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CORPORATION LAW

Course Outline
Atty. Maria Zarah R. Villanueva-Castro

I.

INTRODUCTION
Historical Background of Philippine Corporate Law

II.

CONCEPT AND ATTRIBUTES OF A CORPORATION


A. Statutory definition of a corporation (Section 2, CC)
B. Attributes of a corporation
1. Artificial being
a. Doctrine of Corporate Entity
(i) residence and nationality
(ii)constitutional rights
(iii) criminal liability
(iv) right to recover moral damages
b. Doctrine of Piercing the Veil of Corporate Entity
(i) alter ego principle and instrumentality rule
(ii) probative factors of identity
2. Creature of Law (See constitutional limitations on the
creation
of a private corporation, Article 12, Section 16,
Constitution; Concession theory)
3. Right of Succession
4. Creature of Enumerated Powers, Attributes and
Properties
a. Doctrine of limited capacities as compared to the
Doctrine of general capacities)
b. Ultra vires doctrine
Classification of Private Corporations
1. stock and non-stock
2. domestic and foreign
3. dejure and de facto (Sec. 20, CC)
1

(See: doctrine of corporation by estoppel [Sec. 21, CC])


4. holding, affiliate and subsidiary
5. open and close
CASES: Magsaysay-Labrador vs. CA, 180 SCRA 266; Sulo ng Bayan vs.
Araneta, 72 SCRA 247; Bataan Shipyard vs. PCGG, 150 SCRA 181;
Luxuria Homes vs. CA, 302 SCRA 315; Concept Builders vs. NLRC, 257
SCRA 149; Francisco Motors vs. CA, 309 SCRA 72; Times Transportation
Company vs. Santos Sotelo, et. al., GR No. 163786. February 16, 2005;
Yao, Sr. vs. People, et al., 19 June 2007; Seventh Day Adventist vs.
Northeastern Mindanao Mission, 21 July 2006; Lim Tong Lim vs. CA, 317
SCRA 728; International Express Travel and Tour Services vs. CA,
October 19, 2000; Filipinas Broadcasting Network, Inc. vs. Ago Medical
and Educational Center-Bicol Christian College of Medicine, G.R. No.
141994, January 17, 2005; Coastal Pacific Trading, Inc. vs. Southern
Rolling Mills Co., Inc. 497 SCRA 11, 28 July 2006
III.

FORMATION AND ORGANIZATION OF A PRIVATE CORPORATION

A. Submission of articles of incorporation; contractual


significance
B. Contents and form of the Articles of Incorporation (Sec. 14 &
15, CC)
1. corporate name
a. statutory limitations on the use of corporate name
(Sec. 18, CC)
b. SEC guidelines on the use of corporate name
c. Doctrine of secondary meaning
d. Change of corporate name
2. purpose clause
3. principal office
4. term of existence
a. doctrine of relation
5. incorporators
6. directors and trustees
7. capitalization
8. shares of stock (Sec. 6, CC)
a. doctrine of equality of shares
b. classes of shares
(i) par and no par
(ii) voting and non-voting
(iii) common and preferred
(iv) redeemable, treasury and founder's shares
9. treasurer's affidavit
2

C. Grounds for rejection of the Articles of Incorporation (Sec. 17,


CC)
D. Commencement of corporate existence (Sec. 19, CC)
E. Amendment of the articles of incorporation (Sec. 16, CC)
F. Effects of non-use of corporate charter (Sec. 22, CC)
CASES: Lyceum of the Philippines vs. CA, 219 SCRA 612; Ang Mga
Kaanib sa Iglesia ng Dios vs. Iglesia ng Dios Kay Kristo Jesus, December
12, 2001; Young Auto Supply vs. CA, 223 SCRA 670; Republic Planters
Bank vs. Agana, 269 SCRA 1; Castillo, et. al. vs. Balinghasay, et. al.
G.R. No. 150976, October 18, 2004; Wilson P. Gamboa v. Finance
Secretary Margarito B. Teves, et al. & Pablito V. Sanidad, et al., G.R. No.
176579, June 28, 2011; Heirs of Wilson P. Gamboa v. Finance Secretary
Margarito b. Teves, G.R. No. 176579, October 9, 2012
IV.

CONTROL AND MANAGEMENT OF A CORPORATION


A. Levels of corporate control
B. Board of Directors/Trustees
1. general powers of the board (Sec. 23, CC)
2. business judgment rule
3. qualifications of the board members (Sec. 23 & 27, CC)
4. election of the board members (Sec. 24 & 26, CC); See
cumulative voting procedure
5. term of office
6. quorum requirement in board meetings (Sec. 25, CC)
7. removal of board members (Sec. 28, CC)
8. vacancies in the board (Sec. 29, CC)
9. compensation of board members (Sec. 30, CC)
C. Corporate Officers
1. concept of corporate officers
2. validity and binding effect of acts of corporate officers
3. doctrine of apparent authority
D. Liability of directors, trustees and officers
1. instances when corporate officers/directors are held
solidarily liable (Sec. 31, CC)
2. self-dealing directors/officers (Sec. 32, CC)
3. contracts involving inter-locking directors (Sec. 33, CC)
4. doctrine of corporate opportunity (Sec. 34, CC)
E. Executive committee (Sec. 33, CC)

CASES: Grace Christian Highschool vs. CA, 281 SCRA 133; Gokongwei
vs. SEC, 89 SCRA 336; People's Aircargo vs. CA, Oct. 7, 1998; March II
Marketing, Inc. and Lucila V. Joson v. Alfredo M. Joson, G.R. No. 171993,
December 12, 2011; Sps. David, et al vs. Construction Industry and
Arbitration Commission, G.R. No. 159795, July 30, 2004; Inter-Asia
Investments Industries vs. CA, GR 125778, June 10, 2003; New Frontier
Sugar Corp., et al., G.R. No. 170352, June 1, 2011; Marc II Marketing,
Inc. vs. Joson, G.R. No. 171993, December 12, 2011, 662 SCRA 35
V.

CORPORATE POWERS
A. Doctrine of limited capacity; concept of ultra vires act (Sec.
45, CC)
B. Classes of corporate powers (express, implied and incidental)
C. Statutory powers of a corporation and the limitations on their
exercise (Sec.
36, CC)
1. amendment of articles of incorporation (Sec. 16, CC)
2. extension/shortening of corporate term (Sec. 37, CC)
3. increase or decrease of capital stock (Sec. 38, CC)
4. incurrence, creation or increase of bonded indebtedness
(Sec. 38, CC)
5. sale or disposition of assets (Sec. 40, CC)
6. acquisition of corporate shares (Sec. 41, CC) (See Trust
Fund Doctrine)
7. investment of corporate funds (Sec. 42, CC)
8. declaration of dividends (Sec. 43, CC)
9. management contract (Sec. 44, CC)
10.
adoption/amendment of By-laws
a. Concept, use and nature of by-laws
b. By-laws in relation to articles of incorporation
c. Adoption of by-laws (Sec. 46, CC); effect of non-filing
within the
prescribed period
d. Contents of by-laws; requisites of a valid by-law
provision
e. Amendment to by-laws (Sec. 48, CC)
f. By-laws in relation to third parties
11. merger and consolidation
a. Requisites of and procedure for merger and
consolidation (Sec. 77,
CC)
b. Effects of merger or consolidation (Sec. 80, CC)

CASES: Nielson & Co. vs. Lepanto Consolidated Mining Co., 26 SCRA
540; Islamic Directorate vs. CA, 272 SCRA 454; Dee vs. SEC, 199 SCRA
238; Ma. Corina C. Jiao, et. al. v. National Labor Relations Commission,
Global Business Bank, Inc., et. al. , G.R. No. 182331, April 18, 2012;
Loyola Grandvillas Homeowners Association vs. CA, 276 SCRA 681;
China Banking Corporation vs. CA, 270 SCRA 503; Associated Bank vs.
CA, 291 SCRA 511; Babst vs. CA, January 26, 2001; Mindanao Savings
vs. Willkom, 11 October 2010
VI.

RIGHTS OF SHAREHOLDERS
A. Right to attend meetings
1. Kinds of meetings
2. Requirements of a meeting
B. Right to vote
1. instances when voting right not available
2. rules on:
a. delinquent shares; (Sec. 71, CC)
b. escrow shares;
c. unpaid shares; (Sec. 72, CC)
d. sequestered shares;
e. pledgor, mortgagor, or administrator of shares (Sec.
55, CC)
f. shares jointly owned (Sec. 56, CC)
B. Right to appoint proxy (Sec. 58, CC)
C. Right to execute voting trust agreement (Sec. 58 & 59, CC)
D. Right of Inspection
1. Books required to be kept by a corporation (Sec. 74, CC)
2. Right to inspect corporate books
3. Basis and extent of the right of inspection
4. Limitations on the right of inspection
5. Remedies to enforce right of inspection
E. Pre-emptive right (Sec. 39, CC)
F. Appraisal Right
1. Concept of appraisal right
2. Instances of appraisal right (Sec. 81, Sec. 77, Sec. 42,
CC)
3. Requirements for a valid exercise of appraisal right (Sec.
82, CC)
4. Effects of exercising appraisal right (Sec. 83, CC)

E. Derivative suit; concept and requisites


CASES: Lee vs. CA 205 SCRA 725; Republic vs. Sandiganbayan, April
30, 2003; Republic vs. Cocofed, December 12, 2001; Evangelista vs.
Santos, 86 SCRA 387; Chua vs. CA, GR No. 150793, November 19,
2004; Expert Travel & Tours, Inc. vs. Court of Appeals and Korean
Airlines GR No. 152392, May 26, 2005; Gonzales vs. PNB, 122 SCRA
489

VII.

SUBSCRIPTION CONTRACT

A. Ways to become a stockholder of a corporation


B. Concept of subscription contract
C. Kinds of subscription (pre and post incorporation subscription,
Sec. 61, CC)
D. Consideration for the issuance of shares (Sec. 62, CC)
E. Payment of subscription
1. remedies to enforce payment of subscription (Sec. 68,
69 & 70, CC)
2. when shares are considered delinquent (Sec. 67, CC)
F. Certificate of Stock (Sec. 63, CC)
1. doctrine of indivisibility of subscription contract
2. certificate of stock, quasi-negotiable
G. Transfer of shares
H. Lost and destroyed certificate of stock (Sec. 73, CC)
CASES: Lim Tay vs. CA, August 5, 1998; Rural Bank of Lipa vs. CA,
Sept. 28, 2001; Ponce vs. Alsons Cement, Dec. 10, 2002; Ong Yong, et
al. vs. Tiu, et al., G.R. Nos. 144476 & 144629, April 8, 2003

VIII.

NON-STOCK CORPORATIONS
Definition and purposes of a non-stock corporation (Sec. 87
& 88, CC)
Distinguished from stock corporation
Membership in a non-stock corporation
Rule on distribution of assets (Sec. 94, CC)

CASES: Long vs. Basa, et al., Sept. 27, 2001; Sta. Clara Homeowners'
Association vs. Sps. Gaston, Jan. 23, 2002; Padcom vs. Ortigas Center,
May 9, 2002; Tan vs. Sycip 17 August 2006
IX.

CLOSE CORPORATIONS
A. Concept; distinguished from open corporations (Sec. 96, 97,
101, & 102, CC)
B. Permissive provisions in the articles of incorporation (Sec. 97,

CC)
C. Restrictions on transfer of shares (Sec. 98 & 99 CC)
CASES: Dulay Enterprises vs. CA, 225 SCRA 678; San Juan Structural
Steel Fabricators, 296 SCRA 632

X.

RELIGIOUS/EDUCATIONAL CORPORATIONS
A. Classes of Religious Corporation
1.
corporation sole
2.
religious society
B. Educational Corporation

CASE: Iglesia Evangelica vs. Bishop Lazaro, 6 July 2010


XI.

CORPORATE DISSOLUTION/LIQUIDATION

A. Methods of voluntary corporate dissolution and the


requirements therefor
B. Concept of involuntary dissolution and the grounds therefor
(Sec. 121, CC)
C. Corporate liquidation (Sec. 122, CC)
D. Methods of liquidation or winding up
E. Concept of Rehabilitation; Effects of appointment of
management committee
or receiver
CASES: Gelano vs. CA, 103 SCRA 90; Clarion Printing House, Inc. vs.
NLRC, GR No. 148372, June 27, 2005; Lingkod Manggagawa sa
Rubberworld vs. Rubberworld Phils., Inc. 29 January 2007; Garcia, et al
vs. PAL, 29 August 2007; Sobrejuanite vs. ASB, 30 September 2005;
Panlilio, et al. v. Regional Trial Court, etc., People of the Philippines and

Social Security System, G.R. No. 173846, February 2, 2011; Alfredo


Villamor, Jr. vs. John Umale, G.R. No. 172843, September 24, 2014

XV. FOREIGN CORPORATIONS


A.
B.

Concept of foreign corporation


Tests to determine nationality of a corporation (Control Test
and Grandfather Rule)
C.
Concept of "doing business" and the license requirement
therefor; See also Sec. 3(d), RA 7042
D.
Effects of being issued a license
E.
Revocation and withdrawal of license
CASES: Facilities Management vs. De la Osa, 89 SCRA 131; Home
Insurance vs. Eastern Shipping Lines, 123 SCRA 424; Mentholatum, Inc.
vs. Mangaliman, 73 Phil 524; Eriks vs. CA, 267 SCRA 567; Mentholatum
vs. Mangaliman, 72 Phil 524; Merrill Lynch Futures, Inc. vs. CA, 211
SCRA 824; Agilent Technologies Singapore vs. Integrated Silicon
Technology Philippines Corporation, G.R. No. 154618, April 14, 2004;
Expertravel & Tours, Inc. vs. Court of Appeals and Korean Airlines GR
No. 152392, May 26, 2005; Narra Nickel Mining and Development
Corporation v. Redmont Consolidated Mines Corporation, G.R. No.
195580, April 21, 2014; Steelcase, Inc. v. Design International
Selections, Inc., 18 April 2012

XVI.

SEC JURISDICTION
A. Powers and functions of the SEC
B. Cases transferred to the RTC

CASES: Yujuico vs. Quiambao, 29 January 2006; Baviera vs.


Paglinawan, 08 February 2007; SEC vs. Performance Foreign Exchange
Corp., 20 July 2006; Securities and Exchange Commission v. Court of
Appeals, G.R. No. 187702, October 22, 2014; (Medical Plaza Makati
Condominium Corporation vs. Robert H. Cullen, GR No. 181416, 11
November 2013