corpo case list for finals

8/3/2019 Corpo Case List for Finals

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CLAUSES in BL / AOI:Other matters that may beincluded in BL:

(a) designation of time when voting rightsmay be exercised by SH ofrecord (24)

(b) providing

for additional officers (25)(c) provisions

for compensation of directors(30)

(d) creation of an executive committee (35)

(e) date of annual meeting or provisionsfor a special meeting ofSHs/members (50 & 53)

(f) quorumon meetings of SHs/members(52)

(g) providingfor presiding officer atmeetings of directors/trusteesand of SHs/members (54)

(h) procedurefor issuance of stockcertificates (63)

(i) providingfor interest on unpaidsubscriptions (66)

(j) entries tobe made in stock and transferbook (74)

(k) providingfor meetings of membersoutside the principal office(93)

Other matters that may beincluded in either the AOI orthe BL:

(a) cumulativevoting in non-stockcorporations (24)

(b) higherquorum for valid boardmeeting (25)

(c) limiting,broadening or denial of rightto vote and voting by proxy,for non-stock corporations (89)

(d) transferability of membership in non-stock corps (90)

(e) terminatio

n of membership in non-stockcorps (91)

(f) manner of election and term of office oftrustees and officers in non-stock corps (92)

(g) manner of distribution of assets in non-stock corps upon dissolution(94)

(h) staggeredboard in educationalinstitutions (108)

Matters that must appear inBOTH AOI & BL:

(a) restrictions on right to transfer shares inclose corporations (98)

Matters that CANNOT be in theBL:

(a) classification of shares andpreferences to preferredshares (6)(b) founders shares (7)

(c) redeemable shares (8)(d) purposes of thecorporation(e) corporate term of existence(f) capitalization of stockcorporations(g) corporate name

(h) denial of pre-emptiverights (39)(i) classification of shares ofdirectors, providing for greaterquorum for close corporations

(96)(97)

(j) provisions on corp sole(11)

NOTES:Chapter VII - CONTROL /MANAGEMENT

- Who ExercisesCorporate Powers

(1) BOD or Trustees (S23, 25,53, 97) *Qualificationsfor directors may be madefor protection (Gokongwei)or as added security (ElHogar);*A corp may be ownedand control led by 1person, provide fornominal shares for otherSH;*Corp SH may achieveBOD representatn by

making their delegatestrustees of the shares ormembership. By virtue ofVTA, the individual repsbecomes SH of record, &thereby qualified to theBOD, but at the same timemaintaining legalresponsibility of trusteesto other corp SH.

(2) Corp Off / Agents (S25)(3) Board Committees (S35)(4) SH / Members

- Devices affectingcontrol(1) Proxy device(2) VTA(3) Pooling & trust

agreements(4) Management contracts -

May be used as a devicefor tax avoidance,resulting in splitting ofincome. Conditions in S44must be complied with sothat there shall be no legal

basis to pierce the veil ofcorporate entity.

(5) Voting & Quorum Reqmts may increase veto powerof minority SH.

(6) Classification of shares(7) Restriction on transfer

Chapter VIII - DUTIES OFDIRECTORS AND CONTROLLINGSH

- Where the directors havebeen grossly negligent or havefraudulently mismanaged thecorporation, besides beingheld liable for damages, theymay be removed by the SHunder S28.

- The line of demarcationbetween the fiduciary relnship

and a directors personal rightis not easy to define.Prohibition against self-dealingnot absolute.

- Abuses may arise wherethe executives paidcompensation are at the sametime directors of the corp, orhave a dominating influenceover them. In such cases, S32on self-dealing directors wouldbe applicable, & the courtwould have to scrutinize the

reasonableness or fairness ofthe compensation toexecutives.

- Interlocking directors notalways detrimental to thecorp.- If the business opportunityis one wch does not properlybelong to the corporation,then the latter has suffered noprejudice if the director takesadvantage of the transactionis therefore not accountable

for his profits.


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- It is possible under S34(ratificatn by 2/3 of SH) for amaj SH to actually competewith the corporation to thedetriment of the 1/3 minorityand despite their objection.- S34 covers only directors,not officers. Officers may

become liable under S31.- If a director is liable forseizing corporate opportunity,there are even strongerreasons for making the officersimilarly liable: an officer isusually a full-time corporateagent and is paid a salary forhis services.- Under S33 (interlockingdirectors), the burden ofproving the fairness of thetransaction on the corporation

which seeks to uphold thecontract & who haveknowledge of salient factsrelated to the transaction.- An interlocking directormay in effect be a self-dealingdirector where his interest inone corp is merely nominal,and his interest in the othercopr is greater than 20% of itsoutstanding capital stock.

- In Close corp:(1) SH who choose to manage

corp in lieu of BOD havethe powers & liabilities ofdirectors (S97).

(2) SH personally liable forcorporate torts, unlike thedirector of other corp whois liable for such torts onlyif he has been negligent.

- Duty of controllinginterest: a majority SH issubject to the duty of GF whenhe acts by voting at a SH mtg

wrt a matter in wch he has apersonal interest.- GR: directors notpersonally liable to corpcreditors for general inefficientmanagement of a solventcorp. Except: (1) Corpinsolvent (Mead v.

McCullough); (2) S31, S65liable even to creditors- Securities RegulationCode(1) S23.2. Transactions of

Directors, Officers &Principal SH (UnderProtection of SH Interest):a. Coverage

specifically only sale-purchase of equity secuof corp in w/c he isconnected if BOTH

transactns take placew/in 6mos.

b. Liability to corponly, thus SH mayinitiate suit only asderivative suit

c. No presumption of disloyalty; actscomplained of must beproven by complainant

(2) S27. Insiders Duty toDisclose when Trading(Under Prohibitions on

Fraud, Manipulation &Insider Tradiing):a. Coverage all acts

of unfair use of insideinfo considered unlawful*Inside info notgenerally available toothers & is acquired bec.of close relationship ofdir/off to the corp*Unfair use info w/heldis of such matlity that areasonable person wouldconsider it a factor in

det. WON he should sellhis stocks or buy morestocks.

b. Liability effectnot mentioned, exceptto say it is unlawful

c. No presumption of unfair use of inside info;

burden to rebut ondir/officer

d. Broader, gives wayto S23.2

(3) S71. Validity of Contracts All contracts made inviolation of SRC void, butonly as regards the rightsof guilty director/officer;innocent parties canenforce contract as to him,but if prejudiced, mayrecover what has been pd

or delivered.- Sir: Trust imposed by SHcollectively; fiduciaryobligation owed tocorporation, not SH (majorityview), except special factsdoctrine (Taylor v. Wright)- S31: repository of duties &liabilities- BOD may be liablecollectively as a board or adirector may be individuallyliable

Chapter IX - RIGHT OFINSPECTION

- Reasonable restrictionson:

(1) Time

(2) Place(3) purpose

- Presumption: SHspurpose of inspection ispresumed to be a proper one.

Improper motives a matter ofdefense by the corp.

- Germane to interests ofSH as such: e.g. Stock &transfer book would yield thenames of all SH and may behelpful where a SH wants tocommunicate w/ SH about theco.s failure to pay dividends,to enlist their oppositn to aproposed merger, or to solicitproxies for a forthcomingelection, even if the ultimateobjective is to gain control ofthe corp.

- Test: Whether SH wasdriven by honest belief andwhether he seeks to protecthis substantial investment inthe corp.- Corps burden to prove BFor improper motives underS74.- No distinction b/w right ofinspection, extension andlimitations, of a director & SH.However, a directors right ofinspection may be groundedon a different basis as that ofa SH because of his duties tothe corp. Thus, it will requirestronger evidence to rebut thepresumption of propriety ofpurpose in case of a director

than in case of a SH.

- Remedy when refused:(1) Mandamus(2) Injunction(3) Damages (erring directors

& officers) S74

- Violation of right of inspection generally in thenature of an individual suit,but may also be the basis forderivative suits.

Chapter X - DERIVATIVE SUITS


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- Compare w/ individual andclass suits- Consider the effect of strike suits- GR: An individual SH hasno more right to challenge bya derivative suit a decision ofthe board not to sue a 3P than

to so challenge any otherdecision of the board underthe business judgment rule.However, where the complaintalleges and it is proved thatthe directors acted in BF,dishonestly, or in breach oftrust, or were under thecontrol of the wrongdoers,then a derivative suit againsta 3P may be given due course.

- See cases on requisites ofderivative suits.

- Derivate suit is founded onequity and does not apply toovercome business judgment rule; and thereforeis available only in instanceswhen the BOD is incapable ofexercising business on behalfof the corp, such as when themajority of the BOd are theculprit, when the BOD acts inviolation of duty of diligencelor duty of loyalty.

Chapter XI- FINANCING THECORPORATION

- Sources of Funds/Capital:

(1) SHE (Investor)ROI:No guaranteeSale of sharesDividends(Inclusive of liquidatingdividends)Nature of Equity Interest:Mgt / Control Participation

Economic Rights

(2) FinancialAccommodations(Creditor)ROI:Term = P + InterestLien / preference ofprop/assets

may be converted toEquity Interest, but loseslien (e.g . NDC v. Phil.Veterans Bank; EK BuckRetail Store v. Harket;Union Glass v. SEC)

- Can never createpreferences where SHs wouldhave attributes of creditorsover SHs.- Equity = Shares ofStock = ACS(1) Founders shares(2) Common shares

(3) Preferred shares(4) Treasury shares

(5) Part / non-participating*

(6) Cumulative* / non-cumulative

(7) Conversion(8) Redemption

*Default (unless otherwiseprovided)

- Promotion (vs. financing ofgoing concern) involves onlyequity interests because of the

high risk involved when thebusiness venture still has toprove its worth. Or, theorganizers may resort to debtfinancing when they wantcontrol but have no resourcesof their own.- Profits may only be madeas a going concern, and notupon liquidation; Dividendsdeclared only out of profitsand not out of assets (Haydissent)

- Variations of equitysecurities:(1) right to an early claim on

the income before othersecurity holders

(2) right to residual income,however large, after otherhave been paid

(3) right to vote on personneland policy and hence thepower to control

- Factors affectingvariations:

(1) nature of the business(e.g. public utilitycompanies)

(2) probable profitability(3) control of management(4) attraction to different

types of investors

(5) tax advantages- Shares may be classifiedto exercise control (foundersshares), to manage corporatecapital structure (redeemable& treasury shares).

- Since only 25% of the ACSneed be subscribed initially,the promoters are not boundto limit the starting capitalneeded by the business to thecontributions.

- Debt-to-Equity Ratio:High ratio must be justified bystable earnings, or a closelyheld structure where risk ofdefault is less.- Not all corporate debt isbad or to be avoided.- Rights of PS andBondholders are contractual innature.- CS m ay be i n a betterposition than PS if the residualprofits after paying PS is largerthan the fixed percentage for

PS.

- No-par value shares advantage over par valueshares in attracting investorswhere the market value ofshares is less than par

- Stock split may bedone by corp by amending AOI

to double no. of par valueshares and splitting par in half,and then sell issues at marketvalue.

- Treasury shares maybe sold even at less than par,and the purchaser will not beliable to creditors

- Redemption permitsadjustment of capital structureto meet varying conditions,such as enabling the corp topay off the securities; e.g.

avoid the restrictions usuallyattached thereto at a timewhen economic and financialconditions are favorable tosuch a move.

- Unpaid subscription SH personally liable forfinancial obligatns of the corpto the extent of unpd portion- It is desirable for the corpto have an authorized capitalstock and subscriptions muchhigher than the actual starting

capital it needs for thebusiness.

- Code reqt that at least25% must be subscribed and25% paid in before corp maybe legally formed is consistentwith the view which deems SHto have made a continuingoffer to the corp andcontracted with each other aswell s.t. they may not revokethe contract w/o unanimousconsent.


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- PR based on right to investcapital, not merely on right tomaintain proportionate votinginterest.- PR not available whereshares issued in exchange forproperty needed or for debtpreviously contracted,

because corp might badlyneed the property or has noother way of settling itsprevious debt.

- PR does not provide forequal rights of preemptionacross all classes because itmay have the effect of dilutingthe interest of one class (e.g.non-voting PS v. voting CS),and the rationale behind PRwill be subverted.- A SH cannot demand to

buy the shares pursuant to anexercise of PR at par wherethe board has fixed a higherprice in its exercise ofbusiness judgment. Failure ofSH to purchase at such fixedprice constitutes waiver of hisPR.- There a re t imes when alimitation of the PR would notonly be convenient butnecessary to be able to effectcorporate acts later such as

stock option plans as anincentive.

- PR very important inclose corp because (1)control is main factor for SH;and (2) Prosperity of corplargely due to personal effortsof SH.

- Waiver of PR must appearin AOI to bind present and allSH, not merely in an ordinarywaiver agreement.

- PR objectionable even if not w/in exceptions in S39where it is done in bad faith orto freeze out minority interest.

- Remedies whenviolated:Violation of PR generally in thenature of an individual suit,but may also be the basis forderivative suits, as when theviolation resulted in waste andmanagement of corporateassets or in giving fraudulentdirectors control of the corp

- When a corp. becomesinsolvent & unable to meet itsobligations, a compromiseagreement is usually workedout whereby all classes ofsecurity holders, whether ofequity or debt, make somesacrifice, scaling down theirinterests in order to keep thecorporation in operationbecause it is worth more as agoing concern.- However, denial of PR mayalso benefit SH: mightenhance value of subscription;merger; bigger business, moreclients

- Conversion usuallyfrom a senior security

(bonds/PS) to common stocksxxxxxxx WHY?

- Stock purchasewarrants options topurchase stocks in the corp ata specified price not lowerthan par, exercisable by thegrantee at any time within aspecified period.

Chapter XII - CONSIDERATIONFOR SHARES

- Consideration recipient is

corporation

(1) Casha. Partial pro-rate

over total no. ofshares subscribed;indivisible;unconditional

b. Full

(2) Property Rights valuationby corp and by SEC; mustbe need by corp to pursueits business;ownership/title transferredto corp; fully payment toinvestor before suchconveyance

(3) Services valuation +complete performance;must be needed by corp topursue its business

- Original subscription SH& Corp; inures to benefit ofcorp as well as subsequenttransferees of SH

- Subsequent Conveyance SH & SH

- Watered stocks affects:(1) Corporation deprived of

needed capital & ofopportunity to sellsecurities at moreadvantagous prices

(2) other SH existing and

future, because it dilutesproportional interest in thecorp

(3) creditors present andfuture, because it reducesthe value of corp assetswch stand as a substitutefor the SH personalliability to them

- Basis of liability tocreditors:(1) The capital stock stands as

a substitute for the

personal liability of SH tothe creditors (trust fund)

(2) False representation tocreditors that par valuehas been paid or agreed tobe paid in full (fraudtheory) this considersonly future creditors and

not prior creditors(3) Statute itself S65 does

not distinguish b/wpresent and futurecreditors; fraud immaterial

- Right of corp to selldelinquent stocks applies onlyto sale of stocks for unpaidsubscriptions & cannot beused to satisfy otherindebtedness of the SH to thecorp.- Interest on unpaid

subscription not due unless BLprovides.- In delinquency sale, thehighest bidder is the one whois willing to pay the amount ofthe balance of subscription forthe least number of shares.

- Sir: In delinquency sale,what is sold is what is due orunpaid, corp may not makeprofit (no incentive for corp;no bidder, shares go to corp);purchasers appears to have

bought at a discount; anddelinquent stands to loseeverything

- Contract of subscription indivisible;pro-rata application of partialpayment to all subscribedshares (pursuant to Fua Cun,Nava and S64; Lingayendoctrine on application ofpartial payment to fully paidshares an exceptional case!)


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- Bayla distinctions b/wpurchase agreement andsubscription agreementremoved in order to removesubscription agreements fromthe operations of ordinarycontract principles such asrescission; condonatio; effect

of happening or non-happening of conditions; toensure protection of creditorsunder the trust fund doctrine.- Partially paid subscribercannot piecemeal assign hisrights to the shares, but hemay sell his entiresubscription to another whoassumes his entire unpaidbalance.

- COS not a conditionprecedent to the acquisition of

rights & status as a SH, but isbest evidence thereof & isconvenient for purposes oftransfer, either by way ofcollateral or absolute sale.

- Conditions set forth in S73for the issuance of corp of newcertificate in lieu of lost, stolenor destroyed certificates inS73 for the protection of thecorp against liability for anyclaimant of the shares (to beable to claim good

faith/absence of negligence). see also Transfer of Shareson forged transfers.- Sir: S73 is obscurebecause it applies rules onnegotiable instruments;benefits stem from issuance ofCOS & holder can assertownership rights; holdingperiod.

Chapter XIII - DIVIDENDS &PURCHASE BY CORPORATIONSOF ITS OWN SHARES

- Dividends not a matter ofright demandable at all times,but is discretionary on theBOD. Reason: it is the corpwho owns the unrestrictedearnings; business judgment.- In cash dividend, BODapproval sufficient; in stockdividend, 2/3 approval OCS.Reason: no actual distributionof profit, but capitalization ofprofit; higher risk stockprices usually drop when SDdeclared.- A stock corp is prohibitedfrom retaining surplus profit inexcess of 100% of paid-incapital, not subscribed capital.

- Stock dividends are in thenature of civil fruits belongingto the usufructuary and not tothe naked owner of the stockson wch they are declared.

- C-D relation is created b/wSH and corporation uponlawful declaration of dividendsby the BOD. Thus:

(1) From that moment,dividends may not berescinded or revoked(McLaran). Note however,that this rule is n/a tostock dividends becausethese are not distributionsbut merely representchanges in the sharestructures.

(2) Whoever owns the stocksat the time of declarationowns the dividends.Registered owner ruleapplies.

- Directors not personally

liable for unintentionally

declaring dividends in violatnof law, unless BF ornegligence.

- Creditors may not followthe illegal dividends into thehands of innocent SH unlesscorp was insolvent at the timeof its payment. If solvent, thenno SH protected.

- Purchase of own shares a power of the corp whichmay be exercised if made outof URE & for a legitimatecorporate purpose (S41).

- Purposes of purchaseof own stock:(1) may be a substitute for

dividend declaration(2) in close corp prevent

stocks from going to

strangers(3) redeem PS of bonds to

facilitate future financing

- Illegitimate purposes:(1) Manipulative device:

simulate a market for itsshares to createappearance of activetrading in its shares - Inrelatn to SRC

(2) Create preference to someSH to the prejudice ofother SH

- Remedies in case ofimproper purchase is inS31 and to those affectedby improper purchase:

(1) SH it may reduce what isdue them as dividends /dilution; shift in votingcontrol; remaining assetsmay not be sufficient tocover debts as well as thepar or issued value of theirshares

(2) creditors have the rightto assume that as long asthere are outstandingdebts & liabilities, BOD willnot use corp assets topurchase own stock(Steinberg)

- Shares reacquired becometreasury shares wch may bedeclared as property dividendsto be issued out of UREpreviously used to supporttheir acquisition, provided thatthe amt of such RE has notbeen subsequently impairedby losses.- SH may not get hisinvested capital untildissolution & liquidationexcept:(1) by decrease of capital

stock where a reductionsurplus occurs, providedno creditors areprejudiced; and

(2) other cases allowed by lawsuch as A/R under S81 &42; in close corp S104&S105; repurchase ofstocks for legit purposeunder S41; anddistribution of dividendsunder S43

- Purchase of own sharesin close corp:(1) regardless of availability of

URE (S104)(2) SH has right to compel

corp to purchase his ownshares for any reason(S105)

Chapter XIV - AMENDMENTSOF CHARTER

- Corp charter consists of itsAOI as well as Corp Code &


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other laws under wch it isorganized.- The state has the power toamend the statute under wchcorp organized, subject to thelimitatn that no accrued rightsor liable shall be impaired inS145.

- The corp has the power toamend its charter under S36and the procedure is providedfor in S16.- No meeting is necessaryunder S16, because writtenassent is allowed.- Treasurers Trust andIncorporators may not beamended.

- Amendments changingor restricting SH rightssubject to abuse. For instance,PS may be frozen out by themajority or the CS holders.Thus, safeguards are created:(1) must be for legitimate

purposes (S16) althoughburden of proving BF ondissenting SH

(2) appraisal right (S81)

- Amendment by 2/3 of themajority not an impairment ofvested rights because onwho becomes a SH is

presumed to have acceptedhis contract with the corpsubject to the power of self-amendmt by S36. Onlyremedy is appraisal right.- However, A/R is grantedwhere there is a radicalchange in contractualrelationship presumablyagreed upon bet SH & corp(S81, 42, 37, 105)- A/R in the ff cases- are SHrights affected?(1) Primary purpose - Y

(2) Increase no. of directors Y, control & management

(3) Decrease no. of directors Y, affects cumulativevoting

(4) Changing classificatn ofshares Y, economicrights

(5) Increase / decrease CS - Y- Special amendmentsrequires meeting unlikegeneral amendments in S16wch allows for written assentonly

(1) increase CS (S38)

(2) decrease CS (S38)

(3) extend corp term (S37)

(4) shorten corp term (S37)

- Increase CS the 25%

requirement does not merelyrefer to the capital stock asincreased, but to theincrement itself.

- Except in case of capitalization of income incase of stock dividends (as ameans of increasing capitalwithout actual transfer ofproperty to the corp), therecan be no increase of CS inpursuance of a mererevaluation of corp assets

because there is no transfer ofcash or property to the corp asconsideration, which isrequired.- Increase of capital stockmay be effect by increasingpar value, no. of shares, orboth.

- No appraisal right forincrease of CS unless createspreferences of restrictions(which involves 2 kinds ofamendments: one to increase

CS under S38 and the other to

create a new class of sharesunder S16)

- Reduction of CS mustnot prejudice rights ofcorporate creditors, such asreleasing SH from thepayment of the balance oftheir subscription (Phil. TrustCo. v. Rivera)Exception: consent of creditorsor no creditors.

- Purposes of reductionof CS:

(1) Wipe out capital deficit (orcreate a reductionsurplus?), so that futureearnings can be madeavailable for dividends

(2) Reduce capital thatsunneeded from ACS toamt subscribed

(3) Retire or eliminatetreasury shares instead ofreissuing them

- Reduction surplus arisingfrom the decrease in legal

capital may be distributedas dividends to SH under thelast paragraph of S122.However, this presupposesthat the decrease has been

approved by the SEC as onewch does not prejudice therights of corporate creditors.

- Reduction of unneededcapital from ACS to amt

subscribed does notprejudice creditors since itdoes not release any unpaidsubscription. Effect is merelyto remove corps power toissue the unissued shares wchhave disappeared due to thereduction.

- No appraisal right fordecrease of CS unless createspreferences or restrictions, oralters rights of SH. Forexample, material reduction ofcapital wch safeguards thepreferential rights of PS.- Appraisal right exists for

both extension & shortening(S81) although S37 grants itonly in case of extension.

- Amendments in closecorp amendments to thoseenumerated in S103 whichconstitutes the essence ofclose corps = fundamentalchange. Thus, even non-votingstocks have voice.

Chapter VIII - TRANSFER OFSHARES

- There is only 1 SH of record, WON there have beenconveyances.

- Effect of lack of registration transfer validb/w parties, not against corp.

- Purpose of registration to enable the transferee toexercise rights of SH and toinform corp of any change inshare ownership s.t. it canascertain the persons entitled

to the rights & subj to theliable of SH

- Delivery + Indorsementif duly indorsed, possessor hasright to transfer / record, butright of possessor is primafacie only

- Manner of indorsement determines subsequenttransfer.

(1) if blank quasi-negotiable(2) if transferee identified 2

indorsement??


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- Quasi-negotiability: apossessor though actingwrongfully can give a bonafide purchases a better titlethan he has but only wherethe owner is guilty of estoppel,not where it is held merely bya finder or a thief!

- Forged transfers: Thecorp may be placed in asituation where it has torecognize two owners where aCOS pursuant to a forgedtransfer was issued by a corpand subsequently transferredto bona fide purchaser forvalue:

(1) original because trueowner cannot be deprivedof his title by a forged

transfer (COS quasi-negotiable only), & corpmay demand the COSfrom the purchaser whohas the duty to determinethat the indorsement ofthe original owner isgenuine.

(2) new because by issuinga new COS, corp represntsthat the person namedtherein is the owner

- If no overissue: corp willrecognize both; if overissue:corp must recognize true &original owner, w/o prejudiceto its liability for damages ifoof the new owner andrecourse against the personwho made falserepresentations.

- Collateral transfers: notcovered by registration reqt inS63, which contemplates onlyabsolute transfer. Thus,registration of collateral

transfers in corp books have

no legal effect, and registrantreqts are governed byprovisions of the Civil Code(not CM Law). See Chua Guan.

- Where a COS alreadymortgaged and registered inCM registry but not in corpbooks (collateral transfer) issubsequently transferred to abona fide purchaser for value(absolute transfer), thetransferee must respect the

mortgage. should amendthe law to protect commercialvalue of COS

- Razon, Yumul, Salinas, DeLos Santos, Santamaria oneparty asserting right overshares; one party possessesCOS

- No registration of transferof unpaid shares! If there isany unpaid balance on SHsubscription, there can be noCOS on wch indorsement canbe made, thus not transferableon corp books, although SHmay transfer. SH may transfervia deed of assignment, butcorp may refuse OTG that ithas an unpaid claim vs. theSH (S63). Except: transfereeassumes obligatn to paidunpaid balance.

- Remedy if registrationrefused Mandamus.

- Ownership divorced frommanagement. Thus,dissatisfied SH may freely sellhis shares and get out.

- Exception to freetransferability of shares:close corporatn. Thus, inclose corp, there arerestrictions on transfer in thenature of a right of first

refusal. Reason: To preservedelectus personae in closecorporations. Contractual innature.

- Other corps may placerestrictions on transfer,provided they appear in AOI,BL & COS and are reasonable. Test of reasonableness: notmore onerous than the optionrestriction allowed by the CorpCode (granting the existing SHof the corp the option topurchase the shares of thetransferring SH w/ suchreasonable terms, conditionsor period stated therein.)

- Conclusive presumptionthat transferee knowsrestriction: COS conspicuouslyshows the restriction (S99)- The option, to be effective,must be in favor of the corp &the SH.

- An option in favor of corpcannot be enforced if no UREout of which it can pay theprice (purchase of own stock).

- Option price not bookvalue (cannot determine); notmarket value (none in closecorp); not necessarily fixed oragreed value (still raises

question of reasonablness).Test: balances desire of corpto attract investors & interestof future purchasers in notpaying more than a fair price.- Qualificatns for owing orholding shares in S97(1) notsubject to the reasonablenesstest in S98.

- Non-transferability ofmembers in non-stockcorporations.

Chapter VIII - DISSOLUTION

- In dissolution, thecorporation is not always in abad state and may even beprofitable, although thecondition & circumstances ofthe corp is a factor consideredin dissolution. For example,dissolution may be initiated/urged by creditors so that theyat least get something thannothing later.- Parties Initiating:(1) SH

a. Dissolutn w/consent of SH /Creditorsb. Shortening of corpterm

c. Surrender of COR -Financing Corp v.Teodoro (minority SH);RP v. Bisaya Land(motion for judgmenton consent); PCPI;China Bank

(2) 3P / Creditorsa. Rehab /suspension of payments

b. Dissolution - NDCv. Phil. Veterans Bank(Agrix)

(3) State / Govt

a. Quo warranto -Govt. of Phils. V. ElHogarb. Revocation of CORdue to:- non-use / dormancyor failure tocommence businessoperations and- violation of charter

c. Legislature -Gonzales v. SRA; NatlAbaca v. Pore


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d. SEC - deadlocks inclose corps

- Implementation of CorpActs:(1) Collation (Financing Corp

v. Teodoro: seekingdirectors liability part of

collation process; NatlAbaca v. Pore)(2) Settlement of liabilities

(e.g. sale of assets)(3) Determination of

remaining assets

(4) Distribution of remainingassets via liquidatingdividends (e.g. SH of TGuanzon v. RD)

- Corp is dead the momentcorporate purposes can nolonger be pursued and cannot

even be considered a DFC certificate of dissolution bySEC for voluntary dissolution;expiration of term automaticdissolution; it cannot even beconsidered a DFC and itsexistence may be subject tocollateral attack.- No publication reqd involuntary dissolutn wherethere are no creditorsaffected.

- Dissolution does not: (a)

relieve fr. l iability; (b)automatically dispose ofassets; (c) ipso facto end corp

personality! 3y period towind up, may be extendedthrough constitution oftrustees

- Methods of liquidation:(1) by corp itself through BOD

w/in 3y(2) by conveyance of assets

to trustees may bebeyond 3y

(3) by SEC appointment ofreceiver may be beyond3y

(4) by lawyer whorepresented the corp inthe suit

- Constitution of trustees extends winding up, but not

the life of the corp; purpose isto regulate claims, make thoseresponsible for fraud liable- Corp not relieved fromexecutory contracts which arepassed on to liquidatingtrustee or receivers, exceptpurely personal services(intransmissible)

- SH may not get hisinvested capital untildissolution & liquidationexcept:

(3) by decrease of capitalstock where a reductionsurplus occurs, providedno creditors areprejudiced; and

(4) other cases allowed by lawsuch as A/R under S81 &42; in close corp S104&S105; repurchase ofstocks for legit purposeunder S41; anddistribution of dividendsunder S43

- SH may not unanimouslydecide to dissolve & distributeremaining assets amongthemselves w/o filing anypapers with SEC, even afterpaying creditors. There wouldbe no dissolution & in violationof S122 for which the guiltydirectors or SH may be heldcriminally liable.- S122: Duty of corp to lookfor creditors w/ reasonablediligence, thus cannot be

found.

- Even a single act issufficient for the purpose ofcommencing business andpreventing non-use of charterunder S22.

- No automatic dissolutionunder S22 because corp given

right to prove that cessation ofbusiness not due to causesbeyond its control. Assuminghowever that corp isautomatically dissolved s.t.there can neither be de factoror de jure corp, still innocent3P cannot be prejudiced bysuch dissolution, and corp byestoppel applies.

- Dissolution in closecorp: may be ordered by SECunder S105

- Distribution of assets innon-stock corp: S94 & 95

Chapter VIII - CORPORATECOMBINATIONS

- Purposes of CorporateCombinations:(1) Reorganize due to burden

of fixed expenses(2) Continue business under

different corp set-up(3) Selling out to larger party(4) Expansion

(5) Prevent cut-throatcompetition

(6) Improve marketingfacilities

(7) Economies of scale- Illegal combinations notallowed: monopolies &combinations in restraint oftrade

- Factors affectingcorporate combinations(M/C):(1) Tax

(2) SH approval

(3) A/R(4) P/R(5) Dilution of SH interest(6) Control

- Effects of corporatecombinations (M/C):

(1) Transfer of corp property /

assets * (may be achievedin de facto M/C)(2) Combination of SH * (may

be achieved in de factoM/C)

(3) Assumption of existingliabilities, regardless ofWON creditors consented(not achieved in w/ofollowing M/C provisions inCorp Code, unlessrequisites in Edward J.Nell)

(4) Mandatory dissolutioncoupled w/ organization ofnew corp

*Important features- Approval reqd: 2/3 SH andSEC

- M/C involves fundamentalchanges in corp, as well asrights of SH & creditors. Thus,there must be expressprovision of law authorizingthem, otherwise UV.

- M/C under S76-80:(1) Creditors consent not

necessary; cannot preventM/C. Remedy is to followassets.

(2) Dissenting SH cannotprevent SH. Remedies:

a. A/Rb. If fraudulent/BF orif not pursuant tostatute: injunction,damages (norescission)


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c. No P/R if absorbingcorp issues new stocksin pursuance tomerger (Thom)

(3) Exempt from registration& fees under SRC

(4) Parties to an M/C are thecorporations, not the SH

- What corp acts will resultin the transfer of corp power /assets & collective ownershipof both SH even w/o expressprovisions of M/C? De FactoM/C or Exchange of Stocks(P/S)

- De facto M/C (Reyes v.Blouse):(1) sale of all the assets of theabsorbed corp to theabsorbing corp (S40) inexchange for stocks of the

absorbing corp Only way bywch SH of the absorbingbecome SH of the absorbed(2) dissolutn of the absorbedcorp

- amend AOI to shortenexistence- distribute liquidatingdividends

(3) amendment, if necessary,of the AOI of the absorbingcorp:

- increase capital stocks if

needed to effectuateissuance of shares;- name- increase no. of directorsso that majority SH ofprevious corps will haveseats;- corp purposes, if needed

(4) Consent of absorbed corpscreditors necessary.

Absorbed corp shouldreserve sufficient assets topay creditor claims because

there is no automaticassumption of liability.(5) SH approval:

Absorbed corp: May notrequire SH approval even ifcorp should sell a sizableportion of its assets resultingin abandonment of one of its

business ventures, if theproceeds are to be used forthe operations of remainingbusiness. Remedy:

a. A/R

b. If fraudulent/BF:injunction; damages; norescission

Absorbing corp: No A/Runless the absorbed corpsbusiness is outside theprimary purposes of absorbingcorp (S42); No P/R because

issuance of new stocks not forcash

- To pay off liabilities ofabsorbed corp:(1) influx of investors;(2) sale of shares of absorbing

corporatn;(3) reserve funds by absorbed

corp- If no intent to combine,selling corp may continue inthe same or in a new businessor remain in a state of

suspended animation.

- Disadvantages of defacto M/C vs. M/C underS76-80:

(1) no automatic assumptionby the absorbing corp ofthe liabili ties of theabsorbed corp, s.t.creditors consent isindispensable (See EdwardJ. Nell) & funds may haveto be reserved to pay off

liabilities;

(2) not exempt fromregistratn & fees underSRC

- Advantages of de factorM/C over M/C under S76-80:(1) Problems in securing SH

approval(2) A/R of dissenters- Why is there no automaticassumption by the absorbingcorp of the liabilities? It wouldbe too onerous for theabsorbing corporationliabilities were automaticallyassumed (see also assets onlytransfer)

- Exchange of Stocks(Edward J. Nell / Thom v.

Baltimore Trust) acquisition

of all or substantially all of thestocks of one corp from its SH(acquired corp / subsidiary),in exchange for the stock ofthe acquiring corp(parent)- From the point of view ofthe parent, no differenceb/w operating the acquiredcorp as a subsidiary or owingit as a business.- Parent may:

(1) Control the acquired as asubsidiary (sub retains

personality) non-sellingSH affected by shift incontrol, but he has no A/R

(2) Merge with subsidiary,or

(3) Buy all the assets of thesubsidiary

- Note that the controllinginterest has a duty of loyaltyto the corp & to the minority(Insuranshares v. NorthernFiscal)

- Villanueva:

(1) Assets Tee not liable forliab (e.g. Gonzales v. SRA;Reyes v. Blouse; Yu v.NLRC), except where thereis express/impliedassumption of liability orfraud; Ratio: (a) no privityof contract; (b)

modification of anobligation w/ substitutionof new debtor requiresconsent of creditor & newdebtor

(2) Business-Enterprise Teeliable for the liabilities;Ratio: Tee steps into theshoes & enjoys thebusiness of Tor; creditorsextended credit to corp onbasis of business earningcapacity; protect businesscreditors by giving themremedy against the newowner; otherwise,creditors would be leftwithout recourse becauseTor has disappeared withthe liability, and the Teemay claim that he is apurchase in good faith &for value;

(3) Equity Tee not liable forliable unless there isexpress/impliedassumption of liability;Ratio: separate juridicalpersonality & limitedliability, mere ownershipof shares of stockinsufficient for liability toattach (Edward J. Nell); nocontinuity of the samebusiness by same owners

Chapter XVIII - FOREIGNCORPORATIONS


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- On doing business w/olicense:GR: may not sue

(Mentholatum)Except: estoppel (Merril Lynch;

Agilent)GR: may be sued (S133)Except: in pari delicto (Top-

Weld)

- On isolatedtransactions:May sue, even if w/o license,because not doing business.License reqd only when doingbusiness (Marshall-Wells;Antam Auxiliary Rule)Except: Single transaction inpursuance of business (LittonMills) needs license

- On other instances

wherein FC may sue even ifnot doing business:(1) Isolated transactions

(Marshall; Antam)(2) IPR

a. Admin (GenGarments)

b. Penal law (LeChemise)

c. Enforcement(Columbia)

(3) Other Valid COA (Agilent)

- On object of S133:

(1) to subject FC doingbusiness in Phils to jurisdiction of courts;prevent it fr acquiringdomicile w/o taking stepsto make it amenable tosuits reasonableinterpretation (MarshallWells)

(2) Doctrine of lack of capacity to sue based onfailure to acquire a locallicense is based on

consideratns of sound

public policy. Neverintended to favor domesticcorp who enter in solitaryobligatns simply becauselatter not licensed (Antam)

- On WON FC not doingbusiness in Phils may bringaction for TM

infringement:(1) Mentholatum: doing

business w/o license, maynot sue

(2) Gen Garments: not doingbusiness thus no license; TM law applied purposedto counteractMentholatum effects; maysue WON licensed to dobusiness

(3) Le Chemise: not doing

business thus no license;IPR right in rem; criminallaw in name of People;effects of ParisConvention; may sue

(4) Columbia: mereownership/ enforcement ofIPR not doing business;may sue

- On sale of FC throughlocal distributor:

(1) Metholatum: principle ofagency doing business

(2) Top-Weld: highlyrestrictive terms to make

LC mere conduit doingbusiness

(3) Le Chemise: thru amiddleman acting for own

acct & own name notdoing business (BOI)

(4) Columbia: sales made tocustomers in the Phils byan independent dealerwho has purchased &

obtained title from thecorp of the products sold

not doing business

(5) Agilent: maintainingstocks for mere processing

& consigning machinery not doing business (FIA)

- On contract theory:(1) Columbia: entering intocontracts w/ residents,consummated outside the

Phils not doing business

(2) Top-Weld: restrictiveterms of contract doingbusiness

- Foreign Investment Act Doing Business:(1) Soliciting orders(2) Service contracts

(3) Opening offices, whethercalled liaison offices orbranches

(4) Apponting representativesor distributors domiciled inthe Phils. or who in anycalendar year stay in thecountry for a pd or pdstotaling 180 days or more

(5) Participating in the mgt,supervision or control ofany domestic business,firm, entity or corp in thePhils

(6) Any other act or acts thatimply a continuity ofcommercial dealings orarrangements, &contemplate to thatextent, performancenormally incident to, & inprogressive prosecutionof, commercial gain or ofthe purpose & object ofthe business org(Mentholatum)

(7) Publication of generaladvertisement throughany print or broadcastmedia;

(8) Maintaining stock of goodsin Phils for purpose ofprocessing for export;

(9) Collecting info in the Phils;

(10) Performingservices auxiliary to anexisting isolated contractof sale which are not on acontinuing basis

- Not Doing Business:Mere investmt as SH by a

foreign entity in domesticcorps duly registered to dobusiness &/or the exerciseof rights as such investor

Having a nominee director orofficer to represent its

interest in such corp(1) Appointing a

representative ordistributor domiciled in thePhls., wch transactsbusiness in its own name& for its own account.

- Grandfather Rule:Shares belonging to 1corp/part @ 60% of the capitalof wch is owned by Filipinocitizens shall be consideredPhil nationality. But If the % of

Filipino ownership is


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MAY SUE MAY BE SUED

DOING BUSINESSW/ License Yes Yes

W/ o License No. Mentholatum v. Mangaliman -Twin Characterizatn Test

- Sale thru local distributor agency

Except: Merril Lynch Futures v. CA- estoppel to deny corporate existence

Yes S133

Except: Top-Weld Mfg. Inc. v. ECED- in pari delicto

- highly restrictive terms;sale thru local distributor = doing

businessSingle transaction, but in pursuance

of businessYes Litton Mills v. CA

- fact of doing business must be alleged tomake summons

& to acquire jurisdiction; court need not gobeyond allegatns

- how done: (1) agent designated; (2) govtofficial designated by law; (3) any officer/agent ofthe corp

NOT DOING BUSINESSIsolated Transaction Yes. Marshall-Wells v. Elser

- Nature of corp- Object of statute- When license reqd

Antam v. CA- Auxiliary rule- Sound public policy

Yes.

IPR: Admin Proceeding

Penal Law

Enforcement of IPR

Yes. Gen. Garments v. Dir. of Patentsl- Nature of corp- Admin proceeding- vs. Mentholatum here: WON llicensed,

may enforce TM rights

Le Chemise Lacoste v. Fernandez- Failure to allege xxxxx not fatal- Crim complaint- vs. Mentholatum here: not doing

business but middleman (under BOI)

Columbia Pictures v. CA- Mere ownership of copyright / distribution

rights + enforcement + entering intocontracts with residents

not = doing business

Other Valid COA Yes. Agilent Tech. Singapore v. IntegratedSilicon Tech. Phils.

- Summary of when corp may sue


12/32

- When license necessary, Except: estoppel- Reviewed Mentholatum- FIA not doing business: maintaining

stock; consignment of machinery- PROFIT as element of doing business


13/32

CHAPTER I & II

1. Union Glass v. SEC>Debt-equity conversion allowingcorp creditor to obtain BOD seats& control and acquire the glassplant which it later sold to anothercorp (Union Glass);>Beyond SEC jurisdiction nointra-corp reln: (1) CPA and public;(2) CPA and the SH, partners,members or officers;(3) CPA and the State; and(4) among the SH, partnersmembers or officers themselves.>Union Glass 3P as to Pioneer &latters SH.>Undervaluation, self-dealingclaimed by SH; sale of all /substantially all assets

2. Abejo v. De La Cruz>The assertion that Abejo is not aSH of record s.t. the dispute is notintra-corporate begs the question,for an action to compel acorporation to register a sale andissue new certificates of stock isitself an intra-corporate matter.>Pre-emptive right claimed by aSH as against another SH notupheld as there is no restriction inAOI, BL or stock certificates. (v.Fleischer)

>Right of Abejo to transfer toTelectronics upheld and recordingdeemed purely ministerial>SEC jurisdiction intracorpmatter

3. Magalad v. PremiereFinancing Corp.

>Issue relates to protecting thepublic from fraud and thereforeintracorp>SEC jurisdiction; Magaladsaward in RTC set aside w/o

prejudice

>Premiere in a state of suspensionof payments, receiver alreadyappointed

4. CIR v. Club Filipino>Non-stock, non-profit corp.; Evenif there is a statement of capitalstock, the corp is still not a stock

corp if nowhere in a corps AOI orBL could be found an authority fordistribution of profits. (c.f S3)

5. Manuel R. Dulay Ent. V. CA>In close corp., a board meetingmay be dispensed w/:(1) directors written consent,actual/implied knowledge + noobjection;(2) SH accustomed to informalaction of direc.(3) actual/implied acquiescence of

all SH, and (4) press acts maybind the corporation. (c.f. S96)>Pierced corporate veil to bind thecorp for the acts of its President,w/o applying S96 of the Corp Codeor any indicatn as to how SCarrived at conclusion that corpwas a close corp; expandedcoverage of close corp>GR is no piercing veil of closecorp since close corp preciselydesigned as alterego; piercingapplies to de facto close corp. SC

here applied piercing even if corpactually a de facto close corp.

6. NDC v. Phil. Veterans Bank>Legislature (Special Law) maynot provide for formation,organization, and regulation of aprivate corporation unless GOCC;should be governed by Corp. Law(Gen Law). (c.f. S4)>State of rehabi litation;extinguished security for loans no liens in favor of actual corpproperty

>Agrix should have beendissolved; but if dissolved, onlypreferred creditors would benefitby virtue of their respective liens;& ordinary creditors will behelpless (prejudicial to public)>Scaling down of interests ofcreditors, whether secured or

unsecured, to keep thecorporation in operation because itis worth more as a going concern.

7. Pioneer Insurance v. CA>Where a person convinces otherparties to invest money for theformation of a corp, but wch wasnever duly incorporated, there canbe no resulting partnership amongthem, and the mere passiveinvestors cannot be held liable toshare in the losses suffered by the

business enterprise. (v. Lim TongLim)>When parties come together toform a corporatn, but no corp isformed:(1) parties who intended toparticipate or actually participated(Lim) would be liable as partners(2) parties who took no partexcept to subscribe for stock in aproposed corp not liable aspartners

CHAPTER III FORMATN /ORGANIZATN

CORPORATE NAME (c.f. S18)

8. Philips Export BV v. CA>SPC rider in Philips good will;similar line of business>Right to use corp. & trade namea property right / right in rem.>Requisites:(1) prior right determined bypriority of adoption; and

(2) proposed name is identical ordeceptively or confusingly similarto that o any existing corp or toany other name already protectedby law or is patently deceptive,confusing or contrary to existinglaws (c.f. S18) as determined byff test.

>Test of Confusing Similarity:Ordinary care and discernment;proof not reqd>Dominant: 2 words

9. Lyceum of the Phils. v. CA>Doctrine of Secondary Meaningv. Generic Word>Proof of actual confusion reqd

10.PC Javier & Sons v. CA>A change in corp name does notmake a new corp. No effect on

identiy, on its property, rights orliabilities. Thus, change in name ofbank does not grant the debtorthe right to refuse to pay theirloans OTG that they have not beeninformed formally.

DE FACTO CORPORATION (c.f.S20)

11. Malabang v. Benito>Not DFC; No valid law underwhich the municipality of

Balabagan was created, since thelaw creating it was declaredunconstitutional and no other validlaw exists; however operative fact.

12. Harril v. Davis>Not DFC; failure to file AOI asreqd by statute = no GF>GR: Persons who associatethemselves for profit liablepersonally EXCEPT when there iscolorable compliance or GFattempt to incorporate.


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13.Hall v. Piccio (all parties knewno corp)

>Not DFC; no COI; no GF theincorporators must have beenaware of the issuance of the COIfor GF to exist (constructivenotice)>To be a DFC there must be color

of authority, wch contemplatesonly errors & irregularities, nottotal/substantial disregard for themandatory reqts>Would-be incorporators mayvalidly petition for its dissolutiondue to fraud and financial losses;need not be in a quo warrantoproceeding since not DFC>Where DFC doctrine n/a due tofact fact that there was no corp(no COI), not necessary thatestoppel doctrine automatically

applies.

ESTOPPEL (c.f. S21)

Apparent AuthorityAll persons who assume to act asa corporation knowing it to bewithout authority to do so shall beliable as general partners for alldebts, liabilities and damagesincurred or arising as a resultthereof.

Corporation by estoppel1st type: When any such ostensiblecorporation is sued on anytransaction entered by it as acorporation or on any tortcommitted by it as such, it shallnot be allowed to use as a defenseits lack of corporate personality.2nd type: One who assumes anobligation to an ostensiblecorporation as such, cannot resistperformance thereof on theground that there was in fact nocorporation.

14.ABC v. Standard Products>2nd type of Corp by Estoppel:Alleged corp (Standard Products)estopped from denying ownexistence to evade suit, havingdealt with ABC in a mannerrecognizing its corp. existence

>1st

type of Corp by Estoppel:Alleged corp (Standard Products)estopped from denying 3P (ABC)existence to evade suit.

15. Chiang Kai Shek Sch. v.CA

>2nd type of Corp by Estoppel:Alleged corp (school) estoppedfrom denying own existence toevade suit due to own non-compliance with legal mandate to

incorporate and having dealt withrespondent for 32 years

16. Cranson v. IBM>2nd type of Corp by Estoppel: 3P(IBM) estopped from denyingalleged corp existence to enforceCransons personally liabilityhaving dealt with it in a mannerrecognizing its corp. existence;Cranson NOT liable personally

17. Salvatierra v. Garlitos>Apparent Authority: 3P(Salvatierra) NOT estopped fromdenying alleged corp existence toenforce personally liabilitybecause transaction attended byfraud / active misrepresentation =doctrine of apparent authority;President liable personally>SC did not apply 2nd type of Corpby Estoppel (as to Salvatierra) likein Cranson but applied apparentauthority as to the associates.>1st type of Corp by Estoppelapplies where where there is

fraud; It does not apply whereboth parties to the contract actedin the honest belief that acontracting corp entity did exist,such as in Cranson>Wrt to any unpaid portion of hissubscriptin, a SH is personallyliable for the financial obligatns of

the corp to the extent of unpdsubscriptn.

18. Intl Express Travel v.CA

>3P (Intl Express Travel) NOTestopped from denying allegedcorp existence to enforcepersonally liability of because 2nd

type of Corp by Estoppel appliesonly when 3P escapes liability on acontract, not when the 3P is theone claiming on it (modifying

Cranson).>Before a corp may acquire juridical personality, State mustgive its consent either in the formof a special law or a generalenabling act. Association failed tocomply with the laws providing forthe manner by which sportsfederatns may be constituted asdistinct bodies. Khan / managingdirector liable personally

19. Lim Tong Lim v. Phil.Fishing Gear Industries

>Apparent Authority: 3P (PhilFishing Gear) denies alleged corpexistence to enforce personallyliability; A business associate whodid not participate in the fraudulentmisrepresentation of his associatesbut nevertheless reaped thebenefits of the contract enteredinto with 3P is deemed to be part ofsaid association and is covered bythe doctrine of corporation byestoppel; Lim liable personally (v.Pioneer Surety)

20.Lozano v. De Los Santos (allparties knew no corp)

>No corporation by estoppel,whether of the 1st or 2nd kind ariseswhere there is no 3P involved andthe conflict arises among thoseassuming to form a corporation,

who therefore know that it has notbeen registered..

21. LBC Express v. CA>No moral damages to corp;artificial person; Separate juridicalpersonality of corporation andofficers.

BY-LAWS (c.f. S46)

22. LGVHAI v. CA>BL not essential to corp

existence, only for orderly admin& mgt of corp, thus, non-filing ofBL does not lead to automaticdissolution; but a ground forsuspension / revocation of COI bySEC (also c.f. S22)>BL subordinate to AOI, CorpoLaw and related statutes

23.Fleischer v. Botica Nolasco(BL contrary to law)

>BL operate merely as internalrules among SHs, they cannotaffect or prejudice 3P who dealwih the corp, unless they haveknowledge, actual or constructive.>BL should not be contrary tolaws; should not be the source tolimit the rights of SH to transfershares of stock wch are personalproperty wch the Corp lawrecognizes the SH can transfer(c.f. S63).>Restrictions on transfer can beprovided only in the law or thecharter of the corp, and would beinvalid if provided for in the BL.


15/32

Purpose of BL to regulate notrestrict.>Pre-emptive right is claimed bycorp as against any SH, therebyaffecting the corp, SH and 3P.There is a restriction in the by-laws, but the certificates of stockprovides for indorsement in blank

at the back, and noz provision inAOI. (v. Abejo) (c.f. S6)

24.Govt. of PI v. El Hogar (BLcontrary to charter)

>Although power to adopt BL is aninherent r ight, BL cannotcontravene the charter.>Provision granting the BODpower for forceful surrender /withdrawal of shares as it stands ispatently null and void. Remedy isto render offending provision

invalid, not forfeiture of charter.(c.f. S47(5))>Power to fix compensation ofdirectors left to corp, determinedby BL. Fixing qualification ofdirectors and impose security fromthem for the proper discharge ofthe duties of their office, a goodpractice. (c.f. S30)>Where the offense of the corp isnot serious enough to cause greatprejudice to the public, such asevere penalty as revocationshould be avoided (also El Hogar).

CHAPTER IV THE CORPORATEENTITY

SEPARATE PERSONALITY

25.SH of F. Guanzon v. RD (as toproperty)

>Distributn of corp assets to SH =conveyance / disposition by corpto SH, not partition among co-owners because propertyregistered in the name of corp

owned by it as sep entity (c.f.S36(7), S122)>SH shares are personal prop, notcorps; represents aliquot share incorp prop or right to share inproceeds; not owner of anydefinite part, not co-owner

26.Magsaysay-Labrador v. CA(as to property)

>A SH right / interest in corpproperty is purely inchoate notamounting to legal interest andthus will not entitle him tointervene in a litigant involvingcorp property (c.f. S36(7))

27.Caram v. CA (as to promoterscontracts)

>Pre-inc expenses generally for

the acct of the corp. Unless corp isfictitious, the incorporators/SH notpersonally liable therefor.>Promoters contracts - majorityof investing incorporators whowere merely convinced to investwere not promoters, thus notliable to pay for feasib services

28.Palay Inc. v. Clave rescissionclause in subdivision lot sale (asto acts of SH)

>Corp not liable for acts & liab ofSH or those of the legal entities towch it may be connected & viceversa unless sufficient proofexists on record of BADGES ofFRAUD: (none exists in this case)- shield to further an endsubversive of justice; purposes notintended by the law that createdit; defeat public convenience; justify wrong; protect fraud;defend crime; perpetuate fraud ofconfuse legitimate issues;circumvent the law; used as analter-ego, adjunct or conduit

>Mere ownership of both NOT =piercing (v. La Campania, same asJardine)

29.JG Summit Holdings v. CA (asto acts of corp v. acts of SH)

>RFR over shares in a landholdingcorp pertains to SH whereas

capacity to own land pertains tocorp, since corp and SH areseparate juridical personalities.Consti prohibition applies toowning land, not owning shares ina landholding corp. (c.f. S36(7))30.Tramat Mercantile v. CA

reconditioned machinery asbrand new(as to acts of director or officers)

>Personal liability of corp director,trustee or officer attaches only

when (none of these exist in case):(1) assents to (a) patentlyunlawful act of the corp; (b) badfaith; (c) conflict of interest (S31

p.1)(2) consents to issuance ofwatered stocks (S65)(3) agrees to bind himselfpersonally(4) made by specific provision oflaw to personally answer (S144)

VEIL PIERCED:

31.Marvel Bldg. v. David(alterego to evade war profit tax;not fraud; use of nominees asbadge of alterego case)>Maria Castro owner of all sharesof stock of corp and other SH meredummies; MBC a mere dummycorporation as shown bycircumstances>No compulsory heirs

32. Jacinto v. CA MetroBank trustreceipts (Due process in piercingcases)

>Piercing may be applied evenwhen complaint does not seek itsenforcement, prov. evidence isadduced during trial as the basisfor its application.

33.Concept Builders, Inc. v.NLRC (fraud to evade civil liab)

>Petitioner ceased its operationsin order to evade payment ofbackwages and bar reinstatement;filing of cessation of businessoperations same day as filing ofinfo sheet same address, sameofficers>No hard and fast rule, but thereare probative factors:(1) stock ownership by 1 or

common ownership of bothcorporations;(2) identity of directors andofficers;(3) manner of keeping corporatebooks and records; and(4) methods of conducting thebusiness.>TEST (compare with Garnett forP-S):(1) control, not mere majority orcomplete stock control, butcomplete domination not only offinances but of policy and businesspractice(2) such control must have beenused to commit fraud or wrong,etc.(3) the aforesaid control andbreach of duty must proximatecause the injury or unjust losscomplained of.

34.Claparols v. CIR (fraud toevade civil liab; avoiding theliability scheme)


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>Claparols Corp wch succeededClaparols Steel and Nail is thecontinuation and successor of thefirst entity skillfully (deliberatelyand maliciously designed) timedto avoid the financial liability thatalready attached to predecessor;both corp were owned and

controlled by same person and nobreak in succession or cessation inoperations. (Compare with LaCampana and Yu on labor law)

35.Villa Rey Transit v. Ferrer(fraud to evade contractual liab)

>Restrictive clause in contract ofslae of CPCs also binding on VillaRey as it is on Jose; No actualpayment by orig subscribers,mingling of corporate andpersonal funds

>Business Enterprise transfer

36.Cease v. CA (alterego to divideproperty among heirs; mixing offunds as badge of alterego)

>Tiaong Millling is only thebusiness conduit and alterego ofForrest Cease. Corp developedinto a close family corp.>Accounts of corp and of familyindistringuishable; should bedivided among heirs

37.Liddell v. CIR (alterego toevade payment of higher salestaxes; parent-subsidiary)

>A taxpayer has the legal right todecrease, by means which the lawpermits, the amount of whatotherwise would be his taxes oraltogether aboid them; but adummy corporation serving nobusiness purpose other than as ablind, or a shield for tax evasionwill be disregarded

>Control of stock + other factors(not mere ownership) = piercing(vs. Koppel)

38.La Campana Coffee Factoryv. Kaisahan 1953 case(alterego; pierced to resolveissue of jurisdictn)

>Mere ownership of both =piercing>Piercing allowed to treat thestarch and coffee factory as onefor purpose of establishing jurisdiction of the Court ofIndustrial Relns over labor issues,upon proof that there was oneoffice, one management, singlepayroll for both businesses,interchangeable employees. (v.Jardine)>In alterego cases, no pecuniary

claims need be involved (v.Indophil)>Labor law (compare w/ Claparols& Yu)

39. Koppel v. Yatco(alterego to evade tax/parent-subsidiary relnship)>The subsidiary was so controlledby the parent that its separateidentity was hardly discernible,and became a mere alterego ofthe P and was used to evadetaxes.>Effect of piercing: not acontravention of principle thatcorp personality cannot becollaterally attacked. Whenpiercing is applied in a particularcase, the court does not denylegal personality for any an allpurposes, only for the transactn orinstance for wch doctrine wasapplied.>control of stock (mereownership) by itself = piercing (vs.Lidell); control leads to certain

legal conclusions control of CS-selection of BOD-board action>Koppel ruling that mereownership = piercing didntconstitute precedents in alteregocases, Koppel actually involved afraud case (CSV).

VEIL NOT PIERCED:

40.Indophil Textile Mills v.Calica (alterego?)

>Creation of Indophil Acrylic not adevise to evade application of CBAb/w the union and Indophil Textile. That two corps business arerelated, some EEs areinterchanged, and physicalfacilities in same compound notsufficient bases to pierce veil.>Pecuniary claims made an

element in alterego case; Legalcorp entity disregarded only ifsought to hold officers and SHdirectly liable for corp debt orobligation. (vs. La Campana whereissue is only jurisdiction)

41. Secosa v. Heirs of ErwinSuarez Francisco

>The president of a corp wchbecomes liable for the accidentcaused by its truck driver cannotbe held solidarily liable for the judgmt obligatn arising from theQD, the fact alone of beingpresident is not sufficient.>There must be clear andconvincing proof of thewrongdoing. It cannot be justalleged nor be presumed.>Corp entity may be pierced insuch cases as fraud that may workinequities among members of thecorp internally, involving no rightsof the public or 3P.

42.Yu v. NLRC (equity transfer)

>Tanduay Distillers not the sameas Tanduay Distillery, Inc. TanduayDistillers is the corporate nameassumed by Twin Ace Holdings,Inc., who purchased TDIs assetsand took over the business. Use ofsimilar name merely to capitalizeon goodwill which Tanduay built

over the years. No commonality ofownership and management. TDIitself not absorbed by Twin Ace.>In Labor Law, the doctrine ofenterprise transfer as to make thetransferee liable for the busobligatns of transferor is really aspecies of piercing doctrine andwould require a certain degree ofcontinuity of the same business bythe same owners using thecorporate fiction as a sile, and thatthe transferor has ceased to exist

and operate on its own (comparewith La Campana & Claparols as toLabor Law)

43.Delpher Trade v. CA (alterego;estate planning)

>Piercing can only be invoked ifthere is clear and convincingevidence that the corp wasorganized for an illegal andunlawful purpose.>An estate planning has beenconsidered as a valid mode of taxavoidance.

44.Garnett v. Southern Railway(parent-subsidiary relnship;workmens compensation)>11 indices of instrumentality:(See Concept)-P owns all or most of capital stock//-P & S have commondirectors/officers-P finances S-P subscribes to all CS of S orcauses its incorporatn //


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-S has grossly inadequate capital-P pays salaries & other expensesof S-S has substantially no businessexcept w/ P or no assets exceptthose conveyed to P-S is listed as department in booksof P

-P uses property of S-S directors take orders from P anddont act independently-Formal legal reqts of S not met>Only 2 of 11 indices met; thusthere exists 2 distinct operations.While entire capital stock ownedby P, no evidence that P dictatedmanagement of S, that S wassolely for benefit of P.

45.Jardine Davies v. JRB Realty,Inc. 2005 case (parent-

subsidiary relnship)>Mere ownership of both NOT =piercing (v. La Campania);>Applying Concept Builders Test:Mere existence of interlockingdirectors, corp officers & SH andownership of majority of CS notenough justificatn to pierce theveil of corp fiction in the absenceof fraud or other public policyconsideratn.>Even when there is dominanceover the affairs of the subsidiary,piercing will only apply when suchfiction is the very tool used tocommit fraud or to do wrong, orthe very means to avoid theconsequences of oneswrongdoing or to evade onesliabilities. Wrongdoing must beclearly established, it cannot justbe presumed.

CHAPTER V PROMOTERSCONTRACTS

46. McArthur v. TimesPrinting

(Corp sued by EE for promotersact)>Times (newly formed corp) liablefor acts of promoter; While a corpis not bound by engagemts madeon its behalf by its promoters

before its organizn, it may, aftersuch organizn, make suchengagemts its own contracts by aformal action of BOD or it may beinferred from its acts of acquiescence. All of the SH, dir &officers of corp knew of thecontract at the time of theorganizatn or were informed soonafterwards & none of themobjected or repudiated it.>Right to adopt promotersagreemt depends on corp powers

& nature of agreemt>Adoption effective on date ofcorps act of adoption, noretroactivityRatificatn relates back to date ofagents act

47. Cagayan Fishing v.Sandiko

(Corp sues to enforce contract)>Contracts by the promoter forand in behalf of a proposed corpgen bind only him unless ratifiedby the BOD. Ratification notapplied here as it would result ininjustice. Although corp isenforcing a contract w/ Sandiko, ineffect it is the one evading liabilityfrom its obligatn to PNB.>The newly formed corp was non-existent (under process ofincorporatn) at the time Taborasold disputed property to it. Thecorp was really the promoter Tabora + his wife and others.Since the corp could & did notacquire the 4 parcels of land, it did

not have the capacity to conveythem to Sandiko.

48.Builders Duntile v. Dunn Mfg.Co.

(Corp suing to enforce promoterscontract)>Builders Duntile (newly formed

corp) has the right to sue toenforce contract; to deny it wouldbe to deny it of any remedy forbreach of contract.>Dunn Mfg Co. liable on contractexecuted by promoter because (1)it was clearly understood that thecontract was made in behalf ofBuilders Duntile; (2) incorporatorstook over the whole thing andratified; (3) it was the corporationwho suffered.>Filing of suit is the act of

adoption

49. Rizal Light v. PSC andMorong Electric

(Corp sued by competitor)>Curable; Public interest; The factthat Morong Electric (newlyformed corp) had no corpexistence on the day the franchisewas granted by PSc does notrender the franchise invalidbecause later, Morong obtained itsCOI and accepted the franchise inaccordance w/ the conditionsthereof.>Suspensive condition>Expanded Cagayan

50. Quaker Hill v. Parr(Promoter sued in personalcapacity)>Promoter not personally liable;Promoters are personally liable ontheir contracts though made inbehalf of the corp to be formedEXCEPT if the contract is made inbehalf of the corp & the other

party agreed to look to the corpand not the promoters forpayment. Plaintiff was well awarethe corp was not formed &nevertheless urged that thecontract be made in the name fothe proposed corp, contemplatingthe corp as the contracting party.

51. Old Dominion CopperMining v. Bigelow

(Corp sues own promoter)>Bigelow is an exception; fromprior to pos, promoters benefited>Promoter liable for breach oftrust. No liability while stockremains unissued. Wrong donewhen stocks sold to marketwithout revealing secret profitsfrom overstating value of propertywhen it sold stocks.

CHAPTER VI CORPORATEPOWERS

52.RP v. Acoje Mining (within corppowers as stipulated in AOI;estoppel by benefits)

>NOT UV, the resolutn reg. postoffice:(1) reasonably necessary -reasonable and proper adjunct tothe conduct of business (c.f.S45);

(2) concerns benefit, convenienceand welfare of its employees;receipt of benefits by Acoje =estoppel>Assuming UV, not void as it notcontra LCPP. UV different fromillegal act. UV is voidable whichmay be validated by ratificationand estoppel, while illegal is voidand cannot be validated>Defense of UV rests on violatn oftrust towards SH, n/a where it willdo greater injust to innocent 3P .


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53.Napocor v. Vera (within corppowers as stipulated in charter)

>TEST: WON a logical &necessary reln exists b/w actquestioned and corp purpose incharter yes (c.f. S45)>If act is lawful, not prohibited &for purpose of serving corp ends,

& reasonably contributes topromotn of those ends in asubstantial sense, it is deemedw/in charters powers.

54.Madrigal & Co. v. Zamora(abuse of corp power granted byS38)

>Reduction of CS to hide the factthat it was making profits anddeprive employees of wageincrease (c.f. S38)

>Dividends for compensation forits management services in favorof companies it managed =profits, corp earnings arising fromcorp investment attended to bythe employees(c.f. S44)

55. Govt. of PI v. El HogarT- title to RP >5yrs: GF dispositnL- lot: reasonably necessary(c.f. S36(7))F- foreign activities:

admin bldgs: same as in lot

admin prop of delinqt SH:security

mgt of prop of SH: UVC- compensatn: extraordinary devt(c.f. S30)S- special share: implied authorityD- deprecn rate: legislatureR- reserve funds: implied power,good bus practice, contingency(c.f. S43)L- loans for other purpose: bldg &loan assocn not limited to bldghomes

P- partnerships as SH: anyperson includes artificial personO-outstanding loans to non-SH:consequence of businessoperatns, technicality of bookkeeping

56.Pirovano v. De La Rama

(within corp powers as stipulatedin charter, consistent with S36)

>Donation to family of deceasedformer mgr. valid; w/in purposeclause of corp; not UV ((c.f. S36(9))>Valid ratification of UV act:\(1) consummated;(2) no creditors prejudiced;(3) rights of public/state notinvolved;(4) all SH present>>UV different from illegal act;

Effects of UV:(1) wholly executory unenforceable; damagesunrecoverable(2) wholly executed /consummated * not intereferedw/ as bw parties whose rights getdeprived therefrom; State mayquestion(3) partial recovery may be hadfrom party who received benefits

57.Harden v. Benguet (illegal butupheld)

>Diversion of corp. funds intomining claim of Balatoc a form ofcontrol & devt of competitor;management contract (c.f. S44)>Contract b/w Balatoc & Hardenillegal; action should be quowarranto; no civil wrong; Partiesleft as they are.

CHAPTER VII CONTROL / MGT

ACTS OF DIRECTORS (c.f.S23)

58.Ramirez v. Orientalist Co. &Fernandez (Ratificatn; Agencyby Estoppel; Burden of Discovery; Original power ofBOD)

>Exception to the GR that BODmust act w/in manner andformalities required ratiificatn

>Agency by Estoppel Doctrine;Direc-Treas had no authority tobind the corp because corppowers is exercised by the BOD,as stated in BL. However, corpknowingly permitted one of itsofficer to do acts within the scopeof an apparent authority, thus thecorp, as against 3P, estopped fromdenying the officers authority.BOD here had knowledge andgave its consent to offier. SHmeeting was even called.

>Burden of discovery; Remediallaw reqt: Lack of authority to bindis a defense wch must be speciallypleaded because public notsupposed nor required to know thetransactions wch happen insidecorp; ratio integrity of commtransactns, due process>Original power of the BOD (SH vsBOD): SH resolutions not legallyeffective nor binding on BOD,merely advisory; BOD approval ofcontract prevails over subsequentSH resolution repudiating the

contract (Compare withAngeles v.Santos)

59.Lopez v. Ericta (Vote ofAbsention)

>GR: vote of abstention iscounted in favor of the issue thatwon the majority vote, since bytheir abstaining, the directors aredeemed to abide by the rule of themajority; however, suchpresumption rebuttable bycontrary evidence.

60.Expert Travel& Tours v. CA(Personal Acts)

> Physical acts, like the signing ofdocuments, can be performed onlyby natural persons duly authorizedfor the purpose by corp BL or byspecific act of BOD. The allegation

that there was a BR viateleconference is incredible.Certificate of non-forum shoppingis a peculiar and personalresponsibility of the party, wchmust be accomplished by partyhimself because only he hadactual knowledge of WON he hasinstituted similar actions in othercourts.

61.Citibank NA v. Chua BP22(Delegation)

>3 levels of control: (1) BOD; (2)officers; (3) SH.>BR not necessary; BOD mayvalidly delegate some of itsfunctions to officers or agentsappointed by it. Since CitibanksBL allows Executive Officer todelegate his authority in whole orin part, BR not necessary to granthim authority to delegate hispower to represent corp in court tobanks counsel.

62.Prime White Cement v. IAC

(Self-Dealing)>Dealership agreement isvoidable at the option of corp ifnot approved by BOD and enteredinto only the corp president, orassuming such approval, that itwas approved under the ffconditions:(1)presence of self-dealingdirector in meeting at wchagreemt was approved notnecessary to constitute quorum


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(2)vote of self-dealing director notnecessary for the approval ofagreemt(3)agreemt is fair and reasonableunder the circumstances (c.f.S32)>Contract here is not fair andreasonable, thus contract invalid

and unenforceable, even if it mayhave been in the ordinary courseof business.

63.Boyer-Roxas v. CA (Property)>Piercing cannot be used orresorted to merely establish aright of interest; purpose is toprevent fraud or wrong and notany other purpose; deniedpiercing when it was employed to justify under the theory of co-ownership the continued use and

possession by SHs of corporateproperties.>Stock ownership does not entitleSH to possession of any specificproperty of the corp or a definiteportion thereof. Neither is he a co-owner of corp prop. Propregistered in the name of corp areowned by it as an entity separateand distrinct from SH.

64.EPG Construction v. CA UPLaw lib (Malice/BF = Personalliability)

>GM/President of corp notpersonally liable for his officialacts in behalf of corp for merebreach of contract done by thecorp because the corp has adistinct juridical personality.GM/President liable only if heacted maliciously or in BF. Noproof here that GM acted in BF.(c.f. S31)

65.Benguet Electric Coop v.NLRC Whistleblower GM ousted(Malice/BF/GN)

>GR: GM of corp not personallyliable for his official acts in behalfof corp EXCEPT if he actedmaliciously or in BF. Here, thereare strong indicatns that BOD

members acted with indecenthaste in removing the GM from hispositn. BOD guilty of grossnegligence and BF in directing theaffairs of the corp in enactingassailed resolutns, and in sodoing, acted beyond the scope oftheir authority. Thus, they arepersonally liable. (c.f. S31)

66.Woodchild Holdings v. RoxasElectric & Constn Co. (UV of2nd type beyond scope of

authority)>GR: Acts of corp officers w/inscope of authority are binding oncorp. Acts done by such officersbeyond the scope of authority arenot binding on corp, unless ratifiedexpressly or tacitly, or is estoppedfrom denying them. BR reliedupon by buyer did not contain anexpress authority to sell orencumber adjacent corp property.>Corp did not (1) knowinglypermit Roxas to hold himself outas having such authority, nor (2)

clothe the agent with the indicia ofauthority to lead a reasonablyprudent person to believe he hadsuch authority. No ratificatn, noestoppel by apparent authority =corp not bound.>Property of corp not property ofSH, and may not be sold by the SHw/o express authorizatn from BOD.

ACTS OF OFFICERS / AGENTS(c.f.S25)

67. YuChuk v. KongLiPo Chinesenewspaper (UV of 2nd type beyond scope of authority)

>GM had no power to bind thecorp; GM may have had general

control & mgt of corp and maybind the corp by employment ofsuch agents & EEs as are usual &necessary in the conduct of suchbusiness. However, GM can onlyperform such acts and enter intosuch contracts as are reasonableusual in the ordinary course ofbusiness of the corp. Contracthere is too onerous, since itrequired payment of EE for 3yrseven if newspaper goes bankrupt.BOD could have ratified, but

didnt. Contract wasnt evenpresented to them.>GR: power to bind corp rests inBOD, but the power may bedelegated, expressly or impliedly,to other officers / agents of thecorp.

68.Lapulapu Foundation, Inc. v.CA (Applicatn of apparentauthority)

>If a corp knowingly permits oneof its officers, or any other agent,to act w/I the scope of an apparent

authority, it holds him out to thepublic as possessing the power todo those acts; and thus, the corpwill, as against anyone who has inGF dealt w/ it thru such agent, beestopped from denying theagents authority.>President here presented anotarized Secretarys certificatefrom the corp as proof of hisauthority.

69.Board of Liquidators v. Heirsof Kalaw Destroyed crops (LongAcquiescnce; Business JudgmentRule; Retroactivity of Ratificatn)

>Contract entered into originalpower of the BOD may, due tolong acquiescence and usage, bebinding on corp which may be

deemed to have waived suchcompliance and ratified the act.>Business Judgmt: Directors notliable for business losses incurredbecause of honest bad judgmt notamounting to BF or GN.>Ratificatn retroacts to time of actand is equivalent to originalauthority.>2 methods of validating:empowerment and ratification>Mere ownership of majority ofshares or mere holding of

officership positn does not makeone personally liable>Unless the trusteeship is limitedin its duration by the deed of trust,there is no time limit w/I which thetrustee must finish liquidatn, & hemay sue and be sued as suchbeyond the 3year period ofliquidation. (Also: Natl Abaca v.Pore)

70.Zamboanga Transportation v.Bachrach Motor chattelmortgages (Direc=Sole SH =

Implied Ratificatn)>A contract entered in by thedirectors w/o BR is binding uponthe corp where the directorshappened to be the sole SH.>Corp bound by the CM executedby the president despite the factthat CMs were disapproved by theBOD due to implied ratification.The president of the corp, who isone of the principal SH & at thesame time the GM, auditor, legalcounsel, is empowered by the BL


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to enter into CM contracts subjectto board approval, and tookadvantage of the benefits of thecontract.

MEETINGS / ELECTIONS / SHAPPROVAL

71.Board of SMB Workers v. Tan(Notice)

>Failure to give notice as requiredby law or by the corp BL (mayexpand or shorten) would, as arule render any resolution madetherein voidable at the instance ofan absent SH who was not notifiedof the meeting. (c.f. S50)

72. Johnston v. Johnston(Walkout/Quorum)

>GR: a majority of SH present at ameeting cannot break the quorumby withdrawing as to defeat theelections (BL); except when for justifiable reason, as when SH istrying to protect & enforce hisrights as SH. Here, the SHswithdrawal was justified. (c.f.S52)

73. Ponce v. Encarnacion(SH call meeting)

>SH can call meeting uponshowing of good cause (c.f. S50)>upon showing of good cause

does not mean that petition mustbe set for hearing with noticeserved upon BOD. Court satisfiedthat there was good cause sinceChairman of BOD failed, neglectedor refused to perform his duty tocall SH mtg & elect new set ofdirectors, in accordance with BL.

QUALIFICATIONS /DISQUALIFICATIONS

74.Detective & ProtectiveBureau v. Cloribel (Holdover)

>BL of corp provides that directorsshall serve until election andqualification of successor (hold-over); if successor not qualifieddue to non-ownership of stock,Alberto may not be compelled to

vacate his office. (c.f. S23)

75.Gokongwei v. SEC (Competitor;BL; SH right to be elected)

>Board membership not availablefor SH w/ controlling interest incompeting co. If there is presentedto a corp officer/dir a businessopportunity wch the corp is (1)financially able to undertake; (2)from its nature in line w/ corpsbusiness & is of practicaladvantage to it, (4) one in wch thecorp has an interest or areasonable expectancy, and (5) byembracing the opportunity, theself-interest of the officer/dir willbe brought intro conflict w/ that ofhis corp, the law will not permithim to seize the opportunity forhimself, and if he does, the corpmay elect to claim all the benefitsof the transactns for itself.>Power to adopt/amend BLinherent power of corp. Thus, corpmay prescribe qualification, dutiesand compensation of directors,

officers and employees (c.f.S47(5)) and may place non-compete provisions in BL (c.f.S32,34)>SH has no vested right to beelected to the board. MajorityRule: SH is considered to haveparted with his personal right orprivilege to regulate thedisposition of his property whichhe invested in the capital stock ofthe corporation.

>Validity or reasonableness of BLa question of law

REMOVAL

76.Roxas v. De La Rosa (Electionas mode of removal of director)

>Invalid: (1) no vacancy; (2) no

notice; (3) for failure of a majorityvoting trust who called themeeting to meet 2/3 requirementfor removal of a director. (c.f.S28)>CSV: erroneous even if majorityis needed to call a mtg, it doesntmean that only the majority willattend. The majority may, in thatmeeting, gather the reqd 2/3 votein order to successfully oust adirector.

77.Angeles v. Santos (Courtappointmt of receiver as mode ofremoval)

>Valid: GR is SH cannot ordinarilysue to redress wrong done to thecorp, must be brought by the BOD.Except: Corp is under completecontrol of the wrongdoers, orwhere demand or suit is futile. Thus, where director is guilty ofbreach of trust and anintracorporate remedy is futile, SHmay institute a suit in behalf ofhimself and other SH and for the

benefit of the corp.>Law does not expressly conferupon courts the power to removea dir. But since court has jurisdictnto appoint receiver due tomismanagmt of board members,these may be removed and othersappointed. Here, removal ofdirectors unnecessary andunwarranted since corp assets areamply protected by appointedreceiver. (c.f. S28)

>(Delegate Power of BOD): BOD isa a creation of the SH and controlsand directs the affairs of the corpby delegation of the SH. But theBOD occupies a position oftrusteeship in relation to theminority of the SH. Right of SH tobring derivative suit on behalf of

corp based on recognition thatBOD powers delegated tot hem bySH (Compare with Ramirez v.Orientalist)>Exceptin to GR that corp shouldbe made party defendant inderivate suit. (also: Everett v. AsiaBanking; controlling doctrine is RPv. Cuaderno)

78.Campbell v. Leow, Inc.(Outright removal of director forcause then elect new directors)

>President had authority to call aspecial meeting for the purpose ofremoving a a director for causeand electing new directors, as it isexpressly provided in BL. Wordingof BL gives president power tostate broad purposes in his call fora meeting.>SH has power to remove directorfor cause even if elected bycumulative voting system.FUNDAMENTAL CHANGES

79.De La Rama v. Ma-ao Sugar

(Investmt)>If corp invested in another corppursuant to its primary purposethere is no need for SH approval.Where corp invests in anothercorp solely for control orparticipation in management andnot to accomplish the purpose ofits primary purpose, BOD approval& 2/3 vote of OCS in a meetingcalled for the purpose is required.(c.f. S42)


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PROXY DEVICE (c.f. S58)

80.In Re: Giant Portland Cement(SH of record = right to vote;P/SH as to voting rights)

>Right of SH to vote transferred tounrecorded transferee/purchaser(who voted for management)

properly rejected. As far as corp isconcerned, that who is recorded isthe real owner of the stock andhas the right to vote in person orotherwise.>Preferred stocks are by contractusually de

corpo case list for finals

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