CENTRAL PHILIPPINE UNIVERSITY

College of Law
Iloilo City

REVIEW NOTES IN BUSINESS ORGANIZATION II

(Corporation Law)
Atty. Zacarias D. Bedona, Jr.

1. Omega Corporation has fifteen members of the Board of

Directors.

a. Give the number of the Board of Directors to constitute a

quorum.

 Unless the AOI or the by-laws provide for a greater majority, a

majority of the numbers of directors or trustees as fixed in the
AOI shall constitute a quorum for the transaction of corporate
business. (SEC.52)

b. Give the vote needed to consider every decision to be valid

corporate act.

 every decision of at least a majority of the directors or trustees present

at a meeting at which there is a quorum shall be valid as a corporate
act, except for the election of officers which shall require the vote of a
majority of all the members of the board. (SEC. 52)

2. On May 15, 2021, XYZ Corporation passed a board resolution

removing Peter from his position as General Manager of the said
corporation. The By-Laws of XYZ Corporation provide that the officers are
President, Treasurer, and Corporate Secretary. Peter filed a complaint with
SEC, and he alleged that a General Manager could only be removed by the
affirmative vote of the stockholders representing two-thirds of the
outstanding capital stock. Is the contention of Peter legally valid?

 No, the contention of Peter is not legally valid.

(SEC.27 RCC) provides that any director of a corporation may be
removed from office by a vote of the stockholders holding or
representing at least 2/3 of the outstanding capital stock.
In the case at bar, Peter is simply the general manager of “XYZ”
Corporation. As such, he can be removed by a mere board resolution.
The contention that the affirmative vote of the stockholders
representing 2/3 of the outstanding capital stock is necessary applies
only to the members of the board.
 2

4. Edgar is a board director in Alpha Corporation. A majority of

the board of directors wanted to remove him and to sell his shares at public
auction for his critical temperament, so he can no longer attend and
participate in stockholders’ meetings.

Can the board of directors remove Edgar as board director and

stockholder without cause? Explain.

 No, Henry cannot be removed as board of director and stockholder in

XYZ Corporation.

(SEC. 27) any director of a corporation may be removed from office

by a vote of the stockholders holding or representing at least 2/3 of the
outstanding capital stock in a meeting called for that purpose after due
notice. The removal may be with or without cause provided that in the
latter’s case, the same may not be used to deprive minority
stockholders of the right of representation.

In the case at bar, the law encompassed the power to remove a board
director emanates from the stockholders. Secondly, as a stockholder
he cannot be removed as such sans any delinquency status. His
corresponding shares cannot be sold at auction without complying
with the procedures laid down in sec. 16 of the RCC on payment of
balance of subscription.

5. A is a director in a Travel Corporation, who was elected for a

one-year term on January 15, 2021. On March 5, 2021, A resigned due to
health issues, and was replaced by B, who assumed as director on March 31,
2021. On May 30, 2021, B died. C was elected in his place. Until which time
should C serve as director? Explain.

 (SEC.28 RCC) Provides that a director or trustee elected to fill a

vacancy shall be referred to as replacement director or trustee and
shall serve only for the unexpired term of the predecessor in office.

In the instant case, C can serve director only for the unexpired term of
his predecessor B in office which is only until 1 February 2011. The
fact that B assumed as director to replace A, still the term of office for
such vacancy must be reckoned from the one-year term as when A
was elected as director of a Travel Corporation.

6. The Board of Directors of E Corporation unanimously passed a

Resolution approving the taking of steps that in reality amounted to willful
 3

tax evasion. Upon discovery of the unlawful acts, the government filed tax
evasion charges against all members of the Board of E Corporation. The
directors invoked that they have no personal liability being mere directors of
Charlie Corporation, an artificial being. Are the directors correct? Explain.

 No, since the law makes directors of the corporation solidarily liable
for gross negligence and bad faith in the discharge of their duties.

Doctrine dictates that a corporation is invested by law with a

personality separate and distinct from those of the persons composing
it, such that, save for certain exceptions, corporate officers who
entered into contracts in behalf of the corporation cannot be held
personally liable for the liabilities of the latter. Personal liability of a
corporate director, trustee or officer, along with the corporation, may
validly attach, as a rule, only when he assents to a patently unlawful
act of the corporation, or when he Is guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its stockholders, or
other persons.

7. The Board of Directors of Yankee Corporation created an

Executive Committee pursuant to its By-Laws to manage the affairs of the
corporation between board meetings. The Board of Directors appointed the
following members of the Executive Committee: The President; and two
directors, Henry and George. The Executive Committee met and decided on
the following matters:

a. Shorten the corporate term of Yankee Corporation;

b. Purchase a delivery truck for its lumber business;
c. Declaration of PhP100.00 per share cash dividend;
d. Purchase a house and lot for its office;
e. Declaration and approval of 13th month pay bonus.

Are the actions of the Executive Committee valid? Why?

 Yes. The actions of the executive committee are valid except for the
declaration and approval of 13th month pay bonus.

(SEC.34 RCC) provides that the by-laws of a corporation may create

an executive, management or other special committees, composed of
not less than three members of the board, to be appointed by the
board. Said committee may act, by majority vote of all its members,
on such specific matters within the competence of the board, as may
be delegated to it in the by-laws or on a majority vote of the board,
except with respect to; approval of any action for which shareholders’
approval is also required; the filing of vacancies in the board; the
 4

amendment or repeal of the by-laws or the adoption of new by-laws;

the amendment or repeal of any resolution of the board which by its
express terms is not so amendable or repealable and a distribution of
cash dividens to the shareholder.

In the case at bar, the creation of the executive committee was in

accordance with the code and pursuant to the Yankee Corporation’s
by-laws and may therefore manage the affairs of the corporation. Said
committee may act by a majority vote of all its members in approving
the matters under items _ _ _ However, with respect to the distribution
of cash dividends to the shareholders, this is a matter not within the
competence of the executive committee. Also, SEC 42 in relation to
SEC. 52 requires majority vote of the directors at a meeting where
there is a quorum in order to constitute a valid corporate act.

8. Dy is a minority stockholder of Sparrow Corporation. Go is a

member of the Board of Directors and at the same time President of Sparrow
Corporation.

Dy believes that Go is mismanaging Sparrow Corporation, hence, as a

stockholder and in behalf of the stockholders, he wanted to sue Go. Is Dy
permitted to institute a derivative suit for himself and in behalf of the
stockholders? Explain.

 No, Dy is not permitted to institute a derivative suit for himself and in

behalf of the stockholders.

 Under the Revised Corporation Code, an individual stockholder is

permitted to institute a derivative suit in behalf of the corporation
wherein he holds stock 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.

 In the case at bar, Dy wanted to sue Go in behalf of the stockholders.

The suit will not prosper since it is the corporation that is the real
party-in-interest in a derivative suit, then the reliefs prayed for must
be for the benefit or interest of the corporation. Otherwise, it is an
improper derivative suit.

9. A, B, C, D, and E, were members of the 2020-2021 Board of

Directors of Silver Spoon Corporation. At the election for 2021-2022, not
one of them was elected. They filed a derivative suit against the newly
elected members of the Board of Directors. They questioned the validity of
 5

meeting and election, because there was no quorum, and they prayed for the
nullification of the election. The 2021-2022 Board of Directors moved to
dismiss the complaint, because a derivative suit is not proper. Decide.

 The motion to dismiss the complaint because the derivative suit is not
proper should be granted.

In a case decided under PH law, the court stresses that the corporation
is the real party-in-interest in a derivative suit, and the suing
stockholder is only a nominal party. 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 one 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.

In the case at bar, it is evident that it is not the Silver Spoon

Corporation which is the party in interest. Likewise, the derivative suit
was filed not to protect or vindicate the corporation’s right but solely
to contest the validity of the election actually devolves on the
corporation; the wrongdoing or harm having been or being caused to
the corporation and not to the particular stockholder bringing the suit.

The complaint filed by ABCD and E constitutes a direct action in

order to protect their individual rights and not of that of the
corporation. Hence, it is not a derivative suit.

10. a. There is a controversy in the election of the Board of

Directors of RS Corporation which is questionable. Is controversy in the
election of the Board of Directors an intra-corporate controversy?

 Yes, the controversy in the election of the Board of Directors is an

intra-corporate controversy.

 Under Republic Act No. 8799 and the SEC Reorganization Act, one
of the descriptions of an intra-corporate controversies are the
controversies in the election or appointments of directors, trustees,
officers or managers of such corporation, partnership or association.

b. If a suit were to be initiated as an intra-corporate controversy,

should the matter be submitted to SEC or the regular courts?
 If a suit were to be initiated as an intra corporate controversy, the
matter be submitted to the regular courts.
 6

11. a. What is your understanding of “treasury shares”?

 Treasury shares are shares of stock which have been issued and fully
paid for, but subsequently reacquired by the issuing corporation by
purchase, redemption, donation or through some other lawful means.
 Such shares may again be disposed of for a reasonable price fixed by
the board of directors.
 And has no voting rights as long as they remain in the treasury.

b. Are said shares considered: (a) issued; (b) fully paid; (c)
outstanding?

10. a. What is One Person Corporation (OPC)?

 A One Person Corporation is a corporation with a single stockholder.

The RCC provides that only a natural person, trust, or an estate may
form a One Person Corporation.

b. Who can be stockholder of an OPC?



c. Who may be appointed officers of an OPC?

 Treasurer
 Corporate secretary
 Other officers as may be deemed necessary

d. Is the single stockholder qualified to be president and

treasurer or corporate secretary?

No. The single stockholder shall be the sole director and president of the One Person
Corporation. (Sec. 121) and cannot assume to position simultaneously. He may be allowed to be
president and a treasurer provided that he will Give bond to the SEC in such a sum as may be
required

e. Is an OPC required to file Articles of Incorporation and

By-laws?
 7

 OPCs are NOT required to file their corporate bylaws. (Sec. 119)

11. What is a Foreign Corporation?

 A foreign corporation is one:

1. Formed, organized or existing under any laws other than those of

the Philippines; and

2. Whose laws allow Filipino citizens and corporations to do business

in its own country or state. It shall have the right to transact
business in the PH after it shall have obtained a license to transact
business in this country in accordance with the Code and a
certificate of authority from the appropriate government agency.

12. a. Merril Lynch Future v. Court of Appeals, 211 SCRa

824,837.

a. A foreign company has been exporting goods to a Philippine

company for several years now. When the Philippine company failed to pay
the latest exportation, the foreign company sued to collect in the Philippines.
The Philippine company interposed the defense that the foreign company
was doing business in the Philippines without a license hence, could not sue
before a Philippine court. Is this defense tenable? Explain your answer.

 The defense is not tenable.

A foreign corporation doing business in the PH without license may

sue in PH courts a Filipino citizen or a PH entity that had contracted
with and benefited from it. A party is estopped from challenging the
personality of a corporation after having acknowledged the same by
entering into a contract with it.

Further, RCC seeks to prevent is a foreign corporation doing business

in the PH w/o a license from gaining access to PH courts. In the case
at bar, the foreign company cannot be deemed as doing business in the
PH. Mere act of exporting from one’s 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”.
 8

13. The term of CCC Corporation in accordance with its Articles of

Incorporation ended last June 1, 2015. The term was not extended. What will
happen to the corporation?

 If the life of the corporation, as stated in its AOI expired, without a

valid extension having been effected, it is deemed dissolved by such
expiration without a need of further action on the part of the
corporation or the State.

14. SS Corporation and YY Corporation have agreed to be merged

into one corporation. To facilitate the merger, both corporation agreed that
the merger be made effective March 15, 2021. The Securities and Exchange
Commission (SEC) approved the Articles of Merger on May 30, 2021. What
is the effective date of merger? Explain.

 The effective date of the merger is always the date of the approval of
the Articles of Merger by SEC. (Sec.78 RCC) provides that the
Commission is satisfied that the merger or consolidation of the
corporations concerned is not inconsistent with the provisions of the
code and existing laws, it shall issue a certificate of merger or of
consolidation at which time the merger or consolidation shall be
effective.

15. FKC Corporation shortened its corporate life by amending its

articles of incorporation. It has no debts but owns a prime property located at
Iloilo City. How would the said property be liquidated among the five
stockholders of FKC Corporation?

 The property located in Iloilo City would be liquidated among the

five stockholders of FKC Corp. is one, by conveyance or to transfer
their title from the corporation to the stockholders in proportion to
their shareholdings. Or, second, to dispose the Iloilo City property and
distribute its proceeds among the five stockholders in proportion to
their respective shareholdings but not for the purpose of continuing
the business for which it was established.
 9

16. What is a “Trust Fund Doctrine”?

 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.

17. XXX Corporation is a bank. The operation of XXX

Corporation as a bank was not doing well. So, to avert any bank run, XXX
Corporation, with the approval of the Monetary Board, sold all its assets and
liabilities to ZZZ Banking Corporation which includes all deposit accounts.
In effect then, ZZZ will service all deposits of all depositors of XXX
Corporation.

Will the sale of all assets and liabilities of XXX Corporation to ZZZ
Banking Corporation automatically dissolve or terminate the corporate
existence of XXX Corporation?

 No. The sale of all assets and liabilities of XXX Corporation to ZZZ
Banking corporation automatically dissolve or terminate the corporate
existence of XXX corporation.

(SEC134 RCC) requires that the dissolution may be effected by

majority vote of the board of directors, and by a resolution duly
adopted by the majority vote of the outstanding capital stockholders in
a meeting held upon call of the directors.

In the case at bar, what was entered into between XXX Corporation
and ZZZ Banking Corporation was the sale of all its assets and
liabilities. In fact, there was no resolution authorizing the dissolution
that is subject to the voting requirement above. Likewise, while
further approval of the monetary board is mandated, such approval
pertained to the sale of all the assets and liabilities of XXX Corp. to
ZZZ Banking Corp. and not for the dissolution of the corporate
existence of the former.
 10

18. q. Give the number and term of the Trustees of a non-stock

corporation.

 A non-stock corporation may OR may not have more than 15 trustees.

 Trustees shall hold office for a period of three (3) years until their successors are elected
and qualified (Sec. 91)

b. Give the number and term of the trustees of non-stock

educational corporations.

 Trustees of educational institutions organized as nonstock corporations shall not be less

than five (5) nor more than fifteen (15): Provided, That the number of trustees shall be in
multiples of five (5).(Sec 106)
 Unless otherwise provided in the articles of incorporation or bylaws, the board of trustees
of incorporated schools, colleges, or other institutions of learning shall, as soon as
organized, so classify themselves that the term of office of one- fifth (1/5) of their number
shall expire every year. Trustees thereafter elected to fill vacancies, occurring before the
expiration of a particular term, shall hold office only for the unexpired period. Trustees
elected thereafter to fill vacancies caused by expiration of term shall hold office for five
(5) years. (Sec. 106)

19. Formalities of the Certificate of Stock.

1. The certificate must be signed by the president or vice-president, countersigned by the

secretary or assistant secretary;
2. The certificate must be sealed with the seal of the corporation;
3. The certificate must be delivered;
4. The par value, as to par value shares or full subscription as to no par value shares must
first be fully paid; and
5. The original certificate must be surrendered where the person requesting the issuance of
a certificate is a transferee from the stockholder

20. What are individual suits, class suits and derivative suits?
 11

 Individual Suits- where a stockholder or member is denied the right of

inspection, his suit would be individual because the wrong is done to
him personally and not to the other stockholders or the corporation.

 Class suits- Where the wrong is done to a group of stockholders, as

where preferred stockholders’ rights are violated, a class or
representative suit will be proper for the protection of all stockholders
belonging to the same group.

 Derivative suits- But where the acts complained of constitute a wrong

to the corporation itself, the cause of action belongs to the corporation
and not to the individual stockholder or member.

21. Books to be kept at the principal office.

 Every corporation shall keep and carefully preserve at its principal

office all information relating to the corporation including, but not
limited to:

AONTRCM - MANTROC

- The AOI and by-laws of the corporation and all their amendments
- The current ownership structure and voting rights of the corporation,
including lists of stockholders or members, group structures, intra-
group relations, ownership data, and beneficial ownership;
- The names and addresses of the all the members of the board of
directors or trustees and the executive officers;
- A record of all business transactions
- A record of the resolutions of the board of directors or trustees and of
the stockholders or members;
- Copies of the latest reportorial requirements submitted to the
commission
- The minutes of all meetings of SH or members.

22. What is quorum for stockholders or members? What is quorum

for Board of Directors and Board of
Trustees?

 Unless otherwise provided for in the Code of in the by-laws a quorum

shall consist of the stockholders representing a majority of the
outstanding capital stock or a majority of the members in the case of
non-stock corporations

22. What constitutes valid removal of directors or trustees?

 12

Due process mandates notice, meeting and voting to validly effect

removal of directors or trustees

 Any director or trustee may be removed from office by a vote of the

stockholders holding or representing at least 2/3 of the outstanding
capital stock
 At a regular meeting of the corporation or at a special meeting called
for the purpose and in either case, after previous notice to
stockholders or members of the corporation of the intention to propose
such removal at the meeting
 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;

 Notice of the time and place of such meeting, as well as of the

intention to propose such removal, must be given by publication or by
written prescribed in the code.
 Cause of removal may be with or without cause.

23.

a. Is service of summons to a director of a domestic private

corporation who owns at least 2/3 of Outstanding Capital Stock
binding on the corporation? Discuss your answer.

b. Is the Chairman or President of a private corporation authorized to

make entries on the stock and transfer book? Why?

 Only the corporate secretary is duly authorized to make entries on the stock and transfer
book. Hence, entries made by the Chairman or the President are invalid
 Registration of a transfer of shares of stock is a ministerial duty on the part of the
corporation. Aggrieved parties may then resort to the remedy of mandamus to compel
corporations that wrongfully or unjustifiably refuse to record the transfer or to issue new
certificates of stock. This remedy is available even upon the instance of a bona fide
transferee who is able to establish a clear legal right to the registration of the transfer.

24. a. Who may remove corporate officers? Explain.

 13

b. Who may remove directors or trustees? Explain.

25. The majority and controlling members of the Board of

Directors of X Corporation passed a Resolution granting compensation to
the Chairman, Vice Chairman, Corporate Treasurer and Corporate Secretary.
The majority or controlling members of the Board are also the officers of the
said corporation.

a. Is the grant of salary or compensation to the directors valid?

Explain. (5 points)

 Yes

b. Is the grant of salary or compensation to the directors who are also

officers of the corporation valid? Explain.

 No.

26. a. What is the place and time of meetings of the directors or

trustees?

 Regular- It shall be held monthly, unless the by-laws provide

otherwise.

 Special – It may be held at any time upon the call of the president or
as provided in the by-laws.

 Place of meeting must be held anywhere in or outside of the PH,

unless in the by-laws provide otherwise.

c. What is the place and time of meetings of stockholders or

members?
 14

 Stockholders’ or members’ meetings, whether regular or special, shall

be held in the principal office of the corporation as set forth in the
AOI, or, if not practicable, in the city or municipality where the
principal office of the corporation is located.

27. a.What are derivative actions of stockholders or members? (5

points)

b. Distinguish derivative actions from representative actions of

stockholders or members. (5 points)

28. CIR v. St. Luke’s Medical Center, Inc. (G.R. No. 195909, 26
September 2012}; Lung Center of the Philippines v. Quezon City (G.R.
144104, 29 June 2004)

a. Non-Profit, charitable, or non-stock corporation.

xxx