CORPORATION LAW FINAL EXAM SAMPLEX ANSWER KEY
San Juan Petitioner claims that Motorich is a close corporation. We rule that it is not.
DOCTRINES
Gonzales vs As may be noted, among the changes introduced in the new Code with
PNB respect to the right of inspection granted to a stockholder are the
following:
(1) the records must be kept at the principal office of the corporation;
(2) the inspection must be made on business days;
(3) the stockholder may demand a copy of the excerpts of the records or
minutes; and
(4) the refusal to allow such inspection shall subject the erring officer or
agent of the corporation to civil and criminal liabilities.
However, while seemingly enlarging the right of inspection, the new Code
has prescribed limitations to the same. It is now expressly required as a
condition for such examination that the one requesting it:
(a) must not have been guilty of using improperly any information
secured through a prior examination, and that
(b) (b) the person asking for such examinations must be "acting in good
faith and for a legitimate purpose in making his demand."
Babst vs CA At the outset, the preliminary issue of BPI's right of action must first be
addressed. ELISCON and MULTI assail BPI's legal capacity to recover their
obligation to CBTC. However, there is no question that there was a valid
merger between BPI and CBTC. It is settled that in the merger of two
existing corporations, one of the corporations survives and continues the
business, while the other is dissolved and all its rights, properties and
liabilities are acquired by the surviving corporation. Hence, BPI has a right
to institute the case a quo.
Padcomm As lot owner, PADCOM is a regular member of the Association. No
Condominium application for membership is necessary. If at all, acceptance by the Board
vs Ortigas of Directors is a ministerial function considering that PADCOM is deemed to
be a regular member upon the acquisition of the lot pursuant to the
automatic membership clause annotated in the Certificate of Title of the
property and the Deed of Transfer. Neither are we convinced by PADCOM's
contention that the automatic membership clause is a violation of its
freedom of association. PADCOM was never forced to join the association.
It could have avoided such membership by not buying the land from TDC.
Nobody forced it to buy the land when it bought the building with the
annotation of the condition or lien on the Certificate of Title thereof and
accepted the Deed. PADCOM voluntarily agreed to be bound by and
respect the condition, and thus to join the Association.
Structural and (See Sec. 96 for definition of a close corporation.)
Steel vs CA The articles of incorporation of Motorich Sales Corporation does not
contain any provision stating that (1) the number of stockholders shall not
exceed 20, or (2) a preemption of shares is restricted in favor of any
stockholder or of the corporation, or (3) listing its stocks in any stock
exchange or making a public offering of such stocks is prohibited. From its
articles, it is clear that Respondent Motorich is not a close corporation.
Motorich does not become one either, just because Spouses Reynaldo and
Nenita Gruenberg owned 99.866% of its subscribed capital stock. The
[m]ere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personalities." So, too, a
narrow distribution of ownership does not, by itself, make a close
corporation.
Manuel Dulay Petitioner corporation is classified as a close corporation and consequently
Enterprise vs a board resolution authorizing the sale or mortgage of the subject property
CA is not necessary to bind the corporation for the action of its president. At
any rate, a corporate action taken at a board meeting without proper call
or notice in a close corporation is deemed ratified by the absent director
unless the latter promptly files his written objection with the secretary of
the corporation after having knowledge of the meeting which, in this case,
petitioner Virgilio Dulay failed to do. Petitioners' claim that the sale of the
subject property by its president, Manuel Dulay, to private respondents
spouses Veloso is null and void as the alleged Board Resolution No. 18 was
passed without the knowledge and consent of the other members of the
board of directors cannot be sustained. The sale of the subject property to
private respondents by Manuel Dulay is valid and binding.
Vesagas vs CA The requirements (for dissolution) mandated by the Corporation Code
should have been strictly complied with by the members of the club. The
records reveal that no proof was offered by the petitioners with regard to
the notice and publication requirements. Similarly wanting is the proof of
the board members' certification. Lastly, and most important of all, the SEC
Order of Dissolution was never submitted as evidence.
We rule that the present dispute is intra-corporate in character. In the first
place, the parties here involved are officers and members of the club.
Respondents claim to be members of good standing of the club until they
were purportedly stripped of their membership in illegal fashion.
Petitioners, on the other hand, are its President and Vice-President,
respectively. More significantly, the present conflict relates to, and in fact
arose from, this relation between the parties. The subject of the complaint,
namely, the legality of the expulsion from membership of the respondents
and the validity of the amendments in the club's by-laws are, furthermore,
within the Commission's jurisdiction.
 Tan Tion vs The creditor of a dissolved corporation may follow its assets once they Eriks Pte Ltd.
CIR passed into the hands of the stockholders. The dissolution of a corporation vs CA
does not extinguish the debts due or owing to it. A creditor of a dissolved
corporation may follow its assets, as in the nature of a trust fund, into the
hands of its stockholders. An indebtedness of a corporation to the federal
government for income and excess profit taxes is not extinguished by the
dissolution of the corporation.
That the hands of the government cannot, collects taxes from a defunct
corporation, it loses thereby none of its rights to assess taxes which had
been due from the corporation, and to collect them from persons who by
reason of transaction with the corporation hold property against which the
tax can be enforced and that the legal death of the corporation no more
prevents such action than would the physical death of an individual prevent
the government from assessing taxes against him and collecting them from
his administrator who holds the property which the decedent had formerly
possessed.
Facilities If a foreign corporation, not engaged in business in the Philippines is not
Management barred from seeking redress from courts in the Philippines, a fortiori, that
Corporation same corporation cannot claim exemption from being sued in the
vs Dela Rosa Philippine courts for acts done against a person or persons in the
Philippines.
Summdad vs
The act by a non-resident foreign corporation of recruiting Filipino workers Harrigan
for its own use abroad constitutes in the law doing business in the
Philippines.
Test of "doing business": Whether the foreign corporation is continuing the
body or substance of the business or enterprise for which it was organized
or whether it has substantially retired from it and turned it over to another.
Home On validity of contracts of unlicensed foreign corporations - Contract
Insurance vs enforceable upon compliance with the law - "Where there is a prohibition
Eastern with a penalty, with no express or implied declaration respecting the
Shipping Lines validity or enforceability of contracts made by qualified foreign
corporations, the contracts are enforceable upon compliance with the law.
It is not necessary to declare the contract null and void as against the erring
foreign corporation. The penal sanction for violation and the denial of
access to our courts and administrative bodies are sufficient from the
viewpoint of legislative policy. The lack of capacity at the time of the
execution of the contracts is CURED by the subsequent registration of the
licensed foreign corporation.
"Doing business" - The term implies a continuity of commercial dealings
and arrangements, and contemplates, to that extent, the performance of
acts or works or the exercise of some of the functions normally incident to,
and in progressive prosecution of, the purpose and object of its
organization.
What is determinative of "doing business" is not really the number or the
quantity of the transactions, but more importantly, the intention of an
entity to continue the body of its business in the country. The number and
quantity are merely evidence of such intention. The phrase "isolated
transaction" has a definite and fixed meaning. i.e. a transaction or series of
transactions set apart from the common business of a foreign enterprise in
the sense that there is no intention to engage in a progressive pursuit of
the purpose and object of the business organization. Whether a foreign
corporation is "doing business" does not necessarily depend upon the
frequency of its transactions, but more upon the nature and character of
the transactions.
By securing a license, the foreign entity would be giving assurance that it
will abide by the decisions of our courts, even if adverse to it. This Court
has ruled that subsequent acquisition of the license will cure the lack of
capacity at the time of the execution of the contract.
The mere use of the phrase "in fraud of creditors" does not, ipso fact,
throw the case within SEC's jurisdiction. The amended complaint filed by
Harrigan does not sufficiently allege acts amounting to fraud and
misrepresentation committed by respondent corporation.
Equally unavailing is petitioner's contention that the case involves an intra-
corporate controversy, or one between the corporation and its stockholder
transposing it within the domain of the SEC. It should be noted that the
issue has become moot and academic because with Republic Act No. 8799,
Securities Regulation Code, it is now the Regional Trial Court and no longer
the SEC that has jurisdiction. Under Section 5.2 of Republic Act No. 8799,
original and exclusive jurisdiction to hear and decide, cases involving intra-
corporate controversies have been transferred to a court of general
jurisdiction or the appropriate Regional Trial Court.
 DEFINITIONS
CONCESSION THEORY
It is a principle in the creation of corporations, under which a corporation is an artificial
creature without any existence until it has received the imprimatur of the State acting
according to law, through the SEC. The life of the corporation is a concession made by the
State.
Section 19 of the Corporation Code provides for the commencement of corporate existence,
that— “A private corporation formed or organized under this Code commences to have
corporate existence and juridical personality and is deemed incorporated from the date the
SEC issues a certificate of incorporation under its official seal x x x.”
RECIPROCITY
The right of reciprocity, being one of the elements of a foreign corporation, means that the
laws by which the foreign corporation is organized allows Filipino citizens and corporations to
do business in its own country or state.
COMMODITY FUTURES CONTRACT
As defined in the case of Onapal vs CA, this refers to an agreement to buy or sell a specified
quantity and grade of a commodity at a future date at a price established at the floor of the
exchange.
BUSINESS OPPORTUNITY
Under the doctrine of corporate opportunity, a director who, by virtue of his office, acquires
for himself a business opportunity which should belong to the corporation, thereby obtaining
profits to the prejudice of such corporation, is guilty of disloyalty and should, therefore,
account to the latter for all such profits by refunding the same, notwithstanding that he risked
his funds in the venture.
INSIDER TRADING
In the concurring opinion of Justice Tinga in the case of SEC vs Interport Resources, “insider
trading” was defined as involving the trading of securities based on knowledge of material
information not disclosed to the public at the time. Such activity is generally prohibited in
many jurisdictions, including our own, though the particular scope and definition of "insider
trading" depends on the legislation or case law of each jurisdiction.
ESSAY
ELECTION OF PRESIDENT
Section 25. Corporate officers, quorum. - Immediately after their election, the directors of a
corporation must formally organize by the election of a president, who shall be a director, a
treasurer who may or may not be a director, a secretary who shall be a resident and citizen of
the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or
more positions may be held concurrently by the same person, except that no one shall act as
president and secretary or as president and treasurer at the same time.
The directors or trustees and officers to be elected shall perform the duties enjoined on them
by law and the by-laws of the corporation. Unless the articles of incorporation or the by-laws
provide for a greater majority, a majority of the number of directors or trustees as fixed in the
articles of incorporation shall constitute a quorum for the transaction of corporate business,
and every decision of at least a majority of the directors or trustees present at a meeting at
which there is a quorum shall be valid as a corporate act, except for the election of officers
which shall require the vote of a majority of all the members of the board.
Directors or trustees cannot attend or vote by proxy at board meetings. (33a)
Section 26. Report of election of directors, trustees and officers. - Within thirty (30) days after
the election of the directors, trustees and officers of the corporation, the secretary, or any
other officer of the corporation, shall submit to the Securities and Exchange Commission, the
names, nationalities and residences of the directors, trustees, and officers elected. Should a
director, trustee or officer die, resign or in any manner cease to hold office, his heirs in case of
his death, the secretary, or any other officer of the corporation, or the director, trustee or
officer himself, shall immediately report such fact to the Securities and Exchange Commission.
(n)
Section 27. Disqualification of directors, trustees or officers. - No person convicted by final
judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a
violation of this Code committed within five (5) years prior to the date of his election or
appointment, shall qualify as a director, trustee or officer of any corporation. (n)
REFUSAL TO ISSUE STOCK CERTIFICATE
(1) Every stockholder has a right to have a proper certificate issued to him as soon as he has
complied with the conditions which entitle him to one as by payment for his shares or the
like.
a. suit for specific performance of an express or implied contract
 a stockholder may, however, sue instead for damages where specific
performance cannot be granted, or
 in some instance, may rescind his contract of subscription and recover the
consideration paid
b. petition for mandamus when appropriate
(2) But one who has no subscription contract with a corporation cannot compel the
corporation to issue certificates of stock for the shares paid for by him where certificates
for the said shares had already been issued in the name of an officer of the corporation
 with whom the plaintiff had agreed on a joint venture to be conducted in the name of the
corporation and to whom the payment was given, his remedy being against such officer.
(British American Engineering Corporation vs Alto Surety & Insurance Co.)
REFUSAL TO PAY OUTSTANDING BALANCE IN SUBSCRIPTION
Section 67. Payment of balance of subscription. - Subject to the provisions of the contract of
subscription, the board of directors of any stock corporation may at any time declare due and
payable to the corporation unpaid subscriptions to the capital stock and may collect the same
or such percentage thereof, in either case with accrued interest, if any, as it may deem
necessary.
Payment of any unpaid subscription or any percentage thereof, together with the interest
accrued, if any, shall be made on the date specified in the contract of subscription or on the
date stated in the call made by the board. Failure to pay on such date shall render the entire
balance due and payable and shall make the stockholder liable for interest at the legal rate on
such balance, unless a different rate of interest is provided in the by-laws, computed from
such date until full payment. If within thirty (30) days from the said date no payment is made,
all stocks covered by said subscription shall thereupon become delinquent and shall be
subject to sale as hereinafter provided, unless the board of directors orders otherwise. (38)
REQUIREMENTS OF CLOSE CORPORATION
Section 96. Definition and applicability of Title. - A close corporation, within the meaning of
this Code, is one whose articles of incorporation provide that: (1) All the corporation's issued
stock of all classes, exclusive of treasury shares, shall be held of record by not more than a
specified number of persons, not exceeding twenty (20); (2) all the issued stock of all classes
shall be subject to one or more specified restrictions on transfer permitted by this Title; and
(3) The corporation shall not list in any stock exchange or make any public offering of any of
its stock of any class. Notwithstanding the foregoing, a corporation shall not be deemed a
close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or
controlled by another corporation which is not a close corporation within the meaning of this
Code.
Any corporation may be incorporated as a close corporation, except mining or oil companies,
stock exchanges, banks, insurance companies, public utilities, educational institutions and
corporations declared to be vested with public interest in accordance with the provisions of
this Code.
The provisions of this Title shall primarily govern close corporations: Provided, That the
provisions of other Titles of this Code shall apply suppletorily except insofar as this Title
otherwise provides.
DOCTRINE OF SEPARATE ENTITY
A corporation is a legal or juridical person with a personality separate and apart from its
individual stockholders or members and from any other legal entity to which it may be
connected.
OTHER POSSIBLE QUESTIONS
SUPREME COURT DEFINITION OF “DOING BUSINESS”
Batas Pambansa Blg. 68, otherwise known as “The Corporation Code of the Philippines,” is
silent as to what constitutes doing” or “transacting” business in the Philippines. Fortunately,
jurisprudence has supplied the deficiency and has held that the term “implies a continuity of
commercial dealings and arrangements, and contemplates, to that extent, the performance
of acts or works or the exercise of some of the functions normally incident to, and in
progressive prosecution of, the purpose and object for which the corporation was organized.”
In Mentholatum Co. Inc., vs. Mangaliman, this Court laid down the test to determine whether
a foreign company is “doing business,” thus:
“ x x x The true test, however, seems to be whether the foreign corporation is continuing
the body or substance of the business or enterprise for which it was organized or whether it
has substantially retired from it and turned it over to another.” (MR Holdings vs Bajar)
What is determinative of "doing business" is not really the number or the quantity of the
transactions, but more importantly, the intention of an entity to continue the body of its
business in the country. The number and quantity are merely evidence of such intention. The
phrase "isolated transaction" has a definite and fixed meaning, i.e. a transaction or series of
transactions set apart from the common business of a foreign enterprise in the sense that
there is no intention to engage in a progressive pursuit of the purpose and object of the
business organization. Whether a foreign corporation is "doing business" does not necessarily
depend upon the frequency of its transactions, but more upon the nature and character of
the transactions. (Eriks Pte. Ltd. vs CA)
TENDER OFFER
Tender offer is a publicly announced intention by a person acting alone or in concert with
other persons to acquire equity securities of a public company. A public company is defined
as a corporation which is listed on an exchange, or a corporation with assets exceeding
P50,000,000.00 and with 200 or more stockholders, at least 200 of them holding not less than
100 shares of such company. Stated differently, a tender offer is an offer by the acquiring
person to stockholders of a public company for them to tender their shares therein on the
terms specified in the offer. Tender offer is in place to protect minority shareholders against
any scheme that dilutes the share value of their investments. It gives the minority
shareholders the chance to exit the company under reasonable terms, giving them the
opportunity to sell their shares at the same price as those of the majority shareholders.