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Sherryl Anne Balane Sarmiento--------------------------------------------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------------------------------------The contents of this compilation are based on Atty. Ladias Lectures during the 2ndSemester of S.Y. 2009-2010.

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1. Marking the closeis the placing of purchase or sale order, at or near the close of thetrading period.

2. Watered Stocksmay be defined as one which is issued by the corporation as fully paid-up shares, when in fact the whole amount of the value thereof has notbeen paid.

3. Trust Fund Doctrineis a legal proposition that a subscription to the capital stock of acorporation constitute a trust fund which the creditors have theright to look upon to for the satisfaction of their claims and that theirassignee in insolvency can maintain an action upon any unpaidstock subscription in order to realize assets for the payment of itsdebts.

4. Fraud or Misrepresentation Theoryis a theory that liability is based on the false

representation made by the corporation and thestockholder concerned to the creditors that the truepar value or issued price of the shares has been paidor promised to be paid in full.

5. Transfer is the act by which the owner of a thing delivers the same to another with theintent of passing the rights which he has in it to the latter. It contemplates anabsolute transfer of dominion and ownership.

(Note: a chattel mortgage is not within the meaning of such termsinasmuch as a chattel mortgage is not a complete and absolutealienation of the dominion and ownership thereof)

6. Voting Trust Agreementis an agreement in writing whereby one or more stockholderstransfer their shares to a trustee or trustees, the right to vote andother rights pertaining to the shares for a period not exceeding 5years at any one time. The voting trustee, in reality becomesmerely a sham owner with a colorable and fictitious title for

the purpose of voting upon stocks that he does not actuallyown.

7. Define and state whether they are illegal per se or when they may become illegal.a. Wash Saleany transaction in a security which involves no change in the

beneficial ownership thereof.

b. Matched Orderorder or orders for the purchase or sale of security with theknowledge that a simultaneous order or orders of substantially thesame size, time and price for the sale or purchase of such securityhas or will be entered by or for the same or different parties.

Wash sale and matched orders are not illegal per se. They onlybecome illegal when they are used as a means to create a falseor misleading appearance of active trading in the securityconcerned.

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c. Short Sale refers to the selling of security which the vendor does not own. It isillegal per se, unless it is done in accordance with the rules andregulations of the SEC.

8. Insider Trading the act of an insider to buy or sell security of the issuer while inpossession of material information with respect to such security that isnot generally made known to the public, unless:

(a) the insider proves that the information was not gained from such relationship;or

(b) if the other party selling to or buying from the insider (or his agent) is identified,the insider proves:

i. that he disclosed the information to the other party, orii. that he had reason to believe that the other party otherwise is also in

possession of the information.

9. An Isolated Transactionmay be defined as an occasional, incidental or casual act or

transaction of a foreign corporation in the Philippines, whichdoes not indicate an intent on the part of the corporation toengage in a continuity of transaction in the country, andhence does not fall under the category of doing business.

10.doing business in the Philippines a series of commercial dealings which signify anintent on the part of a foreign corporation to dobusiness in the Philippines as judged in the light of thepeculiar circumstances of the case.

Voting rights of stockholders in a stock corporation vs. Voting Rights of members in a non-stockcorporation.

1. In a stock corporation, stockholders have the right to cumulative voting which maynot be withheld from them; whereasIn a non-stock corporation, members generally have no such right because they areentitled only to one vote each, unless the by-law of the corporation limits or broadenstheir right to vote.

2. In a stock corporation, proxy voting may not be denied to any stockholder entitled tovote; whereasIn a non-stock corporation, proxy voting may be denied to members pursuant toSection 89 of the Corporation Code.

1. The statement that the transferability of shares in an advantage as well as adisadvantage in the corporate form of business.

The statement that the transferability of share is an advantage of corporate formof business because unless reasonably restricted, shares of stock, being personalproperties, can be transferred by the owner without the consent of the otherstockholders.

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The same is however a disadvantage, because transfers of share may result touniting incompatible and conflicting interests. An example of this is the case ofGokongwei, wherein John Gokongwei purchased shares of stocks of San Miguel

Corporation, a competitor of his own corporation.

2. The Doctrine of Secondary MeaningIn Philippine Nut Industry vs. Standard Banks (65 SCRA 575), the doctrine ofsecondary meaning was defined as a word or phrase originally incapable ofexclusive appropriation [usually generic] with reference to an article in themarket, because of geographically or otherwise descriptive, might neverthelesshave been used so long and so exclusively by one producer with reference to hisarticle that, in that trade and to that branch of the purchasing public, the wordor phrase has become to mean that the article was his product. This definitionwas likewise cited in the case of Lyceum of the Philippines vs. CA.

3. Corporate Entity TheoryUnder Section 19 of the Corporation Code, a corporation comes into existenceupon the issuance of the certificate of incorporation. Only then will it acquire ajuridical personality to sue and be sued, enter into contracts, hold or conveyproperty or perform any legal act, in its own name.

As a legal entity, the corporation is possessed with a personality separate anddistinctfrom the individual stockholders or member and is not affected by thepersonal rights, obligation or transactions of the latter. Meaning, the properties itpossesses belongs to it exclusively as a separate juridical entity, such that thepersonal creditors of its stockholder or members cannot attach corporate

properties to satisfy their claims.

4. Piercing the Corporate VeilThe doctrine of piercing the corporate veil is the exception to the general rule oncorporate entity, that personal creditors of is corporations stockholder ormembers cannot attach corporate properties to satisfy their claims, thecorporation having a juridical personality separate and distinct from itstockholders.

This doctrine is resorted to in cases where the corporation is used or being used todefeat public convenience, justify wrong, protect fraud, defend crime, confuselegitimate issues, or to circumvent the law or perpetuate deception, or an alter-

ego, adjunct or business conduit for the sole benefit of a stockholder or a groupof stockholders or another corporation.

In such cases, the law will regard the corporation as a mere association ofpersons, or in the case of two corporations, merge them into one, the one beingmerely regarded as part or instrumentality of the other.

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5. Corporate Opportunity DoctrineCorporate Opportunity Doctrine as cited in one case decided by the SupremeCourt, is a legal proposition that places a director of a corporation in the positionof a fiduciaryand prohibits them from seizing a business opportunity and/or

developing it at the expense and with the facilities of the corporation. He cannotappropriate it to himself a business opportunity which in fairness should belong tothe corporation.

6. Business Judgment RuleThe Business Judgment Rule, as enunciated in the case of Montelibano vs.

Balolod Murcia Milling, is that questions of policy and management of thebusiness are left solely to the honest decision or judgment of officers and directorsof a corporation, and the court is without authority to substitute its judgment ofthe board of directors. The board is the business manager of the corporation, andso long as it acts in good faith, its orders are not reviewable by the courts.

7. Pre-emptive RightPre-emptive right is a right granted by law to all existing stockholders of a stockcorporation to subscribe to all issues or disposition of shares of any class, inproportion to their respective stockholdings, subject only to the limitationsimposed under Section 39 of the Corporation Code.

8. Ultra Vires ActsUltra Vires Acts are those that can not be executed or performed by acorporation because they are not within its express, inherent, or implied powers asdefined by its charter or articles of incorporation, thus allowing a collateral attack

upon the authority of the corporation to engage in such particular endeavor.

Mere ultra vires acts, which are not illegal per se, may become binding andenforceable, either by ratification, estoppel or on equitable grounds, unless thepublic or third parties are thereby prejudiced.

9. Non-filing of by-laws will not result to the automatic dissolution of the corporation Non-filing of by-laws will not result to the automatic dissolution of thecorporation as explained in the case of Loyola Grand Villa Homeowners (South)Association, Inc. vs. CA, means that there must first of all be a hearing todetermine the existence of the ground of failure to file by-laws within the requiredperiod, and secondly, even assuming such finding, the penalty is not necessarily

revocation, but may only be suspension of the charter. In fact, under the rulesand regulations of the SEC, failure to file the by-laws on time may be penalizedmerely with the imposition of an administrative fine without affecting thecorporate existence of the erring firm.

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1. Kinds of Business Organization

(1) Sole Proprietorship

A one-man form of business entity and is defined as one conducted for profit

by a lone or single individual who owns all the assets, personally owes and

answers all the liabilities or suffers all the losses and enjoys all the profits to the

exclusion of others

(2) Partnership

Composed of 2 or more persons who bind themselves to contribute money,

property or industry to a common fund, with the intention of dividing the

profits among themselves.

(3) Joint Venture

Partakes the nature of a partnership contract and it is created for the purpose

of prosecuting a particular business transaction. It is a one time grouping of

two or more persons, natural or juridical, in a specified undertaking.

An organization formed for some temporary purpose.

(4) Corporation

An artificial being, created by operation of law, having the right of succession

and the powers, attributes and properties expressly authorized by law or

incident to its existence.

Corporation plays the most important role in the economic development of a

country.

2. Attributes of a corporation:

(1) It is an artificial being

It has a personality, juridical at that, separate and distinct from the

persons composing it.

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(2) It is created by operation of law

the formal requirement of the States consent through compliance with

the requirements imposed by law is necessary for its creation. Mere

agreement of the parties intending to organize it is not enough

(3) it has the right of succession

death, incapacity or civil interdiction of one or more of its stockholders

does not result in its dissolution

(4) it has the powers, attributes and properties expressly authorized by law or incident

to its existence

it can only exercise only such powers and can hold only such properties

as are granted to it by the enabling statutes unlike natural persons who

can to anything as they please

3. Exceptions to the General Rule that corporations can never enter into a contract ofpartnership:

(1) when expressly authorized by the Articles of Incorporation (AOI)

(2) the agreement of the articles of partnership must provide that all the partners will

manage the partnership

(3) the article of partnership must stipulate that all the are and shall be jointly and

severally liable for all obligations of the partnership.

4. Purposes or Reasons for classification of shares:(1) To specify and define the rights and privileges of the stockholders;(2) For regulation and control of the issuance of sale of corporate securities for the

protection of purchasers and stockholders;(3) As management control device;(4) To comply with statutory requirements particularly those which provide for certain

limitations on foreign ownership of shares;

(5) To better insure return on investment; and(6) For flexibility in price, particularly no par shares.

5. Requirements for a valid stockholders meeting:(1) It must be held on the date fixed in the by-laws or in accordance with the law;(2) Prior notice must be given;(3) It must be held at a proper place;(4) It must be called by the proper party;(5) Quorum and voting requirement must be met

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6. Instances when the stockholder cannot avail of its voting rights:

(1) Non-voting shares are not entitled to vote except in those instances provided forin the last paragraph of Section 6;

(2) Treasury shares have no voting rights while they remain in the treasury;(3) Shares of stock declared delinquent are not entitled to vote at any meeting;(4) Unregistered transferees of shares of stock.

7. Generally, where one corporation sells or otherwise transfers all of its assets to anothercorporation, the latter is not liable for the debts and liabilities of the transferor, exceptwhere:

(1) The purchaser expressly or impliedly agrees to assume such debts;(2) The transaction amounts to a consolidation or merger of the corporations;(3) The purchasing corporation is merely a continuation of the selling corporation;(4) The transaction is entered into fraudulently in order to escape liability for such

debts.

8. A corporation may be dissolved in any of these three ways:a. by expiration of its term;b. by voluntary surrender of its primary franchise (voluntary dissolution); orc. by the revocation of its corporate franchise (involuntary dissolution).

9. The three modes of Voluntary Dissolution under the Code are:a. Voluntary dissolution where no creditors are affected;b. Voluntary dissolution where creditors are affected; andc. Shortening of Corporate Term

10.Enumerate Grounds for Involuntary Dissolution:

Sec 6 of PD 902-A provides for the grounds for involuntary dissolution as follows:

1. Fraud in procuring its cert of registration;2. Serious misrepresentation as to what the corporation can do or is doing to

the prejudice or damage of the general public;3. Refusal to comply or defiance of any lawful order of the Commission

restraining commission of acts which would amount to a grave violationof the franchise;

4. Continuous inoperation for a period of at least 5 years;5. Failure to file its by-laws within the required period;6. Failure to file required separate reports in appropriate forms as

determined by the Commission within the prescribed period.

Other grounds provided for in the Corporate Code itself:

1. Violation of any provision of the Code under Section 144;

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2. In case of a deadlock in a close corporation as provided for in Section105;

3. In a close corporation, any acts of directors, officers or those in control ofthe corporation which is illegal, or fraudulent or dishonest or oppressive or

unfairly prejudicial to the corporation or any SH or whenever corporateassets are being misapplied or wasted under Section 105.

Other grounds can be found in other special laws like the Securities RegulationCode and the General Banking Act.

11.VTA limitations, restrictions, etc.Under Section 59 of the Corporation Code, the following are the requisites andlimitations of a voting trust agreement:

(1) It must be in writing and duly notarized, and shall specify the terms andconditions thereof;

(2) A certified true copy must be filed with the Securities and ExchangeCommission;

(3) The voting trust shall not exceed 5 years at any one time, except if it isspecifically required under a loan agreement, in which case, the periodmay be more than 5 years, but it shall automatically expire upon fullpayment of the loan;

(4) Unless the voting trust is renewed, all rights granted in the agreementshall automatically expire at the period agreed upon, and the votingtrust certificates and the stock certificates issued in the name of thetrustee shall be deemed cancelled, and new stock certificates issued inthe name of the transferors.

(5) No voting trust agreement shall be entered into to circumvent laws

against monopolies and illegal combinations in restraint of trade or usedfor purposes of fraud.

12.Rights of unpaid sharesSection 72 of the Corporation Code substantially provides that holders ofsubscribed shares not fully paid which are not delinquent shall have all the rightsof a stockholder.

Such rights include the right to vote and be voted for, the right to receivedividends and other rights of a stockholder, except the right to be issuedcertificate of stock.

13. Instances when a foreign corporation with no license to do business in the Philippines cansue:

(1) Where the act or transaction involved is an isolated transaction or thecorporation is not seeking to enforce any legal or contractual rights arising from,or growing out of, any business which it has transacted in the Philippines;

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(2) Where the purpose of the suit is to protect its trademark, trade name, corporatenames, reputation or goodwill;

(3) Where it is based on a violation of the Revised Penal Code;

(4) Where the foreign corporation is merely defending a suit filed against it; or

(5) Where a party is estopped to challenge the personality of the corporation byentering into a contract with it.

14. The three methods of liquidation and their effects on the 3-year period to liquidate thecorporate affairs:

(1) By the corporation itself through the Board of DirectorsIf this method is resorted to, the board will only have a period of 3 years tofinish the task of liquidation. Claims for or against the corporation not filed

within the period become unenforceable as there exists no corporateentity against which they can be enforced.

(2) By a Trustee (legal owner) appointed by the corporationIf this method is used, the 3-year period limitation imposed will not apply,provided the designation of the trustee is made within that period.

During the period of liquidation, but before completion thereof, acorporation, as represented by its trustee, can sue and be sued evenbeyond the 3-year period fixed by law.

(3) By Appointment of a receiver (liquidator)

If a receiver is appointed, the 3-year period fixed by law within which tocomplete the task of liquidation will not likewise apply because thedissolved corporation is substituted by the receiver who may sue or besued even after that period.

15.Distribution of assets upon dissolution of non-stock corporations:

Section 94 of the Corporation Code provides that in case of dissolution of a non-stockcorporation in accordance with the provisions of this Code, its assets shall be appliedand distributed as follows:

1. All liabilities and obligations of the corporation shall be paid, satisfied and

discharged, or adequate provision shall be made therefore;

2. Assets held by the corporation upon a condition requiring return, transferor conveyance, and which condition occurs by reason of the dissolution,shall be returned, transferred or conveyed in accordance with suchrequirements;

3. Assets received and held by the corporation subject to limitationspermitting their use only for charitable, religious, benevolent, educational or

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similar purposes, but not held upon a condition requiring return, transfer orconveyance by reason of the dissolution, shall be transferred or conveyed toone or more corporations, societies or organizations engaged in activities inthe Philippines substantially similar to those of the dissolving corporation

according to a plan of distribution adopted pursuant to this Chapter;

4. Assets other than those mentioned in the preceding paragraphs, if any,shall be distributed in accordance with the provisions of the articles ofincorporation or the by-laws, to the extent that the articles of incorporationor the by-laws, determine the distributive rights of members, or any class orclasses of members, or provide for distribution; and

5. In any other case, assets may be distributed to such persons, societies,organizations or corporations, whether or not organized for profit, as may bespecified in a plan of distribution adopted pursuant to this Chapter. (n)

16.Suspension of Payments Rules of Thumb for the guidance of the Bench and Bar:a. All claims against corporations, partnerships, or associations that are pending

before any court, tribunal or board, without distinction as to whether or not acreditor is secured or unsecured, shall be suspended effective upon theappointment of a management committee, rehabilitation receiver, board orbody in accordance with the provisions of PD 902-A.

b. Secured creditors retain their preference over unsecured creditors, butenforcement of such preference is equally suspended upon the appointment ofa management committee, rehabilitation receiver, board or body. In the eventthat the assets of the corporation, partnership or association are finally liquidated,however, secured and preferred credits under the applicable provisions of the

Civil Code will definitely have preference over unsecured ones.

17. Two requisites for a valid appointment of management committee:a. Imminent danger of loss, wastage or destruction of assets or other corporate

properties;b. Serious paralysis of business operations.

18. To have a valid corporate act, there must be:a. a quorum, which is the majority of the number of the board as fixed in the articles

of incorporation; andb. a decision of at least a majority of the directors or trustees present at the meeting

Expect in the case of election of officers where the voting requirement wouldordinarily be a majority of all the members of the board.

18. Consequences / Effects of Ultra Vires Act: ***a. On the Corporation Itself

The proper forum may suspend or revoke, after proper notice and hearing, thefranchise or certificate of registration of the corporation for serious

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misrepresentation as to what the corporation can do or is doing to the greatdamage or prejudice of the general public.

b. On the Rights of the Stockholders

A stockholder may bring either an individual or derivative suit to enjoin athreatened ultra-vires act or contract. If the act or contract has already beenperformed, a derivative suit for damages against the directors may be filed, buttheir liability will depend on whether they acted in good faith and withreasonable diligence in entering into the contract.

c. On the Immediate Partiesi.) If the contract is fully executed on both sides, the contract is effective andthe courts will not interfere to deprive either party of what has been acquiredunder it;

ii.) If the contract is executory on both sides, as a rule, neither party can maintainan action for its non-performance; and

iii.) Where the contract is executory on one side only, and has been fullyperformed on the other, the courts differ as to whether an action will lie on thecontract against the party who has received benefits of performance under it.Majority of the courts, however, hold that the party who has received benefitsfrom the performance is estopped to set up that the contract is ultra vires todefeat an action on the contract. This is more in conformity with the doctrine thatno person shall be allowed to enrich himself at the expense of another.

19. Reasons for increasing its capital stock:a. To generate funds;

b. For business expansion;c. For payment of liabilities; ord. For purpose of acquiring other business.

20. The three modes of decreasing capital stock are:a. Decreasing the par value of the existing number of shares without decreasing the

numbers of shares;b. Decreasing the number of existing shares without decreasing the par value

thereof; andc. Decreasing the number of existing shares and at the same time decreasing the

par value of the shares.

1. Explain the effects of declaration of delinquency vis--vis the rights of the stockholder.a. To vote and be voted upon

Section 71 of the Corporation Code provides that no delinquent sharesshall be voted for or be entitled to vote or to representation at anystockholders meeting.

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Delinquency occurs when a stockholder is called to pay for hissubscription but failed to pay on the time he is expected to do so.

b. To receive cash and stock dividends

Section 43 of the Corporation Code provides that any cash dividends dueon delinquent stock shall first be applied to the unpaid balance on thesubscription plus costs and expenses, while stock dividends shall bewithheld from the delinquent stockholder until his unpaid subscription isfully paid: Provided, further, That no stock dividend shall be issued withoutthe approval of stockholders representing not less than two-thirds (2/3) ofthe outstanding capital stock at a regular or special meeting duly calledfor the purpose.

Delinquency occurs when a stockholder is called to pay for hissubscription but failed to pay on the time he is expected to do so.

2. Explain the following statements:a. The right of a stockholder to compel the corporation to pay the value of his

shares is broader in a close corporation than in an ordinary stock corporation.In a close corporation, a stockholder may withdraw and compel thecorporation to purchase his shares for any reason with the limitation only

that the corporation has sufficient assets to cover its liabilities exclusive ofcapital stock, whereas, in an ordinary stock corporation, unless he sells hisshares, a stockholder cannot get back his investment not compel thecorporation to buy his shares except in the exercise of his appraisal right.

b. In cases of deadlocks in a close corporation, the courts can interfere in themanagement of corporate affairs.

In case of deadlocks, the courts can interfere in the management of aclose corporation, even if the directors or stockholders are acting in goodfaith.

Section 104 of the Corporation Code gives the SEC a very wide discretionin respect to management of a close corporation in the event of adeadlock. It may:

1. Cancel or alter any provision in the articles of incorporation,by-laws or any stockholders agreement;

2. Cancel, alter or enjoin any resolution or other act of thecorporation or its board of directors, stockholders or officers;

3. Direct or prohibit any act of the corporation or its board of

directors, stockholders, officers, or other persons party to theaction;

4. Require the purchase at their fair value of shares of anystockholder, either by the corporation regardless of theavailability of unrestricted retained earnings in its books, or bythe other stockholders;

5. Appoint a provisional director;6. Dissolve the corporation; or7. Grant such other relief as the circumstances may warrant.

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c. Subscriptions to shares of stock of a corporation are indivisible.The statement that Subscriptions to shares of stock of a corporation are

deemed indivisible means that the payment made by the subscribershall be applied pro-rata to the entire number of shares.

d. Certificates of stock are merely quasi-negotiable and are non-negotiable.Certificates of stock are not regarded as negotiable in the same sensethat bills or notes are negotiable, even if they are endorsed in blank.

Thus, while a certificate of stock may be transferred by endorsement,coupled with delivery thereof, and therefore, merely quasi-negotiable, it isnonetheless non-negotiable, in that, the transferee takes it withoutprejudice to all the rights and defenses which the true and lawful ownermay have, except in so far as the principles governing estoppel mayapply.

e. A director / stockholder whose shares are declared delinquent is not

automatically disqualified to be and act as a director.The only qualification to be a director is that he must own at least 1 sharestanding in his own name in the books of the corporation. And since theshares of a director although declared delinquent, still stand in his namepending the sale, he remains to be and act as a director. And even ifthere is a sale, he may still be a director because the winning bidder maynot bid or pay for all the shares or there might be remaining shares, whichwould be credited in favor of the delinquent stockholder.

3. Can the court determine the rules in the Corporation Sole when there are no rules on

discipline? Explain.No, because a corporation sole is by its very nature, ecclesiastical and religious,and under the Doctrine of Separation of Church and State, the State, through thecourts, may not interfere with the rules on discipline of the church.

4. Explain the Service of Summons under the 1997 Rules of Civil Procedure.

Section 11 Rule 14 of the Revised Rules of Civil Procedure which took effect onJuly 1, 1997 repealed the provision of Section 13 Rule 14 of the Rules of Court.

The changes introduced include the general manager instead of manager, the

corporate secretary instead of secretary, the in-house counsel as may bedistinguished from an outside counsel, treasurer instead of cashier, the managingpartner in case of partnership.

The new rules brushed aside the relaxation of service of summons upon acorporation which, through the years was liberalized by the Supreme Court. Theresultant effect of the new rules would thus render the service of summons uponpersons other than those named thereat to be without force and effect.

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In one decided case by the Supreme Court after the effectivity of the new rules, itwas said that strict compliance with the mode of service is necessary to conferjurisdiction of the court over a corporation. Service must therefore be made onthe one named by the statute.

1. What does it mean by the provision that directors / trustees shall hold office for one (1)year, until their successors are elected and qualified?

It means that the directors / trustees have one year to serve. However, they cancontinue their office, in a hold-over capacity, as directors / trustees if there is no

successor duly elected and qualified in accordance with law. For instance, DirectorX, after his one year term, shall continue to serve as director of Corporation Y if anyaspiring nominee for his position is not qualified.

2. Can a corporation extend its corporate term after the expiration of its term originallyindicated in its Articles of incorporation?

A corporation can no longer extend its corporate term after the expiration of the

term of existence originally fixed by its charter or the general law, since as a rule, thecorporation is ipso facto dissolved as soon as that time expires, which means thatthere would really nothing to extend. However, upon reaching said expiration of theterm, it may be thereafter continued to act for 3 years for the purpose of closing upits business, but only for that purpose. This is the ruling in Alhambra Cigar vs. SEC.

3. Why is it important to state the purpose for which the corporation was organized?It is important to state the purpose / purposes for which a corporation is organizedbecause it will be the basis for determining the scope of the corporate powers andauthority. It will define the rights and powers that a corporation and its officers andmembers / stockholders can perform. It will also provide for the limitations in theexercise of the said rights and powers.

4. What is the test to be applied in determining whether a corporation has implied power todo a certain act?

In determining whether a corporation has implied power to do a certain act, it isimportant to look into the purpose clause indicated in its articles of incorporation,

and check whether the questioned corporate act has a logical relation with thepurpose or purposes of the corporation.

In the Montelibano vs. Bacolod Murcia Milling Co, Inc., the Supreme Court said thatthe test to be applied is whether the act in question is in direct and immediate

furtherance of the corporations business, fairly incident to the express powers andreasonably necessary to their exercise. If so, the corporation has the power to do it,otherwise, not.

5. Can a director be removed for any cause?It depends. If the removal is without cause, the board of directors cannot do so if itwill deprive the minority stockholders or members of their right to representation. If it iswith cause, the board can remove a director even if it will prejudice the rights of theminority, provided that the requirements set forth in the corporations articles ofincorporation and by-laws are properly complied with.

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6. May the vacancy in the board of directors be filled at the same meeting?If the vacancy in the board of directors is due to removal, it may be filled up byelection of a replacement at the same meeting even without further notice. If

vacancy id due to increase in number of directors, such vacancy may be filled up inthe same meeting authorizing the increase in directors or trustees, provided that it isso stated in the notice of the meeting.

7. May common shareholders be possibly denied the right to vote?Under Section 6 of the Corporation Code, only preferred and redeemable sharesmay be deprived of voting rights, unless otherwise provided in the Code. The phraseunless otherwise provided in the Code may be applied in case there are founders

shares issued, as said shares may be given certain rights and privileges not enjoyedby the owners of other stocks. This means that even common shareholders may bedeprived of voting rights, provided that where the exclusive right to vote and bevoted for in the election of directors is granted, it must be for a limited period not toexceed 5 years subject to the approval of the SEC.

8. Where should the suit against a corporation be filed?Under the Rules of Court, when the action is not upon a written contract, the samemust be filed in the municipality where the defendant or any of the defendantsresides or may be served with summons. Settled is the principle that the residence ofa corporation is the place where its principal office is established.

The term may be served with summons in the Rules of Court does not apply when

the defendant resides in the Philippines for, in such case, he may be sued only in themunicipality of his residence regardless of the place where he may be found andserved with summons.

The facts that a corporation maintains a branch office in some parts of the countrydoes not mean that it can be sued in any of there places. To allow otherwise wouldcreate confusion and work untold inconveniences to the corporation.

1. A director whose shares are declared delinquentdoes not automatically cease to be adirector. True

Reason: The only qualification to be a director is that he must own at least 1share and since his shares stand in his name pending the sale, he remains to beand act as a director. And even if there is a sale, he may still be a directorbecause the winning bidder may not bid or pay for all the shares or there might

be remaining shares, which would be credited in favor of the delinquentstockholder.

2. Cumulative voting is generally not allowed in non-stock corporations. TrueReason: In non-stock corporations, cumulative voting is generally not available,as each member is entitled only to one vote, unless the right of the members tovote is limited, broadened or denied to the extent specified in the articles ofincorporation or the by-laws.

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3. Non-filing of by-laws within the period of time provided for by laws results to theautomatic dissolution of the corporation. False

The Supreme Court ruled in the case of Loyola Grand Villa Homeowners (South)

Association, Inc. vs. CA, that non-filing of by-laws will not result to the automaticdissolution of the corporation. There must first of all be a hearing to determine theexistence of the ground of failure to file by-laws within the required period, andsecondly, even assuming such finding, the penalty is not necessarily revocation,but may only be suspension of the charter. In fact, under the rules and regulationsof the SEC, failure to file the by-laws on time may be penalized merely with theimposition of an administrative fine without affecting the corporate existence ofthe erring firm.

4. The by-laws of a stock corporation may provide that stockholders meeting may be heldanywhere within the Philippines. False

Only non-stock corporations may provide that members meeting may be heldanywhere within the Philippines. In case of stock corporations, stockholders

meetings, whether regular or special, shall be held in the city or municipalitywhere the principal officer of the corporation is located, and if practicable, in theprincipal office of the corporation.

5. Any meeting of stockholders/ members irregularly held or called is necessarily withoutforce and effect. False

An irregularly held stockholders or members meeting is subject to ratification,

either expressly or impliedly, as the last paragraph of Section 51 of theCorporation Code provides that, all proceedings had and any businesstransacted at any meeting of the stockholders or members, if within the powers orauthority of the corporation, shall be valid even if the meeting be improperly heldor called, provided all the stockholders or members of the corporation are

present or duly represented at the meeting.

6. A trustee in a voting trust agreement can vote by proxy. TrueReason: So long as a person is the legal owner of a share or shares, he has theright to vote by proxy.

A proxy holder may vote by proxy. FalseAn agent can have no other agent, unless he is specifically allowed by theprincipal.

7. An educational institution can have nine (9) members. TrueReason: It is true that non-stock educational institutions should only havemembers whose number is 5, 10 or 15. However, in case of stock educational

institutions, they may consist of members whose number is anywhere between 5and 15.

All educational corporations must have a governing board of only either 5, 10 or 15members. False

In case of stock educational institutions, they may consist of members whosenumber is anywhere between 5 and 15.

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8. In all cases, dissolution is followed by liquidation and winding up. False

All corporations dissolved necessarily undertake liquidation and winding up of their

corporate affairs. False

The dissolved constituent corporation in a merger should necessarily liquidate itscorporate affairs. False

Section 80 subparagraph 4 of the Corporation Code substantially provides that incase of merger or consolidation, the surviving or the consolidated corporationshall thereafter possess all the rights, privileges, immunities and franchises of eachof the constituent corporations, and all property, real or personal, and allreceivables due on whatever account, shall be deemed transferred to andvested in such surviving or consolidated corporation without further act or deed.The phrase without further act or deed means that there is no need for

liquidation. The transfer of rights and properties shall be automatic.

9. Purchase of treasury shares is equivalent to subscription. FalseThe basic distinction between the purchase of treasury shares and subscription isthat, while the former refers to purchase of issued shares which have been fullypaid, the latter refers to the acquisition of unissued stock of a corporation.

There is no distinction between a purchase / sale and subscription of the unissued

stocks of a corporation. TrueReason: Under Section 60 of the Corporation Code, the distinction between apurchase and subscription of unissued stocks of a corporation has been

eliminated. So long as the shares to be acquired from the corporation are

unissued stocks of the latter, the contract will be deemed a subscription contract.

10.A corporation is a close corporation if 2/3 of voting rights is owned by anothercorporation. False

Section 96 of the Corporation Code also requires that the corporation whichowns 2/3 of the voting rights of the close corporation must likewise be a closecorporation.

11. In amendment in the by-laws, appraisal right is available. FalseAppraisal right may be exercised only on certain instances. Section 81 of theCorporation Code does not include amendment of by-laws in its enumeration of

the instances when appraisal right may be exercised by a stockholder. Althoughsaid enumeration is not exclusive, a by-law amendment may not still fall underthese instances because it does not result in the changing or restricting the rightsof the stockholders, but merely affects the internal governance of thecorporation.

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12.Pre-emptive right is available to shares issued in exchange for corporate property.False. Section 39 of the Corporation Code expressly provides that pre-emptiveright shall not extend to shares to be issued in good faith with the approval of the

stockholders representing 2/3 of the outstanding capital stock in exchange forproperty needed for corporate purposes.

True Reason: In case of close corporations, pre-emptive right of stockholders isbroader as it include all issues without exception.

13. The power and authority of a corporation sole to own, dispose and alienate realproperties is the same as in any other corporation. FalseA corporation sole can acquire, alienate and / or dispose of its real properties in thesame way and manner as any other ordinary corporation. False

Under Section 113 of the Corporation Code, for a corporation sole to own,dispose or alienate real properties, it must first secure a court order for that

purpose, except when there is a regulated method, in which case, a court ordermay be dispensed with. This requirement is not imposed upon other corporations.

14.All religious corporations commence to exist and are vested with juridical personalityupon filing of the Articles of Incorporation with the Securities and Exchange Commission.False

Only a Corporation Sole commence to exist and is vested with juridicalpersonality upon filing of the verified Articles of Incorporation with the Securitiesand Exchange Commission. Other religious corporations such as religious societiesacquire juridical personality, only upon the issuance of the certificate ofincorporation by the SEC or the appropriate government agency.

15.A religious society does not commence to have a juridical personality until the issuanceof the certificate of registration / incorporation by the SEC. FalseOther government agencies may also issue in favor of a corporation, a certificateof registration or incorporation, such as the bureau of cooperatives forcooperatives, and homeowners, for home insurance guaranty corporations.

16. The mere appointment by a foreign corporation of a distributor domiciled in thePhilippines necessarily implies doing business in the country. False

In Communication Materials & Design, Inc. vs. CA, the Supreme Court ruled that ifthe distributor or representative appointed by the foreign corporation hasmaintained an independent status during the existence of their contract, themere appointment of such distributor or representative will not constitute doing

business in the Philippines. Such independent status may be determined by theprovisions of the contractual agreement entered into by the foreign corporationand its representative.

The appointment of an exclusive dealer domiciled in the Philippines by a foreigncorporation does not necessarily imply doing / transacting business. True

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17. It is not the lack of the requisite license, but doing business without a license that bars aforeign corporation from access to our courts. False

The statement is a general rule, which is subject to certain exceptions. In thefollowing instances, a foreign corporation can sue before the Philippine courts

even without a license:

1. Where the act or transaction involved is an isolated transactionor thecorporation is not seeking to enforce any legal or contractual rights arisingfrom, or growing out of, any business which it has transacted in the Philippines;

2. Where the purpose of the suit is to protect its trademark, trade name,corporate names, reputation or goodwill;

3. Where it is based on a violation of the Revised Penal Code;

4. Where the foreign corporation is merely defending a suit filed against it; or

5. Where a party is estopped to challenge the personality of the corporation byentering into a contract with it.

18. The remaining assets of a dissolved non-stock corporation may be distributed amongthemselves, absent a by-law provision or articles of incorporation to that effect. False

This act is prohibited by law in order to avoid fly by night foundations.

19. The averment of a foreign corporations capacity to sue is not necessary for it to gainaccess to our court if it is merely defending a suit filed against it. True.

Basis: Time, Inc. vs. Reyes20. In a corporate controversy, service of summonsupon a corporation is valid if made uponany of its directors / trustees. True

Basis: Under Section 5(a) Rule 1 of the Interim Rules of Procedure on Intra-corporate Controversies, if the defendant is a domestic corporation,service shall be deemed adequate if made upon any of the statutory orcorporate officers as fixed by the by-laws or their respective secretaries. Adirector or trustee is necessarily a statutory officer.

21.No corporation can be formed / organized unless there are at least 5 incorporatorscreating it. False

An exception to the rule that corporations must have at least 5 incorporators isthe corporation sole which consists of one person or individual only.

22.Minors are not qualified to become incorporators. TrueMinors are not qualified to become incorporators as the law requires that theincorporators must be of legal age.

23.Corporations are not allowed to be corporators or stockholders in a corporation. FalseThe law does not preclude firms and other entities from becoming stockholders orsubscribers to the shares of stock of a corporation. Neither are they prohibitedfrom joining the corporation, after incorporation, as stockholders thereof.

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Corporations are not allowed to be incorporators in a corporation. FalseSection 10 of the New Civil Code substantially provides that only natural personscan be incorporators. This implies that corporations and registered partnershipscannot become incorporators because they are not natural persons, but are

juridical entities. Exceptions to this rule are cooperatives and corporationsprimarily organized to hold equities in rural banks and may rightfully becomeincorporators thereof.

24.A corporation whose stockholders consist solely foreigners is necessarily a foreigncorporation. False

Under the incorporation test, the nationality of a corporation follows that of thecountry under whose laws it was incorporated. This is the test applied in ourjurisdiction as can be determined from the definition of foreign corporation underSection 123 of the Corporation Code. This implies that nationality of stockholders,subject to some constitutional limitations, is immaterial in determining thenationality of a corporation.

25.A government-owned or controlled corporation, is for all intents and purposes, a publiccorporation. False

Not all government-owned or controlled corporations are necessarily publiccorporations. The true test to determine the nature of a corporation as public orprivate is found in relation of the body to the State. Strictly speaking, a publiccorporation is one that is created, formed or organized for political orgovernmental purposes with political powers to be exercised for purposesconnected with the public good in the administration of civil government.

26. It is the NLRC that is possessed with jurisdiction to hear and decide cases involvingemployer-employee relationship in corporations created/ organized under theCorporation Code. True

Employees of corporations created or organized under the Corporation Codeare subject to the provisions of the Labor Code. Under the Labor Code, casesinvolving employer-employee relationship in such corporations are under thejurisdiction of the NLRC.

27.A corporation can not exist as such without the consent of the State thru its authorizedagency. False

Not all corporations in order to exist, need prior consent, clearance and/orapproval of the State through its authorized agency. Only those corporations

whose purpose or objective includes any purpose under the supervision ofanother government agency need prior consent of the concerned governmentagencies or instrumentalities, pursuant to the provisions of the Corporation Code.

28.Common shares can never be denied the right to vote. FalseIn case of founders shares, a common stock may be deprived of voting rights,subject to a limited period.

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----------------------------------------------------------------------------------------------------------------------------------------------The contents of this compilation are based on Atty Ladias Lectures during the 2nd Semester of S Y 2009-2010

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29.All corporations de jure can come into existence upon the issuance of the certificate ofregistration by the SEC. False

As a general rule, corporations de jure can come into existence only upon the

issuance of the certificate of registration by the SEC. An exception to the rule iscorporation sole, where it comes into existence upon the filing of the verifiedarticles of incorporation. Once filed, it is vested with a juridical capacity.

30.Corporation by Estoppel will apply if there are no third persons prejudiced by thequestioned act of the person who have represented himself as an agent of thecorporation. False

Corporation by Estoppel will not apply if there are no third persons involved in theconflict.Corporation by Estoppel will only apply if there are third persons involved in theconflict.

31. In all cases, filling up of vacancy of the Board of Directors must be based on the election

held for its purpose by the stockholders representing 2/3 of the outstanding capital stock.False

If the vacancy in the board of directors or trustees occur by virtue of a removal,Section 28 authorizes the filling of vacancy by the election of a replacement atthe same meeting, without further notice. If the vacancy is due to an increase innumber of directors, it may likewise be filled up in the same meeting authorizingthe increase in directors or trustees, provided that it is so stated in the notice ofthe meeting.

32. The approval by the SEC is not necessary for an amendment of the by-laws to be validand effective. False

The Corporation Code provides that there should be an approval by the SEC for

a by-law amendment to become valid and effective. It will not become validand effective if the SEC fails to act on it within 6months from filing. It is theamendment to the articles of incorporation that will become valid if the SEC failsto act on it within 6months.

33.An ultra vires act is illegal per se. FalseAn ultra vires are not illegal per se. They may become binding and enforceableeither by satisfaction, estoppel ot equitable grounds.

34.Declaration or payment of stock dividends results in a decrease in corporate assets. FalseThe declaration or payment of stock dividends does not result in a decrease incorporate assets. It gives the stockholders nothing in the way of distribution ofassets but merely divides his existing shares into smaller units.

- End -

Study for Atty. Ladias hypothetical questions. Review Codal Provisions.Good luck and God bless Brothers and Sisters. Soli Fortis Survivit!

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