2011 Outline.pdf

Marie Cecile R. Quintos UP College of Law

CORPORATION LAW 2nd Semester, AY 2011-‐2012

I. GENERAL

A. Definition (Sec. 2; Articles 44(3), 45, 46, and 1775, Civil Code) q Tayag v. Benguet Consolidated Inc. 26 SCRA 242 (1968) q Monfort Hermanos Agricultural Devt. Corp. v. Monfort III 434 SCRA 27 (2004) q PSE v. Court of Appeals, 281 SCRA 232 (1997) q Tan Boon Bee & Co. Inc. v. Jarencio, 163 SCRA 205 (1988)

B. Advantages and Disadvantages C. Distinguished from other entities (sole proprietorship, joint venture, cooperative, sociedad

anonimas, cuentas en participacion, corporation sole [Sec. 110], partnership, limited partnership, business trust)

D. Nature and Attributes

Corporation as a person q Smith Bell & Co. v. Natividad, 40 Phil. 144 (1920) q Bache & Co v. Ruiz, 37 SCRA 823 (1971) q Stonehill v. Diokno, 20 SCRA 383 (1967) q Bataan Shipyard & Engineering v. PCGG, 150 SCRA 181 (1987) q PNB v. CA, 83 SCRA 237 (1978) q Ching v. Secretary of Justice, 481 SCRA 602 (2006) q Prime White Cement Corp. v. IAC, 220 SCRA 103 (1993) q Filipinas Broadcasting Network v. Ago Medical and Educational Center, 448 SCRA 413

(2005)

E. Kinds of Corporations 1. Vis-‐à-‐vis State: Public, quasi-‐public, private

q Boy Scouts of the Philippines v. COA, G.R. No. 177131, June 7, 2011 q Marilao Water Consumers Association Inc. v. IAC, G.R. No. 72807, September 9,

1991 q Feliciano v. Commission on Audit, 419 SCRA 363 (2004) q Shipside Inc. v. CA, 352 SCRA 334 (2001) q Camparedondo v. NLRC, 312 SCRA 47 (1999) q Strategic Alliance Devt Corp v. Radstock Securities Ltd., et al, 607 SCRA 413 (2009) q PNOC-‐Energy Development Corp. v. NLRC, 201 SCRA 487 (1991)

2. As to place of incorporation : (Sec. 123) Domestic, foreign 3. As to purpose (Sec. 88, 106-‐109, 116): municipal, religious, educational, charitable,

scientific or vocational, business 4. As to number of members (Sec. 110, 96): Corporation sole, close, aggregate

q Roman Catholic Apostolic Administrator of Davao, Inc. v. LRC, 102 Phil. 596 (1957) See also Republic v. IAC, 168 SCRA 165 (1988)

5. As to existence of shares: Stock (Sec. 3), Non-‐stock (Sec. 87-‐88)


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6. As to legal status: de jure, de facto (Sec. 20), corporation by estoppel (Sec. 21) q Arnold Hall v. Piccio, 86 Phil 603 (1950) q Sawadjaan v. CA, 459 SCRA 516 (2005) q Albert v. University Publishing Co., 13 SCRA 84 (1965) q Cranson v. IBM Corp., 234 Md 477, 200 A. 2D33 (1964)* q Intl Express Travel v. CA, 343 SCRA 674 (2000) q Asia Banking Corporation v. Standard Products Co., Inc., 46 Phil. 145 (1924)

II. ESTABLISHMENT OF CORPORATIONS

A. REQUIREMENTS FOR INCORPORATION

1. Articles of Incorporation (Sec. 14-‐15, 97) 2. Corporate name (SEC Memo Circ. No. 5, s. 2008; SEC Memo Circ. No. 12, s. 2008)

q Lyceum of the Philippines Inc. v. CA, 219 SCRA 610 (1993) q Philips Export B.V. et al v. CA, 206 SCRA 457 (1992) q Phil. First Insurance Co. v. Hartigan, 74 SCRA 252 (1970)

3. Purpose (Sec. 14[2], 88)

q Ulep v. The Legal Clinic, 223 SCRA 378 (1993) q Alhambra Cigar & Cigarette Mfg v. SEC, 24 SCRA 269 (1968)

4. Principal Office (Sec. 14[3])

q Clavecilla Radio Systems v. Antillon, 19 SCRA 379 (1967) q Hyatt Elevators v. Goldstar Elevators, 473 SCRA 705 (2005)

5. Corporate term (Sec. 11) 6. Incorporators (Sec. 10)

7. Capitalization (Sec. 12, 13)

a. Concept of Capital/Capital Stock/Share q NTC v. CA, 311 SCRA 508 (1999) q Gamboa v. Teves, G.R. No. 176579, June 28, 2011 q Stockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of Manila, 6

SCRA 373 (1962)

b. Kinds of shares of stock (Sec. 6-‐9, 41, 57) q Republic Planters Bank v. Agana, 269 SCRA 1 (1997) q CIR v. Manning, 66 SCRA 14 q San Miguel Corp. v. Sandiganbayan, 340 SCRA 289 (2000) q Delpher Trades Corp v IAC, 157 SCRA 349 (1988)

c. Purpose of classification of shares d. Stock ownership in certain corporations (Sec. 140; Republic Act (R.A.) No. 7042,

as amended by R.A. No. 8179, IRR, Executive Order No. 584, Commonwealth Act No. 108)

e. Trust Fund Doctrine (see Art. 2238, Civil Code)

q NTC v. CA, 311 SCRA 508 (1999), supra q Donnina Halley v. Printwell, Inc., G.R. No. 157549, May 30, 2011 q Ong Yong v. Tiu, 401 SCRA 1 (2003)


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f. Close corporations (Sec. 96)

g. No transfer clause (Sec. 15 [Eleventh Article], 97)

q J.G. Summit Holdings Inc. v. CA, 450 SCRA 169 (2005) h. By-‐laws (Sec. 46-‐47)

q SMC v. Mandaue Packing Products Plants Union-‐FFW, 467 SCRA 107 (2005) q Grace Christian High School v. CA, 281 SCRA 133 (1997) q China Banking Corp v. CA, 270 SCRA 503 (1997)

B. REQUIREMENTS UNDER SPECIAL LAWS (Sec. 17, last par.)

q Gamboa v. Teves, G.R. No. 176579, June 28, 2011, supra

C. GROUNDS FOR REJECTION (Sec. 17)

D. COMMENCEMENT OF CORPORATE EXISTENCE (Sec. 19, 22) q Cagayan Fishing Devt Co. v. Sandiko, 65 Phil 233 (1937)

E. AMENDMENT OF ARTICLES OF INCORPORATION AND BY-‐LAWS (Sec. 16, 48) F. REGULATION OF CORPORATIONS BY THE SEC (Sec. 5.2, SRC vis-‐à-‐vis P.D. 902)

III. THE CORPORATION AS AN ENTITY

A. In General: Separate Juridical Personality

q Land Bank of the Philippines v. CA, 364 SCRA 375 (2001) q Good Earth Emporium v. CA, 194 SCRA 544 (1991) q DBP v. NLRC, 186 SCRA 841 (1990) q Sunio v. NLRC, 127 SCRA 390 (1984) q Traders Royal Bank v. CA, 177 SCRA 789 (1989) q EPG Construction v. CA, 210 SCRA 230 (1992)

B. Exception: Doctine of Piercing the Veil of Corporate Fiction

1. General Principles

q Suldao v. Cimech System Construction, Inc., 506 SCRA 256 (2006) q Concept Builders Inc. v. NLRC, 257 SCRA 149 (1996)

2. Elements; Basis for applying doctrine

q PNB v. Andrada Electric & Engineering Co., 381 SCRA 244 (2002) q PNB v. Ritratto Group Inc., 362 SCRA 216 (2001)

3. When applicable

Fraud q First Philippine International Bank v. Court of Appeals, 252 SCRA 259 (1996) q Shoemart v. NLRC, 225 SCRA 311 (1993) q Marvel Building Corp v. David, 94 Phil 376 (1954) Alter-‐ego; instrumentality rule q Yutivo Sons v. CTA, 1 SCRA 160 (1961) q Lipat v. Pacific Banking Corp., 402 SCRA 339 (2003) q La Campana Coffee Factory v. Kaisahan ng Manggagawa 93 Phil 160 (1953) q NAFLU v. Ople, 143 SCRA 125 (1986)


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Parent-‐subsidiary q Reynoso IV v. Court of Appeals 345 SCRA 335 (2000) q General Credit Corp. v. Alsons Dev. and Investment Corp., 513 SCRA 225 (2007)

4. When not applicable

q Francisco Motors Corp. v Court of Appeals, 309 SCRA 72 (1999) q Traders Royal Bank v. CA, 269 SCRA 15 (1997) q Indophil Textile Mill Workers Union-‐PTGWO v. Calica, 205 SCRA 697 (1992) q Umali v. CA, 189 SCRA 529 (1990) q Del Rosario v. NLRC, 187 SCRA 777 (1990) q Yu v. NLRC, 245 SCRA 134 (1995) q Boyer-‐Roxas v. Court of Appeals, 211 SCRA 470 (1992) q Nisce v. Equitable PCI Bank, Inc., 516 SCRA 231 (2007) q Marubeni Corporation v. Lirag, 362 SCRA 620 (2001)

IV. POWERS OF CORPORATIONS A. GENERAL (Sec. 36) B. SPECIFIC

1. Amend the articles of incorporation and by-‐laws (Sec. 16, 48) 2. Extend/shorten corporate term (Sec. 37, 81[1]) 3. Increase/decrease authorized capital stock (Sec. 38) 4. Incur, create or increase bonded indebtedness (Sec. 38)

5. Sell or dispose of assets (Sec. 40; see also Act No. 3952 [Bulk Sales Law])

q Caltex (Phils.) Inc. v. PNOC Shipping and Transport Corp. 498 SCRA 400 (2006)

6. Investment of corporate funds (Sec. 42) q De la Rama v. Ma-‐ao Sugar Central Co., 27 SCRA 247 (1969)

7. Declare dividends

q Nielson & Co. v. Lepanto Consolidated Mining Co., 26 SCRA 540 (1968)

8. Enter into management contracts q Nielson & Co. v. Lepanto Consolidated Mining Co., supra

C. IMPLIED AND INCIDENTAL (Par. 11, Sec. 36) q Inter-‐Asia Investments Industries v. CA, 403 SCRA 452 (2003) q Luneta Motor Co. v. A.D. Santos Inc., 5 SCRA 809 (1962) q Teresa Electric Power Co. Inc. v. PSC, 21 SCRA 198 (1967)

1. Act as guarantor/surety of another corporation

SEC Opinions dated 24 March 1982, 30 July 1987, 16 December 1991

2. Enter into a partnership or joint venture q Tuason & Co. v. Bolaños, 95 Phil. 106 (1954)

SEC Opinion dated 29 February 1980

D. ULTRA VIRES DOCTRINE (Sec. 45) q Govt. of the Philippine Islands v. El Hogar Filipino, 50 Phil. 399 (1927) q Atrium Management Corp. v. CA, 353 SCRA 23 (2001) q Safic Alcan & Cie v. Imperial Vegetable Oil Co. Inc., 355 SCRA 559 (2001) q Pirovano v. De la Rama Steamship Co., Inc., 96 Phil. 335 (1954)


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q Harden v. Benguet Consolidated Mining Co., 58 Phil. 140 (1933) q NPC v. Alonzo-‐Legasto, 443 SCRA 342 (2004)

V. CONTROL AND MANAGEMENT OF CORPORATIONS

A. BOARD OF DIRECTORS OR TRUSTEES

1. General (Sec. 23)

q Ramirez v. Orientalist Co., 38 Phil. 634 (1918) q Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006) q Filipinas Port Services v. Go, 518 SCRA 453 (2007) q Board of Liquidators v. Heirs of Maximo Kalaw, 20 SCRA 987 (1967) q Francisco v. GSIS, 7 SCRA 557 (1963)

2. Qualifications and Disqualifications (Sec. 23, 27)

q Gokongwei , Jr. v. SEC, 89 SCRA 336 (1979) q Lee v. CA, 205 SCRA 752 (1992) q Detective and Protective Bureau v. Cloribel, 26 SCRA 256

3. Election, Vacancies, Removal (Sec. 24, 25, 26, 28, 29)

q Premium Marble Resources, Inc. v. Court of Appeals, 264 SCRA 11 (1996) q Monfort Hermanos Agricultural Devt. Corp. v. Monfort III, 434 SCRA 27 (2004), supra

4. Term (Sec. 23, 92, 108)

5. Meetings (Sec. 49, 53, 54, 92, 97, 101) q Lopez Realty Inc. v. Fortencha, 247 SCRA 183 (1995) q Tan v. Sycip, 499 SCRA 216 (2006) q Lopez v. Ericta, 45 SCRA 539 (1972)

6. Duties of Directors (Sec. 31-‐34; see SEC Memo Circular No. 6, series of 2009) a. General Rule

q Strategic Alliance Devt Corp v. Radstock Securities Ltd., et al, 607 SCRA 413 (2009)

b. Duty of Diligence; Business Judgment Rule q Steinberg v. Velasco, 52 Phil. 953 (1929) q Montelibano v. Bacolod-‐Murcia Milling Co., Inc., 5 SCRA 36 (1962) q PSE v. CA, 281 SCRA 232 (1997) q Ong Yong v. Tiu, 401 SCRA 1 (2003)

c. Fiduciary Duty

q Republic of the Philippines v. Sandiganbayan (First Division), et al, G.R. Nos. 166859, 169203, 180702, April 12, 2011, including dissenting opinions

(i) The self-‐dealing director (Sec. 32)

q Palting v. San Jose Petroleum, 18 SCRA 924 q Mead v. McCollough, 21 Phil. 95 (1911) q Prime White Cement Corp. v. IAC, 220 SCRA 103 (1993), supra

(ii) Fixing of compensation (Sec. 30) q Central Cooperative Exchange v. Tibe, Jr. 33 SCRA 593 (1970) q Western Institute of Technology Inc. v. Salas, 278 SCRA 216 (1997)


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(iii) Using inside information (SRC Sec. 3.8, 23, 27) q Strong v. Repide, 41 Phil. 947 (1909)

(iv) Seizing corporate opportunity (Sec. 34)

q Gokongwei , Jr. v. SEC, 89 SCRA 336 (1979), supra

(v) Interlocking directors (Sec. 33)

7. Executive Committee (Sec. 35) q Filipinas Port Services Inc. v. Go, 518 SCRA 453 (2007), supra

B. OFFICERS (Sec. 25)

1. Definition

q Matling Industrial and Commercial Corp., et al v. Coros, G.R. No. 157802, October 13, 2010

q Real v. Sangu Philippines Inc., G.R. No. 168757, January 19, 2011 SEC Opinion dated Dec 16, 1991

2. General Rule

q Vicente v. Geraldez, 52 SCRA 210 (1973) q Yao Ka Sin Trading v. CA, 209 SCRA 763 (1992) q San Juan Structural and Steel Fabricators v. CA, 296 SCRA 631 (1998)

3. Exception

q Board of Liquidators v. Heirs of Maximo Kalaw, 20 SCRA 987 (1967), supra q Woodchild Holdings Inc. v. Roxas Electric Construction Co, Inc., 436 SCRA 235 (2004) q Francisco v. GSIS, 7 SCRA 577 (1963) q Nyco Sales Corp. v. BA Finance Corp., 200 SCRA 637 (1991)

4. Liabilities

q Vazquez v. Borja, 74 Phil. 560 (1944) q Palay, Inc. v. Clave, 124 SCRA 638 (1993) q Tramat Mercantile Inc. v. CA, 238 SCRA 14 (1994) q People’s Air Cargo v. CA, 297 SCRA 170 (1998) q Rural Bank of Milaor v. Ocfemia,325 SCRA 99 (2000) q Alba v. Yupangco, G.R. No. 188233, June 29, 2010

C. STOCKHOLDERS OR MEMBERS

1. Subscription to shares (Sec. 60, 61, 66, 13, 72)

q Tan v. Sycip, 499 SCRA 216 (2006), supra SEC Opinion dated October 9, 1995 addressed to Atty. A.B.F. Gaviola, Jr.

a. Pre-‐emptive right (Sec. 39, 102)

q Makati Sports Club Inc. v. Cheng, G.R. No. 178523, June 16, 2010 b. Watered stock (Sec. 65) c. Consideration (Sec. 62)

2. Issuance of stock certificate (Sec. 64, 73) q Tan v. SEC, 206 SCRA 740 (1992) q De los Santos v. Republic, 96 Phil. 577 (1955) q Angeles v. Santos, 64 Phil. 697 (1937)

SEC Opinion No. 02-‐05, dated January 31, 2005 (re: bearer certificates)


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3. Unpaid subscriptions (Sec. 66-‐71) q Apodaca v. NLRC, 172 SCRA 442 (1989)

4. Powers/Rights

a. Vote (24, 72, 55-‐59; 6; 89, 100) SEC Opinion No. 26, s. 2003, dated March 22, 2003, addressed to Ms. Jaycel Sato (re: voting by trustees through the internet) SEC Memorandum Circular No. 4, dated March 17, 2004 (re: voting by mail and one share-‐one vote policy); But see SEC OGC Opinion No. 02-‐10 (Founder’s Shares)

b. Election of directors

q Tan v. Sycip, 499 SCRA 216 (2006), supra

c. Removal of directors (Sec. 28) q Angeles v. Santos, 64 Phil. 697 (1937), supra

d. Approve fundamental changes (Sec. 6, 16, 38, 40, 42, 48, 77)

e. Others (Sec. 30, 32, 34, 43, 44, 62, 104) q Lee v. CA, 205 SCRA 752 (1992), supra

f. Pre-‐emptive Right (Sec. 39) g. Stock Certificate (Sec. 64)

q Makati Sports Club Inc. v. Cheng, G.R. No. 178523, June 16, 2010, supra q Angeles v. Santos, 64 Phil. 697 (1937), supra

h. Transfer Shares (Sec. 63, 90, 91)

q Sunset View Condominium Corp. v. Campos, 104 SCRA 295 (1981) q Razon v. IAC, 207 SCRA 234 (1992) q Rural Bank of Salinas v. CA, 210 SCRA 510 (1992) q Batangas Laguna Tayabas Bus Co., Inc. v. Bitanga, 362 SCRA 365 (2001) q Rural Bank of Lipa City v. CA, 366 SCRA 188 (2001) q Ponce v. Alsons Cement Corp, 393 SCRA 602 (2002) q Republic v. Estate of Hans Menzi, 476 SCRA 20 (2005)

(i) Forged and unauthorized transfers q J. Santamaria v. HSBC, 89 Phil. 780 (1951) q Neugene Marketing Inc. v. CA, 303 SCRA 295 (1999)

i. Dividends (Sec. 43)

q CIR v. Manning, 66 SCRA 14, supra j. Inspect corporate records (Sec. 74)

q Africa v. PCGG, 205 SCRA 39 (1992) q Veraguth v. Isabela Sugar Co., 57 Phil. 266 (1932) q Gonzales v. PNB, 122 SCRA 490 (1983)

k. Financial Statements (Sec. 75) l. Appraisal right (Sec. 81-‐86, 105)


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m. Derivative suit (Interim Rules of Procedure for Intra-‐Corporate Controversies) q SMC v. Kahn, 176 SCRA 447 (1989) q Chua v. CA, 443 SCRA 259 (2004) q Yu v. Yukayguan, 589 SCRA 588 (2009)

n. Proportionate Share of Assets Upon Dissolution (Sec. 122)

5. Devices Affecting Control

a. Proxies (Sec. 58) q Alejandrino v. De Leon, G.R. No. 49043, Dec. 29, 1943 q State ex rel. Everett Trust & Savings Banks v. Pacific Waxed Paper Co., et al,

SC of Washington, 1945, 22 Wash. 2d 844, 157 P. 2d 707, 159, ALR 297* SEC Opinion dated June 14, 1995 addressed to Mr. Cesar Arambulo

b. Voting Trust (Sec. 59)

q National Investment & Development Corporation v. Aquino, 163 SCRA 153 (1988)

q Lee v. CA, 205 SCRA 752 (1992), supra

c. Pooling and voting agreements (Sec. 100) q EK Buck Retail Stores v. Harkert, 157 Neb 867, 62 NW 2d 288 (1954)*

d. Cumulative Voting e. Classification of Shares f. Restrictions on Transfers of Shares (Sec. 97, 98, 99)

Right of first refusal, tag-‐along right, drag-‐along right q Lim Tay v. CA, 293 SCRA 634 (1998)

SEC Opinion dated June 8, 1995 addressed to Atty. Helen de Leon-‐Manzano

g. Prescribing qualifications for Directors; Founders’ Shares (Sec. 7) h. Management contracts (Sec. 44) i. Unusual voting and quorum requirements (Sec. 97)

6. Meetings (Sec. 49-‐52, 54, 93)

VI. MERGER AND CONSOLIDATION (Sec. 76-‐80, 132)

q McLeod v. NLRC, 512 SCRA 222 (2007) q PNB v. Andrada Electric & Engineering Co., 381 SCRA 244 (2002) q Filipinas Post Services v. NLRC, 177 SCRA 203 (1989)

VII. FOREIGN CORPORATIONS

A. Definition (Sec. 123) B. Requirement for license to do business (Sec. 125-‐126, 129)

q Avon Insurance PLC v. CA, 278 SCRA 312 (1997)

C. Resident Agent (Sec. 127-‐128) q Expertravel & Tours Inc. v. CA, 459 SCRA 147 (2005)


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D. Concept of “Doing Business” (Sec. 3(d), R.A. No. 7042, as amended) q Mentholatum v. Mangaliman, 72 Phil. 525 (1941) q Agilent Technologies Singapore v. Integrated Silicon Technology Phil. Corp., 427 SCRA

593 (2004) q European Resources and Technologies, inc. v. Ingenieuburo Birkhanh + Nolte, 435 SCRA

246 (2004) q Cargill Inc. v. Intra Strata Assurance Corporation, 615 SCRA 304 (2010)

E. Effect of doing business without a license (Sec. 133)

q Eriks Ltd. v. CA, 267 SCRA 567 (1997) q Home Insurance Co. v. Eastern Shipping Lines, 123 SCRA 424 (1983) q Merrill Lynch Futures, Inc. v. CA, 211 SCRA 824 (1992)

F. Amendment (Sec. 130-‐131) G. Revocation of license and withdrawal (Sec. 135-‐136)

VIII. DISSOLUTION

A. Voluntary Dissolution (Secs. 118-‐120)

q Alhambra Cigar & Cigarette Mfg v. SEC, 24 SCRA 269 (1968), supra B. Involuntary Dissolution (Sec. 119; Sec. 6(l), PD 902-‐A; Sec. 2, Rule 66, Rules of Court) C. Effects

q PNB v. CFI of Rizal, Pasig Br XXI, 209 SCRA 294 (1992)

D. Liquidation (Sec. 122) q Board of Liquidators v. Kalaw, 20 SCRA 987 (1967), supra q Clemente v. CA, 242 SCRA 717 (1995) q Reburiano v. CA,301 SCRA 342 (1999) q National Abaca Corp. v. Pore, 2 SCRA 989 (1961) q Tan Tiong Bio v. Commissioner, 100 Phil. 86 (1956) q Gelano v. CA, 103 SCRA 90 (1981)

IX. NON-‐STOCK CORPORATIONS (Sec. 87-‐95)

q Collector of Internal Revenue v. Club Filipino Inc. de Cebu, 5 SCRA 321 (1962) q Collector of Internal Revenue v. University of Visayas, 1 SCRA 669 (1961)

SEC Opinion dated February 24, 2003 (re: conversion of non-‐stock educational institution into a stock corporation) Re: Foundation -‐ See Sec. 30 and 34(H), NIRC

X. CLOSE CORPORATIONS (Sec. 96-‐105)

q Manuel R. Dulay Enterprises v. CA, 225 SCRA 678 (1993) q San Juan Structural and Steel Fabricators v. CA, 296 SCRA 631 (1998), supra q Sergio F. Naguiat v. NLRC, 269 SCRA 564 (1997)

XI. SPECIAL CORPORATIONS

A. EDUCATIONAL CORPORATIONS (Sec. 106-‐108) B. RELIGIOUS CORPORATIONS (Sec. 109-‐116)

q Iglesia Evangelica Metodista En Las Filipinas (Corporation Sole), Inc., et al v. Bishop Nathanael Lazaro, et al, G.R. No. 184088, July 6, 2010

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Documents

2011 Outline.pdf