations under
the trust receipts and the loan agreement, but was surprised to discover that Optyman had taken over the premises of Macford.
Hence, Security Bank instituted a complaint for sum of money against Macford, Optyman, and the officers of the two companies.
Q; Is the piercing of the corporate veil proper? Yes. SC held that Optyman and Macfort can be treated as one corporation.
Optyman merely continued the operations of Macford, and the sole purpose for its existence is to prevent creditors from reaching
its conduit company’s assets. The veil of corporate existence is not intended to be used· as a tool to commit, condone or conceal
wrongdoings. A corporation organized by a conduit corporation for the purpose of evading lawful obligations, defeat public
convenience, and perpetrate fraud may not invoke its separate juridical personality to hide this intent. Taken together, thus
circumstances strengthen the belief that Optyman and Macford are one and the same.

o Cagayan Valley v CA GR 78413 Nov 8, 1989

Petitioner Cagayan Valley, as a corporate entity, and Cagayan Valley Distillery are one and the same, to wit:
(1) petitioner is being managed by Rogelio Lim, the son of Diego Lim, the owner and manager of Cagayan Valley
Distillery;
(2) it is a family corporation;
(3) it is an admitted fact that before petitioner was incorporated it was under a single proprietorship;
(4) petitioner is engaged in the same business as Cagayan Valley Distillery, the manufacture of wines and liquors; and
(5) the factory of petitioner is located in the same place as the factory of the former Cagayan Valley Distillery.
Q: Is the piercing of the veil of corporate fiction justified? Yes. Petitioner is a mere continuation and successor of Cagayan
Valley Distillery. It is likewise indubitable that the admission made in the former case, as earlier explained, is binding on it as
cogent proof that even before the filing of this case it had actual knowledge that the bottles in dispute were registered containers
of LTI. As held in La Campana Coffee Factory, Inc., et al. vs. Kaisahan Ng Mga Manggagawa sa La Campana (KKM), et al.,
where the main purpose in forming the corporation was to evade one’;s subsidiary liability for damages in a criminal case, the
corporation may not be heard to say that it has a personality separate and distinct from its members, because to allow it to do so
would be to sanction the use of the fiction of corporate entity as a shield to further an end subversive of justice.

o Liddell & Co., Inc v CIR GR L-9687 Jun 30, 1961

Petitioner is a domestic corporation engaged in importing and retailing passenger cars. The majority stockholder is Frank Liddell.
Subsequently, another corporation was established, Liddell Motors, which is allegedly managed by the wife of Frank Liddell as
its majority stockholder. Petitioner began retailing only to Liddell Motors, and in turn the latter would resell the cars to the public
at a high mark up price. This resulted to a lower sales tax for Liddell & Co. because it declared its sale to Liddell Motors as the
original sale. CIR assessed Liddell & Co for deficiency sales tax finding Liddell Motors as merely an alter ego of petitioner
to evade tax.
 Q: Is piercing of the veil of corporate fiction justified? Yes. Where a corporation is a dummy, is unreal or a sham and serves
no business purpose and is intended only as a blind, the corporate form may be ignored for the law cannot countenance a form
that is bald and a mischievous fiction. A taxpayer may gain advantage of doing business thru a corporation if he pleases, but the
revenue officers in proper cases, may disregard the separate corporate entity where it serves but as a shield for tax evasion and
treat the person who actually may take the benefits of the transactions as the person accordingly taxable.

● three elements: control of the corporation by the stockholders or the parent corporation, fraudulent or unjust situation and damage to third
parties
o WPM International Trading et al v Labayen GR 182770 Sep 17, 2014
WPM, with its president Manlapaz, hired Labayen to rehabilitate Quickbite. Labayen entered into an agreement with CLN wot
renovate Quickbite. However, CLN was not paid the full amount which prompted CLN to sue Labayen. Labayen, on the other
hand, sued Manlapaz and WPM for the amount. Labayen is claiming that Manlapaz should be jointly held liable with WPM.
Q: Is the piercing of the corporate veil proper? No. The Court, however, refused to apply the doctrine of piercing the
corporate veil because Labayen was unable to prove that WPM was merely an instrumentality of Manlapaz.

Piercing the corporate veil based on the alter ego theory requires the concurrence of three elements, namely:
(1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked 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 right; and
(3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained of.

In the absence of one of these requisites, the doctrine of piercing of the veil cannot be applied.

o Maricalum Mining Corporation v Florentino et al GR 221813 Jul 23, 2018

Certain labor organizations have labor claims against Maricalum Mining. Due to depleting assets, Maricalum cannot pay the
claims of the labor organizations. As a result, Maricalum sold the substantially all of its assets to G Holdings.
Q: Is the sale of substantially all of the assets of the corporation justify the piercing of the corporate veil? No. Where one
corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of
the transferor, except:
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 a continuation of the selling corporation; and
4) Where the transaction is entered into fraudulently in order to escape liability for such debts.

If any of the above-cited exceptions are present, then the transferee corporation shall assume the liabilities of the transferor. In
this case, G Holdings cannot be held liable for the satisfaction of labor-related claims against Maricalum Mining under the fraud
test.

● instrumentality rule or control test (to hold officers and stockholders directly liable for corporate action)
o Umali v CA 189 SCRA 529 (1990)
Petitioner Castillo family seeks to pierce the veil of corporate entity of Bormaheco, ICP and PM Parts, alleging that these
corporations employed fraud in causing the foreclosure and subsequent sale of the real properties belonging to petitioners.
Q: Is the piercing of the corporate veil justified? No. The SC held that piercing the veil of corporate entity is not the proper
remedy in order that the foreclosure proceeding be declared a nullity because this relief may be obtained without having to
disregard the aforesaid corporate fiction attaching to respondent corporations. Further, the petitioners did not seek to hold the
officers and stockholders directly liable for a corporate debt or obligation, and they failed to establish that private respondents
were purposely formed and operated, and thereafter transacted with petitioners, with the sole intention of defrauding the latter.

o mere control alone not reason to apply doctrine but also fraud or unfairness and harm or damage caused to plaintiff
o Francisco Mejia GR 141617 Aug 14, 2001
A Deed of Sale was entered between Gutierrez and Caralde (represented by petitioner Francisco). Cardale defaulted. Auction sale
was made. Petitioner Merryland was the highest bidder (Francisco was its President and a majority stockholder).
Q: Is the doctrine of piercing of the veil proper? No. Mere ownership by a single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate
personality. Neither has it been alleged or proven that Merryland is so organized and controlled and its affairs are so conducted as
to make it merely an instrumentality, agency, conduit or adjunct of Cardale. Even assuming that the businesses of Cardale and
Merryland are interrelated, this alone is not justification for disregarding their separate personalities, absent any showing that
Merryland was purposely used as a shield to defraud creditors and third persons of their rights. Thus, Merryland’s separate
juridical personality must be upheld.
o Yutivo Sons Hardware v CTA GR L-13203 Jan 28, 1961
The Collector of Internal Revenue is assessing deficiency sales tax from Yutivo for sales tax that SM is supposed to pay on the
premise that said corporations are one and the same since the former is alleged to be in control of the latter. Said control is
evidenced by some circumstances, among others, the founders of the corporation are closely related to each other either by blood
or affinity, and most of its stockholders are members of the Yu (Yutivo or Young) family, The payments for and charges against
SM are made by Yutivo as a matter of course and without need of any further request; any and all payments and cash vouchers
are made on Yutivo stationery and made under authority of Yutivo’s corporate officers
 Q: Is the piercing of the corporate veil justified? No. A corporation is an entity separate and distinct from its stockholders and
from other corporation petitions to which it may be connected. However, when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, and the law will regard the
corporation as an association of persons, or in the case of two corporations merge them into one. When the corporation is the &
mere alter ego or business conduit of a person, it may be disregarded. Absent any of the circumstances, the separate corporate
personality of the corporation should be respected.

SEC 3 CLASSES OF CORPORATION

(1) Stock corporations
(2) Non-stock non-profit (NSNP) – what is the difference between a foundation (a NSNP) from the other NSNPs

SEC 4 CORPORATIONS CREATED BY SPECIAL LAWS OR CHARTER

Philippine Society for the Prevention of Cruelty to Animals v COA 534 SCRA 112 (2007)
PSPCA was incorporated by the Philippine Commission before the enactment of the Corporation Code. It was subjected to an audit survey by the
COA, to which it demurred, contesting that it is not within the jurisdiction of the COA.
Q: Is PSPA a public corporation under the control of the COA? Yes. The Supreme Court ruled in favor of PSPCA, since numerous
considerations yield to the allegation that PSPCA is private in nature. A common thread among these considerations is that PSPCA is not subject to
government control. The true criterion, therefore, to determine whether a corporation is public or private is found in the totality of the relation of the
corporation to the State.

SEC 5 CORPORATIONS AND INCORPORATORS

STOCKHOLDERS AND MEMBERS

● Distinguish between stockholder and stakeholder

● Can you amend the articles’ list of incorporators? Particularly, where an incorporator has ceased to own even one share in the corporation?
See last sentence of Sec 10
● Who are the stakeholders? (see SEC Code of Corporate Governance for PLCs)
o Employees v officers; are corporate officers employees of the corporation?
▪ Gurrea v Lezama 103 Phil 553 (1958)
Plaintiff Gurrea sought to declare Resolution No. 65 of the BOD of La Paz Ice Plant be declared null and void. He
alleged that the resolution was adopted in contravention of the provisions of the by-laws, Corporation Law, and of the
intention and agreement of its stockholders. Defendant answered and contended that plaintiff had been removed by
virtue of a valid resolution.
Q: Is Plaintiff an officer or employee? An employee. The SC ruled that the plaintiff has been properly removed when
the BOD approved its Resolution. The plaintiff, being the manager of the corporation, is not considered as an officer of
the corporation. The by-laws of the corporation did not include manager in the list of officers. Hence, he can only be
considered as an employee and can be removed or suspended by the BOD, even without the 2/3 vote of the
shareholders. The only officers considered are those under the Corporation Code or expressly stated by its by-laws. The
rest can be considered merely as employees or subordinate officials.

▪ PSBA v Leano 127 SCRA 778 (1984)

Tan was a director of PSBA. The Board of PSBA decided to declare all corporate posts vacant. Tan was not re-elected
as Executive VP, a position he held prior to the board’s decision. Tan filed an illegal dismissal case with the NLRC and
a case praying for the election of officers be void with the SEC.
Q: Is a corporate officer an employee? No. The case is an intra-corporate controversy thus falls within the
jurisdiction of SEC and not NLRC. The controversy is intra-corporate in nature when it revolves around the election of
directors, officers or managers of the corporation, the relation between and among its stockholders, and between them
and the corporation.

▪ Nacpil v International Broadcasting Corp 379 SCRA 653 (2002)

Nacpil filed for an illegal dismissal case before the LA. IBC contends that the LA has no jurisdiction over the case
because Nacpil is a corporate officer which makes the case an intra-corporate dispute falling within the jurisdiction of
the SEC. Petitioner argues that he is not a corporate officer of the IBC but an employee thereof since he had not been
elected nor appointed as Comptroller and Assistant Manager by the IBCs Board of Directors and the IBCs By-Laws
does not even include the position of comptroller in its roster of corporate officers.
Q: Is Nacpil an employee? No. The court ruled that the LA has no jurisdiction and that the position of Comptroller is
not expressly mentioned among the officers of the IBC in the By-Laws is of no moment, because the IBCs Board of
Directors is empowered under Section 25 of the Corporation Code and under the corporations By-Laws to appoint such
other officers as it may deem necessary. The relationship of a person to a corporation, whether as officer or agent or
employee is not determined by the nature of the services performed, but instead by the incidents of the relationship as
they actually exist. Clearly, the issues raised by petitioner against the IBC are matters that come within the area of
corporate affairs and management, and constitute a corporate controversy in contemplation of the Corporation Code.

▪ Dy v NLRC 145 SCRA 211 (1986)

A stockholder who was also a director and bank manager of the corporation filed a case of illegal dismissal
 against the corporation before the LA. LA Ruled in his favor as well as the NLRC. When the case was brought to SC,
the jurisdiction of LA and NLRC was assailed.
Q: When can a matter be considered an intra-corporate dispute when a stockholder is also an employee of the
corporation? The high court ruled that the court-a-quo had no jurisdiction because the matter involves an
intracorporate dispute. “The question of remuneration, involving as it does, a person who is not a mere employee but a
stockholder and officer, an integral part, it might be said, of the corporation, is not a simple labor problem but a matter
that comes within the area of corporate affairs and management, and is in fact a corporate controversy in contemplation
of the Corporation Code.”

o Creditors – Sec 122; fiduciary duty to creditors Sec 31

▪ Carag v NLRC 520 SCRA 28 (2007)
Corp. illegally closed resulting to illegal dismissal of employees. Employees wants the CoB and Pres of the corp
personally liable for the unpaid wages.
Q: Are officers personally liable to the liabilities of the corporation concerning unpaid wages? No. SC held that
they are not personally liable because, as a general rule officers are not personally liable, exceptions are found in art. 31
of the corp. code. This are when the officers willfully and knowingly votes for or assents to patently unlawful acts of
the corporation. Here, there is no evidence of such willful acts, respondents even failed to allege such fact. Bad faith is
never presumed. Hence, petitioners are not personally liable for the unpaid wages.

▪ Aratea v Suico 518 SCRA 501 (2007)

Aratea and Canonigo are controlling stockholders of SAMDECO, a mining company. Suico entered into a MOA with
SAMDECO (with Aratea and Canonigo as duly authorized representatives of SAMDECO) to extend loans and cash
advances in exchange for the grant of the exclusive right to market fifty percent (50%) of the total coal extracted by
SAMDECO from its mining sites. Through Aratea and Canonigo, SAMDECO prevented full implementation of the
marketing arrangement and did not pay its loan obligations to Suico. Aratea and Canonigo eventually sold their shares
and passed operations to SPMI without informing Suico.
Q: Are the officers personally and solidarily liable with the corporation? Yes. Petitioners Aratea and Canonigo
acted in bad faith when they, as officers of SAMDECO, unreasonably prevented Suico from selling his part of the coal-
produce of the mining site, in gross violation of their MOA. This resulted in Suico not being unable to realize profits
from his 50% share of the coal produce, from which Suico could obtain part of the payment for the loans and advances
he made in favor of SAMDECO. Moreover, petitioners also acted in bad faith when they sold, transferred and assigned
their proprietary rights over the mining area in favor of SPMI and Dy, thereby causing SAMDECO to grossly violate its
MOA with Suico. Suico suffered grave injustice because he was prevented from acquiring the opportunity to obtain
payment of his loans and cash advances while petitioners Aratea and Canonigo profited from the sale of their
shareholdings in SAMDECO in favor of SPMI and Dy.

▪ trust fund doctrine –

Steinberg v Velasco 52 Phil 953 (1929)
Steinberg is the receiver of the corporation where respondents are board of directors. The corporation has debts. The
board of directors, through a board meeting, purchased stocks from the company and declared dividends. Steinberg
now assail the validity of the sale and also the declaring of dividends considering thet the company has a lot of debts.
Q: May the directors of the Corporation sell the assets of the corporation notwithstanding the fact that it is
insolvent? No. Creditors of a corporation have the right to assume that so long as there are outstanding debts and
liabilities, the board of directors will not use the assets of the corporation to purchase its own stock, and that it will not
declare dividends to stockholders when corporation is insolvent.

▪ Boman Environmental Dev Corp v CA 167 SCRA 540 (1988)

Fajilan was resigning as the president and board member of Boman. The Company and the Board of Directors agreed
to his resignation and the acquisition of his shares and company rights. The compensation for Fajilan was not given in
full since there is a balance and Fajilan sought to recover the balance. He filed a case with the RTC but the RTC said
that it has no jurisdiction over the case since it should be filed with the SEC because it is an intra-corporate dispute.
The SC ruled that the case should be filed with the SEC since the matter involves intra-corporate dispute and the SEC
should first determine if the company has unrestricted earnings to acquire the shares of Fajilan since the stakeholders
which is the creditors should be paid first.
Q: Is determination of unrestricted retained earnings by the SEC required before the corporation may buy its
own shares?
Yes. The requirement of unrestricted retained earnings to cover the shares is based on the trust fund doctrine which
means that the capital stock, property and other assets of a corporation are regarded as equity in trust for the payment of
corporate creditors. The reason is that creditors of a corporation are preferred over the stockholders in the distribution
of corporate assets. There can be no distribution of assets among the stockholders without first paying corporate
creditors.
Q: What is the Trust Fund Doctrine?
There can be no distribution of assets among stockholders without first paying the corporate creditors.

▪ Yamoto v Nishino Leather 551 SCRA 447 (2008)

Petitioner Yamamoto invested equipment and machineries in the corporation. Later on the corporation sought the
acquisition of the shares of Yamamoto. Yamamoto wants to get the equipment and machineries back.
Q: can Yamamoto demand the reacquisition of his investments?
 No. It is settled that the property of a corporation is not the property of its stockholders or members. Under the trust
fund doctrine, the capital stock, property, and other assets of a corporation are regarded as equity in trust for the
payment of corporate creditors which are preferred over the stockholders in the distribution of corporate assets. The
distribution of corporate assets and property cannot be made to depend on the whims and caprices of the stockholders,
officers, or directors of the corporation unless the indispensable conditions and procedures for the protection of
corporate creditors are followed.

▪ PLDT v NTC 539 SCRA 365 (2007)

This case pertains to Section 40 (e) of the Public Service Act (PSA), which authorized the NTC to collect from public
telecommunications companies Supervision and Regulation Fees (SRF) of PhP 0.50 for every PhP 100 or a fraction of
the capital and stock subscribed or paid for of a stock corporation, partnership or single proprietorship of the capital
invested, or of the property and equipment, whichever is higher. Under Section 40 (e) of the PSA, the NTC sent SRF
assessments to petitioner PLDT starting sometime in 1988. The SRF assessments were based on the market value of the
outstanding capital stock, including stock dividends, of PLDT. PLDT protested the assessments contending that the
SRF ought to be based on the par value of its outstanding capital stock. The SC ruled that The value transferred from
the unrestricted retained earnings of PLDT to the capital stock account pursuant to the issuance of stock dividends is
the proper basis for the assessment of the SRF.
Q: What are stock dividends?
Stock Dividends is the amount that the corporation transfers from its surplus profit account to its capital account. It is
the same amount that can be loosely termed as the trust fund of the corporation. Trust Fund doctrine considers this
subscribed capital as a trust fund for the payment of the debts of the corporation, to which the creditors may look for
satisfaction. As a fund in trust for creditors in case of liquidation, the actual value of the subscriptions and the value of
stock dividends distributed may not be decreased or increased by the fluctuating market value of the stocks.

o Suppliers, independent contractors

SEC 6 CLASSIFICATION OF SHARES

(1) Common – no preferences
(2) Preferred
● Republic Planters Bank v Agana 269 SCRA 1 (1997)
Corporation is insolvent. It wants to redeem its redeemable shares. Central Bank disallowed. RTC granted redeem. Corporation argues that
it can redeem because under the corp code it can redeem even without unrestricted retained earnings. SC ruled it can’t because it is
insolvent.
Q: What are unrestricted retained earnings?
"surplus profits arising from its business"
Q: What are preferred share of stocks?
A preferred share of stock, on one hand, is one which entitles the holder thereof to certain preferences over the holders of common stock.
The preferences are designed to induce persons to subscribe for shares of a corporation. Preferred shares take a multiplicity of forms. The
most common forms may be classified into two: (1) preferred shares as to assets; and (2) preferred shares as to dividends. The former is a
share which gives the holder thereof preference in the distribution of the assets of the corporation in case of liquidation; the latter is a share
the holder of which is entitled to receive dividends on said share to the extent agreed upon before any dividends at all are paid to the
holders of common stock. There is no guaranty, however, that the share will receive any dividends.
Q: Can dividends be issued to preferred stockholders when there is no unrestricted retained earnings?
No. Preferences granted to preferred stockholders, moreover, do not give them a lien upon the property of the corporation nor make them
creditors of the corporation, the right of the former being always subordinate to the latter. Dividends are thus payable only when there are
profits earned by the corporation and as a general rule, even if there are existing profits, the board of directors has the discretion to
determine whether or not dividends are to be declared. Shareholders, both common and preferred, are considered risk takers who invest
capital in the business and who can look only to what is left after corporate debts and liabilities are fully paid.
Q: What are redeemable shares?
Redeemable shares, on the other hand, are shares usually preferred, which by their terms are redeemable at a fixed date, or at the option of
either issuing corporation, or the stockholder, or both at a certain redemption price.
Q: Can redeemable shares be redeemed without unrestricted retained earnings?
Yes. The present Code allows redemption of shares even if there are no unrestricted retained earnings on the books of the corporation. This
is a new provision which in effect qualifies the general rule that the corporation cannot purchase its own shares except out of current
retained earnings. However, while redeemable shares may be redeemed regardless of the existence of unrestricted retained earnings, this is
subject to the condition that the corporation has, after such redemption, assets in its books to cover debts and liabilities inclusive of capital
stock. Redemption, therefore, may not be made where the corporation is insolvent or if such redemption will cause insolvency or inability
of the corporation to meet its debts as they mature.
● See SEC Op May 24 1994; guidelines must be specified in the articles; when non-voting preferred shares can still vote; cumulative v non-
cumulative
● Nature of rights under last par
o Cojuangco Jr. v Roxas 195 SCRA 797 (1991)
PCGG voted the sequestered shares of stock of petitioners Cojuangco, et al. and as a result, petitioners failed to obtain enough
votes to be elected. They filed a petition for quo warranto impleading the candidates who were declared elected. The SC ruled in
favor of petitioners and held that the PCGG may not vote sequestered shares of stock or elect members of the board of directors
of the corporation concerned. The PCGG cannot exercise acts of dominion over property sequestered, and it may exercise only
powers of administration.
Q: Can PCGG vote on the basis of sequestered shares?
 No. Only their owners, duly authorized representatives or proxies may vote the said shares. The act of sequestration, freezing or
provisional takeover of property does not import or bring about a divestment of title over said property; and it does not make the
PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator;
not and owner. Therefore, it cannot perform acts of strict ownership.

o Mobilia Products Inc v Umezawa 293 SCRA 634 (1998)

Respondent was a director of petitioner corporation, was charged with estafa. Respondent was assailing the jurisdiction of RTC.
SC ruled that the bare fact that the Respondent was the President and general manager of the petitioner corporation when the
crimes charged were allegedly committed and was then a stockholder thereof does not itself deprive the court a quo of its
exclusive jurisdiction over the crimes charged. The property of the corporation is not the property of the stockholders or members
of its officers who are stockholders.
Q: What is the interest of the stockholders over the corporate assets?
The ownership of that property is in the corporation, and not in the holders of shares of its stock. The interest of each stockholder
consists in the right to a proportionate part of the profits whenever dividends are declared by the corporation, during its existence,
under its charter, and to a like proportion of the property remaining, upon the termination or dissolution of the corporation, after
payment of its debts

● Sec 6 not applicable to members of NSNP

● Gamboa v Teves GR 176579 June 28, 2011
PLDT’s shares of stocks are divided into preferred and common shares. For their preferred shares more than 99% is Filipino owned, for
common shares less than 19% is Filipino owned. If combined, 77% of the total share is Filipino owned. PLDT claims that the computation
for the 60-40 ownership should be both shares combined. SC ruled that the 60-40 rule should be computed separately.
Q: Section 11 article XII of the 1987 Constitution.
Section 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty per centum of
whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer
period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the common good so requires. The State shall encourage equity participation in public utilities
by the general public. The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their
proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the
Philippines.
Q: What is the ‘capital’ referred to in section 11?
The term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock entitled to vote in the election of directors,
and thus in the present case only to common shares, and not to the total outstanding capital stock comprising both common and non-voting
preferred shares.
The Court held that term "capital," involves the 60-40 ownership requirement in favor of Filipino citizens in the Constitution to engage in
certain economic activities applies not only to voting control of the corporation, but also to the beneficial ownership of the corporation.
Q: Can preferred shares be included in the ‘capital’?
Yes if they are granted voting rights. Considering that common shares have voting rights which translate to control, as opposed to preferred
shares which usually have no voting rights, the term “capital” in Section 11, Article XII of the Constitution refers only to common shares.
However, if the preferred shares also have the right to vote in the election of directors, then the term “capital” shall include such preferred
shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the election
of directors. In short, the term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the
election of directors.
NOTE: In the 2012 decision, SC clarified that “the 60-40 ownership requirement in favor of Filipino citizens must apply separately to each
class of shares, whether common, preferred non-voting, preferred voting or any other class of shares.”

SEC 7 FOUNDER’S SHARES

Why should the 5 year period commence not from date of approval of the exclusive right to vote and be voted for in the election of directors
commence from when the articles are approved and registered?

SEC 8 REDEEMABLE SHARES

● See SEC Rules Governing Redeemable and Treasury Shares
● Sinking fund required by SEC to be set up when corporation will issue redeemable shares (Sec 4)
● Corporation may redeem shares provided that after redemption, it has sufficient assets to cover debts and liability inclusive of capital stock
(Sec 4)

SEC 9 TREASURY SHARES

● See SEC Rules Governing Redeemable and Treasury Shares
● Corporation may reacquire its own shares without violating the trust fund doctrine.
● Treasury shares have no voting rights Sec 56
● They are not considered as outstanding shares Sec 173
● Existing shareholders generally have priority over third persons in acquiring treasury shares unless they are denied pre-emptive right Sec
38
● CIR v Manning 66 SCRA 14 (1975)
Q: What are treasury shares?
Treasury shares are issued shares, but being in the treasury they do not have the status of outstanding shares. Consequently, although a
treasury share, not having been retired by the corporation re-acquiring it, may be re-issued or sold again, such share, as long as it is held by
the corporation as a treasury share, participates neither in dividends, because dividends cannot be declared by the corporation to itself, nor
 in the meetings of the corporation as voting stock, for otherwise equal distribution of voting powers among stockholders will be effectively
lost and the directors will be able to perpetuate their control of the corporation, though it still represents a paid-for interest in the property
of the corporation.

Other kinds of shares:

● Escrow shares see SEC Ops Nov 20, 1989 and May 19, 1989
● Watered stocks (or bonus stocks) Sec 62 and 65*
● Warrants, stock options, stock rights, stock splits

TITLE II INCORPORATION AND ORGANIZATION

OF PRIVATE CORPORATIONS

SEC 10 NUMBER AND QUALIFICATIONS OF INCORPORATORS

● Only a natural person can be an incorporator

● What is the rationale for minimum number of 5 and maximum number of 15?
● Why should majority of incorporators be residents of the Philippines? Even if corporation is engaged in a wholly or partly nationalized
activity, why should the Filipino incorporators also have to reside in the Philippines?
● An incorporator must own at least one share.
● Care Best International, Inc. v SEC GR 215510 Mar 16, 2015
Not a case, just notice.
Q: Can incorporators use fictitious names?
No. incorporation is a mere grant of privilege from the State and, in order to be entitled to such privilege, the requirements and procedures
for the grant thereof must be complied with.
Under Section 14 (5) of the Corporation Code, the articles of incorporation must state the names of the incorporators and this must
necessarily refer to their legal names, not fictitious names or aliases which they have no authority to use, as in this case.

● Freddie Guillen v Atty. Audie Arnado AC 10547 Nov 8, 2017

Topic has no relation to the case. Admin case. Even Atty. Herbosa said it has no relation.

SEC 11 CORPORATE TERM

● CRMD and SEC v Ching Bee Trading Corp GR 205291 Nov 12, 2014
Ching bee filed an application to amend AOI for the extension of its corporate term, one day before the expiry of the original term. SEC
refused to accept because it lacks director’s certificate which, provides that it was approved by stockholders representing 2/3 of OCS. SEC
denied request for extension.
Q: Can a corporation ask for amendment one day before expiry of the original term?
Yes. The Code is silent as to how early within the 5 year period the application for extension should be made. Reading plainly form Section
11 of the code would reveal that an applicant may seek the approval of the SEC for the extension of its life at any time within the given 5
year period. Evidently, a corporation may seek extension even one day prior to the date of expiration as the law does not impose an earlier
limitation.
Q: Should SEC allow extension to amend AOI?
Yes : In the extension of the corporate term, the SEC must give a reasonable time to the applicant within which to make the necessary
corrections should there be objectionable portions in the amendment.

● Why should the 50 year term under the present Code revert back to a perpetual term as provided in the old Corporation Law?

SEC 12 MINIMUM CAPITAL STOCK REQUIRED OF STOCK CORPORATIONS

Does requiring a minimum for capital stock infringe on a person’s right to form a corporation or association?

SEC 13 AMOUNT OF CAPITAL STOCK TO BE SUBSCRIBED AND PAID FOR PURPOSES OF INCORPORATION

● Why is there a required minimum paid up capital of P5000?

● How can a prospective creditor make a decision on whether or not to lend to a corporation whose stated capital stock is only the minimum
amount of P5000?

SEC 14 CONTENTS OF ARTICLES OF INCORPORATION

(1) Pre-incorporation Agreement
a. Fong v Duenas GR 185592 Jun 15, 2015
This is a case for rescission. The only relation to pre-incorporation agreement is its requirement of 25% payment of subscription,
which is why non-payment is a substantial breach in an agreement to incorporate.
Q: What is the amount required for incorporation?
Under the Corporation Code, before a stock corporation may be incorporated and registered, it is required that at least twenty-five
percent (25%) of its authorized capital stock as stated in the articles of incorporation, be first subscribed at the time of
incorporation, and at least twenty-five percent (25%) of the total subscription, be paid upon subscription.

(2) Corporate Name – see Sec 18

(3) Purpose Clause
a. Leo Y. Querubin, et al v Comelec et al, GR 218787 Dec 8, 2015
Petitioners argue that Smartmatic can no longer participate in the public bidding for the automation of the 2016 Elections
because, in its AOI, one of its primary purposes was specifically to participate in the automation of the 2010 Elections only;
hence, its involvement in the bidding for the 2016 Elections is an ultra vires act. The SC held that notwithstanding the specific
mention of the 2010 Elections in SMTC’s primary purpose, SMTC cannot be deemed to be overstepping its limits by
participating in the bidding for the 23,000 new optical mark readers for the 2016 polls since upgrading the machines that the
company supplied the COMELEC for the automation of the 2010 elections and offering them for subsequent elections is but a
logical consequence of SMTC’s course of business, and should, therefore, be considered included in, if not incidental to, its
corporate purpose.
Q: What are ultra vires acts?
The language of the Code appears to confine the term ultra vires to an act outside or beyond express, implied and incidental
corporate powers. Nevertheless, the concept can also include those acts that may ostensibly be within such powers but are, by
general or special laws, either proscribed or declared illegal. Ultra vires acts or acts which are clearly beyond the scope of one’s
authority are null and void and cannot be given any effect.
Q: Can a corporation perform acts which are not expressly provided in its AOI?
Yes. In determining whether or not a corporation may perform an act, one considers the logical and necessary relation between
the act assailed and the corporate purpose expressed by the law or in the charter If the act was one which is lawful in itself or not
otherwise prohibited and done for the purpose of serving corporate ends, or reasonably contributes to the promotion of those ends
in a substantial and not merely in a remote and fanciful sense, it may be fairly considered within corporate powers.

b. Asuncion v De Ynarte 28 Phil 67 (1914)

The proposed incorporators were compelling the respondent (chief of the division archives) to receive and register said articles of
incorporation and to do any and all acts necessary for the complete incorporation of the persons named in the articles. Respondent
refused. SC ruled that the respondent had the duty when articles of incorporation are presented for registration, to determine
whether the objects of the corporation as expressed in the articles are lawful. The object of the proposed corporation, as appears
from the articles offered for registration, is to make of the barrio of Pulo or San Miguel a corporation which will become the
owner of and have the right to control and administer any property belonging to the municipality of Pasig found within the limits
of that barrio. This clearly against the law.
Q: When AOI is presented for registration, SEC cannot decline?
NO. simply because articles of incorporation presented for registration are perfect in form, the division of archives must accept
and register them and issue the corresponding certificate of incorporation no matter what the purpose of the corporation may be as
expressed in the articles. The chief of the division of archives, on behalf of the division, has also the power and duty to determine
from the articles of incorporation presented for registration the lawfulness of the purposes of the proposed corporation and
whether or not those purposes bring the proposed corporation within the purview of the law authorizing corporations for given
purposes.

c. See Sec 41 corporate action pursuant to a specific purpose requires approval by the Board; however, where the proposed action is
pursuant to a secondary purpose only, the Board must seek approval from the stockholders or members
d. See Sec 34 a NSNP cannot include among its secondary purposes one that would change its nature as such.
(4) Principal Place of Business – SEC Circular No 3, Series of 2006
a. Pilipinas Shell Petroleum Corp. v Royal Ferry Services Inc. GR 188146 Feb 1, 2017
Royal Ferry is a domestic corporation. According to its Articles of Incorporation, Royal Ferry's principal place of business is in
Makati City. However, it currently holds office in Manila. Royal Ferry filed a verified Petition for Voluntary Insolvency before
the Regional Trial Court of Manila. Pilipinas Shell alleged that the Petition was filed in the wrong venue. The SC held that the
Petition for Insolvency was properly filed before the Regional Trial Court of Manila, where its actual residence is.
Q: Where is the residence of the corporation?
A corporation is considered a resident of the place where its principal office is located as stated in its Articles of Incorporation.
Q: Where to file insolvency proceedings?
The venue for a petition for voluntary insolvency proceeding under the Insolvency Law is the Court of First Instance of the
province or city where the insolvent debtor resides. To determine the venue of an insolvency proceeding, the residence of a
corporation should be the actual place where its principal office has been located for six (6) months before the filing of the
petition.
Q: What if there’s conflict between the principal office as stated in the AOI and actual office?
If there is a conflict between the place stated in the articles of incorporation and the physical location of the corporation's main
office, the actual place of business should control.

b. Golden Arches Dev Corp v St. Francis Square GR 183843 Jan 19, 2011
St. Francis Square filed an action for breach of contract against Golden Arches before the RTC of Mandaluyong, since the
principal place of business of the former is at Mandaluyong. The latter filed a motion to dismiss on the ground of improper venue,
since the principal address of St. Francis Square under the Articles of Incorporation is at Makati. The Supreme Court denied the
motion to dismiss since Golden Arches was aware of the new principal place of business of St. Francis Square at Mandaluyong,
as evidenced by the fact that the letters sent and received by the former indicate such new place of business.
Q: Where to file if there is a change in the principal office but not stated in the AOI?
A corporation may file a personal action where it is actually “residing” (or holding its principal office) at the time it filed its
complaint.

c. Sy v Tyson Enterprises 119 SCRA 367 (1982)

 Tyson Ent., doing business in Binondo, Manila, filed a complaint for the collection of money against John Sy and Universal Parts
Supply Corp in Pasig, Rizal. It is alleged in the complaint that John Sy is a resident in Bacolod City, while Universal parts is
doing business also in Bacolod City. However, there is no allegation in the complaint as to the place of business of Tyson Ent.
What is alleged is the residence of Dominator Ti, who is the president of Tyson Ent, which is in San Juan, Rizal. Defendant Sy
filed a MTD on the ground of improper venue. Plaintiff opposed on the ground that the defendants had waived their objection to
the venue. The SC ruled that the venue was improperly laid in this case.
Q: May action against a corporation filed in the place of residence of its president?
No. The residence of the president is not the residence of the corporation, because a corporation has a personality separate and
distinct from that of its officers and stockholders.

(5) Corporate Term – see Sec 11

(6) Names, number and qualifications of incorporators* – see Sec 10
(7) Names, nationalities and residences of directors/trustees – number of incorporators and directors cannot exceed 15 but trustees of NSNP
may be more than 15.
a. Is there a minimum number of directors (similar to that of incorporators who cannot be less than 5)?
(8) Authorized Capital stock
a. Trust fund doctrine – for the payment of debt; *subscriptions, capitol stock, corporate properties and assets constitute, and
regarded in equity as, fund for creditors’ valid claims
i. Halley v Printwell Inc. May 30, 2011
Halley et al., were stockholders of BMPI. BMPI engaged Printwell in several business transactions. BMPI failed to pay for such
obligations prompting Printwell to implead its stockholders which were Halley et al. Halley et al. as unpaid subscription. These
stockholders filed a case claiming that they have a separate personality than that of the corporation. The Court ruled that they are
liable to the extent of their unpaid subscription.
Q: What is the trust fund doctrine?
Trust Fund Doctrine is a rule that the property of a corporation is a trust fund for the payment of creditors, but such property can
be called a trust fund only by way of analogy or metaphor. As between the corporation itself and its creditors it is a simple debtor,
and as between its creditors and stockholders its assets are in equity a fund for the payment of its debts. The Court clarifies that
the trust fund doctrine is not limited to reaching the stockholders unpaid subscriptions. The scope of the doctrine when the
corporation is insolvent encompasses not only the capital stock, but also other property and assets generally regarded in equity as
a trust fund for the payment of corporate debts.
Q: Can creditors of a corporation go after stockholder with unpaid subscription?
Yes. By following the trust fund doctrine, the stockholders were deemed liable for the debts of the corporation up to the extent of
their unpaid subscriptions in order to avoid defrauding corporate creditors. All assets and property belonging to the corporation
held in trust for the benefit of creditors that were distributed or in the possession of the stockholders, regardless of full payment
of their subscriptions, may be reached by the creditor in satisfaction of its claim. Under the trust fund doctrine, a corporation has
no legal capacity to release an original subscriber to its capital stock from the obligation of paying for his shares, in whole or in
part, without a valuable consideration, or fraudulently, to the prejudice of creditors. The creditor is allowed to maintain an action
upon any unpaid subscriptions and thereby steps into the shoes of the corporation for the satisfaction of its debt.
Q: To what extent is a stockholder liable?
Only up to the extent of the unpaid subscription.

b. Define authorized capital stock

i. SEC Opinion Aug 11, 1997, subscribed capital, paid-up capital
ii. MSCI-NACUSIP Local Chapter v National Wages 260 SCRA 173 (1997)
MSCI filed an application for exemption of a wage order it being a distressed employer. The union opposed contending that the
25% loss in the paid-up capital has not been met by MCSI because the P5 Million paid-up capital reported by MCSI does not
reflect the true financial status of the said corporation. The Board denied the application but was later on granted. The SC held
that there was no grave abuse of discretion on the part of the Board and clarified that MSCI was organized and incorporated on
February 15, 1990 with an authorized capital stock of P60 million, P20 million of which was subscribed. Of the P20 million
subscribed capital stock, P5 million was paid-up.
Q: What are paid up capital stocks?
By express provision of Section 13, paid-up capital is that portion of the authorized capital stock which has been both subscribed
and paid. To illustrate, where the authorized capital stock of a corporation is worth P1 million and the total subscription amounts
to P250,000.00, at least 25% of this amount, namely, P62,500.00 must be paid up per Section 13. The latter, P62,500.00, is the
paid-up capital or what should more accurately be termed as "paid-up capital stock." Not all funds or assets received by the
corporation can be considered paid-up capital, for this term has a technical signification in Corporation Law. Such must form part
of the authorized capital stock of the corporation, subscribed and then actually paid up.

iii. Outstanding capital stock (see Sec 137)

iv. Heirs of Gamboa v Teves GR 176579 Oct 9, 2012
Supra.
Q: What is ‘Outstanding Capital Stock’?
The term "outstanding capital stock" as used in this Code, means the total shares of stock issued to subscribers or stockholders,
whether or not fully or partially paid, except treasury shares.
 (9) Treasurer’s Affidavit*
(10) Other documents/statements required by SEC to be submitted with the articles for registration such as certification from primary agency if
required, undertaking to change name, corporate data sheet *

SEC 15 FORM OF ARTICLES OF INCORPORATION

Refer to the SEC Corporate Registration System (CRS)

SEC 16 AMENDMENT OF ARTICLES OF INCORPORATION

● A stock corporation articles may be amended into that or a non-stock corporation provided all requirements are complied with
● Non-amendable items names of incorporators, names of incorporating directors/trustees, names of original subscribers, subscribed and paid
up amounts, treasurer in trust, members who contributed to initial capital of NSC, witnesses and acknowledgment

SEC 17 GROUNDS WHEN ARTICLES OF INCORPORATION OR AMENDMENT MAY BE REJECTED OR

DISAPPROVED
● Note that the SEC is obliged to give the incorporators a reasonable time within which to correct or modify the objectionable portions of the
proposed articles or amendment.
● Fraud in procuring registration and other grounds for SEC to suspend or cancel certificate of registration – minor incorporator or
stockholder; already deceased (before incorporation) incorporator; fictitious incorporators; incorporator did not consent to be included as
such; lacking Philippine residents; fake Philippine nationality; etc.
● Distinguish shell corporation from shelf corporation
o Rafael H. Galvez and Katherine L. Guy v Hon. CA and AUB GR 187919 Apr 25, 2012
Petitioners are officers of RMSI, also known as (Smartnet). They obtained a credit line worth 400M plus from AUB. Later on,
petitoners organized Smartnet Philippines, Inc. (SPI). Gilbert Guy, represented that SPI is a division of RMSI (Smartnet) and
obtained letters of credit from AUB. When the obligation was failed to be paid, AUB sent demand letter to RMSI, RMSI denied
liability, claiming that RMSI and SPI is different corporations and thus has different personalities. AUB filed a complaint for
Syndicated ESTAFA against the interlocking directors of RMSI and SPI.
Q: Is there probable cause for estafa brought about by the scheme created by the petitioners?
There is probable cause. Fraud in its general sense, is deemed to comprise anything calculated to deceive, including all acts,
omissions, and concealment involving a breach of legal duty or equitable duty, trust, or confidence justly reposed, resulting in
damage to another, or by which an undue and unconscientious advantage is taken of another. Petitioners cannot invoke the
separate personality because of the clear intent to use SPI as a cover to defraud AUB.

SEC 18 CORPORATE NAME*

● Limitations on Use of Corporate Name SEC Memo No 14 Series of 2000
o Philips Export BV v CA GR 96161 Feb 21, 1992
Petitioner filed a complaint with the SEC to cancel the word “Philips” from private respondent’s (Standard Philips Corp.)
corporate name. Private respondent refused to amend its AOI to remove “Philips”. The SEC held that both names hardly breed
confusion. The CA held that the private respondent’s products were unrelated and non-competing with that of petitioners.

Q: Is there confusion?
Yes, because the primary purposes in private respondent’s AOI included similar products in the petitioner’s primary purposes. As
a rule, no corporate name may be allowed by the SEC if:
(1) the complainant corporation acquired a prior right over the use of such corporate name; and
(2) the proposed name is either: identical, deceptively or confusingly similar to that of any existing corporation or to any other name
already protected by law, or patently deceptive, confusing or contrary to existing law
Given private respondent’s aforesaid underlined primary purpose, nothing could prevent it from dealing in the same line of
business of electrical devices, products or supplies which fall under its primary purposes.

o Philippine First Ins Co v Hartigan No. L-86370 Jul 31, 1970

Plaintiff was originally organized as an insurance corporation under the name of ‘The Yek Tong Lin Fire and Marine Insurance
Co., Ltd.,’ in 1953. Its Articles of Incorporation were amended changing the name of the corporation to ‘Philippine First
Insurance, Co., Inc.’ The case arose when plaintiff, acting in the name of Yek Tong, signed as co-maker together with
defendants, a promissory note in favor of China Banking Corporation. Subsequently, as form of security, defendants signed an
indemnity agreement in favor of plaintiff in case damages or loses arises thereof. Defendant Hartigan failed to pay, hence, the
complaint for collection of sum of money. Defendants deny the allegations, claiming, among others that there is no privity of
contract between them and plaintiff, since the plaintiff did not conduct its business under the name of Yek Tong Insurance..
Q: May a Corporation change its name and still retain its original personality and individuality? Yes. The law authorizes
corporations to amend their charter, its procedure and restrictions for such amendments. There is restriction on the term of their
existence and the increase or decrease of the capital stock but there is no prohibition against the change of name. The general rule
as to corporations is that each corporation shall have a name by which it is to sue and be sued and do all legal acts. The name of a
corporation in this respect designates the corporation in the same manner as the name of an individual designates the person.”
Since an individual has the right to change his name under certain conditions, there is no compelling reason why a corporation
may not enjoy the same right.

o PC Javier & Sons v CA GR 129582 Jun 29, 2005

PC Javier applied for a loan with First Summa Savings and Mortgage Bank. The loan was secured with Real Estate Mortgages
and Chattel Mortgages. The loan was approved. First Summa then changed its name to PAIC Savings and Mortgage Bank. PC
 Javier defaulted in its payments and First Summa (now PAIC) sent several demand letters to PC Javier to settle the overdue
amounts but PC Javier still failed to pay. PAIC then foreclosed on the the REM. PC Javier sought to cancel the mortgages and
filed a case for such in the RTC. It also raised as a defense that it had no notice of the change in name.
Q: Must PC Javier, as debtor, be informed of the change of name of First Summa, the creditor?
No. There is nothing in the law that requires a debtor to be informed of the change in the name of the company. A change in the
corporate name does not make a new corporation, whether effected by a special act or under a general law. It has no effect on the
identity of the corporation, or on its property, rights, or liabilities. Here, First Summa and PAIC are one and the same since a
change in the corporate name does not make a new corporation, whether effected by a special act or under a general law. It has no
effect on the identity of the corporation, or on its property, rights, or liabilities.

o Zuellig Freight and Cargo v NLRC GR 157900 Jul 22, 2013

● First in time, first in right

o Indian Chamber of Commerce Phils, Inc v Filipino Indian Chamber of Commerce in the Philippines, Inc. GR 184008 Aug
3, 2016
Zuellig Freight and Cargo Systems is formerly known as Zeta Brokerage Corporation who caused the termination of Rolando San
Miguel. Rolando San Miguel filed a complaint for unfair labor practice, illegal dismissal, non-payment of salaries and moral
damages against Zuellig. He is a checker/ customs representative of Zeta and was one of those affected employees for the
cessation of the operations of the petitioner. San Miguel contended that the amendments of the articles of incorporation of Zeta
were for the purpose of changing the corporate name.

Q: Did the amendment of the articles of incorporation of Zeta to change the corporate name result to dissolution? No.
The mere change in the corporate name is not considered under the law as the creation of a new corporation; hence, the renamed
corporation remains liable for the illegal dismissal of its employee separated under that guise. In short, Zeta and petitioner
remained one and the same corporation. The change of name did not give petitioner the license to terminate employees of Zeta
like San Miguel without just or authorized cause. The situation was not similar to that of an enterprise buying the business of
another company where the purchasing company had no obligation to rehire terminated employees of the latter.

o GSIS Family Bank v BPI Family Bank GR 175278 Sep 23, 2015
Petitioner was originally organized as Royal Savings Bank. It was placed under receivership and later temporarily closed,
Petitioner reopened and was renamed Comsavings Bank. GSIS acquired petitioner from the Commercial Bank of Manila. Then,
BPI sought SEC approval to change its corporate name to "GSIS Family Bank, a Thrift Bank. Petitioner likewise applied with
DTI and BSP for authority to use "GSIS Family Bank, a Thrift Bank" as its business name. The DTI and the BSP approved the
applications. Eventually, it reached respondent's attention that petitioner is using or attempting to use the name "Family Bank.
Thus, on March 8, 2002, respondent petitioned the SEC Company Registration and Monitoring Department (SEC CRMD) to
disallow or prevent the registration of the name. "GSIS Family Bank" or any other corporate name with the words "Family Bank"
in it.
Q: Who has prior right? The respondent has prior right. In this case, respondent was incorporated in 1969 as Family Savings
Bank and in 1985 as BPI Family Bank. Petitioner, on the other hand, was incorporated as GSIS Family - Thrift Bank only in
2002, or at least seventeen (17) years after respondent started using its name. Following the precedent in the IRCP case, we rule
that respondent has the prior right over use of the corporate name.

o Industrial Refractories Corp of the Philippines v Refractories Corp of the Phil GR 122174 Oct 3, 2002
RCP filed a petition before the SEC to compel IRCP to change its corporate name as it is confusingly similar with that of RCP’s.
The SEC ordered IRCP to delete the name “Refractories Corporation of the Philippines”. However, the SEC En Banc modified
the decision and ordered IRCP to delete or drop from its corporate name only the word “Refractories”. The CA affirmed that the
corporate names of petitioner and respondent were confusingly or deceptively similar, and that RCP has established its prior right
to use the word “Refractories” as its corporate name.
Q: Who has right to use “refractories”?
The SC ruled in favor of RCP and held that RCP was the prior registrant and thus, has acquired the right to use the word
“Refractories” as part of its corporate name. Furthermore, that there exists a confusing similarity in RCP and IRCP’s corporate
names such that it would mislead a person using ordinary care and discrimination.

o Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus , et al v Iglesia ng Dios Kay Cristo Jesus, et al GR 137592 Dec 12
2001
Members of the Petitioner Corporation (Eli Soriano et al) were former members of the Respondent Corporation. They put up a
name confusingly similar to that of the Respondent Corporation.
Q: Who has better right to use the name?
Supreme Court held that Respondent Corporation has a right to contest the name of the petitioner corporation as respondent
corporation registered its name first, earlier to that of the petitioner corp. Parties organizing a corporation must choose a name at
their peril; and the use of a name similar to one adopted by another corporation, whether a business or a nonprofit organization, if
misleading or likely to injure in the exercise of its corporate functions, regardless of intent, may be prevented by the corporation
having a prior right, by a suit for injunction against the new corporation to prevent the use of the name.

● Corporate name v business name or brand

o L.C. Big Mak Burger Inc. v McDonald’s Corporation GR 233073, Feb 14, 2018
McDonald's Corporation (respondent) filed against L.C. Big Mak Burger, Inc. (petitioner) for trademark infringement and unfair
competition raffled to the Regional Trial Court (RTC) of Makati City, Branch 137 (Infringement Court)
 Q: Is petitioner guilty of indirect contempt for continuing to use “Big Mak” despite Court decision against it?
No.  It is not wholly true that petitioner continues to use the mark "Big Mak" in its business, in complete defiance to this Court's
Decision. Testimonial and documentary evidence were in fact presented to show that petitioner had been using "Super Mak"
and/or its corporate name "L.C. Big Mak Burger Inc." in its business operations instead of the proscribed mark "Big Mak"
pursuant to the ruling of the Infringement Court. What could readily be seen in the aforecited circumstances is the fact that
petitioner indeed implemented changes in its business to address the matter of infringement and unfair competition. In fact, in as
early as during the trial of the said case, certain changes had already been made by the petitioner to rule out the charge of
infringement and unfair competition. During the trial of the infringement and unfair competition case, the wrappers and bags for
petitioner's burger sandwiches already reflected its corporate name instead of the words "Big Mak." These circumstances belie the
imputation of disobedience, much less contemptuous acts, against the petitioner.

o Beverly Hills Medical Group, Inc.v Beverly Hills Cosmetic Surgery & Skin Institute, Inc. GR 201437 Jan 20, 2014
Beverly Hills Cosmetic Surgery & Skin Institute, Inc. (BHCSI) is a domestic corporation which was registered with the Securities
and Exchange Commission (SEC) on November 17, 2005. Sometime in September 2006, respondent discovered that petitioner
Beverly Hills Medical Group (BHMG) was able to register with the SEC. BHCSI filed a Petition for Cancellation of Corporate
Name Registration with the SEC, praying that petitioner's company name be cancelled.
Q: Was there confusion?
SC held that the use of identical or closely similar marks or trade names on non-competing goods may likely cause confusion as
to their source or origin where the non-competing goods or services are so related with each other that it might reasonably be
assumed that they originate from one and the same manufacturer or service provider. Proceeding with this line, the law protects
prior registered corporations, which have identical or similar names with subsequent registrants offering related, although non-
competing goods and services. In the case at bar, it must be emphasized that both BHCSI and BHMG are engaged in "competing
goods," and not merely related goods. The more reason, therefore, that the mantle of protection be given in favor of [herein
respondent] BHCSI.

● Generic or descriptive
o De La Salle Montessori International of Malolos, Inc. v De La Salle Brothers, Inc., et al GR No 205548 Feb 7, 2018
Petitioner reserved with the SEC its corporate name De La Salle Montessori International Malolos, Inc. Respondents De La Salle
Brothers, Inc. filed a petition with the SEC seeking to compel petitioner to change its corporate name. Respondents claim that
petitioner's corporate name is misleading or confusingly similar to that which respondents have acquired a prior right to use, and
that respondents' consent to use such name was not obtained. According to respondents, petitioner's use of the dominant phrases
"La Salle" and "De La Salle" gives an erroneous impression that De La Salle Montessori International of Malolos, Inc. is part of
the "La Salle" group, which violates Section 18 of the Corporation Code of the Philippines.

Q: Who has better right to use the name?

De La Salle Brothers. Settled is the rule that to fall within the prohibition of Section 18, two requisites must be proven:
(1) that the complainant corporation acquired a prior right over the use of such corporate name; and
(2) the proposed name is either: (a) identical, or (b) deceptively or confusingly similar to that of any existing corporation or (b)
deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law; or (c)
patently deceptive, confusing or contrary to existing law.
With respect to the first requisite, the Court has held that the right to the exclusive use of a corporate name with freedom from
infringement by similarity is determined by priority of adoption. In this case, respondents' corporate names were registered within
1961-1998. On the other hand, petitioner was issued a Certificate of Registration only on July 5, 2007 under Company
Registration No. CN200710647. It being clear that respondents are the prior registrants, they certainly have acquired the right to
use the words "De La Salle" or "La Salle" as part of their corporate names. The second requisite is also satisfied since there is a
confusing similarity between petitioner's and respondents' corporate names. While these corporate names are not identical, it is
evident that the phrase "De La Salle" is the dominant phrase used. In determining the existence of confusing similarity in
corporate names, the test is whether the similarity is such as to mislead a person using ordinary care and discrimination. In so
doing, the Court must look to the record as well as the names themselves.

SEC 19 COMMENCEMENT OF CORPORATE EXISTENCE*

● Upon issuance of the certificate of incorporation (unified registration with other agencies BIR, SSS, Philhealth, PagIbig)
● Doctrine of apparent authority * – corporation cannot deny agent’s authority if it allows agent to hold himself out as having such power
o Benjie B Georg v Holy Trinity College GR 19048 Jul 20, 2016
Holy Spirit assails its liability in the contract entered into by its former president, with petitioner. Respondent alleges that its
former president had no authority to enter into a contract absent any board resolution.
Q: Is Holy Spirit liable?
Yes. The doctrine of apparent authority provides that a corporation will be estopped from denying the agent’s authority if it
knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, and it holds him out to
the public as possessing the power to do those acts. The existence of apparent authority may be ascertained through (1) the
general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent
authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. In this case, Sr. Medalle formed and
organized the Group. She had been giving financial support to the Group, in her capacity as President of Holy Trinity College. Sr.
Navarro admitted that the Board of Trustees never questioned the existence and activities of the Group. Thus, any agreement or
contract entered into by Sr. Medalle as President of Holy Trinity College relating to the Group bears the consent and approval of
respondent. It is through these dynamics that we cannot fault petitioner for relying on Sr. Medalle’s authority to transact with
petitioner.
 o Advance Paper Corporation v Arma Traders Corporation Dec 11, 2013
Tan is the President of Arma Traders while Uy is the Treasurer. Arma Traders bought on credit and other paper products from
Advance Paper in the amount of P7,533,001.49.Upon the representation of Tan and Uy, Arma Traders also acquired three loans
from Advance papers in the amount of P7, 788, 796.76. As payment, Arma Traders issued 82 postdated checks payable to
Advance Paper. The checks were issued and signed by Tan and Uy who were Arma Trader’s authorized bank signatories. The
checks were, however, dishonored for insufficiency of funds which prompted Advance Paper to file a complaint against Arma
Traders.
Q: Is Arma Traders liable for the loans based on the doctrine of apparent authority?
Yes. The doctrine of apparent authority provides that a corporation will be estopped from denying the agent’s authority if it
knowingly permits one of its officers or any other agent to act within the scope of an apparent authority, and it holds him out to
the public as possessing the power to do those acts. The doctrine of apparent authority does not apply if the principal did not
commit any acts or conduct which a third party knew and relied upon in good faith as a result of the exercise of reasonable
prudence. Moreover, the agent’s acts or conduct must have produced a change of position to the third party’s detriment. Its
existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the
power to act or, in other words the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his
acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers. It is
not the quantity of similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind
the corporation. In this case, Arma Traders bestowed upon Tan and Uy broad powers by allowing them to transact with third
persons without the necessary written authority from its non-performing board of directors. Arma Traders failed to take
precautions to prevent its own corporate officers from abusing their powers. Because of its own laxity in its business dealings,
Arma Traders is now estopped from denying Tan and Uy’s authority to obtain loan from Advance Paper.

SEC 20 DE FACTO CORPORATION*

● Defect in the incorporation characterized by good faith attempt to incorporate and lawful exercise of corporate powers
● Arnold Hall v Piccio 86 Phil 603 (1950)
Petitioners and respondents signed and acknowledged the articles of incorporation of the Far Eastern Lumber and Commercial Co., Inc.
Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with the adoption of by-laws and
the election of its officers. The said articles of incorporation were filed with the SEC, for the issuance of the corresponding certificate of
incorporation. Then, Respondents filed before the CFI, alleging among other things that the Far Eastern Lumber and Commercial Co. was
an unregistered partnership and that they wished to have it dissolved because of bitter dissension among the members, mismanagement and
fraud by the managers and heavy financial losses.
Q: Can the respondents file an action to cause the dissolution of the Corporation without State Intervention?
Yes, they can. While the Corporation Law provides that the due incorporation of any corporations claiming in good faith to be a
corporation shall only be inquired into at the instance of the Government through a quo warranto proceeding, and not collaterally through a
private suit to which the corporation may be a party, there are least two reasons why this provision does not govern the situation. First,
the law provides that it is the issuance of a certificate of incorporation which calls a corporation into being. The immunity of collateral
attack is granted only to corporations claiming in good faith to be a corporation. Such a claim is compatible with the existence of
errors and irregularities, but not with a total or substantial disregard of the law. Unless there has been an evident attempt to comply with
the law, the claim to be a corporation 'under this act' could not be made 'in good faith. In this case, the Far Eastern Lumber and
Commercial Co. have not obtained the certificate of incorporation. As such, it may not probably claim "in good faith" to be a corporation.
Persons acting as corporation may not claim rights of "de facto" corporation if they have not obtained certificate of incorporation.
Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the alleged corporation for
obtaining its dissolution. Even the existence of a de jure corporation may be terminated in a private suit for its dissolution between
stockholders, without the intervention of the state. Hence, given that the corporation cannot “in good faith” claim to be a corporation, it
cannot enjoy immunity from private suit. Thus, the respondents can collaterally file an action to cause its dissolution.

SEC 21 CORPORATION BY ESTOPPEL

The Missionary Sisters of our Lady of Fatima v Alzona GR 224307 Aug 6, 2018
Petitioners is a religious and charitable group. The petitioner came into being as a corporation through a Certificate issued by SEC. The respondents,
on the other hand, are the legal heirs of the late Purificacion Y. Alzona (Purificacion). Purificacion, a spinster, is the registered owner of parcels of
land.In 1996, Purificacion became a benefactor of the petitioner by giving support to the community and its works. In 1997, Purificacion discovered
that she has lung cancer. Considering the restrictions in her movement, Purificacion requested Mother Concepcion to take care of her in her house, to
which the latter agreed. Acting on the advice given of a certain Atty. Arcillas, Mother Concepcion went to SEC and filed the corresponding
registration application for petitioner. Purificacion executed a Deed of Donation Inter Vivos in favor of the petitioner, conveying her properties. The
donation was accepted on even date by Mother Concepcion for and in behalf of the petitioner.
Q: Does the petitioner have the personality to accept the donation?
Yes. The Court finds that the petitioner is deemed vested with personality to accept, and Mother Concepcion is clothed with authority to act on the
latter's behalf. Jurisprudence dictates that the doctrine of corporation by estoppel applies for as long as there is no fraud and when the existence of the
association is attacked for causes attendant at the time the contract or dealing sought to be enforced was entered into, and not thereafter. In this case,
Purificacion dealt with the petitioner as if it were a corporation. The doctrine of corporation by estoppel rests on the idea that if the Court were to
disregard the existence of an entity which entered into a transaction with a third party, unjust enrichment would result as some form of benefit have
already accrued on the part of one of the parties. Thus, in that instance, the Court affords upon the unorganized entity corporate fiction and juridical
personality for the sole purpose of upholding the contract or transaction.
Priscilo B Paz v New International Environmental Universality GR 203993 Apr 20, 2015
Petitioner, as the officer-in-charge of the Aircraft Hangar entered into a MOA with Capt. Clarke, President of International Environmental
University, whereby for a period of four (4) years, unless pre-terminated by both parties with six (6) months advance notice, the former shall allow
the latter to use the aircraft hangar space at the said Airport "exclusively for company aircraft/helicopter.”  Said hangar space was previously leased to
Liberty Aviation Corporation, which assigned the same to petitioner.
Q: Is there estoppel?
Yes. Section 21 of the Corporation Code explicitly provides that one who assumes an obligation to an ostensible corporation, as such, cannot resist
performance thereof on the ground that there was in fact no corporation. Clearly, petitioner is bound by his obligation under the MOA not only
on estoppel but by express provision of law. As aptly raised by respondent in its Comment  to the instant petition, it is futile to insist that petitioner
issued the receipts for rental payments in respondent's name and not with Capt. Clarke's, whom petitioner allegedly contracted in the latter's personal
capacity, only because it was upon the instruction of an employee.  Indeed, it is disputably presumed that a person takes ordinary care of his
concerns, and that all private transactions have been fair and regular. Hence, it is assumed that petitioner, who is a pilot, knew what he was doing
with respect to his business with respondent.

Dee Hwa Liong Foundation Medical Center and Anthony Dee v Asiamed Supplied and Equipment Corp GR 205638 Aug 23, 2017
Dee Hwa Liong Foundation (DHL) and Asiamed entered into a Contract of Sale.  This Contract of Sale stated that DHL agreed to purchase from
Asiamed a GammaMed Plus Brachytherapy machine and a Gammacell Elan 3000 blood irradiator (collectively, the machines) for the price of
P31,000,000.00. These machines were delivered on May 20, 2003 and July 17, 2003. A Sales Invoice and two (2) Delivery Invoices were signed by
petitioner Anthony Dee (Anthony) and DHL Vice President for Administration, Mr. Alejandro Mateo (Mateo).

Q: Is Anthony solidarily liable with DHL by virtue of estoppel?

Yes. On petitioner Anthony's liability, the Court of Appeals found that petitioners admitted that they never represented that petitioner DHLFMC is a
corporate entity with separate personality from petitioner Anthony. Thus, they are estopped from raising its separate personality as a defense for
petitioner Anthony. Petitioners do not dispute that they specifically denied the allegation regarding petitioner DHLFMC's corporate circumstances.
Petitioners fail to show how the Court of Appeals appreciation of this specific denial is an error of law. Petitioners merely insist that petitioner
Anthony was not shown to have acted in bad faith, and thus, cannot be held solidarily liable with petitioner DHLFMC.  However, petitioners do not
point to anything on record to counter their own specific denial that would establish DHLFMC's existence as a corporation with separate
juridical personality. Thus, this argument must fail.

SEC 22 EFFECTS OF NON USE OF CORPORATE CHARTER AND CONTINUOUS INOPERATION OF A

CORPORATION

Take note that under this provision, the SEC may suspend OR revoke for continuous nonoperation. The SEC no longer immediately revokes
corporations’ registration for continuous nonoperation or failure to file GIS and/or financial statements. It merely suspends the same or puts them on
delinquent status meaning that the corporation cannot seek approval by the SEC of any corporate action (e.g. amendment of articles) unless it first
deals with the reportorial requirements and imposable fines. Further, corporations whose registration were previously revoked for failure to file GIS
and/or financial statements or continuous nonoperation can ask for the lifting of such revocation at any time provided they show proof that they were
actually operating and/or submit the reportorial requirements.

TITLE III
BOARD OF DIRECTORS/ TRUSTEES/ OFFICERS

SEC 23 THE BOARD OF DIRECTORS OR TRUSTEES*

Doctrine of Centralized Management

● The Board must act as one body to bind corporation
o Yao Ka Sin Trading v CA et al GR 53820 209 SCRA 763 June 15, 1992
Maglana, president of Prime White Cement Corporation, sent an letter offering 45,000 bags of cement at P24.30/bag to YKS.
Letter was received by YKS’s manager which was later accepted by him. Pursuant thereto, he sent a check in the amount of
P243,000.00 equivalent to the value of 10,000 bags of cement. However, the BOD of Prime White rejected the offer letter sent by
Maglana but it considered Yao’s acceptance letter as a new contract offer hence the Board sent a letter to Yao telling him that
Prime White is instead willing to sell only 10,000 bags to YKS that he has ten days to reply; that if no reply is made by Yao then
they will consider it as an acceptance and that thereafter Prime White shall deposit the P243k check in its account and then
deliver the cements to YKS. Henry Yao never replied. Later, YKS sued Prime White to compel the latter to comply with what
YKS considered as the true contract, i.e., 45,000 bags at P24.30 per bag.
Q: Is Maglana empowered to enter into contracts on behalf of Prime White?
No. No contracts can be signed by the president without first being approved by BOD; such approval may only be given after the
contract passes through, at least the NIDC representative and the legal counsel. While there can be no question that Mr, Maglana
was an officer—the President and Chairman—of Prime White at the time he signed the offer letter, Prime White's by-Laws do not
in any way confer upon the President the authority to enter into contracts for the corporation independently of the Board of
Directors. That power is exclusively lodged in the latter.

o Torres v CA 278 SCRA 793

Tormil is a corporation, majority of its shares belonging Torres. Pursuant to the upcoming election of directors, Torres assigned
from his own shares, 1 share each to Tobias, Jocson, Jurisprudencia, Azura and Pabalan (Tobias & Co.) as “qualifying shares,”
for the purpose of meeting the requirement of owning at least 1 share to be able to elect them to the Board of Directors as Torres’
 nominees. Torres himself made the entries of the assignment in the stock and transfer book. Thereafter, Torres and his 5
nominees were elected.
Q: Whether Tobias & Co. may be elected as directors of Tormil? No. (1) To be elected as director, one must be a stockholder
of the corporation. (2) It is the corporate secretary’s duty and obligation to register valid transfers of stocks. Any entry made by
one who is not the corporate secretary cannot be given any valid effect. Here, since Torres is not the corporate secretary, any
entries he made in the stock and transfer book of a transfer of shares cannot therefore be given any valid effect. Where the entries
made are void, Tobias and Co. cannot therefore be considered stockholders of record of Tormil. Because they are not
stockholders, they cannot therefore be elected as directors of Tormil.

o Homilla v. Salunat 405 SCRA 220 (2003)

An administrative complaint with the IBP was filed against Atty. Salunat for illegal and unethical practice and conflict of interest.
Atty. Salunat was allegedly a member of the ASSA Law and Associates, which was the retained counsel of the Philippine Public
School Teachers Association (PPSTA). Atty. Salunat allegedly represented PPSTA’s Board of Directors in an intra-corporate
case before the SEC involving said Board of Directors and PPSTA.
Q: Whether a lawyer engaged by a corporation may defend Board members of the same corporation in a derivative suit?
No. A lawyer engaged as counsel for a corporation cannot represent members of the same corporation’s Board of directors in a
derivative suit brought against them. To do so would be tantamount to representing conflicting interests, which is prohibited by
the Code of Professional Responsibility.

o Manila Metal Container Corp v PNB 511 SCRA 444 (2006)

Manila Metal mortgaged a parcel of land to PNB. Upon default, PNB foreclosed and bought the land. Manila Metal made offers
to repurchase the land, but PNB did not act upon them. The Special Assets Management Department (SAMD) of PNB
recommended to the management of PNB that Manila Metal be allowed to repurchase the land. PNB, however, did not approve
this proposal. Manila Metal argues that PNB already accepted its offer to repurchase through the SAMD; thus, PNB should
deliver the land to it.
Q: Whether SAMD’s acceptance bind PNB? No. A corporation can only execute its powers and transact its business through
its Board of Directors and through its officers and agents when authorized by a board resolution or its by-laws. Here, there was
no evidence that the SAMD was authorized by PNB's Board of Directors to accept the offer. Any acceptance by the SAMD of
Manila Metal’s offer would thus not bind PNB.

● The balancing factor vis-à-vis this doctrine is the concept of corporate governance (See the SEC Code of Corporate Governance for
Publicly Listed Companies)
● Board delegation in favor of officers
o San Juan Structural and Steel Fabricators, Inc. v CA, 296 SCRA 631 (1998)
San Juan and Motorich entered into an agreement for the sale of Motorich’s parcel of land. Motorich contends that the sale is not
binding to the corporations since it was only signed by its treasurer.
Q: Whether the sale of Motorich’s property by its treasurer binds the corporation? Yes. As a general rule, the acts of
corporate officers within the scope of their authority are binding on the corporation. But when these officers exceed their
authority, their actions cannot bind the corporation, unless it has ratified such acts or is estopped from disclaiming them. Here, a
corporate treasurer, by herself and without any authorization from the board of directors, cannot sell a parcel of land owned by
the corporation. However, it was proved that Motorich authorized or ratified the sale; thus, the sale is binding on the corporation.

● Business Judgment Rule

o Montelibano v Bacolod Murcia Milling Co., 5 SCRA 36 (1962)
Montelibano et. al are the sugar planters of Bacolod Milling. Amended Milling Contracts were entered into by the parties to
increase the planter’s share; thus, Bacolod Milling and its Board of Directors adopted a Resolution granting concessions to the
planters based on the Amended Milling Contracts. However, when the planters demanded the increase of their share, the milling
company resisted.
Q: Whether the court has authority to pass upon the issue of whether the Resolution would decrease the profits of
Bacolod Milling? No. Questions of policy or of management are left solely to the honest decision of officers and directors of a
corporation, and the court is without authority to substitute its judgment of the board of directors; the board is the business
manager of the corporation, and so long as it acts in good faith its orders are not reviewable by the courts. Thus, whether the
business of a corporation should be operated at a loss is a purely business and economic problem to be determined by the
directors of the corporation and not by the court.

o Filipinas Port Service v Go 518 SCRA 453 (2007)

After losing his bid for re-election, former Filports President questioned the new board’s act of creating new positions (AVP
positions, Special Asst., to President, and Special Asst., to Chairman). He asked the new board to remove those positions, but the
actions taken by the new Filports board did not sit well with him. This prompted him to file a derivative suit against Go et al., the
current board officers.
Q: Whether the current board of directors’ creation of an executive committee is valid even if the by-laws are silent on
this matter? Yes. As a rule, the corporate powers of all corporations shall be exercised, all business conducted, and all property
of the corporation shall be controlled and held by a board of directors. The board is the corporation’s governing body with the
power to exercise its prerogatives in managing the business affairs of the corporation. Thus, although the by-laws are silent , the
creation of such is legal and lawful since it is part of the board’s prerogative in managing the corporation’s business affairs.

o PSE v CA 281 SCRA 232 (1997)

 Puerto Azul Land, Inc. (PALI) filed an application with the PSE in order to facilitate the trading of its shares to the public. PSE
denied PALI’s application due to various claims, issues and circumstances surrounding PALI’s ownership over its assets. SEC
reversed the PSE’s decision.
Q: Whether PSE may validly deny PALI’s application? As a rule, a corporation’s corporate and management decisions must
not be interfered with by the state. Questions of policy and of management are left to the honest decision of the officers and
directors of a corporation, and the courts are without authority to substitute their judgment for the judgment of the board of
directors. The board is the business manager of the corporation, and so long as it acts in good faith, its orders are not reviewable
by the courts. Here, PSE’s denial of PALI’s application was grounded on lawful consideration and was made in good faith.

o Primary duty of the board

▪ Prime White Cement Corp. v IAC 220 SCRA 103, 110 (1993)
Board members of Prime White entered into an agreement with Te, another board member. They agreed that Te shall
be the sole dealer of 20,000 bags Prime White cement in Mindanao. However, the contract was found to be detrimental
to the interest of the corporation and beneficial to Te, so the board wanted to amend the same but there was no
settlement. Later, Prime White awarded the contract to someone else. Thus, Te sued Prime White for damages.
Q: Whether Te’s conduct was in accordance with his duty as director? No. A director of a corporation holds a
position of trust and owes a duty of loyalty to his corporation. In case his interests conflict with those of the
corporation, he cannot sacrifice the latter to his own advantage and benefit. Thus, as director, Te’s bounden duty was to
act in such manner as not to unduly prejudice the corporation. He should protect the corporation’s interest more than
his personal interest. His failure to do so is disloyalty to the corporation.

● Term of office – Sec 23 in relation to Sec 29

o Grace Christian High School (GCHS) v CA 281 SCR 133 (1997)
GCHS is school located in Grace Village, which is managed by Grace Village Association Inc. From 1975 to 1989, GCHS’s
representatives had been recognized as “permanent director” of the association even if they were never elected to the board.
Q: Whether GCHS should be given a seat in the board even without election? No. The Board of Directors must be elected
from among the stockholders or members. The mere fact that for 15 years GCHS enjoyed a seat in the board did not gave them
vested rights to it.

SEC 24 ELECTION OF DIRECTORS OR TRUSTEES

● Cumulative voting /straight voting / cumulative voting by distribution
● Cumulative voting not for NSNPs unless provided in the by-laws such that straight voting is the default mode Sec 92
o Rev. Ao-As, et al, v CA GR 128464
Lutheran Church in the Phils. (LCP) is a SEC-registered religious organization. It is divided into three districts: North Luzon,
South Luzon, and Mindanao districts. Its By-Laws provide for a special procedure for the election of its directors: “Section 2.
Composition of the Board of Directors of LCP. The Board of Directors shall be composed of the President of LCP and the
President and lay representative of each District.”
Q: Whether the manner of elections of the LCP’s Board of Directors as provided for in its By-Laws is valid? No. Trustees
cannot be elected by zones or regions, each zone or region electing independently and separately a member of the board of
trustees of the corporation, such method being violative of Section 24. The election of the directors by district or regions as
provided in the LCP By-Laws where a majority of the members are not present is inconsistent with the Corporation Code and
must be struck down as invalid.

SEC 25 CORPORATE OFFICERS QUORUM

● Corporate officers must be expressly mentioned in the bylaws
o Marc II Marketing v Joson Dec 12, 2011
Prior and during the incorporation of the corporation, Joson was appointed by its Board of Directors as General Manager (GM).
The Board was able to appoint him because the corporation’s by-laws allow the Board to appoint corporate officers. When the
corporation ceased operations, Joson was apprised of his termination as GM. Aggrieved, he filed an illegal dismissal case before
the Labor Arbiter. The corporation filed an MTD claiming that Joson was a corporate officer and the issue was an intra-corporate
controversy under the jurisdiction of the RTC and not the LA.
Q: Whether Joson, as General Manager, was a corporate officer? No. Sec. 25 specifically enumerated who are these
corporate officers, to wit: (1) president; (2) secretary; (3) treasurer; and (4) such other officers as may be provided for in the by-
laws. Thus, Joson was not a corporate officer because his position as General Manager was not specifically mentioned in Sec. 25
and in the roster of corporate officers in the corporate by-laws.

o Matling Industrial and Commercial Corp v Coros Oct 13 2010

Coros filed a complaint for illegal dismissal against Matling Corporation after his dismissal as Vice President for Finance and
Administration. The corporation alleges that the position of Vice President for Finance and Administration was a corporate
office, since it was created by Matling’s President pursuant to By-Law No. V. This is pursuant to the Board’s delegation to the
President the power to create corporate offices and to appoint the individuals to assume the offices.
Q: Whether Coros, as Vice President for Finance and Administration, was a corporate officer? No. Under Sec. 25, a
position must be expressly mentioned in the by-laws in order to be considered as a corporate office. Thus, the creation of an
office pursuant to or under a By-Law enabling provision is not enough to make a position a corporate office. Matling’s Board of
Directors could not validly delegate the power to create a corporate office to the President, in light of Sec. 25 requiring the Board
of Directors itself to elect the corporate officers. Thus, the office of Vice President for Finance and Administration created by
Matling’s President pursuant to By Law No. V was not a corporate office.
 o Cosare v Broadcom Asia Inc GR 201298 Feb 5 2014
Cosare was the AVP for Sales and Head of the Technical Coordination of Broadcom. When he was prohibited to work, he filed a
labor complaint for constructive dismissal against Broadcom. Broadcom alleged that the labor courts do not have jurisdiction
over the case because the case involves an intra-corporate dispute.
Q: Whether Cosare, as AVP for Sales, was a corporate officer? No. Corporate officers, in the context of P.D. No. 902-A, are
those officers of the corporation who are given that character by the Corporation Code or by the corporation’s by-laws. Under
Sec. 25, there are three specific officers whom a corporation must have: the president, secretary and the treasurer. A corporation
may have such other officers as may be provided for by its by-laws like, but not limited to, the vice-president, cashier, auditor or
general manager. Thus, Cosare, as AVP for Sales, was not a corporate officer. Consequently, the case is a complaint for illegal
dismissal, cognizable by the labor courts.

● Doctrine of apparent authority

o Francisco v GSIS 7 SCRA 577 (1963)
Francisco obtained from GSIS loan, secured with a parcel of land. Francisco incurred huge arrears so GSIS was prompted to
foreclose the property. Francisco’s father, Atty. Vicente, offered a compromise. GSIS, through its general manager Andal,
responded with a letter stating that the GSIS Board had accepted Vicente’s offer. But GSIS did not act in accordance with their
agreement. Vicente then reminded GSIS that the agreement is binding upon GSIS. GSIS then averred that the letter sent to
Vicente in response to his offer was sent by the secretary without the authority of Andal.
Q: Whether GSIS is bound by the acts of Andal acting in his apparent authority? Yes. If a private corporation intentionally
or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny
that such apparent authority is real, as to innocent third persons dealing in good faith with such officers or agents. Here, the
response by GSIS to Vicente by way of a telegram, is within the apparent authority of Andal. If there are any irregularities in the
telegraph, Vicente is not expected to know it because the telegram on its face is clear as to the acceptance. Thus, GSIS is bound
by Andal’s acceptance of Vicente’s offer of compromise.

o Woodchild Holdings Inc v. Roxas Electric Construction 436 SCRA 235 (2004)
The Board of Directors of Roxas Electric approved a resolution authorizing its President to sell its 2 Lots. Woodland bought 1 of
the Lots and a portion of the adjoining Lot. The Deed of Absolute Sale, acknowledged by the President, provides that: Roxas
Electric binds itself to give Woodchild a right of way from Sumulong Highway to the property purchased; and that if the right of
way is insufficient, Roxas Electric agrees to sell additional square meters. Now, Roxas Electric posits that its President was not
authorized under the Resolution to impose a burden or to grant a right of way in favor of Woodchild; thus, the corporation should
not be bound by such stipulations.

Q: Whether the agreement is enforceable against Roxas Electric? No. Generally, the acts of the corporate officers within the
scope of their authority are binding on the corporation. However, under Art. 1910 of the New Civil Code, acts done by such
officers beyond the scope of their authority cannot bind the corporation unless it has ratified such acts expressly or tacitly, or is
estopped from denying them. Thus, contracts entered into by corporate officers beyond the scope of authority are unenforceable
against the corporation unless ratified by the corporation. Here, the President was not specifically authorized under the resolution
to create or convey real rights on the adjacent Lot; thus, the agreement in not enforceable against the corporation.

o People’s Aircargo (PAWCI) v CA 297 SCRA 170 (1998)

Punsalan, president of PAWCI, solicited a proposal from Saño for the preparation of a feasibility study. Saño submitted a letter-
proposal to Punsalan, who sent Saño a letter confirming their agreement. Saño prepared a feasibility study for PAWCI, prepared
the operations manual, conducted a seminar-workshop for its employees, and delivered to it a computer program. Nonetheless,
despite demands, PAWCI refused to pay Sano; so he filed a collection suit. PAWCI alleged that the contract with Saño was
signed by Punsalan without authority.
Q: Whether Punsalan has apparent authority to execute the contract even without a board resolution expressly
authorizing him? Yes. If a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an
apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as
against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent's authority. Here,
PAWCI, through Punsalan, entered into the contract without securing board approval, but PAWCI did not object to or repudiate
said contract; thus “clothing” Punsalan with the power to bind the corporation.

o Westmont Bank v Inland Construction and Dev Corp 582 SCRA 230 (2009)
Inland obtained from Westmont loans, secured by promissory notes. Later, President of Inland executed a Deed of Assignment,
which provides that the PNs shall be assumed by Abrantes (officer of HG Corp). Westmont’s Account Officer, Calo, signed for
its conformity to the deed. Westmont now alleges that it had no knowledge or consent of the alleged Deed of Assignment.
Q: Whether Westmont can deny the authority of Calo? No. The general rule is that in the absence of authority from the Board
of Directors, no person, not even its officers, can validly bind a corporation. If a corporation, however, consciously lets one of its
officers, or any other agent, to act within the scope of an apparent authority, it will be estopped from denying such officer
authority. Here, Calo was assigned to transact on Westmont’s behalf with respect to the loan transactions and arrangements of
Inland, HG Corp., and Abrantes. Since it conducted business through Calo, it is presumed that he had authority to sign for the
bank in the Deed of Assignment. Also, Westmont failed to prove that Calo was not authorized to bind it; thus, it can no longer
deny Calo’s authority.

● Election and appointment – Sec 23

o Mita Pardo de Tavera v Phil Tuberculosis Society Inc. (Society) 112 SCRA 243 (1982)
Mita Pardo de Tavera was a member of the Board of Directors of the Society, and was appointed as its Exec. Secretary. The
Board of Directors removed her summarily from her position without informing her of the cause; so she filed a complaint against
 Society, and members of the Board of Director. The Society’s By-Laws provides, “The Executive Secretary xxx shall hold office
at the pleasure of the Board of Directors, unless their term of employment shall have been fixed in their contract of employment.”
Q: Whether Mita’s removal was proper despite her appointment? Yes. An appointment held at the pleasure of the appointing
power is in essence temporary in nature. It is co-extensive with the desire of the Board of Directors. Hence, when the Board opts
to replace the incumbent, technically there is no removal but only an expiration of term and in an expiration of term, there is no
need of prior notice, due hearing or sufficient grounds before the incumbent can be separated from office. Here, unfortunately,
Mita did not have a contract of employment definitely fixing her term. Thus, she held an appointment at the pleasure of the
appointing power and could be summarily removed by the Society.

o Sec 25 – one cannot be Pres and Sec or Pres and Treasurer at the same time
● Removal of a corporate officer for cause is a power to be exercised by board
o Nectarina Raniel v Paul Jochico GR 153413 MAR 1, 2007
Raniel was an Administrator and the Corporate Secretary of Nephro Systems Dialysis Center. Due to her failure to report for
work, she was demanded to explain why she shouldn’t be removed from her position. Later, a Notice of Special Board Meeting
was received by Raniel but did not attend. In said meeting, the Board dismissed her as Corporate Secretary and Administrator of
Nephro. Raniel filed a case before the SEC, which held that the Board can validly remove officers of the corp.
Q: Whether Raniel may be validly removed by the Board? Yes. A corporation exercises its powers through its board of
directors and/or its duly authorized officers and agents. Thus, the directors may appoint officers and agents and as incident to this
power of appointment, they may discharge those appointed.
● Mandatory corporate officers
o President (must be a director)
▪ People’s Aircargo and Warehousing v CA 297 SCRA 170 (1998)
Stefani Sao submitted two letter-proposals to the Corporate President of People’s Aircargo, offering his engineering
consultancy services. Said Corporate President replied saying that People’s Aircargo accepted the offers. The first
contract was implemented without a hitch. Sao, however, remained unpaid for the second contract and initiated a
collection suit against People’s Aircargo. In the suit, People’s Aircargo assails both letter-agreements, saying that the
Corporate President had no authority to act for the corporation because he was not authorized through a board
resolution. It argues that the power of the Corporate President, if any, cannot come from custom because the
implementation of the first contract was an isolated agreement.
Q: Whether People’s Aircargo may be bound by the act of its Corporate President? Yes. It is not the quantity of
similar acts which establishes apparent authority, but the vesting of a corporate officer with the power to bind the
corporation. In this case, the Corporate President entered into the First Contract without first securing board approval.
Despite such lack of board approval, People’s Aircargo did not object to or repudiate said contract, thus clothing its
president with the power to bind the corporation. Hence, Sao should not be faulted for believing that the conformity of
the president to the second contract was also binding on People’s Aircargo.

▪ Safic Alcan v Imperial Vegetable 355 559 (2001)

A contract of purchase of coconut oil was entered into by Safic with Imperial Vegetable Oil (IVO), the latter through
its President Dominador Monteverde. IVO, however, failed to deliver the said coconut oil. As a defense, IVO claims
that the contract was entered into without the required Board approval.
Q: Whether IVO is bound by the contract of sale? No. A President must act according to the instructions of the
Board of Directors. In this case, the IVO Board did not authorize Monteverde to enter into the said contract.

o Treasurer (may or may not be a director)

▪ San Juan Structural v CA 296 SCRA 631
San Juan entered into a contract of sale with Motorich Sales through its treasurer, Nenita Gruenberg. The subject of the
sale was a parcel of land owned by Motorich. On the day agreed upon on which Gruenberg was supposed to deliver the
title of the land, she did not show up. San Juan sued Motorich. Motorich, in its defense, argued that it is not bound by
the acts of Gruenberg since her act in contracting with San Juan was not authorized by the corporate board.
Q: Whether Motorich is bound by the acts of Gruenberg? No. Unless duly authorized, a treasurer, whose powers
are limited, cannot bind the corporation in a sale of its assets. In this case, Gruenberg was not duly authorized. Hence,
the sale that she had made cannot bind Motorich,

o Secretary (resident and citizen)

▪ Lim Tay v CA 293 SCRA 634 (1998)
Sy secured a loan from Lim and used his shares as pledge. The contract provides that Lim is authorized to foreclose the
pledge upon default but not own them. Sy defaulted, so Lim filed a petition for mandamus to have the corporate
secretary of the corporation register the subject shares in his name.
Q: Whether the corporate secretary may be compelled to register the shares? No. He cannot be compelled to do so
when the transferees title to said shares has no prima facie validity or is uncertain. In this case, Lim’s title to the shares
is not yet certain. Therefore, he cannot compel the corporate secretary to register the shares in his name.

▪ Chairman may also be president and/or general manager

● Pamplona Plantation Co. v Acosta 510 SCRA 249 (2006)
Wage differentials were awarded to the employees of Pamplona Plantation. The manager, Joese Bondoc, was
held solidarily liable. The company is now arguing that he should not be held solidarily liable because he is a
mere employee and not a corporate officer.
 Q: Whether Bondoc is a corporate officer? No. It is the by-laws which provide for other corporate officers,
as the corporation may deem necessary. In this case, however, there is no showing that the by-laws provide
that Bondoc is a corporate officer. Therefore, he is not a corporate officer.
▪ Compliance officer; independent auditor
▪ Bank of PI v Case Montessori Internationale 430 SCRA 261 (2004)
Casa Montessori (CMI) has an account with BPI. CMI discovered that its checks were encashed by a fictitious person
created by Leonardo Yabut who worked for CMI as an external auditor. Alleging forgery, CMI filed a complaint for
collection with damages against BPI to reinstate the amount encashed by Yabut.
Q: Whether CMI is negligent? No. An experienced auditor with intent to defraud can easily conceal any devious
scheme from a client unwary of the accounting processes involved by manipulating the cash balances on record. In this
case, Yabut was an independent auditor. Clearly then, Yabut was able to perpetrate the wrongful act through no fault of
CASA.

● Service of summons on corporation See Rule 4, Sec 11

o EB Villarosa & Partner v Benito 312 SCRA 65 (1999)
Benito filed a complaint against EB Villarosa for breach of contract. Summons were served upon Villarosa, through its Branch
Manager Engr. Wendell Sabulbero. Villarosa filed a motion to dismiss on the ground of lack of jurisdiction over its person, as the
summons was improperly served upon its employee, who is not one of those persons named in Sec. 11, Rule 14 of the Rules of
Court upon whom service of summons may be made.
Q: Whether there was proper service of summons? No. Sec. 11, Rule 14 of the 1997 Rules of Civil Procedure provides that,
when the defendant is a corporation, service may be made on the president, managing partner, general manager, corporate
secretary, treasurer, or in-house counsel. Accordingly, in this case, the service of summons upon the branch manager is improper.

SEC 26 REPORT OF ELECTION OF DIRECTORS TRUSTEES AND OFFICERS

● Report by way of the GIS to the SEC

● Premium Marble Resources v CA 264 SCRA 11 (1996)
A group of officers (hereinafter referred to as the “Zavalla group”) of Premium Marble filed an action for damages against International
Corporate Bank. Later, another group of officers of the same corporation filed a motion to dismiss on the ground that the Zavalla group was
without authority from its board of directors. Zavalla group, however, claimed that they are the incumbent officers of Premium. Although
the Minutes of the Meeting of the Board showed that the newly elected officers were the Zavalla group, the Zavalla group failed to show
proof that this election was reported to the SEC.
Q: Whether the Zavalla group can be considered as the incumbent officers? No. By the express mandate of Sec. 26 of the Corporation
Code, all corporations are required to submit to the SEC the names, nationalities and residences of the directors, trustees and officers
elected. In this case, since the election of the Zavalla group was not reported, they cannot be considered as the incumbent officers.

● Monfort Hermanos v Monfort III 434 SCRA 27 (2004)

Ma. Antonia Salvatierra filed on behalf of Monfort Hermanos, a corporation, a complaint for forcible entry against the group of Antonio
Monfort III. The group filed a motion to dismiss contending that Salvatierra has no capacity to sue on behalf of the corporation because the
board resolution authorizing Salvatierra to represent the corporation is void. They argue that the purported members of the Board who
passed the same were not validly elected officers of the corporation since their election was not reported with the SEC.
Q: Whether the board resolution was validly issued? No. By the express mandate of Sec. 26 of the Corporation Code, all corporations
are required to submit to the SEC the names, nationalities and residences of the directors, trustees and officers elected. In this case, the
election of the persons who issued the board resolution was only reported with the SEC after the issuance of such resolution. As such, the
board resolution cannot confer valid authority for her to sue on behalf of the corporation.

SEC 27 DISQUALIFICATION OF DIRECTORS TRUSTEES OR OFFICERS

● The director must own one share in his name or member; if he ceases to own at least one share, he ceases to be a director
o Lee v CA 205 SCRA 752 (1992)
A third-party complaint was filed against Alfa Integrated. Summons was served to Ramon Lee and Antonio Lacdao as the
directors of Alfa; however, they refused to receive the summons. They alleged that they were no longer directors of Alfa,
pursuant to a voting trust agreement whereby they transferred all their shares to the Development Bank of the Philippines.
Q: Whether the persons upon whom the summons were served are still directors? No. Under Sec. 30 of the old Corporation
Code, a director who ceases to be the owner of at least one share of the capital stock of a stock corporation of which is a director
shall thereby cease to be a director. In this case, since Lee and Lacdao have transferred all their shares in Alfa to DBP, they are
no longer directors of Alfa.

● Majority of directors must be residents of the Philippines – why? When Board meetings can now be done through remote communications
or other IT means
● Other grounds for disqualification may be provided in the by-laws
o Gokongwei v SEC 89 SCRA 336 (1979)
Gokongwei, a stockholder of SMC, questioned the validity of the amended by-laws of San Miguel Corporation which
disqualified a competitor from being elected to the Board.
Q: Whether the disqualification of a competitor from being elected to the Board is a reasonable exercise of corporate
authority? Yes. The doctrine of corporate opportunity allows a disqualification of directors in the by-laws to prevent the creation
of an opportunity for an officer or director of SMC, who is also the officer or owner of a competing corporation, from taking
advantage of the information which he acquires as director to promote his individual or corporate interests to the prejudice of
SMC and its stockholders. Thus, in this case, the disqualification against competitors is valid.
 ● Alien directors PD 715 and Sec 15 of the GBA
SEC 28 REMOVAL OF DIRECTORS OR TRUSTEES*
● Requires stockholders regular or special meeting called for the purpose with notice
● Requirements for the meeting – Sec. 28
o Cinco v Bernas GR Nos 163356-57 Jul 1, 2015
Alarmed with the rumors and anomalies in handling corporate funds, the Manila Sports Club oversight committee called a special
stockholders’ meeting for the purpose of removing the sitting officers and electing new ones.
Q: Whether the meeting was validly called? No. Sec. 28 of the Corporation Code states that the regular or special meeting
called for removing the directors must be called by the secretary on order of the president or on the written demand of the
stockholders representing or holding at least a majority of the outstanding capital stock. In this case, however, the special meeting
was called not by the secretary, but by the oversight committee. The meeting was therefore void.
● Stockholders representing 2/3 of OCS must vote
● A director representing minority stockholders may be removed only for cause
● The Board has no power to discipline or remove one of their own
o Raniel v Jochico 517 SCRA 221 (2007)
Nephro is a corporation with 500 shares of stock. Nectarina Raniel and Ma. Victoria Pag-ong were removed from the Board of
Directors of Nephro by a vote of 400 shares.
Q: Whether Raniel and Pag-ong’s removal was valid? Yes. As laid down in Sec. 28 of the Corporation Code, any director
may be removed by a vote of the stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock.
Only stockholders or members have the power to remove the directors or trustees elected by them. In this case, ⅔ of the
oustanding capital stock of Nephro is 333.33. Since 400 shares voted for Raniel and Pag-ong’s removal, such removal was valid.

SEC 29 VACANCIES IN THE OFFICE OF DIRECTOR OR TRUSTEE*

● A vacancy due to causes other than removal or expiration of term may be filled by the vote of the majority of the directors at a Board
meeting with a quorum; otherwise, by the stockholders in a regular or special meeting for the purpose to serve unexpired term.
● Valle Verde Country Club Inc v Africa GR 151969 598 SCRA 202 – on the replacement of hold-over directors
The elected directors of Valle Verde Country Club (VVCC) continued to serve in a hold-over capacity after their term because the required
quorum to hold a meeting could not be obtained. Eduardo Makalintal, one of the directors, resigned and was replaced by Jose Ramirez
through the election of the remaining members of the board.
Q: Whether or not Ramirez’s election was valid? No. Under Sec. 29 of the Corporation Code, vacancies in the board must be filled by
the stockholders. Furthermore, it cannot be said that the vacancy resulted from Makalintal’s resignation, since his term as director had
already expired. Therefore, Ramirez’s election was void for not having been made by the stockholders of VVCC.

SEC 30 COMPENSATION OF DIRECTORS*

● Unless in the bylaws, directors are entitled only to reasonable per diems
● Majority of stockholders may grant compensation (not only per diems) as long as total on an annual basis does not exceed 10% of net
income before tax of preceding year
● Western Institute of Technology, Inc. v Salas 278 SCRA 216 (1997)
The board of directors amended their by-laws, giving the members of the board a compensation as officers of the corporation.
Q: Whether or not the amendment is valid? Yes. Sec. 30 of the Corporation Code only prohibits the directors from receiving
compensation as such directors. In this case, the directors were to receive compensation as officers, and not as directors. Therefore, the
amendment is valid.

SEC 31 LIABILITY OF DIRECTORS TRUSTEES OR OFFICERS*

● Virata et al v Alejandro Ng Wee, Westmont Investment Corp., et al GR 220926, Mar 21, 2018
Wee was induced to invest in Westmont Investment Corp. (Wincorp). The “scheme” is that Wee will be partnered with borrowers
accredited by Wincorp. One such borrower is Power Merge. But unknown to Wee, Wincorp and Power Merge entered into “side
agreements” wherein it stated that Power Merge will not be liable for the default of payments to Wee, which was contradictory to the its
assumption of obligation in the credit line agreement executed on the same day between Wincorp and Power Merge. The one who signed
the “side agreements” was Wincorp’s VP of Operations, Reyes. Power Merge defaulted in its obligation. Wee field a case against Reyes to
hold him personally liable.
Q: Whether Reyes can be held personally liable? Yes. Under Sec. 31 of the Corporation Code, directors who willfully and knowingly
assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the
corporation shall be liable solidarily for all damages resulting therefrom suffered by the corporation, its stockholders or members and other
persons. In this case, the credit line agreement is contradictory with the side agreements, which Reyes executed on the same day. Therefore,
he may be held personally liable.

● Irene Martel Francisco v Mallen GR 173169 Sep 22, 2010

Numeriano Mallen, Jr., a waiter for VIPS Coffee Shop, was to take a 3-day sick leave, Instead of his applied sick leave, however, he was
given 3 months leave, which was signed by Irene Francisco (VP of VIPS). Mallen filed a complaint before the Labor Arbiter, which ruled
that VIPS constructively dismissed him. It ordered VIPS and/or Francisco to pay him the monetary awards.
Q: Whether Francisco should be held liable for the monetary awards? No. In the case of Ramoso v. CA, it was held that, to hold a
director or officer personally liable for corporate obligations, two requisites must concur: (1) complainant must allege in the complaint that
the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith;
and (2) complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith. In this case, however, Mallen failed
to allege that Francisco acted in bad faith. Neither did he clearly and convincingly prove that Francisco acted in bad faith. Therefore,
Francisco cannot be held personally liable.
o liability arises when knowingly voting for unlawful acts, acting with gross negligence or in conflict of interest
▪ Tramat Mercantile Inc et al v CA et al GR 111008 238 SCRA 14
Melchor de la Cuesta sold an allegedly brand new tractor to Tramat. David Ong, the President and GM of Tramat,
issued a check as payment. Tramat sold the tractor to NAWASA, but NAWASA refused to pay for it because it was not
brand new. Ong thereby caused a “stop payment” for the check. De la Cuesta filed an action for recovery of the amount
of the check against Tramat and Ong, in his personal capacity.
Q: Whether Ong should be held personally liable? No. The Corporation Code and various jurisprudence state that
the personal liability of a corporate director, trustee or officer may validly attach, as a rule, only when: (1) he assents
(a) to a patently unlawful act of the corporation, or (b) for bad faith, or gross negligence in directing its affairs, or (c)
for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; (2) he consents to the
issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his
written objection thereto; (3) he agrees to hold himself personally and solidarily liable with the corporation; or (4) he is
made, by a specific provision of law, to personally answer for his corporate action. In this case, however, there is no
indication that Ong could be held personally accountable under any of the abovementioned cases.

o when made liable by special law

▪ MAM Realty Dev Corp v NLRC GR 114787 Jun 2, 1995
The National Labor Relations Commission held Manuel Centeno, the Vice President of MAM Realty, solidarily liable
with MAM Realty for wage differentials, ECOLA, overtime pay, incentive leave pay 13th month pay, holiday and rest
day pay of Celso Balbastro, an employee of MAM Realty.
Q: Whether or not Centeno should be held personally liable? No. It is a well-settled doctrine that obligations
incurred by directors, acting as corporate agents, are not theirs but the direct accountabilities of the corporation they
represent. Solidary liabilities may at times be incurred but only when exceptional circumstances warrant. In the case at
bench, there is nothing substantial on record that can justify Centeno’s solidary liability with the corporation.

▪ Board of Liquidators v Kalaw 20 SCRA 986 (1967)

● By Executive Order 372, the government, the sole stockholder, abolished NACOCO, and placed its assets in
the hands of the Board of Liquidators. The Board of Liquidators thus became the trustee on behalf of the
government. It was an express trust. The legal interest became vested in the trustee — the Board of
Liquidators. The beneficial interest remained with the sole stockholder — the government.
● … a corporate officer entrusted with the general management and control of its business, has implied
authority to make any contract or do any other act which is necessary or appropriate to the conduct of the
ordinary business of the corporation. As such officer, he may, without any special authority from the Board
of Directors perform all acts of an ordinary nature, which by usage or necessity are incident to his office and
may bind the corporation by contracts in matters arising in the usual course of business.
● Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general
practice, custom, and policy, the general manager may bind the company without formal authorization of the
board of directors. In varying language, existence of such authority is established, by proof of the course of
business, the usage and practices of the company and by the knowledge which the board of directors has, or
must be presumed to have, of acts and doings of its subordinates in and about the affairs of the corporation.
● Ratification by a corporation of an unauthorized act or contract by its officers or others relates back to the
time of the act or contract ratified and is equivalent to original authority;" and that “the corporation and the
other party to the transaction are in precisely the same position as if the act or contract had been authorized at
the time.”

▪ Cebu Country Club v Elizagaque 542 SCRA 65 (2008)

● CCCI Board of Directors, under its Articles of Incorporation, has the right to approve or disapprove an
application for proprietary membership. But such right should not be exercised arbitrarily. Articles 19 and 21
of the Civil Code on the Chapter on Human Relations provide restrictions, thus:
a. Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith.
b. Article 21. Any person who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.

● Sec 31 applies to both directors, officers and trustees; interlocking director (minimal or substantial 20% or more)
● criminal liability
o Espiritu v Petron Corp et al GR 170891 Nov 24, 2009
▪ Stockholders are basically investors in a corporation. They do not have a hand in running the day-to-day
business operations of the corporation unless they are at the same time directors or officers of the corporation.
Before a stockholder may be held criminally liable for acts committed by the corporation, therefore, it must
be shown that he had knowledge of the criminal act committed in the name of the corporation and that he
took part in the same or gave his consent to its commission, whether by action or inaction.
▪ The finding of the Court of Appeals that the employees could not have committed the crimes without the
consent/permission, or participation of the owners of Bicol Gas is a sweeping speculation especially since
what was involved was just one Petron Gasul tank found in a truck filled with Bicol Gas tanks. Although the
KPE manager heard petitioner Llona say that he was going to consult the owners of Bicol Gas regarding the
offer to swap additional captured cylinders, no indication was given as to which Bicol Gas stockholders
Llona consulted. It would be unfair to charge all the stockholders involved, some of whom were proved to be
 minors. No evidence was presented establishing the names of the stockholders who were charged with
running the operations of Bicol Gas. The complaint even failed to allege who among the stockholders sat in
the board of directors of the company or served as its officers.

● Duties and liabilities of corporate officers

o Palay Inc v Clave 124 SCRA 638 (1983)
▪ A corporation is invested by law with a personality separate and distinct from those of the persons composing it as wen
as from that of any other legal entity to which it may be related.
▪ As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal
entities to which it may be connected and vice versa.
▪ However, the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice;
or for purposes that could not have been intended by the law that created it; or to defeat public convenience, justify
wrong, protect fraud, or defend crime; or to perpetuate fraud or confuse legitimate issues; or to circumvent the law or
perpetuate deception; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders.

o General rule of non-liability

▪ Tramat Mercantile v CA 238 SCRA 14 (194)
● It was an error to hold David Ong jointly and severally liable with TRAMAT to de la Cuesta under the
questioned transaction. Ong had there so acted, not in his personal capacity, but as an officer of a corporation,
TRAMAT, with a distinct and separate personality. As such, it should only be the corporation, not the person
acting for and, on its behalf, that properly could be made liable thereon.
● Personal liability of a corporate director, trustee or officer along (although not necessarily) with the
corporation may so validly attach, as a rule, only when —
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith, or gross negligence
in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its
stockholders or other persons;
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate action.

▪ Tupaz IV v CA 505 SCRA 596 (2006)

▪ A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred by
these individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation they represent.
As an exception, directors or officers are personally liable for the corporation's debts only if they so contractually agree
or stipulate.

SEC 32 DEALINGS OF DIRECTORS TRUSTEES OR OFFICERS WITH THE CORPORATION*

● There is no need for the corporation to suffer damage or injury from the contract
● The contract is voidable unless self-dealing director’s presence was not necessary for quorum; his vote was not necessary for approval; the
contract was fair and reasonable and where the self-dealing officer was previously authorized by the Board.
● Mead v McCullough 21 Phil 95 (1911)
o A corporation is essential a partnership, except in form. "The directors are the trustees or managing partners, and the stockholders
are the cestui que trust and have a joint interest in all the property and effects of the corporation."
o The directors are the officers or agents of the corporation, and represent the interests of the abstract legal entity, and of those who
own the shares of its stock. One of the objects of creating a corporation by law is to enable it to make contracts; and these
contracts may be made with its stockholders as well as with others. In some classes of corporations, as in mutual insurance
companies, the main object of the act of the incorporation is to enable the company to make contracts which its stockholders, or
with persons who become stockholders by the very act of making the contract of insurance. It is very true, that as a stockholder,
in making a contract of any kind with the corporation of which he is a member, is in some sense dealing with a creature of which
he is a part, and holds a common interest with the other stockholders, who, with him, constitute the whole of that artificial entity,
he is properly held to a larger measure of candor and good faith than if he were not a stockholder.
o Transaction which only accomplish justice, which are done in good faith and operate legal injury to no one, lack the
characteristics of fraud and are not to be upset because the relations of the parties give rise to suspicions which are fully cleared
away.

● Prime White Cement v IAC 220 SCRA 103

o A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his corporation. In case his interests’
conflict with those of the corporation, he cannot sacrifice the latter to his own advantage and benefit. As corporate managers,
directors are committed to seek the maximum amount of profits for the corporation. This trust relationship "is not a matter of
statutory or technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property
and hence of the property interests of the stockholders."
o a director's contract with his corporation is not in all instances void or voidable. If the contract is fair and reasonable under the
circumstances, it may be ratified by the stockholders provided a full disclosure of his adverse interest is made.

SEC 33 CONTRACTS BETWEEN CORPORATIONS WITH INTERLOCKING DIRECTORS*

 ● The general rule is the contract is valid except if there was fraud and provided the contract is fair and reasonable.
● DBP v CA 363 SCRA 307 (2001)
o Directors of insolvent corporation, who are creditors of the company, cannot secure to themselves any preference or advantage
over other creditors in the payment of their claims. It is not good morals or good law. The governing body of officers thereof are
charged with the duty of conducting its affairs strictly in the interest of its existing creditors, and it would be a breach of such
trust for them to undertake to give any one of its members any advantage over any other creditors in securing the payment of his
debts in preference to all others. When validity of these mortgages, to secure debts upon which the directors were indorsers, was
questioned by other creditors of the corporation, they should have been classed as instruments rendered void by the legal
principle which prevents directors of an insolvent corporation from giving themselves a preference over outside creditors.
o Where the corporations have directors and officers in common, there may be circumstances under which their interest as officers
in one company may disqualify them in equity from representing both corporations in transactions between the two. Thus, where
one corporation was insolvent and indebted to another, it has been held that the directors of the creditor corporation were
disqualified, by reason of self-interest, from acting as directors of the debtor corporation in the authorization of a mortgage or
deed of trust to the former to secure such indebtedness. In the same manner that when the corporation is insolvent, its directors
who are its creditors cannot secure to themselves any advantage or preference over other creditors. They cannot thus take
advantage of their fiduciary relation and deal directly with themselves, to the injury of others in equal right. If they do, equity will
set aside the transaction at the suit of creditors of the corporation or their representatives, without reference to the question of any
actual fraudulent intent on the part of the directors, for the right of the creditors does not depend upon fraud in fact, but upon the
violation of the fiduciary relation to the directors.

SEC 34 DISLOYALTY OF A DIRECTOR*

● Director takes advantage of an opportunity belonging to the corporation for his own personal profit;
● Director’s loyalty is violated regardless of director using his own funds;
● Vote of the stockholders representing 2/3 of OCS is needed;
● Transaction is voidable if conditions for validity not complied but may be ratified

SEC 35 EXECUTIVE COMMITTEE*

● ExCom must have at least 3 members

● What cannot be delegated to the ExCom
● No need for provision in bylaws to create ExCom
o Filipinas Port Service Inc v Go 518 SCRA 453 (2007).
▪ Under Section 35 of the Corporation Code, the creation of an executive committee must be provided for in the bylaws
of the corporation.
▪ Notwithstanding the silence of Filport’s bylaws on the matter, the creation of the executive committee by the board of
directors is neither illegal nor unlawful. One reason is the absence of a showing as to the true nature and functions of
said executive committee considering that the "executive committee," referred to in Section 35 of the Corporation Code
which is as powerful as the board of directors and in effect acting for the board itself, should be distinguished from
other committees which are within the competency of the board to create at anytime and whose actions require
ratification and confirmation by the board.
▪ Another reason is that, the Board of Directors has the power to create positions not provided for in Filport’s bylaws
since the board is the corporation’s governing body, clearly upholding the power of its board to exercise its
prerogatives in managing the business affairs of the corporation.
▪ By Cruz’s acquiescence and/or ratification of the creation of the aforesaid offices (Execom), he is precluded from suing
to declare such acts of the board as invalid or illegal. It makes no difference that he sues in behalf of himself and of the
other stockholders.

TITLE IV
POWERS OF CORPORATIONS

SEC 36 CORPORATE POWER AND CAPACITY

● Theory of General or Specific Capacity (express, implied or incidental)*

● See also Sec 46 of the Civil Code
● Cagayan Valley Drug Corp v CIR 545 SCRA 10 (2008)
o Sec. 23, in relation to Sec. 25 of the Corporation Code, clearly enunciates that all corporate powers are exercised, all business
conducted, and all properties controlled by the board of directors. A corporation has a separate and distinct personality from its
directors and officers and can only exercise its corporate powers through the board of directors. Thus, it is clear that an individual
corporate officer cannot solely exercise any corporate power pertaining to the corporation without authority from the board of
directors. This has been our constant holding in cases instituted by a corporation.

1. Sue and be sued

a. Umale, et al v ASB Realty Corporation GR 181126 Jun 15, 2011
● Corporations, such as ASB Realty, are juridical entities that exist by operation of law. As a creature of law, the powers
and attributes of a corporation are those set out, expressly or impliedly, in the law. Among the general powers granted
by law to a corporation is the power to sue in its own name. This power is granted to a duly-organized corporation,
unless specifically revoked by another law.
 Do the laws on corporate rehabilitation particularly PD 902-A, as amended, and its corresponding rules of procedure
forfeit the power to sue from the corporate officers and Board of Directors?
● Corporate rehabilitation is defined as the restoration of the debtor to a position of successful operation and solvency, if
it is shown that its continuance of operation is economically feasible, and its creditors can recover by way of the
present value of payments projected in the plan more if the corporation continues as a going concern than if it is
immediately liquidated.
● The intention of the law is to effect a feasible and viable rehabilitation by preserving a floundering business as a going
concern, because the assets of a business are often more valuable when so maintained than they would be when
liquidated.
● This concept of preserving the corporations business as a going concern while it is undergoing rehabilitation is called
debtor-in-possession or debtor-in-place. This means that the debtor corporation (the corporation undergoing
rehabilitation), through its Board of Directors and corporate officers, remains in control of its business and
properties, subject only to the monitoring of the appointed rehabilitation receiver.

b. Alliance of QC Homeowners’ Association Inc. v The QC Government et al, GR 230651 Sep 18, 2018
● An UNREGISTERED ASSOCIATION, having no separate juridical capacity, lacks the capacity to sue in its own
name.

c. Association of Flood Victims and Jaime Aguilar Hernandez v COMELEC et al GR 203775 Aug 5, 2014
● SECTION 1. Who may be parties; plaintiff and defendant. – Only natural or juridical persons, or entities authorized by
law may be parties in a civil action. The term "plaintiff" may refer to the claiming party, the counter-claimant, the
cross-claimant, or the third (fourth, etc.) -party plaintiff. The term "defendant" may refer to the original defending
party, the defendant in a counterclaim, the cross-defendant, or the third (fourth, etc.) -party defendant.
● SECTION 2. Parties in interest. – A real party in interest is the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules,
every action must be prosecuted or defended in the name of the real party in interest.
● Under Sections 1 and 2 of Rule 3, only natural or juridical persons, or entities authorized by law may be parties in a
civil action, which must be prosecuted or defended in the name of the real party in interest. Article 44 of the Civil Code
lists the juridical persons with capacity to sue, thus:
● Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose, created by law; their personality begins as
soon as they have been constituted according to law;
(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical
personality, separate and distinct from that of each shareholder, partner or member. (Emphasis supplied)
● Section 4, Rule 8 of the Rules of Court mandates that "facts showing the capacity of a party to sue or be sued or the
authority of a party to sue or be sued in a representative capacity or the legal existence of an organized association of
persons that is made a party, must be averred."
● An unincorporated association, in the absence of an enabling law, has no juridical personality and thus, cannot sue
in the name of the association. Such unincorporated association is not a legal entity distinct from its members. If an
association, like petitioner Association of Flood Victims, has no juridical personality, then all members of the
association must be made parties in the civil action.

d. Yu v Yukayguan GR 177549 June 18, 2009; BPI Leasing v CA 416 SCRA 4 (2003)
● The general rule is that where a corporation is an injured party, its power to sue is lodged with its board of directors or
trustees. Nonetheless, an individual stockholder is permitted to institute a derivative suit on behalf of the corporation
wherein he holds stocks in order to protect or vindicate corporate rights, whenever the officials of the corporation
refuse to sue, or are the ones to be sued, or hold the control of the corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the real party in interest. A derivative action is a suit by a
shareholder to enforce a corporate cause of action. The corporation is a necessary party to the suit. And the relief which
is granted is a judgment against a third person in favor of the corporation. Similarly, if a corporation has a defense to an
action against it and is not asserting it, a stockholder may intervene and defend on behalf of the corporation.

2. Power of succession
3. Adopt a corporate seal
4. Amend articles
5. Adopt, repeal or amend by laws
6. Issue stocks to subscribers and sell treasury shares; to admit members of a NSNP
7. Exercise rights of ownership over properties for lawful business
a. Firme v Bukal Enterprises and Dev Corp 414 SCRA 190 (2003)
● It is the board of directors or trustees which exercises almost all the corporate powers in a corporation. Thus, the
Corporation Code provides:
SEC. 23. The board of directors or trustees. Unless otherwise provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by
the board of directors or trustees to be elected from among the holders of stock, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified.
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has the power and capacity:
 7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal
property, including securities and bonds of other corporations, as the transaction of a lawful business of the corporation may
reasonably and necessarily require, subject to the limitations prescribed by the law and the Constitution.
● Under these provisions, the power to purchase real property is vested in the board of directors or trustees. While a
corporation may appoint agents to negotiate for the purchase of real property needed by the corporation, the final say
will have to be with the board, whose approval will finalize the transaction. A corporation can only exercise its powers
and transact its business through its board of directors and through its officers and agents when authorized by a board
resolution or its by-laws

8. Enter into merger or consolidation

9. Make donations (except in aid of any political party or candidate or for purposes of partisan political activity) Sec 36 (9) in relation to Sec
30;
10. Establish pension, retirement and other benefits for officers and employees
a. Lopez v Fontecha 247 SCRA 183 (1995)
The Corporation approved 2 resolutions which provided for gratuity pay for its employees. One of the board member was not
present during the meeting regarding the resolution for gratuity pay. There is a contention that the resolution of granting the
gratuity pay is an ultra vires act.
Q: Is the corporation authorized to establish a gratuity pay for its employees? Yes. It is one of the express powers granted to
the corporation under the Corporation Code. The conduct of petitioners after the passage of resolutions had estopped them from
assailing the validity of said board resolutions. It cannot also be said that the acts were ultra vires because the resolutions cover a
subject which concerns the benefit and welfare of the employees. Providing gratuity pay for its employees is one of the express
powers of the corporation under the Corporation Code, hence, petitioners cannot invoke the doctrine of ultra vires to avoid any
liability arising from the issuance of the subject resolutions.

11. Others – inherent powers; incidental powers; implied or necessary powers Sec 36 (11) [e.g. issuing checks –
a. Atrium Management Corp v CA 353 SCRA 23 (2001)
Lourdes de Leon treasurer of Hi-Cement Corp., and the late Antonio delas Alas as Chairman, issued checks in favor of E.T
Henry and Co, as collateral for a loan. ET Henry and Co in turn, endorsed the four checks to petitioner Atrium Management for
valuable consideration. Upon presentment for payment, the drawee bank dishonored all four checks for the common reason for
payment of the value of the checks was denied.
Q: Can the corporate treasurer issue checks on behalf of the corporation? Yes, the treasurer of a corporation is authorized to
issue the checks. However, Ms. De Leon was negligent when she signed the confirmation letter requested by Atrium
Management and Mr. Henry of ET Henry and Co for the rediscounting of the crossed checks issued in favor of ET Henry, when
she was fully aware that the checks were strictly endorsed for deposit only to the payees account. Further, the confirmation letter
contained a clause that was not true, that it was issued in payment of Hyrdo oil by Hi-Cement from ET Henry and Co, resulted in
damage to the corporation.

Perform other acts pertinent to purchase shares of another corporation –

b. Inter Asia Investments v CA 403 SCRA 452 (2003)]
Gonzales represented Inter Asia Investments in a transaction with Asia Industries. Vergara was able to acquire a refund from this
transaction and Gonzales had an agreement in representation of Inter Asia that its liabilities to Vergara will be lessened. Inter
Asia claims that it is not bound to pay since the acts of Gonzales are not binding upon it.
Q: Are acts of corporate officers binding upon the corporation? Yes. The general rule is that, in the absence of authority from
the board of directors, no person, not even its officers, can validly bind a corporation. Being a juridical entity, a corporation may
act through its board of directors, which exercises almost all corporate powers, lays down all corporate business policies and is
responsible for the efficiency of management. The board of directors may validly delegate some of its functions and powers to
officers, committees or agents. The authority of such individuals to bind the corporation is generally derived from law, corporate
bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of
business. A corporate officer or agent may represent and bind the corporation in transactions with third persons to the extent that
the authority to do so has been conferred upon him, and this includes powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually
pertaining to the particular officer or agent, and such apparent powers as the corporation has caused person dealing with the
officer or agent to believe that it has conferred. Apparent authority is derived not merely from practice. Its existence may be
ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in
other words the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers. It requires presentation
of evidence of similar act(s) executed either in its favor or in favor of other parties. It is not the quantity of similar acts which
establishes apparent authority, but the vesting of a corporate officer with power to bind the corporation.
Can a corporation enter into a partnership? See SEC Op 17 August 1995

SEC 37 POWER TO EXTEND OR SHORTEN CORPORATE TERM

● See Sec 16 (limited v perpetual term)
● Since 2011, the SEC has adopted a liberal policy on extension of corporate term
● The SC has confirmed that such liberalized policy is allowed.

SEC 38 POWER TO INCREASE OR DECREASE CAPITAL STOCK; INCUR

CREATE OR INCREASE BONDED INDEBTEDNESS*
● See Sec 16
● There are reasons to generate more working capital, to acquire more assets, or to have shares to cover declaration of dividends;
 ● This requires majority vote of directors and stockholders representing 2/3 of OCS;
● There are other ways to increase capital without amending – additional subscription; advances from stockholders; payment of unpaid
subscription
o Central Textile Mills v National Wages and Productivity Board 260 SCRA 368 (1996)
Q: Should the deposits on future subscription be included in the computation for authorized capital stock? –No. Such
payments constitute money which the corporation will hold in trust for the subscribers until it files a petition to increase its
capitalization and a certificate of filing of increase of capital stock is approved and issued by the SEC. It is still withdrawable by
any of the subscribers at any time before the issuance of the corresponding shares of stock, unless there is a pre-subscription
agreement to the contrary, which apparently is not present in the instant case. Consequently, if a certificate of increase has not yet
been issued by the SEC, the subscribers to the unauthorized issuance are not to be deemed as stockholders possessed of such legal
rights as the rights to vote and dividends.

● No appraisal right see Sec 81.

SEC 39 POWER TO DENY PREEMPTIVE RIGHT*

● All issuances or dispositions of shares of any class including re-issuance of treasury shares in proportion to respective shareholding;
● The period to exercise this right should be in accord with the articles or the by-laws but where both are silent, as the Board may fix;
● The price shall not be less than par value.

SEC 40 SALE OR OTHER DISPOSITION OF ASSETS*

China Banking Corp v QBRO Fishing GR 184556 Feb 22, 2012

TRFC obtained a loan from CBC secured by a mortgage. Subsequently, the BOD od QBRO Fishing issued a resolution authorizing the mortgage of
its properties to secure the loans of TRFC. TRFC defaulted and the properties were foreclosed. QBRO sought to annul the foreclosure contending
that CBC unlawfully treated TRFC’s and QBRO’s loan as a single inseparable account.
Q: Can a corporation be a third-party mortgagor in favor of another corporation? – Yes. It has been held that third persons who are not parties
to the principal obligation may secure the latter by pledging or mortgaging their own property. The fact that the loans were solely for the benefit of
TFRC would not invalidate the mortgage with respect to respondents property as long as valid consent was given. Thus, when respondent executed
the real estate mortgage over its properties, such properties thereby secured the performance of the principal obligation notwithstanding the fact that
respondent itself had not assumed any liability for the debt of TFRC.

Nell v Pacific Farms Inc, 15 SCRA 415 (1965) – effect on creditors (general rule with exceptions)
Nell sold a pump to Insular Farms, but was not paid. He filed a case and was awarded sum of money against Insular farms. Later on, he field a case
against Pacific Farms, because the latter purchased the assets of Insular Farms.
Q1: Is Pacific liable to Nell? No. There is no proof that Insular and Pacific are one and the same. The sale was to the highest bidder, and the sale
took place before the case of petitioner was filed against Insular.
Q2: What is the Nell doctrine? Generally, where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not
liable for the debts and liabilities of the transferor, except: (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 a continuation of the selling
corporation; and (4) where the transaction is entered into fraudulently in order to escape liability f or such debts.

Y-I Leisure Phils Inc. v Yu GR 207161 Sep 8 2015 – “Business enterprise” transfer
Yu bought several golf and country club shares from MADCI. However, the project was not developed. Yu then demanded the return of his payment,
but MADCI could not return it anymore because all its assets had been transferred. Through the acts of YIL, MADCI sold all its lands to YILPI and,
subsequently to YICRI. Thus, Yu now claims that the petitioners inherited the obligations of MADCI. Petitioners counter that they did not assume
such liabilities because the transfer of assets was not committed in fraud of the MADCI's creditors.
Q1: What is a business-enterprise transfer? The transferee is liable for the debts and liabilities of his transferor arising from the business enterprise
conveyed. The business-enterprise rule applies when 2 requisites concur: (a) transferor corporation sells all or substantially all of its assets to another
entity; (2) he transferee corporation continues the business of the transferor corporation.
Q2: Is fraud an element of the business enterprise doctrine? No. The purpose of the business-enterprise transfer is to protect the creditors of the
business by allowing them a remedy against the new owner of the assets and business enterprise. Otherwise, creditors would be left "holding the
bag," because they may not be able to recover from the transferor who has "disappeared with the loot," or against the transferee who can claim that he
is a purchaser in good faith and for value. Based on the foregoing, as the exception of the Nell doctrine relates to the protection of the creditors of the
transferor corporation, and does not depend on any deceit committed by the transferee -corporation, then fraud is certainly not an element of the
business enterprise doctrine.
Q3: Is YIL liable to Yu? No. the transfer of the assets of MADCI to the petitioners should have complied with the requirements under Section 40 of
the Corporation Code.

Pena v CA 193 SCRA 717, 730 – encumbering would need stockholders ratification; two instances where there is no need for stockholders
ratification; effect of no ratification if required [N.B. No discussion in the case as to the aforementioned topic]
DBP foreclosed the mortgage upon PAMBUSCO’s failure to pay. Peña was the highest bidder. PAMBUSCO resolved to assign its right of
redemption so the BOD had a meeting but only 3 out of the 5 directors attended. In the said meeting, the Board issued a resolution authorizing one of
the directors, Atty. Briones, to assign the properties foreclosed and to be redeemed. Pursuant to the resolution, Briones assigned PAMBUSCO’s
assets to Marcelino Enriquez, who exercised the right to redeem and thereafter sold them to Sps. Yap. Possession of the property was still with Peña
so Sps. Yap demanded she vacate. Peña averred that Yap acquired no legal title over the property because the said board resolution is void due to the
fact that it was issued without a quorum.
Q1: What is the required voting in the sale or disposition of properties of a corporation?2/3 of the voting power in the corporation.
Q2: Is the disposition to Sps. Yap valid? No. Under the by-laws of PAMBUSCO, a quorum constitutes the presence of 4 out of 5 directors yet the
meeting was only attended by 3. As such, the authority granted to Briones and then Enriquez to assign the properties is void meaning Sps. Yap
acquired no title.

Caltex Phil v PNOC Shipping 498 SCRA 400 (2006) – assignees liable for obligations
PNOC Shipping assumed LUSTEVECO’s obligations, including any obligation that might arise from Caltex’s suit against LUSTEVECO. The RTC
ordered LUSTEVECO to pay Caltex. However, the judgment was not satisfied because of the prior foreclosure of LUSTEVECO’s properties. When
Caltex knew of the agreement between PNOC and LUSTEVEO, Caltex went after PNOC. Since PNOC refused to pay, Caltex filed a complaint for
sum of money.
Q: Is PNOC, an assignee, be held liable for the obligations of its assignor? – Yes. While Sec. 40 of the Corporation Code allows the transfer of
all or substantially all the properties and assets of a corporation, the transfer should not prejudice the creditors of the assignor. The only way the
transfer can proceed without prejudice to the creditors is to hold the assignee liable for the obligations of the assignor. The acquisition by the assignee
of all or substantially all of the assets of the assignor necessarily includes the assumption of the assignor’s liabilities, unless the creditors who did not
consent to the transfer choose to rescind the transfer on the ground of fraud. To allow an assignor to transfer all its business, properties and assets
without the consent of its creditors and without requiring the assignee to assume the assignor’s obligations will defraud the creditors. The assignment
will place the assignor’s assets beyond the reach of its creditors.

● This provision allows the exercise by a dissenting stockholder of his appraisal right
● Trust Fund Doctrine
o Ong Yong et al v David s. Tiu et al GR 144476 Apr 8, 2003
The Tius invited the Ongs to invest in the FLADC and they had a pre-subscription agreement. However, they had a falling out
and alleged that each breached the contract. Hence, the Tius sought to rescind the pre-subscription contract.
Q: Would the rescission of the pre-subscription contract violate the trust fund doctrine?– Yes. The Trust Fund Doctrine
provides that subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a right to look for the
satisfaction of their claims. In the instant case, the rescission of the Pre- Subscription Agreement will effectively result in the
unauthorized distribution of the capital assets and property of the corporation, thereby violating the Trust Fund Doctrine
and the Corporation Code,since rescission of a subscription agreement is not one of the instances when distribution of capital
assets and property of the corporation is allowed.

o Phil Trust Co., v Rivera 44 Phil 469

When La Cooperativa Naval Filipina became insolvent and went into the hands of the PTC as assignee in bankruptcy, an action
for recovery for one-half of the stock subscription of the Rivera was made. The reason for the failure of Rivera to pay the entire
subscription is that after Cooperativa Naval Filipina had been incorporated, a meeting of its stockholders occurred where the
capital should be reduced by 50% and the subscribers be released from obligation to pay any unpaid balance of their subscription
in excess of 50% of the same.
Q1: Was the reduction of capital of La Cooperative valid?– No. The resolution releasing the shareholders from their
obligation to pay 50% of their respective subscriptions was an attempted withdrawal of so much capital from the fund upon
which the company’s creditors were entitled ultimately to rely and having been effected without compliance with the statutory
requirements.
Q2: What is the rule on releasing an original subscriber to the capital stock?- . A corporation has no power to release an
original subscriber to its capital stock from the obligation of paying for his shares, without a valuable consideration for such
release; and as against creditors a reduction of the capital stock can take place only in the manner an under the conditions
prescribed by the statute or the charter or the articles of incorporation. Moreover, strict compliance with the statutory regulations
is necessary.
Q3: Is Rivera liable for his unpaid subscription?Yes. It is established doctrine that subscription to the capital of a corporation
constitute a find to which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to realize assets for the payment of its debts.

o Lumandan v Cura 59 Phil 746

Valenzuela and other creditors of the corporation filed a suit against Lumanlan for his unpaid subscription since the corporation
had no other assets left.
Q: Does the corporation have the right to collect from Lumanlan?Yes. The Corporation Law clearly recognizes that a stock
subscription is a subsisting liability from the time the subscription is made, since it requires the subscriber to pay interest
quarterly from that date unless he is relieved from such liability by the by- laws of the corporation. The subscriber is as much
bound to pay the amount of the share subscribed by him as he would be to pay any other debt, and the right of the company to
demand payment is no less incontestable. The corporation has a right to collect the amount of shares subscribed just like an
ordinary debt however in this case, since Lumanlan paid the debt of the corporation amounting to P13,840, the corporation
should credit the said amount against the P15,109 judgment of the court, which Lumanlan was ordered to pay.

o CIR v CA 301 SCRA 152

When Soriano (American founder of ASC) died, half of the shares of ASC he held went to his wife as her conjugal share and the
other half went to the estate. After his death, his estate still continued to receive stock dividends from ASC until it grew to at least
108,000 shares. In 1968, ASC through its Board issued a resolution for the redemption of shares from Soriano’s estate. In 1973,
the CIR assessed ASC for deficiency withholding tax-at-source. The CIR explained that when the redemption was made, the
estate profited (because ASC would have to pay the estate to redeem), and so ASC would have withheld tax payments from the
Soriano Estate yet it remitted no such withheld tax to the government. ASC averred that it is not duty bound to withhold tax from
the estate because it redeemed the said shares for purposes of “Filipinization” of ASC and also to reduce its remittance abroad.
Q1:What are the instances where the distribution of corporate capital assets is allowed?
(1) amendment of the Articles of Incorporation to reduce the authorized capital stock,
 (2) purchase of redeemable shares by the corporation, regardless of the existence of unrestricted retained earnings, and
(3) dissolution and eventual liquidation of the corporation.
Furthermore, the doctrine is articulated in Section 41 on the power of a corporation to acquire its own shares and in Section 122
on the prohibition against the distribution of corporate assets and property unless the stringent requirements therefor are complied
with.
Q2: Is ASC liable for withholding tax? Yes. There was a total of 108,000 shares redeemed from the estate. 25,247.5 of that was
original issue from the capital of ASC. The rest of the shares are deemed to have been from stock dividend shares. Sale of stock
dividends is taxable. It cannot be argued that all the 108,000 shares were distributed from the capital of ASC and that the latter is
merely redeeming them as such. The capital cannot be distributed in the form of redemption of stock dividends without
violating the trust fund doctrine — wherein the capital stock, property and other assets of the corporation are regarded
as equity in trust for the payment of the corporate creditors. Once capital, it is always capital. That doctrine was intended
for the protection of corporate creditors.

o Central Textile Mills v NWFC 260 SCRA 368 (1996)

supra.

SEC 41 POWER TO ACQUIRE OWN SHARES*

● This power is solely for legitimate purposes and subject to existence of unrestricted retained earnings to cover shares acquired; otherwise,
may be violative of the trust fund doctrine;
● Instances when this power may be exercised:
(1) Make fractional shares whole
(2) Settle indebtedness of a delinquent stockholder
(3) Exercise right of appraisal
(4) Redeem redeemable shares under Sec 8

SEC 42 POWER TO INVEST CORPORATE FUNDS IN ANOTHER CORPORATION OR BUSINESS OR FOR ANY
OTHER PURPOSE*
(within primary purpose; outside of secondary purposes)

SEC 43 POWER TO DECLARE DIVIDENDS**

● Nelson v Lepanto 26 SCRA 540 (1968)
In an operating agreement, the parties agreed that Nielson will receive (1) 10% of the dividends declared and paid, when and as paid during
the period of the contract and at the end of each year, (2) 10% of any depletion reserve that may set up, and (3) 10% of any amount
expended during the year out of surplus earnings for capital account. Nielson now asserts to be paid in shares of stock which form part of
the stock dividends of Lepanto for services it rendered under the management contract.
Q1: What is a stock dividend?It is any dividend payable in shares of stock of the corporation declaring or authorizing such dividend. It is
actually two things: (1) a dividend, and (2) the enforced use of the dividend money to purchase additional shares of stock at par. When a
corporation issues stock dividends, it shows that the corporation’s accumulated profits have been capitalized instead of distributed to the
stockholders or retained as surplus available for distribution, in money or kind, should opportunity offer. Far from being a realization of
profits for the stockholder, it tends rather to postpone said realization, in that the fund represented by the new stock has been transferred
from surplus to assets and no longer available for actual distribution. Thus, it is apparent that stock dividends are issued only to
stockholders.
Q2: Is Nielson entitled to stock dividends?No. The understanding between Lepanto and Nielson was simply to make the cash value of the
stock dividends declared as the basis for determining the amount of compensation that should be paid to Nielson, in the proportion of 10%
of the cash value of the stock dividends declared. In other words, Nielson must still be paid his 10% fee using as the basis for computation
the cash value of the stock dividends declared.

● Republic Planters Bank v Agana 269 SCRA 1 (1997)

Instead of giving the legal tender, the bank lent to RFRDC such amount partially in the form of money and partially in the form of stock
certificates of RFRDC. RFRDC proceeded against the Bank and filed a complaint anchored on its alleged right to collect dividends under
the preferred shares in question and to have the bank redeem the same under the terms and conditions of the stock certificates.
Q1: What is the rule on the issuance of stock dividends? The Corporation Code prohibit the issuance of any stock dividend without the
approval of stockholders, representing not less than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly
called for the purpose. These provisions underscore the fact that payment of dividends to a stockholder is not a matter of right but a matter
of consensus. Furthermore, "interest bearing stocks", on which the corporation agrees absolutely to pay interest before dividends are paid to
common stockholders, is legal only when construed as requiring payment of interest as dividends from net earnings or surplus only.

● See pertinent SEC rules on retained earnings

● Preconditions – unrestricted retained earnings SEC MC No. 11 Series of 2008; see also SEC Ops dated Oct 2, 1981, July 17, 1984, May 9,
1990, Mar 19, 1992 and Aug 8, 1991
● Wasting assets
● Dividends paid aid in surplus not retained earnings?
● Distinguish cash v stock dividends v property dividends v liquidating dividends
● Other rules SEC Ops dated Oct 23, 1992, Jul 16, 1996, Jul 15, 1994, Oct 10, 1992; unpaid subscriber

SEC 44 POWER TO ENTER INTO MANAGEMENT CONTRACT

● Stockholders ratification may be required
● There must be a justification for entering into a management contract
SEC 45 ULTRA VIRES ACTS OF CORPORATIONS
● Montelibano v Bacolod Murcia Milling 5 SCRA
The BOD of BMMC adopted a resolution as to the increase of the planters’ share in their product if the planting conditions improve. When
enforcement of the agreement was sought, BMMC assailed the same on the ground that the agreement arising from the resolution was an
ultra viresact of the Board of Directors.
Q: What is the test to be applied in determining whether an act by the directors is ultra vires? It is whether the act in question is in
direct and immediate furtherance of the corporation's business, fairly incident to the express powers and reasonably necessary to their
exercise. If so, the corporation has the power to do it; otherwise, not.
Q2: Was there an ultra vires act in the case?None. The agreement was made in good faith and furthered the corporation’s business.
● 3 kinds:
(1) beyond general powers;
(2) transacted by unauthorized persons Sec 23; and,
(3) per se illegal acts
● Twin Towers Condo v CA 398 SCRA 203 (2003)
ALS and Litonjua assail the validity of House Rule 26.3 alleging that it is ultra vires. ALS and Litonjua maintain that neither the Master
Deed nor the By-Laws of petitioner expressly authorizes petitioner to prohibit delinquent members from using the Condominium facilities.
Being ultra vires, House Rule 26.3 binds no one.
Q: Is there ultra vires in this case?–None. The term ultra vires refers to an act outside or beyond corporate powers, including those that
may ostensibly be within such powers but are, by general or special laws, prohibited or declared illegal. The Condominium Act, the Master
Deed and petitioner’s By-Laws grant petitioner the express power to promulgate rules and regulations concerning the use, enjoyment and
occupancy of the common areas.
● China Banking Corp v CA 270 SCRA 503 (1997)
No issue in this case as to ultra vires.

● Atrium Management Co v CA GR 109491 Feb 28, 2001

Hi Cement Corporation, through its treasurer De Leon, issued 4 crossed checks to E.T. Henry. Henry endorsed the checks to Atrium.
Atrium then sought confirmation from Hi Cement on the checks. De Leon confirmed the checks and advised that the checks are ok for
rediscounting. When Atrium encashed the check, it was dishonored because the same were crossed.
Q1: Is there ultra-vires act on the part of De Leon?None. The act of issuing the checks was within the powers of the corporation. The
term ultra vires is distinguished from an illegal act for the former is merely voidable which may be enforced by performance, ratification,
or estoppel, while the latter is void and cannot be validated.
Q2: When is the personal liability of the director attach with the corporation?It is when:
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c)
for conflict of interest, resulting in damages to the corporation, its stockholders or other persons;
2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate
secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate action.
Q3: Is De Leon liable for the checks? Yes. De Leon was negligent when she confirmed the checks even though she knew that the same
were crossed checks.

● Pirovano v De la Rama Steamship Co 96 Phil 335 (1954)

Upon the death of the company president, Pirovana, the company opted to set aside P 400,000 to his minor children and a resolution was
adopted and approved by the stockholders. This donation, however, was later revoked saying that such act was ultra vires and beyond the
scope of the company’s corporate powers.
Q1: Is there ultra-vires in this case? None. Ultra vires acts are those which are not illegal and void ab initio, but are merely not within
the scope of the articles of incorporation are merely voidable and may become binding and enforceable when ratified by the
stockholders.The act was not ultra vires because under the articles of incorporation of the company, it is given almost unlimited powers to
carry out the purposes for which it was organized among them including the power to dispose its assets via donation. Even assuming
arguendo that the act is ultra vires, it cannot be invalidated or declared legally ineffective because such donation represents not only the act
of the Board of Directors but of the stockholders themselves. By this ratification, the infirmity of the corporate act has been obliterated
making it valid and enforceable.

● Republic v Acoje Mining Co. 3 SCRA 361 (1963)

AMC opened a post office in its mining camp with Sanchez as its postmaster. Afterwards, Sanchez went on a 3-day leave and never
returned. It was then found out that the said postmaster’s account has a shortage. The government then demanded for such shortage, which
AMC countered on the ground that its assumption of responsibility over the postmaster’s acts is ultra vires.
Q1: Is there ultra vires? None. Whileas a rule an ultra vires act is one committed outside the object for which a corporation is created, there
are however certain corporate acts that may be performed outside of its scope of powers if they are necessary to promote the interest or
welfare of the corporation, such as the establishment, in the case at bar, of a local post office in a mining camp which is far removed from
the postal facilities or means of communications accorded to- people living in a city or municipality.
● Business judgment rule – ultra vires acts may be subject to estoppel or ratification
o Lipat v Pacific Banking Corporation 402 SCRA 339 (2003)
In this case, Teresita Lipat, in behalf of BET (a single proprietorship) which later became BEC (a family corporation) dealt with
Pacific Bank on the mortgage contract by virtue of SPA executed by Estelita.

The principle of estoppel precludes petitioners from denying the validity of the transactions entered into by Teresita Lipat with
Pacific Bank, who in good faith, relied on the authority of the former as manager to act on behalf of petitioner Estelita Lipat and
 both BET and BEC. While the power and responsibility to decide whether the corporation should enter into a contract that will
bind the corporation is lodged in its board of directors, subject to the articles of incorporation, by-laws, or relevant provisions of
law, yet, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly
delegate some of its functions and powers to officers, committees, or agents. The authority of such individuals to bind the
corporation is generally derived from law, corporate by-laws, or authorization from the board, either expressly or impliedly by
habit, custom, or acquiescence in the general course of business.Apparent authority, is derived not merely from practice. Its
existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the
power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his
acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary
powers.

o Yasuma v Heirs of Cecilio de Villa 499 SCRA 466 (2006)

The corporation may ratify the unauthorized act of its corporate officer. Ratification means that the principal voluntarily adopts,
confirms and gives sanction to some unauthorized act of its agent on its behalf. It is this voluntary choice, knowingly made,
which amounts to a ratification of what was theretofore unauthorized and becomes the authorized act of the party so making the
ratification. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority.
Ratification can be made either expressly or impliedly. Implied ratification may take various forms—like silence or acquiescence,
acts showing approval or adoption of the act, or acceptance and retention of benefits flowing therefrom.

The power to borrow money is one of those cases where corporate officers as agents of the corporation need a special power of
attorney. In the case at bar, no special power of attorney conferring authority on de Villa was ever presented. The promissory
notes evidencing the loans were signed by de Villa (who was the president of respondent corporation) as borrower without
indicating in what capacity he was signing them. In fact, there was no mention at all of respondent corporation. On their face,
they appeared to be personal loans of de Villa. Respondent corporation could not have ratified the act of de Villa because there
was no proof that it knew that he took out a loan on its behalf. As stated earlier, ratification is a voluntary choice that is
knowingly made. The corporation could not have ratified an act it had no knowledge of: x x x x x x x x x Ordinarily, the principal
must have full knowledge at the time of ratification of all the material facts and circumstances relating to the unauthorized act of
the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification . . .
. The fact that the corporation admitted receiving the proceeds of the loan did not amount to ratification of the loan. It accepted
the amount from de Villa, its president at that time, in good faith. Good faith is always presumed. Petitioner did not show that the
corporation acted in bad faith. It follows that respondent corporation was not liable for the subsequent loss of the money which it
accepted as an investment. It could not be faulted for not knowing that it was the proceeds of a loan obtained by de Villa. It was
under no obligation to check the source of the investments which went into its coffers. As long as the investment was used for
legitimate corporate purposes, the investor bore the risk of loss.

TITLE V
BY-LAWS

SEC 46 ADOPTION OF BY LAWS*

● Nature and Significance

o Gokongwei Jr v SEC 89 SCRA 336
The validity or reasonableness of a by-law of a corporation is purely a question of law. Whether the by-law is in conflict with the
law of the land, or with the charter of the corporation, or is in a legal sense unreasonable and therefore unlawful is a question of
law. This rule is subject, however, to the limitation that where the reasonableness of a by-law is a mere matter of judgment, and
one upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of
the judgment of those who are authorized to make by-laws and who have exercised their authority.

● Requisites of valid bylaws

(1) Sec 35 [5] not contrary to law; Sec 36 [5]not contrary to morals
o Grace Christian High School v CA 281 SCRA 68 (1997)
Since the provision in question is contrary to law, the fact that for fifteen years it has not been questioned or challenged
but, on the contrary, appears to have been implemented by the members of the association cannot forestall a later
challenge to its validity. Neither can it attain validity through acquiescence because, if it is contrary to law, it is beyond
the power of the members of the association to waive its invalidity. For that matter the members of the association may
have formally adopted the provision in question, but their action would be of no avail because no provision of the by-
laws can be adopted if it is contrary to law.

(2) Do not impair contracts, vested rights

o Thomson v CA 298 SCRA 280 (1998)
The Manila Polo Club does not necessarily prohibit the transfer of proprietary shares by its members. The Club only
restricts members to deserving applicants in accordance with its rules, when the amended Articles of Incorporation
states that: “no transfer shall be valid except between the parties, and shall not be registered in the Membership book
unless made in accordance with these Articles and the By-Laws.”33 Thus, as between parties herein, there is no
question that a transfer is feasible. Moreover, authority granted to a corporation to regulate the transfer of its
stock does not empower it to restrict the right of a stockholder to transfer his shares, but merely authorizes the
adoption of regulations as to the formalities and procedure to be followed in effecting transfer.
 In this case, the petitioner was the nominee of the private respondent to hold the share and enjoy the privileges of the
club. But upon the expiration of petitioner’s employment as officer and consultant of AmCham, the incentives that go
with the position, including use of the MPC share, also ceased to exist. It now behooves petitioner to surrender said
share to private respondent’s next nominee, another natural person. Obviously this arrangement of trust and confidence
cannot be defeated by the petitioner’s citation of the MPC rules to shield his untenable position, without doing violence
to basic tenets of justice and fair dealing.

However, we still have to ascertain whether the rights of herein parties to the trust still subsist. It has been held that so
long as there has been no denial or repudiation of the trust, the possession of the trustee of an express and continuing
trust is presumed to be that of the beneficiary, and the statute of limitations does not run between them.35 With regard
to a constructive or a resulting trust, the statute of limitations does not begin to run until the trustee clearly repudiates or
disavows the trust and such disavowal is brought home to the other party, “cestui que trust.” the statute of limitations
runs generally from the time when the act was done by which the party became chargeable as a trustee by operation of
law or when the beneficiary knew that he had a cause of action, in the absence of fraud or concealment.

(3) Not discriminatory; fair and reasonable

o Salafranca v Philamlife Pamplona 300 SCRA 469 (1998)
Furthermore, private respondent, in an effort to validate the dismissal of the petitioner, posits the theory that the latter’s
position is coterminus with that of the Village’s Board of Directors, as provided for in its amended by-laws.

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.

Prescinding from these premises, private respondent’s insistence that it can legally dismiss petitioner on the ground that
his tenure has expired is untenable. To reiterate, petitioner, being a regular employee, is entitled to security of tenure;
hence, his services may only be terminated for causes provided by law. A contrary interpretation would not find
justification in the laws or the Constitution. If we were to rule otherwise, it would enable an employer to remove any
employee from his employment by the simple expediency of amending its by-laws and providing that his/her position
shall cease to exist upon the occurrence of a specified event.

(4) Consistent with articles

o Loyola Grand villas Homeowners v CA 276 SCRA 68 (1997)
By-laws may be necessary for the “government” of the corporation but these are subordinate to the articles of
incorporation as well as to the Corporation Code and related statutes. There are in fact cases where by-laws are
unnecessary to corporate existence or to the valid exercise of corporate powers, thus: “In the absence of charter or
statutory provisions to the contrary, by-laws are not necessary either to the existence of a corporation or to the valid
exercise of the powers conferred upon it, certainly in all cases where the charter sufficiently provides for the
government of the body; and even where the governing statute in express terms confers upon the corporation the power
to adopt by-laws, the failure to exercise the power will be ascribed to mere nonaction which will not render void any
acts of the corporation which would otherwise be valid.”

● Binding Effect
o PMI Colleges v NLRC 277 SCRA 462 (1997)
Neither can we concede that such contract would be invalid just because the signatory thereon was not the Chairman of the Board
which allegedly violated petitioner’s bylaws. Since by-laws operate merely as internal rules among the stockholders, they cannot
affect or prejudice third persons who deal with the corporation, unless they have knowledge of the same. No proof appears on
record that private respondent ever knew anything about the provisions of said by-laws. In fact, petitioner itself merely asserts the
same without even bothering to attach a copy or excerpt thereof to show that there is such a provision. How can it now expect the
Labor Arbiter and the NLRC to believe it? That this allegation has never been denied by private respondent does not necessarily
signify admission of its existence because technicalities of law and procedure and the rules obtaining in the courts of law do not
strictly apply to proceedings of this nature.

o Not binding on third persons

▪ Fleishcher v Botica Nolasco 47 Phil 583
The power to enact by-laws restraining the sale and transfer of stock must be found in the governing statute or charter.
Restrictions upon the traffic in stock must have their source in legislative enactments, as the corporation itself cannot
create such impediments. By-laws of a corporation are intended merely for the protection of the corporation, and
prescribe regulations and not restrictions; they are always subject to the charter of the corporation. The corporation, in
the absence of such a power, cannot ordinarily inquire into or pass upon the legality of the transaction by which its
stock passes from one person to another, nor can it question the consideration upon which a sale is based. A by-law of a
corporation cannot take away or abridge the substantial rights of stockholders. Courts will carefully scrutinize any
attempt on the part of a corporation to impose restrictions or limitations upon the right of stockholders to sell and assign
their stock. Restrictions cannot be imposed upon a stockholder by a by-law without statutory or charter authority. The
owner of corporate stock has the same uncontrollable right to sell or alienate, which attaches to the ownership of any
other species of property.
 ▪ China Banking Corp v CA 270 SCRA 503 (1997)
In order to be bound, the third party must have acquired knowledge of the pertinent by—laws at the time the
transaction or agreement between said third party and the shareholder was entered into, in this case, at the time the
pledge agreement was executed. VGCCI could have easily informed petitioner of its by-laws when it sent notice
formally recognizing petitioner as pledgee of one of its shares registered in Calapatia’s name. Petitioner’s belated
notice of said by-laws at the time of foreclosure will not suffice.

o May be waived SEC Op No. 22 series of 20

SEC 47 CONTENTS OF BY-LAWS
● Usual contents plus additional corporate officers; executive committee
● Should be in both articles and bylaws – cumulative voting for NSNPs; manner of voting; higher quorum
● Pena v CA 193 SCRA 717 (1991)
The by-laws of a corporation are its own private laws which substantially have the same effect as the laws of the corporation. They are in
effect, written, into the charter. In this sense they become part of the fundamental law of the corporation with which the corporation and its
directors and officers must comply. Apparently, only three (3) out of five (5) members of the board of directors of respondent
PAMBUSCO convened on November 19, 1974 by virtue of a prior notice of a special meeting. There was no quorum to validly transact
business since, under Section 4 of the amended by-laws hereinabove reproduced, at least four (4) members must be present to constitute a
quorum in a special meeting of the board of directors of respondent PAMBUSCO.

SEC 48 AMENDMENTS TO BYLAWS

● Can an amendment be enjoined?

● Primo Co, Se. et al v The Philippine Canine Club Inc. GR 190112 Apr 22, 2015
We find the petitioners’ argument partly meritorious. However, this court does not fully agree with their submission that the
implementation of the Amended By-Laws can still be completely enjoined.

A careful review of the records reveals that indeed, not all of the petitioners were expelled or suspended at the time the RTC issued the writ
of preliminary injunction. It is clear from the complaint in Civil Case No. Q-09-207,12 as well as from the Order granting the writ of
preliminary injunction,13 that Joseph and Cham were only threatened with the imposition of sanctions, and were neither suspended nor
expelled. Thus, it appears that the trial court can still enjoin the enforcement of the Amended By-Laws with respect to Joseph and Cham, as
to whom the sanctions were not yet implemented.

However, as regards the suspended and expelled members namely, Co, Cruz, Alegado and Jester, the trial court can no longer enjoin the
enforcement of the Amended By-Laws as the latter has already been consummated. This conclusion, however, is without prejudice to the
Court’s final action on the merits of the case.

It is a well-established rule that consummated acts can no longer be restrained by injunction.14 When the acts sought to be prevented by
injunction or prohibition have already been performed or completed prior to the filing of the injunction suit, nothing more can be enjoined
or restrained;15 a writ of injunction then becomes moot and academic,16 and the court, by mere issuance of the writ, can no longer stop or
undo the act. To do so would violate the sole purpose of a prohibitive injunction, that is, to preserve the status quo.

In the present case, the act sought to be restrained by the petitioners has already been partly accomplished. The actual suspension from
PCCI rendered their prayer for injunctive relief moot. Evidently, it is no longer possible to grant the relief they were seeking — that is, to
stop PCCI from implementing their suspension and expulsion — as the same has already been consummated. The status quo can no longer
be restored.

TITLE VI
MEETINGS

SEC 49 KINDS OF MEETINGS

SEC 50 REGULAR AND SPECIAL MEETINGS OF STOCKHOLDERS

Simny G. Guy as minority stockholder for and in behalf of Goodland Company, Inc. v Gilbert G. Guy et al GR 184068 Apr 19, 2016
For a stockholders’ special meeting to be valid, certain requirements must be met with respect to notice, quorum and place. In relation to the above
provision of B.P. 68, one of the requirements is a previous written notice sent to all stockholders at least one (1) week prior to the scheduled meeting,
unless otherwise provided in the bylaws: Under the bylaws of GCI, the notice of meeting shall be mailed not less than five (5) days prior to the date
set for the special meeting. The pertinent provision reads: Section 3. Notice of meeting written or printed for every regular or special meeting of the
stockholders shall be prepared and mailed to the registered post office address of each stockholder not less than five (5) days prior to the date set for
such meeting, and if for a special meeting, such notice shall state the object or objects of the same. No failure or irregularity of notice of any meeting
shall invalidate such meeting at which all the stockholders are present and voting without protest.

The provisions under Section 50 of the Corporation Code and the bylaws of GCI are clear and unambiguous. They do not admit of two or more
meanings; nor do they make reference to two or more things at the same time. The provisions only require the sending/mailing of the notice of a
stockholders’ meeting to the stockholders of the corporation. Sending/mailing is different from filing or service under the Rules of Court. Had the
lawmakers intended to include the stockholder’s receipt of the notice, they would have clearly reflected such requirement in the law. Absent that
requirement, the word “send” should be understood in its plain meaning: “Send” means to deposit in the mail or deliver for transmission by any other
usual means of communication with postage or cost of transmission provided for and properly addressed and in the case of an instrument to an
address specified thereon or otherwise agreed, or if there be none, to any address reasonable under the circumstances. The receipt of any writing or
notice within the time at which it would have arrived if properly sent has the effect of a proper sending. (U.C.C. Sections 1-201) (Emphasis supplied)
Clearly, respondents are only mandated to notify petitioner by depositing in the mail the notice of the stockholders’ special meeting, with postage or
cost of transmission provided and the name and address of the stockholder properly specified. With respect to the latter part of the definition of
“send” under Black’s Law Dictionary, the term “receipt” only has the effect of proper sending when a mail matter is received in the usual course of
transmission.

SEC 51 PLACE AND TIME OF MEETINGS OF STOCKHOLDERS OR MEMBERS

SEC 52 QUORUM IN MEETINGS

SEC 53 REGULAR AND SPECIAL MEETINGS OF DIRECTORS OR TRUSTEES

● Regular or special meeting requirements
● See SEC MC No. 15, Nov 20, 2011 on video conferencing
● Quorum – unless articles provide otherwise, majority of the number of directors/trustees as fixed in the articles constitutes quorum with or
without vacancy; pledged shares see Sec 55
● Rule on abstention
o Lopez v Ericta 45 SCRA 539 (1972)
It should be noted that an abstention, according to the respondents’ citations, is counted as an affirmative vote insofar as it may
be construed as an acquiescence in the action of those who voted affirmatively. This manner of counting is obviously based on
what is deemed to be a presumption as to the intent of the one abstaining, namely to acquiesce in the action of those who vote
affirmatively, but which presumption, being merely prima facie, would not hold in the face of clear evidence to the contrary.

Before it adjourned, the Board of Regents resolved to cancel the action which had been taken, including the result of the voting,
and “to return the case to its original status—to render the case subject to further thinking.” It cannot be seriously argued that the
Board had no authority to do what it did: the meeting had not yet been adjourned, the subject of the deliberations had not yet been
closed, and as in the case of any deliberative body the Board had the right to reconsider its action. No title to the office of Dean of
the College of Education had yet vested in respondent Blanco at the time of such reconsideration.

● Can stockholders attend BOD meetings?

● Minutes v resolutions

SEC 54 WHO SHALL PRESIDE AT MEETINGS

SEC 55 RIGHT TO VOTE OF PLEDGORS MORTGAGORS AND ADMINISTRATORS

Fua Cun v Summers 44 Phil 705 (1923)
(no discussion on right to vote) An equity in shares of stock may be assigned, the assignment becoming effective as between the parties and as to
third parties with notice.

Monserrat v Ceron 58 Phil 469 (1933) - (no discussion on the right to vote) In view of the foregoing considerations, we are of the opinion and so
hold that, inasmuch as section 35 of the Corporation Law does not require the notation upon the books of a corporation of transactions relating to its
shares, except the transfer of possession and ownership thereof, as a necessary requisite to the validity of such transfer, the notation upon the
aforesaid books of the corporation, of a chattel mortgage constituted on the shares of stock in question is not necessary to its validity.

Chemphil Export v CA 251 SCRA 257 (1995)

(no discussion on the right to vote) Are attachments of shares of stock included in the term “transfer” as provided in Sec. 63 of the Corporation
Code? We rule in the negative. As succinctly declared in the case of Monserrat v. Ceron, “chattel mortgage over shares of stock need not be
registered in the corporation’s stock and transfer book inasmuch as chattel mortgage over shares of stock does not involve a “transfer of shares,” and
that only absolute transfers of shares of stock are required to be recorded in the corporation’s stock and transfer book in order to have “force and
effect as against third persons.”

Although the Monserrat case refers to a chattel mortgage over shares of stock, the same may be applied to the attachment of the disputed shares of
stock in the present controversy since an attachment does not constitute an absolute conveyance of property but is primarily used as a means “to seize
the debtor’s property in order to secure the debt or claim of the creditor in the event that a judgment is rendered.”

SEC 56 VOTING IN CASE OF JOINT OWNERSHIP OF STOCK

● Excluded from computation of quorum
● Tan v Sycip 499 SCRA 216 (2006)
The right to vote is inherent in and incidental to the ownership of corporate stocks. It is settled that unis-sued stocks may not be voted or
considered in determining whether a quorum is present in a stockholders’ meeting, or whether a requisite proportion of the stock of the
corporation is voted to adopt a certain measure or act. Only stock actually issued and outstanding may be voted. Under Section 6 of the
Corporation Code, each share of stock is entitled to vote, unless otherwise provided in the articles of incorporation or declared delinquent
under Section 67 of the Code. Neither the stockholders nor the corporation can vote or represent shares that have never passed to the
ownership of stockholders; or, having so passed, have again been purchased by the corporation. These shares are not to be taken into
consideration in determining majorities. When the law speaks of a given proportion of the stock, it must be construed to mean the shares
that have passed from the corporation, and that may be voted.
 In nonstock corporations, the voting rights attach to membership. Members vote as persons, in accordance with the law and the bylaws of
the corporation. Each member shall be entitled to one vote unless so limited, broadened, or denied in the articles of incorporation or
bylaws. We hold that when the principle for determining the quorum for stock corporations is applied by analogy to non-stock
corporations, only those who are actual members with voting rights should be counted. Under Section 52 of the Corporation Code, the
majority of the members representing the actual number of voting rights, not the number or numerical constant that may originally be
specified in the articles of incorporation, constitutes the quorum.

SEC 57 VOTING RIGHT FOR TREASURY SHARES

SEC 58 PROXIES

SEC 59 VOTINGS TRUSTS

● Voting trust agreement*
o Lee v CA 205 SCRA 752, 758 (1992)
(no discussion on voting trust agreement)
Inasmuch as section 35 of the Corporation Law does not require the notation upon the books of a corporation of transactions
relating to its shares, except the transfer of the possession and ownership thereof, as a necessary requisite to the validity of such
transfer, the .notation upon the said books of the corporation of a chattel mortgage constituted on such shares is not necessary to
its validity

o Everett v ABC 49 Phil 512 (1926)

Where the board of directors in a corporation is under the complete control of the principal defendants in the case and it is
obvious that a demand upon the board of directors to institute an action and prosecute the same effectively would be useless, the
action may be brought by one or more of the stockholders without such demand.

o NIDC v Aquino 163 SCRA 153 (1988)

From the foregoing provisions, it is clear that what was assigned to NIDC was the power to vote the shares of stock of the
stockholders of Batjak, representing 60% of Batjak's outstanding shares, and who are the signatories to the agreement. The power
entrusted to NIDC also included the authority to execute any agreement or document that may be necessary to express the
consent or assent to any matter, by the stockholders. Nowhere in the said provisions or in any other part of the Voting Trust
Agreement is mention made of any transfer or assignment to NIDC of Batjak's assets, operations, and management. NIDC was
constituted as trustee only of the voting rights of 60% of the paid-up and outstanding shares of stock in Batjak. This is confirmed
by paragraph No. 9 of the same Voting Trust Agreement, thus:

"9. TERMINATION—Upon termination of this Agreement as heretofore provided, the certificates deiivered to the
TRUSTEE by virtue hereof shall be returaed and delivered to the undersigned stockholders as the absolute owners
thereof, upon surrender of their respective voting trust certificates, and the duties of the TRUSTEE shall cease and
terminate."

Under the aforecited provision, what was to be returned by NIDC as trustee to Batjak's stockholders, upon the termination of the
agreement, are the certificates of shares of stock belonging to Batjak's stockholders, not the properties or assets of Batjak itself
which were never delivered, in the first place to NIDC, under the terms of said Voting Trust Agreement.

In any event, a voting tmst transfers only voting or other rights pertaining to the shares subject of the agreement, or control over
the stock
The acquisition by PNB-NIDC of the properties in question was not made or effected under the capacity of a trustee but as a
foreclosing creditor for the purpose of recovering on a just and valid obligation of Batjak.

● Pooling agreement see Sec 100 (2)

TITLE VII
STOCKS AND STOCKHOLDERS

SEC 60 SUBSCRIPTION CONTRACT

● Initial issuance of shares from ACS may be covered by subscription agreements
● All agreements pertaining to the purchase of unissued shares of stock of a corporation, whether before or after incorporation, are
subscription agreements

SEC 61 PRE-INCORPORATION SUBSCRIPTION

Bayla v Silang Traffic Co. Inc 73 Phil 557 (1942 pre-Corp Code)
Whether a particular contract is a subscription, or a sale of stock is a matter of construction and depends upon its terms and the intention of the
parties. A subscription, properly speaking, is the mutual agreement of the subscribers to take and pay for the stock of a corporation, while a purchase
is an independent agreement between the individual and the corporation to buy shares of stock from it at a stipulated price. In some particulars the
rules governing subscriptions and sales of shares are different. For instance, the provisions of our Corporation Law regarding calls for unpaid
subscriptions and assessment of stock do not apply to a purchase of stock. Likewise, the rule that the corporation has no legal capacity to release an
original subscriber to its capital stock from the obligation to pay for his shares, is inapplicable to a contract of purchase of shares.
Ong Yon v Tiu 401 SCRA 1 (2003)
Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within
the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or some other contract.
A subscription contract necessarily involves the corporation as one of the contracting parties since the subject matter of the transaction is property
owned by the corporation—its shares of stock.

SEC 62 CONSIDERATION FOR STOCKS

SEC 63 CERTIFICATE OF STOCK AND TRANSFER OF SHARES*

● Sec 63 is on formal requirements while Sec 64 is on the nature of the stock certificate
o Tan v SEC 206 SCRA 740 (1992)
In Philippine jurisprudence, a certificate of stock is not a negotiable instrument. “Although it is sometime regarded as quasi-
negotiable, in the sense that it may be transferred by endorsement, coupled with delivery, it is well-settled that it is non-
negotiable, because the holder thereof takes it without prejudice to such rights or defenses as the registered owner/s or
transferor’s creditor may have under the law, except insofar as such rights or defenses are subject to the limitations imposed by
the principles governing estoppel.”

o De Los Santos v Republic 96 Phil 577 (1955)

Under Sec. 35 (now Sec 63) of the Corporation Law,” “No transfer, however, shall be valid, except as between the parties, until
the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of shares transferred

o Rural Bank of LIpa v CA 366 SCRA 188 (2001)

The requirements for valid transfer of stocks are:
a. There must be delivery of the stock certificate;
a. The certificate must be endorsed by the owner or his attorney-in- fact or other persons legally authorized to make the
transfer; and
a. To be valid against third parties, the transfer must be recorded in the books of the corporation.
● An assignment of shares without complying with the foregoing is only binding between the assignor and the assignee.

● Theory of delegated power

o Tan v Sycip 499 SCRA 216 (2006)
Under the Corporation Code, stockholders or members periodically elect the board of directors or trustees, who are charged with
the management of the corporation. The board, in turn, periodically elects officers to carry out management functions on a day-
to-day basis. As owners, though, the stockholders or members have residual powers over fundamental and major corporate
changes. Acts of management pertain to the board; and those of ownership, to the stockholders or members. Once the directors or
trustees are elected, the stockholders or members relinquish corporate powers to the board in accordance with law.

● Derivative Suit* – Sec 64

o BSP v Vicente Jose Campa et al GR 185979 Mar 16, 2016
For there to be a derivative suit: (1) the party bringing suit should be a shareholder; (2) he must have exerted all reasonable
efforts to exhaust all remedies available; (3) no appraisal rights are available for the act/s complained of; and (4) the suit is not a
nuisance/harassment suit.

o Gochan v Young 354 SCRA 207 (2001)

The fact that certain persons are not registered as stockholders in the books of the corporation will not bar them from filing a
derivative suit, if it is evident from the allegations in the complaint that they are bona fide stockholders. The personal injury
suffered by the stockholder cannot disqualify him from filing a derivative suit in behalf of the corporation. It merely gives rise to
an additional cause of action for damages against the erring corporate officers.

o Bitong v CA 292 SCRA 503 (1998)

The basis of a stockholder’s suit is always one in equity. However, it cannot prosper without first complying with the legal
requisites for its institution. The most important of these is the bona fide ownership by a stockholder of a stock in his own right at
the time of the transaction complained of which invests him with standing to institute a derivative action for the benefit of the
corporation.

o San Miguel Corp v Kahn 176 SCRA 447 (1989; requisites for a derivative suit)
It is claimed that since de los Angeles’ 20 shares (owned by him since 1977) represent only .00001644% of the total number of
outstanding shares (121,645,860), he cannot be deemed to fairly and adequately represent the interests of the minority
stockholders. The implicit argument—that a stockholder, to be considered as qualified to bring a derivative suit, must hold a
substantial or significant block of stock—finds no support whatever in the law.

● Stockholders’ functions
o Ramirez v the Orientalist Co 38 Phil 634 (1918)
Both upon principle and authority it is clear that the action of the stockholders, whatever its character, must be ignored. The
functions of the stockholders of a corporation are, it must be remembered, of a limited nature. The theory of a corporation is that
 the stockholders may have all the profits but shall turn over the complete management of the enterprise to their representatives
and agents, called directors. Accordingly, there is little for the stockholders to do beyond electing directors, making by-laws, and
exercising certain other special powers defined by-law. In conformity with this idea it is settled that contract between a
corporation and third person must be made by the director and not by the stockholders. The corporation, in such matters, is
represented by the former and not by the latter.
● It results that where a meeting of the stockholders is called for the purpose of passing on the propriety of making a
corporate contract, its resolutions are at most advisory and not in any wise binding on the board. (IN SHORT, BOARD
RESOLUTION IS NEEDED TO ENTER INTO CONTRACTS)

● Is a stock certificate negotiable?

o Neugene Marketing Inc v CA 303 SCRA 295 (1999)
To constitute a valid transfer, a stock certificate must be delivered and its delivery must be coupled with an intention of
constituting the person to whom the stock is delivered the transferred thereof. Furthermore, in order that there is a valid transfer,
the person to whom the stock certificates are endorsed must be a bona fide transferee and for value.

● What are uncertificated shares? – See Sec 43.1 and 44 of the SRC
● Right to transfer/encumber/register
o Rural Bank of Lipa v CA GR 124535 Sep 28, 2001
For a valid transfer of stocks, there must be strict compliance with the mode of transfer prescribed by law. The requirements are:
(a) There must be delivery of the stock certificate: (b) The certificate must be endorsed by the owner or his attorney-in-fact or
other persons legally authorized to make the transfer; and (c) To be valid against third parties, the transfer must be recorded in the
books of the corporation.

o Teng v SEC GR 184332 Feb 17, 2016

The delivery contemplated in Section 63, however, pertains to the delivery of the certificate of shares by the transferor to the
transferee, that is, from the original stockholder named in the certificate to the person or entity the stockholder was transferring
the shares to, whether by sale or some other valid form of absolute conveyance of ownership.

The Supreme Court (SC) stressed that a corporation, either by its board, its bylaws, or the act of its officers, cannot create
restrictions in stock transfers. In transferring stock, the secretary of a corporation acts in purely ministerial capacity, and does not
try to decide the question of ownership. If a corporation refuses to make such transfer without good cause, it may, in fact, even be
compelled to do so by mandamus.

o Chua Guan v Samahan 62 Phil 472 (1935)

Property in the shares may be deemed to be situated in the province in which the corporation has its principal officer or place of
business. If this province is also the province of the owner’s domicile, a single registration is sufficient. If not, the chattel
mortgage should be registered both at the owner’s domicile and in the province where the corporation has its principal office or
place of business. In these sense the property mortgage is not the certificate but the participation and share of the owner in the
assets of the corporation.

o Reyes v RTC and Zenith Ins Corp Aug 11, 2008

Where there is an absence of partition and transfer of shares, an heir cannot yet be considered a stockholder of a corporation, and
the Court, therefore, cannot declare that an intra-corporate relationship exists that would serve as basis to bring the case within
the special commercial court’s jurisdiction

o Chemphil Export and Import Corp GR 112438-39 Dec 12, 1995

Both the Revised Rules of Court and the Corporation Code do not require annotation in the corporation’s stock and transfer
books for the attachment of shares of stock to be valid and binding on the corporation and third parties. An attachment does not
constitute an absolute conveyance of property but it is primarily used as a means “to seize the debtor’s property in order to secure
the debt or claim of the creditor in the event that a judgment is rendered.”

o Vicente C. Ponce v Alsons Gen Corp GR 139802 Dec 10, 2002

Pursuant to the Corporation Code, a transfer of shares of stock not recorded in the stock and transfer book of the corporation is
non-existent as far as the corporation is concerned.

o Won v Wack Wack Golf and Country Club Inc. 104 Phil 466 (1958)
The certificate in question contains a condition to the effect that no assignment thereof shall be effective with respect to the
appellee until such assignment is registered in its books, as provided in the by-laws. While the assignee’s right to have the
assignment registered commenced from the moment the certificate was assigned to him, it would not follow that said right should
be exercised immediately or within a definite period. The existence of a right is one thing, and the duration of said right is
another.
 ● Allowable restrictions on the sale of shares
o right of first refusal;
o right of first option;
o right of prior consent;
o non-competition clause, etc.;
o binding between the parties;
▪ Fleischer v Botica Nolasco Co. 47 Phil 583 (1925)
As a general rule, the by-laws of a corporation are valid if they are reasonable and calculated to carry into effect the objects of the
corporation, and are not contradictory to the general policy of the laws of the land.

Sec. 13. Every corporation has the power: (7) To make by-laws, not inconsistent with any existing law, for the fixing or
changing of the number of its officers and directors within the limits prescribed by law, and for the transferring of its stock, the
administration of its corporate affairs, etc.

A by-law of a corporation which provides that transfers of stock shall not be valid unless approved by the board of directors,
while it may be enforced as a reasonable regulation for the protection of the corporation against worthless stockholders, cannot be
made available to defeat the rights of third persons.

▪ Rural Bank of Salinas v CA 210 SCRA 510 (1992)

Prior to his death, a decedent stockholder executed a Special Power of Attorney in favor of his wife to dispose of his
shares. When he died, his wife sold the shares through a Deed of Assignment, which she then asked the corporation to
register. The corporation refused, saying that the decedent’s estate must first be liquidated pursuant to law to avoid any
prejudice to creditors and to ensure that the proper estate taxes will be paid.
Q: May a transfer of shares be restricted on the ground that legally required liquidation proceedings must first
be accomplished to avoid prejudice to third parties? No. A corporation, either by its board, its by-laws, or the act of
its officers, cannot create restrictions in stock transfers. The only limitation imposed by Section 63 of the Corporation
Code is when the corporation holds any unpaid claim against the shares intended to be transferred, which is absent
here.

▪ PCGG v SEC GR No 82188 Jun 30, 1988

PCGG sequestered a certain corporation pursuant to its objective of “provisionally taking over in the public interest or
to prevent its disposal or dissipation business enterprises and properties” of the Marcos administration. It held a
stockholders’ meeting which sought for an amendment of the corporation’s Articles of Incorporation and By-Laws by
deleting the “right of first refusal” clause. Essentially, PCGG sought to vote the sequestered shares.
Q: Given that the supervision of PCGG of the corporation was only for limited purposes, was its act of
attempting to vote the sequestered shares to effect a change in its Articles of Incorporation and By-Laws by
deleting the right of first refusal valid? No. The "right of first refusal" is primarily an attribute of ownership.
Conversely, a waiver thereof is an act of ownership. To allow the PCGG to vote the sequestered shares for this purpose
would be sanctioning its exercise of an act of strict ownership.

o nationalization issues
▪ JG Summit v CA450 SCRA 169 (2005); SEC Op Jun 8, 1995
There was a bidding for the shares of stock of a corporation. A foreign corporation wants to purchase shares.
Q: Can a foreign corporation purchase stocks in a landholding corporation even if its purchase would cause
foreign ownership of the domestic corporation to exceed the 40% threshold? Yes. No law disqualifies a person
from purchasing shares in a landholding corporation even if the latter will exceed the allowed foreign equity, what the
law disqualifies is the corporation from owning land. If the foreign shareholdings of a landholding corporation exceeds
40%, it is not the foreign stockholders’ ownership of the shares which is adversely affected but the capacity of the
corporation to own land—that is, the corporation becomes disqualified to own land.

SEC 64 ISSUANCE OF STOCK CERTIFICATES

● Right to issuance of stock certificate
● Lincoln Philippines Life v. CA 293 SCRA 92 (1998)
A corporation issued shares of stock with a stated par value in the certificate of stock different from its book value.
Q: Should the Documentary Stamp Tax be based on the book value of the shares when the par value stated in the Certificates of
Stock have a different value? No. The documentary stamp tax is not levied upon the shares of stock per se but rather on the privilege of
issuing certificates of stock. Stock dividends are shares of stock and not certificates of stock which merely represent them. There is no
reason for determining the actual value of such dividends for purposes of the documentary stamp tax if the certificates representing them
indicate a par value.

● Bitong v. CA 292 SCRA 503 (1998)

Persons claiming to be stockholders of a corporation filed a derivative suit. To show their legal capacity to bring the suit, they presented
certificates of stock in their name as proof of their ownership of shares of stock in the corporation.
Q: Are certificates of stock conclusive proof of a person’s ownership of shares of stock? No. The certificate of stock itself once issued
is a continuing affirmation or representation that the stock described therein is valid and genuine, however, this presumption may be
rebutted by parol evidence.
SEC 65 LIABILITY OF DIRECTORS FOR WATERED STOCKS*
SEC 66 INTEREST ON UNPAID SUBSCRIPTIONS

SEC 67 PAYMENT OF BALANCE OF SUBSCRIPTION

SEC 68 DELINQUENCY

SEC 69 WHEN SALE MAY BE QUESTIONED

SEC 70 COURT ACTION TO RECOVER UNPAID SUBSCRIPTION

SEC 71 EFFECT OF DELINQUENCY*

● Release of subscriber from liability
● Nava v Peers Marketing Corp 74 SCRA 65 (1976)
A third person bought shares from a stockholder in a certain corporation. Said stocks have not been fully paid by the stockholder.
Q: Can the third person compel the corporation to register the sale? No. Only fully paid shares for which certificates of stock have
been issued are subject to the registration requirement in the stock and transfer book in cases dealing with their shares and absolute
disposition. This is because a stock subscription is a subsisting liability from the time the subscription is made. The subscriber is as much
bound to pay his subscription, as he would be to pay any other debt.

SEC 72 RIGHTS OF UNPAID SHARES

SEC 73 LOST OR DESTROYED CERTIFICATES

TITLE VIII
CORPORATE BOOKS AND RECORDS

SEC 74 BOOKS TO BE KEPT; STOCK TRANSFER AGENT

● Stock and Transfer Book; effect of STB registration
o Ponce v Alsons Cement Corp 393 SCRA 602 (2002)
A person with a “Deed of Undertaking” and “Indorsement” of shares of stock of a corporation filed a petition for mandamus to
compel the Corporate Secretary to register the transfer of the subject shares of stock in his name.
Q1: Does the fact of indorsement of shares of stock, on its own, entitle the indorsee to have the transfer of the shares of
stock registered? No. A mere indorsee of a stock certificate, claiming to be the owner, will not necessarily be recognized as such
by the corporation and its officers, in the absence of express instructions of the registered owner to make such transfer to the
indorsee, or a power of attorney authorizing such transfer.
Q2: What is the importance of the stock and transfer book? As between the corporation on the one hand, and its shareholders
and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are. In
other words, the stock and transfer book is the basis for ascertaining the persons entitled to the rights and subject to the liabilities
of a stockholder. Where a transferee is not yet recognized as a stockholder, the corporation is under no specific legal duty to issue
stock certificates in the transferee’s name.

o Escano v. Filipinas Mining Corp 74 Phil 711 (1944)

Unissued shares of stock held by the corporation in escrow were transferred to A, but the transfer was not registered in the books
of the corporation. B was able to obtain a ruling against the corporation. Thus, a writ of garnishment was issued for these shares.
However, A is claiming his right to such shares.
Q: Are transfers of shares of unissued shares held by the corporation in escrow that are not registered in the books of the
corporation binding against third persons? No. Section 35 of the Corporation Law, which requires the registration of transfers
of shares of stock upon the books of the corporation as a condition precedent to their validity against the corporation and third
parties, is also applicable to unissued shares held by the corporation in escrow.

o BLTB v Bitanga 362 SCRA 635 (2001)

Shares of stock are transferred in favor A. The transfer was not registered in the Stock and Transfer book, but, nevertheless, the
transferee somehow got elected as Director. In a later stockholder meeting, without the presence of A, B got elected. A assails the
meeting for being held without a quorum as A was not included.

Q1: Will a transferee of shares of stock whose transfer is unregistered in the Stock and Transfer book be counted for the
purposes of determining a quorum? No. The unrecorded transferee cannot vote or be voted for, neither is he counted for the
purposes of determining a quorum.
Q2: What are the purposes of the registration of the transfer of stocks in the Stock and Transfer book of the corporation?
1. to enable the transferee to exercise all the rights of a stockholder, including the right to vote and to be voted
for,
2. and, to inform the corporation of any change in share ownership so that it can ascertain the persons entitled to
the rights and subject to the liabilities of a stockholder
 ● Responsibilities of the Corporate Secretary
o Torres v. CA 278 SCRA 793 (1997)
The President and Chairman of the Board of Directors of a corporation registered an assignment of shares.
Q: Is a registration in the Stock and Transfer Book of the Corporation by a person other than the Corporate Secretary
valid? No. This is in contravention to the provisions of law. Settled is the rule that it is the corporate secretary’s duty and
obligation to register valid transfers of stocks and if said secretary refuses to comply, the transferor-stockholder may rightfully
bring suit to compel performance.

● BIR Certification under Sec 97 of the NIRC

● Remedies of transferee when request for recording of transfer is denied

SEC 75 RIGHT TO FINANCIAL STATEMENTS

o Right to Inspect /right to be furnished FS; see Sec 141 and 144
o Terelay Investment and Dev Corp v Cecilia Yulo GR 160924 Aug 5, 2015
A made a request for examination of the corporate records of a corporation for which she’s a stockholder. Instead of complying, the
corporation demanded that A show proof that she is a bona fide stockholder.
Q1: Can a stockholder with only a .001% interest in the corporation successfully assert a right to inspect corporate books? Yes.
The Corporation Code has granted to all stockholders the right to inspect the corporate books and records, and in so doing has not required
any specific amount of interest for the exercise of the right to inspect.
Q2: What are the only instances when the right to inspect may be denied? Under Section 74, par 3 of the Corp Code, the only time
when the demand to examine and copy the corporation’s records and minutes could be refused is when the corporation puts up as a defense
to any action that the person demanding had improperly used any information secured through any prior examination of the records or
minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand.

o WG Philpotts v Philippine Manufacturing Co. 40 Phil 471 (1919)

A filed a petition for mandamus to compel a corporation to permit him, in person or by some authorized agent or attorney, to inspect and
examine the records of the business of the corporation.
Q: May a stockholder exercise his right of inspection through another person? Yes. Stockholder’s right of inspection can be exercised
either by himself or by any proper representative or attorney in fact, and either with or without the attendance of the stockholder.

o Pardo v Hercules Lumber 47 Phil 964 (1924)

An article in the bylaws of a corporation states that the right to inspection may only be exercised on “the days which the board of directors
shall annually fix.” This was held not to be valid.
Q: When may the right of inspection be exercised? The statute declares that the right of inspection can be exercised "at reasonable
hours." This means at reasonable hours on business days throughout the year, and not merely during some arbitrary period of a few days
chosen by the directors.

o Gokongwei Jr v SEC 89 SCRA 336 (1979)

Corporation 1 is a subsidiary wholly owned by Corporation 2. A is a stockholder of Corporation 2 and asserts his right to inspect the books
and records of Corporation 1.
Q: Does a stockholder of a parent corporation have a right to inspect the books of its subsidiary corporation? Yes. The stockholder
has a right to inspect both the subsidiary's and the parent corporation's books upon proof of sufficient control or dominion by the parent,
showing the relation of principal-agent or something similar thereto.

o Africa v PCGG 205 SCRA 39, 41 (1992)

Q: Does a stockholder of a corporation that has been sequestered by the PCGG under Executive Orders Nos. 1, 2 and 14 still have
the right to inspect the books of such corporation? Yes. The Court finds nothing therein to indicate that the Corporation Code has been
deemed amended, much less an implied modification of a stockholder's right to inspection as guaranteed by Sec. 74 thereof.

o Ang-Abaya v Ang 573 SCRA 129 (2008)

A corporation, through its officers, has denied a stockholder his right to inspect corporate books. The Court held that the officers properly
invoked the defense that the stockholder asserting his right to inspection has improperly used any information secured through any prior
examination of the records or minutes of such corporation or of any other corporation.
Q: What are the requisites for criminal prosecution against those who deny a stockholder his right to inspect corporate books (Sec.
144 in relation to Sec. 74 of the Corporation Code)?
1. A director, trustee, stockholder or member has made a prior demand in writing for a copy of excerpts from the corporations
records or minutes;
2. Any officer or agent of the concerned corporation shall refuse to allow the said director, trustee, stockholder or member of the
corporation to examine and copy said excerpts;
3. If such refusal is made pursuant to a resolution or order of the board of directors or trustees, the liability under this section for
such action shall be imposed upon the directors or trustees who voted for such refusal; and,
4. Where the officer or agent of the corporation sets up the defense that the person demanding to examine and copy excerpts from
the corporations records and minutes has improperly used any information secured through any prior examination of the records
or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making
his demand, the contrary must be shown or proved.
 Thus, in a criminal complaint for violation of Section 74 of the Corporation Code, the defense of improper use or motive is in the nature of
a justifying circumstance that would exonerate those who raise and are able to prove the same.

o SEC Op Sep 14, 1998

TITLE IX
MERGER AND CONSOLIDATION

SEE THE PHILIPPINE COMPETITION ACT or RA 10667

SEC 76 PLAN OF MERGER OR CONSOLIDATION

● Nell Doctrine – see discussion under Sec 40 on ale of all or substantially all of the assets of the corporation
● SEC approval required
o PNB v Andrada Electric & Engr Co GR 142936, Apr 17, 2002
Corporation A engaged the services of an electrical company, Corporation E. Corporations B and C purchased assets of
Corporation A. Thinking that the legal personality of Corporation had been extinguished, Corporation E is suing Corporations B
and C for the liabilities Corporation A incurred.
Q1: Is a corporation that purchases the assets of another liable for the debts of such corporation? No, as a general rule,
except when the following circumstances are 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.|||
Q2: When does a merger or consolidation take effect? For a valid merger or consolidation, the approval of the SEC of the
articles of merger or consolidation is required, and these must be duly approved by a majority votes of the stockholders of the
corporation. Here, there is no merger or consolidation, but simply a purchase of assets.

● Stock purchase or equity transfer v asset purchase v business enterprise transfers v spin offs
o San Miguel Corp Employees v Confessor 262 SCRA 81 (1996)
Employees of Corporation A composed a union. Corporation A spun off and divided itself to Corporations B and C. The Court
held the union can no longer be composed by the same employees, since they now belong to different Corporations.
Q: What is a spin-off? A spin-off occurs when, as a result of corporate restructuring, a single corporation becomes divided to
two or more corporation with the following characteristics:
1. Each of the companies are run by, supervised and controlled by different management teams including separate human
resource/personnel managers.
2. Each Company enforces its own administrative and operational rules and policies and are not dependent on each other in their
operations.
3. Each entity maintains separate financial statements and are audited separately from each
Q: What is the legal effect of a spin-off? The two Corporations become separate juridical entities. If done in good faith, and in
legitimate exercise of management prerogatives, the piercing of the veil of corporate fiction becomes unwarranted.

● De facto merger
o Bank of Commerce v RPN Inc GR 195615
Corporation A purchased the shares of stock of Corporation B. In the Purchase and Assumption agreement between the two, it
was expressly stipulated that Corporation A will assume the liabilities of Corporation B except for those under litigation; for
those liabilities not assumed by Corporation A, an escrow fund was established.
Q: How does a de facto merger take place? A de facto merger can be pursued by one corporation acquiring all or substantially
all of the properties of another corporation in exchange of shares of stock of the acquiring corporation. The acquiring corporation
would end up with the business enterprise of the target corporation; whereas, the target corporation would end up with basically
its only remaining assets being the shares of stock of the acquiring corporation.
Q: Was there a de facto merger in the present case? No. The stockholders of the ostensible target corporation did not get in
exchange of its assets and liabilities an equivalent value of the acquiring corporation’s shares of stock. It was simply a “sale of
assets with assumption of liabilities.”

SEC 77 SHAREHOLDERS OR MEMBERS APPROVAL

SEC 78 ARTICLES OF MERGER OR CONSOLIDATION

SEC 79 SECURITIES AND EXCHANGE COMMISSION’S APPROVAL AND EFFECTIVITY OF MERGER OR

CONSOLIDATION

Mindanao Savings and Loan Association, PDIC v Edward Willkon, et al GR 178618 Oct 20, 2010
Person E filed a collection suit against Corporation A. Corporation A and Corporation B entered into a merger and, supposedly, created Corporation
C as a result. However, the articles of the merger were not registered with the SEC due to incomplete documentation. A judgment was rendered
against Corporation A and the lands of Corporation A were sold on auction sale as a result. Corporation C assails the auction sale for being conducted
without notice to it as the surviving corporation.
Q: What are some of the necessary steps to accomplish a merger? The steps necessary to accomplish a merger or consolidation, as provided for
in Sections 76-78 of the corporation code, are, among others:
1. Submission of said articles of merger or consolidation to the SEC for approval
 2. Issuance of certificate of merger or consolidation
There was no merger, there being no issuance of the certificate of merger. Thus, the sale is valid as Corporation A kept its separate and distinct
personality.

SEC 80 EFFECTS OF MERGER OR CONSOLIDATION

Associated Bank v CA and Lorenzo Sarmiento Jr. GR 123793 Jun 29, 1998
NOTE: The doctrine of the case is unrelated to its resolution. This is because the case was resolved because of a specific stipulation in the merger
agreement.

Banks A and B merged into Bank C. Person E obtained a loan and executed a promissory note in favor of Bank B. Bank C sued to collect the
proceeds of the promissory note. The Court held that, regardless of the exact date of the approval of the merger, the merger agreement states that all
contracts, irrespective of the date of execution, are understood as pertaining to the surviving bank, Bank C. Thus, Bank C has the power to enforce a
promissory note payable to Bank B.
Q: When does a merger become effective? Only upon the issuance by the SEC of a certificate of merger; the merger does not become effective
upon the mere agreement of the constituent corporations.

TITLE X
APPRAISAL RIGHT*

SEC 81 INSTANCES OF APPRAISAL RIGHT

SEC 82 HOW RIGHT IS EXERCISED

Philip Turner et al v Lorenzo Shipping Corporation GR 157479 Nov 24, 2010

NOTE: Apologies for the long copy-paste, but I felt it was of absolute necessity since the topic is “HOW [THE] RIGHT [OF APPRAISAL] IS
EXERCISED.” I no longer included the facts as they didn’t seem important. The case just essentially says that a stockholder cannot demand payment
for his or shares upon the exercise of the appraisal right, if the corporation has no unrestricted retained earnings. The rest of the procedure has no
bearing on the resolution of the case.

Q: How is the right to appraisal exercised? The Corporation Code defines how the right of appraisal is exercised, as well as the implications of the
right of appraisal, as follows:
1. The appraisal right is exercised by any stockholder who has voted against the proposed corporate action by making a written demand on the
corporation within 30 days after the date on which the vote was taken for the payment of the fair value of his shares. The failure to make the demand
within the period is deemed a waiver of the appraisal right.

2. If the withdrawing stockholder and the corporation cannot agree on the fair value of the shares within a period of 60 days from the date the
stockholders approved the corporate action, the fair value shall be determined and appraised by three disinterested persons, one of whom shall be
named by the stockholder, another by the corporation, and the third by the two thus chosen. The findings and award of the majority of the appraisers
shall be final, and the corporation shall pay their award within 30 days after the award is made. Upon payment by the corporation of the agreed or
awarded price, the stockholder shall forthwith transfer his or her shares to the corporation.

3. All rights accruing to the withdrawing stockholders shares, including voting and dividend rights, shall be suspended from the time of demand
for the payment of the fair value of the shares until either the abandonment of the corporate action involved or the purchase of the shares by the
corporation, except the right of such stockholder to receive payment of the fair value of the shares.

4. Within 10 days after demanding payment for his or her shares, a dissenting stockholder shall submit to the corporation the certificates of stock
representing his shares for notation thereon that such shares are dissenting shares. A failure to do so shall, at the option of the corporation, terminate
his rights under this Title X of the Corporation Code. If shares represented by the certificates bearing such notation are transferred, and the
certificates are consequently canceled, the rights of the transferor as a dissenting stockholder under this Title shall cease and the transferee shall have
all the rights of a regular stockholder; and all dividend distributions that would have accrued on such shares shall be paid to the transferee.

5. If the proposed corporate action is implemented or effected, the corporation shall pay to such stockholder, upon the surrender of the certificates
of stock representing his shares, the fair value thereof as of the day prior to the date on which the vote was taken, excluding any appreciation or
depreciation in anticipation of such corporate action.

SEC 83 EFFECT OF DEMAND AND TERMINATION OF RIGHT

SEC 84 WHEN RIGHT TO PAYMENT CEASES

SEC 85 WHO BEARS COST OF APPRAISAL

SEC 86 NOTATION ON CERTIFICATE(S); RIGHT OF TRANSFEREE

 TITLE XI
NONSTOCK CORPORATIONS

SEC 87 DEFINITION*

Converting a non-stock corporation into a stock corporation; SEC Op May 13, 1992

SEC 88 PURPOSES

SEC 89 RIGHT TO VOTE

See Sec 24 and 92; SEC Op Oct 10, 1989;

SEC 90 NON TRANSFERABILITY OF MEMBERSHIP

SEC 91 TERMINATION OF MEMBERSHIP

● Valley Golf & Country Club Inc v Caram GR 165443 Apr 16, 2009
The by-laws of Corporation 1, a non-stock corporation, provides for the sale of a membership share when a member is delinquent in
payment of monthly dues. An argument is raised that the provision must have been included in the Articles of Incorporation, and not in the
by-laws alone. The Court said the contention is untenable.
Q: How can membership in a non-stock corporation be terminated? Sec. 91 provides that membership in a non-stock corporation shall
be terminated in the manner and causes provided for in the articles of incorporation or by-laws.

● SEC Op Nov 27, 1985

● Delinquency of member in paying dues
o Calatagan Golf Club v Clemente 585 SCRA 300 (2009)

A paid in full for his share in a non-stock corporation. Such corporation charges monthly dues. For some time, A failed to pay the
monthly dues, as a result of which, the corporation issued a resolution authorizing the sale of the shares of its delinquent
members. When the case reached the courts, the corporation justified this action by citing the rules on the sale of a delinquent
stock (for stock corporations).
Q: Are the rules on the sale of a delinquent stock applicable to non-stock corporations where the member has been unable
to pay his monthly dues? No. Perhaps the analogy could have been made if [the allegedly “delinquent” shareholder] had not yet
fully paid for his share and the non-stock corporation, pursuant to an article or by-law provision designed to address that
situation, decided to sell such share as a consequence. But that is not the case here, and there is no purpose for us to apply Section
69 to the case at bar.

● Dead members
o Tan v Sycip 498 SCRA 216 (2006)
Grace Christian High School (GCHS) is a nonstock, nonprofit educational corporation. In 1998, there were only 11 living
members-trustees. During the meeting, 7 attended the meeting through their respective proxies and it was chaired by Atty.
Padilla. Atty. Pacis objected to the meeting since there is allegedly no quorum since he alleges that the dead members should also
be included in the counting. Tan et. Al. Claims that the dead members should not be included in the counting for the quorum.
Q: Should the dead members be included in the counting for the quorum? NO.
The SC ruled that the meeting was valid and that dead members are not needed to account for the quorum. There were only 11
remaining members, so 6 constitutes a quorum. 7 attended the meeting which meets the quorum, thereby making it valid. Under
the By-Laws of GCHS, membership in the corporation shall, among others, be terminated by the death of the member.

SEC 92 ELECTION AND TERM OF TRUSTEES

SEC 93 PLACE OF MEETINGS

SEC 94 RULES FOR DISTRIBUTION

SEC 95 PLAN OF DISTRIBUTION OF ASSETS

TITLE XII
CLOSE CORPORATIONS

SEC 96 DEFNITION AND APPLICABILITY OF TITLE*

Requirements San Juan Structural and Steel Fabricators Inc v CA 296 SCRA 631
San Juan Structural entered into an agreement with Motorich whereby Motorich would transfer a parcel of land to San Juan Structural. San Juan
Structural paid 100K as downpayment but when they were about to pay the remaining balance, Motorich secretary Nenita Gruenberg failed to appear.
The land in question was apparently registred in ADC’s name. ADC then transferred it to Motorich, represented by Nenita Gruenberg & Reynaldo
Gruenberg. San Juan Structural filed a case for damages against Motorich for bad faith in refusing to execute a formal transfer to San Juan Structural.
In its answer, Motorich claims that Nenita’s signature was not enough to bind Motorich to the transfer, and that it also needed the signature of
Reynaldo. Motorich also adds in its answer that San Juan Structural was aware of such signature requirement and that San Juan Structural failed to
pay within the stipulated period. RTC and CA ruled against San Juan Structural. San Juan Structural files a petition for review arguing that the veil of
corporate fiction of Motorich should be pierced because Motorich is a close corporation since the Sps. Gruenberg own 99.866% of the subscribed
capital stock. Therefore, Nenita did not need authorization from the board for the transfer to San Juan Structural the subject land and being solely
owned by the Sps. Gruenberg the company can be treated as a close corporation which can be bound by the acts of its principal stockholder who
needs no specific authority.
Q: Is Motorich a close corporation based on the fact that the Sps. Gruenberg own almost all its shares of stock? NO.
Section 96 of the Corporation Code defines a close corporation provides that "A close corporation, within the meaning of this Code, is one whose
articles of incorporation provide that:
(1) All of 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 of the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and
(3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.

Notwithstanding the foregoing, a corporation shall be deemed not a close corporation when at least two-thirds (2/3) of its voting stock or voting
rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code."

The articles of incorporation of MSC does not contain any provision stating that (1) the number of stockholders shall not 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 articles, it is clear that MSC is not a close corporation. MSC does not become one either, just because
Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate
corporate personalities. So, too, a narrow distribution of ownership does not, by itself, make a close corporation.

SEC 97 ARTICLES OF INCORPORATION

Directors – Bustos v Millians Shoe Inc. GR 185024 Apr 24, 2017

Sps. Cruz owned a lot which the City Government of Marikina levied for failure to pay real estate taxes. During the public auction, Bustos was the
highest bidder and applied for the cancellation of the lot’s TCT and a new one be issued in his favor. The RTC of Marikina rendered a final and
executory decision in Bustos’ favor. Bustos then moved that the lot be excluded from the Stay Order since he (Bustos) was the winning bidder. This
was denied by the RTC which stated that the period of redemption has not lapsed. Bustos files an MR saying that the Stay Order undermines the
taxing power of Marikina. The said parcel of land which secured several mortgage liens for the account of Millians Shoe Inc. (MSI) remains to be an
asset of the Cruz Spouses, who are the stockholders and officers of MSI, a close corporation. Incidentally, as an exception to the general rule, in a
close corporation, the stockholders and/or officers usually manage the business of the corporation and are subject to all liabilities of directors, i.e.
personally liable for corporate debts and obligations. Thus, the Cruz Spouses being stockholders of MSI are personally liable for the latter's debt and
obligations.
Q: Are the properties of the Sps. Cruz answerable for the obligations of MSI? Yes.
In finding the subject property answerable for the obligations of MSI, the CA characterized respondent spouses as stockholders of a close corporation
who, as such, are liable for its debts.To be considered a close corporation, an entity must abide by the requirements laid out in Section 96 of the
Corporation Code.

The CA seriously erred in portraying the import of Section 97 of the Corporation Code. Citing that provision, the CA concluded that "in a close
corporation, the stockholders and/or officers usually manage the business of the corporation and are subject to all liabilities of directors, i.e.
personally liable for corporate debts and obligations." However, Section 97 of the Corporation Code only specifies that "the stockholders of the
corporation shall be subject to all liabilities of directors." Nowhere in that provision (Sec.97) does the SC find any inference that stockholders of
a close corporation are automatically liable for corporate debts and obligations.

SEC 98 VALIDITY OF RESTRICTIONS ON TRANSFER OF SHARES*

SEC 99 ISSUANCE OR TRANSFER OF STOCK OF A CLOSE CORPORATION IN BREACH OF QUALIFYING

CONDITIONS

SEC 100 AGREEMENTS BY STOCKHOLDERS

SEC 101 WHEN BOARD MEETING IS UNNECESSARY OR IMPROPERLY HELD

SEC 102 PREEMPTIVE RIGHT IN CLOSE CORPORATIONS

SEC 103 AMENDMENT OF ARTICLES OF INCORPORATION

SEC 104 DEADLOCKS*

SEC 105 WITHDRAWAL OF STOCKHOLDER OR DISSOLUTION OF CORPORATION

 TITLE XIII
SPECIAL CORPORATION
EDUCATIONAL CORPORATIONS
See Art XV, Sec 8(1) Phil Constitution
SEC 106 INCORPORATION

SEC 107 PREREQUISITES TO INCORPORATION

SEC 108 BOARD OF TRUSTEES

RELIGIOUS CORPORATIONS

SEC 109 CLASSES OF RELIGIOUS CORPORATIONS

● Corporation Sole* – Sec 110 (distinguish from one person corporation)

● Roman Catholic Apostolic Church v LRC 102 Phil 596 (1957)
Rodis sold a parcel of land to the Roman Catholic Apostolic Administrator of Davao, Inc. (RCADI), a corporation sole organized and
existing in accordance with Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent. The Land Registration
Commission (LRC) denied RCADI’s registration of the Deed of Sale for RCADI’s failure to prove that 60% of its capital, properties or
assets are actually owned and controlled by Filipino citizens pursuant to Sec.1 & 5 Art. XII of the Constitution, thereby unqualified to
acquire private properties.
Q: Is RCADI qualified to acquire private properties? Yes.
The bishops or archbishops, as the case may be, as corporation's sole are merely administrators of the church properties that come to their
possession, in which they hold in trust for the church. The Corporation Law recognized that corporation soles as those which are organized
and composed of a single individual for the administration of the properties not used exclusively for religious worship of the church. The
successor in office will become the corporation on ascension to office. Furthermore, the Corporation Law also recognized that the
corporation sole can purchase real property, although there are restrictions as to the power to sell or mortgage depending on the rules,
regulations and discipline of the church concerned. As such, the Court finds it absurd that the corporation sole can purchase properties but
would not be able to register properties in its name.

While the Constitution prohibits foreigners from taking, acquiring, exploiting or developing the natural resources of the country, the Court
finds that the provisions relating to these are not applicable to corporation soles because they are merely administrators of the properties
titled in their name. Furthermore, the administration of these properties is for the benefit of the members of the congregation, which is
overwhelmingly comprised of Filipinos.

● SEC Op Aug 8, 1994 on land ownership

● Religious societies – Sec 116
o Alfredo Long v Lydia Basa GR 134963-64 Sep 27, 2001
The Board of Directors of the CHURCH issued a resolution that removed as members Long, et.al for dishonorable conduct in
introducing to other members, doctrines that were not based on the Holy Bible and the CHURCH’s Principles of Faith. The
Board did this pursuant to Article VII (paragraph 4) of the CHURCH By-laws, which provides their absolute power to expel
members without reason therefor if their conduct has been dishonorable or improper or otherwise injurious to the character and
interest of the institution. The CHURCH’S member list was updated by removing Long, et. al. Long, et. al sought to annul the
updated list and restore the prior one arguing that their expulsion was without prior notice and hearing.
Q: Is the expulsion of Long, et. al through a resolution in accordance with law? Yes.
The By-laws of the CHURCH, which the members have expressly adhered to, does not require the Board of Directors to give
prior notice to the erring or dissident members in cases of expulsion. A member who commits any of the causes for expulsion
enumerated in paragraph 4 of Article VII may be expelled by the Board, through a resolution, without giving that erring member
any notice prior to his expulsion. The resolution need not even state the reason for such action. The CHURCH By-law provision
on expulsion, as phrased, may sound unusual and objectionable as there is no requirement of prior notice to be given to an erring
member before he can be expelled; but that is how peculiar the nature of a religious corporation is vis-a-vis an ordinary
corporation organized for profit. It must be stressed that the basis of the relationship between a religious corporation and its
members is the latter's absolute adherence to a common religious or spiritual belief . Once this basis ceases, membership in the
religious corporation must also cease.

● Effect of separation
o United Church of Christ in the Philippines, Inc. v Bradford United Church of Christ Inc., et al GR 171905 Jun 20, 2012
BUCCI (respondent) was a local church of UCCP (petitioner). BUCCI sought to disaffiliate from UCCP due to a dispute where
BUCCI encroached on UCCP’s right of way. BUCCI then filed before the SEC its Amended Articles of Incorporation that
provided for its disaffiliation with UCCP. UCCP argues that its Constitution & By-Laws do not allow the separate incorporation
of BUCCI, and that it is purely an ecclesiastical affair relying on Long v. Basa (case above). The SEC and CA rule in favor of
BUCCI.
Q: Is BUCCI allowed to separate from UCCP and incorporate? Yes.
Thus, UCCP cannot rely on the Court's ruling as restated in Long v. Basa,that "in matters purely ecclesiastical, the decisions of
the proper church tribunals are conclusive upon the civil tribunals." If in the case at bar, even with its highest executive official's
pronouncement that BUCCI is still recognized as its member-church, 38 UCCP could not compel BUCCI to go back to its fold,
then the alleged absolute ecclesiastical authority must not be there to begin with.
 In fact, Long may be viewed as supportive of respondents' case. Said case involved a church's sole prerogative and power to
expel its individual members. Similarly, the case at bar concerns BUCCI's sole prerogative and power as a church to disconnect
ties with another entity. Such are decisions, that may have religious color and are therefore ecclesiastical affairs, the Court must
respect and cannot review. As a matter of fact, the present UCCP Constitution and By-laws continue to uphold this tradition of
respecting local church autonomy. The 2005 UCCP Amended Constitution provides in Article II, Section 14.

From the foregoing it can be gleaned that: UCCP's control and authority over its local churches is not full and supreme;
membership of the local churches in the UCCP is voluntary and not perpetual; local churches enjoy independence and autonomy
and may maintain or continue church-life with or without UCCP. Thus, under the law and UCCP polity, BUCCI may validly
bring about its disaffiliation from UCCP through the amendment of its Articles of Incorporation and By-laws.

o Canete v CA 171 SCRA 13(1989)

A voluntary religious group of hermanas mayores was founded by Inocenta de Veyra called Cofradia (for short). Inocenta
donated religious images to the Cofradia. The Cofradia was responsible for the care of said images. Petitioner Exaltacion Cañete
was elected as the hermana mayor and as such she took possession of the subject religious articles and funds of the Cofradia.
Because of the quarrel between the parish priest of Tanauan, Fr. Manuel Gomez and Bishop Salvador of the Diocese, resulting in
the suspension and relief of the former, the Cofradia, an erstwhile cohesive group of women devotees, had been drawn into the
controversy and was now split into two camps: one loyal to the ex-parish priest Fr. Gomez, and the other, identified with the
newly-designated parish priest Fr. Parilla. The Cofradia members with Fr. Gomez elected Sofia Cavite as thehermana mayor for
1973, replacing Exaltacion Cañete, while the group with Fr. Parilla chose Bienvenida Casas. Exaltacion Cañete surrendered the
images to Sofia Cavite. Now each camp claim they are entitled to possession of the religious images.
Q: Who of the 2 factions are entitled to possession of the images? NO ONE (sabi ni Alicia Keys)
As correctly ruled by the trial court, the question which came before it concerns rights of property held by a religious society,
strictly independent of the church. Hence, the rights of such an organization to the use of its property must accordingly be
determined by the ordinary principles which govern voluntary association.

Citing Watson v. Jones, in a similar case, this Court ruled that the use of properties of a "religious congregation" in case of
schism, is controlled by the numerical majority of the members. The minority in choosing to separate themselves into a distinct
body, and refusing to recognize the authority of the government body, can claim no rights in the property from the fact that they
once had been members.

● Conversion to religious corporation

o IEMELIF v Bishop Lazaro GR 184088 Jul 6, 2010
In 1909, the petitioner was incorporated as a corporation sole. In 1973, it converted to a corporation via the vote of its general
membership but the papers were not processed. In 2001, the SEC advised the petitioner to formalize the conversion. So the
General Superintendent of the petitioner received a favorable vote from more than two-thirds of all the religious society’s
followers to file an amended Articles of Incorporation to cause the conversion. A faction that opposes the General Superintendent
filed for injunction with the RTC saying that the proper process was to, first, dissolve the corporation sole, and then later, re-
incorporate as a corporation aggregate.
Q: Did the General Superintendent formalize the conversion? YES.
Section 109 of the Corporation Code allows the application to religious corporations of the general provisions governing non-
stock corporations. For non-stock corporations, the power to amend its articles of incorporation lies in its members. The code
requires two-thirds of their votes for the approval of such an amendment.

[In a corporation sole, the] one member, here the General Superintendent, is but a trustee, according to Section 110 of the
Corporation Code, of its membership. The one member, with the concurrence of two-thirds of the membership of the
organization for whom he acts as trustee, can self-will the amendment.

SEC 110 CORPORATION SOLE

Iglesia Evangelica Metodista v Rev Nestor Pineda et al GR 184088 Jul 6, 2010

Please refer to the case above because it’s the same case.

SEC 111 ARTICLES OF INCORPORATION

SEC 112 SUBMISSION OF ARTICLES OF INCORPORATION

SEC 113 ACQUISITION AND ALIENATION OF PROPERTY

SEC 114 FILLING OF VACANCIES

SEC 115 DISSOLUTION

SEC 116 RELIGIOUS SOCIETIES

See Art XV, Sec 15
TITLE XIV
 DISSOLUTION

SEC 117 METHODS OF DISSOLUTION

● Expiration of Corporate Term
● Chingbee, supra
Chingbee Trading applied to extend its corporate term and submitted its amended articles of incorporation one day before its term
expired. The SEC refused to accept the application because it failed to state in its Director’s Certificate that ⅔ of its stockholders
representing its outstanding capital stock approved the amendment. The processor verbally advised Chingbee Trading to submit a letter
requesting an extension of time to file the requirements. Hours before Chingbee Trading’s term expired, the letter was filed pursuant to the
processor’s suggestion. The SEC denied the request, but when Chingbee Trading went to the CA, the CA reversed the SEC citing Sec. 17
that provides that the SEC should give reasonable time for applicants to correct or modify objectionable portions of its amended articles of
incorporation.
Q: Should Chingbee Trading be given a reasonable time to make the necessary correction? YES.
In this case, the SEC failed to at least provide Chingbee Trading a reasonable time within which compliance with the requirements for
extension may be made in full. Instead, the processor only verbally advised Chingbee Trading to submit a letter-request asking for an
extension to let the deficient documentary requirements. What the SEC should have done was to give a formal notice to Chingbee Trading
that the latter had one day to cure any defect before Chingbee Trading's life would expire. That one (1) day, which was lost because of
miscommunication, would have been enough to complete the process of ling the application within the period speci ed by the Code and
would have su ced for the approval of the corporate extension being requested. Therefore, Chingbee Trading remains entitled to a day to
submit all the requirements prescribed by the Code.

● Alhambra Cigar and Cigarette Manufacturing v SEC 24 SCRA 269 (1968)

Alhambra ceased transacting business and entered into liquidation. When the new law empowered domestic private corporations to extend
their term by 50 years (old law was non-extendible), Alhambra amended its articles to extend their term. This was done during the 3 year
statutory period for liquidation?
Q: May Alhambra extend its life by amendment of its articles of incorporation effected during the 3-year statutory period for
liquidation when its original term of existence had already expired? NO.
The continuance of a “dissolved corporation as a body corporate for 3 years has for its purpose the final closure of its affairs, and no other;
the corporation is specifically enjoined from “continuing the business for which it was established.” The liquidation of the corporation’s
affairs became necessary precisely because its life has ended. For this reason alone, the corporate existence and juridical personality of that
corporation to do business may no longer be extended.

SEC 118 VOLUNTARY DISSOLUTION WHERE NO CREDITORS ARE AFFECTED

SEC 119 VOLUNTARY DISSOLUTION WHERE CREDITORS ARE AFFECTED

SEC 120 DISSOLUTION BY SHORTENING CORPORATE TERM

SEC 121 INVOLUNTARY DISSOLUTION

SEC RULES ON SUSPENSION OR REVOCATION

SEC 122 CORPORATE LIQUIDATION

● Methods of Liquidation* – See Sec 40

o Clemente v CA 242 SCRA 717 (1995)
Clemente and Elepaño (petitioners) claim ownership over a piece of land through stock certificates issued to them by the
sociedad (sociedad was the original owner). The sociedad (corporation) however was inactive for a long time but no corporate
dissolution was made. Private respondents (all surnamed Castro) claim ownership over the land through acquisitive prescription.
Q: Do the petitioners have claim of title over the land? NO.
If, indeed, the sociedad has long become defunct, it should behoove petitioners, or anyone else who may have any interest in the
corporation, to take appropriate measures before a proper forum for a peremptory settlement of its affairs. We might invite
attention to the various modes provided by the Corporation Code (see Secs. 117-122) for dissolving, liquidating or winding up,
and terminating the life of the corporation. Among the causes for such dissolution are when the corporate term has expired or
when, upon a verified complaint and after notice and hearing, the Securities and Exchange Commission orders the dissolution of
a corporation for its continuous inactivity for at least five (5) years.

The corporation continues to be a body corporate for three (3) years after its dissolution for purposes of prosecuting and
defending suits by and against it and for enabling it to settle and close its affairs, culminating in the disposition and distribution of
its remaining assets. It may, during the three-year term, appoint a trustee or a receiver who may act beyond that period. The
termination of the life of a juridical entity does not by itself cause the extinction or diminution of the rights and liabilities of such
entity or those of its owners and creditors. If the three-year extended life has expired without a trustee or receiver having been
expressly designated by the corporation within that period, the board of directors (or trustees) itself, following the rationale of the
Supreme Court’s decision in Gelano vs. Court of Appeals (103 SCRA 90) may be permitted to so continue as “trustees” by legal
implication to complete the corporate liquidation. Still in the absence of a board of directors or trustees, those having any
pecuniary interest in the assets, including not only the shareholders but likewise the creditors of the corporation, acting for and in
 its behalf, might make proper representations with the Securities and Exchange Commission, which has primary and sufficiently
broad jurisdiction in matters of this nature, for working out a final settlement of the corporate concerns.

o Gelano v CA 103 SCRA 90 (1991)

Spouses Gelano owes Insular Sawmill Inc. 3 outstanding obligations. Since the spouses refused to pay, the corporation, through
Atty. Lee, filed a complaint for collection against the spouses. While the case was pending, the corporation amendend its articles
of incorporation to shorten its term of existence. 4 years after the dissolution of the corporation, the RTC ordered the spouses to
pay the corporations. The spouses are now contending that since its corporate life has ceased, it could no longer continue on
prosecuting and defending suits after its dissolution beyond the period of 3 years without having undertaken any step to transfer
its assets to a trustee or assignee.
Q: May the spouses continue to prosecute the case through Atty. Lee even after its corporate life has ceased? Yes .
The court ruled that Sawmill may still prosecute the case. When Insular Sawmill, Inc. was dissolved on December 31, 1960,
under Section 77 of the Corporation Law, it stll has the right until December 31, 1963 to prosecute in its name the present case.
After the expiration of said period, the corporation ceased to exist for all purposes and it can no longer sue or be sued.

However, a corporation that has a pending action and which cannot be terminated within the three-year period after its dissolution
is authorized under Section 78 to convey all its property to trustees to enable it to prosecute and defend suits by or against the
corporation beyond the three-year period although Insular Sawmill did not appoint any trustee. Yet, the counsel who prosecuted
and defended the interest of the corporation in the instant case and who in fact appeared in behalf of the corporation may be
considered a trustee of the corporation at least with respect to the matter in litigation only. Said counsel had been handling the
case when the same was pending before the trial court until it was appealed before the CA and finally to this SC. There was
substantial compliance with Section 78 of the Corporation Law and as such, Insular Sawmill, Inc. could still continue prosecuting
the present case even beyond the period of three (3) years from the time of its dissolution.

o Reburiano v CA 301 SCRA 342

Petitioners Reburiano were ordered by the RTC to solidarily pay Pepsi 55K less whatever empty bottle case (Php 55 each) that
may be returned. CA modified the ruling removing the 55-peso worth empty bottle case part. The judgment had become final and
executory and a writ of execution was issued. Before the said judgment’s promulgation, Pepsi amended its articles to shorten its
term—which was approved by the SEC. Thereafter, petitioners moved to quash the writ of execution on the ground that the
decisions of the RTC and CA are a nullity because of lack of jurisdiction and Pepsi’s lack of capacity to sue and be sued by virtue
of its cessation. Pepsi countered that when the complaint was filed, it was still an existing corporation so that the mere fact it was
dissolved was yet to be resolved did not warrant the dismissal of the case.
Q: Can a dissolved and non-existing corporation be represented by a lawyer and therefore litigate still? Yes
A corporation that has a pending action and which cannot be terminated within the three-year period after its dissolution is
authorized to convey all its property to trustees to enable it to prosecute and defend suits by or against the corporation beyond the
three-year period. The counsel who prosecuted and defended the interest of the corporation in the instant case and who in fact
appeared in behalf of the corporation may be considered a trustee of the corporation at least with respect to the matter in litigation
only.

The trustee may commence a suit which can proceed to final judgment even beyond the three-year period. No reason can be
conceived why a suit already commenced by the corporation itself during its existence, not by a mere trustee who, by fiction,
merely continues the legal personality of the dissolved corporation should not be accorded similar treatment allowed—to proceed
to final judgment and execution thereof.”

o Alabang Dev Corp v Alabang Hills Village Ass GR 187456 June 2, 2014
Alabang Development Corporation (ADC) is the developer of Alabang Hills Village (AHVAI) and still owns certain parcel of
land that are yet to be sold, as well as those open spaced that have not yet been donated to Local Government of Muntinlupa or to
Homeowner’s association. ADC filed a complaint for Injunction and Damages against AVHAI and its president, Rafael for
allegedly starting the construction of a multi-purpose hall and a swimming pool on one of the parcels of land still owned by
ADC, without the latter’s consent and approval, and despite demand, failed to desist from constructing thereof. In its answer with
counter-claim, AHVAI denied ADC’s allegations and argued that ADC has no legal capacity to sue because its corporate
existence was already dissolved by SEC on May 26, 2003.
Q: Does ADC have legal capacity to sue? No. Complaint filed beyond 3 year period.
It is to be noted that the time during which the corporation, through its own officers, may conduct the liquidation of its assets and
sue and be sued as a corporation is limited to three years from the time the period of dissolution commences; but there is no time
limit within which the trustees must complete a liquidation placed in their hands. It is provided only that the conveyance to the
trustees must be made within the three-year period. It may be found impossible to complete the work of liquidation within the
three-year period or to reduce disputed claims to judgment. The authorities are to the effect that suits by or against a corporation
abate when it ceased to be an entity capable of suing or being sued; but trustees to whom the corporate assets have been conveyed
pursuant to the authority of Sec. 78 [now Sec. 122] may sue and be sued as such in all matters connected with the liquidation. In
this case, ADC’s corporate registration was revoked on May 26, 2003. It had three years, or until May 26, 2006, to prosecute or
defend any suit by or against it. The subject complaint, however, was filed only on October 19, 2006, more than three years after
such revocation. It is likewise not disputed that the subject complaint was filed by petitioner corporation and not by its directors
or trustees. Thus, it is clear that at the time of the filing of the subject complaint petitioner lacks the capacity to sue as a
corporation.

o Republic v Marsman 44 SCRA 418 (1972)

Marsman was a timber licensee with concessions in Camarines Norte. The CIR discovered that Marsman was liable for forest
charges, deficiency sales tax, surcharges and penalties, so 3 assessments totaling P59k were made. The 1st assessment was made
 on Oct. 15, 1953. Meanwhile, Marsman was extra-judicially dissolved on April 23, 1954. 2 more assessments from the CIR were
made on Sept. 13, 1954 and Nov. 8, 1954. Then, the CIR filed the original complaint for collection on Sept. 5, 1958. This was
amended on Aug. 26, 1959 to include as party defendant Mr. Burgess, the liquidator of Marsman. Marsman contended that the
CIR’s action for collection is already barred by Sec. 77, which allows the corporate existence to continue for only 3yrs after its
dissolution for closing its affairs, since it has extra-judicially dissolved on April 23, 1954; and the filing of both the original
complaint on Sept. 5, 1958 and the amended complaint on Aug. 26, 1959 was beyond the 3-yr period.
Q: Is the CIR’s action for collection barred? No.
The SC, ruling against Marsman, held that the CIR’s action is not yet barred. It pointed out that CIR’s 1st assessment was before
Marsman’s dissolution and the 2 others were made not later than 6 months after such dissolution. Thus, the Government became
the creditor of Marsman before the completion of its dissolution by the liquidation of its assets. Burgess, whom it chose as
liquidator, became in law the trustee of all its assets for the benefit of all persons enumerated in Sec. 78, including its creditors,
among whom is the Government, for the taxes herein involved.

● Right to proportionate participation in liquidation Sec 118-119; 122

o Ong Yon v Tiu 401 SCRA 1 (2003)
The construction of the Masagana Citimall was threatened with stoppage and incompletion when its owner, the First Landlink
Asia Development Corporation (FLADC), owned by the Tius, encountered financial difficulties. It was heavily indebted to
Philippine National Bank (PNB). To stave off foreclosure of the mortgage on the two lots where the mall was being built, the
Tius invited The Ongs (petitioners), to invest in FLADC. Under the Pre-Subscription Agreement (Agreement) they entered, the
Ongs and the Tius agreed to maintain equal shareholdings in FLADC. The Tius rescinded the Pre-Subscription Agreement. The
Tius filed a case before the SEC seeking the confirmation of their rescission of the Agreement. The CA ordered the liquidation of
FLADC. The Ongs argue against the part of the Decision that orders that whatever remains of the assets of FLADC and the
management thereof (after liquidation) shall be transferred to the Tius. The Ongs allege that the mall itself, which would have
been foreclosed by PNB if not for their timely investment and which is now worth about P1 billion mainly because of their
efforts, should be included in any partition and distribution. They (the Ongs) should not merely be given interest on their capital
investments.
Q: Are the Ongs entitled to participate in the liquidation of FLADC? Yes.
No one can close his eyes to the fact that the Masagana Citimall would not be what it has become today were it not for the timely
infusion of P190 million by the Ongs. Without the Ongs, the Tius would have lost everything they originally invested in said
mall. Resolution can truly pave the way for both groups to enjoy the fruits of their investments assuming good faith and honest
intentions we cannot allow the rescission of the subject subscription agreement. The Ongs shortcomings were far from serious
and certainly less than substantial; they were in fact remediable and correctable under the law

TITLE XV
FOREIGN CORPORATION

SEC 123 DEFINITION AND RIGHTS OF FOREIGN CORPORATIONS*

● Reciprocity rule
● Nationality of Corporations*
o Place of Incorporation Test Sec 123
o Control Test SEC Op No. 04-40 dtd Aug 10, 2004
o Definition of a “Philippine National” FIA of 1991 RA 7042 as amended by RA 8179 Sec 3 (a)
o Foreign ownership restrictions
▪ Grandfather rule v control test
o Narra Nickel Mining and Dev Corp v Redmont Consolidated Mines, Corp GR 195580 Jan 28, 2015
This is a motion for reconsideration of an earlier ruling made by the Supreme Court (SC) denying the applications
of Narra Nickel and of other corporations for mineral production sharing agreements (MPSAs). The SC held that,
under the grandfather rule (i.e., tracing the 60-40 capital stock ownership of a multi-tiered corporation), the
corporations are effectively foreign-owned, and thus prohibited from engaging in MPSAs. In this motion for
reconsideration, Narra Nickel, et al. argue that the use of the grandfather test contravenes the Constitution, the
Foreign Investments Act, the PH Mining Act, and the Rules of the SEC, which allegedly mandate the use of the
control test (i.e., looking only at the 60-40 stock ownership of the subject corporation).
Q: Does the Grandfather Test violate the Constitution and other related laws? NO.
The grandfather rule implements the spirit of the Constitution. It is not mutually exclusive with the control test;
they may be applied cumulatively. Only when the control test is first complied with that the grandfather rule may
be applied.

The SC, however, affirms its previous ruling, due to the following reasons:
(1) The original SC decision did not replace the control test with the grandfather rule. Rather, the latter was merely
a supplement to, and may be applied only after applying, the former.

(2) The grandfather test implements the spirit of the Constitution. Since the provisions thereof state that the
exploration, development, and utilization of natural resources is reserved “to Filipino citizens”, it is necessary to
determine the individual stockholders, since only natural persons can be considered citizens.
 The grandfather test may be applied only in cases of doubt as to the locus of the “beneficial ownership” and
“control”. In this case, there was doubt as to the same, since the Filipino corporations owning 60% of the capital
stock of the parent corporations did not pay a single peso to their subscription.

▪ Voting control test v beneficial ownership test SEC MC No. 8, Sec 2

o Roy III v Herbosa, et al GR 207246, Nov 22, 2016
Pursuant to the ruling in Gamboa v. Teves, SEC Chair. Herbosa SEC-MC No. 8. Sec. 2 of which provides:
Section 2. All covered corporations shall, at all times, observe the constitutional or statutory ownership
requirement. For purposes of determining compliance therewith, the required percentage of Filipino ownership
shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of
directors; AND (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election
of directors. Roy III is assailing the validity of SEC-MC No. 8 for contravening the Gamboa Ruling and that it
was issued with grave abuse of discretion.

Q: Does SEC-MC No. 8 contravene the Gamboa ruling and was it issued with grave abuse of discretion?
No. (siyempre kampi tayo kay ma’am)
The term “full beneficial ownership” found in the FIA-IRR is to be understood in the context of the entire
paragraph defining the term “Philippine national.” Mere legal title is not enough to meet the required Filipino
equity, which means that it is not sufficient that a share is registered in the name of a Filipino citizen or national,
i.e., he should also have full beneficial ownership of the share. Both the Voting Control Test and the Beneficial
Ownership Test must be applied to determine whether a corporation is a "Philippine national". A "Philippine
national," as defined in the Foreign Investments Act of 1991 (FIA) and all its predecessor statutes, is "a Filipino
citizen, or a domestic corporation "at least sixty percent (60%) of the capital stock outstanding and entitled
to vote," is owned by Filipino citizens. A domestic corporation is a "Philippine national" only if at least 60% of its
voting stock is owned by Filipino citizens."

Section 2 of SEC-MC No. 8 clearly incorporates the Voting Control Test or the controlling interest requirement.
In fact, Section 2 goes beyond requiring a 60-40 ratio in favor of Filipino nationals in the voting stocks; it
moreover requires the 60-40 percentage ownership in the total number of outstanding shares of stock,
whether voting or not. The SEC formulated SEC-MC No. 8 to adhere to the Court's unambiguous
pronouncement that "[f]ull beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60
percent of the voting rights is required." Clearly, SEC-MC No. 8 cannot be said to have been issued with grave
abuse of discretion.

While SEC-MC No. 8 does not expressly mention the Beneficial Ownership Test or full beneficial ownership of
stocks requirement in the FIA, this will not, as it does not, render it invalid — meaning, it does not follow that the
SEC will not apply this test in determining whether the shares claimed to be owned by Philippine nationals are
Filipino.

The pronouncement of the Court in the Gamboa Resolution — the constitutional requirement to "apply uniformly
and across the board to all classes of shares, regardless of nomenclature and category, comprising the capital of a
corporation — is clearly an obiter dictum that cannot override the Court's unequivocal definition of the term
"capital" in both the Gamboa Decision and Resolution. Nowhere in the discussion of the definition of the term
"capital" in Section 11, Article XII of the 1987 Constitution in the Gamboa Decision did the Court mention the
60% Filipino equity requirement to be applied to each class of shares. The Gamboa Decision and Resolution
Doctrine did NOT make any definitive ruling that the 60% Filipino ownership requirement was intended to
apply to each class of share. With the foregoing disquisition, the Court rules that SEC-MC No. 8 is not contrary
to the Court's definition and interpretation of the term "capital." Accordingly, the petitions must be denied for
failing to show grave abuse of discretion in the issuance of SEC-MC No. 8.

● Where foreign ownership is not allowed or is limited by the Constitution or law

SEC 124 APPLICATION TO EXISTING FOREIGN CORPORATION

SEC 125 APPLICATION FOR A LICENSE

● Doctrine of “Doing Business” *** – See Sec 133 (related to definition under the R.A. No. 7042 or the Foreign Investments Act)
● Continuity test v control test
o Mentholatum v Mangaliman
Mentholatum Co. is a foreign corporation with a distributing agent in the Philippines (Phil. American Drug Co.), that sells
“Mentholiman” in the Philippines. Mentholatum Co. does not have a license to do business in the Philippines, yet they are suing
Mangaliman et.al for trademark infringement and unfair competition.
Q: Is Mentholatum Co. doing business in the Philippines? Yes.
“Doing business” implies a continuity of commercial dealings and contemplates the performance of functions normally for the
purpose and object of its organization. In this case, the Philippine-American Drug Co., Inc., is the exclusive distributing agent in
the Philippines of the Mentholatum Co., in the sale and distribution of its product known as the Mentholatum. It follows that
 whatever transactions the Philippine-American Drug Co., Inc., had executed in view of the law, the Mentholatum Co., Inc., did it
itself.
Q: Is Mentholatum allowed to prosecute its action? No.
Mentholatum Co. is a foreign corp. doing business in the Philippines without a license required under Sec. 68 of the CC.

o Pacific Vegetable Oil Cor v Singson April 1955

Can’t find the case. Wala din siya sa class digest natin :(

● Not doing business

o B Van Zuiden Bros Ltd. v GTVL Manufacturing Industries May 28, 2007
Zuiden Bros, a Hong Kong corp., entered into a contract of sale of lace products with GTVL, a PH corp. Zuiden delivers the
goods to Kenzar (also HK corp.), then Kenzar would deliver it to GTVL in the PH. Zuiden filed a complaint for sum of money in
RTC against GTVL upon failure of GTVL to pay. GTVL was contending that Zuiden lacked legal capacity to sue because it
contends that Zuiden is doing business in the PH without securing the required license as provided by Sec. 133 of the Corp Code.

Q: Whether Zuiden has legal capacity to sue? YES

Zuiden is not doing business in the PH. There was no showing that Zuiden performed within the PH territory the specific acts of
doing business mentioned in Sec. 3(d) of RA 7042 (Foreign Investments Act). Petitioner did not also open an office here in the
Philippines, appoint a representative or distributor, or manage, supervise or control a local business. While petitioner and
respondent entered into a series of transactions implying a continuity of commercial dealings, the perfection and consummation
of these transactions were done outside the Philippines. The mere act of exporting from ones own country, without doing any
specific commercial act within the territory of the importing country, cannot be deemed as doing business in the importing
country. The importing country does not acquire jurisdiction over the foreign exporter who has not performed any specific
commercial act within the territory of the importing country. To be doing or transacting business in the Philippines for purposes
of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is,
perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own
account.

o Steel Case Inc v Design Intl Selections, Inc. GR 1711995. Apr 18, 2012
Steelcase (American corp) and Design Intl (PH corp.) entered into a dealership agreement whereby Design Int’l will have the
right to market Steelcase’s products in the PH. The business was terminated due to an alleged breach. Steelcase filed a complaint
for sum of money against Design Int’l. Design Int’l. was contending that the case should be dismissed because Steelcase has no
legal capacity to sue, it being a foreign corporation doing business in the PH without license. Steelcase contends that assuming
that it had been doing business in the PH without a license, Design Int’l would nonetheless be estopped from challenging its legal
capacity to sue on the ground that the latter had been aware of the former’s business and had benefited therefrom.
Q: Whether Steelcase has legal capacity to sue? YES
Steelcase is a foreign corp. not doing business in the PH. The appointment of a distributor in the Philippines is not sufficient to
constitute “doing business” unless it is under the full control of the foreign corporation. On the other hand, if the distributor is a
foreign entity which buys and distributes products, other than those of the foreign corporation, for its own name and its own
account, the latter can be considered to be doing business in the Philippines. Hence, by acknowledging the corporate entity of
STEELCASE and entering into a dealership agreement with it and even benefiting from it, Design Int’l. is estopped from
questioning the existence of Steelcase and its capacity to sue.

SEC 126 ISSUANCE OF A LICENSE

SEC 127 WHO MAY BE A RESIDENT AGENT

SEC 128 RESIDENT AGENT; SERVICE OF PROCESS

SEC 129 LAW APPLICABLE

SEC130 AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS OF FOREIGN CORPORATION

SEC 131 AMENDED LICENSE

SEC 132 MERGER OR CONSOLIDATION INVOLVING A FOREIGN CORPORAION LICENSED IN THE PHILIPPINES

SEC 133 DOING BUSINESS WITHOUT A LICENSE

● Talon Security Consulting and Trade Limited v DND, et al GR 195055 Aug 18, 2014
Talon Security, a foreign corp is the winning bidder for DND’s procurement of various weapons. There were findings of irregularities in
the award. As a result, the Secretary of Defense ordered the failure of bidding and ordered re-bidding for the project. Talon Security filed a
case questioning the authority of the Secretary of Defense to do such actions.
Q: Whether or not Talon Security has the standing to sue under PH law?
NO. Talon Security, being a foreign corp. cannot sue in the PH without the proper license. Talon Security’s defense was that it is not doing
business in the PH, their transaction is only limited to this specific transaction, and thus, they are exempted from the license requirement.
The Court found that the defense was untenable, because Talon Security was already involved with various transactions in the past.
● Suability of Foreign Corporations
● Estoppel
o Steelcase Inc. v Design International Selections Inc. GR 171995 Apr 18, 2012
Steelcase (American corp) and Design Intl (PH corp.) entered into a dealership agreement whereby Design Int’l will have the
right to market Steelcase’s products in the PH. The business was terminated due to an alleged breach. Steelcase filed a complaint
for sum of money against Design Int’l. Design Int’l. was contending that the case should be dismissed because Steelcase has no
legal capacity to sue, it being a foreign corporation doing business in the PH without license. Steelcase contends that assuming
that it had been doing business in the PH without a license, Design Int’l would nonetheless be estopped from challenging its legal
capacity to sue on the ground that the latter had been aware of the former’s business and had benefited therefrom.
Q: Whether Design Int’l is estopped from challenging Steelcase’s legal capacity to sue? YES. Design Int’l is estopped from
challenging Steelcase’s legal capacity to sue. By acknowledging the corporate entity of Steelcase and entering into a dealership
agreement with it and even benefiting from it, Design In’t is estopped from questioning Steelcase’s existence and capacity to sue.
A foreign corporation doing business in the Philippines without a license may still sue before the Philippine courts a Filipino or a
Philippine entity that had derived some benefit from their contractual arrangement because the latter is considered to be estopped
from challenging the personality of a corporation after it had acknowledged the said corporation by entering into a contract with
it.

o Pari delicto
▪ Top Weld v ECED 138 SCRA 118
Top-weld (PH corp) entered into two separate contracts with two foreign corporations. Top-weld learned that the two
corporations were searching for Top-weld’s replacement as their licensee and distributor. Top-weld filed an injunction
suit, invoking RA 5455, Sec. 4 (9) which prohibits foreign corporations doing business in PH from terminating existing
contracts with PH residents except for just cause. The two foreign corporation raised the defense that since no written
certificate was applied for nor obtained by them from BOI, Top-weld cannot legally require them to comply with RA
5455, Sec. 4(9).
Q: Whether or not Top-weld has a cause of action against the two foreign corporations? NO
The Court held that the foreign corporations are doing business in the PH, and pursuant to RA 5455, they should have
secured a certification with the BOI before they commenced their business transactions in the PH. However, given the
circumstance that Top-weld knew the requirements of RA 544, yet it failed to compel the foreign corporations to do the
same, and following the doctrine of in pari delicto, Top-weld does not have a cause of action against the two foreign
corp. and cannot enjoin them from terminating the contract.

o Consent
▪ Lingner v Fisher GMBH v IAC 125 SCRA 522 (1983)
Deutche Milchwerke (Deutch) is a corporation in West Germany. While Philchem is a local company. Deutche and
Philchem executed an Agency Agreement which provided that Philchem will be the exclusive importer of the products
into the PH. After the termination of the agreement, Philchem will be entitled to royalty on sales products in the PH.
The agreement further provided that, all legal settlements within the compass of the agreement shall fall under the
jurisdiction of the PH courts. Philchem presented a claim under the royalty clause. However, no settlement was reached
between the parties. Philchem filed a complaint against Lingner, and it alleged that summons could be served on the
law firm as an agent of the defendants. Lingner moved for the dismissal of the case on the ground that, it is not a
foreign corporation doing business in the PH, and hence, it could not be sued before PH courts.
Q: Whether or not Lingner may be sued? YES
The SC ruled that evidence as to whether Lingner was doing business in the Philippines is no longer necessary in view
of the fact that Philchem and Lingner were contractees in the Agreement and the claim of Philchem is based on the
Royalty Clause of that Agreement. Whether Lingner is or is not doing business in the Philippines will not matter
because the parties had expressly stipulated in the agreement that all controversies based on the agreement “shall fall
under the jurisdiction of the Philippine courts.”

● Subsequent compliance
o Home Insurance v Eastern Shipping Lines 123 SCRA 424 (1988)
The products that were shipped were insured by Home Insurance. Some of the items that were shipped were damaged and Home
Insurance paid the consignees for the damage and is now seeking reimbursement from Eastern Shipping and NV Nedlloyd
Lijnen/ Colombian PH Inc. Both insurance companies did not heed the demand of Home Insurance. hence, Home Insurance filed
a case to recover these sums. Home Insurance alleged that it is a foreign insurance company duly authorized to do business in the
PH through Vitor Bello. At the time the insurance contracts were executed over the goods shipped, Home Insurance is not yet
licensed to do business in the PH. However, at the time it initiated the action, Home Insurance was able to acquire a license to do
business in the PH. Respondents alleged that the contracts were null and void and Home insurance had no capacity to sue.
Q: Whether or not the subsequent acquisition of license enabled Home Insurance to avail remedies in PH? YES
The lack of capacity at the time of the execution of the contracts was cured by the subsequent registration is also strengthened by
the procedural aspects of these cases. The prohibition against doing business without first securing a license is now given penal
sanction which is also applicable to other violations of the Corporation Code. It is, therefore, not necessary to declare the contract
null and void even as against the erring foreign corporation. The penal sanction for the violation and the denial of access to our
courts and administrative bodies are sufficient from the viewpoint of legislative policy.

o Instances When Unlicensed Foreign Corporations May Be Allowed to Sue

▪ Facilities Management Corp v De la Osa 89 SCRA 131 (1979)
 Facilities Management Corp (FMC) and JS Dreyer are domiciled in Wake Island, while Catuira is an employee of FMC
stationed in Manila. Leonardo dela Osa was employed by FMC in Manila, but rendered work in Wake Island. dela Osa
filed a case for reinstatement with full backwages, recovery of overtime compensation, etc. FMC filed MTD for lack of
jurisdiction.
Q: Whether or not FMC is considered roing business in the PH so that service of summons may be upon its
agent in the PH? YES
FMC may be considered as doing business in the PH underSec. 14, Rule 14 of the ROC which provides that “If the
defendant is a foreign corporation, or a non-resident joint stock company or association, doing business in the PH,
service may be made on its resident agent designated in accordance with law for that purpose, or if there be no such
agent, on the government official designated by law to that effect, or any of its officers or agents within the
Philippines.” FMC, in compliance with Act 2486, appointed Catuira as agent for FMC with authority to execute
Employment contracts and receive, in behalf of the corp., legal services from and be bound by the process of the PH
courts, for as long as he remains and employee of FMC. Hence, if a foreign corp, not engaged in business in the PH is
not barred from seeking redress from the courts in the PH, a fortiori, that same corporation cannot claim exemption
from being sued in PH courts for acts done against person or persons in the PH

▪ Signetics Corp v CA 225 SCRA 737 (1993)

Signetics is an American corp. Through Sinetics Filipinas (SigFil), a wholly-owned subsidiary, Signetics entered into a
lease contract over a piece of land with Freuhauf. Frehauf sued Signetics. Service of summons was made on Signetics
through TEAM Pacific Corp. on the basis of the allegation that Signetics is a "subsidiary of US PHILIPS
CORPORATION, and may be served summons at Philips Electrical Lamps, Inc., Las Piñas, Metro Manila. Petitioner
filed a motion to dismiss the complaint on the ground of lack of jurisdiction over its person. Invoking Sec. 14, Rule 14,
Signetics argues that the fact of doing business in the PH should first be established in order that summons could be
validly made and jurisdiction acquired by the court over a foreign corporation.
Q: Whether Signetics may be sued in PH? YES
Summons may be served upon an agent of the defendant who may not necessarily be its "resident agent designated in
accordance with law." The term "agent", in the context it is used in Section 14, refers to its general meaning, i.e., one
who acts on behalf of a principal. The allegations in the complaint have thus been able to amply convey that not only is
TEAM Pacific the business conduit of the petitioner in the Philippines but that, also, by the charge of fraud, is none
other than the petitioner itself. The rule is that, a foreign corporation, although not engaged in business in the
Philippines, may still look up to our courts for relief; reciprocally, such corporation may likewise be "sued in Philippine
courts for acts done against a person or persons in the Philippines" (Facilities Management Corporation v. De la Osa),
provided that, in the latter case, it would not be impossible for court processes to reach the foreign corporation, a matter
that can later be consequential in the proper execution of judgment.

▪ Avon Insurance PLC v CA 227

Yupangco Cotton Mills obtained insurance policy with Worldwide Security Insurance Co. The subject properties were
then covered by reinsurance agreement between Worldwide Security and several foreign reinsurance companies,
including Avon Insurance. While the policies were in effect, Yupangco’s properties were razed by fire, giving rise to
their indemnification. Worldwide acknowledged a remaining balance and assigned to Yupangco all reinsurance
proceeds still collectible from all the reinsurance companies. Thus, as assignee and original insured, Yupangco
instituted a collection suit against petitioners. Petitioners averred that they are foreign corporations not doing business
in the Philippines therefore cannot be subject to the jurisdiction of its courts.
Q: Whether or not petitioners may be sued in the PH? NO
Petitioners are foreign corporations not doing business in the PH. To qualify the petitioners’ business of reinsurance
within the Philippine forum, resort must be made to the established principles in determining what is meant by “doing
business in the Philippines.” The term ordinarily implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of the functions normally incident to and
in progressive prosecution of the purpose and object of its organization. As it is, private respondent has made no
allegation or demonstration of the existence of petitioners’ domestic agent, but avers simply that they are doing
business not only abroad but in the Philippines as well. It does not appear at all that the petitioners had performed any
act which would give the general public the impression that it had been engaging, or intends to engage in its ordinary
and usual business undertakings in the country. if a foreign corporation does not do business here, there would be no
reason for it to be subject to the State’s regulation. As we observed, in so far as the State is concerned, such foreign
corporation has no legal existence. Therefore, to subject such corporation to the courts’ jurisdiction would violate the
essence of sovereignty.

SEC 134 REVOCATION OF LICENSE

SEC 135 ISSUANCE OF CERTIFICATE OF REVOCATION

SEC 136 WITHDRAWAL OF FOREIGN CORPORATION

TITLE XVI
MISCELLANEOUS PROVISIONS

SEC 137 OUTSTANDING CAPITAL STOCK DEFINED*

Gamboa case, supra
General Telephone and Electronics Corp (GTE), an American company and a major stockholder of PLDT, sold 26% of the outstanding common
shares of PLDT to PTIC. Certain PTIC stockholders executed Deeds of Assignment transferring 11,415 shares of PTIC to PHI. The said 11,415 PTIC
shares, which was about 46.125% of the outstanding capital stock of PTIC, were sequestered by PCGG and declared to be owned by the Republic of
the Philippines. First Pacific, a Bermuda-registered, Hong Kong- based investment firm, acquired the remaining 54% of the outstanding capital stock
of PTIC. First Pacific then entered into a Conditional Sale and Purchase Agreement of the 11,415 PTIC shares with the PH gov’t. Gamboa filed a
case asking the court to declare the nullity of the sale of the 11,415 PTIC shares , claiming that the sale would result in an increase in First Pacific’s
common shares in PLDT from 30.7% to 37%, and this, combined with Japanese NTT DoCoMo’s common shares in PLDT, would result to a total
foreign common shareholdings in PLDT of 51.56% which is over the 40% constitutional limit.

Q: What is the definition of the word “capital” as contemplated in Sec. 11, Article 12 of the 1987 Constitution?
Sec. 11, Art. XII of the 1987 Constitution mandates the Filipinization of public utilities, to wit: “Sec. 11. No franchise, certificate, or any other form
of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines, at least 60% of whose capital is owned by such citizens xxx”. The term “capital” refers to the voting stock or
controlling interest, or to shares of stock entitled to vote in the election of directors. Since common shares have voting rights which translate to
control, as opposed to preferred shares which usually have no voting rights, the term “capital” in Section 11, Article XII of the Constitution refers
only to common shares. However, if the preferred shares also have the right to vote in the election of directors, then the term “capital” shall include
such preferred shares because the right to participate in the control or management of the corporation is exercised through the right to vote in the
election of directors. In short, the term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the
election of directors. In the case at bar, PLDT’s GIS show that Filipinos hold less than 60% of the voting stock, and earn less than 60% of the
dividends, of PLDT. Thus, it directly contravenes the express command of the constitutional provision.

SEC 138 DESIGNATION OF GOVERNING BOARDS

SEC 139 INCORPORATION AND OTHER FEES

SEC 140 STOCK OWNERSHIP IN CERTAIN CORPORATIONS

SEC 141 ANNUAL REPORT OF CORPORATIONS

SEC 142 CONFIDENTIAL NATURE OF EXAMINATION RESULTS

SEC 143 RULE MAKING POWER OF THE SECURITIES AND EXCHANGE COMMISSION

SEC 144 VIOLATIONS OF THE CODE

● Penal provisions – See SEC 74 on “violation” of the Code

● James Ient et al v Tullett Prebon (Phil) Inc GR 189158 Jan 11, 2017
Tullet filed a criminal complaint against Ient, Schulze, Villalon, and Chuidian. Tullet alleged that Villalon and Chuidian were former
directors of Tullet, and they used their former positions in Tullet to sabotage the company by orchestrating the mass resignation of its entire
brokering staff in order for them to join Tradition PH, a competitor of Tullet. According to Tullet, Villalon and Chiudian violated Sec. 31
(Liability of Directors, Trustees, and Officers) and Sec. 34 (Disloyalty of a director of the Corp. Code, which made them criminally liable
under Sec. 144 (Violations of the Code). As for Ient and Schulze, it was alleged that they conspired with Villalon and Chuidian.
Q: Whether violation of Sec. 31 and Sec. 34 of the Corp. Code incurs criminal liability under Sec. 144 of the same code? NO
the Court agreed with the petitioners’ argument that “the lack of specific language imposing criminal liability in Sections 31 and 34 shows
legislative intent to limit the consequences of their violation to the civil liabilities mentioned therein.The Corporation Code was intended as
a regulatory measure, not primarily as a penal statute. Secs. 31 to 34 were intended to impose standards of fidelity on corporate officers and
directors but without unduly impeding them in the discharge of their work with concerns of litigation. Considering the object and policy of
the Corporation Code to encourage the use of the corporate entity as a vehicle for economic growth, We cannot espouse a strict
construction of Sections 31 and 34 as penal offenses in relation to Section 144 in the absence of unambiguous statutory language and
legislative intent to that effect.

● What is the concept of corporate criminal liability

SEC 145 AMENDMENT OR REPEAL

SEC 146 REPEALING CLAUSE

SEC 147 SEPARABILITY OF PROVISIONS

SEC 148 APPPLICABILITY TO EXISTING CORPORATIONS

SEC 149 EFFECTIVITY

MAY 1980
THE SECURITIES REGULATION CODE (R.A. NO. 8799)
A. State Policy, Purpose *
- Sec 2

1. Why the policy against securities fraud?

a) BW scandal
b) IOSCO on securities regulation
c) Securities fraud is a predicate offense under AMLA
2. Powers and functions of SEC
· Secs. 4 - 7
a) Under the SRC and the Corporation Code, and related laws
e.g. Investment Houses Law, Investment Company Act, Financing Company Act, Lending Company Act.
Microfinance Regulatory Council Act, Credit Information System Act, AMLA
b) Transferred jurisdiction under PD 902A
- Sec. 5.2 *****
Questions of ownership; intra-corporate disputes**
· Gonzales et al v GJH Land, Inc et al GR 202664 Nov 10, 2015;
Petitioners Manuel Gonzales and Francis Gonzales filed a complaint for injunction against GJH land before RTC
of Muntinlupa (not a special commercial court) seeking to enjoin the sale of SJ Land Inc.’s shares which they
purportedly bought from SJ Global. Petitioners alleged that subscriptions for the said shares were already paid by
them in full, but were nonetheless offered for sale. GJH Land filed MTD on the ground of lack of jurisdiction,
since the case involves an intra-corporate dispute, the case should be heard by the special commercial court of
Muntinlupa.
Q: Whether or not the RTC not designated as a special commercial court has jurisdiction over the case?
NO.
The subject matter of the case is an intra-corporate dispute. Thus, the jurisdiction is vested with the RTC acting as
special commercial court. SEC’s subject matter jurisdiction over intra-corporate cases was transferred to the
Courts of general jurisdiction acting as special commercial court.

· SEC v Subic Bay Golf et al GR 179047 Mar 11, 2015

Due to a letter by Filart and Villareal, SEC, after conducting an inspection, ordered the return of the purchase price
of shares paid to Subic Bay and Universal International Group since there was non-compliance with the project
golf course. Subic and Universal questioned the jurisdiction of SEC, contending that the issue is an intra-corporate
dispute and RTC has jurisdiction, and not the SEC.
Q: Whether or not the RTC has jurisdiction? YES
The case is an intra-corporate dispute and the RTC has jurisdiction over the case because it involves a dispute
between the corporation Subic and its shareholders, Villareal and Filart. Their right to a refund of the value of
their shares was based on Subic and Universal International's alleged failure to abide by their representations in
their prospectus. It involves the determination of a shareholder’s rights under the Corporation Code or other intra-
corporate rules when the corporation or association fails to fulfill its obligations. Intra-corporate controversies,
previously under the SEC’s jurisdiction are now under the jurisdiction of the RTC designated as commercial
courts. However, the transfer of jurisdiction to the RTC does not oust the SEC of its jurisdiction to determine if
administrative rules and regulations were violated.
c) Power to initiate criminal complaint for securities fraud
d) Power to appoint management committee
· Pablo Roman Jr. and Atty Matias Defensor v SEC GR 196329 Jun 1, 2016
The private respondents in this case filed a letter-complaint against the petitioners before the SEC. It was alleged
that Roman, Jr., the president is in bad faith, fraud, and misrepresentation in effecting the resolutions which
authorized Roman, Jr. to acquire parcels of land for P150 per sqm, enter into JV with Ayala Land to develop a
golf course, to obtain loans from Ayala Land Inc for the purpose of acquiring the Montalban properties.. It was
alleged that at the time he made these proposals and before the resolution was issued, Ayala already made
substantial cash advances for the joint venture. After 10 years, no golf course existed and the property was already
converted to a residential subdivision. These irregularities and anomalies amounting to fraud and
misrepresentation that prompted them to ask the SEC to investigate the Board and to order the constitution of the
Management Committee (MANCOM) to temporarily oversee the affairs of Capitol.
Q: Whether or not the SEC has the power to constitute a Management Committee? YES
The SEC, as a regulator, has broad discretion to act on matters that relate to its express power of supervision over
all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or permit
issued by the Government.Such grant of express power of supervision, necessarily includes the power to create a
management committee following the doctrine of necessary implication. The creation of a management
committee is one that is premised on the immediate and speedy protection of the interest not only of minority
stockholders, but also of the general public from immediate danger of loss, wastage or destruction of assets or the
paralyzation of business of a concerned corporation or entity.
e) Power to license and regulate the SROs, market players and trading participants such as investment companies,
investment houses, brokers, underwriters, sales associates, salespersons, etc.
f) Power to prescribe financial reporting/ accredit auditors, appraisers, valuation companies
- Sec 68

B. Definition and Kinds of Securities*

- Sec 3.1
1. Equity
2. Fixed income securities (debt instruments, bonds; distinguish from deposit substitutes)
· Banco De Oro et al v Republic et al GR 198756 Jan 13, 2015
The Bureau of Treasury issued a notice to all Government Securities Eligible Dealer (GSED), which proves that P30 Billion
worth of 10-year Zero-Coupon Bonds Will be auctioned. The notice stated that the Bonds “shall be issued to not more than 19
buyers/lenders. It also stated that it shall not be subject to the 20% final withholding tax” pursuant to the BIR Revenue
Regulation. After the auction, RCBC which participated on behalf of CODE-NGO was declared as the winning bidder having
tendered the lowest bids. BIR also issued a BIR Ruling clarifying that the final withholding tax due on the discount interest
earned on the bonds should be imposed and withheld not only on RCBC/CODE NGO, but also on all subsequent holder of
bonds. BDO filed a petition for certiorari contending that the BIR Ruling which ruled that all treasury bonds are deposit
substitutes regardless of the number of lenders, in clear disregard of the requirement of 20 or more lenders mandated under the
NIRC.
Q: Whether or not the 10-year zero-coupon treasury bonds issued by the Bureau of Treasury is subject to 20% Final
Withholding Tax? NO
Under the NIRC, a final withholding tax at the rate of 20% is imposed on interest on any currency bank deposit and yield or any
other monetary benefit from deposit substitutes and from trust funds and similar agreements. deposit substitute is an alternative
form of obtaining funds from the public (the term 'public' means borrowing from twenty (20) or more individual or corporate
lenders at any one time). In the case at bar, it may seem that there was only one lender — RCBC on behalf of CODE-NGO —
to whom the Bonds were issued at the time of origination.

3. Investment contracts
· See Howey Test cited in Power Homes Unlimited Corp v SEC GR no 164182, Feb 26, 2008;
Due to two letter requests, SEC investigated on the business of Power Homes and conducted a conference with its
incorporators. Power Homes submitted to SEC marketing course module and letters of accreditation/authority or
confirmation from Crown Asia, Fil-Estate Network and Pioneer 29 Realty Corporation. A cease and desist order was
issued by SEC after having been found that Power Homes was engaged in the sale or offer for sale or distribution of
investment contracts, which are considered securities under the SRC, but failed to register them, inviolation of the same
Code.
Q: Whether ot not the business constitutes an investment contract which should be refistered with the SEC before
its sale to the public? YES.
The SEC found that Power Homes as a marketing company that promotes and facilitates sales of real properties and other
related products of real estate developers through effective leverage marketing.An investment contract is defined as a
contract, transaction, or scheme (collectively, contract) whereby a person invests his money in a common enterprise and
is led to expect profit primarily from the efforts of others.

NOTE: To be a security subject to regulation by the SEC, an investment contract in our jurisdiction must be proved to be:
(1) an investment of money, (2) in a common enterprise, (3) with expectation of profits, (4) primarily from efforts of
others. It must be registered with the SEC. The strict regulation of securities is founded on the premise that the capital
markets depend on the investing public’s level of confidence in the system.

· SEC v Prosperity Com, Inc. GR 164197 Jan 25, 2012;

Properity.com devised a scheme in which for the price of $234 a buyer could acquire from it an internet website, and at
the same time, by referring to PCI his own down line buyers, a first-time buyer could earn commissions, interests in real
estate in the PH and US. This scheme was adopted from GVI, a company which stopped operations after the SEC issued a
CDO against it. Since it appeared that the same persons are running Prosperity, disgruntled elements of GVI filed a
complaint with the SEC alleging that Prosperity’s scheme constitutes an Investment contract and therefore should have
first registered such contract or securities with the SEC
Q: Whether or not Prosperity’s scheme constitutes an investment contract? NO
An investment contract is a contract, transaction, or scheme where a person invests his money in a common enterprise and
is led to expect profits primarily form the efforts of others. In this case, PCIs clients do not make investments but rather
buy a product of some value to them, an internet website. PCI is merely engaged in networking marketing, a scheme
adopted by companies for getting people to buy their products outside of the usual retail system. Therefore, the scheme is
not an investment contract.

NOTE: For an investment contract to exist, the following elements, referred to as the Howey Test must concur:
a. A contract, transaction, or scheme;
b. An investment of money;
c. Investment is made in a common enterprise;
d. Expectation of profits; and
e. Profits arising primarily from the efforts of others.

· Puerto v Pp [Tibayan case] GR 236564 Apr 23, 2018; (This is a Notice)

Rico Puerto was charged with violation of Sec. 8.1, in relation to Sec. 73 of the SRC for selling securities without
registration statement duly filed with and approved by the SEC. Private complainants spouses Arnel and Rebeca Guia
were enticed to invest with the Tibayan Group of Investment Company, Inc. (TGIC) through its subsidiary, Matcor, the
amount of P100,000 as it would supposedly earn 3% monthly interest for a period of 6 months. In return, they were issued
 a Statement of Private Business Affair which was signed by Puerto as manager of Macor, as well as post-dated checks
signed by accused Palmy Tibayan.

Q: Whether the transaction involving the Statement of Private Business Affair fell under the term investment
contract under Sec. 3.1, paragraph b of the SRC? YES.
As such, the said contract must be registered with the SEC. Records, however, show that neither TGIC nor Matcor were
authorized to sell securities it transacted with the private complainants as evidenced by the Certification issued by the
SEC. It is clear that Matcor, acting through its manager, Puerto, issued an unregistered security in clear contravention of
the SRC. Mere selling of securities without prior authority to do so already consummates the offense under the SRC as
the same is malum prohibitum.

NOTE: Under Sec. 3.1 (b) of the SRC, Investment contracts are certificates of interest or participation in a profit sharing agreement, certified of
deposit for future subscription.
· Abacus Capital and Investment Corp v Dr. Tabujara GR 197624 Jul 23, 2018)
Abacus Capital and Investment Corp (ACIC) is an investment house engaged in activities related to dealing in securities
and other commercial papers. Tabujara engaged ACIC as his lending agent for purposes of investing his money in the
principal amount of P3,000,000.00. ACIC, in turn, lent the P3,000,000.00 to Investors Financial Services Corporation
(IFSC) with a term of 32 days. IFSC filed with the SEC a Petition for Declaration of Suspension of Payments. This
petition was granted by the SEC. Then, Tabujara gave notice to Abacus and IFSC that he is opting to pre-terminate his
money placement. Upon maturity of the loan, Tabujara did not receive either the interest amount or the principal.
Meantime, IFSC's Petition for Declaration of Suspension of Payments was raffled to a regular court and was subsequently
treated as a petition for rehabilitation. Pursuant to IFSC's rehabilitation plan, Tabujara received interest payments from
Abacus for the period January 1, 2001 to December 31, 2001. The interest due, however, ceased to be paid come January
2002, prompting Tabujara to file his complaint a quo against Abacus and IFSC for collection of sum of money with
damages. Abacus claims that Tabujara has not cause of action to file the case against him since the real debtor of Tabujara
was IFSC and not it.
Q: Can Tabujara claim the sum of money against Abacus? Yes. An investment house is defined under Presidential
Decree No. 129 as an entity engaged in underwriting of securities of other corporations. In turn, "underwriting" is
defined as the act or process of guaranteeing the distribution and sale of securities of any kind issued by another
corporation; while "securities" is therein defined as written evidences of ownership, interest, or participation, in an
enterprise, or written evidences of indebtedness of a person or enterprise. ]. In this case, Tabujara as the investor is the
lender or the "funder" who loaned his P3,000,000.00 to IFSC through Abacus. Thus, when the loaned amount was not
paid together with the contracted interest, Tabajura may recover from Abacus the amount so invested together with
damages. That Tabujara's investment in the amount of P3,000,000.00 was used as part of the pool of funds made available
to IFSC is confirmed by the facts that it is Abacus, and not Tabujara, which was actually regarded as IFSC's creditor in
the rehabilitation plan and that Abacus even proposed to assign all its rights and privileges in accordance with the
rehabilitation plan to its "funders" in proportion to their participation. In other words, it was really Abacus who was the
creditor entitled to the proceeds of IFSC's rehabilitation plan - thus necessitating the assignment by Abacus of said
proceeds to the actual source of funds, Tabujara included. Thus, Tabujara has cause of action.

Contracts of participation, club memberships

· Rule 3.1.13 -15 [proprietary or non-proprietary]
4. Derivatives (options and warrants)
· Rule 3.1.9; 12.1.3.2
5. Others
C. Definition of other Terms
- Sec 3.2 et seq
1. SROs – exchange, clearing agency, transfer agent, securities depository
2. Market participants – issuer (Rule 3.1.11), trader, broker, dealer, promoter, sales persons, associates, underwriter
3. Prospectus, registration statement, registrant, disclosures, common enterprise, solicitation
· Rule 3.1.1; Rule 26.3
4. Uncertificated securities
· Sec 43
D. Classes of Securities according to whether or not requiring SEC registration
1. Exempt Securities *
· Sec 9 under the SRC;
· Rule 9.1.2.1 to 9.1.2.4 by SEC
2. Exempt Transactions
a) Sec 10 under the SRC (take note of some - isolated transaction, stock dividends, bond issuance, exchange of security,
broker’s transaction, subscription prior to incorporation or increase, sale to fewer than 19 people in a 12 month period, sale
to qualified buyers, primary institutional lenders;
b) Rule 10.2.2 and 10.2.3 3 by SEC limited public offering, application for exemption
E. Requirement and Procedure for Registration of Securities **
- Sec 8 and 12 ; Rule 8.1.3 to 8.1.3.8.4

1. Rationale for registration

· PSE v CA 281 SCRA 232 (1997);
Puerto Azul (PALI) sought to be a listed corporation with the PSE. Pending the application for the listing, the family of
former President Marcos is claiming that they own the assets of PALI. The PCGG also manifested that the properties of
 PALI is subject to litigation in the case of the ill-gotten wealth of the Marcoses. PSE denied the application for listing.
The SEC then reversed the PSE. PSE is contending that it did not err in denying the application and that the SEC’s power
to regulate PSE is only limited.
Q: WAS PSE correct in refusing to list PALI? Yes. PSE was correct in listing PALI because there is doubt as to the
ownership of the assets. The assets alleged to be owned by PALI is owned by the Philippine Government. In addition the
power of control of SEC is only limited and it cannot interfere with the business judgement of PSE except when PSE is in
bad faith in its decision. The rationale for registration is to protect the investing public from fraud and here, the investing
public may be defrauded since PALI does not own the assets they are claiming that they have.

· SEC v CA 246 SCRA 738 (1995);

Cualoping was a stockbrokerage corporation which handles the stocks of Philex. The Certificates of Stock of Philex
mining in Fidelity was stolen and these stocks were later on presented to Cualoping by a certain Lopez who allegedly
bought the stock. Upon receipt by Cualoping, all the stock certificates bore the ‘apparent’ indorsement (signature) in
blank of its owners, the words ‘Signature Verified’ apparently stamped by Fidelity and the usual initials of the officers of
Fidelity. Cualoping, then, stamped the certificates with the words ‘Indorsement Guaranteed,’ and thereafter traded the
same with the stock exchange. Fidelity refused to issue a new Certificate of Stock to the owner since there was forgery in
the transfer of the stocks. The SEC later on made Cualoping and Fidelity liable for fraudulent transactions and imposed a
fine of P50k each.
Q: Should Cualoping and Fidelity be liable for fraudulent transactions? No. They were merely negligent. The
Revised Securities Act is designed to protect public investors from fraudulent schemes by regulating the sale and
disposition of securities, creating for this purpose a SEC to ensure proper compliance with law. Nonetheless, it resolved
that the imposition was improper because, although Fidelity and Cualoping have been negligent in the conduct of their
affairs, fraud or deceit, not mere negligence, on the part of the offender must be established to constitute a violation of the
Revised Securities Act that can warrant an imposition of a fine under Sec. 29(3), in relation to Sec. 46.

· Pp v Ervin Y. Mateo GR 210612 Oct 9, 2017

Hermina et. al. were induced by Geraldine to invest in MMG which claims to be an SEC registered partnership. They
were given post dated checks but when they tried to encash the said checks the same were dishonored. The SEC certified
that MMG was not registered and licensed to issue securities.
Q: Is MMG liable for violation of the SRC? Yes. They distributed securities without the proper registration. MMG is
not a registered issuer of securities; that the partnership has not been issued a permit or a secondary license or franchise to
go to the public and offer to sell any form of securities which means that the partnership cannot offer or sell shares of
stocks or equity, securities, investment contracts, debt instruments like short-term or long-term commercial papers to
more than (19) people without any prior licensing from the SEC. In plain language, soliciting funds from the public is a
form of issuing securities, which MMG was not authorized to do so. Apparently, registration with the Securities and
Exchange Commission was procured by MMG only for the purpose of giving a semblance of legitimacy to the
partnership; that the partnership's business was sanctioned by the government and that it was allowed by law to accept
investments. Appellant, together with his partners, employed fraud and deceit upon trusting individuals in order to
convince them to invest in MMG.

2. Requirements
· Sec 8, prospectus, SEC approval, full disclosure, public offering
· Rule 3.1.17, 8.1.1.5
Procedure – Sec 12
Parties involved – issuer, underwriter (Rule 12.1.1), syndicate manager
Rejection and revocation – Sec 13;
· SEC v Universal Rightfield Property Holdings, Inc. GR 181381 Jul 20, 2015;
URPHI failed to comply with the reportorial requirement and SEC conducted a hearing on won the license of
URPHI should be suspended. The SEC issued an order of suspension and URPHI filed a request for extension of
time to file the report. They still did not comply with the reportorial requirement. Hence, the SEC revoked the
license of URPHI. URPHI claims that the revocation was improper since it was not given a notice and hearing on
the revocation.
Q: Did the SEC properly revoked the license of URPHI? Yes. The SEC complied with the requirements set
forth in the SRC. Revocation of the registration does not need a separate notice and hearing from the suspension
of the same. As for the notice requirement, "due notice" simply means the information that must be given to a
person so that its recipient will have the opportunity to respond to a situation. A separate notice would be a
superfluity since the suspension order already stated that revocation shall ensue if URPHI would still fail to
submit the reports after the lapse of the suspension period. As for the hearing requirement, URPHI was given the
opportunity to be heard. The SEC considered the letters sent by URPHI in its order for revocation, entertained
URPHI’s appeal. In revocation, the SEC neither settles actual controversies involving rights which are legally
demandable and enforceable, nor adjudicates private rights and obligations. Rather, it is a withdrawal of privilege,
which is made in the course of the performance of SEC's regulatory function. The SC also noted that URPHI’s
registration had been revoked on several occasions before for the same reason.

Suspension – Sec 15

F. Reportorial Requirements
1. Issuers – Sec 17
 2. Five percentum holders of equity – Sec 18

G. Protection of Investors
1. Tender Offer Rule **
- Sec 19.1;
- Rule 19.2.2 disclose intention and 19.2.4 make tender offer;19.2.5 result in ownership of 51%;
· CEMCO Holdings Inc. v National Life GR 171815 Aug 7, 2007
Union Cement Corp. has 2 principal shareholders UCHC and CEMCO. BCI owns majority of UCHC and it has an
agreement with CEMCO that CEMCO will buy the shares of BCI in UCHC. This resulted to the increase of CEMCO’s
beneficial ownership over UCC. National Life (minority shareholder of UCC) claims that the transfer between BCI and
CEMCO violated the mandatory tender of offer. CEMCO claims that tender of offer will not apply since the rule only
applies to direct acquisition of shares in the public company.
Q: Is tender offer rule applicable even in instances where there is indirect acquisition of the shares of a publicly
listed company? Yes. Tender offer is a publicly announced intention by a person acting alone or in concert with other
persons to acquire equity securities of a public company. A public company is defined as a corporation which is listed
on an exchange, or a corporation with assets exceeding P50,000,000.00 and with 200 or more stockholders, at least 200
of them holding not less than 100 shares of such company. Tender offer is in place to protect minority shareholders
against any scheme that dilutes the share value of their investments. It gives the minority shareholders the chance to
exit the company under reasonable terms, giving them the opportunity to sell their shares at the same price as those of
the majority shareholders. Under existing SEC Rules, the 15% and 30% threshold acquisition of shares under Section
19 was increased to thirty-five percent (35%). It is further provided therein that mandatory tender offer is still applicable
even if the acquisition is less than 35% when the purchase would result in ownership of over 51% of the total
outstanding equity securities of the public company. the legislative intent of Section 19 of the Code is to regulate
activities relating to acquisition of control of the listed company and for the purpose of protecting the minority
stockholders of a listed corporation. Whatever may be the method by which control of a public company is obtained,
either through the direct purchase of its stocks or through an indirect means, mandatory tender offer applies.
Furthermore, in taking cognizance of respondent’s complaint against petitioner and eventually rendering a judgment
which ordered the latter to make a tender offer, the SEC was acting pursuant to Rule 19(13) of the Amended IRR of the
SRC.

2. Proxy Solicitation – Sec 20.1 Rule 20.4;

Margin trading
· Abacus Securities Corp v Ampil GR 160016 Feb 27, 2006
Ampil opened a cash account with petitioner for his transactions in securities and his purchases were consistently
unpaid from April 10 to 30, 1997. He failed to pay in full, or even just his deficiency for the transactions on April 10
and 11. Despite Ampil’s failure to cover his initial deficiency, Abacus subsequently purchased and sold securities for
Ampil’s account on April 25 and 29. Abacus did not cancel or liquidate a substantial amount of Ampil’s stock
transactions until May 6, 1997.
Q: Did both parties violate the provisions of the SRC? Yes. ABACUS violated a provision of the Revised Securities
Act by not liquidating unpaid securities of respondent within a given period. In fact, ABACUS allowed subsequent
purchases. On the other hand, Ampil was found to be equally guilty for such violation since the Court found that he is
an experienced trader/investor and took advantage of the no cash out policy of abacus. He erred in not paying for the
securities he purchased.

3. Obligation to disclose by directors, officers and principal stockholders – Sec. 23

H. Prohibitions on Fraud, Manipulation and Insider Trading

1. Manipulation of Security Prices – Sec 24 *
a) Kinds of market manipulation
b) What securities may be subject of market manipulation
c) What is false and misleading information that may involve manipulation?
d) Special types
i. Wash sale *
ii. Hype and dump
iii. Squeezing the float
2. Fraudulent Transactions – Sec 26
· SEC v Price Richardson Corporation GR No. 197032 Jul 26, 2017;
PRC was alleged to be engaged in boiler room operations, wherein the company sells non-existent stocks to investors
using high pressure sales tactics. Whenever this activity was discovered, the company would close and emerge under a
new company name. During the investigation, the SEC issued a certification that PRC was neither licensed nor
registered "to engage in the business of buying and selling securities within the Philippines or act as salesman, or an
associated person of any broker or dealer.
Q: is the certification of SEC sufficient to constitute a prima facie evidence that PRC was engaged in the
unlicensed selling of shares of stock? Yes. The Certification issued by the Market Regulation Department of the
Securities and Exchange Commission that Price Richardson "has never been issued any secondary license to act as
broker/dealer in securities, investment house and dealer in government securities” and "is not, under any circumstances,
authorized or licensed to engage and/or solicit investments from clients" are sufficient bases to form a belief that
 violations of the SRC for Sec 26 for fraudulent transaction and Sec 28, respectively, were possibly committed by Price
Richardson.

· SEC v Oudine Santos GR 195542 Mar 19, 2014

Philippine International Planning Center Corporation was a form of investment scam. People invested money in the
corporation but the heads of the corporation left the country. Santos was an employee of PIPCC and he was being held
liable for the investment scam. Santos claims that he should not be liable because he was merely an employee of
PIPCC.
Q: Did Santos violate Sec. 28 of SRC which punishes unregistered broker or dealer who engage in business of
buying or selling securities? Yes, because he acted as an agent of PIPCC. There is no question that Santos was in the
employ of PIPC Corporation, a corporation which sold or offered for sale unregistered securities in the Philippines.
Solicitation is the act of seeking or asking for business or information; it is not a commitment to an agreement. Santos,
by the very nature of her function as what she now unaffectedly calls an information provider, brought about the sale of
securities made by PIPC Corporation to certain individuals, specifically private complainants Sy and Lorenzo by
providing information on the investment products of PIPCC with the end in view of PIPCC closing a sale. Thus, Santos
violated Sec. 28 of SRC. Its elements are as follows: Engaging in the business of buying or selling securities in the
Philippines as a broker or dealer; Acting as a salesman; or Acting as an associated person of any broker or dealer, unless
registered as such with the SEC.

3. Insider Trading – Sec 27

· Jardeleza v Sereno, et al Gr 213181 Aug 19, 2014;
Jardeleza’s nomination to be an SC justice by CJ Sereno because Jardeleza was alleged to be previously engaged in insider
trading.
Q: What is insider trading? Insider trading is an offense that assaults the integrity of our vital securities market.
Manipulative devices and deceptive practices, including insider trading, throw a monkey wrench right into the heart of the
securities industry. When someone trades in the market with unfair advantage in the form of highly valuable secret inside
information, all other participants are defrauded. All of the mechanisms become worthless. Given enough of stock market
scandals coupled with the related loss of faith in the market, such abuses could presage a severe drain of capital. And
investors would eventually feel more secure with their money invested elsewhere. In its barest essence, insider trading
involves the trading of securities based on knowledge of material information not disclosed to the public at the time.
Clearly, an allegation of insider trading involves the propensity of a person to engage in fraudulent activities that may speak
of his moral character.

· Jaime Dischaves v Ombudsman GR 206310-11 Dec 7, 2016

This case involves the Plunder case of Erap Estrada. He and other people including Dischaves allegedly used insider trading
to acquire shares of stock in Belle Corpration.

Q: Was there insider trading here? Yes. Belle Corporation is a leisure estate and gaming company listed on the
Philippine Stock Exchange. Its shares are considered by some as speculative, in light of the company’s involvement in jai
alai and gambling. Dichaves was a member of the Board of Directors. The SSS purchased 329. 855,000 shares of stocks
from Belle Corporation for P744M, while the GSIS purchased 351, 878,000 shares of stock for P1.1B. Aided by insider
trading, the sale of Belle Corp. Shares gave Estrada P189.7 million in kickbacks.
a) Who is an insider – Sec 3.8 ***
b) Elements of insider trading – Sec. 27 **
c) Liabilities of insider and others – Sec 23 *
d) What is a short sale?
e) Right to recover short swing profits – Sec 23.2
I. Regulation of Securities Market Professionals
1. Registration of brokers, dealers, salesmen and associated persons
- Sec 28;
2. Revocation, refusal or suspension – Sec 29
3. Transactions and responsibility of brokers and dealers – Sec 30
J. SROs
1. Exchanges and other securities trading markets – Sec 33
2. Brokers, dealers and other securities related organizations – Sec. 39;
Liabilities – Sec 52
3. Powers of SEC – Sec 40; Sec 53
· CDO GSIS v. CA, et al., GR 183905, April 16, 2005
GSIS, a major stockholder of Meralco, questioned the validity of the proxies in the annual stockholder’s meeting because the
one who presided over their validation was not the designated corporate secretary (Vitug), but the assistant corporate
secretary and in-house counsel of Meralco (respondent Rosete). GSIS first filed the complaint to declare some proxies invalid
with the RTC, but subsequently withdrew, and filed it with the SEC.
Q: Does the SEC still have jurisdiction over the validity of the proxies? No. The jurisdiction was already transferred
to the regular courts. Section 6(g) of Presidential Decree No. 902-A, which states: In order to effectively exercise such
jurisdiction, the Commission shall possess the following powers: (xxx) (g) To pass upon the validity of the issuance and use
of proxies and voting trust agreements for absent stockholders or members; (xxx) As promulgated then, the provision would
confer on the SEC the power to adjudicate controversies relating not only to proxy solicitation, but also to proxy validation.
Should the proposition hold true up to the present, the position of GSIS would have merit, especially since Section 6 of
Presidential Decree No. 902-A was not expressly repealed or abrogated by the SRC. Yet a closer reading of the provision
 indicates that such power of the SEC then was incidental or ancillary to the exercise of such jurisdiction. Note that Section 6
is immediately preceded by Section 5, which originally conferred on the SEC original and exclusive jurisdiction to hear and
decide cases involving controversies in the election or appointments of directors, trustees, officers or managers of such
corporations, partnerships or associations. The cases referred to in Section 5 were transferred from the jurisdiction of the SEC
to the regular courts with the passage of the SRC, specifically Section 5.2. Thus, the SEC’s power to pass upon the validity of
proxies in relation to election controversies has effectively been withdrawn, tied as it is to its abrogated jurisdictional powers.

4. Clearing agency – Sec 41

5. Margin trading – Sec 48
· BH Chua Securities Corp. v Johnston Sia-Uy et al GR 202485 Feb 22, 2017
BH Chua Securities Corp is a brokerage firm registered with the SEC. Johnston Sia-Uy opened a Marginal account with
petitioner and signed the Customer Account Information Form. The marginal limit is P1,000,000. The agreement provides
that, a margin call would be initiated once the percentage limit falls below the 10% requirement. An additional collateral in
terms of cash or stocks would be collected from the client to cover at least 20% of the marginal limit. Go Tak Lee, also
known as Lito Go, petitioner’s General Manager, represented and signed for the petitioner. Private respondent Sia-Uy
alleged that Go required him to issue postdated checks as security for any liability private respondent may incur. He then
issued postdated checks on the condition that they will not be deposited and shall be returned to him upon his instructions.
The account of Sia-Uy was below the margin so BH Chua encashed the checks. Sia-Uy said that BH Chua erred in
encashing the checks since it should have made a margin call.
Q: Did the corporation violate the SRC? Yes. The Margin Rule requires that whenever there is an insufficiency of
margin, a call for additional margin shall be issued promptly by the broker dealer to the customer. The SEC found that
petitioner eliminated the need for a margin call when it required private respondent to issue postdated checks which will be
deposited in case the balance of private respondent’s account became insufficient to maintain the required margin. A void
or inexistent contract has no force and effect from the very beginning. A void contract is equivalent to nothing and is
absolutely wanting in civil effects. Indeed, as the Marginal Account which created private respondent's obligation to pay
petitioner the initial collateral and to issue the postdated checks which petitioner encashed was already declared void,
petitioner has the obligation to return the amounts as it no longer has any right to keep them.

K. Liability for violation of the SRC and securities fraud

1. Violation of the SRC
a) Liability of controlling persons, aider and abettor – Sec 51
b) Administrative sanctions – Sec 54
· SEC v G Cosmos Philippines Inc. GR 167435 Apr 20, 2015
G Cosmos invites sponsors who are willing to bear the cost of advertising, and in return, these sponsors are
entitled to receive their gain 30% of the sales revenue of the products sold and advertised. The SEC ruled that
Cosmos violated Sec 8.1 of the SRC, because the scheme of collecting from the members the advertising costs
falls within the purview of an investment contract and the participation of the sponsors partake of the nature of
securities which have not yet been registered with the SEC. SEC then issued a CDO. The fine imposed to G
Cosmos was initially P51,780,000 but it was later on reduced to only P1M. SEC contends that the P51M penalty
was not excessive because Cosmos had committed 5,178 violations of the SRC, and the penalty should be the
result of each of the violations multiplied by the minimum penalty of P10,000.
Q: How much should the penalty be? Only 1 million since the violation of the SRC is a continuing offense.
Section 54.1 (a) must be read together with sub-items Sec 54.1 (b) to (d). Sec 54.1 (a) must be taken to mean that
the violation of the SRC, rules and orders is a continuing act. We cannot consider each occasion of a violation of
sub-item (a) as an act warranting the imposition of a sanction for each violation. Imposing a fine of at least
P10,000 per sale or per offer to sell will contravene the intendment of law because otherwise the imposition of
fine of not more than P2,000 for each day of a continuing violation will then not have a logical meaning or
purpose. It is logical to hold, instead, that Section 54.1 penalizes a continuing act, resulting in the one-time
imposition of a fine that is not to be less than P10,000.00 but not to be more than P1,000,000.00, plus an
incremental fine of not less than P2,000.00 for each day the violator continues to violate the SRC. As long as the
respondent continued to sell or to offer to sell unregistered securities, the SEC could validly impose the
incremental daily fine of not more than P2,000.00 in addition to the main fine of not less than P10,000.00 nor
more than P1,000,000.00.

c) CDO – Sec 64
· SEC. et al v CJH Dev Corp et al, GR 210316 Nov 28, 2016;
CJH Development Corporation were developing 2 condotels and the payment plan for the units here have 3
options, straight payment, lease back or money back. The lease back or money back option was sought to be
investigated since this was allegedly a security and CJH did not register it. The Enforcement and Prosecution
Department (EPD) of the SEC conducted an investigation and it filed with the SEC En Banc a motion for the
issuance of a cease and desist order. The SEC En Banc issued the CDO. CJH claims that they were not given due
process.
Q: Should the CDO should be issued? Yes. The SEC can motu proprio issue a CDO even without the
participation of the corporation against which the CDO will issue. However, that power of the SEC is not without
limits. There must first be a finding of the propriety of issuing the CDO. A cease and desist order may only be
issued by the Commission after proper investigation or verification, and upon showing that the acts sought to be
restrained could result in injury or fraud to the investing public.
 · Primanila Plans, Inc v SEC GR 193791 Aug 6, 2014
Primanila which was registered with the SEC and was issued Certificate of Registration was engaged in selling
pension plan product PRIMASA PLAN. A CDO was issued by the SEC against PRimanila because it failed to
renew its Dealer’s license. Primanila claims that it was not afforded due process when the CDO was issued.
Q1: Was Primanila afforded due process? Yes. A cease and desist order may be issued by the SEC motu
proprio, it being unnecessary that it results from a verified complaint from an aggrieved party. A prior hearing is
also not required whenever the Commission finds it appropriate to issue a cease and desist order that aims to
curtail fraud or grave or irreparable injury to investors. There is good reason for this provision, as any delay in the
restraint of acts that yield such results can only generate further injury to the public that the SEC is obliged to
protect. To equally protect individuals and corporations from baseless and improvident issuances, the authority of
the SEC under this rule is nonetheless with defined limits. A cease and desist order may only be issued by the
Commission after proper investigation or verification, and upon showing that the acts sought to be restrained
could result in injury or fraud to the investing public.
Q2: Did Primanila violate the SRC? Yes. Since it sold securities without the proper license and registration. Its
license is already expired hence it had no authority to sell.

2. Civil liability (amount of damages to be awarded – Sec 63)

a) For false registration – Sec 56;
In connection with prospectus, etc. – Sec 57
b) Aggrieved party may seek civil recovery of damages (RTC) arising from fraudulent transaction – Sec 58 *
Market manipulation – Sec 59 and
Insider trading – Sec 6
3. Criminal liability – SEC has exclusive jurisdiction to initiate criminal complaints for violation of the SRC
· Intreport Case;
Interport had an agreement with GHB wherein they will exchange their shares with each other. It is alleged herein that a
press release announcing the approval of the agreement was sent to the Philippine Stock Exchange through facsimile and
the SEC, but the facsimile machine of the SEC could not receive it. However, the SEC received reports that the IRC failed
to make timely public disclosures of its negotiations with GHB and that some of its directors, heavily traded IRC shares
utilizing this material insider information. The SEC required the directors to appear and explain why there was no
disclosure about the said transaction. Interport is questioning the authority of the SEC since at the time this happened there
is still no implementing rules on the SRC.
Q1: is there a need for an implementing rules before the SEC can exercise its powers under the SRC? No. The
Revised Securities Act does not require the enactment of implementing rules to make it binding and effective. The
provisions of the RSA are sufficiently clear and complete by themselves. The requirements are specifically set out and the
acts which are enjoined are determinable. Where the statute contains sufficient standards and an unmistakable intent (as in
this case, the RSA) there should be no impediment as to its implementation.
Q2: Does the SEC have primary jurisdiction over the case? Yes. Investigations by the SEC is a requisite before a
criminal case may be referred to the DOJ since the SEC is an administrative agency with the special competence to do so.
According to the doctrine of primary jurisdiction, the courts will not determine a controversy involving a question within
the jurisdiction of an administrative tribunal where the question demands the exercise of sound administrative discretion
requiring the specialized knowledge and expertise of said administrative tribunal to determine technical and intricate
matters of fact.

Must specify SRC provision violated

· Pp v Pastrana et al, GR 196045 Feb 21, 2018
A search warrant was issue for violation of the SRC and estafa. There is a contention that the issuance of the said search
warrant was violative of the rules on criminal procedure which requires that the search warrant will only be issued for 1
specific offense.
Q: Was the search warrant validly issued? No. The search warrant was issued for more than 1 offense. violation of the
SRC is not an offense in itself for there are several punishable acts under the said law such as manipulation of security
prices, insider trading, acting as dealer or broker without being registered with the SEC, use of unregistered exchange, use
of unregistered clearing agency, and violation of the restrictions on borrowings by members, brokers, and dealers among
others. Even the charge of "estafa under Article 315 of the RPC" is vague for there are three ways of committing the said
crime: (1) with unfaithfulness or abuse of confidence; (2) by means of false pretenses or fraudulent acts; or (3) through
fraudulent means. The three ways of committing estafa may be reduced to two, i.e., (1) by means of abuse of confidence; or
(2) by means of deceit. For these reasons alone, it can be easily discerned that Search Warrant No. 01-118 suffers a fatal
defect.

4. Prescription – Sec 73;

· Citibank N.A and the Citigroup Private Bank v Ester H. Tanco-Gabaldon, et al GR 198444 Sep 4, 2013
A complaint for violation of the Revised Securities Act (RSA) and the Securities Regulation Code(SRC) against petitioners
Citibank, Citigroup, and Lim for allegedly issuing securities which is the income notes without the required registration.
There is a contention that the action had already prescribed.
Q: Is the action already prescribed? No. Sec. 62.1 specifically sets out the prescriptive period for the liabilities created
under Secs. 56, 57, 57.1(a) and 57.1(b). Under these provisions, enforcement of the civil liability must be brought within 2
years or 5 years as the case may be. On the other hand, Sec. 62.2 provides for the prescriptive period to enforce any liability
created under the SRC. In determining whether 62.2 covers civil and criminal liability or solely civil liability, the Court held
that the said provision should also be read together with Sec. 56-61. Bearing in mind that 62.1 merely addressed the
prescriptive period for the civil liability provided in Secs. 56, 57, 57.1(a) and 57.1(b), then it reasonably follows that 62.2
deals with the other civil liabilities that were not covered by Sec. 62.1, namely Sec. 59, 60 and 61. As such, the CA was
correct in ruling that the phrase ‘any liability’ in subsection 62.2 can only refer to other liabilities that are civil in nature.
Given the absence of a prescriptive period for the enforcement of the criminal liability in violations of the SRC, Act No.
3326 shall apply. Act No. 3326 provides that offenses punishable by imprisonment for 6 years or more shall prescribe after
12 years. Since violations of the SRC shall be punishable with imprisonment of not less than 7 years nor more than 21
years, the prescription period applicable in this case is 12 years. Furthermore, the 12-year prescriptive period “shall begin to
run from the day of the commission of the violation of the law, and if the same be not known at the time, from the discovery
thereof and the institution of judicial proceedings for its investigation and punishment.”
 BANKING LAWS

A. The New Central Bank Act (R.A. No. 7653) – Sec. 3;

· Bank of Commerce v Planters Dev Bank and BSP GR 15447071 Sep 24, 2012;
RCBC was the registered owner of 9 CB Bills. These 9 bills were involved in a series of transactions which ended up with
BOC. There are 2 sets of transactions. In the first transaction, R CBC sold 7 CB Bills (worth Php 70m) to BOC, who then
sold the CB Bills to PDB, and delivered the Detached Assignment to the latter. PDB then sold Treasury Bills (also worth
70M) to BOC, but delivered the said CB BIlls back to BOC in lieu of the Treasury Bills; however, PDB retained possession
of the Detached Assignment. In the second set of transactions, RCBC sold 2 CB Bills to PDB who then sold them to
Bancap, who then sold them to Al Amanah Islamic Investment Bank, who then sold it to BOC. All in all BOC has
possession of 9 CB Bills. PDB, relying on Section 10 (d) 4 of CB Circular No. 28, moved against the transfer of the CB
Bills and asserted its claim over them. It then wrote to the Petitioner BSP informing it [BSP] that whoever is in possession
of said bills is not a holder in due course, and, therefore the BSP should not make payment upon the presentation of the CB
bills on maturity. BSP argued that PDB cannot invoke Section 10 (d) 4 of CB Circular No. 28 because this section applies
only to an “owner” and a “person presenting the bond,” of which the PDB is neither. PDB has not presented to the BSP any
assignment of the subject CB bills, duly recorded in the BSP’s books, in its favor to clothe it with the status of an “owner.”
Q: Does the BSP have the power to resolve competing claims of ownership over the subject CB Bills?
No. It held that the law has not given the BSP the quasi-judicial power to resolve these competing claims as part of its
power to engage in open market operations. Nothing in the BSP’s charter confers on the BSP the jurisdiction or authority to
determine this kind of claims, arising out of a subsequent transfer or assignment of evidence of indebtedness―a matter that
appropriately falls within the competence of courts of general jurisdiction. What the law grants the BSP is a continuing role
to shape and carry out the country’s monetary policy―not the authority to adjudicate competing claims of ownership over
the securities it has issued―since this authority would not fall under the BSP’s purposes under its charter.

· CB BOL v BF Savings and Mortgage Bank GR 173399 Feb 21, 2017

The CB issued a MB Resolution ordering the closure of Banco Filipino (BF) and placing the latter under receivership. BF
filed a Motion to Admit Attached Amended/ Supplemental Complaint to substitute the CB-BOL for the defunct CB and its
MB. More than 10 years from the enactment of RA 7653, BF again filed a Motion to Admit Second Amended/
Supplemental Complaint, which was granted by the RTC.
Q: Whether the RTC erred in admitting BF’s Second Amended/ Supplemental Complaint?
Yes. The second amendment of the complaint and second supplemental pleading were improper. The
amendment/supplement violates the rules on joinder of parties and causes of action. In the case, BF is seeking to join the
BSP and its MB as parties to the complaint. However, they have different legal personalities from those of the defunct CB
and its MB; firstly, because the CB was abolished by R.A. 7653, and the BSP created in its stead; and secondly, because the
members of each MB are natural persons. These factors make the BSP and its MB different from the CB and its MB.

1. Responsibility, Functions and Primary Objective * – Sec 1, 3

The State shall maintain a central monetary authority that shall function and operate as an independent and accountable body
corporate in the discharge of its mandated responsibilities concerning money, banking and credit. [Sec. 1]

Primary Objectives:
(1) To maintain price stability conducive to balanced and sustainable economic growth.
(2) To promote and maintain monetary stability and the convertibility of the peso.

Other Responsibilities:
(1) To provide policy directions in the areas of money, banking, and credit
(2) To supervise operations of banks
(3) Regulates finance companies and non-bank financial institutions performing quasi-banking functions [Sec. 3]

2. Monetary Board; Powers and Functions – Sec 4;

· Bank of Commerce v Planters Development Bank and BSP GR 154470-71 Sep 24, 2012, 681 SCRA 521, 555;
(repeated case; same doctrine)

· The Hon. Monetary Board and Gail Fule v Phil Veterans Bank, GR 189571 Jan 21, 2015;
Philippine Veterans Bank (PVB) established pension loans for bona fide veterans and beneficiaries. To secure their loans,
the PVB devised Credit Redemption Fund (CRF) by charging a higher premium fee. BSP found that PVB’s CRF violated
Sec 54 of RA No. 8791 which prohibited banks from directly engaging in insurance business as insurer. The MB issued a
Resolution directing PVB to return CRF. BSP denied PVB’s request for reconsideration, hence, it filed a petition for
declaratory relief before the RTC.
Q: Was the petition for declaratory relief proper?
No. Decisions rendered by agencies in the exercise of quasi-judicial functions cannot be the proper subject of a petition for
declaratory relief. The decision to order the bank to return the CRF / premiums were made in the exercise of its quasi-
judicial functions. The BSP Monetary Board exercises quasi-judicial powers. The BSP Monetary Board is an independent
central monetary authority and a body corporate with fiscal and administrative autonomy, mandated to provide policy
directions in the areas of money, banking, and credit. It has the power to issue subpoena, to sue for contempt those refusing
to obey the subpoena without justifiable reason, to administer oaths and compel presentation of books, records and others,
needed in its examination, to impose fines and other sanctions and to issue cease and desist order. Section 37 of Republic
 Act No. 7653, in particular, explicitly provides that the BSP Monetary Board shall exercise its discretion in determining
whether administrative sanctions should be imposed on banks and quasi-banks, which necessarily implies that the BSP
Monetary Board must conduct some form of investigation or hearing regarding the same.

- Sec 113, 115, 117-119 and 123

3. Governor – Sec 17
4. Banks in Distress *** – “close no, hear later” doctrine
· BSP MB v Hon. Antonio Valenzuela GR 184778 Oct 2, 2009, 602 SCRA 698;
The Supervision and Examination Dept (SED) of BSP discovered deficiencies on the books of respondent banks.
Respondent banks argued that none of them had received the Report of Examination (ROE) which finalizes the audit
findings. They filed a complaint for nullification of ROE with TRO and Writ of Preliminary Injunction enjoining BSP from
submitting the ROE to the MB contending that the failure to furnish the bank with the ROE violated their right to due
process. SC issued a TRO.
Q: Was the grant of TRO in favor of the banks correct?
No. The respondent banks show no necessity to a writ of preliminary injunction in order to prevent serious damage.
Q: What is the ‘closed now, hear later’ doctrine?
Under the law, the sanction of closure could be imposed upon a bank by the BSP even without notice and hearing. The
“close now, hear later” doctrine has already been justified as a measure for the protection of the public interest. Swift action
is called for on the part of the BSP when it finds that a bank is in dire straits. Unless adequate and determined efforts are
taken by the government against distressed and mismanaged banks, public faith in the banking system is certain to
deteriorate to the prejudice of the national economy itself, not to mention the losses suffered by the bank depositors,
creditors, and stockholders, who all deserve the protection of the government.
Q: Was there a violation of respondent banks’ right to due process?
No. Respondent banks have failed to show that they are entitled to copies of the ROEs. No provision of law, nor a section in
the procedures of the BSP shows that BSP is required to give them copies of the ROEs. Section 28 of the NCBA provides
that the ROE shall be submitted to the MB; the bank examined is not mentioned as receipt of the ROE. The contents of the
ROEs are essentially the same as those of the List of Findings/ Exceptions provided to said banks, hence they cannot claim
that their right to due process was violated.

· Rural Bank of Buhi v CA 162 SCRA 288;

The bank was placed under receivership by the MB. The bank claims that what the MB has done was a violation of due
process since they did not receive any notice prior to the Bank being placed under receivership.

Q: Whether or not due process was observed by the MB before placing the bank under receivership
Yes. Under Section 29 of RA 265, on proceedings regarding insolvency, there is no requirement that a hearing be first
conducted before a bank may be placed under receivership. The law explicitly provides that the MB can immediately forbid
a banking institution from doing business and immediately appoint a receiver when:
1) There has been an examination by the CB;
2) a report to the CB;
3) prima facie showing that the bank is insolvent
The closure and liquidation of the bank is considered an exercise of police power. It maybe subject to judicial inquiry and
could be set aside if found to be capricious, discriminatory, whimsical, arbitrary, etc. The appointment of a receiver may be
made by the Monetary Board, without notice and hearing, but subject to the judicial inquiry, to insure protection of the
banking institution.

- Secs 83 (loans without collateral) , 84 (emergency loans)

a) Conservatorship – Sec 29
Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the MB finds that a
bank or quasi-bank is: (1) In a state of continuing inability; or (2) Unwillingness to maintain a condition of liquidity deemed
adequate to protect the interest of depositors and creditors [Sec. 29]

Period: Shall not exceed 1 year [Sec. 29]

Expenses: The expenses attendant to the conservatorship shall be borne by the bank or quasi-bank concerned.

Grounds for Termination of Conservatorship by MB:

1. When MB is satisfied that the institution can continue to operate on its own and the conservatorship is no longer
necessary; or
2. When, on the basis of the report of the conservator or of its own findings, the MB determines that the continuance in
business of the institution would involve probable loss to its depositors or creditors (effect: the bank or quasi-bank
would then be placed under receivership) [Sec. 29]

The appointment of a conservator shall be vested exclusively in the MB. [Sec. 30]

Powers and Duties of a Conservator:

1. To take charge of the assets, liabilities, and the management thereof;
2. To reorganize the management;
 3. To collect all monies and debts due said institution;
4. To exercise all powers necessary to restore its viability;
5. To report and be responsible to the MB;
6. To overrule or revoke the actions of the previous management and board of directors of the bank or quasi-bank. [Sec.
29]

Remuneration:
General Rule: The conservator shall receive remuneration in an amount not to exceed 2/3 of the salary of the president of the
institution in 1 year, payable in 12 equal monthly payments.

Exception: A conservator connected with the BSP, in which case said conservator shall not be entitled to receive any
remuneration or emolument. [Sec. 29]

b) Receivership and Liquidation – Sec 30;

Grounds:
Whenever the MB finds that a bank or quasi-bank:
1. Is unable to pay its liabilities as they become due in the ordinary course of business.
a. Exception: This shall not include inability to pay caused by extraordinary demands induced by financial
panic in the banking community;
2. Has insufficient realizable assets, as determined by the BSP, to meet its liabilities; or
3. Cannot continue in business without involving probable losses to its depositors or creditors; or
4. Has willfully violated a cease-and-desist order under Sec. 37 that has become final, involving acts or transaction which
amount to fraud or a dissipation of the assets of the institution.
a. Special rule: in this situation, the MB may act summarily and without hearing. [Sec. 30]

Who acts as Receiver:

1. If a banking institution: the PDIC
2. If a quasi-bank: any person of recognized competence in banking or finance [Sec. 30]

Who appoints Receivers: The appointment of a receiver shall be vested exclusively in the MB. [Sec. 30]
The designation of a conservator is not a precondition to the designation of a receiver. [Sec. 30]

Powers and Duties of a Receiver:

1. Immediately gather and take charge of all the assets and liabilities of the institution
2. Administer the assets for the benefit of the creditors
3. Exercise the general powers of a receiver under the Revised Rules of Court
4. Not to pay or commit any act that will involve the transfer or disposition of any asset of the institution.
Exceptions:
a. Administrative Expenditures
b. Receiver may deposit or place funds in non-speculative investments.
5. Subject to prior approval of the MB, determine, as soon as possible, but not later than 90 days from take-over, whether
the institution may be rehabilitated or otherwise placed in such a condition so that it may be permitted to resume
business with safety to its depositors and creditors and the general public. [Sec. 30]

The assets of the institution under receivership and liquidation shall be deemed in custodia legis and shall be exempt
from any order of garnishment, levy, attachment, or execution. [Sec. 30]

· Apex Bancrights Holdings, Inc. et al v BSP and PDIC GR 214866 Oct 2 2017;
EIB entered into a 3-way merger with UBI and UII, in an attempt to rehabilitate UBI, which was then under
receivership. PDIC extended financial assistance to EIB conditioned upon the infusion of additional capital. However,
EIB failed to comply. So, EIB president voluntarily turned-over the full control of EIB to BSP. BSP then placed it
under the receivership of PDIC. The MB issued a resolution which directed the PDIC to proceed with the liquidation of
EIB.
Q: Whether or not the BSP gravely abused its discretion in ordering the liquidation of EIB
No, the MB’s issuance of a resolution ordering the liquidation of EIB cannot be considered to be tainted with grave
abuse of discretion as it was amply supported by the factual circumstances at hand and made in accordance with
prevailing law and jurisprudence. To note, the “actions of the Monetary Board in proceedings on insolvency are
explicitly declared by law to be ‘final and executory.’ They may not be set aside, or restrained, or enjoined by the
courts, except upon ‘convincing proof that the action is plainly arbitrary and made in bad faith,’” which is absent in this
case.

· PDIC v BIR GR 172892 Jun 13, 2013;

The Rural Bank of Tuba was placed by the MB under liquidation, with PDIC as receiver. PDIC filed with the RTC a
petition for assistance in the liquidation. BIR intervened, prayed that the proceeding be suspended until PDIC secures a
Tax Clearance from the BIR.
Q: Whether a bank placed under liquidation has to secure a tax clearance from the BIR before the project of
distribution of assets of the bank can be approved by the liquidation court?
No. Sec 52 (c) of the Tax Code of 1997 is not applicable to banks ordered placed under liquidation by the MB, and a
tax clearance is not a prerequisite to the approval of the project of distribution of assets of a bank under liquidation by
 the PDIC. The law expressly provides that debts and liabilities of the bank under liquidation are to be paid in
accordance with the rules on concurrence and preference of credit under the Civil Code. Duties, taxes, and fees due the
Government enjoy priority only when they are with reference to a specific movable property, or immovable property.
However, with reference to the other real and personal property of the debtor, sometimes referred to as “free property,”
the taxes and assessments due the National Government, other than those in Articles 2241(1) and 2242(1) of the Civil
Code, such as the corporate income tax, will come only in ninth place in the order of preference. Thus, this Court has
held that the RTC, acting as liquidation court under Section 30 of the New Central Bank Act, commits grave abuse of
discretion in ordering the PDIC, as liquidator of a bank ordered closed by the Monetary Board, to first secure a tax
clearance from the appropriate BIR Regional Office, and holding in abeyance the approval of the project of distribution
of the assets of the closed bank by virtue thereof.

· Alfeo D. Vivas and Eurocredit Community Bank v MB et al GR 191424, Aug 7, 2013;

BSP issued a resolution which places EuroCredit Community Bank under the Prompt Corrective Framework. BSP
requested the books and records of ECCB, but the latter refused on the ground that they are still appealing to the said
resolution. BSP thus placed ECCB under receivership and designated PDIC as its receiver. ECCB contended that the
bank was placed under receivership without due and prior hearing. Vivas filed petition for prohibition ascribing GAD
to the MB.
Q: Was ECCB entitled to due and prior hearing before it is being placed under receivership?
No. Taking into consideration the principle of Close now and Hear Later, the court upheld the power of the MB to take
over banks without need for prior hearing. It is not necessary in as much as the law entrusts to the MB the appreciation
and determination of whether any or all of the statutory ground for closure and receivership of the erring bank are
present. The close now, hear later doctrine has already been justified as a measure for the protection of the public
interest.
Q: Whether or not petition for prohibition will lie against MB
No. The resolution issued by the MB placing the bank under receivership may not be restrained or set aside except on a
petition for certiorari pursuant to RA 7653.

· Yuseco et al v PDIC as Statutory Liquidator of Unitrust Development Bank, GR 217899 Sep 28, 2016 Yuseco
acquired ownership of UDB. UDB declared a bank holiday. The MB issued a resolution placing UDB under the
receivership of PDIC. Yuseco et al filed a class suit against PDIC for injunction and damages. Thereafter, MB issued a
resolution directing PDIC to proceed with the liquidation of UDB. PDIC filed a petition for UDB’s liquidation before
the RTC.
Q: Should UDB undergo liquidation?
Yes. The determination of propriety of instituting receivership or liquidation is an exclusive prerogative of the MB.
Section 30 of the NCBA does not limit the MB's basis in liquidating a bank to insolvency.  The MB is empowered to
close or place a bank under receivership for insolvency or illiquidity, or because the continuance in business would
probably result in loss to the depositors or creditors. The MR did not err when it ordered the UDB’s liquidation sans the
BSP examination report to prove that the UDB is insolvent.

c) Remedies
· CB v CA 106 SCRA 143;
Provident Savings Bank experienced a bank run. The CB facilitated a meeting to persuade Fernandez, Jayme, and
representatives of INK, to enter into a MOA, whereby the management over Provident would be turned over to INK.
However, Provident’s financial condition worsened under the new management. Hence, MB carried out the liquidation
of Provident.
Q: Should the MB’s order of closure and liquidation of Provident be set aside?
Yes. The action of the Monetary Board in ordering the closure and liquidation of an insolvent bank can be set aside
only if there is convincing proof that the action is plainly arbitrary and made in bad faith. Bad faith is evident from the
fact that it pressured Fernandez and Jayme into relinquishing the management and control of Provident to the INK
which did not have any intention of restoring the bank into its former sound financial condition but whose interest was
merely to recover its deposits from Provident, and, thereafter allowing the INK to mismanage Provident until the bank's
financial deterioration and subsequent closure.

· BF v MB 204 SCRA 747

The MB ordered the closure of Banco Filipino (BF) and placed the same under receivership. BF filed a complaint to set
aside MB’s action. Receivers submitted a report to MB finding that the bank’s condition continues to be one of
insolvency.
Q: Were the CB and MB acted in bad faith in finding BF insolvent?
Yes. It is a well-recognized principle that administrative and discretionary functions may not be interfered with by the
courts. But when there is a grave abuse of discretion which is equivalent to a capricious and whimsical exercise of
judgment or where the power is exercised in an arbitrary or despotic manner, then there is a justification for the courts
to set aside the administrative determination reached. In this case, the report was based on an incomplete examination
of the bank and outrightly concluded that the latter’s financial status was one of insolvency or illiquidity. The
examination contemplated in Sec. 29 of the CB Act as an mandatory requirement was not completely and fully
complied with.

Q: What are the mandatory requirements to be complied with before a bank found to be insolvent is ordered
closed and forbidden to do business in the Philippines?
Under Sec 29 and from the case:
 1. an examination shall be conducted by the head of the appropriate supervising or examining department or his
examiners or agents into the condition of the bank;
2. it shall be disclosed in the examination that the condition of the bank is one of insolvency, or that its
continuance in business would involve probable loss to its depositors or creditors;
3. the department head concerned shall inform the Monetary Board in writing, of the facts; and
4. the Monetary Board shall find the statements of the department head to be true.

5. Legal Tender Power * – Sec 52;

All notes and coins issued by the BSP shall be fully guaranteed by the Government of the Republic of the Philippines and
shall be legal tender in the Philippines for all debts, both public and private. [Sec. 52]

Limitation: Coins shall be legal tender in amounts not exceeding P50 for denominations of 25 centavos and above, and in
amounts not exceeding P20 for denominations of 10 centavos or less.

Exception to Limitation: MB may fix otherwise. [Sec. 52]

The maximum amount of coins to be considered as legal tender is: [BSP Circular 537 (2006)]
1. P1,000.00 for denominations of 1-Piso, 5- Piso and 10-Piso coins; and
2. P100.00 for denominations of 1-sentimo, 5- sentimo, 10-sentimo, and 25-sentimo coins.

· Subic Bay Legen Resorts and Casinos v Bernard Fernandez GR 193426 Sep 29, 2014 on casino chips;
Fernandez received casino chips from the Legarda Hotel worth $6,000 as payment from a Chinese client. He handed it over
to his brothers, who decided to encash it. However, Legenda refused to encash the chips and argued that Fernandez stole the
chips and it is unlikely for him to be paid casino chips by his Chinese client.
Q: Was the payment of casino chips unusual?
No. Though casino chips do not constitute legal tender, no law prohibits their use or trade outside of the casino which issues
them. Since casino chips are considered to have been exchanged with their corresponding representative value – it is with
more reason that the Court should require the casino to prove that the chips it confiscated were indeed stolen from it. Hence,
it is not unusual that Bernard could be paid by his Chinese client with the casino chips; even if it be uncommon, it is not
unlawful.

· Federal Express Corporation v Luwalhati R Antonino et al GR 199455 June 27, 2018

Eliza was the owner of a condominium unit in New York. While she was in the Philippines, the monthly charges of the
condominium became due so she sent 2 Citibank Checks to Sison, through FedEx. However, Sison allegedly did not receive
the package. FedEx informed her that the package was delivered to her neighbor. Luwalhati and Eliza filed a complaint for
damages. FedEx claimed that Luwalhati shipped prohibited items and misdeclared these items are “documents”, which was
prohibited under FedEx’s Air WayBill. RTC found that Luwalhati failed to accurately declare the contents of the package as
“checks”. However, it ruled that a check is not legal tender or a “negotiable instrument equivalent to cash”, as prohibited by
the Air Waybill.
Q: Are checks with specified payees, considered as “negotiable instrument equivalent to cash”?
No. It is settled in jurisprudence that checks, being only negotiable instruments, are only substitutes for money and are not
legal tender; more so when the check has a named payee and is not payable to bearer. The Air Waybill’s prohibition
mentions “negotiable instruments” only in the course of making an example. Thus, they are not prohibited items
themselves. Moreover, the illustrative example does not even pertain to negotiable instruments per se but to “negotiable
instruments equivalent to cash.” The checks involved here are payable to specific payees, Maxwell-Kates and the New
York County Dept of Finance. Thus, they are order instruments. They are not payable to their bearer. An order instrument,
which has to be endorsed by the payee before it may be negotiated, cannot be a negotiable instrument equivalent to cash.
They committed no breach of warranty that absolve petitioner of liability.

6. Reserves; Bank deposits and deposit substitutes – Sec 94; 95

Deposit substitutes – funds obtained from the public, other than deposits, through the issuance, endorsement, or acceptance of
deposit-substitute instruments for the borrower's own account, for the purpose of relending or purchasing of receivables and other
obligations. It includes bankers acceptances, promissory notes, participations, certificates of assignment and similar instruments
with recourse, and repurchase agreements. [Sec. 95]

Interest on Reserves (Sec 94):

General rule: The BSP shall not pay interest on the reserves maintained with it.
Exception: Unless the Monetary Board decides otherwise as warranted by circumstances.

7. Foreign Exchange Operations

B. General Banking Law of 2000 (R.A. No. 8791)

1. Definition and Classification of Banks*** – Sec 2
Nature of business;

Bank – Entities engaged in the lending of funds obtained in the form of deposits [Sec. 3.1, GBL]

Classification of Banks:
1. Universal Banks (UB)
2. Commercial Banks (KB)
3. Thrift Banks
a. Savings and mortgage banks
b. Stock savings and loan associations
c. Private development banks
4. Rural Banks
5. Cooperative Banks
6. Islamic Banks
7. Other classification of banks as may be determined by the Monetary Board of the BSP
· Central Bank of the Phil v CA 208 SCRA 652;
Central Bank claims that during the regular examination of Producers Bank of Phils (PBP) it stumbled upon some highly
questionable loans which the latter extended to PBP owners themselves without collateral. After discovering these
anomalous loans, it triggered a bank-run in PBP which resulted in continuous over-drawings on the bank’s demand deposit
account with the CB. The over-drawings continued increase prompted the MB to place PBP under conservatorship. PBP
failing to submit a rehabilitation plan, the MB proposed its own which it considers as viable but PBP made no plans. PBP
filed a complaint before the RTC contending that its conservatorship placement was unjustified.

Q: Whether or not MB and CB acted in bad faith.

No.The fact that PBP is grossly overdrawn on its reserve account with the CB is not disputed by PBP. This enormous
overdraft evidences the patent inability of the bank’s management to keep PBP liquid. This fact alone sufficiently justifies the
remedial measures taken by the MB. Whether or not there is a rehabilitation plan agreed upon between PBP and MB, the CB
is authorized under RA 265 to take appropriate measures to protect the interest of the bank’s depositors as well as of the
general public. To protect the public against unscrupulous practices of some bankers, the government requires the banking
institutions to set up reserves against their deposit liabilities. These reserves, pegged at a certain percentage of the volume of
deposit liability, is that portion of the deposit received by the banking institution which it cannot use for loans and
investments. The reserve requirement is one means by which the government ensures the liquidity of banking institutions.

· Simex Int’l v CA 183 SCRA 361;

Simex deposited to its account in the Traders Royal Bank an amount of 100k. Subsequently, it issued several checks against
its deposit but was surprised to learn later that they had been dishonored for eight (8) transactions for reasons of insufficient
funds. As a consequence, its suppliers delayed and withhold its orders and some cancelled their credit line until they make
good on their payments. This prompted the petitioner to file for damages against the bank imputing among others a
besmirched in their reputation, attorney’s fees and costs of the litigation.

Q: Whether or not the bank is liable for damages it caused with Simex Int’l.
Yes. The fact that the Simex's credit line was canceled and its orders were not acted upon pending receipt of actual payment
by the suppliers. Its business declined. Its reputation was tarnished. Its standing was reduced in the business community. All
this was due to the fault of the respondent bank which was undeniably remiss in its duty to the petitioner.

Q: What is the relationship between the bank and its depositor?

Fiduciary relation. The depositor expects the bank to treat his account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the
last centavo and as promptly as possible. Bank is under obligation to treat the accounts of its depositors with meticulous
care, always having in mind the fiduciary nature of their relationship.

- Sec 3;
- Thrift Banks Act of 1995 RA 7906 Sec 3 (a);
The term ‘thrift banks’ also refers to any banking corporation organized for the following purposes:
(a) Accumulating the savings of depositors and investing them, together with capital loans secured by bonds, mortgages in
real estate and insured improvements thereon, chattel mortgage, bonds and other forms of security or in loans for personal
or household finance, whether secured or unsecured, or in financing for homebuilding and home development; in readily
marketable and debt securities; in commercial papers and accounts receivables, drafts, bills of exchange, acceptances or
notes arising out of commercial transactions; and in such other investments and loans which the Monetary Board may
determine as necessary in the furtherance of national economic objectives;
(b) Providing short-term working capital, medium- and long-term financing, to businesses engaged in agriculture, services,
industry and housing; and
(c) Providing diversified financial and allied services for its chosen market and constituencies especially for small and
medium enterprises and individuals. [Sec.3[a], Thrift Banks Act]

- The Rural Bank Act of 1992 RA 7353 Sec 3;

These banks are mandated to make needed credit available and readily accessible in the rural areas on reasonable terms and
which are primarily governed by the Rural Banks Act of 1992 [RA 7353].

- The Cooperative Code of the Philippines RA 6938;

A cooperative bank is one organized for the primary purpose of providing a wide range of financial services to cooperatives
and their members. [Art. 23(i), Philippine Cooperative Code as Amended, RA 6938]
 - Islamic Bank RA 6848; Sec 54
These are banks the business dealings and activities of which are subject to the basic principles and rulings of Islamic
Shari’a. The Al Amanah Islamic Investment Bank of the Philippines, created by RA 6848, is the only Islamic bank in the
country at this time.

A bank cannot engage in the business as the insurer;

Foreign banks – Sec 11, RA 7721 as amended by RA10641; Sec 22

2. Distinction of Banks from Quasi-Banks, Trust and other Entities

- Sec 4,8;

Quasi-banks – entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or
acceptance of deposit substitutes for purposes of relending or purchasing receivables and other obligations. [Sec. 4, GBL]

Trust Entities – a stock corporation or a person duly authorized by the Monetary Board to engage in trust business. [Sec. 79,
GBL]

A Trust Business is any activity resulting from trusteeship involving the appointment of a trustee by a trustor for the
administration, holding, management of funds and/or properties of the trustor by the trustee for the use, benefit or advantage of
the trustor or of beneficiaries.

· Banas v Asia Pacific Finance Corp v xxx GR 128703 Oct 18, 2000;
Dizon Construction defaulted in the payment of the remaining installments, prompting Asia Pacific (AP) to send a Statement
of Account for the unpaid balance. As the demand was unheeded, AP filed a case against Banas (Pres.) and DC. Banas
claims that AP could not directly engage in banking business, it proposed to them a scheme wherein AP could extend a loan
to them without violating banking laws claiming that it was organized as an investment house which could not engage in the
lending of funds obtained from the public through receipt of deposits. The disputed Promissory Note,Deed of Chattel
Mortgage and Continuing Undertaking were not intended to be valid and binding on the parties as they were merely devices
to conceal their real intention which was to enter into a contract of loan in violation of banking laws.

Q: What is an investment company?

An investment company refers to any issuer which is or holds itself out as being engaged or proposes to engage primarily in
the business of investing, reinvesting or trading in securities. As defined in Revised Securities Act, securities “shall include
commercial papers evidencing indebtedness of any person, financial or non-financial entity, irrespective of maturity, issued,
endorsed, sold, transferred or in any manner conveyed to another with or without recourse, such as promissory notes”.

Q: Whether the disputed transaction between AP was engaged in banking activities.

No. The transaction between petitioners and respondent was one involving not a loan but purchase of receivables at a
discount, well within the purview of “investing, reinvesting or trading in securities” which an investment company, like AP,
is authorized to perform and does not constitute a violation of the General Banking Act. What is prohibited by law is for
investment companies to lend funds obtained from the public through receipts of deposit, which is a function of banking
institutions. But here, the funds supposedly “lent” to petitioners have not been shown to have been obtained from the public
by way of deposits, hence, the inapplicability of banking laws.

Republic v Security Credit and Acceptance Corp GR L020583 Jan 23, 1967
A quo warranto is filed against SAC alleging that it is engaged in banking operations without the authority required by the
General Banking Act (RA337). It was found that SAC established 74 branches in principal cities and towns throughout the
Philippines; that through a systematic and vigorous campaign undertaken by the corporation, the same had managed to
induce the public to open 59,463 savings deposit accounts.

Q: What is a bank?
A bank has been defined as "a moneyed institute founded to facilitate the borrowing, lending, and safe-keeping of money
and to deal in notes, bills of exchange, and credits.

Q: When an investment company considered as a bank?

An investment company which loans out the money of its customers, collects the interest and charges a commission to both
lender and borrower, is a bank.

Q: Whether or not the illegal transactions undertaken by SAC warrant its dissolution?
That the illegal transactions thus undertaken by defendant corporation warrant its dissolution is apparent from the fact that
the foregoing misuser of the corporate funds and franchise affects the essence of its business, that it is willful and has been
repeated 59,643 times, and that its continuances inflicts injury upon the public, owing to the number of persons affected
thereby.

3. Bank Powers, Functions and Liabilities

4. Diligence Required of Banks
 5. Grant of Loans and Security Requirements*
- Sec 35, 37, 38,41, 43, 47, 57
6. Ratio of Net Worth to Total Risk Assets – Sec 34
7. Single Borrower’s Limit - Sec 35
8. Restrictions on Bank Exposure to DOSRI (Directors, Officers, Stockholders and their Related Interests)* – Sec 36;
· Ramoso v CA GR 117416
Petitioners herein invested and bought majority shares of stocks, while Commercial Credit Corporation (CCC) retained
minority holdings. Management contracts were executed between each franchise company and CCC (DORSI Regulation).
CCC attempted to obtain a quasi-banking license from Central Bank of the Philippines. But there was a hindrance because
Section 1326 of CBs Manual of Regulations for Banks and Other Financial Intermediaries, states: Sec. 1326. General
Policy. Dealings of a bank with any of its directors, officers or stockholders and their related interests should be in
the regular course of business and upon terms not less favorable to the bank than those offered to others. In view of
said hindrance, what CCC did was divest itself of its shareholdings in the franchise companies. It incorporated CCC Equity
to take over the administration of the franchise companies under new management contracts. In the meantime, CCC
continued providing a discounting line for receivables of the franchise companies through CCC Equity. Thereafter, it
changed its name to General Credit Corporation (GCC).

Q: Whether or not GCC created CCC Equity to circumvent CBs DOSRI Regulation.
No. Petitioner failed to present evidence to support his claim. There was no fraud nor mismanagement in the control
exercised by GCC and by CCC Equity, over the franchise companies. Whether the existence of the corporation should be
pierced depends on questions of facts, appropriately pleaded. Mere allegation that a corporation is the alter ego of the
individual stockholders is insufficient. The presumption is that the stockholders or officers and the corporation are distinct
entities. The burden of proving otherwise is on the party seeking to have the court pierce the veil of the corporate entity.

Q: What is DOSRI?
Loans granted to:
a) Director; b) Officer; c) Stockholder, having at least 1% ownership over the bank; d) Related Interests, such as DOS’s
spouses, their relatives within the first degree whether by consanguinity or affinity, partnership whereby DOS is a partner or
a corporation where DOS owns at least 20%.

9. Foreclosure of REM *** – Sec 47, 51

10. Prohibited Acts or Transactions* - Secs 11, 12, 13, 55.2, 70

C. Law on Secrecy of Bank Deposits (R.A. No. 1405, as amended; Foreign Currency Deposit Act RA 6426, as amended or “FCDA”) ***** –
Sec 2;
· BSB Group Inc v Sally Go, GR 168644, Feb 16, 2010;
Respondent, the cashier in petitioner corp. was charged with criminal complaint for Qualified Theft and Estafa. Petitioner
claims that respondent was able to encash the payments made to her in checks and subsequently deposit the proceeds in her
personal bank account in Security Bank. The trial court, on motion of the prosecution, issued a Subpoena Duces Tecum
addressed to Security Bank for the details of the Security Bank account of Respondent. TC granted the motion and
respondent opposed the same, reaching the all the way to the Supreme Court. The contention of respondent is that the
issuance of the subpoena violate RA 1405 otherwise known as the bank secrecy act. The prosecution countered that this case
falls squarely into one of the exceptions which is “the money deposited is the subject matter of the litigation”.

Q: Whether or not the issuance of subpoena was proper because such was within those exceptions given under Bank
Secrecy Act.
No. SC said that the exception is applicable only when the account itself is the subject of the action. In this case, the
Information makes no factual allegation that in some material way involves the checks subject of the testimonial and
documentary evidence. It can hardly be inferred from the indictment itself that the Security Bank account is the ostensible
subject of the prosecution’s inquiry.

Q: What are the instances where examination or disclosure of information about deposits can be allowed?
1. Upon written consent of the depositor;
2. In cases of impeachment;
3. Upon order of competent court in cases of bribery or dereliction of duty of public officials;
4. When the money deposited or invested is the subject matter of the litigation;
5. In case of violation of the AMLA.
6. With court order:
a) In cases of unexplained wealth under Anti-Graft and Corrupt Practices Act.
b) In cases filed by the Ombudsman and upon the latter’s authority to examine and have access to bank accounts and
records.

· BSP v Purisima 161 SCRA 576; Sec 2 of RA 3936;

The Customs special agent involved is Manuel Caturla, and the accusation against him was filed by the BIR. In the course of
the preliminary investigation, the Tanodbayan issued a subpoena duces tecum to the Banco Filipino Savings and Mortgage
Bank, commanding its representative to appear at a specified time at the office of the Tanodbayan and furnish the latter with
duly certified copies of the records in all its branches and extension offices, of the loans, savings and time deposits and other
 banking transactions, dating back to 1969, appearing in the name of Caturla, his wife, Purita, their children – Manuel,
Marilyn, and Michael and Pedro.

Q: Whether or not Banco Filipino would violate the Bank Secrecy Law if it would comply with the Order.
No. It is one of the exception to the Bank Secrecy Law against the disclosure of bank deposits in cases of unexplained
wealth. Moreover, the Court held that inquiry into illegally acquired property extends to cases where such property is
concealed or being held or recorded in the name other persons. This proposition is made clear by RA 3019 which quite
categorically states that the term “legitimately acquired property of a public officer or employee shall not include …
property unlawfully acquired by the respondent, but its ownership is concealed by its being recorded in the name of, of held
by, respondent’s spouse, ascendants, descendants, relatives or any other persons.

· Intengan v CA Feb 15, 2002;

Citibank filed a complaint against two of its officers, Santos and Genuino for violating Section 31 of the Corporation Code.
Annexed to the affidavit (by LIM) stating the allegations against the two officers were documents that pertained to the
dollar accounts of petitioners. INTEGNGAN filed a motion for the exclusion and physical withdrawal of their bank records.
The provincial prosecutor ordered the filing of Information against Lim for violation of the Bank Secrecy Law. Upon
appeal, DOJ ordered the withdrawal of the Information. Petitioner appealed to the Court of Appeals asking that the DOJ
order be reversed. CA denied the appeal. Upon appeal to the Supreme Court, SC held that since the accounts in question
were US dollar accounts, the applicable law was the Foreign Currency Deposit Act and not the Bank Secrecy Law. The
FCDA provides that foreign currency deposits are absolutely confidential except upon written permission of the depositor.
The case was dismissed based on prescription since the proper remedy was not resorted.

· Melon Bank v Magsino 190 SCRA 633;

Dolores Ventosa requested the transfer of $1,000 from First National Bank (USA) to Victoria Javier through Prudential
Bank in Manila. First National Bank requested Mellon Bank to make the transfer through Manufacturers Hanover Bank.
However, Mellon Bank mistakenly indicated and eventually transferred the amount of $1,000,000 instead of $1,000. The
Javier spouses immediately withdrew the amount and bought real estate from POBLADOR in the US. Mellon Bank filed a
complaint in the Supreme Court of California against the Javier Spouses seeking to impose a constructive trust on the
property they purchased using the funds from the erroneous transfer. Mellon Bank also filed in the CFI of Rizal a complaint
against the Javier spouses and Poblador to recover the amount they received from the sale of the California property. During
the course of the proceedings, it was found out that the checks originally issued by Javier were already negotiated and now
deposited to an account in the Philippine Veterans Bank in the name of AZADA (law partner of Poblador). Mellon Bank
subpoenaed an officer of Veterans Bank to show that Azada deposited HSBC checks in his personal account with said bank.
The testimonies of these witnesses were objected to by the defense. They also moved that the testimonies be stricken off
since it violated the Secrecy of Bank Deposits. The Supreme Court held that the objection was unfounded. Section 2 of the
said law allows the disclosure of bank deposits in cases where the money deposited is the subject matter of the litigation.

· Marquez v Desierto 359 SCRA 772 (2001)

Marquez, a branch manager of Union Bank, received an Order from the Ombudsman for an in-camera inspection relative to
various accounts that are involved in an on-going investigation. It was alleged that a certain TRIVINIO deposited 11
Managers Checks to Union Bank. Marquez requested for more time to respond to the request as it was difficult to identify
the account involved. The Ombudsman issued an Order directing Marquez to produce the bank documents and refusal to
comply constitutes indirect contempt and obstruction in the lawful exercise of the functions of the Ombudsman. Marquez
and Union Bank filed a petition for declaratory relief, prohibition and injunction with the RTC invoking the Bank Secrecy
Law vis-à-vis the request of the Ombudsman.

The Supreme Court ruled that the Ombudsman had no authority to order the in-camera inspection of the bank accounts.
There must be a pending case before a competent jurisdiction. The account must be clearly identified and the inspection
must be limited to the subject matter of the pending case. The Bank personnel must be notified and present during the
inspection. In the case at bar, there is not pending litigation before any court but an investigation by the Office of the
Ombudsman. In short, it was a fishing expedition by the Ombudsman to fish for additional evidence to formally charge
LAGDAMEO.

1. Purpose
2. Prohibited Acts
- Sec 55 (b);
· Ejercito v SB 509 SCRA 140 (2006);
The SB granted the request of the Special Prosecution Panel for the issuance of a subpoena directing Export Bank to
produce documents relating to Trust Account No. 858 and Savings Account of President Estrada. The SB also denied
Estrada’s Motion to Quash which alleges that the bank accounts are covered by the Secrecy of Bank Deposits Law and do
not fall under the exceptions of said law. The Supreme Court ruled that the said accounts fall under the exceptions indicated
in the Bank Secrecy Law. In the present case, two exceptions apply; (1) the examination of bank accounts is upon order of a
competent court in cases of bribery or dereliction of duty of public officials; and (2) the money deposited or invested is the
subject matter of the litigation. NOTE that cases of unexplained wealth are similar to cases of bribery and dereliction of duty
and is analogous to plunder. The Plunder case now pending with the SB necessarily involves an inquiry into the
whereabouts of the amount purportedly acquired illegally by the former President.
 · Dona Adela Export International Inc. v Trade and Investment Dev Corp GR 201931 Feb 11, 2015
Petitioner Dona Adela filed a Petition for Voluntary Insolvency before the RTC. After finding the petition sufficient in form
and substance, RTC declared petitioner herein as insolvent and stayed all civil proceedings against it. Thereafter, Atty.
Arlene Gonzales was appointed as a receiver and proceeded to make the necessary report, to engage appraisers and require
the creditors to submit proof of their respective claims. Atty. Gonzales then filed a Motion for Parties to Enter Into
Compromise Agreement incorporating therein her proposed terms of compromise. Then, TIDCORP and BPI also filed a
Joint Motion to Approve Agreement which was approved. Petitioner filed a motion for partial reconsideration claiming that
TIDCORP and BPI’s agreement imposes upon it several obligations such as payment of expenses and taxes and waiver of
confidentiality of bank deposits when it is not a party and signatory to the said agreement. RTC denied the motion.

3. Deposits Covered
· GSIS v CA et al GR 189206 Jun 8, 2011
The controversy originated from a surety agreement by which Domsat Holdings obtained a surety bond from GSIS to secure the
payment of the loan from the Banks. When Domsat failed to pay the loan, GSIS refused to comply with its obligation reasoning
that Domsat did not use the loan proceeds for the payment of rental for the satellite. GSIS alleged that Domsat, with Westmont
Bank as the conduit, transferred the U.S. $11 Million loan proceeds from the Industrial Bank of Korea to Citibank New York
account of Westmont Bank and from there to the Binondo Branch of Westmont Bank. The Banks filed a complaint before the
RTC of Makati against Domsat and GSIS.

RTC issued a subpoena decus tecum. A motion to quash was filed by the banks on three grounds: 1) the subpoena is
unreasonable, oppressive and does not establish the relevance of the documents sought; 2) request for the documents will violate
the Law on Secrecy of Bank Deposits; and 3) GSIS failed to advance the reasonable cost of production of the documents. RTC
denied the said motion. CA declared that Domsats deposit in Westmont Bank is covered by Republic Act No. 6426 or the Bank
Secrecy Law. It is our considered opinion that Domsats deposit of $11,000,000.00 in Westmont Bank is covered by the Bank
Secrecy Law, as such it cannot be examined, inquired or looked into without the written consent of its owner.

GSIS insists that Domsats deposit with Westmont Bank can be examined and inquired into. It anchored its argument on the Law
on Secrecy of Bank Deposits, which allows the disclosure of bank deposits in cases where the money deposited is the subject
matter of the litigation. GSIS asserts that the subject matter of the litigation is the U.S. $11 Million obtained by Domsat from the
Banks to supposedly finance the lease of a Russian satellite from Intersputnik. Whether or not it should be held liable as a surety
for the principal amount of U.S. $11 Million, GSIS contends, is contingent upon whether Domsat indeed utilized the amount to
lease a Russian satellite as agreed in the Surety Bond Agreement. Hence, GSIS argues that the whereabouts of the U.S. $11
Million is the subject matter of the case and the disclosure of bank deposits relating to the U.S. $11 Million should be allowed.

Domsat denies the allegations of GSIS and reiterates that it did not give a categorical or affirmative written consent or permission
to GSIS to examine its bank statements with Westmont Bank. The Banks maintain that Republic Act No. 1405 is not the
applicable law in the instant case because the Domsat deposit is a foreign currency deposit, thus covered by Republic Act No.
6426. Under said law, only the consent of the depositor shall serve as the exception for the disclosure of his/her deposit.

Issue: GSIS invokes Republic Act No. 1405 to justify the issuance of the subpoena while the banks cite Republic Act No. 6426 to
oppose it. The core issue is which of the two laws should apply in the instant case. - “RA 6426 “Foreign Currency Deposit Act
is applicable in this case.

SC: Republic Act No. 1405 was enacted in 1955. Section 2 thereof was first amended by Presidential Decree No. 1792 in 1981
and further amended by Republic Act No. 7653 in 1993. It now reads: Section 2. All deposits of whatever nature with banks
or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its
political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not
be examined, inquired or looked into by any person, government official, bureau or office, except upon written
permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or
dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the
litigation.

Section 8 of Republic Act No. 6426, which was enacted in 1974, and amended by Presidential Decree No. 1035 and later by
Presidential Decree No. 1246, provides: Section 8. Secrecy of Foreign Currency Deposits. All foreign currency deposits
authorized under this Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized
under Presidential Decree No. 1034, are hereby declared as and considered of an absolutely confidential nature and,
except upon the written permission of the depositor, in no instance shall foreign currency deposits be examined, inquired
or looked into by any person, government official, bureau or office whether judicial or administrative or legislative or any
other entity whether public or private; Provided, however, That said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative body, government agency or any
administrative body whatsoever. (As amended by PD No. 1035, and further amended by PD No. 1246, prom. Nov. 21,
1977.)

Applying Section 8 of Republic Act No. 6426, absent the written permission from Domsat, Westmont Bank cannot be legally
compelled to disclose the bank deposits of Domsat, otherwise, it might expose itself to criminal liability under the same act. The
 basis for the application of subpoena is to prove that the loan intended for Domsat by the Banks and guaranteed by GSIS, was
diverted to a purpose other than that stated in the surety bond. The Banks, however, argue that GSIS is in fact liable to them for
the proper applications of the loan proceeds and not vice-versa. We are however not prepared to rule on the merits of this case
lest we pre-empt the findings of the lower courts on the matter.

4. Exceptions
· GSIS v Ca GR 189206 Jun 8, 2011

- Secs 9, 10 and 11 of AMLA;

- Unclaimed Balances Act RA 3936;
- Secs 27 and 28 RA 8372 or the Human Security Act of 2007;
- Sec 8 par 8 of RA 9576 or the PDIC Act;
- Sec 6F of the NIRC
5. Garnishment of Deposits, including Foreign Deposits *
· China Banking Corp v Ortega 49 SCRA 355;
A judgment by default was rendered against Bautista Logging. To satisfy the judgment, ACABAN sought the garnishment
of the bank deposits of B&B Forest Development with China Bank. A notice of garnishment was issued by the Sheriff and
served through the cashier of China Bank. LIONG (cashier) refused to comply invoking RA No. 1405 which prohibits the
disclosure of any information relative to bank deposits. The court ordered LIONG “to inform the court whether or not there
is a deposit in the China Bank of B&B Forest Development and if there is any deposit, to hold the same intact and not allow
any withdrawal until further order from the court”

The Supreme Court ruled that what the lower court required China Bank to do was to inform it (court) if there an account
for the purpose of garnishment. The SC also noted that it was not the intention of the law makers to place bank deposits
beyond the reach of execution to satisfy a final judgment. The prohibition against examination of or inquiry into a bank
deposit under RA 1405 does not preclude its being garnished to insure satisfaction of a judgment. What the law prohibits is
a mere investigation into the existence and the amount of the deposit. In this case, the disclosure is purely incidental to the
execution to satisfy a final judgment.

· Benedicto and Riviera v CA 364 SCRA 334 (2001);

Imelda Marcos, and Petitioners Benedicto & Riviera were indicted for violation of Section 10 of Circular No. 960 in
relation to the Central Bank Act. The charge sheets alleged that the trio failed to submit reports of their foreign exchange
earnings from abroad and/or failed to register with the Foreign Exchange Department of the Central Bank within the period
mandated by the said Circular.

Said Circular prohibited natural and juridical persons from maintaining foreign exchange accounts abroad without prior
authorization from the Central Bank. It also required all residents of the Philippines who habitually earned or received
foreign currencies from invisibles, either locally or abroad, to report such earnings or receipts to the Central Bank.
Violations of the Circular were punishable as a criminal offense under Section 34 of the Central Bank Act.

In 1992, the Central Bank came out with Circular No. 1318 which revised the rules governing non-trade foreign exchange
transactions; and Circular No. 1353 which amended the former as well as deleted the requirement of prior Central Bank
approval for foreign exchange-funded expenditures obtained from the banking system. Both issuances contained a saving
clause excepting from their coverage pending criminal actions involving violations of Circular No. 960 and, in the case of
Circular No. 1353, violations of both Circular No. 960 and Circular No. 1318.

Petitioners moved to quash the informations on the grounds of on lack of jurisdiction, forum shopping, extinction of
criminal liability with the repeal of Circular No. 960, prescription, exemption from the Central Bank’s reporting
requirement, and the grant of absolute immunity as a result of a compromise agreement entered into with the government.

The RTC denied the motion and did not reconsider, thus Petitioners filed a petition for certiorari before the CA. Which
dismissed the petition.

In relation to the topic, the main issue is – are the petitioners exempted from the Central Bank’s reporting requirement due
to the protection afforded to foreign currency deposits under RA 6426, as amended?

The SC ruled in the negative. Petitioners failed to prove that they fell within the exception provided for by RA 6426. The
Court held: Not only do we find the record bare of any proof to support petitioners’ claim of falling within the coverage of
Republic Act No. 6426, we likewise find from a reading of Section 2 of the Foreign Currency Deposit Act that said law is
inapplicable to the foreign currency accounts in question. Section 2, Republic Act No. 6426 speaks of “deposit with such
Philippine banks in good standing, as may. . . be designated by the Central Bank for the purpose.” The criminal cases filed
against petitioners for violation of Circular No. 960 involve foreign currency accounts maintained in foreign banks, not
Philippine banks.
 - Sec 8 FCDA

D. Anti-Money Laundering Act (R.A. No. 9160, as amended by R.A. No. 9160, 9194 and 10365)***
1. Policy of the law ; exception to the Law on Secrecy of Bank Deposits
· Subido et al v CA GR 216914 Dec 6, 2016
● Challenged in this petition for certiorari and prohibition under Rule 65 of the Rules of Court is the constitutionality of
Section 11 of R.A No. 9160, the Anti-Money Laundering Act, as amended, specifically the Anti-Money Laundering
Council's authority to file with the Court of Appeals (CA) in this case, an ex-parte application for inquiry into certain bank
deposits and investments, including related accounts based on probable cause.
● In 2015, a year before the 2016 presidential elections, reports abounded on the supposed disproportionate wealth of then
Vice President Jejomar Binay and the rest of his family, some of whom were likewise elected public officers. The Office of
the Ombudsman and the Senate conducted investigations and inquiries thereon.
● From various news reports announcing the inquiry into then Vice President Binay's bank accounts, including accounts of
members of his family, petitioner Subido Pagente Certeza Mendoza & Binay Law Firm (SPCMB) was most concerned with
the article published in the Manila Times on 25 February 2015 entitled "Inspect Binay Bank Accounts" which read, in
pertinent part:
xxx The Anti-Money Laundering Council (AMLC) asked the Court of Appeals (CA) to allow the [C]ouncil to peek
into the bank accounts of the Binays, their corporations, and a law office where a family member was once a partner.
● Contentions: Anti-Money Laundering Act is unconstitutional insofar as it allows the examination of a bank account without
any notice to the affected party: (1) It violates the person's right to due process; and (2) It violates the person's right to
privacy.
● Issue: WN it violates the person's right to privacy – NO We affirm the constitutionality of Section 11 of the AMLA
allowing the ex-parte application by the AMLC for authority to inquire into, and examine, certain bank deposits and
investments.
● HELD: Section 11 of the AMLA providing for ex-parte application and inquiry by the AMLC into certain bank deposits and
investments does not violate substantive due process, there being no physical seizure of property involved at that stage. In
fact, .Eugenio delineates a bank inquiry order under Section 11 from a freeze order under Section 10 on both remedies'
effect on the direct objects, i.e. the bank deposits and investments.
● Plainly, the AMLC's investigation of money laundering offenses and its determination of possible money laundering
offenses, specifically its inquiry into certain bank accounts allowed by court order, does not transform it into an investigative
body exercising quasi-judicial powers. Hence, Section 11 of the AMLA, authorizing a bank inquiry court order, cannot be
said to violate SPCMB's constitutional right to due process.
● Section 11 of the AMLA to heightened scrutiny and found nothing arbitrary in the allowance and authorization to AMLC to
undertake an inquiry into certain bank accounts or deposits. Instead, we found that it provides safeguards before a bank
inquiry order is issued, ensuring adherence to the general state policy of preserving the absolutely confidential nature of
Philippine bank accounts

2. Anti-Money Laundering Council (AMLC) powers and functions

3. Covered Persons (including DNFBP) and their Obligations* – Sec 3, 9
a) KYC
· Land Bank v Artemio San Juan Jr GR 186279 Apr 2, 2013
A certain Bonsalangan (“B”) approached San Juan, bank manager of an LBP branch (“the bank manager”) to
encash a 26 Billion peso China Bank check. The bank manager did several questionable things: (1) told the bank’s
Cashier that there was no need for clearing (since China Bank certified as to the clean origins of the funds), (2)
instructed the New Accounts Clerk to open a new account for B even without two valid ID’s, although he had one
(since B was a signatory to a preexisting account with LBP), (3) he even funded the P 150.00 for B’s check
booklet, and (4), when the Cashier informed him that, according to the manager in another branch, he had to
report a check of a whopping 26 Billion pesos to the Area Head Office immediately, he said to just report it at the
next working day, a Monday. B was able to have an account at LBP and was able to deposit the check. It was
never stated in the facts whether 26 Billion pesos was actually encashed; all the facts say are that the check was
deposited in the newly opened account of B. Nevertheless, we may perhaps imply it since B was sought to be
dismissed. LBP filed a formal charge with the Office of the Government Corporate Counsel against the bank
manager accusing him of gross neglect of duty. LBP Board of Directors affirmed such finding and dismissed the
bank manager. CSC affirmed. CA modified, saying that he was only guilty of simple neglect which is punishable,
at most, with a six month suspension. SC said he was guilty of gross neglect (see DOCTRINE). P 26 Billion is
exceptional and far from the usual bank transactions. This kind of unusual, even suspicious, transaction warranted
a more guarded and prompt response from the respondent. We likewise discern from the respondent’s actuations
that he was not only grossly negligent in the performance of his duties, but was also instrumental in perpetuating a
fraud against the bank. The respondent cannot deny that he solicited Bonsalagan’s account, allegedly to improve
the bank’s deposit portfolio.

b) Record keeping
4. Covered Transaction Report (CTR) v Suspicious Transaction Report (STR) – threshold amounts
5. Unlawful Activities or Predicate Crimes*
6. Money laundering; how committed
· PDIC v Manu Gidwani GR 234616 Jun 20, 2018

Pursuant to several resolutions of the Monetary Board of the BSP, the subject rural banks which are owned and controlled
by the Legacy Group of Companies were ordered closed. The Philippine Deposit Insurance Corporation (PDIC) thereafter
placed the subject banks under receivership. Respondent Manu and 86 other complainants who represented themselves to
own 471 deposit accounts with the Legacy Group, and also subsequently filed claims with the PDIC. The claims were
processed and granted. 683 Landbank cross checks were issued in favor of the 86 individuals, excluding Spouses Gidwani
amounting to P98,733,690.21. The checks stated “Payable to Payee’s Account Only”. Despite these explicit instructions,
the individuals did not deposit the crossed checks in their respective bank accounts. Rather, the face value of all the checks
were credited to a single account with Rizal Commercial Banking Corporation (RCBC), owned by Manu.

PDIC conducted an investigation upon clearing of the checks. The investigation found that based on available bank
documents, the spouses Gidwani and the 86 individuals maintained a total of 471 deposit accounts aggregating
P118,187,500 with the different Legacy Banks, and that 142 of these accounts, with the total amount of P20,966,439.09,
were in the names of helpers and rank-and-􏰀le employees of the Gidwani spouses. Thus, they allegedly did not have the
financial capacity to deposit the amounts recorded under their names, let alone make the deposits in various Legacy Banks
located nationwide. PDIC likewise noted that advance interests on several of the deposits were paid to the Gidwani spouses
even though they are not the named owners of the accounts. Hence, PDIC contends that complainants are not entitled to the
value of the checks since they were not the true owners, and Spouses Gidwani were the true beneficial owners. This
prompted PDIC to file a criminal complaint before the DOJ Task Force for estafa through falsification punished by the RPC
and for money laundering as defined in Section 4 (a) of AMLA against the Gidwani spouses and the 86 other individuals.

DOJ Task Force dismissed the criminal complaint for lack of probable cause. Upon appeal to the Secretary of Justice, the
decision was reversed. CA reversed DOJ Sec. Hence, this petition.

Issue: W/N there is probable cause to charge respondents with money laundering.

Held: Yes. Decision of CA was reversed and reinstated the decision of DOJ Sec. There exists probable cause to charge
respondents with estafa and money laundering. Under RA 9160, the law provides that:

Section 4. Money Laundering Offense. — Money laundering is a crime whereby the proceeds of an unlawful activity are
transacted, thereby making them appear to have originated from legitimate sources. It is committed by the following:

a. Any person knowing that any monetary instrument or property represents, involves, or relates to the proceeds of any
unlawful activity, transacts or attempts to transact said monetary instrument or property.

In this case, the PDIC reportedly discovered that there was only one beneficial owner of the 471 bank accounts with the
Legacy Banks of the 86 individual depositors — respondent Manu. To illustrate, PDIC reportedly discovered that 142 of
these 471 accounts, with the total amount of P20,966,439.09, were in the names of helpers and rank-and-file employees of
the Gidwani spouses who do not have the financial capacity to deposit the amounts recorded under their names. That these
individuals reported either respondent Manu's office or business address as their own further arouses serious suspicion on
the true ownership of the funds deposited. It gives the impression that they had been used by respondent as dummies, and
their purported ownership mere subterfuge, in order to increase the amount of his protected deposit. Despite allegations of
respondents that there is an existing agreement of fund management scheme between respondent Manu and the individual
depositors, it is best left to be threshed out during trial proper. Suffice it to state for now that the Court herein finds probable
cause to charge respondent for estafa and money laundering.

7. Order allowing inquiry into bank deposits ; where no order is necessary –

· Republic v Bolante et al GR 186717 Apr 17, 2017
The Philippine National Bank submitted to AMLC a series of transaction reports involving the accounts of LIVECOR, et al.
Likewise, the Senate furnished the AMLC a copy of its Committee Report No. 54 which narrated that former
Undersecretary of Agriculture BOLANTE requested the DBM to release 728,000,000 for the purchase of farm inputs and
liquid fertilizers. Based on the audit report, the use of the funds were characterized by massive irregularities. Based on these
two documents, the AMLC issued a Resolution finding probable cause that the accounts were related to the “Fertilizer Fund
Scam”. Thus, the AMLC authorized the filing of a petition for the issuance of an order allowing an inquiry into the six
accounts. The petition was filed EXPARTE before the RTC which found probable cause and issued the order prayed for.
The RTC allowed the AMLC to inquire into and examine the 6 bank deposits or investments. Based on the investigation, 76
accounts were involved in the scam. The Republic filed for an application allowing an inquiry into the 76 accounts, but this
was denied by the Trial Court. The Supreme Court ruled that the RTC did not commit grave abuse in NOT finding probable
cause for the application of the inquiry. It was also noted that the AMLC was already allowed EX-PARTE to inquire into
and examine the 6 bank deposits and investments and the related web of accounts.

8. Freeze order
· Republic v First Pacific Network Inc. GR 156646 Nov 19, 2014 (Notice);
 First Pacific Network was investigated for engaging in illegal trade of securities. The AMLC requested the Court of Appeals
to extend the Freeze Order for an indefinite period. The Supreme Court held that it cannot be. The amendments of RA9160
provide that the Court of Appeals has been given sole authority and discretion to issue a Freeze Order as well as to extend its
effectivity. A Freeze Order is meant to be a temporary legal remedy in order to facilitate the purpose of the AMLA. The
Court of Appeals may only extend a Freeze Order for a reasonable time. However, it cannot be issued or extended for an
indefinite period.
· Ligot et al v Republic GR 176944 Mar 6, 2013
The Anti-Money Laundering Council (AMLC) filed an application for the issuance of a Freeze Order with the Court of
Appeals against certain monetary instruments and properties of General LIGOT and his family pursuant to the Anti-Money
Laundering Act. It was alleged that General LIGOT and his family had unexplained wealth (not declared in his SALN)
amounting to 54M pesos. The Court of Appeals granted the application of the Freeze Order in July 2005 ruling that probable
cause existed. The Republic filed an extension of the effectivity of the Freeze Order to which the CA approved. Petitioner
argues that the CA committed grave abuse of discretion amounting to lack or excess of jurisdiction when it extended its
freeze order despite the fact that no predicate crime had been proven and that such Freeze Order had long ceased to be valid.

Discussion of the pertinent provisions:

Only probable cause is necessary in issuing Freeze Order. There are only two requirements for the issuance of a Freeze
Order (1) the application by the AMLC and (2) the determination of probable cause by the Court of Appeals. The probable
cause required for the issuance of a Freeze Order differs from probable cause required for the institution of a criminal action.
In this case, it is only required that “such facts and circumstances which would lead a reasonably discreet, prudent or
cautious man to believe that an unlawful activity and/or a money laundering offense is about to be, is being or has been
committed and that the account or any monetary instrument or property subject thereof sought to be frozen is in any way
related to said unlawful activity”

As a rule, the effectivity of a Freeze Order may be extended by the Court of Appeals for a period not exceeding 6 months.
The LIGOTS have not been able to access the properties subject of the Freeze Order for 6 years based on probable cause
which was intended mainly as an interim remedy. A Freeze Order is meant to have a temporary effect and is never intended
to supplant or replace the actual forfeiture case. The 6-month extension period is enough for the government to act against
the suspected money launderer and to file the appropriate forfeiture case against him. In this case, the period of inaction of 6
years, under the circumstances, already exceeded what is reasonable.

9. Civil forfeiture
· Republic v Manalo, et al GR 192303 Jun 4, 2014
The Anti-Money Laundering Council filed a complaint for civil forfieture against R.A.B Realty. It also filed another
complaint entitled Republic v. Ariola. The Republic sought the forfeiture of certain deposits maintained in bank accounts
which were related to the unlwaful activity of fraudulently accepting investments from the public. THis resulted to Manalo
filing motions for leave to intervene claiming interest on the bank accounts. The RTC denied such motions on the ground
that they are adequately protected in the events that the funds were forfeited in favor of the government. The CA, on the
other hand, reversed the decision of the RTC. While the case was pending with the SC, the RTC rendered a decision
forfeiting the subject properties in favor of the government. The Court ruled that the case must be dismissed for having
become moot and academic. A case or issue is considered moot and academic when it ceases to present a justiciable
controversy by virtue of supervening events, so that an adjudication of the case or a declaration on the issue would be of no
practical value or use. In this case, the Manila RTC's rendition of the Decision dated September 23, 2010 in Civil Case No.
03-107325, as well as the Decision dated February 11, 2011 and the Amended Decision dated May 9, 2011 in Civil Case
No. 03-107308, by virtue of which the assets subject of the said cases were all forfeited in favor of the government, are
supervening events which have effectively rendered the essential issue in this case moot and academic

E. Deposit Insurance (RA 3591 as amended by RA 10846)

1. Meaning of deposit – Sec 6
2. Covered deposit
3. Deposits not covered
· PDIC v Citibank GR 170290 Apr 11, 2012
Citibank and Bank of America are foreign corporations licensed to do business here in the Philippines. PDIC discovered that
both banks received payments from their head offices (in the US) and other foreign branches in the amounts of 11B and
629M respectively covered by Certificate of Dollar Deposits that were interest-bearing. PDIC sought the remittance of
deficiency premium assessments for dollar deposits. The Banks asserted, and the Supreme Court agreed, that because they
were made outside the Philippines, these placements are excluded from the reportorial requirement. Because it is payment
outside of the Philippines, it is not considered a deposit pursuant to Section 3 (f) of the PDIC Charter.

4. Powers of PDIC – Secs 8, 9, 11 and 12

5. Liability of PDIC
· PDIC v CA 283 SCRA 462 (1997)
Respondents invested in money market placements with PFC in the sum of 10,000 each. When the representative of
respondent went to PFC to encash the promissory notes and checks representing the investments, PFC referred him to RSB
Bank. RSB issued 13 certificate of time deposits as a form of payment. Meanwhile, the Monetary Board issued a Resolution
suspending the operations of RSB. A master-list or inventory of RSB’s assents and liabilities was prepared. The certificate
of time deposits was not recorded as liabilities. Respondents filed with the PDIC a claim for the amount representing the
certificates. The Supreme Court eventually held that PDIC is not liable. The fact that the certificates state that they are
insured by PDIC does not make the latter liable for the same. The liability of PDIC is determined by law and liability rests
upon the existence of deposits with the insured bank, not on the negotiability or non-negotiability of the certificates
evidencing these deposits.
 THE INSURANCE CODE, as amended by RA 10607

A. Contract of Insurance * – Sec. 2

1. What may be insured – Sec 3 to 5
Health care agreement
· Philamcare Health Systems, Inc. v CA et al GR 125678 Mar 18, 2002

2. Parties – Sec 6
3. Insurable Interest – Secs 10 to 25
a) In Life/Health - **** need not be based on kinship or legal obligation; marriage is void irrelevant
(i) Who may be insured *
(ii) Designation of beneficiary **
- Civil Code Arts. 2012 and 739;
Irrevocable beneficiary
· Gercio v Sun Life Assurance Company of Canada 48 Phil 53 (1925)

(iii) Doubt as to who procured insurance Manila Bankers Life

· Insurance Corp. v Cresencia Aban GR 175666 Jul 29, 2013

b) In Property **** –
(i) insurable interest of mortgagee and mortgagor **
· San Miguel Brewery etc v Law Union and Rock Insurance Co., Ltd et al GR 14300 Jan 19, 1920;

· SPs Go It Bun and Choi Ping Tai v Hon. Dizon et al, GR 75915 Sep 18, 1992

(ii) cash and carry rule * ; installment premiums

· Makati Tuscany Condominium Corp v CA Nov 6, 1992

(iii) insurance indemnity payable to whom

· Reynaldo Ramos v LBP GR 234344 Feb 7, 2018

(iv) proof of insurable interest

· Frederick Felipe v MGM Motor Trading Corp GR 191849 Sep 23, 2015

(v) insurable interest of goods – under trust receipt

· Marques and Maxilite Technologies v FEBTC, FEBTC Insurance Brokers and Makati Insurance Co.,
GR 171379 Jan 10, 2011;

Owned by lessee
· Sps Nilo Cha and Steela Uy Cha et al v CA et al GR 124520 Aug 18, 1997;

Consignee
· Filipino Merchants Insurance Co., Inc. v CA et al GR 85141 Nov 28, 1989

(vi) building contractor’s insurable interest

· Antonio Lampano v Placida Jose et al GR 9401 Mar 1915

c) Double Insurance and Over Insurance

· Armando Geagonia v CA and Country Bankers GR 114427 Feb 6, 1995

d) Multiple or Several Interests on Same Property

e) Transfer of interest *
4. Concealment **** – Sec 26 to 35
a) Effect of concealment - concealment must be established by satisfactory and convincing evidence
· Philamcare Health Systems, Inc. v CA et al GR 125678 Mar 18, 2002;

Unintentional concealment ground for rescission

· Ignacio Saturnino v The Philippine American Life Insurance Company GR L-16163 Feb 28, 1963

b) Duty of insured to disclose

c) Determination of materiality; non-medical insurance Sunlife
· Assurance Company of Canada v CA and Sps Bacani GR 105135 Jun 22, 1195;
 · Saturnino v Philam 7 SCRA 361;

· Philippine AXA Life Insurance Corp v Corazon Tabora GR 211367 Jun 4, 2014

5. Representation – Sec 36 to 48
6. The Policy – Secs 49 to 66
a) Form; as evidence
· Equitable Insurance Corporation v. Transmodal Intl Inc. GR 223592 Aug 7, 2017;

· Sun Insurance Office Ltd v CA and Emilio Tan GR 89741 Mar 13, 1991

b) Specifications – Sec 51;

Ambiguity of “loss” and “damage” in theft clause
· Alpha Insurance and Surety Co v Arsenia Castor GR 198174 Sep 2, 2013

(i) Parties
(ii) Amount insured
(iii) Premium
(iv) Property or life
(v) Insurable interest
(vi) Risks
(vii) Period of insurance
c) Cover notes – Sec 52
d) Open, valued or running – Sec 59
e) Cancellation – Sec 64
· Santos B. Areola et al v CA and Prudential Guarantee and Assurance In., GR 95641, Sep 22, 1994;

· Malayan Insurance Co., Inc. Gregoria Cruz Arnaldo, et al GR L-67835 Oct 12, 1987

f) Causes
g) Notice
h) Renewal (other than life insurance)
7. Warranties – Secs 67 to 76
a) Breach of Warranties *
· Perla Cia de Seguros v CA 208 SCRA 487 where the car is admittedly unlawfully taken it is theft covered by the theft
clause and not by authorized driver clause;

· Paterno v Pyramid 161 SCRA 677 authorized driver rule not applicable where person driving is the one insured;

8. Premium – Secs 77 to 84
a) When due and payable – Sec 77;
· Cocoplans Inc. v Rosita Pajel GR No. 231618 Mar 5, 2018

b) Entitlement to return of premium – Sec 80, 81, 83

c) Future premiums – Sec 84
d) Premium Payment ****
(i) Where partial payment already made at the time of loss insurer become liable and may deduct unpaid
premiums
· UCPB General Insurance v Masagana Telamart GR 137172 Apr 4, 2001

(ii) If the check payment was received prior to loss or within credit period, recovery will be allowed
· South Sea Surety v CA GR 102253 Jun 2, 1995

(iii) Insurer cannot forfeit where it held check payment for premium for unreasonable time
· Malayan Ins v. Arnaldo GR L-67835 Oct 12, 1987

(iv) Proof of payment

· Marques and Maxilite Technologies v FEBTC, FEBTC Insurance Brokers and Makati Insurance Co.,
GR 171379 Jan 10, 2011

(v) General rule is the Insurer’s receipt of premium payment must be before loss; exceptions
· Jaime T. Gaisano v Development Insurance and Surety Corporation GR 190702 Feb 27, 2017
 (vi) Can the original insured NEA be held liable for the non-payment by GSIS of the fourth and last reinsurance
premium?
· GSIS v Prudential Guarantee and Assurance Inc., et al GR 165585 Nov 20, 2013

(vii) Partial payment

· Sps Antonio A. Tibay et al v CA and Fortune Life and General Insurance Co. Ins., GR 119655 May 24,
1996 (read dissenting opinion too)

e) When insured entitled to recover premiums **

f) Doctrine of contributory negligence
9. Loss – Sec 85 to 89
10. Notice of Loss – Sec 90 to 94
11. Double insurance – Sec 95, 94 ***
a) double recovery ***
b) meaning of “other insurance clause”
· American Home Assurance v Chua GR 130421 Jun 1991;

When there is double insurance

· Malayan Insurance Co., Inc. v Philippines First Insurance Co., and Reputable Forwarder Services, Inc. GR
184300, Jul 11, 2012

12. Reinsurance – Sec 97 to 100; v co-insurance *

a) Reinsurance contracts insured in favor of the direct insurer not the original insured
· Communication and Information Systems Corporation v Mark Sensing Australia Pty Ltd., GR 192159 Jan 25,
2017

B. Classes of Insurance
1. Marine Insurance * – Sec 101 to 168
a) Extent and scope – “all risks policy”
· Filipino Merchants Insurance Co., Inc. v CA et al GR 85141 Nov 28, 1989

b) Insurable interest
c) Concealment
d) Representation
e) Implied warranties **
· The Philippine American General Insurance Company Inc v CA and Felman Shipping Lines GR 116940 Jun 11,
1997

f) Voyage and proper deviation v improper deviation *

g) Loss: total loss v actual total loss
· Pan Malayan Insurance Corp v CA 201 SCRA 382 (1992)

h) Abandonment *
i) Measure of indemnity

2. Fire Insurance – Sec 169 to 175

a) Renewal on an “as is” basis where there is change of location
· Malayan Insurance Company Inc. v PAP Co., Ltd GR 200784 Aug 7, 2013

b) Fraudulent claim voids policy

· United Merchants Corp v. Country Bankers Insurance Corp GR 198588 Jul 11, 2012

c) Insurance against earthquake shock

· Gulf Resorts Inc v Phil Charter Insurance Corp.GR 156157 May 16, 2005

d) Can “book debts” relating to goods be insured against fire

· Gaisano Cagayan Inc v Insurance Company of North America GR 147839 Jun 8, 2006

3. Casualty Insurance ** – Sec 176;

Loss caused by dishonest employees
· Fortune Insurance and Surety Co., Inc. v CA et al, GR 115278 May 23, 1995;

Personal accident insurance of seafarers

· Phil-Nippon Kyoei v Rosalia Gudelosao et al, GR 181375 Jul 13, 2016
 4. Suretyship – Sec 177 to 180;
Guarantee to pay the purchase price
· Standard Vacuum Oil Company v Loreto Paz et al GR L-16029 Oct 31, 1960;

· Melecio Arranz v Manila Fidelity and Surety Co., Inc GR L-9674, Apr 29, 1957

5. Life Insurance – Sec 181 to 186

a) suicide v. willful exposure to peril
· Sun Insurance Office Ltd v CA 211 SCRA 554 (1992) *

b) general rule and exception as to death or injury resulting from accident or accidental means *
· De La Cruz v Capital Insurance and Surety Co 17 SCRA 559;

· Finman General Assurance Corp v CA 213 SCRA 493

c) Incontestability clause ****

· Sunlife Assurance Company of Canada v CA 245 SCRA 268 (1995);

· Manila Bankers Life Insurance Corp. v Cresencia Aban GR 175666 Jul 29, 2013

d) Non-Default Options in Life Insurance

e) Reinstatement of a Lapsed Policy of Life Insurance, when incontestability period begins
· The Insular Life Assurance v Paz Y Khu et al GR 195176 Apr 18, 2016

f) Prescription *
· Sun Insurance Office Ltd v CA 195 SCRA 193;

· BPI and FGU Insurance v Yolanda Laingo GR 205206 Mar 16, 2016

No prescription against claim where heirs of deceased did not know of existence of life insurance policy
6. Microinsurance – Sec 187 to 188

C. Financial Reporting Framework – Sec 189

D. The Business of Insurance

1. Insurance Companies – Sec 190 to 199
· White Gold Maine Services, Inc. v Pioneer Insurance and Surety Corp and the Steamship Mutual Underwriting Asso
(Bermuda) LTD GR 154514 Jul 28, 2005

What is a “mutual insurance company”; need for a separate license as insurance agent; what is insurance business
· White Gold Marine Services Inc v Pioneer Insurance and Surety Corporation and the Steamship Mutual
Underwriting Association Bermuda Ltd., GR No 154514 Jul 28, 2005

2. Solvency – Sec 200, 201

3. Assets – Sec 202, 203; security deposit with IC
· Capital Insurance and Surety Co., Inc v Del Monte Works, Inc., GR 159979 Dec 9, 2015

4. Investments – Sec 204 to 215

5. Reserves – Sec 216 to 220
6. Limit of Single Risk – Sec 221
7. Reinsurance Transactions – Sec 222 to 228
8. Annual Statement – Sec 229 to 230
9. Policy Forms – Sec 232 to
a) IC approval required
b) Substantial conditions to be included
c) Group life insurance * - Employer acts as agent of insurer
· Pineda v CA 226 SCRA 154

d) Industrial life insurance

10. Variable Contracts – Sec 238 to 246
11. Claims Settlement – Secs 247 to 251
· Prudential Guarantee and Assurance Inc. v Trans-Asia Shipping Lines, Inc., GR 151890 Jun 20, 2006
 a) Notice and Proof of Loss
b) Guidelines on Claims Settlement
(i) Unfair Claims Settlement; Sanctions
(ii) Prescription of Actions
(iii) Subrogation
12. Examination of Companies – Sec 252, 253
13. Suspension or Revocation of Authority – Sec 254
14. Appointment of Conservator – Sec 255
15. Proceedings for Insolvency – Sec 256, 257
16. Consolidation and Merger of Insurance Companies – Sec 258 to 267
17. Mutualization of stock life insurance – Sec 268 to 280
· Republic v Sunlife GR 158085 Oct 14, 2005

18. Withdrawal of Foreign Insurance Companies – Sec 281 to 287

19. Professional Reinsurers – Sec 288 to 289
20. Holding Companies – Sec 290 to 306

E. Sales Agencies and Technical Services

1. Insurance Agents and Insurance Brokers – Sec 307 to 318
· AFP Mutual Benefit Association Inc v NLRC GR 102199 Jan 28, 19971

2. Reinsurance Brokers – Sec 319 to 321

3. Resident Agents – Sec 322 to 326
4. Non-Life Company Underwriter – Sec 327 to 331
5. Adjusters – Sec 332 to 343
6. Actuaries – Sec 344 to 372
7. Rating Organization and Rate Making – Sec 348 372
8. Provision Common to agents, brokers and adjusters – Sec 373 to 374
9. Bancassurance – Sec 375 to 385

F. Compulsory Motor Vehicle Liability Insurance *** – Sec 386 to 402

1. Right of injured person to sue insurer of party at fault; indemnity against third party liability
· Schafer v Judge RTC Olongapo City 167 SCRA 386;

Subrogation
· Manila Mahogany Manufacturing Corporation v CA and Zenith Insurance Corporation GR 52756 Oct 12, 1987

2. Basis and extent of insurer’s liability

· Malayan Insurance Co., Inc. v CA 165 SCRA 136;

· Figuracion vda de Maglana et al v Hon. Judge 212 SCRA 268 (1992)

3. Driver’s act of depriving owner of car at or soon after transfer of physical possession constitutes theft which is compensable
· People v Roxas 53 OG 716 (1956)

4. Comprehensive motor vehicle insurance policy; theft of insured vehicle

· Paramount Insurance Corporation v Spouses Remondeulaz GR 173773 Nov 28, 2012

G. Mutual Benefit Associations and Trusts for Charitable Uses

1. Mutual Benefit Associations – Sec 403 to 423
2. Trusts for charitable uses – Sec 424 to 428
H. Trust Business in General – Secs 429

I. Registration, Responsibilities and Oversight of SROs – Sec 430 to 436

J. The Insurance Commissioners – Sec 437 to 439

1. Administrative and adjudicatory powers; any changes under RA 10607?
· Midland Insurance Corporation v IAC and Sisenando Villareal GR 71905, Aug 13, 1986

2. Fees and other sources of funds

K. Miscellaneous Provisions