case doctrines (complete)

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By Ramon Muñez (Disclaimer: This material does not in any way guarantee that you will top the exam. So read at your own risk) Page 1 CASE DOCTRINES CORPORATION LAW ATTY. BUSMENTE (2013-2014) CASE DOCTRINE 1. GOOD EARTH EMPORIUM V. CA A corporation has a personality distinct and separate from its individual stockholders or members. As a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of the corporation 2. CRUZ V. DALISAY The mere fact that one is president of the corporation does not render the property he owns or possesses the property of the corporation, since that president, as an individual, and the corporation, are separate entities. 3. BANK OF AMERICA V. CA Petitioners' argument that private respondents, being mere stockholders of the foreign corporations, have no personalities to sue, and therefore, the complaint should be dismissed, is untenable. A case is dismissible for lack of personality to sue upon proof that the plaintiff is not the real party-in-interest. Lack of personality to sue can be used as a ground for a Motion to Dismiss based on the fact that the complaint, on the face thereof, evidently states no cause of action. In the case at bar, the complaint contains the three elements of a cause of action. It alleges that: (1) plaintiffs, herein private respondents, have the right to demand for an accounting from defendants (herein petitioners), as trustees by reason of the fiduciary relationship that was created between the parties involving the vessels in question; (2) petitioners have the obligation, as trustees, to render such an accounting; and (3) petitioners failed to do the same. 4. AVON DALE GARMENTS, INC. V. NLRC Thus, conformably with established jurisprudence, the two entities cannot be deemed as separate and distinct where there is a showing that one is merely the continuation of the other. In fact, even 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. 5. CONCEPT BUILDERS V. NLRC The test in determining the applicability of the doctrine of piercing the veil of corporation fiction is as follows: 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 rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. Note: The absence of any one of these elements prevent 'piercing the corporate veil.'

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Page 1: Case Doctrines (Complete)

By Ramon Muñez (Disclaimer: This material does not in any way guarantee that you will top the exam. So read at your own risk) Page 1

CASE DOCTRINES CORPORATION LAW ATTY. BUSMENTE (2013-2014)

CASE DOCTRINE

1. GOOD EARTH EMPORIUM V. CA

A corporation has a personality distinct and separate from its individual stockholders or members. As a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of the corporation

2. CRUZ V. DALISAY The mere fact that one is president of the corporation does not render the property he owns or possesses the property of the corporation, since that president, as an individual, and the corporation, are separate entities.

3. BANK OF AMERICA V. CA

Petitioners' argument that private respondents, being mere stockholders of the foreign corporations, have no personalities to sue, and therefore, the complaint should be dismissed, is untenable. A case is dismissible for lack of personality to sue upon proof that the plaintiff is not the real party-in-interest. Lack of personality to sue can be used as a ground for a Motion to Dismiss based on the fact that the complaint, on the face thereof, evidently states no cause of action. In the case at bar, the complaint contains the three elements of a cause of action. It alleges that: (1) plaintiffs, herein private respondents, have the right to demand for an accounting from defendants (herein petitioners), as trustees by reason of the fiduciary relationship that was created between the parties involving the vessels in question; (2) petitioners have the obligation, as trustees, to render such an accounting; and (3) petitioners failed to do the same.

4. AVON DALE GARMENTS, INC. V. NLRC

Thus, conformably with established jurisprudence, the two entities cannot be deemed as separate and distinct where there is a showing that one is merely the continuation of the other. In fact, even 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.

5. CONCEPT BUILDERS V. NLRC

The test in determining the applicability of the doctrine of piercing the veil of corporation fiction is as follows: 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 rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. Note: The absence of any one of these elements prevent 'piercing the corporate veil.'

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6. FIRST PHIL. INTERNATIONAL BANK V. CA

The corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum-shopping. Shareholders, whether suing as the majority in direct action or as the minority in a derivative suit, cannot be allowed to trifle with court processes, particularly where, as in this case, the corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and in using and applying remedies available to it. To rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules against forum shopping.

7. FRANCISCO MOTORS CORP. V. CA

Instead of holding certain individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is the corporation which is being ordered to answer for the personal liabilities of certain individual directors, officers and incorporators concerned. The doctrine has been turned upside down because of its erroneous invocation. The personality of the corporation and those of its incorporators, directors and officers in their personal capacities ought to be kept separate. The claim for legal fees against the concerned individual incorporators, officers and directors could not be properly directed against the corporation without violating basic principles governing corporations.

8. REYNOSO V. CA The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by the mother corporation to the extent that it becomes an instrument or agent of its parent. But even where there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime.

9. DE LEON V. NLRC The purported sale of the shares of the former stockholders to a new set of stockholders who changed the name of the corporation to Magnum Integrated Services, Inc. appears to be part of a scheme to terminate the services of FISI's security guards posted at the premises of FTC and bust their newly-organized union which was then beginning to become active in demanding the company's compliance with Labor Standards laws. Under these circumstances, the Court cannot allow FTC to use its separate corporate personality to shield itself from liability for illegal acts committed against its employees.

10. PNB V. ANDRADA As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith and paid adequate consideration for such assets, EXCEPT when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing corporation is merely a continuation of the selling corporation, and (4) where the transaction is fraudulently entered into in order to escape liability for those debts.

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11. LIPAT V. PACIFIC BANKING CORP.

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. . .

12. INTERNATIONAL EXPRESS TRAVEL & TOURS INC. V. CA

It is a settled principle in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes personally liable for contract entered into or for other acts performed as such agent. As president of the Federation, Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation. We cannot subscribe to the position taken by the appellate court that even assuming that the Federation was defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt with the Federation in such a manner as to recognize and in effect admit its existence. The doctrine of corporation by estoppel is mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third party only when he tries to escape liabilities on a contract from which he has benefited on the irrelevant ground of defective incorporation. In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract.

13. LIM TONG LIM V. PHILIPPINE FISHING GEARS INC.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The only question here is whether petitioner should be held jointly liable with Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his name does not appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be held liable. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners. Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel.

14. LOZANO V. JUDGE DELOS SANTOS

The doctrine of corporation by estoppel advanced by private respondent cannot override jurisdictional requirements. Jurisdiction is fixed by law and is not subject to the agreement of the parties. It cannot be acquired through or waived, enlarged or diminished by, any act or omission of the parties, neither can it be conferred by the acquiescence of the court. Corporation by estoppel is founded on principles of equity and is designed to prevent injustice and unfairness. It applies when persons assume to form a corporation and exercise corporate functions and enter into business relations with third persons. Where there is no third person involved and the conflict arises only among those assuming the form of a corporation, who therefore know that it has not been registered, there is no corporation by estoppel.

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15. LYCEUM OF THE PHILIPPINES V. CA

We do not consider that the corporate names of private respondent institutions are "identical with, or deceptively or confusingly similar" to that of the petitioner institution. True enough, the corporate names of private respondent entities all carry the word "Lyceum" but confusion and deception are effectively precluded by the appending of geographic names to the word "Lyceum." Thus, we do not believe that the "Lyceum of Aparri" can be mistaken by the general public for the Lyceum of the Philippines, or that the "Lyceum of Camalaniugan" would be confused with the Lyceum of the Philippines. Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive appropriation with reference to an article in the market, because geographical or otherwise descriptive might nevertheless have been used so long and so exclusively by one producer with reference to this article that, in that trade and to that group of the purchasing public, the word or phrase has come to mean that the article was his produce while the appellant may have proved that it had been using the word 'Lyceum' for a long period of time, this fact alone did not amount to mean that the said word had acquired secondary meaning in its favor because the appellant failed to prove that it had been using the same word all by itself to the exclusion of others. More so, there was no evidence presented to prove that confusion will surely arise if the same word were to be used by other educational institutions.

16. HALL V. PICCIO An entity whose certificate of incorporation had not been obtained may be terminated in a private suit for its dissolution between stockholders, without the intervention of the state. The question as to the right of minority stockholders to sue for dissolution does not affect the court's jurisdiction, and is a matter for decision by the judge, subject to review on appeal by the aggrieved party at the proper time. Persons acting as corporation may not claim rights of "de facto" corporation if they have not obtained certificate of incorporation.

17. INDUSTRIAL REFRACTORIES CORPORATION OF THE PHILIPPINES V. CA

Section 18 of the Corporation Code expressly prohibits the use of a corporate name which is "identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws." To fall within the prohibition of the law, two requisites must be proven, to wit: (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 to any other name already protected by law; or (c) patently deceptive, confusing or contrary to existing law.

As regards the first requisite, it has been held that the right to the exclusive use of a corporate name with freedom from infringement by similarity is determined by priority of adoption.

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Anent the second requisite, 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 and the Court must look to the record as well as the names themselves.

18. SEVENTH DAY ADVENTIST V. NORTHEASTER MINDANAO

The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-SDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to accept such gift. Declaring themselves a de facto corporation, petitioners allege that they should benefit from the donation.But there are stringent requirements before one can qualify as a de facto corporation:

(a) the existence of a valid law under which it may be incorporated; (b) an attempt in good faith to incorporate; and (c) assumption of corporate powers.

19. GRACE CHRISTIAN HIGH SCHOOL V. CA

Sections 28 and 29 of the Corporation Law require members of the boards of directors of corporations to be elected. The board of directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office. But in the case of petitioner, there is no reason at all for its representative to be given a seat in the board. Nor does petitioner claim a right to such seat by virtue of an office held. 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. It is more accurate to say that the members merely tolerated petitioner's representative and tolerance cannot be considered ratification. Nor can petitioner claim a vested right to sit in the board on the basis of "practice." Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law.

20. JOHN GOKONGWEI JR. V. SEC

Any person who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and that he impliedly contracts that the will of the majority shall govern in all matters within the limits of the act of incorporation and lawfully enacted by-laws and not forbidden by law. To this extent, therefore, the stockholder may be considered to have parted with his personal right or privilege to regulate the disposition of his property which he has invested in the capital stock of the corporation, and surrendered it to the will of the majority of his fellow incorporators. DOCTRINE OF CORPORATE OPPORTUNITY - is precisely a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests fundamentally on the unfairness, in particular circumstances of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation justly calls for protection.

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21. INTER-ASIA INVESTMENTS INDUSTRIES, INC. V. CA

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. (see sec. 23) An officer of a corporation who is authorized to purchase the stock of another corporation has the implied power to perform all other obligations arising therefrom, such as payment of the shares of stock. By allowing its president to sign the Agreement on its behalf, petitioner clothed him with apparent capacity to perform all acts which are expressly, impliedly and inherently stated therein.

22. NACPIL V. INTERNATIONAL BROADCASTING CORP.

As petitioner's appointment as comptroller required the approval and formal action of the IBC's Board of Directors to become valid, it is clear therefore holds that petitioner is a corporate officer whose dismissal may be the subject of a controversy cognizable by the SEC under Section 5(c) of P.D. 902-A which includes controversies involving both election and appointment of corporate directors, trustees, officers, and managers. Had petitioner been an ordinary employee, such board action would not have been required.

23. WESTERN INSTITUTE OF TECHNOLOGY V. SALAS

There is no argument that directors or trustees, as the case may be, are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office. This rule is founded upon a presumption that directors/trustees render service gratuitously, and that the return upon their shares adequately furnishes the motives for service, without compensation. Under the foregoing section, there are only two (2) ways by which members of the board can be granted compensation apart from reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation; and (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders' meeting agree to give it to them. (Sec. 30) The unambiguous implication is that members of the board may receive compensation, in addition to reasonable per diems; when they render services to the corporation in a capacity other than as directors/ trustees. In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their capacity as members of the board, but rather as officers of the corporation, more particularly as Chairman, Vice Chairman, Treasurer and Secretary of Western Institute of Technology. Thus, the prohibition with respect to granting compensation to corporate directors/trustees as such under Section 30 is not violated in this particular case.

24. SANTOS V. NLRC The Court has collated the settled instances when, without necessarily piercing the veil of corporate fiction, personal civil liability can also be said to lawfully attach to a corporate director, trustee or officer; to wit: 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;

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(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."

25. SPS. DAVID V. CONSTRUCTION INDUSTRY AND ARBITRATION COMMISSION (CIAC)

As a general rule, the officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. However, the personal liability of a corporate director, trustee or officer, along with corporation, may so validly attach when he assents to a patently unlawful act of the corporation or for bad faith or gross negligence in directing its affairs.

26. MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD V. RAMOS

The rule is that obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. True, solidary liabilities may at times be incurred but only when exceptional circumstances warrant such as, generally, in the following cases:

(1) When directors and trustees or, in appropriate cases, the officers of a corporation —

(a) Vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons.

(2) When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto. (3) When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the Corporation. (4) When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.

In labor cases, particularly, the Court has held corporate directors and officers solidarily liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith. Bad faith or negligence is a question of fact and is evidentiary. It has been held that bad faith does not connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty thru some motive or interest or ill will; it partakes of the nature of fraud.

27. PRIME WHITE CEMENT CORP. V. IAC

All corporate powers shall be exercised by the Board of Directors, except as otherwise provided by law. Although it cannot completely abdicate its power and responsibility to act for the juridical entity, the Board may expressly delegate specific powers to its President or any of its officers. In the absence of such express delegation, a contract entered into by its President, on behalf of the corporation, may still bind the corporation if the board should ratify the same expressly or impliedly. Implied ratification may take various forms - like silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. Furthermore, even in the absence of express or implied authority by ratification, the President as such may, as a general rule, bind the corporation by a contract in the ordinary course of business, provided the same is reasonable under the circumstances. These rules are basic, but are

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all general and thus quite flexible. They apply where the President or other officer, purportedly acting for the corporation, is dealing with a third person, i.e., person outside the corporation.

28. DEE V. SEC While the group of Luciano Maggay was in control of Natelco by virtue of the restraining order issued in G.R. NO. 50885, the Maggay Board issued 113,800 shares of stock to CSI. Petitioner said that the Maggay Board, in issuing said shares without notifying Natelco stockholders, violated their right of pre-emption to the unissued shares. The questioned issuance of the 113,800 stocks is not invalid even assuming that it was made without notice to the stockholders as claimed by the petitioner. The power to issue shares of stocks in a corporation is lodged in the board of directors and no stockholders meeting is required to consider it because additional issuance of shares of stocks does not need approval of the stockholders. Consequently, no preemptive right of Natelco stockholders was violated by the issuance of the 113,800 shares to CSI.

29. MCLEOD V. NLRC As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith and paid adequate consideration for such assets, except when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to a consolidation or merger of the corporations, (3) where the purchasing corporation is merely a continuation of the selling corporation, and (4) where the selling corporation fraudulently enters into the transaction to escape liability for those debts. None of the foregoing exceptions is present in this case. At any rate, the existence of interlocking incorporators, directors, and officers is not enough justification to pierce the veil of corporate fiction, in the absence of fraud or other public policy considerations.

30. ISLAMIC DIRECTORATE V. CA AND INC

The Carpizo Group-INC sale is further deemed null and void ab initio because of the Carpizo Group's failure to comply with Section 40 of the Corporation Code pertaining to the disposition of all or substantially all assets of the corporation:

"Sec. 40. Sale or other disposition of assets. xxx A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated.

The Tandang Sora property, it appears from the records, constitutes the only property of the IDP. Hence, its sale to a third-party is a sale or disposition of all the corporate property and assets of IDP falling squarely within the contemplation of the foregoing section. For the sale to be valid, the majority vote of the legitimate Board of Trustees, concurred in by the vote of at least 2/3 of the bona fide members of the

corporation should have been obtained. These twin requirements were not met as the Carpizo Group which voted to sell the Tandang Sora property was a fake Board of Trustees, and those whose names and signatures were affixed by the Carpizo

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Group together with the sham Board Resolution authorizing the negotiation for the sale were, from all indications, not bona fide members of the IDP as they were made to appear to be. Apparently, there are only fifteen (15) official members of the petitioner corporation including the eight (8) members of the Board of Trustees.

31. NIELSON & COMPANY INC. V. LEPANTO CONSOLIDATED MINING COMPANY

Shares of stock are given the special name "stock dividends" only if they are issued in lieu of undistributed profits. If the shares of stocks are issued in exchange of cash or Property then those shares do not fall under the category of "stock dividends". A corporation may legally issue shares of stock in consideration of services rendered to it by a person not a stockholder, or in payment of its indebtedness. A share of stock issued to pay for services rendered is equivalent to a stock issued in exchange of property because services is equivalent to property. Likewise a share of stock issued in payment of indebtedness is equivalent to issuing a stock in exchange for cash. But a share of stock thus issued should be part of the original capital stock of the corporation upon its organization, or part of the stocks issued when the increase of the capitalization of a corporation is properly authorized. So, a stock dividend 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 corporations' accumulated profits have been capitalized instead of distributed to the stockholders or retained as surplus available for distribution, in money or in 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 the surplus to assets and no longer available for actual distribution.

32. PNB V. ANDRADA The question of whether a corporation is a mere alter ego is one of fact. Piercing the veil of corporate fiction may be allowed only if the following elements concur:

(1) control — not mere stock control, but complete domination — not only of finances, but of policy and business practice in respect to the transaction attacked, must have been such that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) such control must have been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of plaintiff's legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of. We believe that the absence of the foregoing elements in the present case precludes the piercing of the corporate veil.

33. HYDRO RESOURCES CORP. V. NIA

Even assuming for the sake of argument that the Administrator had no authority to bind NIA, the latter is already estopped after repeatedly representing to Hydro that the Administrator had such authority. A corporation may be held in estoppel from denying as against third persons the authority of its officers or agents who have been clothed by it with ostensible or apparent authority. The rule is of course settled that "[a]lthough an officer or agent acts without, or in excess of, his actual authority if he acts within the scope of an apparent authority

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with which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as

where an officer is allowed to exercise a particular authority with respect to the business, or a particular branch of it, continuously and publicly, for a considerable time.". . .

34. LOYOLA GRAND VILLAS V. CA

Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the consequences of the non-filing of the same within the period provided for in Section 46. However, such omission has been rectified by Presidential Decree No. 902-A, the pertinent provisions on the jurisdiction of the SEC of which state: "SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: . . . (1) to suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following: . . . Failure to file by-laws within the required period There can be no automatic corporate dissolution simply because the incorporators failed to abide by the required filing of by-laws embodied in Section 46 of the Corporation Code. There is no outright "demise" private of corporate existence. Proper notice and hearing are cardinal components of due process in any democratic institution, agency or society. In other words, the incorporators must be given the chance to explain their neglect or omission and remedy the same.

35. CHINA BANK V. CA AND VGCCI

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. Sec. 63 of the Corporation Code which provides that "no shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation" cannot be utilized by VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid subscription, and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transaction." In the case at bar, the subscription for the share in question has been fully paid as evidenced by the issuance of Membership Certificate No. 1219. What Calapatia owed the corporation were merely the monthly dues. Hence, the aforequoted provision does not apply.

36. SALAFRANCA V. PHILAMLIFE

Admittedly, the right to amend the by-laws lies solely in the discretion of the employer, this being in the exercise of management prerogative or business judgment. However this right, extensive as it may be, cannot impair the obligation of existing contracts or rights. If private respondent wanted to make the petitioner's position co-terminus with that of the Board of Directors, then the amendment must be effective after petitioner's stay with the private respondent, not during his term. Obviously, the measure taken by the private respondent in amending its by-laws is nothing but a devious, but crude, attempt to circumvent petitioner's right to security of tenure as a regular employee guaranteed under the Labor Code.

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37. PCGG V. COCOFED

The general rule is that the sequestered shares are voted by the registered holders because voting is an act of dominion, and PCGG is only a conservator; the exception is when the two tiered test has been complied with:

(1) prima facie evidence that said shares are ill-gotten wealth; (2) imminent danger of dissipation - PCGG can instead vote

The general rule, apparently, does not find application in this case not because of the compliance to the two-tiered test, but because of the "public character" of these shares. Public character means that:

(1) government shares are taken over by private persons and registered them in their own names; and (2) these shares, which were acquired with public funds, landed in private hands.

The rationale: Legal fiction must yield to truth; prima facie beneficial owner should be given privilege of enjoying the rights flowing from the prima facie fact of ownership

38. FRANCIS CHUA V. CA

Private respondent asserts that she filed a derivative suit in behalf of the corporation. This assertion is inaccurate. Not every suit filed in behalf of the corporation is a derivative suit. For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit. It is a condition sine qua non that the corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the present rule that it must be served with process. The judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring subsequent suit against the same defendants for the same cause of action. In other words, the corporation must be joined as party because it is its cause of action that is being litigated and because judgment must be a res judicata against it.

39. EXPERTRAVEL & TOURS, INC. V. CA AND KOREAN AIRLINES

In a case where the plaintiff is a private corporation, the certification may be signed, for and on behalf of the said corporation, by a specifically authorized person, including its retained counsel, who has personal knowledge of the facts required to be established by the documents. Under the law, Atty. Aguinaldo was not specifically authorized to execute a certificate of non-forum shopping as required by Section 5, Rule 7 of the Rules of Court. This is because while a resident agent may be aware of actions filed against his principal (a foreign corporation doing business in the Philippines), such resident may not be aware of actions initiated by its principal, whether in the Philippines against a domestic corporation or private individual, or in the country where such corporation was organized and registered, against a Philippine registered corporation or a Filipino citizen. In the Philippines, teleconferencing and videoconferencing of members of board of directors of private corporations is a reality, in light of Republic Act No. 8792. The Securities and Exchange Commission issued SEC Memorandum Circular No. 15, on November 30, 2001, providing the guidelines to be complied with related to such conferences. Thus, the Court agrees with the RTC that persons in the Philippines

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may have a teleconference with a group of persons in South Korea relating to business transactions or corporate governance.

40. RAMON LEE V. CA

The most immediate effect of a voting trust agreement on the status of a stockholder who is a party to its execution — from legal title holder or owner of the shares subject of the voting trust agreement, he becomes the equitable or beneficial owner. By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends, the right to inspect the books of the corporation, the right to sell certain interests in the assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria or tests, namely:

(1) that the voting rights of the stock are separated from the other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation.

Take note also that in order to be eligible as a director, what is material is the legal title to, not beneficial ownership of, the stock as appearing on the books of the corporation

41. ONG YONG V. TIU However, although the Tius were adversely affected by the Ongs' unwillingness to let them assume their positions, rescission due to breach of contract is definitely the wrong remedy for their personal grievances. A contrary doctrine will tread on extremely dangerous ground because it will allow just any stockholder, for just about any real or imagined offense, to demand rescission of his subscription and call for the distribution of some part of the corporate assets to him without complying with the requirements of the Corporation Code. Contrary to the Tius' allegation, rescission will, in the final analysis, result in the premature liquidation of the corporation without the benefit of prior dissolution in accordance with Sections 117, 118, 119 and 120 of the Corporation Code. The Trust Fund Doctrine is the underlying principle in the procedure for the distribution of capital assets, embodied in the Corporation Code, which allows the distribution of corporate capital only in three instances:

(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.

MIDTERM EXAMS

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42. NAVA VS. PEERS MARKETING

Peers Marketing Corp. cannot be compelled by mandamus to enter in its stock and transfer book the sale made by Po to Nava because the transfer is not the "alienation, sale or transfer of stock" that is supposed to be recorded in the stock and transfer book under Sec. 35. As a rule, the shares which may be alienated are those which are covered by certificates of stock. No stock certificate was issued to Po. Without stock certificate, which is the evidence of ownership of corporate stock, the assignment of corporate shares is effective only between the parties to the transaction.

43. LIM TAY VS. CA Mandamus will not issue to establish a legal right, but only to enforce one that is already clearly established. Moreover, the duty of a corporate secretary to record transfers of stocks is ministerial. However, he cannot be compelled to do so when the transferee's title to said shares has no prima facie validity or is uncertain. More specifically, a pledgor, prior to foreclosure and sale, does not acquire ownership rights over the pledged shares and thus cannot compel the corporate secretary to record his alleged ownership of such shares on the basis merely of the contract of pledge. Also, his possession as a pledgee cannot ripen into ownership by prescription.

44. RURAL BANK OF LIPA CITY VS. CA

We have uniformly held that 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.

While the assignment may be valid and binding on the petitioners and private respondents, it does not necessarily make the transfer effective. Consequently, the petitioners, as mere assignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not be entitled to dividends, insofar as the assigned shares are concerned. Parenthetically, the private respondents cannot, as yet be deprived of their rights as stockholders, until and unless the issue of ownership and transfer of the shares in question is resolved with finality.

45. PONCE VS. ALSONS CEMENT CORP.

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. 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. It is only when the transfer has been recorded in the stock and transfer book that a corporation may rightfully regard the transferee as one of its stockholders. Hence, without such recording, the transferee may not be regarded by the corporation as one among its stockholders and the corporation may legally refuse the issuance of stock certificates in the name of the transferee even when there has been compliance with the requirements of Sec. 64 of the Corporation code.

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Consequently, the corporation cannot be compelled by the transferee to record the transfer.The situation would be different if the petitioner was himself the registered owner of the stock which he sought to transfer to a third party, for then he would be entitled to the remedy of mandamus. (emphasized by sir during class)

46. GONZALES VS. PNB

As may be noted, among the changes introduced in the new Code with respect to the right of inspection granted to a stockholder are the following:

(1) the records must be kept at the principal office of the corporation; (2) the inspection must be made on business days; (3) the stockholder may demand a copy of the excerpts of the records or minutes; and (4) the refusal to allow such inspection shall subject the erring officer or agent of the corporation to civil and criminal liabilities. However, while seemingly enlarging the right of inspection, the new Code has prescribed limitations to the same. It is now expressly required as a condition for such examination that the one requesting it:

(a) must not have been guilty of using improperly any information secured through a prior examination, and that (b) the person asking for such examinations must be "acting in good faith and for a legitimate purpose in making his demand."

47. ASSOCIATED BANK VS. CA

Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation. Although there is a dissolution of the absorbed corporations, there is no winding up of their affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and powers, as well as their liabilities.

48. MINDANAO SAVINGS VS. CA

It is undisputed that the articles of merger between FISLAI and DSLAI were not registered with the SEC due to incomplete documentation. Consequently, the SEC did not issue the required certificate of merger. Even if it is true that the Monetary Board of the Central Bank of the Philippines recognized such merger, the fact remains that no certificate was issued by the SEC. Such merger is still incomplete without the certification. The issuance of the certificate of merger is crucial because not only does it bear out SEC's approval but it also marks the moment when the consequences of a merger take place. By operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights and properties, as well as liabilities, shall be taken and deemed transferred to and vested in the surviving corporation. The same rule applies to consolidation which becomes effective not upon mere agreement of the members but only upon issuance of the certificate of consolidation

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by the SEC. When the SEC, upon processing and examining the articles of consolidation, is satisfied that the consolidation of the corporations is not inconsistent with the provisions of the Corporation Code and existing laws, it issues a certificate of consolidation which makes the reorganization official. The new consolidated corporation comes into existence and the constituent corporations are dissolved and cease to exist.

49. BABST VS. CA At the outset, the preliminary issue of BPI's right of action must first be addressed. ELISCON and MULTI assail BPI's legal capacity to recover their obligation to CBTC. However, there is no question that there was a valid merger between BPI and CBTC. It is settled that in the merger of two existing corporations, one of the corporations survives and continues the business, while the other is dissolved and all its rights, properties and liabilities are acquired by the surviving corporation. Hence, BPI has a right to institute the case a quo. (sinama ko na lang just in case) BPI's conduct evinced a clear and unmistakable consent to the substitution of DBP for ELISCON as debtor. Hence, there was a valid novation which resulted in the release of ELISCON from its obligation to BPI, whose cause of action should be directed against DBP as the new debtor. Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions — one to extinguish an existing obligation, the other to substitute a new one in its place — requiring a conflux of four essential requisites, (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. The original obligation having been extinguished, the contracts of suretyship executed separately by Babst and MULTI, being accessory obligations, are likewise extinguished.

50. TURNER VS. LORENZO SHIPPING CORP.

No payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to cover the payment. In case the corporation has no available unrestricted retained earnings in its books, Section 83 of the Corporation Code provides that if the dissenting stockholder is not paid the value of his shares within 30 days after the award, his voting and dividend rights shall immediately be restored. Neither did the subsequent existence of unrestricted retained earnings after the filing of the complaint cure the lack of cause of action in Civil Case No. 01-086. The

petitioners' right of action could only spring from an existing cause of action. Thus, a complaint whose cause of action has not yet accrued cannot be cured by an amended or supplemental pleading alleging the existence or accrual of a cause of action during the pendency of the action. For, only when there is an invasion of primary rights, not before, does the adjective or remedial law become operative. Verily, a premature invocation of the court's intervention renders the complaint without a cause of action and dismissible on such ground.

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51. CUA JR. VS. OCAMPO

In effect, the (derivative) suit is an action for specific performance of an obligation, owed by the corporation to the stockholders, to assist its rights of action when the corporation has been put in default by the wrongful refusal of the directors or management to adopt suitable measures for its protection. The basis of a stockholder's suit is always one of equity. However, it cannot prosper without first complying with the legal requisites for its institution. Rule 8, Section 1 of the Interim Rules of Procedure for Intra-Corporate Controversies (IRPICC) lays down the following requirements which a stockholder must comply with in filing a derivative suit: Sec. 1.Derivative action. — A stockholder or member may bring an action in the name of a corporation or association, as the case may be, provided, that: (1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed; (2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires; (3) No appraisal rights are available for the act or acts complained of; and

(4) The suit is not a nuisance or harassment suit.

52. PADCOM CONOMINIUM VS. ORTIGAS CENTER ASSOCIATION, INC.

As lot owner, PADCOM is a regular member of the Association. No application for membership is necessary. If at all, acceptance by the Board of Directors is a ministerial function considering that PADCOM is deemed to be a regular member upon the acquisition of the lot pursuant to the automatic membership clause annotated in the Certificate of Title of the property and the Deed of Transfer. Neither are we convinced by PADCOM's contention that the automatic membership clause is a violation of its freedom of association. PADCOM was never forced to join the association. It could have avoided such membership by not buying the land from TDC. Nobody forced it to buy the land when it bought the building with the annotation of the condition or lien on the Certificate of Title thereof and accepted the Deed. PADCOM voluntarily agreed to be bound by and respect the condition, and thus to join the Association.

53. STA. CLARA HOMES ASSOCIATIONVS. GASTON

Private respondents cannot be compelled to become members of the SCHA by the simple expedient of including them in its Articles of Incorporation and By-laws without their express or implied consent. True, it may be to the mutual advantage of lot owners in a subdivision to band themselves together to promote their common welfare. But that is possible only if the owners voluntarily agree, directly or indirectly, to become members of the association. When private respondents purchased their property in 1974 and obtained Transfer Certificates of Title Nos. T-126542 and T-127462 for Lots 11 and 12 of Block 37 along San Jose Avenue in Sta. Clara Subdivision, there was no annotation showing their automatic membership in the SCHA. Thus, no privity of contract arising from the title certificate exists between petitioners and private respondents. Further, the records are bereft of any evidence that would indicate that private respondents

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intended to become members of the SCHA. Prior to the implementation of the aforesaid Resolution, they and the other homeowners who were not members of the association were issued non-member gate pass stickers for their vehicles. This fact has not been disputed by petitioners. Thus, the SCHA recognized that there were subdivision landowners who were not members thereof, notwithstanding the provisions of its Articles of Incorporation and By-laws.

54. LONG VS. BASA The Church ("The Church In Quezon City") By-law provision on expulsion, as phrased, may sound unusual and objectionable to petitioners 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-à-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. Thus, generally, there is no room for dissension in a religious corporation. And where, as here, any member of a religious corporation is expelled from the membership for espousing doctrines and teachings contrary to that of his church, the established doctrine in this jurisdiction is that such action from the church authorities is conclusive upon the civil courts.

55. TAN VS. SYCIP Quorum in a members’ meeting is to be reckoned as the actual number of members of the corporation In stock corporations, shareholders may generally transfer their shares. Thus, on the death of a shareholder, the executor or administrator duly appointed by the Court is vested with the legal title to the stock and entitled to vote it. Until a settlement and division of the estate is effected, the stocks of the decedent are held by the administrator or executor. On the other hand, membership in and all rights arising from a nonstock corporation are personal and non-transferable, unless the articles of incorporation or the bylaws of the corporation provide otherwise. In other words, the determination of whether or not "dead members" are entitled to exercise their voting rights (through their executor or administrator), depends on those articles of incorporation or bylaws.

Applying Section 91 to the present case, we hold that dead members who are dropped from the membership roster in the manner and for the cause provided for in the By-Laws of GCHS are not to be counted in determining the requisite vote in corporate matters or the requisite quorum for the annual members' meeting. With 11 remaining members, the quorum in the present case should be 6. Therefore, there being a quorum, the annual members' meeting, conducted with six members present, was valid.

56. SAN JUAN STRUCTURAL AND STEEL FABRICATION VS. CA

Petitioner claims that Motorich is a close corporation. We rule that it is not. (See Sec. 96 for definition of a close corporation.) The articles of incorporation of Motorich Sales Corporation 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

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stocks is prohibited. From its articles, it is clear that Respondent Motorich is not a close corporation. Motorich does not become one either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The [m]ere 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.

57. MANUEL R. DULAY ENTERPRISES VS. CA

Petitioner corporation is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president. At any rate, a corporate action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting which, in this case, petitioner Virgilio Dulay failed to do. Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to private respondents spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed without the knowledge and consent of the other members of the board of directors cannot be sustained. The sale of the subject property to private respondents by Manuel Dulay is valid and binding.

58. IGLESIA EVANGELICA METODISTA ET. AL. VS. BISHOP LAZARO ET. AL

There is no point to dissolving the corporation sole of one member to enable the corporation aggregate to emerge from it. Whether it is a non-stock corporation or a corporation sole, the corporate being remains distinct from its members, whatever be their number. The increase in the number of its corporate membership does not change the complexion of its corporate responsibility to third parties. 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. He can, with membership concurrence, increase the technical number of the members of the corporation from "sole" or one to the greater number authorized by its amended articles.

59. ROMAN CATHOLIC APOSTOLIC ADMINISTRATION OF DAVAO VS. LAND REGISTRATION COMMISSION

The Corporation Law and the Canon Law are explicit in their provisions that a corporation sole or "ordinary" is not the owner of the properties that he may acquire but merely the administrator thereof and holds the same in trust for the church to which the corporation is an organized and constituents part. Being mere administrator of the temporalities or properties titled in his name, the constitutional provision requiring 60 per centum Filipino ownership is not applicable. The said constitutional provision is limited by it terms to ownership alone and does not extend to control unless the control over the property affected has been devised to circumvent the real purpose of the constitution. The corporation sole by reason of their peculiar constitution and form of operation have no designed owner of its temporalities, although by the terms of the law it can be safely implied that they ordinarily hold them in trust for the benefit of the Roman Catholic faithful of their respective locality or diocese. They cannot be considered as aliens because they have no nationality at all. In determining, therefore, whether the constitutional provision requiring 60 per centum Filipino capital is applicable to corporations sole, the nationality of the constituents of the diocese, and not the nationality of the actual incumbent of the parish, must be taken into consideration. In the present case, even if the question of nationality be considered, the aforesaid constitutional requirement is fully met and satisfied, considering that the corporation

The corporation sole is not the owner of the properties or temporalities it acquires, but a mere administrator.
The constitutional provision requiring 60 per centum Filipino capital is applicable to corporations sole: the nationality of the constituents of the diocese, and not the nationality of the actual incumbent of the parish, must be taken into consideration.
Corporation sole- No point to dissolving the corporation sole of one member to enable the corporation aggregate to emerge from it. With the concurrence of 2/3 of its members, the head can self-will the amendment.
Mere ownership of a single stockholder does not ipso facto make it a close corporation
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sole in question is composed of an overwhelming majority of Filipinos.

60. VESAGAS VS. CA The requirements (for dissolution) mandated by the Corporation Code should have been strictly complied with by the members of the club. The records reveal that no proof was offered by the petitioners with regard to the notice and publication requirements. Similarly wanting is the proof of the board members' certification. Lastly, and most important of all, the SEC Order of Dissolution was never submitted as evidence. We rule that the present dispute is intra-corporate in character. In the first place, the parties here involved are officers and members of the club. Respondents claim to be members of good standing of the club until they were purportedly stripped of their membership in illegal fashion. Petitioners, on the other hand, are its President and Vice-President, respectively. More significantly, the present conflict relates to, and in fact arose from, this relation between the parties. The subject of the complaint, namely, the legality of the expulsion from membership of the respondents and the validity of the amendments in the club's by-laws are, furthermore, within the Commission's jurisdiction. Note: The enactment of R.A. 8799, otherwise known as the Securities Regulation Code, however, transferred the jurisdiction to resolve intra-corporate controversies to courts of general jurisdiction or the appropriate Regional Trial Courts.

61. GELANO VS. CA Can a corporation, whose corporate life had ceased by the expiration of its terms of existence, still continue prosecuting and defending suits after its dissolution and beyond the period of three (3) years provided for under Act No. 1459, otherwise known as the Corporation Law, to wind up its affairs, without having undertaken any step to transfer its assets to a trustee or assignee. YES. 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 that there is no time limited within which the trustees must complete a liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78) that the conveyance in the trustees must he 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 where 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 Section 78 may sue and be sued as such in all matters connected with the liquidation. By the terms of the statute the effect of the conveyance is to make the trustees the legal owners of the property conveyed, subject to the beneficial interest therein of creditors and stockholders." 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.

Strict compliance with dissolution requirements
Three-year period refers only to the time of conveyance in the trustees and not the entire period where liquidation is to be completed.
The trustee may commence a sui t which can proceed to final judgment even beyond the threeyear period
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62. PHILIPPINE VETERANS BANK EMPLOYEES UNION VS. VEGA

Liquidation, in corporation law, connotes a winding up or settling with creditors and debtors. It is the winding up of a corporation so that assets are distributed to those entitled to receive them. It is the process of reducing assets to cash, discharging liabilities and dividing surplus or loss. It is crystal clear that the concept of liquidation is diametrically opposed or contrary to the concept of rehabilitation, such that both cannot be undertaken at the same time. To allow the liquidation proceedings to continue would seriously hinder the rehabilitation of the subject rank. On the opposite end of the spectrum is rehabilitation which connotes a reopening or reorganization. Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency.

63. TAN TION VS. CIR The creditor of a dissolved corporation may follow its assets once they passed into the hands of the stockholders. The dissolution of a corporation does not extinguish the debts due or owing to it. A creditor of a dissolved corporation may follow its assets, as in the nature of a trust fund, into the hands of its stockholders. An indebtedness of a corporation to the federal government for income and excess profit taxes is not extinguished by the dissolution of the corporation. That the hands of the government cannot, collects taxes from a defunct corporation, it loses thereby none of its rights to assess taxes which had been due from the corporation, and to collect them from persons who by reason of transaction with the corporation hold property against which the tax can be enforced and that the legal death of the corporation no more prevents such action than would the physical death of an individual prevent the government from assessing taxes against him and collecting them from his administrator who holds the property which the decedent had formerly possessed.

64. REBOLLIDO VS. CA

The law provides that a corporation whose corporate term has ceased can still be made a party to suit. Under paragraph 1, Section 122 of the Corporation Code, a dissolved corporation: . . . ". . . shall nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established." The rationale for extending the period of existence of a dissolved corporation is explained in Castle's Administrator v. Acrogen Coal, Co. as follows: "This continuance of its legal existence for the purpose of enabling it to close up its business is necessary to enable the corporation to collect the demands due it as well as to allow its creditors to assert the demands against it. If this were not so, then a corporation that became involved in liabilities might escape the payment of its just obligations by merely surrendering its charter, and thus defeat its creditors or greatly hinder and delay them in the collection of their demands. This course of conduct on the part of corporations the law in justice to persons dealing with them does not permit. The person who has a valid claim against a corporation, whether it arises in contract or tort should not be deprived of the right to prosecute an action for the enforcement of his demands by the action of the stockholders of the corporation in agreeing to its dissolution of a corporation does not extinguish obligations or liabilities due by or to it."

Liquidation vs Rehabilitation
Right to prosecute a claim upon dissolution - The person who has a valid claim against a corporation, whether it arises in contract or tort should not be deprived of the right to prosecute an action for the enforcement of his demands by the action of the stockholders of the corporation in agreeing to its dissolution of a corporation does not extingu ish obligations or liabilities due by or to it.
A creditor of a dissolved corporation may follow its assets, as in the nature of a trust fund, into the hands of its stockholders.
An indebtedness of a corporation to the federal government for income and excess profit taxes is not extinguished by the di ssolution of the corporation
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(additional info) Although it may be true that the service of summons was made on a person not authorized to receive the same . . ., nevertheless since it appears that the summons an complaint were in fact received by the corporation through its said clerk, the Court finds that there was substantial compliance, with the rule on service of summons. Indeed the purpose of said rule as above stated to assure service of summons on the corporation had thereby been attained. The need for speedy justice must prevail over a technicality.

65. FACILITIES MANAGEMENT CORP. VS. DELA OSA

If a foreign corporation, not engaged in business in the Philippines is not barred from seeking redress from courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being sued in the Philippine courts for acts done against a person or persons in the Philippines. The act by a non-resident foreign corporation of recruiting Filipino workers for its own use abroad constitutes in the law doing business in the Philippines.

Test of "doing business": Whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another.

66. HOME INSURANCE VS. EASTERN SHIPPING LINES

On validity of contracts of unlicensed foreign corporations - Contract enforceable upon compliance with the law - "Where there is a prohibition with a penalty, with no express or implied declaration respecting the validity or enforceability of contracts made by qualified foreign corporations, the contracts are enforceable upon compliance with the law. It is not necessary to declare the contract null and void as against the erring foreign corporation. The penal sanction for violation and the denial of access to our courts and administrative bodies are sufficient from the viewpoint of legislative policy. The lack of capacity at the time of the execution of the contracts is CURED by the subsequent registration of the licensed foreign corporation. (emphasized by sir during class) see also p. 806, of De Leon Corpo (2013)

67. ERIKS PTE. LTD. VS. CA

"Doing business" - The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization. What is determinative of "doing business" is not really the number or the quantity of the transactions, but more importantly, the intention of an entity to continue the body of its business in the country. The number and quantity are merely evidence of such intention. The phrase "isolated transaction" has a definite and fixed meaning. i.e. a transaction or series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of the business organization. Whether a foreign corporation is "doing business" does not necessarily depend upon the frequency of its transactions, but more upon the nature and character of the transactions. By securing a license, the foreign entity would be giving assurance that it will abide by the decisions of our courts, even if adverse to it. This Court has ruled that

What is determinative of "doing business" is not really the number or the quantity of the transactions, but more importantly body of its business in the country.
Isolated Transactions- transactions set apart from the common business of a foreign enterprise. No intention of continuity.
Test of doing business
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subsequent acquisition of the license will cure the lack of capacity at the time of the execution of the contract.

68. HUTCHINSON PORTS PHILS. VS. SBMA

Participating in the bidding process constitutes "doing business" because it shows the foreign corporation's intention to engage in business here. The bidding for the concession contract is but an exercise of the corporation's reason for creation or existence. Thus, it has been held that "a foreign company invited to bid for IBRD and ADB international projects in the Philippines will be considered as doing business in the Philippines for which a license is required." In this regard, it is the performance by a foreign corporation of the acts for which it was created, regardless of volume of business, that determines whether a foreign corporation needs a license or not. The primary purpose of the license requirement is to compel a foreign corporation desiring to do business within the Philippines to submit itself to the jurisdiction of the courts of the state and to enable the government to exercise jurisdiction over them for the regulation of their activities in this country. If a foreign corporation operates a business in the Philippines without a license, and thus does not submit itself to Philippine laws, it is only just that said foreign corporation be not allowed to invoke them in our courts when the need arises. "While foreign investors are always welcome in this land to collaborate with us for our mutual benefit, they must be prepared as an indispensable condition to respect and be bound by Philippine law in proper cases, as in the one at bar." The requirement of a license is not intended to put foreign corporations at a disadvantage, for the doctrine of lack of capacity to sue is based on considerations of sound public policy. Accordingly, petitioner HPPL must be held to be incapacitated to bring this petition for injunction before this Court for it is a foreign corporation doing business in the Philippines without the requisite license.

69. MR HOLDINGS VS. BEJAR

Where the corporation enters into a single agreement, or engaged in some other isolated or causal business act or transaction within a particular State, with no intention to repeat the same or make such State a basis for the conduct of any part of its corporate business, such corporation cannot be said to be doing business or transacting business within the State, within the meaning of the usual statutory provisions regulating the transaction of business by foreign corporations. Mere ownership by a foreign corporation of a property in a certain state, unaccompanied by its active use in furtherance of the business for which it was formed, is insufficient in itself to constitute doing business. Thus, foreign corporation which becomes the assignee of mining properties, facilities and equipment cannot automatically be considered as doing business, nor presumed to have the intention engaging in mining business.

70. SUMNDAD VS. HARRIGAN

The mere use of the phrase "in fraud of creditors" does not, ipso fact, throw the case within SEC's jurisdiction. The amended complaint filed by Harrigan does not sufficiently allege acts amounting to fraud and misrepresentation committed by respondent corporation. Equally unavailing is petitioner's contention that the case involves an intra-corporate controversy, or one between the corporation and its stockholder transposing it within the domain of the SEC. It should be noted that the issue has

Effects of the failure to comply with the license requirement.
Purpose of the license requirement
What constitutes an isolated transaction - single agreement, or engagement in some other isolated or causal business act or transaction within a particular State, with no intention to repeat the same.
The phrase "in fraud of creditors" does not instantly mean a deceptive design or machination. It may also refer to "in prejudice of creditors" and thus does not immediately throw the case to the jurisdiction of the SEC, even if the case had not become moot and academic.
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become moot and academic because with Republic Act No. 8799, Securities Regulation Code, it is now the Regional Trial Court and no longer the SEC that has jurisdiction. Under Section 5.2 of Republic Act No. 8799, original and exclusive jurisdiction to hear and decide, cases involving intra-corporate controversies have been transferred to a court of general jurisdiction or the appropriate Regional Trial Court.

71. ORENDAIN VS. BF HOMES

The issue central to this petition is: which has jurisdiction over the action for reconveyance — the RTC or SEC. Juxtaposing the jurisdiction of the RTC under RA 8799 and the powers that were retained by the SEC, it is clear that the SEC retained its administrative, regulatory, and oversight powers over all corporations, partnerships, and associations who are grantees of primary franchises, and/or a license or permit issued by the Government. However, the Securities Regulations Code (SRC) is clear that when there is a controversy arising out of intra-corporate relations, between and among stockholders, members or associates, and between, any, or all of them and the corporation, it is the RTC, not SEC, which has jurisdiction over the case. Thus, when the complaint involves "an active antagonistic assertion of a legal right on one side and a denial thereof on the other concerning a real, and not a mere theoretical question or issue," a cause of action involving a delict or wrongful act or omission committed by a party in violation of the primary right of another, or an actual controversy involving rights which are legally demandable or enforceable, the jurisdiction over this complaint is lodged with the RTC but not the SEC.

72. VELARDE VS. LOPEZ

Section 5(c) of P.D. 902-A (as amended by R.A. 8799, the Securities Regulation Code) applies to a corporate officer's dismissal. For a corporate officer's dismissal is always a corporate act and/or an intra-corporate controversy and that its nature is not altered by the reason or wisdom which the Board of Directors may have in taking such action.

With regard to petitioner's claim for unpaid salaries, unpaid share in net income, reasonable return on the stock ownership plan and other benefits for services rendered to Sky Vision, jurisdiction thereon pertains to the Securities Exchange Commission even if the complaint by a corporate officer includes money claims since such claims are actually part of the prerequisite of his position and, therefore, interlinked with his relations with the corporation. 25 The question of remuneration involving a person who is not a mere employee but a stockholder and officer 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.

73. TIMESHARE REALTY VS. CA

The provisions of B.P. Blg. 178 do not support the contention of petitioner that its mere registration as a corporation already authorizes it to deal with unregistered timeshares. Corporate registration is just one of several requirements before it may deal with timeshares: Section 8.Procedure for registration. — (a) All securities required to be registered under subsection (a) of Section four of this Act shall be registered through the filing by the issuer or by any dealer or underwriter interested in the sale thereof, in the

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office of the Commission, of a sworn registration statement with respect to such securities, containing or having attached thereto, the following: xxx xxx xxx (36) Unless previously filed and registered with the Commission and brought up to date: (a) A copy of its articles of incorporation with all amendments thereof and its existing by-laws or instruments corresponding thereto, whatever the name, if the issuer be a corporation. Prior to fulfillment of all the other requirements of Section 8, petitioner is absolutely proscribed under Section 4 from dealing with unregistered timeshares, thus: Section 4.Requirement of registration of securities. — (a) No securities, except of a class exempt under any of the provisions of Section five hereof or unless sold in any transaction exempt under any of the provisions of Section six hereof, shall be sold or offered for sale or distribution to the public within the Philippines unless such securities shall have been registered and permitted to be sold as hereinafter provided. (Emphasis supplied.)

74. UNION BANK OF THE PHILIPPINES VS. SEC

That petitioner is under the supervision of the Bangko Sentral ng Pilipinas (BSP) and the Philippine Stock Exchange (PSE) does not exempt it from complying with the continuing disclosure requirements embodied in the assailed Rules. Petitioner, as a bank, is primarily subject to the control of the BSP; and as a corporation trading its securities in the stock market, it is under the supervision of the SEC. It must be pointed out that even the PSE is under the control and supervision of respondent. There is no over-supervision here. Each regulating authority operates within the sphere of its powers. That stringent requirements are imposed is understandable, considering the paramount importance given to the interests of the investing public. Otherwise stated, the mere fact that in regard to its banking functions, petitioner is already subject to the supervision of the BSP does not exempt the former from reasonable disclosure regulations issued by the SEC. These regulations are meant to assure full, fair and accurate disclosure of information for the protection of investors in the stock market. Imposing such regulations is a function within the jurisdiction of the SEC. Since petitioner opted to trade its shares in the exchange, then it must abide by the reasonable rules imposed by the SEC.

75. ONAPAL VS. CA The contract between the parties falls under the kind commonly called “futures”. The term “futures” has grown out of those purely speculative transactions in which there are nominal contracts to sell for future delivery, but where in fact no delivery is intended or executed. In the realities of the transaction, the parties merely speculated on the rise or fall in the price of the goods/commodity subject matter of the transaction. If private respondent's speculation was correct, she would be the winner and the petitioner, the loser, so petitioner would have to pay private respondent the "margin". But if private respondent was wrong in her speculation then she would emerge as the loser and the petitioner, the winner. The petitioner would keep the money or collect the difference from the private respondent. This is clearly a form of gambling

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provided for with unmistakable certainty under Article 2018 above stated. It should thus be governed by the New Civil Code and not by the Revised Securities Act nor the Rules and Regulations on Commodity Futures Trading laid down by the SEC. Article 1462 of the New Civil Code does not govern this case because the said provision contemplates a contract of sale of specific goods where one of the contracting parties binds himself to transfer the ownership of and deliver a determinate thing and the other to pay therefore a price certain in money or its equivalent. The said article requires that there be delivery of goods, actual or constructive, to be applicable. In the transaction in question, there was no such delivery; neither was there any intention to deliver a determinate thing.

76. CEMCO HOLDINGS VS. NATIONAL LIFE INSURANCE

Petitioner asserts that the mandatory tender offer rule applies only to direct acquisition of shares in the public company. This contention is not meritorious. 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. Stated differently, a tender offer is an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer. 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. See Section 19 of Republic Act No. 8799 for your reference. Or better yet, read the case. Under existing SEC Rules, the 15% and 30% threshold acquisition of shares under the foregoing provision 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.

77. ABACUS SECURITIES VS. AMPIL

Otherwise stated, the margin requirements set out in the RSA are primarily intended to achieve a macroeconomic purpose — the protection of the overall economy from excessive speculation in securities. Their recognized secondary purpose is to protect small investors. The law places the burden of compliance with margin requirements primarily upon the brokers and dealers. Sections 23 and 25 and Rule 25-1, otherwise known as the "mandatory close-out rule," clearly vest upon petitioner the obligation, not just the right, to cancel or otherwise liquidate a customer's order, if payment is not received within three days from the date of purchase. The word "shall" as opposed to the word "may," is imperative and operates to impose a duty, which may be legally enforced. For transactions subsequent to an unpaid order, the broker should require its customer to deposit funds into the account sufficient to cover each purchase transaction prior to its execution. These duties are imposed upon the

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broker to ensure faithful compliance with the margin requirements of the law, which forbids a broker from extending undue credit to a customer. It will be noted that trading on credit (or "margin trading") allows investors to buy more securities than their cash position would normally allow. Investors pay only a portion of the purchase price of the securities; their broker advances for them the balance of the purchase price and keeps the securities as collateral for the advance or loan. Brokers take these securities/stocks to their bank and borrow the "balance" on it, since they have to pay in full for the traded stock. Hence, increasing margins i.e., decreasing the amounts which brokers may lend for the speculative purchase and carrying of stocks is the most direct and effective method of discouraging an abnormal attraction of funds into the stock market and achieving a more balanced use of such resources.

78. PHIL. VETERANS BANK VS. CALLANGAN

The Bank reiterates that it is not a "public company" subject to the reportorial requirements under Section 17.1 of the SRC because its shares can be owned only by a specific group of people, namely, World War II veterans and their widows, orphans and compulsory heirs, and is not open to the investing public in general. We DENY the motion for reconsideration for lack of merit. A "public company" as

(1) any corporation with a class of equity securities listed on an Exchange or (2) (a corporation) with assets in excess of Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more holders, at least two hundred (200) of which are holding at least one hundred (100) shares of a class of its equity securities."

From these provisions, it is clear that a "public company," as contemplated by the SRC, is not limited to a company whose shares of stock are publicly listed; even companies like the Bank, whose shares are offered only to a specific group of people, are considered a public company, provided they meet the requirements enumerated above.

79. SEC VS. INTERPORT RESOURCES ET. AL.

The provision (Sec. 30 of RSA) explains in simple terms that the insider's misuse of nonpublic and undisclosed information is the gravamen of illegal conduct. The intent of the law is the protection of investors against fraud, committed when an insider, using secret information, takes advantage of an uninformed investor. Insiders are obligated to disclose material information to the other party or abstain from trading the shares of his corporation. This duty to disclose or abstain is based on two factors: first, the existence of a relationship giving access, directly or indirectly, to information intended to be available only for a corporate purpose and not for the personal benefit of anyone; and second, the inherent unfairness involved when a party takes advantage of such information knowing it is unavailable to those with whom he is dealing. (concurring opinion of Justice Tinga) 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. Such activity is generally prohibited in many jurisdictions, including our own, though the

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particular scope and definition of "insider trading" depends on the legislation or case law of each jurisdiction. In the United States, the rule has been stated as "that anyone who, for trading for his own account in the securities of a corporation has 'access, directly or indirectly, to information intended to be available only for a corporate purpose and not for the personal benefit of anyone' may not take 'advantage of such information knowing it is unavailable to those with whom he is dealing', i.e., the investing public."

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