Corp Digest Cases (Villanueva)

001 Paramount Insurance Corp v. A.C. Ordoez Corp. et al.
Rights of a corporation
*Although the cancellation of a corporation’s certificate of registration puts an
end to its juridical personality, Sec. 122 of the Corporation Code, however
provides that a corporation whose corporate existence is terminated in any manner
continues to be a body corporate for three years after its dissolution for purposes
of prosecuting and defending suits by and against it and to enable it to settle and
close its affairs.
* Section 11, Rule 14, ROC sets out an exclusive enumeration of the officers who
can receive summons on behalf of a corporation. The argument of substantial
compliance is no longer compelling.
002 Majority Stockholders of Ruby Indl. Corp. vs. Miguel Lim (2011)
The power to issue shares of stock in a corporation is lodged in the board of
directors and no stockholders’ meeting is required to consider it because
additional issuances of shares of stock does not need approval of stockholders –
what is only required is the board resolution approving the additional issuance of
shares.
Pre-emptive Right Not Available

Pre-emptive right under Sec. 39 of the Corporation Code refers to the right of a
stockholder of a stock corporation to subscribe to all issues or disposition of
shares of any class, in proportion to their respective shareholdings.
Even if the preemptive right does not exist, either because the issue comes within
the exception in Sec. 39 or because it is denied or limited in the articles of
incorporation, an issue of shares may still be objectionable if the directors acted in
breach of trust and their primary purpose is to perpetuate or shift control of the
corporation, or to “free out” the minority interest.
Methods of Corporate Dissolution

Where the corporate life of a corporation as stated in the articles of incorporation
expired, without a valid extension having been effected, it was deemed dissolved
by such expiration without need of further action on the part of the corporation.
003 Paul Lee Tan et al. v. Paul Sycip (2006)
COMREV CORPO LAW Doctrines – compiled by JPBA (Villanueva Book and Block 2 Digests) Atty. Ceniza P. 1

Theory of Directly Vested Power; Board of Trustee of the Stockholder
beneficiaries
Under the corporation Code, stockholders or members periodically elect the board
of directors or trustees, who are charged with the management of the corporation.
The board, in turn, periodically elects officers to carry out management functions
on a day-to-day basis. As owners, though, the stockholders or members have
residual powers over fundamental and major corporate changes. While
stockholders and members (in some instances) are entitled to receive profits, the
management and direction of the corporation are lodged with their representatives
and agents – the board of directors or trustees. In other words, acts of management
pertain to the board; and those of ownership, to the stockholders or members. In
the latter case, the board cannot act alone, but must seek approval of the
stockholders or members
Vacancies in Board
The by-laws of the corporation provides expressly that specific mode of filling up
existing vacancies in the board of directors: by majority vote of the remaining
members of the Board. Can the vacancies be filled-up by majority vote of the
members in a membership meeting called for the purpose?
Held: No. While a majority of the remaining corporate members were present,
however, the “election” of the four (4) trustees cannot be legally upheld for the
obvious reason that it was held in an annual meeting for the members, not of the
board of trustees. We are not unmindful of the fact that the members, not the
GCHS themselves also constitute the trustees, but we cannot ignore the GCHS by-
law provision, which specifically prescribes that vacancies in the board must be
filled up by the remaining members. In other words, these remaining member-
trustees must sit as board in order to validly elect the new ones. Indeed, there is a
well-defined distinction between a corporate act to be done by the board and that
by the constituent members of the corporation. The board of trustees must act, not
individually or separately, but as a body in a lawful meeting. On the other hand, in
their annual meeting the members may be represented by their respective proxies,
asin the contested annual members’ meeting of GCHS.
Quorum in meetings
For stock corporations, the “quorum” referred to in Sec. 52 is based on the
number of outstanding voting stocks. For nonstick corporations, only those who
are actual, living members with voting rights shall be counted in determining the

existence of a quorum during members’ meetings. Dead members shall not be
counted.
In stock corporations, the presence of a quorum is ascertained and counted on the

basis of the outstanding capital stock as defined by Sec. 137. When the principle
for determining quorum for stock corporations is applied by analogy to nonstick
corporations, only those who are actual members with voting rights should be
counted.
Grace Christian High School is a nonstick educational corporation with 15 regular

members, who also constitute the board of trustees. During the annual members’
meeting, there were only 11 living member trustees, as four (4) had lready died.
Out of the 11, seven (7) attended the meeting through their proxies and in that
meeting, they elected four (4) members to replace the deceased member-trustees.
Issues: (a) Was there valid quorum? (b) Was there valid replacement of the
vacancies in the Board, considering that the by-laws provided that any vacancy
shall be replaced by the remaining members of the board while constituting a
quorum?
Held: (a) There was valid quorum. In the absence of an express charter or
statutory provision to the contrary, the general rule is that every member of a
nonstick corporation has a right to be present and to vote in all corporate
meetings. The voting rights attach to membership, and members vote as persons,
in accordance with the law and by-laws of the corporation. Under Sec. 89 of the
Corporation Code, each member shall be entitled to one vote unless so limited,
broadened or denied in the articles of incorporation of by laws. We hold that when
the principle for determining the quorum for stock corporations is applied by
analogy to nonstick corporations, only those who are actual members with voting
rights should be counted. Dead members no longer should be counted for
determining quorum.
(b) There was no valid filling-up of vacancies in the Board. While a majority of
the remaining corporate members were present, however, the “election” of the
four trustees cannot be legally upheld for the obvious reason that it was held in an
annual meeting of the members, not of the board of trustees as mandated in the
company by-laws. Indeed, there is a well defined distinction between a corporate
act to be done by the board and that by the constituent members.

Nature of the Right to Vote
In stock corporations, shareholders may generally transfer their shares. If
shareholder dies, executor/administrator duly appointed by the court is vested with
legal title to the stock and entitled to vote it. Until a settlement of the estate is
effected, stocks are held bythe administrator or executor. On the other hand,
membership in and all rights arising from a nonstick corporation are personal and
non-transferable, unless the articles or the by-laws provide otherwise. Hence,
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 by-laws.
Only stock actually issued and outstanding may be voted – neither the
stockholders nor the corporation can vote or represent shares that have never
passed to the ownership of stockholders, or having so passed, have again been
purchased by the corporation.
Termination of Membership
Under the bylaws of GCHS, membership in the corporation shall, among others,
be terminated by the death of the member. Sec. 91 of the Corporation Code
further provides that termination extinguishes the rights of a member of the
corporation unless otherwise provided in the articles of the incorporation or the
bylaws. Applying Sec. 91 to the present case, we hold that dead members who are
dropped from the membership roster in the manner for the cause provided for in
the By-Law 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 six (6).
Therefore, there being quorum, the annual members’ meeting conducted with six
(6) members present was valid.
004 Matling Ind'l and Community Corp. v. Ricardo R. Coros (2010)

Coverage of “Corporate Officer” under the Business Judgment Power of the
Board to Hire and Fire:
Although the by-laws provide expressly that the BOD “shall have full power to
create new offices and appoint the officers thereto,” any office created, and any
officer appointed pursuant to such clause does not become a “corporate officer,”
but is an employee and the determination of the rights and liabilities relating to his
removal are within the jurisdiction of the NLRC; they do not constitute intra-

corporate controversies. “A different interpretation can easily leave the way open
for the board of directors to circumvent the constitutionality guaranteed security
of tenure of the employee by the expedient inclusion in the By-Laws of an
enabling clause on the creation of just any corporate officer position.” The rulings
in Tabang v. NLRC, 266 SCRA 462 (1997), and Nacpil v. International
Broadcasting Corp., 379 SCRA 653 (2002), “ should no longer be controlling.”
005 Ma. Belen Flordeliza Ang-Abaya v. Eduardo G. Ang (2008)

Liability for Refusal to Allow Inspection
In order that the penal provision under Sec. 144 shall apply in case of violation of
a stockholder or member’s right to inspect the corporate books/records, as
provided for under Sec. 74, the following elements must be present:
First. A director, trustee, stockholder or member has made a prior demand in

writing for a copy of exerpts from the corporation’s records or minutes;
Second. Any officer or agent of the concerned corporation shall refuse to allow
the said director, or trustee, stockholder or member of the corporation to examine
and copy said exceprts;
Third. If such refusal is made pursuant to a resolution or order of the board of

directors or trustees, the liability under this section for such action shall be
imposed upon the directors or trustees who voted for such refusal; and
Fourth. Where the officer or agent of the corporation sets up the defense that the
corporation’s records and minutes has improperly used any information secured
through any prior examination of the records or minutes of such corporation or of
any other corporation, or was not acting in good faith or for a legitimate purpose
in making his demand, the contrary must be shown or proved.
006 Marc II Marketing Inc. v. Alfredo M. Joson (2011)

Under Sec. 25, the corporate officers are composed of (a) Chairman; (b)
President; (c) one or more Vice-President; (d) Treasurer; and (e) Secretary. The
phrase “such other officers as may provided for in the by-laws” was clarified and
elaborated in “Matling Industrial and Commercial Corp.,” and the rule is that the
Board of Directors has no power to create other corporate officers without first

amending the by-laws so as to include therein the newly created corporate offices.
The corporate officers enumerated in the by-laws are the exclusive officers of the
corporation while the rest could only be regarded as mere employees or
subordinate officials.
007 Kukan Intl. Corp v. Hon. Amor Reyes

Paid-up capital is merely seed money to start a corporation or a business entity.
Paid-up capital of Php5,000 is not and should not be taken as a reflection of the
firm’s capacity to meet its recurrent and long term obligations – the equity portion
cannot be equated to the viability of a business concern or the best test is the
working capital which consists of the liquid assets of a given business relating to
the nature of the business concern.
Generally, a motion is appropriate only in the absence of remedies by regular

pleadings, and is not available to settle important questions of law, or to dispose
of the merits of the case. Hence, where the motion to pierce the veil of corporate
fiction states a new cause of action, i.e. the liability of defendant corporation to be
borne by another entity on the alleged identity of the two (2) corporations, such
new cause of action should be properly ventilated in another complaint and
subsequent trial where the doctrine of piercing the corporate veil can, if
appropriate, be applied, based on the evidence adduced – the matter could hardly
be the subject, under the premises of a mere motion interposed after the principal
action against the defendant corporation alone had peremptorily been terminated.
008 Philip Turner et al. v. Lorenzo Shipping Corp (2010)

Who shall bear the Cost of Appraisal
When the corporation decided to amend its articles of incorporation to remove the
preemotive rights to newly issued shares, the petitioners voted against the
measure, and demanded on the payment of the fair market value of their shares.
There was a disagreement on the fair market value of the shares, since the
corporation insisted that it should be the listed value in the PSE on the date before
the action to remove the preemptive right was taken. When an appraisal
committee constituted ame out with the value of the shares, the corporation
insisted that the amount could only be paid if there were unrestricted retained
earnings in the books of the corporation, and there was none.
Held: A stockholder who dissents from certain corporate actions has the right to
demand payment of the fair value of his/her shares – the right of appraisal as

expressly recognized in Sec. 81 of the Corporation Code. Appraisal right may be
exercised when there is a fundamental change in the articles of incorporation,
prejudicing the rights of the stockholders. It does not vest unless objectionable
corporate action is taken. It serves the purpose of enabling the dissenting
stockholder to have his interest purchased and to retire from the corporation.
No payment shall be made to any dissenting stockholder unless the corporation

has unrestricted retained earnings in its books to cover the payment – if the
dissenting stockholder is paid the value of his shares within 30 days after the
award, his voting a dividend rights shall immediately be restored, and thereby the
appraisal right extinguished.
009 Shrimp Specialists Inc. v. Fuji Triumph

A corporation is vested by law with a personality separate and distinct from the
people comprising it. Ownership by a single or small group of stockholders of
nearly all of the capital stock of the corporation is not by itself a sufficient ground
to disregard the separate corporate personality. Thus, obligations incurred by
corporate officers, acting as corporate agents, are direct accountabilities of the
corporation they represent.
The general rule is that obligations incurred by the corporation, acting through its
directors, officers, and employees, are its sole liabilities. However, solidary
liability may be incurred only under exceptional circumstances.
010 Edsa Shangrila Hotel and Resort Inc. v. BF Corp (2008)

Duties of Directors, Trustees or Officers
Unlawful Acts – directors/trustees who willfully or knowingly vote for or assent
to patently unlawful acts of the corporation or acquire any pecuniary interest in
conflict with their duty as such directors or trustees shall be liable jointly and
severally for all damages resulting therefrom suffered by the corporation.
011 Pantranco Employees Association v. NLRC

The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely:
(a) Defeat of public convenience, as when the corporate fiction is used as
a vehicle for evasion of an existing obligation (equity piercing);
(b) Fraud cases, as when the corporation is used to justify a wrong, protect
fraud, or defend a crime (fraud piercing); or

(c)Alter ego cases, where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is so organized
and controlled and its affairs are so conducted as to make it merely an
instrumentality, conduit or adjunct of another corporation (alter ego piercing
or the instrumentality test).
Under the piercing doctrine, the courts look at the corporation as a mere collection
of individuals or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of a corporation unifying the group.
Although any piercing of the corporate veil has to be done with caution, the Court
will not hesitate to disregard the corporate veil when it is misused or when
necessary in the interest of justice.
012 Livesey v. Binswanger Phils

Piercing the Corporate Veil
Piercing the veil of corporate fiction is an equitable doctrine developed to address
situations where the separate corporate personality of a corporation is abused or
used for wrongful purposes. Under the doctrine, the corporate existence may be
disregarded where the entity is formed or used for non-legitimate purposes, such
as to evade a just and due obligation, or to justify a wrong, to shield or perpetrate
fraud or to carry out similar or inequitable considerations, other unjustifiable aims
or intentions, in which case, the fiction will be disregarded and the individuals
composing it and the two corporations will be treated as identical.
013 Pacific Redhouse v. CA

Any application of the doctrine of piercing the corporate veil should be done with
caution. It must be certain that the corporate fiction was misused to such an extent
that injustice, fraud, or crime was committed against another, in disregard of its
rights. The wrongdoing must be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never unintended may result from an
erroneous application.
014 Heirs of Fe Tan Uy v. Intl. Exchange Bank

Alter ego doctrine; piercing the veil of corporate fiction
Before a director or officer of a corporation can be held personally liable for
corporate obligations, however, the following requisites must concur: (1) the
complainant must allege in the complaint that the director or officer assented to

patently unlawful acts of the corporation, or that the officer was guilty of gross
negligence or bad faith; and (2) the complainant must clearly and convincingly
prove such unlawful acts, negligence or bad faith.
Under a variation of the doctrine of piercing the veil of corporate fiction, when
two business enterprises are owned, conducted and controlled by the same parties,
both law and equity will, when necessary to protect the rights of third parties,
disregard the legal fiction that two corporations are distinct entities and treat them
as identical or one and the same.
015 PNB v. Hydro Resources Contractors Corp.

By virtue of the separate juridical personality of a corporation, the corporate debts
or credits are not the debts or credits of the stockholders. This protection from
liability for shareholders is the principle of limited liability.
016 Advance Paper Corp. v. Arma Traders Corp.

Doctrine of apparent authority
The doctrine of apparent authority provides that a corporation will be estopped
from denying the agent’s authority if it knowingly permits one of its officers or
any other agent to act within the scope of an apparent authority, and it holds him
out to the public as possessing the power to do those acts.
The doctrine of apparent authority does not apply if the principal did not commit
any acts or conduct which a third party knew and relied upon in good faith as a
result of the exercise of reasonable prudence. Moreover, the agent’s acts or
conduct must have produced a change of position to the third party’s detriment.
017 Espiritu Jr. v. Petron Corp. (2009)

Liability for Crimes
Bicol Gas Corp. had been found guilty of having committed the criminal offense
punished under R.A. 623 (illegally filling up registered cylinder tanks), and it is
the stockholders and directors were sough to be made personally liable.
Held: Bicol Gas is a corporation. As such, it is an entity separate and distinct from
the persons of its officers, directors, and stockholders. It has been held, however,
that corporate officers or employees, through whose act, default or omission the
corporation commits a crime, may themselves be individually held answerable for
the crime.

The owners of a corporate organization are its stockholders and they are to be
distinguished from its directors and officers. The petitioners here, with the
exception of Audie Llona, are being charged in their capacities as stockholders of
Bicol Gas. But the Court of Appeals forgets that in a corporation, the management
of its business is generally vested in its board of directors, not its stockholders.
Stockholders are basically investors in a corporation. They do not have a hand in
running the day-to-day business operations of the corporation unless they are at
the same time directors or officers of the corporation. Before a stockholder may
be held criminally liable for acts committed by the corporation, therefore, it must
be shown that he had knowledge of the criminal act committed in the name of the
corporation and that he took part in the same or gave his consent to its
commission, whether by action or inaction.
018 Halley v. Printwell

Where the creditor of the corporation sues not only the company but also all
stockholders to reach their unpaid subscription which appear to be the only
visible assets of the company, then the controlling doctrine is that “a stockholder
is personally liable for the financial obligations of the corporation to the extent of
his unpaid subscription.”
Where the corporation was under control of its stockholders who ran-up quite a
high obligation with the printing company, knowing fully well that their
corporation was not in a position to pay for the accounts, and where in fact they
personally benefited from the operations of the company to which they never paid
their subscription in full, would constitute piercing of the veil to allow the creditor
to be able to collect what otherwise were debts owed by the company which has
no visible assets and has ceased all operations.
Power to Acquire Own Shares – Trust Fund Doctrine

We clarify that the trust fund doctrine is not limited to reaching the stockholders’
unpaid subscriptions. The scope of the doctrine when the corporation is insolvent
encompasses not only the capital stock, but also other property and assets
generally regarded in equity as a trust fund for the payment of corporate debts. All
assets and property belonging to the corporation held in trust for the benefit of
creditors that were distributed or in possession of the stockholders, regardless of
full payment of their subscriptions may be reached by the creditors in satisfaction
of its claim.

Under the trust fund doctrine, a corporation has no legal capacity to release an
original subscriber to its capital stock from the obligation of paying for his shares,
in whole or in part, without a valuable consideration, or fraudulently, to the
prejudice of creditors. The creditor is allowed to maintain an action upon any
unpaid subscriptions and thereby steps into the shoes of the corporation for the
satisfaction of its debt. To make out a prima facie case in a suit against
stockholders of an insolvent corporation to compel them to contribute to the
payment of its debts by making good unpaid balances upon their subscriptions, it
is only necessary to establish that the stockholders have not in good faith paid the
par value of the stocks of the corporation.
019 Filipinas Port Services v. Go

beneficiaries
Sec. 23 explicitly provides that unless otherwise provided therein, the corporate
powers of all corporations formed under the Corporation Code shall be exercised,
all business conducted and all property of the corporation shall be controlled and
held by a a board of directors. The raison d’etre behind the conferment of
corporate powers on the board of directors is not lost on the Court – indeed, the
concentration in the board of the powers of control of corporate business and
appointment of corporate officers and managers is necessary for efficiency in any
large organization. Stockholders are too numerous, scattered and unfamiliar with
the corporate business to conduct its business directly; hence, the plan of
corporate organization is for the stockholders to choose the directors who shall
control and supervise the conduct of the corporate business.
Duties of Directors, Trustees Officers

Meaning of “Bad Faith.” – If the cause of the losses is merely error in business
judgment, not amounting to bad faith or negligence, directors and/or officers are
not liable. To be held accountable, the mismanagement and resulting losses on
account thereof are not the only matters to be proven; it is necessary to show that
the directors and/or officers acted in bad faith and with malice in doing the
assailed acts. Bad faith does not simply connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and conscious doing of a
wrong, a breach of a known duty through some motive or interest or ill-will,
thereby partaking of the nature of fraud.

Nature of the Right to File a Derivative Suit
A derivative action is a suit by a shareholder to enforce a corporate cause of
action. Under the Corporation Code, where a corporation is an injured party, its
power to sue is lodged with its board of directors or trustees. But an individual
stockholder may be permitted to institute a derivative suit in behalf of the
corporation, in order to protect or vindicate corporate rights whenever the officials
of the corporation refuse to sue, or when a demand upon them to file the necessary
action would be futile because they are the ones to be sued, or because they hold
control of the corporation. In such actions, the corporation is the real party-in-
interest while the suing stockholder, in behalf of the corporation, is only a
nominal party.
020 Assoc. of Intl. Shipping Lines v. Phil Ports Authority

Due Process and Notice of Hearing
Where the rules and/or rates imposed by an administrative agency apply
exclusively to a particular party, predicated upon a finding of fact, the agency
performs a function partaking of a quasi-judicial character and prior notice and
hearing are essential to the validity thereof.
If the agency is in the exercise of its legislative functions or where the rates are
meant to apply to all enterprises of a given kind throughout the country, however,
the grant of prior notice and hearing to the affected parties is not a requirement of
due process except where the legislature itself requires it.
021 Mining Dev. V. Redmont

”Rule Against Unlawful Corporate Layering”
The control test which is the liberal test is contained in the first part of Par. 7 of
DOJ Opinion No. 020 s. 2005: Corporation where at least 60% of the capital
which is owned by Filipino citizen shall be considered (wholly) as of Philippine
nationality.
The stricter “grandfather rule” is contained in the second part of the DOJ Opinion:
But if the percentage of Filipino ownership in the corporation is less than 6-%,
only the number of shares corresponding to such parentage shall be counted as of
Philippine nationality.
In a situation where a mining corporation is owned by three domestic corporations

which are all uniformly held by the same set of stockholders in the proporation of

60% Filipino and 40% Foreign, such corporate layering to achieve conformity
with the “control test” are best, or the “grandfather rule” at worst, shall be deemed
an unlawful attempt to circumvent constitutional nationalization provisions, and
are void. Although “corporate layering” is not prohibited under FIA ’91. It cannot
be used to circumvent the Constitution and laws on nationalized industries
Application of Control Tests – Exploitation of Natural Resources
The control test is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2 Art. II of the 1987
Constitution, entitled to undertake the exploration, development and utilization of
the natural resources of the Philippines. When in the mind of the Court there is
doubt, based on the attendant facts and circumstances of the case, in the 60-40
Filipino equity ownership in the corporation, then it may apply the grandfather
rule.
022 Gloria Gomez v. PNOC Dev. And Management Corp. (2009)

Ordinary company employees are generally employed not by action of the
directors and stockholders but by that of the management officer of the
corporation who also determines the compensation to be paid such employees.
Corporate officers, on the other hand, are elected or appointed by the directors or
stockholders, and are those who are given that character either by the Corporation
Code or by the corporation’s by-laws. The relationship of a person to a
corporation whether as officer or agent or employee is not determined by the
nature of the services he performs but by the incidents of his relationship with the
corporation as they actually exist. A corporation is not prohibited from hiring a
corporate officer to perform services under circumstances which will make him an
employee.
023 Okol v. Slimmers World International (2009)

An “office” is create dby the charter of the corporation and the officer is elected
by the directors or stockholders, while an “employee” usually occupies no office
and generally is employed not by action of the directors or stockholders but by the
managing officer of the corporation who also determines the compensation to be

paid to such employee. A corporate officer’s dismissal is always a corporate act,
or an intracorporate controversy which arises between a stockholder and a
corporation. The determination of the rights of a director and corporate officer
dismissed from his employment as well as the corresponding liability of a
corporation, if any, is an intra-corporate dispute subject to the jurisdiction of the
regular courts.
024 Alabang Dev. Corp v. Alabang Hills Village Assoc. (2014)

Corporations; capacity to sue of dissolved corporations. The trustee of a
corporation may continue to prosecute a case commenced by the corporation
within three years from its dissolution until rendition of the final judgment, even if
such judgment is rendered beyond the three-year period allowed by Section 122 of
the Corporation Code. However, there is nothing in the said cases which allows an
already defunct corporation to initiate a suit after the lapse of the said three-year
period. On the contrary, the factual circumstances in the abovecited cases would
show that the corporations involved therein did not initiate any complaint after the
lapse of the three-year period. In fact, as stated above, the actions were already
pending at the time that they lost their corporate existence.
In the present case, petitioner filed its complaint not only after its corporate
existence was terminated but also beyond the three-year period allowed by
Section 122 of the Corporation Code. Thus, it is clear that at the time of the filing
of the subject complaint petitioner lacks the capacity to sue as a corporation. To
allow petitioner to initiate the subject complaint and pursue it until final judgment,
on the ground that such complaint was filed for the sole purpose of liquidating its
assets, would be to circumvent the provisions of Section 122 of the Corporation
Code.
025 Metrobank v. Board of Trustees of Riverside Mills

Dissolution; Corporate liquidation; Authority after dissolution.
A dissolved corporation shall nevertheless continue as a body corporate for three
(3) years for the purpose of prosecuting and defending suits by or against it and
enabling it to settle and close its affairs, to dispose and convey its property and to
distribute its assets, but not for the purpose of continuing the business for which it
was established. Within those three (3) years, the corporation may appoint a
trustee or receiver who shall carry out the said purposes beyond the three (3)-year
winding-up period. Thus, a trustee of a dissolved corporation may commence a
suit which can proceed to final judgment even beyond the three (3)-year period of

liquidation.
026 Aguirre II v. FQB+Inc.

Nature of Dissolution
A corporation’s board of directors is not rendered functus officio by dissolution,
since Sec. 122 of the Corporation Code prohibits a dissolved corporation from
continuing its business, but allows it to continue with a limited personality in
order to settle and close its affairs, including its complete liquidation. Necessarily,
there must be a board that will continue acting for and on behalf of the dissolved
corporation.
027 Laborte et al. v. Pagsanhan Tourism Consumers Coop.

Liability of a Corporate Agent
As a general rule the officer cannot be held personally liable with the corporation,
whether civilly or otherwise, for the consequences of his acts, if acted for and in
behalf of the corporation, within the scope of his authority and in good
faith.73 Furthermore, the Court also notes that the charges against petitioners
Laborte and the PTA for grave coercion and for the violation of R.A. 6713 have
all been dismissed. Thus, the Court finds no basis to hold petitioner Laborte liable.
028 Mirant Phils Corp. v. Caro

Doctrine of Corporate Fiction
A corporation has a personality separate and distinct from its officers and board of
directors who may only be held personally liable for damages if it is proven that
they acted with malice or bad faith in the dismissal of an employee.
029 Harpoon Marine Services Inc. v. Francisco

Piercing the corporate veil
[O]bligations incurred by [corporate officers], acting as such corporate agents, are
not theirs but the direct accountabilities of the corporation they represent. As such,
they should not be generally held jointly and solidarily liable with the corporation.
a[A] corporation has a legal personality separate and distinct from the persons
comprising it. To warrant the piercing of the veil of corporate fiction, the officer’s
bad faith or wrongdoing must be established clearly and convincingly as [b]ad
faith is never presumed.
030 Mindanao Savings and Loan Assoc. v. Willkom

Mergers

The merger shall only be effective upon the issuance of a certificate of merger by
the SEC, subject to prior determination that it is not inconsistent with the
Corporation Code or existing laws. Where a party to the merger is a special
corporation governed by its own charter, the Code mandates that a favorable
recommendation of the appropriate government agency should first be obtained.
031 Bank of Commerce v. Radio Philippines Network

Mergers
Merger is a re-organization of two or more corporations that results in their
consolidating into a single corporation, which is one of the constituent
corporations, one disappearing or dissolving and the other surviving. To put it
another way, merger is the absorption of one or more corporations by another
existing corporation, which retains its identity and takes over the rights,
privileges, franchises, properties, claims, liabilities and obligations of the
absorbed corporation(s). The absorbing corporation continues its existence while
the life or lives of the other corporation(s) is or are terminated.
032 China Banking Corp v. Dyne Sem

Piercing the Veil of Corporation Fiction
The general rule is that a corporation has a personality separate and distinct from
that of its stockholders and other corporations to which it may be connected. This
is a fiction created by law for convenience and to prevent injustice To disregard
the separate juridical personality of a corporation, the wrongdoing must be proven
clearly and convincingly.
MERGERS
The similarity of business of the two corporations did not warrant a conclusion
that respondent was but a conduit of Dynetics. As we held in Umali v. Court of
Appeals,19 "the mere fact that the businesses of two or more corporations are
interrelated is not a justification for disregarding their separate personalities,
absent sufficient showing that the corporate entity was purposely used as a shield
to defraud creditors and third persons of their rights." Likewise, respondent’s
acquisition of some of the machineries and equipment of Dynetics was not proof
that respondent was formed to defraud petitioner. As the Court of Appeals found,
no merger20 took place between Dynetics and respondent Dyne-Sem. What took
place was a sale of the assets21 of the former to the latter. Merger is legally distinct
from a sale of assets.22 Thus, where one corporation sells or otherwise transfers all
its assets to another corporation for value, the latter is not, by that fact alone,

liable for the debts and liabilities of the transferor
033 Simny Guy v. Gilbert Guy (2012)

In Santamaria v. Hongkong and Shanghai Banking Corp., this Court held that
when a stock certificate is endorsed in blank by the owner thereof, it constitutes
what is termed as a “street certificate,” so that upon its face, the holder is entitled
to demand its transfer into his name from the issuing corporation. Such certificate
is deemed quasi-negotiable, and as such the transferee thereof is justified in
believing that it belongs to the holder and transferor. While there is contrary rule
enunciated above, what the Court held in Neugene Marketing, Inc. v. CA, where
the stock certificates endorsed in blank were stolen from the possession of the
beneficial owners thereof constraining this Court to declare the transfer void for
lack of delivery and want of value. The same cannot apply in this case to Gilbert
because the stock certificates which Gilbert endorsed in blank were in the
undisturbed possession of his parents who were the beneficial owners thereof and
who themselves as such persons cause the transfer of their names. Indeed, even if
Gilbert’s parents were not the beneficial owners, an endorsement in blank of the
stock certificate coupled with its delivery, entitles the holder thereof to demand
the transfer of said stock certificate in his name from the issuing corporation.
034 Steelcase v. Design Intl. Selections Inc.

Statutory Definition of “Doing Business”
Under Sec. 3(d) of FIA ’91, as supplemented by Rule 1, Sec. 1(f) of its IRR, the
appointment of a distributor in the Philippines is not sufficient to constitute “doing
business” unless it is under the full control of the foreign corporation. In the same
manner, if the distributor is an independent entity which buys and distributes
products, other than those of the foreign corporation, for its own name and its own
account, the latter cannot be considered to be doing business in the Philippines
The delivery and sale of Steelcase products to a Philippine client by Modernform,

which is a subsidiary of Steelcase, a foreign corporation, does not constitute the
latter doing business in the Philippines. Basic is the rule in corporation law that a
corporation has a separate and distinct personality from its stockholders and from
other corporations with which it may be connected
The fact that the Distributorship Agreement provides certain conditions pertaining
to the business planning, organizational structure, operational effectiveness and
efficiency, and financial stability, do not make the foreign corporation engaged in

business in the Philippines. It is actually logical to expect that Steelcase, being
one of the major manufacturers of office systems furniture, would require its
dealers to meet several conditions for the grant and continuation of a
distributorship agreement. The imposition of minimum standards concerning
sales, marketing, finance and operations is nothing more than an exercise of sound
business practice to increase sales and maximize profits for the benefit of both
Steelcase and its distributors. For as long as these requirements do not impinge on
a distributor’s independence, then there is nothing wrong with placing reasonable
expectations on them.
Attracting Foreign Investment Ruling:

During this period of financial difficulty, our nation greatly needs to attract more
foreign investments and encourage trade between the Philippines and other
countries in order to rebuild and strengthen our economy. While it is essential to
uphold the sound public policy behind the rule that denies unlicensed foreign
corporations doing business in the Philippines access to our courts, it must never
be used to frustrate the ends of justice by becoming an all-encompassing shield to
protect unscrupulous domestic enterprises from foreign entities seeking redress in
our country. To do otherwise could seriously jeopardize the desirability of the
Philippines as an investment site and would possibly have the deleterious effect of
hindering trade between Philippine companies and international corporations.
035 Global Business Holdings v. Surecomp Software

Consequences of Not Obtaining License When Doing Business – Doctrine of
Estoppel
Surecomp, a Dutch Company, entered into a software licensing agreement with
Asian Bank, a domestic corporation for the use of its software system in the
bank’s computer system for a period of 20 years. When the successor-in-interest
of Asian Bank, Global Business Holdings, refused to pursue the contract,
Surecomp filed an action in court to recover on the remaining value of the
contract. Gloval filed a MTD on the ground inter alia that Surecomp is a foreign
corp. engaged in business (20 year contract) in the Philippines without having
obtained a license.
Held: A corporation has a legal status only within the state or territory in which it
was organized. For this reason, a corporation organized in another country has no
personality to file suits in the Philippines. In order to subject a foreign corporation
doing business in the country to the jurisdiction of our courts, it must acquire a

license from the Securities and Exchange Commission and appoint an agent for
service of process. Without such license, it cannot institute a suit in the
Philippines, pursuant to Sec. 133 of the Corporation Code.
The exception to this rule is the doctrine of estoppel. Global is estopped from
challenging Surecomp’s capacity to sue. A foreign corporation doing business in
the Philippines without license may sue in Philippine courts a Filipino citizen or a
Philippine entity that had contracted with and benefited from it.25 A party is
estopped from challenging the personality of a corporation after having
acknowledged the same by entering into a contract with it.26 The principle is
applied to prevent a person contracting with a foreign corporation from later
taking advantage of its noncompliance with the statutes, chiefly in cases where
such person has received the benefits of the contract.
036 Cargill Inc. v. Intra Strata (2010)

Foreign Corporations – Necessity to Obtain License to Do Business
Under Sec. 123, a foreign corporation must first obtain a license and a certificate
from the appropriate government agency before it can transact business in the
Philippines. Under Sec. 133, a foreign corporation which does business in the
Philippines without the proper license cannot maintain any action or proceeding
before local courts.
Statutory Definition of Doing Business

FIA ’91 which repealed Arts. 44-56 of Book II of Omnibus Investments Code,
enumerated in Sec. 3(d) not only the acts or activities which constitute “doing
business” but also those activities which are not deemed “doing business.” The
determination of whether a foreign corporation is doing business in the
Philippines must be based on the facts of each case. Courts give emphasis to the
importance of the element of continuity of commercial activities to constitute
doing business in the Philippines. When there is no showing that the transaction
between a foreign corporation and a domestic company signify intent to establish
a continuous business or extend its operations in the Philippines, then such foreign
corporation is not engaged in business in the Philippines.
In Antam Consolidated, Inc. v. CA, 143 SCRA 288 (1986), in which a foreign
corporation filed an action for collection of sum of money against petitioners
therein for damages and loss sustained for the latter’s failure to deliver coconut
crude oil, the Court emphasized the importance of the element of continuity of

commercial activities to constitute doing business in the Philippines.
Similarly, in this case, foreign corporation and the local company amended their
contract three (3) times to give a chance to the local company to deliver to the
foreign company the molasses, considering that the local company already
received the minimum price of the contract. There is no showing that the
transactions between the foreign company and the local company signify the
intent of the foreign company to establish a continuous business or extend its
operations in the Philippines.
Activities in the Philippines Must Be “Profit Making”

To constitute "doing business," the activity undertaken in the Philippines should
involve profit-making. Se. 1(f), Rule I, of IRR to FIA ’91 enumerates what
constitutes not doing business in the Philippines, and most of these activities
enumerated do not bring any direct receipts or profist to the foreign corporation,
consistent with the ruling of this Court in National Sugar Trading Corp v. CA 246
SCRA 465 (1995)I, that activities within Philippine jurisdiction that do not create
earnings or profits to the foreign corporation do not constitute doing business in
the Philippines. In that case, the Court held that it would be inequitable for the
National Sugar Trading Courp., a state-owned corporation, to evade payment of a
legitimate indebtedness owing to the foreign corporation on the plea that the latter
should have obtained a license first before perfecting a contract with the
Philippine government, we emphasized that the foreign corp. did nt sell the sugar
and derive income from the Philippines, but merely purchase sugar from the
Philippine govt. and allegedly paid for it in full.
In this case, the contract between petitioner and NMC involved the purchase of
molasses by petitioner from NMC. It was NMC, the domestic corporation, which
derived income from the transaction and not petitioner. To constitute "doing
business," the activity undertaken in the Philippines should involve profit-
making.20 Besides, under Section 3(d) of RA 7042, "soliciting purchases" has
been deleted from the enumeration of acts or activities which constitute "doing
business."A foreign company that merely imports goods from a Philippine
exporter, without opening an office or appointing an agent in the Philippines, is
not doing business in the Philippines.
037 Chateau De Bale v. Sps. Moreno

Intra-corporate dispute :An action involving the legality of assessment dues

against the condominium owner/developer, the Court held that, the matter being
an intra-corporate dispute, the RTC had jurisdiction to hear the same pursuant to
R.A. No. 8799.
038 Strategic Alliance v. Star Infra

Intra –corporate disputes
An intra-corporate dispute is understood as a suit arising from intra-corporate
relations or between or among stockholders or between any or all of them and the
corporation. Applying what has come to be known as the relationship test, it has
been held that the types of actions embraced by the foregoing definition include
the following suits: (a) between the corporation, partnership or association and the
public; (b) between the corporation, partnership or association and its
stockholders, partners, members, or officers; (c) between the corporation,
partnership or association and the State insofar as its franchise, permit or license
to operate is concerned; and, (d) among the stockholders, partners or associates
themselves. As the definition is broad enough to cover all kinds of controversies
between stockholders and corporations, the traditional interpretation was to the
effect that the relationship test brooked no distinction, qualification or any
exemption whatsoever.
However, the unqualified application of the relationship test has been modified on
the ground that the same effectively divests regular courts of jurisdiction over
cases for the sole reason that the suit is between the corporation and/or its
corporators. It was held that the better policy in determining which body has
jurisdiction over a case would be to consider not only the status or relationship of
the parties but also the nature of the question that is the subject of their
controversy.
Under the nature of the controversy test, the dispute must not only be rooted in
the existence of an intra-corporate relationship, but must also refer to the
enforcement of the parties' correlative rights and obligations under the
Corporation Code as well as the internal and intra-corporate regulatory rules of
the corporation. The combined application of the relationship test and the nature
of the controversy test has, consequently, become the norm in determining
whether a case is an intra-corporate controversy or is purely civil in character.
039 Gamboa Finance v. Teves (2011)

The 1987 Constitution provides for the Filipinization of public utilities by
requiring that any form of authorization for the operation of public utilities should

be granted only to citizens of the Philippines or to corporation or associations
organized under the laws of the Philippines at least sixty per centum of whose
capital is owned by such citizens. “The provision is [an express] recognition of
the sensitive and vital position of public utilities both in the national economy
and for national security.” The evident purpose of the citizenship requirement is
to prevent aliens from assuming control of public utilities, which may be inimical
to the national interest. This specific provision explicitly reserves to Filipino
citizens control of public utilities, pursuant to an overriding economic goal of the
1987 Constitution: to “conserve and develop our patrimony” and to ensure a “self-
reliant and independent national economy effectively controlled by Filipinos.”
We rule that the term “capital” in Sec. 11 Art. XII of the Constitution should
cover both: (a) the control test that covers only shares of stock entitled to vote in
the election of directors; and the beneficial interest test, that the 60%-40% equity
in favor of Filipinos shall apply to each and every class of shares, to common
shares, to preferred non-voting shares, to preferred voting shares, and other
classes of shares.
In the absence of provisions in the articles of incorporation denying voting rights

to preferred shares, preferred shares have the same voting rights as common
shares. However, preferred shareholders are often excluded from any control, i.e.,
deprived of the right to vote in the election of directors and on other matters, on
the theory that the preferred shareholders are merely investors in the corporation
for income in the same manner as bondholders. Under the corporation code, only
preferred or redeemable shares can be deprived of the right to vote. Common
shares cannot be deprived of the right to vote in any corporate meeting and any
provision in the articles of incorporation restricting the right of common
shareholders to vote is invalid.
Doctrine of Centralized Management

Indisputably, one of the rights of a stockholder is the right to participate in the
control or management of the corporation. This is exercised through his vote in
the election of directors because it is the board of directors that controls or
manages the corporation.
Doctrine of Centralized Management

Indisputably, one of the rights of a stockholder is the right to participate in the
control or management of the corporation. This is exercised through his vote in

the election directors because it is the board of directors that controls or manages
the corporation.
040 Queensland Tokyo Commodities v. George

Nature of a Corporation
A corporation is invested by law with a personality separate and distinct from
those of the persons composing it, such that, save for certain exceptions, corporate
officers who entered into contracts in behalf of the corporation cannot be held
personally liable for the liabilities of the latter. Personal liability of a corporate
director, trustee, or officer, along (although not necessarily) with the corporation,
may validly attach, as a rule, only when – (1) he assents to a patently unlawful act
of the corporation, or when he is guilty of bad faith or gross negligence in
directing its affairs, or when there is a conflict of interest resulting in damages to
the corporation, its stockholders, or other persons; (2) he consents to the issuance
of watered down stocks or who, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection thereto; (3) he agrees to hold
himself personally and solidarily liable with the corporation; or (4) he is made by
a specific provision of law personally answerable for his corporate action.
041 David C. Lao and Jose C. Lao et al. (2008)

Certificates Only Evidence of Shares Covered
A certificate of stock is the evidence of a holder’s interest and status in a
corporation – it is prima facie evidence that the holder is a shareholder of a
corporation. As between the General Information Sheet and the corporate books, it
is the latter that is controlling.
042 Valle Verde Country Club Inc, v. Africa (2009)

beneficiaries
The board of directors in drawing to themselves the powers of the corporation,
occupies a position of trusteeship in relation to the stockholders in the sense that
the board should exercise not only care and diligence but utmost good faith in the
management of corporate affairs.
Countervailing Theory; Stockholders Delegate Powers to the Board

The theory of delegated power of the board of directors similarly explains why,
under Sec. 29 of the corporation Code, in cases where the vacancy in the
corporation’s board of directors is caused not only by the expiration of the

member’s term, the successor “so elected to fill a vacancy shall be elected only
for the unexpired term of his predecessors in office.” The law has authorized the
remaining members of the board to fill in a vacancy only in specified instances, so
as not to retard or impair the corporation’s operations; yet, in recognition of the
stockholders’ right to elect memners of the board, it limited the period during
which the successor shall serve only to the unexpired term of his predecessor in
office.
No permanent Un-Elected Seat in the Board of Directors

The underlying policy of the corporation code is that the business affairs of the
coporation must be governed by a board of directors whose members have stood
for election and who have actually been elected by the stockholders on an annual
basis. Only in that way can the directors’ continued accountability to the
shareholders and the legitimacy of their decisions that bind the corporation’s
stockholders be assured. The shareholder vote is critical to the theory that
legitimizes the exercise of power by the directors or officers over properties that
they do not own.
Hold-over principle
Can a member of a corporation’s board of directors elect another director to fill
in a vacancy caused by the resignation of a hold-over director?
Held: No; the holder-over period is not part of the term of office of a member of
the board of directors. Consequently, when during the holdover period, a director
resigns from the board, the vacancy can only be filled-up by the stockholders,
since there is no term left to fill-up pursuant to the provisions of Sec. 29 of the
Corporation which mandates that a vacancy occurring in the board of directors
caused by the expiration of a member’s term shall be filled by the corporation’s
stockholders. That a director continues to serve after one year from his election
(i.e. on holdover capacity), cannot be considered as extending his term. This
holdover period, however, is not to be considered as part of his term, which, as
declared, had already expired.
To construe Sec. 29 as the authority to fill up vacancies in the board of directors,

in relation to Sec. 23 thereof effectively weakens the stockholders’ power to
participate in the corporate governance by electing their representatives to the
board of directors. The board of directors is the directing and controlling body of

the corporation. It is a creation of the stockholders and derives its power to control
and direct the affairs of the corporation from them. The Board of Directors, in
drawing to themselves the powers of the corporation, occupies a position of
trusteeship in relation to the stockholders, in the sense that the board should
exercise not only care and diligence, but utmost good faith in the management of
corporate affairs.
Tenure versus Term of Office

Term is distinguished from tenure in that an officer’s tenure represents the term
during which the incumbent actually holds office – the tenure may be shorter (or
in case of holdover, longer) than the term for reasons within or beyond the power
of the incumbent. When Sec. 23 of the Corporation Code declares that “the board
of directors…shall hold office for one (1) year until their successors are elected
and qualified,” it means that the term of the members of the board of directors
shall be only for one (1) year – their terms expires one (1) year after the election
to the office. The holdover period – that time from the lapse of one (1) year from a
member’s election to the Board and until his successor’s election and
qualification – is not part of director’s original term of office nor is it a new term.
043 Valley Golf v. Vda. De Caram (2009)
Rules on the Liability of Directors, Trustees and Officers
Trustees of the non-stock corporation acted in clear bad faith when it sent the final
notice to a member under the pretense they believed him to be still alive, when in
fact it had very well known that he had already died. Non-stock corporations and
their officers are not exemt from the obligation imposed by Arts. 19, 20, and 21
under Human Relations of the Civil Code, which provisions enunciate a general
obligation under law for every person to act fairly and in good faith towards one
another.
May a non-stock corporation seize and dispose of the membership share of a
fully-paid member on account of its unpaid debts to the corporation (i.e. unpaid
monthly dues) when it is authorize dto do so under the corporate bylaws, but not
by the articles of incorporation, and in spite of the fact that Sec. 67 of the
Corporation Code on delinquency sale pertains to payment of shares in
subscription?
Held: Yes, the right of a non-stock corporation such as Valley Golf to expel a
member through the forfeiture of the Golf Share may be established in the by-

laws alone and need not be embodied in the articles of incorporation. This is
authorized under Sec. 91 providing that membership shall be terminated in the
manner and causes provided in the articles of incorporation or by-laws of a
nonstick corporation. Every member binds himself to observe its bylaws which
constitutes “the rules and regulations or private laws enacted by the corporation to
regulate, govern and control its own actions, affairs and concerns and its
stockholders or members and directors and officers with relation thereto and
among themselves in relation to it.”
Generally in theory, a non-stock corporation has the power to effect the

termination of a member without having to constitute a lien on the membership
share or to undertake the elaborate process of selling the same at public auction.
However, the prevailing rule is that the provisions of the articles of incorporation
or by-laws of termination of membership must be strictly complied with and
applied to the letter. In the absence of clear provisions and procedures for
termination of membership, then it is important that the procedure undertaken
must be in compliance with substantial justice that:
(a)Since the termination of membership does not merely lead to the withdrawal
of the rights and privileges of the member to club properties and facilities
but also to the loss o fthe golf share itself for which the member has fully
paid and which have a real market value, then the non-stock corporation’s
claim should be limited to the amount of unpaid dues plus incremental costs,
and the balance of the price at which the golf share would have fetched in
the market at the time his membership is terminated should be reimbursed
the member; and
(b) There should be proper notice and hearing in properly informing the
delinquent member of his back account and an opportunity to update his
accounts.
044 Calatagan Glof Club Inc, Sixto Clemente Jr. (2009)

Is it lawful for a nonstick corporation to provide in its bylaws for rules of
forfeiture of fully-paid membership share son the basis of delinquency by the
member to pay monthly membership dues?
Held: Yes, Under Section 91 of the Corporation Code, membership in a non-stock

corporation "shall be terminated in the manner and for the causes provided in the
articles of incorporation or the by-laws." The By-law provisions are elaborate in

explaining the manner and the causes for the termination of membership in
Calatagan, through the execution on the lien of the share. The Court is satisfied
that the By-Laws, as written, affords due protection to the member by assuring
that the member should be notified by the Secretary of the looming execution sale
that would terminate membership in the club. In addition, the By-Laws guarantees
that after the execution sale, the proceeds of the sale would be returned to the
former member after deducting the outstanding obligations. If followed to the
letter, the termination of membership under this procedure outlined in the By-
Laws would accord with substantial justice.
Therefore, the failure of Calatagan to follow the procedure mandated in its own
bylaws made the forfeiture of the membership share invalid. The utter bad faith
exhibited by Calatagan brings into operation Arts. 19, 20, and 21 of the Civil
Code on Human Relations: The obligation of a corporation to treat every person
honestly and in good faith extends even to its shareholders or members, even if
the latter find themselves contractually bound to perform certain obligations to the
corporation, and would allow recovery of moral damages on the part of the
terminated member.
045 Francisco v. Mallen Jr.

A corporation is a juridical entity with legal personality separate and distinct from
those acting for and in its behalf and, in general, from the people comprising it.
The rule is that obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities. To hold a director or
officer personally liable for corporate obligations, two requisites must concur: (1)
complainant must allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation, or that the officer was guilty of gross
negligence or bad faith; and (2) complainant must clearly and convincingly prove
such unlawful acts, negligence or bad faith.
046 Iglesia Evangelic v. Juane

Corporate sole/corporate aggregate
A corporation sole is one formed by the chief archbishop, bishop, priest, minister,
rabbi or other presiding elder of a religious denomination, sect, or church, for the
purpose of administering or managing, as trustee, the affairs, properties and
temporalities of such religious denomination, sect or church. As opposed to a
corporation aggregate, a corporation sole consists of a single member, while a
corporation aggregate consists of two or more persons.

047 Real v. Sangu Philippines
Intra Corporate Controversy
Not all conflicts between the stockholders and the corporation are classified as
intra-corporate. There are other factors to consider in determining whether the
dispute involves corporate matters as to consider them as intra-corporate
controversies. To determine whether a case involves an intra-corporate
controversy, and is to be heard and decided by the branches of the RTC
specifically designated by the Court to try and decide such cases, two elements
must concur: (a) the status or relationship of the parties, and (2) the nature of the
question that is the subject of their controversy.
The first element requires that the controversy must arise out of intra-corporate or
partnership relations between any or all of the parties and the corporation,
partnership, or association of which they are not stockholders, members or
associates, between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively;
and between such corporation, partnership, or association and the State insofar as
it concerns the individual franchises. The second element requires that the dispute
among the parties be intrinsically connected with the regulation of the
corporation. If the nature of the controversy involves matters that are purely civil
in character, necessarily, the case does not involve an intra-corporate controversy.
048 Barayuga v. Adventist University

Hold-over principle
A trustee occupying his office in a holdover capacity could be removed at any
time, without cause, upon the election or appointment of his successor.
049 Sarona v. NLRC
Piercing of Corporate Veil
*The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: 1) defeat of public convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; 2) fraud cases or when the
corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3)
alter ego cases, where a corporation is merely a farce since it is a mere alter ego or
business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.

*A settled formulation of the doctrine of piercing the corporate veil is that when
two business enterprises are owned, conducted and controlled by the same parties,
both law and equity will, when necessary to protect the rights of third parties,
disregard the legal fiction that these two entities are distinct and treat them as
identical or as one and the same.
050 Ever Electrical Mfg. Inc. v. Samahang

Liability of corporate officers
Unless it can be shown that the closure was deliberate, malicious and in bad faith,
the Court must apply the general rule that a corporation has, by law, a personality
separate and distinct from that of its owners. As there is no evidence that Go, as
EEMIs President, acted maliciously or in bad faith in handling their business
affairs and in eventually implementing the closure of its business, he cannot be
held jointly and solidarily liable with EEMI.
051 Ramirez v. Mar Fishing

The mere showing that the corporations had a common director sitting in all the
boards without more does not authorize disregarding their separate juridical
personalities.
It bears emphasizing that since piercing the veil of corporate fiction is frowned
upon, those who seek to pierce the veil must clearly establish that the separate and
distinct personalities of the corporations are set up to justify a wrong, protect a
fraud, or perpetrate a deception.
052 Ignacio v. Home Bankers

Section 23 of the Corporation Code expressly provides that the corporate powers
of all corporations shall be exercised by the board of directors. Just as a natural
person may authorize another to do certain acts in his behalf, so may the board of
directors of a corporation validly delegate some of its functions to individual
officers or agents appointed by it. Thus, contracts or acts of a corporation must be
made either by the board of directors or by a corporate agent duly authorized by
the board. Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the corporation, but
not in the course of, or connected with, the performance of authorized duties of
such director, are held not binding on the corporation.

053 Ang in behalf of Sunrise Marketing v. Sps. Ang
A derivative suit is an action brought by a stockholder on behalf of the
corporation to enforce corporate rights against the corporation’s directors, officers
or other insiders. Under Sections 23 and 36 of the Corporation Code, the directors
or officers, as provided under the by-laws, have the right to decide whether or not
a corporation should sue.
054 Fil-Estate Golf and Dev. Inc. v. Vertex Sales and Trading (2013)
Quasi-negotiable Character of Stock Certificate
Since physical delivery of the certificates of stock is one of the essential requisites
for the transfer of ownership of the stocks purchased [as held in Raquel-Santos v.
CA, 592 SCRA 169 (2009)], then the failure of the seller-registered owner to
delivery the stocks certificates would constitute a material breach that warrants the
recission of the sale of the shares upon the option of the buyer.
055 PNB v. Hydro Resources Contractors Corp.

1. Doctrine of Separate Personality
-‐ As a consequence of its status as a distinct legal entity and as a result of a
conscious policy decision to promote capital formation, a corporation
incurs its own liabilities and is legally responsible for payment of its
obligations.
-‐ In other words, by virtue of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt or credit of the
stockholder. This protection from liability for shareholders is the
principle of limited liability.
2. Piercing the Corporate Veil
-‐ When can Corporate Veil be pierced? When the corporation is just an
alter ego of a person or of another corporation.
-‐ For reasons of public policy and in the interest of justice, the corporate
veil will justifiably be impaled only when it becomes a shield for fraud,
illegality or inequity committed against third persons.
3. Three- Pronged Test for the determination of the application of Alter Ego
Theory (otherwise known as Instrumentality Theory)
4. Ownership of Shares
-‐ This Court has declared that “mere ownership by a single stockholder or
by another corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the separate
corporate personality.”

-‐ This Court has likewise ruled that the “existence of interlocking directors,
corporate officers and shareholders is not enough justification to pierce
the veil of corporate fiction in the absence of fraud or other public policy
considerations.
056 Sumbilla v. Quiambao

1. The act of refusing to allow inspection of the stock and transfer book of a
corporation, when done in violation of Section 74(4) of the Corporation Code, is
punishable as an offense under Section 144 of the same code.
Section 74 is the provision of the Corporation Code that deals with the books a
corporation is required to keep.
It must be emphasized that Section 144 already purports to penalize "[v]iolations"

of "any provision" of the Corporation Code "not otherwise specifically penalized
therein." Hence, we find inconsequential the fact that that Section 74 expressly
mentions the application of Section 144 only to a specific act, but not with respect
to the other possible violations of the former section.
2. A criminal action based on the violation of a stockholder's right to examine or

inspect the
corporate records and the stock and transfer book of a corporation under the
second and fourth paragraphs of Section 74 of the Corporation Code can only be
maintained against corporate officers or any other persons acting on behalf of
such corporation.
A perusal of the second and fourth paragraphs of Section 74, as well as the first
paragraph of the same section, reveal that they are provisions that obligates a
corporation: they prescribe what books or records a corporation is required to
keep; where the corporation shall keep them; and what are the other obligations of
the corporation to its stockholders or members in relation to such books and
records. Hence, by parity of reasoning, the second and fourth paragraphs of
Section 74, including the first paragraph of the same section, can only be violated
by a corporation.
It is clear then that a criminal action based on the violation of the second or fourth
paragraphs of Section 74 can only be maintained against corporate officers or

such other persons that are acting on behalf of the corporation. Violations of the
second and fourth paragraphs of Section 74 contemplates a situation wherein a
corporation, acting thru one of its officers or agents, denies the right of any of its
stockholders to inspect the records, minutes and the stock and transfer book of
such corporation
Here, the accused were not acting on behalf of STRADEC. They were outgoing
officers.
Dispositive:RTC affirmed; accused acquitted.
057 SPI Tech v. Mapua

Non-liability of corporate officers for corporate obligations
Personal liability of corporate directors, trustees or officers attaches only when:
(a) they assent to a patently unlawful act of the corporation, or when they are
guilty of bad faith or gross negligence in directing its affairs, or when there is a
conflict of interest resulting in damages to the corporation, its stockholders or
other persons; (b) they consent to the issuance of watered down stocks or when,
having knowledge of such issuance, do not forthwith file with the corporate
secretary their written objection; (c) they agree to hold themselves personally and
solidarily liable with the corporation; or (d) they are made by specific provision of
law personally answerable for their corporate action.
058 Bank of Commerce v. Radio Philippines Network

Merger and Consolidation
Merger is a re-organization of two or more corporations that results in their
consolidating into a single corporation, which is one of the constituent
corporations, one disappearing or dissolving and the other surviving. To put it
another way, merger is the absorption of one or more corporations by another
existing corporation, which retains its identity and takes over the rights,
privileges, franchises, properties, claims, liabilities and obligations of the
absorbed corporation(s). The absorbing corporation continues its existence while
the life or lives of the other corporation(s) is or are terminated.
059 Raul Cosare v. Broadcom

An intra-corporate controversy, which falls within the jurisdiction of regular
courts, has been regarded in its broad sense to pertain to disputes that involve any
of the following relationships: (1) between the corporation, partnership or

association and the public; (2) between the corporation, partnership or association
and the state in so far as its franchise, permit or license to operate is concerned;
(3) between the corporation, partnership or association and its stockholders,
partners, members or officers; and (4) among the stockholders, partners or
associates, themselves.
Under the nature of the controversy test, the incidents of that relationship must
also be considered for the purpose of ascertaining whether the controversy itself is
intra-corporate. The controversy must not only be rooted in the existence of an
intra-corporate relationship, but must as well pertain to the enforcement of the
parties’ correlative rights and obligations under the Corporation Code and the
internal and intra-corporate regulatory rules of the corporation. If the relationship
and its incidents are merely incidental to the controversy or if there will still be
conflict even if the relationship does not exist, then no intra-corporate controversy
exists.
060 Legaspi Towers Inc. v. Muer

Suits by stockholders or members of a corporation based on wrongful or
fraudulent acts of directors or other persons may be classified into individual
suits, class suits, and derivative suits. Where a stockholder or member is denied
the right of inspection, his suit would be individual because the wrong is done to
him personally and not to the other stockholders or the corporation. Where
the wrong is done to a group of stockholders, as where preferred stockholders'
rights are violated, a class or representative suit will be proper for the protection
of all stockholders belonging to the same group. But where the acts complained of
constitute a wrong to the corporation itself, the cause of action belongs to the
corporation and not to the individual stockholder or member.
061 Gerardo Lanuza v. BF (2014)

When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these
persons and the corporation should be treated as one. Without a trial, courts and
tribunals have no basis for determining whether the veil of corporate fiction
should be pierced. Courts or tribunals do not have such prior knowledge. Thus,
the courts or tribunals must first determine whether circumstances exist to warrant
the courts or tribunals to disregard the distinction between the corporation and the
persons representing it.

ADD.01 HYATT ELEVATORS v. Goldstar Elevators (2005)
Residence of the Corporation – Well established is the rule that the residence of
a corporation is the place where its principla office is located, as stated in its
Articles of Incorporation… It now becomes apparent that the residence or
domicile of a juridical person is fixed by “the law creating or recognizing” it.
Under Sec. 14(3) of Corporation Code, the principal office of the corporation is to
be located is one of the required contents of the articles of incorporation.
Principal Place of Business – Petitioner argues that the Rules of Court do not
provide that when the plaintiff is a corporation, the complaint should be filed in
the location of its principal office as indicated in its articles of incorporation.
Jurisprudence has, however, settled that the principal place of business of a
corporation is located, as stated in its articles, indeed establishes its residence.
This ruling is important in determining the venue of an action by or against a
corporation, as in the present case. Under SEC Circular No. 3, s. 2006, it is now
mandated that “In line with the ‘full disclosure’ requirement of existing laws, all
corporations… applying for registration with the Securities and Exchange
Commission should state in their Articles of Incorporation …the: (i) specific
address of heir principal office, which shall include if feasible, the street number,
street name, barangay, city or municipality; and (ii) specific residence address of
each incorporator, stockholder, director, trustee, or partner.” It also provides that
“Metro Manila” shall no longer be allowed as address of the principal office.
ADD.02 ABS-CBN Broadcasting Corp. v. CA 301 SCRA 589 (1999)
The award of moral damages cannot be granted in favor of a corporation because,
being an artificial person and having existence only in legal contemplation, it has
no feelings, no emotions, no senses. It cannot therefore, experience physical
suffering and mental anguish, which can be experienced only by one having a
nervous system. The statements in People v. Manero, 218 SCRA 85 (1993) and
Mambulao Lumber Co. v. PNB, 130 Phil 366 (1968), that a corporation may
recover damages if it “has a good reputation that is debased, resulting in social
humiliation” are obiter dicta. The possible basis of recovery of a corporation
would be under Arts. 19, 20 and 21 of the Civil Code, but which requires a clear
proof of malice or bad faith.
ADD.03 LOYOLA GRAND VILLAS Homeowners v. CA

Nature of by-laws
By-laws may be necessary for the “government” of the corporation but these are
subordinate to the articles of incorporation, as well as the Corporation Code and

unrelated statutes. There are in fact cases where by-laws are unnecessary to
corporate existence or to the valid exercise of corporate powers.
As the “rules and regulations or private laws enacted by the corporation to

regulate, govern, and control its own actions, affairs and concerns and its
stockholders or members and directors and officers with relation thereto and
among themselves in relation to it,” by-laws are indispensable to corporation in
this jurisdiction, although they may not be essential to corporate birth but
certainly, these are required by law for an orderly governance and management of
corporation. Nonetheless, failure to file them within the period required by law by
no means tolls the automatic dissolution of a corporation.
Period of Adoption of by-laws

Sec. 46 of Corporation Code provides that the corporation “must” adopt a set of
by-laws within one (1) month after receipt of notice of the issuance of the
certificate of incorporation. It reveals the legislative intent to attach a directory,
and not mandatory, meaning for the word “must” in the first sentence thereof,
since second paragraph section allows the filing of the by-laws even prior to
incorporation. The failure to file the by-laws within that period does not imply
“demise” of the corporation, but merely constitute a ground by which SEC may
seek forfeiture of the franchise of the corporation as provided in P.D. 902-A
ADD.04 Anthony Yu v. Josephine Yucayguan (2009)
Nature of the Right to File a Derivative Suit/Liability for Unpaid
Subscription
A stockholder’s right to institute a derivative suit is not based on any express
provision of the Corporation Code, or even the Securities Regulation Code, but is
impliedly recognized when the said laws make corporate directors or officers
liable for damages suffered by the corporation and its stockholders for violation of
their fiduciary duties.
Requisites for Filing of Derivative Suit

Requisites under the Interim Rules. - A stockholder must comply with the
essential requisites for the filing of a derivative suit as set forth in Sec. 1, Rule 8
of the Interim Rules of Procedure Governing Intracorporate Controversies,
namely:
(a)That 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;
(b) That he exerted all reasonable efforts to exhaust all remedies available

under the articles of incorporation, by-laws, laws or rules governing the
corporation to obtain the relief he desires, and alleges the same with
particularity in the complaint;
(c)No appraisal rights are available for the act or acts complained of; and
(d) The suit is not a nuisance or harassment suit.
Note: The Interim Rules on Intra-corporate Controversies provides for the

following additional rules pertaining to derivative suits:
(1) Allows the courts as an incident to the suit to create a management
committee or to appoint a receiver;
(2) A “derivative action sall not be discontinued, compromised or settled
without the approval of the court;”
(3) “During the pendency of the action, any sale of shares of the
complaining stockholders shall be approved by the court;”
(4) “If the court determines that the interest of the stockholders or
members will be substantially affected by the discontinuance, compromise
or settlement, the court may direct that notice by publication or otherwise be
given to stockholders or members whose interest it determines will be so
affected.”
Exhaustion of Intra-Corporate Remedies

The obvious intent behind the rule requiring the stockholder filing a derivative
suit to first exert all reasonable efforts to exhaust all remedies available under the
articles of incorporation, by laws, laws or rules governing the corporation or
partnership to obtain relief he desires is to make the derivative suit the final
recourse of the stockholders, after all other remedies to obtain the relief sought
had failed.
ADD.05 B. Van Zuiden Bros., LTD., v. GTVL Manufacturing Industries, Inc.

Sec. 133 of the Corporation Code; Transacting business in the Philippines
To be doing or "transacting business in the Philippines" for purposes of Section
133 of the Corporation Code, the foreign corporation must actually transact
business in the Philippines, that is, perform specific business transactions within
the Philippine territory on a continuing basis in its own name and for its own
account. Actual transaction of business within the Philippine territory is an
essential requisite for the Philippines to acquire jurisdiction over a foreign
corporation and thus require the foreign corporation to secure a Philippine
business license. If a foreign corporation does not transact such kind of business

in the Philippines, even if it exports its products to the Philippines, the Philippines
has no jurisdiction to require such foreign corporation to secure a Philippine
business license.
ADD.06 Columbia Pictures Inc. v. CA (1996)

Although Sec. 1(g) of the IRR of Omnibus Investments Code lists among others
the “soliciting orders, purchases, service contracts, opening offices, whether called
"liaison" offices or branches; appointing representatives or distributors who are
domiciled in the Philippines,” as acts constitutive of "doing business," the fact that
petitioners are admittedly copyright owners or owners of exclusive distribution
rights in the Philippines of motion pictures or films does “not convert such
ownership into an indicium of doing business which would require them to obtain
a license before they can sue upon a cause of action in local courts, such as in this
case seeking protection for intellectual properties.”
ADD.07 NATIONAL DEVELOPMENT COMPANY & NEW AGRIX, INC.,

vs. PHILIPPINE VETERANS BANK
Corporation as a Creature of Law
It has been held that a private corporation created pursuant to a special law is a
nullity, and such special law is void for being in violation of the Constitution.
The Congress may create government-owned or controlled corporations (GOCCS)

or government instrumentalities pursuant to SEC. 16, ART. XII, 1987
CONSTITUTION: “Section 16. The Congress shall not, except by general law,
provide for the formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or established by
special charters in the interest of the common good and subject to the test of
economic viability”.
ADD.08 CHUNG KA BIO v. IAC

Failure to file the by-laws on time does not automatically result in dissolution. It
may be penalized merely with the imposition of an administrative fine without
affecting the corporate existence of the erring corporation.
ADD.09 San Miguel Corp. v. Kahn (1989)
Requisites for Filing of Derivative Suit
Jurisprudential Requisites – the requisites for the proper filing of a derivative suit
are:

(a)The party bringing suit should be a shareholder as of the time of the act of
transaction complained of;
(b) He has exhausted intra-corporate remedies, i.e., has made a demand on
the board of directors for the appropriate relief, but the latter has failed or
refused to heed his plead; and
(c)The cause of action actually devolves on the corporation, the wrongdoing or
harm having been caused to the corporation and not to the particular
stockholder bringing the suit.
ADD.010 Uy Cua jr. Vs Tan (2009)

Board of Directos; Derivative Suit
It is well settled in this jurisdiction that where corporate directors are guilty of a
breach of trust — not of mere error of judgment or abuse of discretion — and
intracorporate remedy is futile or useless, a stockholder may institute a suit in
behalf of himself and other stockholders and for the benefit of the corporation, to
bring about a redress of the wrong inflicted directly upon the corporation and
indirectly upon the stockholders. A derivative suit, however, must be differentiated
from individual and representative or class suits. Suits by stockholders or members
of a corporation based on wrongful or fraudulent acts of directors or other persons
may be classified into individual suits, class suits, and derivative suits.

Corp Digest Cases (Villanueva)

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001 Paramount Insurance Corp v. A.C. Ordoez Corp. et al.

Pre-emptive Right Not Available

Methods of Corporate Dissolution

003 Paul Lee Tan et al. v. Paul Sycip (2006)

In stock corporations, the presence of a quorum is ascertained and counted on the

Grace Christian High School is a nonstick educational corporation with 15 regular

004 Matling Ind'l and Community Corp. v. Ricardo R. Coros (2010)

005 Ma. Belen Flordeliza Ang-Abaya v. Eduardo G. Ang (2008)

First. A director, trustee, stockholder or member has made a prior demand in

Third. If such refusal is made pursuant to a resolution or order of the board of

006 Marc II Marketing Inc. v. Alfredo M. Joson (2011)

007 Kukan Intl. Corp v. Hon. Amor Reyes

Generally, a motion is appropriate only in the absence of remedies by regular

008 Philip Turner et al. v. Lorenzo Shipping Corp (2010)

No payment shall be made to any dissenting stockholder unless the corporation

009 Shrimp Specialists Inc. v. Fuji Triumph

010 Edsa Shangrila Hotel and Resort Inc. v. BF Corp (2008)

011 Pantranco Employees Association v. NLRC

012 Livesey v. Binswanger Phils

013 Pacific Redhouse v. CA

014 Heirs of Fe Tan Uy v. Intl. Exchange Bank

015 PNB v. Hydro Resources Contractors Corp.

016 Advance Paper Corp. v. Arma Traders Corp.

017 Espiritu Jr. v. Petron Corp. (2009)

018 Halley v. Printwell

Power to Acquire Own Shares – Trust Fund Doctrine

019 Filipinas Port Services v. Go

Duties of Directors, Trustees Officers

020 Assoc. of Intl. Shipping Lines v. Phil Ports Authority

021 Mining Dev. V. Redmont

In a situation where a mining corporation is owned by three domestic corporations

Application of Control Tests – Exploitation of Natural Resources

022 Gloria Gomez v. PNOC Dev. And Management Corp. (2009)

023 Okol v. Slimmers World International (2009)

024 Alabang Dev. Corp v. Alabang Hills Village Assoc. (2014)

025 Metrobank v. Board of Trustees of Riverside Mills

026 Aguirre II v. FQB+Inc.

027 Laborte et al. v. Pagsanhan Tourism Consumers Coop.

028 Mirant Phils Corp. v. Caro

029 Harpoon Marine Services Inc. v. Francisco

030 Mindanao Savings and Loan Assoc. v. Willkom

031 Bank of Commerce v. Radio Philippines Network

032 China Banking Corp v. Dyne Sem

033 Simny Guy v. Gilbert Guy (2012)

034 Steelcase v. Design Intl. Selections Inc.

The delivery and sale of Steelcase products to a Philippine client by Modernform,

Attracting Foreign Investment Ruling:

035 Global Business Holdings v. Surecomp Software

036 Cargill Inc. v. Intra Strata (2010)

Statutory Definition of Doing Business

Activities in the Philippines Must Be “Profit Making”

037 Chateau De Bale v. Sps. Moreno

038 Strategic Alliance v. Star Infra

039 Gamboa Finance v. Teves (2011)

In the absence of provisions in the articles of incorporation denying voting rights

Doctrine of Centralized Management

Doctrine of Centralized Management

040 Queensland Tokyo Commodities v. George

041 David C. Lao and Jose C. Lao et al. (2008)

042 Valle Verde Country Club Inc, v. Africa (2009)

Countervailing Theory; Stockholders Delegate Powers to the Board

No permanent Un-Elected Seat in the Board of Directors

To construe Sec. 29 as the authority to fill up vacancies in the board of directors,