Syllabus Corpo/SRC/FIA

8/19/2019 Syllabus Corpo/SRC/FIA

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ULS College of Law

2nd Semester SY 2015-2016

COMMERCIAL LA RE!IE

Outline in Corporation Law and Allied laws

MA. KAREN A. BALDONADO-GUILLERMO

A. FOREIGN INE!"MEN" AC" # RA $%&'

(. )oli*+ #

1. To attract, promote and welcome productive investments from foreign individuals, partnerships,

corporations, and governments, including their political subdivisions, in activities which

significantly contribute to national industrialization and socioeconomic development to the

extent that foreign investment is allowed in such activity by the Constitution and relevant laws;

2. To encourage foreign investments in enterprises that significantly expand livelihood and

employment opportunities for ilipinos; enhance economic value of farm products; promote the

welfare of ilipino consumers; expand the scope, !uality and volume of exports and their

access to foreign mar"ets; and#or transfer relevant technologies in agriculture, industry and

support services;and

$. To welcome oreign investments as a supplement to ilipino capital and technology in those

enterprises serving mainly the domestic mar"et

%s a general rule, there are no restrictions on extent of foreign ownership of export enterprises.

&n domestic mar"et enterprises, foreigners can invest as much as one hundred percent '1(()*

e!uity except in areas included in the negative list. oreign owned firms catering mainly to thedomestic mar"et shall be encouraged to underta"e measures that will gradually increase ilipino

participation in their businesses by ta"ing in ilipino partners, electing ilipinos to the board of

directors, implementing transfer of technology to ilipinos, generating more employment for the

economy and enhancing s"ills of ilipino wor"ers. 'sec. 2, +% (-2*

2. ),ilippine national #

",e ollowin are ),ilippine Nationals/

i. a citizen of the hilippines or a domestic partnership or association wholly owned by citizens of the hilippines; or ii. a corporation organized under the laws of the hilippines of which at least sixty percent

'/()* of the capital stoc" outstanding and entitled to vote is owned and held by citizensof the hilippines or a

iii. corporation organized abroad and registered as doing business in the hilippine under the Corporation Code of which one hundred percent '1(()* of the capital stoc" outstanding and entitled to vote is wholly owned by ilipinos or

iv. a trustee of funds for pension or other employee retirement or separation benefits,where the trustee is a hilippine national and at least sixty percent '/()* of the fund will accrue to the benefit of hilippine national.

rovided, That where a corporation and its non0ilipino stoc"holders own stoc"s in aecurities and xchange Commission 'C* registered enterprise, at least sixty percent '/()* of the capital stoc" outstanding and entitled to vote of each of both corporationsmust be owned and held by citizens of the hilippines and at least sixty percent '/()* of the members of the 3oard of 4irectors of each of both corporations must be citizens of the hilippines, in order that the corporation shall be considered a hilippine national;'as amended by +.%. 516*.

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'.( Ga01oa 2. "e2es3 GR ($45$63 O*t 63 '%(' 7and 8une '93 '%(( de*ision:

%ny citizen or 7uridical entity desiring to operate a public utility must therefore meet the minimum

nationality re!uirement prescribed in ection 11, %rticle 8&& of the Constitution.

ull beneficial ownership of /( percent of the outstanding capital stoc", coupled with /( percent

of the voting rights, is re!uired. The legal and beneficial ownership of /( percent of the outstanding

capital stoc" must rest in the hands of ilipino nationals in accordance with the constitutional mandate

The /(0-( ownership re!uirement in favor of ilipino citizens in ection 11, %rticle 8&& of the

Constitution must apply not only to shares with voting rights but also to shares without voting rights.

referred shares when denied the right to vote in the election of directors, are anyway still entitled

to vote on the eight specific corporate matters mentioned above. aid act are acts of ownership.

The evident purpose of the citizenship re!uirement is to prevent aliens from assuming control of public utilities, which may be inimical to the national interest. This specific provision explicitly reserves to ilipino citizens control of public utilities, pursuant to an overriding economic goal of the165 Constitution9 to conserve and develop our patrimony and ensure a self0reliant and

independent national economy effectively controlled by ilipinos.

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The following acts shall not be deemed “doing business” in the Philippines:

(1) s or distributor>s own name and account;

(4) The publication of a general advertisement through any print or broadcast media;

(5)


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$.& @a,n 2 CA3 GR ((;%$&3 8an ''3 (66$=ahn was appointed as exclusive distributor of 3


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&o 'o%eign uit$1.


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a.* irearms 'handguns to shotguns*, parts of firearms and ammunition therefore, instruments or

implements used or intended to be used in the manufacture of firearmsb.* Iunpowderc.* 4ynamited.* 3lasting suppliese.* &ngredients used in ma"ing explosives9f.* Telescopic sight, sniper scope and other similar devices

2.


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2. Dp to $ hectares of rural land

c.) urchase of not more than -() interest in a condominium pro7ect; and

d.) :wnership through ilipinos who are married to aliens who retain their ilipino citizenship

e.) They shall have the same investment rights as hilippine citizens in9

i. cooperative '+% /6$5*;

ii. rural ban"s '+% $B$*;

iii. thrift ban"s and private development ban"s '+% 6(/*; and

iv. financing companies '+% B65(*.

These %ights6 howee%6 shall not etend to:

o

%ctivities reserved by the Constitutiono xercise of profession in the hilippines

o 4efense0related activities 'unless specificall authorized*

o %ctivities covered by +etail Trade %ct, ecurity %gency %ct, mall cale


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% related purpose of the governmental regulation of margins is the stabilization of the

economy. +estrictions on margin percentages are imposed in order to achieve the ob7ectives of the

government with due regard for the promotion of the economy and prevention of the use of

excessive credit.

:therwise stated, the margin re!uirements set out in the +% are primarily intended to achieve

a macroeconomic purpose, that is why payment of traded shares within specified periods are meant for the protection of the overall economy from excessive speculation in securities, and thus,

mandatory. Their recognized secondary purpose is to protect small investors.

'. !e*urities #

JecuritiesJ are shares, participation or interests in a corporation or in a commercial enterprise or

profit0ma"ing venture and evidenced by a certificate, contract, instruments, whether written or

electronic in character. &t includes9

'a* hares of stoc"s, bonds, debentures, notes evidences of indebtedness, asset0bac"edsecurities;

'b* &nvestment contracts, certificates of interest or participation in a profit sharing agreement,

certifies of deposit for a future subscription;

'c* ractional undivided interests in oil, gas or other mineral rights;

'd* 4erivatives li"e option and warrants;

'e* Certificates of assignments, certificates of participation, trust certificates, voting trust certificates

or similar instruments

'f* roprietary or nonproprietary membership certificates in corporations; and

'g* :ther instruments as may in the future be determined by the Commission.

'.( )ower @o0es Unli0ited Corp. 2. !EC3 GR (4&(9'3 Fe1. '43 '%%9

%n investment contract is a transaction or scheme 'collectively contract* whereby a person

invests his money in a common enterprise and is led to expect profits p%ima%il$ from the efforts

of others

?e therefore rule that the business operation or the scheme of petitioner constitutes aninvestment contract that is a security under +.%. Ao. 566. Thus, it must be registered with public respondent C before its sale or offer for sale or distribution to the public. %s petitioner failed toregister the same, its offering to the public was rightfully en7oined by public respondent C. %s aninvestment contract that is security under +.%. Ao. 566, it must be registered with public respondent C, otherwise the C cannot protect the investing public from fraudulent securities. The strict regulation of securities is founded on the premise that the capital mar"etsdepend on the investing public level of confidence in the system.

'.' !EC 2. )rosperit+.Co0 In*.3 GR (4&(6$3 8anuar+ '53 '%('

or an investment contract to exist, the following elements, referred to as the =owey test must concur9 '1* a contract, transaction, or scheme; '2* an investment of money; '$* investment ismade in a common enterprise; '-* expectation of profits; and 'B* profits arising primarily from theefforts of others. Thus, to sustain the C position in this case, C&s scheme or contract with itsbuyers must have all these elements.

The buyers of the website do not invest money in C& that it could use for running somebusiness that would generate profits for the investors. The price of DH2$-.(( is what the buyer

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pays for the use of the website, a tangible asset that C& creates, using its computer facilities and technical s"ills.

2. !EC 2. !antos3 GR (655&'3 Mar*, (63 '%(&

a person must first and foremost be engaged in the business of buying and selling securities in

the hilippines before he can be considered as a bro"er, a dealer or salesman within the coverage of

the ecurities +egulation Code.

. Issuer # is any entity authorized by the Commission to offer to sell, sell or promote the sale to the

public of its e!uity, bonds, instruments of indebtedness and other forms of securities.&. Bro=er # is a person engaged in the business of buying and selling securities for the account of

others.

5. Dealer # means many person who buys sells securities for his#her own account in the ordinary course of business./

!. Asso*iated person o a 1ro=er or dealer #

is an employee therefor whom, directly exercises

control of supervisory authority, but does not include a salesman, or an agent or a person whose

functions are solely clerical or ministerial.$. Clearin aen*+ #

is any person who acts as intermediary in ma"ing deliveries upon payment

effect settlement in securities transactions.#. E


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'a* =ave 7urisdiction and supervision over all corporations, partnership or associations who are the

grantees of primary franchises and#or a license or a permit issued by the Iovernment;

'b* ormulate policies and recommendations on issues concerning the securities mar"et, advise

Congress and other government agencies on all aspect of the securities mar"et and propose

legislation and amendments thereto;

'c* %pprove, re7ect, suspend, revo"e or re!uire amendments to registration statements, and registration and licensing applications;

'd* +egulate, investigate or supervise the activities of persons to ensure compliance;

'e* upervise, monitor, suspend or ta"e over the activities of exchanges, clearing agencies and

other +:s;

'f* &mpose sanctions for the violation of laws and rules, regulations and orders, and issued pursuant

thereto;

'g* repare, approve, amend or repeal rules, regulations and orders, and issue opinions and

provide guidance on and supervise compliance with such rules, regulation and orders;

'h* nlist the aid and support of and#or deputized any and all enforcement agencies of the

Iovernment, civil or military as well as any private institution, corporation, firm, association or

person in the implementation of its powers and function under its Code;

'i* &ssue cease and desist orders to prevent fraud or in7ury to the investing public;

'7* unish for the contempt of the Commission, both direct and indirect, in accordance with the

pertinent provisions of and penalties prescribed by the +ules of Court;

'"* Compel the officers of any registered corporation or association to call meetings of stoc"holders

or members thereof under its supervision;

'l* &ssue subpoena duces tecum and summon witnesses to appear in any proceedings of the

Commission and in appropriate cases, order the examination, search and seizure of all documents,

papers, files and records, tax returns and boo"s of accounts of any entity or person under

investigation as may be necessary for the proper disposition of the cases before it, sub7ect to the

provisions of existing laws;

'm* uspend, or revo"e, after proper notice and hearing the franchise or certificate of registration of

corporations, partnership or associations, upon any of the grounds provided by law; and

'n* xercise such other powers as may be provided by law as well as those which may be implied

from, or which are necessary or incidental to the carrying out of, the express powers granted the

Commission to achieve the ob7ectives and purposes of these laws.

The Commission>s 7urisdiction over all cases enumerated under section B of residential

4ecree Ao. 6(20% is hereby transferred to the Courts of general 7urisdiction or the appropriate

+egional Trial Court9 rovided, That the upreme Court in the exercise of its authority may

designate the +egional Trial Court branches that shall exercise 7urisdiction over the cases. TheCommission shall retain 7urisdiction over pending cases involving intra0corporate disputes

submitted for final resolution which should be resolved within one '1* year from the enactment

of this Code. The Commission shall retain 7urisdiction over pending suspension of

payment#rehabilitation cases filed as of $( Kune 2((( until finally disposed.

(9. Reuire0ent o Reistration o !e*urities-

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ecurities shall not be sold or offered for sale or distribution within the hilippines, without a

registration statement duly filed with and approved by the Commission. rior to such sale,

information on the securities, in such form and with such substance as the Commission may

prescribe, shall be made available to each prospective purchaser.

The Commission may conditionally approve the registration statement under such terms as it

may deem necessary.

The Commission may specify the terms and conditions under which any written communication,

including any summary prospectus, shall be deemed not to constitute an offer for sale under this

ection.

% record of the registration of securities shall be "ept in +egister ecurities in which shall be

recorded orders entered by the Commission with respect such securities. uch register and all

documents or information with the respect to the securities registered therein shall be open to public

inspection at reasonable hours on business days.

The Commission may audit the financial statements, assets and other information of firmapplying for registration of its securities whenever it deems the same necessary to insure full

disclosure or to protect the interest of the investors and the public in general. '+% 566 sec. 5*

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-. &n an amount not exceeding :ne =undred ifty


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'e* The sale of capital stoc" of a corporation to its own stoc"holders exclusively, where no

commission or other remuneration is paid or given directly or indirectly in connection with the sale of

such capital stoc".

'f* The issuance of bonds or notes secured by mortgage upon real estate or tangible personal

property, when the entire mortgage together with all the bonds or notes secured thereby are sold to

a single purchaser at a single sale.

'g* The issue and delivery of any security in exchange for any other security of the same issuer

pursuant to a right of conversion entitling the holder of the security surrendered in exchange to ma"e

such conversion9rovided, That the security so surrendered has been registered under this Code or

was, when sold, exempt from the provision of this Code, and that the security issued and delivered

in exchange, if sold at the conversion price, would at the time of such conversion fall within the class

of securities entitled to registration under this Code. Dpon such conversion the par value of the

security surrendered in such exchange shall be deemed the price at which the securities issued and

delivered in such exchange are sold.

'h* 3ro"er>s transaction, executed upon customer>s orders, on any registered xchange or other trading mar"et.

'i* ubscriptions for shares of the capitals stoc"s of a corporation prior to the incorporation thereof or

in pursuance of an increase in its authorized capital stoc"s under the Corporation Code, when no

expense is incurred, or no commission, compensation or remuneration is paid or given in connection

with the sale or disposition of such securities, and only when the purpose for soliciting, giving or

ta"ing of such subscription is to comply with the re!uirements of such law as to the percentage of

the capital stoc" of a corporation which should be subscribed before it can be registered and duly

incorporated, or its authorized, capital increase.

'7* The exchange of securities by the issuer with the existing security holders exclusively, where nocommission or other remuneration is paid or given directly or indirectly for soliciting such exchange.

'"* The sale of securities by an issuer to fewer than twenty '2(* persons in the hilippines during any

twelve0month period.

'l* The sale of securities to any number of the following !ualified buyers9

'i* 3an";

'ii* +egistered investment house;

'iii* &nsurance company;

'iv* ension fund or retirement plan maintained by the Iovernment of the hilippines or any

political subdivision thereof or manage by a ban" or other persons authorized by the 3ang"o

entral to engage in trust functions;

'v* &nvestment company or;

'vi* uch other person as the Commission may rule by determine as !ualified buyers, on the

basis of such factors as financial sophistication, net worth, "nowledge, and experience infinancial and business matters, or amount of assets under management.

The Commission may exempt other transactions, if it finds that the re!uirements of registration

under this Code is not necessary in the public interest or for the protection of the investors such as

by the reason of the small amount involved or the limited character of the public offering.

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%ny person applying for an exemption under this ection, shall file with the Commission a

notice identifying the exemption relied upon on such form and at such time as the Commission by

the rule may prescribe and with such notice shall pay to the Commission fee e!uivalent to one0tenth

'1#1(* of one percent '1)* of the maximum value aggregate price or issued value of the securities.

'sec 1(, +% 566*

Nestle ),il 2. CA3 GR 94$;93 No2 (;3 (66(

Dnder the ruling issued by the C, an issuance of previously authorized but still unissued

capital stoc" may, in a particular instance, be held to be an exempt transaction by the C under

ection /'b* so long as the C finds that the re!uirements of registration under the +evised

ecurities %ct are Jnot necessary in the public interest and for the protection of the investorsJ by

reason, inter alia, of the small amount of stoc" that is proposed to be issued or because the potential

buyers are very limited in number and are in a position to protect themselves.

2+. Co00odit+ Future Contra*ts #

Ao person shall offer, sell or enter into commodity futures

contracts except in accordance with the rules, regulations and orders the Commission may prescribe

in the public interest. The Commission shall promulgate rules and regulations involving commodity futures contracts to protect investors to ensure the development of a fair and transparent

commodities mar"et 'sec 11, +% 566*

'(. Reulation o )re-Need )lans #

Ao person shall sell or offer for sale to the public any pre0need

plan except in accordance with rules and regulations which the Commission shall prescribe. uch

rules shall regulate the sale of pre0need plans by, among other things, re!uiring the registration of

pre0need plans, licensing persons involved in the sale of pre0 need plans, re!uiring disclosures to

prospective plan holders, prescribing advertising guidelines, providing for uniform accounting

system, reports and recording "eeping with respect to such plans, imposing capital, bonding and

other financial responsibility, and establishing trust funds for the payment of benefits under such

plans.''. Reportorial reuire0ents #

Public and epo%ting 8ompanies

This +C +ule shall apply to all public and reporting companies as defined in +C +ule $. =owever,

the obligation of a company which has sold a class of its securities pursuant to a registration under

ection 12 of the Code shall be suspended for any fiscal year if, as of the first day of any such fiscal

year, it has less than one hundred '1((* holders of such class of securities and the Commission is

notified of that fact. The suspension shall be availed of only after the year the registration became

effective.

;. The public and %epo%ting companies shall file with the 8ommission:

a. %n annual report on C orm 10% for the fiscal year in which the registration statement was

rendered effective by the Commission, and for each fiscal year thereafter, within one hundred

five '1(B* calendar days after the end ofthe fiscal year;b. % !uarterly report on C orm 10O within forty five '-B* calendar days after the end of each of

the first three !uarters of each fiscal year. The first !uarterly report of the &ssuer shall be filed

either within forty five '-B* calendar days after the effective date of the registration statement or

on or before the date on which such report would have been re!uired to be filed if the &ssuer had

been re!uired previously to file reports on C orm 10O, whichever is later;

c. % current report on C orm 10C, as may be necessary, to ma"e a full, fair and accuratedisclosure to the public of every material fact or event that occurs which would reasonably be

expected to affect the investors@ decisions in relation to those securities. &n the event a news

report appears in the media involving an alleged material event, a current report shall be made

within the period prescribed herein in order to clarify the said news item which may create public

speculation if not officially denied or clarified by the concerned company.

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The disclosu%e %eui%ed b$ 8 ule shall be made b$ the compan$ in

acco%dance with the following guidelines:a. romptly to the public through the news media;b. &f the &ssuer is listed on an xchange, to that xchange and to the Commission

within ten '1(* minutes after the occurrence of the event and prior to its release to

the public through the news media; rovided that, disclosure by the &ssuer to the

xchange may be deemed as filing with the Commission pursuant to a


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means a publicly announced intention by a person acting alone or in concert with other

persons to ac!uire outstanding e!uity securities of a public company as defined in +C +ule $,

or outstanding e!uity securities of an associate or related company of such public company

which controls the said public company.=public compan$ is defined as a corporation.

>andato%$ tende% offe%s :

1.* %ny person or group of persons acting in concert, who intends to ac!uire fifteen percent

'1B )* of e!uity securities in a public compan

y which is listed on an exchange

, or a

corporation with assets exceeding B(,(((,(((.(( and with 2(( or more stoc"holders, at

least 2(( of them holding not less than 1(( shares of such company in one or more

transactions within a period of twelve '12* months, shall file a declaration to that effect with

the Commission.

2.* %ny person or group of persons acting in concert, who intends to ac!uire thirty five percent

'$B)* of the outstanding voting shares or such outstanding voting shares that are sufficient

to gain control of the board in a public company in one or more transactions within a period

of twelve '12* months, shall disclose such intention and contemporaneously ma"e a tender offer for the percentage sought to all holders of such securities within the said period. &f the

tender offer is oversubscribed, the aggregate amount of securities to be ac!uired at the

close of such tender offer shall be proportionately distributed across selling shareholders

JJith whom the ac!uirer may have been in private negotiations and other shareholders. or

purposes of +C +ule 16.2.2, the last sale that meets the threshold shall not be

consummated until the closing and completion of the tender offer.*

$.* %ny person or group of persons acting in concert, who intends to ac!uire thirty five percent


to gain control of the board in a public company through the xchange trading system shall

not be re!uired to ma"e a tender offer even if such person or group of persons acting inconcert ac!uire the remainder through a bloc" sale if, after ac!uisition through the

xchange trading system, they fail to ac!uire their target of thirty five percent '$B)* or such

outstanding voting shares that is sufficient to gain control of the board.

-.* %ny person or group of persons acting in concert, who intends to ac!uire thirty five percent


to gain control of the board in a public company directly from one or more stoc"holders

shall be re!uired to ma"e a tender offer for all the outstanding voting shares. The sale of

shares pursuant to the private transaction or bloc" sale shall not be completed prior to the

closing and completion of the tender offer.

B.* &f any ac!uisition that would result in ownership of over fifty percent 'B()* of the total

outstanding e!uity securities of a public company, the ac!uirer shall be re!uired to ma"e a

tender offer under this +ule for all the outstanding e!uity securities to all remaining

stoc"holders of the said company at a price supported by a fairness opinion provided by an

independent financial advisor or e!uivalent third party. The ac!uirer in such a tender offer

shall be re!uired to accept all securities tendered. '+% 566 &++*

2.1.1 8>89 ?oldings ;nc. . &ational 3ife ;nsu%ance 8o.6 @ 1"1#156 /ug. "6 2++"


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company is obtained, either through the direct purchase of its stoc"s or through an indirect means, mandatory tender offer applies.

T

he bottom line of the law is to give the shareholders of the public company the

opportunity to decide whether or not to sell their shares in connection with the transfer of

control.

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;llegal inside% t%ading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. &nsider trading violations may also include JtippingJ such information,securities trading by the person Jtipped,J and securities trading by those who misappropriate suchinformation.

P9?;;T;9&:

1.) &t shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of

material information with respect to the issuer or the security that is not generally available to the

public, unless9(a) The insider proves that the information was not gained from such relationship; or(b) &f the other party selling to or buying from the insider 'or his agent* is identified, the insider

proves9(i) that he disclosed the information to the other party, or (ii) that he had reason to believe that the other party otherwise is also in possession

ofthe information. % purchase or sale of a security of the issuer made by an insider or such

insider@s spouse or relatives by affinity or consanguinity within the second degree, legitimate or

common0law, shall be presumed to have been effected while in possession of material non

public information if transacted after such information came into existence but prior to

dissemination of such information to the public and the lapse of a reasonable time for mar"et to

absorb such information; rovided, however, That this presumption shall be rebutted upon a

showing by the purchaser or seller that he was aware of the material non public information at

the time of the purchase or sale.2.) &nformation is Jmaterial nonpublicJ under this +ule if9 'a* &t has not been generally disclosed

to the public and would li"ely affect the mar"et price of the security after being disseminated to the

public and the lapse of a reasonable time for the mar"et to absorb the information; or 'b* would be

considered by a reasonable person important under the circumstances in determining his course of

action whether to buy, sell or hold a security..) &t shall be unlawful for any insider to communicate material nonpublic information about the

issuer or the security to any person who, by virtue of the communication, becomes an insider as

defined in ection $.5 of the Code, where the insider communicating the information "nows or has

reason to believe that such person will li"ely buy or sell a security of the issuer whole in possession

of such information.4.) ?here a tender offer has commenced or is about to commence, it shall be unlawful for9a. %ny person 'other than the tender offeror* who is in possession of material nonpublic

information relating to such tender offer, to buy or sell the securities of the issuer that are sought or

to be sought by such tender offer if such person "nows or has reason to believe that the information

is nonpublic and has been ac!uired directly or indirectly from the tender offeror, those acting on its

behalf, the issuer of the securities sought or to be sought by such tender offer, or any insider of suchissuer; and

b. %ny tender offeror, those acting on its behalf, the issuer of the securities sought or to be

sought by such tender offer, and any insider of such issuer to age 62 of 25( 2(#B +C #++

communicate material non public information relating to the tender offer to any other person where

such communication is li"ely to result in a violation of the preceding +C +ule.

The term Jsecurities of the issuer sought or to be sought by such tender offerJ shall include any

securities convertible or exchangeable into such securities or any options or rights in any of the

foregoing securities. '+ule 2, +% 566 &++*

'&.(!EC 2. Interport Resour*es Corp3 GR (;59%93 O*to1er 43 '%%9The +evised ecurities %ct does not re!uire the enactment of implementing rules to ma"e it binding and effective. The provisions of the +% are sufficiently clear and complete by themselves. The re!uirements arespecifically set out and the acts which are en7oined are determinable. The insider@s misuse of nonpublic and undisclosed information is the gravamen of illegal conduct. The intent of the law is the

protection of investors against fraud, committed when an insider, using secret information,ta"es advantage of an uninformed investor. &nsiders are obligated to disclose material information to the other party or abstain from trading the shares of his corporation. This duty todisclose or abstain is based on two factors9 first, the existence of a relationship giving access,

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directly or indirectly, to information intended to be available only for a corporate purpose and not for the personal benefit of anyone; and second, the inherent unfairness involved when a

party ta"es advantage of such information "nowing it is unavailable to those with whom he isdealing.

25. Marin "radin # % "ind of trading that allows a bro"er to advance for the customer#investor part of the purchase

price of a security and to "eep it as collateral for such advance.

The credit extended must be for an amount not greater than whichever is higher of9

a. /B) of current mar"et price of the security;or b. 1(() of the lowest mar"et price of security during the preceding $/ calendar

months, but not greater than B) of the current mar"et price '+C, ec. -5*

'5.(A1a*us !e*urities Corp. 2. A0pil3 GR (4%%(43 Fe1. '$3 '%%4The law places the burden of compliance with margin re!uirements primarily upon the

bro"ers and dealers. The mandatory close0out rule, clearly vest upon petitioner the obligation,not 7ust the right, to cancel or otherwise li!uidate a customers order, if payment is not received within three days from the date of purchase. The word shall as opposed to the word may, isimperative and operates to impose a duty, which may be legally enforced. or transactions subse!uent to an unpaid order, the bro"er should re!uire its customer to deposit funds into the account sufficient to cover each purchase transaction prior to its execution. Theseduties are imposed upon the bro"er to ensure faithful compliance with the margin re!uirementsof the law, which forbids a bro"er from extending undue credit to a customer.

2". Ci2il Lia1ilit+ #Citi1an= 2. "an*o-Ga1aldon3 GR (69&&&3 !ept &3 '%(;

ection /2 of the +C provides that no o action shall be maintained to enforce any liability created under ection B/ of the +C 'alse registration statement* and B 'sale of unregistered security and liabilities arising in connection with prospectus, communication and other reports* unless brought within two '2* years after the discovery of the untrue statement or the omission, but not more than five 'B* years after the security was bona fide offered to the

public, ormore than five 'B* years after the sale. The prescriptive periods under the mentioned sections pertain only to civil liability in cases of violations under +C and not to criminal liability under the same violations.

)ua 2. Citi1an=3 GR (9%%4&3 !ept (43 '%(;

C&%&l l&a&l&t&es ar&s&ng from %&olat&ons of t*e re@)&rements for offers to sell or t*e sale of

se)r&t&es' as well as ot*er &%&l s)&ts )nder Set&ons 56' 58' 5:' 60' and 61 of t*e SRC s*all

e el)s&%el+ ro)g*t efore t*e reg&onal tr&al o)rts#

=*erefore &%&l s)&ts fall&ng )nder t*e SRC are )nder t*e el)s&%e or&g&nal


20/91

% corporation, being a creature of law, Jowes its life to the state, its birth being purely dependent on its will,J it is Ja creature without any existence until it has received the imprimatur of the stateacting according to law.J % corporation will have no rights and privileges of a higher priority thanthat of its creator and cannot legitimately refuse to yield obedience to acts of its state organs.'Tanyag v. 3enguet Corporation*

/ co%po%ation has fou% (4) att%ibutes:

'1* &t is an artificial being;'2* Created by operation of law;'$* ?ith right of succession;'-* =as the powers, attributes, and properties as expressly authorized by law or incident toits existence

• Re+es 2. R"C o Ma=ati3 GR (45$&&3 Au ((3 '%%9

The in7ury he see"s to remedy is one suffered by an heir 'for the impairment of his successional rights* and not by the corporation nor by +odrigo as a shareholder on record.

+odrigo is not a shareholder with respect to the shareholdings originally belonging to %nastacia;he only stands as a transferee0heir whose rights to the share are inchoate and unrecorded. %n heir does not automaticall becomes a stoc"older of the corporation.

+odrigo must, hurdle two obstacles before he can be considered a stoc"holder of Qenith with

respect to the shareholdings originally belonging to %nastacia. 'i%st6 he must prove that there are

shareholdings that will be left to him and his co0heirs, and this can be determined only in a settlement

of the decedent>s estate. econd6 he must register the transfer of the shares allotted to him to ma"e it binding against the corporation. =e cannot demand that this be done unless and until he has

established his specific allotment 'and prima facie ownership* of the shares. ?ithout the settlement of

%nastacia>s estate, there can be no definite partition and distribution of the estate to the heirs. ?ithout

the partition and distribution, there can be no registration of the transfer. %nd without the registration,

we cannot consider the transferee0heir a stoc"holder who may invo"e the existence of an intra0

corporate relationship as premise for an intra0corporate controversy within the 7urisdiction of a special

commercial court. The sub7ect shares of stoc" 'i.e., %nastacia>s shares* are concerned R +odrigo

cannot be considered a stoc"holder of Qenith.There is no in7ury, actual or threatened, alleged to have

been done to the corporation due to :scars acts. &f indeed he illegally and fraudulently transferred %nastacias shares in his own name, then the damage is not to the corporation but to his co0heirs; the

wrongful transfer did not affect the capital stoc" or the assets of Qenith. %s already mentioned, neither

has +odrigo alleged any particular cause or wrongdoing against the corporation that he can champion

in his capacity as a shareholder on record.

B. Classes o Corporations #

- Corporations formed or organized may be stoc" or non0stoc" corporations. Corporations which

have capital stoc" divided into shares and are authorized to distribute to the holders of such

shares dividends or allotments of the surplus profits on the basis of the shares held are stoc"

corporations. %ll other corporations are non0stoc" corporations

CIR 2. Clu1 Filipino de Ce1u3 (64'

Page 20 of 91


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or a stoc" corporation to exist, 2 re!uisites must be complied with9 '1* a capital stoc" divided into shares

'2* an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of shares held.

?hat is determinative of whether or not the Club is engaged in such business is itsob7ect or purpose, as stated in its articles and by0laws. ilipino Club is a non stoc" corporation.

The Club was organized to develop and cultivate sports of all class and denominationfor the healthful recreation and entertainment of its stoc"holders and members. There was infact, no cash dividend distribution to its stoc"holders and whatever was derived on retail from itsbar and restaurants used were to defray its overhead expenses and to improve its golf course.&n the case at bar, nowhere in the %:& or by0laws of Club ilipino could be found an authority for the distribution of its dividends or surplus profits

Balu+ot 2. @olana3 '%%%

The hilippine Aational +ed Cross 'A+C* is a government owned and controlled corporation,

with an original charter under +epublic %ct Ao. 6B, as amended. The test to determine whether a

corporation is government owned or controlled, or private in nature is simple. &s it created by its own

charter for the exercise of a public function, or by incorporation under the general corporation lawS

Those with special charters are government corporations sub7ect to its provisions, and its employees

are under the 7urisdiction of the Civil ervice Commission, and are compulsory members of the

Iovernment ervice &nsurance ystem. The A+C was not Jimpliedly converted to a private

corporationJ simply because its charter was amended to vest in it the authority to secure loans, be

exempted from payment of all duties, taxes, fees and other charges of all "inds on all importations

and purchases for its exclusive use, on donations for its disaster relief wor" and other services and in

its benefits and fund raising drives, and be allotted one lottery draw a year by the hilippine Charity

weepsta"es :ffice for the support of its disaster relief operation in addition to its existing lottery

draws for blood program.

Ro0an Cat,oli* C,ur*, 2. Reister o Deeds o Da2ao Cit+3 (65$

+oman Catholic is a corporation sole . % corporation sole is a special form of corporation

usually associated with the clergy %ny corporation sole may purchase and hold real estate and

personal; property for its church, charitable, benevolent, or educational purposes, and may receive

be!uests or gifts of such purposes.

=see nationalit$ of a sole co%po%ation

@all 2. )i**io3 94 !CRA 4%; 7(65%:

The Court held that there was no de facto> corporation on the ground that the corporationcannot claim to be in good faith> to be a corporation when it has not yet obtained its certificate of incorporation.

The court has 7urisdiction on the dissolution of de facto corporation. =owever, in thiscase, they were aware that they have not yet formed a corporation until the issuance of theC registration.

Page 21 of 91


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SEE / REBUISI=ES E7ORE A OE MAY E 9ECLARE9 AS A 9E 7AC=O COR(ORA=IO

8. & ationalit+ o Corporations -

(. )la*e o In*orporation "est # !e* (';

National o t,e *ountr+ under w,ose laws was in*orporated

% foreign corporation is one formed, organized or existing under any laws other than those of

the hilippines and whose laws allow ilipino citizens and corporations to do business in its own

country or state. &t shall have the right to transact business in the hilippines after it shall have obtained

a license to transact business in this country in accordance with this Code and a certificate of authority

from the appropriate government agency.

;. Control "est

Ga01oa 2. "e2es3 GR ($45$63 O*t 63 '%(' 7and 8une '93 '%(( de*ision:

%ny citizen or 7uridical entity desiring to operate a public utility must therefore meet the minimumnationality re!uirement prescribed in ection 11, %rticle 8&& of the Constitution. =ence, for a corporationto be granted authority to operate a public utility, at least /( percent of its capital must be owned by ilipino citizens. The term FcapitalG in ection 11, %rticle 8&& of the Constitution refers only to shares of

stoc" entitled to vote in the election of directors of a public utility, i.e., to the total common shares in4T.

The evident purpose of the citizenship re!uirement is to prevent aliens from assuming control of

public utilities, which may be inimical to the national interest. This specific provision explicitly reserves

to ilipino citizens control of public utilities, pursuant to an overriding economic goal of the 165

Constitution9 to conserve and develop our patrimony and ensure a self0reliant and independent national

economy effectiel$ cont%olled by ilipinos.

4. Grandat,er Rule #

Dnder this rule, corporate stoc"holdings will be traced from the nationality of the stoc"holders of

investor corporations in determining in turn, the nationality of investee corporation. The rule should

apply only if there is a problem on the nationality of the investor0corporation itself. 'C now applies

control test*.

Red0ont Consolidated Mines Corp 2. M* Art,ur Minin In*3 '%(%

The avowed purpose of the Constitution is to place in the hands of Filipinos the

exploitation of our natural resources. Necessarily, therefore, the Rule interpreting

the constitutional provision should not diminish that right through the legal ction of corporate ownership and control. ut the constitutional provision, as interpreted and

practiced via the !"#$ %&C Rules, has favored foreigners contrary to the command

of the Constitution. Hence, the Grandfather Rule must be applied to accurately

determine the actual participation, both direct and indirect, of foreigners in a

corporation engaged in a nationalized activity or business.

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D. Corporate 8uridi*al )ersonalit+ # !e*. (6

(. Do*trine o !eparate 8uridi*al )ersonalit+-

a. Lia1ilit+ or "orts and Cri0es

)NB 2 CA3 (6$9

% corporation is civilly liable in the same manner as natural persons for torts, because

Jgenerally spea"ing, the rules governing the liability of a principal or master for a tort committed

by an agent or servant are the same whether the principal or master be a natural person or a

corporation, and whether the servant or agent be a natural or artificial person. %ll of theauthorities agree that a principal or master is liable for every tort which he expressly directs or

authorizes, and this is 7ust as true of a corporation as of a natural person, % corporation is liable,

therefore, whenever a tortious act is committed by an officer or agent under express direction or

authority from the stoc"holders or members acting as a body, or, generally, from the directors as

the governing body.J

# Re*o2er+ o Moral Da0aes

• Se .6

NA)OCOR 2. ),illip Brot,ers O*eani*3 '%%(

The award of moral damages is li"ewise improper. To reiterate, A%:C:+ did not act in bad faith.


24/91

+ight against self0incrimination has no application to 7uridical persons. There is a reserve right

in the legislature to investigate the contracts of a corporation and find out whether it has exceeded its

powers. &t would be a strange anomaly to hold that a state, having chartered a corporation li"e

3%C: to ma"e use of certain franchises, could not, in the exercise of sovereignty, in!uire how these

franchises had been employed, and whether they had been abused, and demand the production of the

corporate boo"s and papers for that purpose.

Aeither is the right against unreasonable searches and seizures applicable here. There were no

searches made and no seizure pursuant to any search was ever made. 3%C: was merely ordered

to produce the corporate records.

'. Do*trine o )ier*in t,e Corporate eil

&t is a theory introduced for the purpose of convenience and to serve the ends of 7ustice. 3ut

when the veil of corporate fiction is used as a shield to perpetuate fraud, to defeat public convinence, 7ustify wrong or defend crime, this fiction shall be disregarded and the individuals composing it will be

treated identically. This is a 7udicial function.

a# Dro)nds for A$$l&at&on of 9otr&ne "

)NB 2 Andrada Ele*tri* Enineerin Co3 '%%'

Piercing the veil of corporate fiction may be allowed only if the following elements concur:(1) control — not mere stock control, but complete domination — not only of finances, but of policy and

business practice in respect to the transaction attacked, must have been such that the corporate entity as

to this transaction had at the time no separate mind, will or existence of its own

(!) such control must have been used by the defendant to commit a fraud or a wrong to perpetuate the

violation of a statutory or other positive legal duty, or a dishonest and an un"ust act in contravention of

plaintiff#s legal right and

($) the said control and breach of duty must have proximately caused the in"ury or un"ust loss complained

of%

The absence of the foregoing elements in the present case precludes the piercing of the

corporate veil . irst, other than the fact that A3 and A%D4C: ac!uired the assets of

%D


25/91

&t is settled that a corporation has a personality separate and distinct from its individual

stoc"holders or members, and is not affected by the personal rights, obligations and

transactions of the latter The corporation may not be held liable for the obligations of the

persons composing it, and neither can its stoc"holders be held liable for its obligation.

:f course, this Court has recognized instances when the corporations separate

personality may be disregarded. =owever, we have also held that the same may only be done

in cases where the corporate vehicle is being used to defeat public convenience, 7ustify wrong,

protect fraud, or defend crime.


26/91

circumstances which are important and which, if present in the proper combination, arecontrolling.These are as follows9'a* The parent corporation owns all or most of the capital stoc" of the subsidiary.'b* The parent and subsidiary corporations have common directors or officers.'c* The parent corporation finances the subsidiary.'d* The parent corporation subscribes to all the capital stoc" of the subsidiary or otherwisecauses its incorporation.

'e* The subsidiary has grossly inade!uate capital.'f* The parent corporation pays the salaries and other expenses or losses of the subsidiary.'g* The subsidiary has substantially no business except with the parent corporation or no assetsexcept those conveyed to or by the parent corporation.'h* &n the papers of the parent corporation or in the statements of its officers, the subsidiary isdescribed as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation@s own.'i* The parent corporation uses the property of the subsidiary as its own.'7* The directors or executives of the subsidiary do not act independently in the interest of thesubsidiary but ta"e their orders from the parent corporation.'"* The formal legal re!uirements of the subsidiary are not observed.

DB) 2 @RCC3 GR (4$4%;3 Mar*, (;3 '%(;

% corporation is an artificial entity created by operation of law. &t possesses the right of

succession and such powers, attributes, and properties expressly authorized by law or incident to its

existence. &t has a personality separate and distinct from that of its stoc"holders and from that of other

corporations to which it may be connected. %s a conse!uence of its status as a distinct legal entity and

as a result of a conscious policy decision to promote capital formation, a corporation incurs its own

liabilities and is legally responsible for payment of its obligations. &n other words, by virtue of the

separate 7uridical personality of a corporation, the corporate debt or credit is not the debt or credit of the

stoc"holder. This protection from liability for shareholders is the principle of limited liability.

The doctrine of piercing the corporate veil applies only in three '$* basic areas, namely9 1*

defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an

existing obligation; 2* fraud cases or when the corporate entity is used to 7ustify a wrong, protect fraud,

or defend a crime; or $* alter ego cases, where a corporation is merely a farce since it is a mere alter

ego or business conduit of a person, or where the corporation is so organized and controlled and its

affairs are so conducted as to ma"e it merely an instrumentality, agency, conduit or ad7unct of another

corporation.

&n this connection, case law lays down a three0pronged test to determine the application of the

alter ego theory, which is also "nown as the instrumentality theory, namely9

'1* Control, not mere ma7ority or complete stoc" control, but complete domination, not only of finances

but of policy and business practice in respect to the transaction attac"ed so that the corporate entity as

to this transaction had at the time no separate mind, will or existence of its own;

'2* uch control must have been used by the defendant to commit fraud or wrong, to perpetuate theviolation of a statutory or other positive legal duty, or dishonest and un7ust act in contravention of

plaintiff>s legal right; and

'$* The aforesaid control and breach of duty must have proximately caused the in7ury or un7ust loss

complained of.

Page 26 of 91


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The first prong is the JinstrumentalityJ or JcontrolJ test. This test re!uires that the subsidiary be

completely under the control and domination of the parent. &t examines the parent corporation>s

relationship with the subsidiary. &t in!uires whether a subsidiary corporation is so organized and

controlled and its affairs are so conducted as to ma"e it a mere instrumentality or agent of the parent

corporation such that its separate existence as a distinct corporate entity will be ignored. &t see"s to

establish whether the subsidiary corporation has no autonomy and the parent corporation, though

acting through the subsidiary in form and appearance, Jis operating the business directly for itself.J

The second prong is the JfraudJ test. This test re!uires that the parent corporation>s conduct in

using the subsidiary corporation be un7ust, fraudulent or wrongful. &t examines the relationship of the

plaintiff to the corporation. &t recognizes that piercing is appropriate only if the parent corporation uses

the subsidiary in a way that harms the plaintiff creditor. %s such, it re!uires a showing of Jan element of

in7ustice or fundamental unfairness.J

The third prong is the JharmJ test. This test re!uires the plaintiff to show that the defendant>s

control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm

suffered. % causal connection between the fraudulent conduct committed through the instrumentality of

the subsidiary and the in7ury suffered or the damage incurred by the plaintiff should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will have been treated un7ustly by the

defendant>s exercise of control and improper use of the corporate form and, thereby, suffer damages.

To summarize, piercing the corporate veil based on the alter ego theory re!uires the

concurrence of three elements9 control of the corporation by the stoc"holder or parent corporation,

fraud or fundamental unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by

the fraudulent or unfair act of the corporation. The absence of any of these elements prevents piercing

the corporate veil.

E. In*orporation and Oraniation

(. )ro0oter -

a. L&a&l&t+ of (romoter "

GENERAL RULE/ (romoters are $ersonall+ l&ale on t*e&r ontrats made on e*alf of a or$orat&on to e formed#

ECE)"ION/ If t*ere &s an e$ress or &m$l&ed agreement to t*e ontrar+# It m)st e notedt*at t*e fat t*at t*e or$orat&on w*en formed *as ado$ted or rat&f&ed t*e ontratdoes not release t*e $romoter from res$ons&&l&t+ )nless a no%at&on was &ntended#

1. Lia1ilit+ o Corporation or )ro0oters Contra*ts

?hile a corporation could not have been a party to a promoter@s contract since it did yet exist at the time the contract was entered into and thus could not possibly havehad an agent who could legally bind it, the corporation may ma"e the contracts its ownand become bound thereon if, after incorporation, it9

'1* %dopts or ratifies the contract; or '2* %ccepts its benefits with "nowledge of the terms thereof.

Page 27 of 91


28/91

&t must be noted, however, that the contract must be adopted in its entirety; thecorporation cannot adopt only the part that is beneficial to it and discard that which isburdensome.


29/91

laws. ?hen a change in the corporate name is approved, the Commission shall issue an amended

certificate of incorporation under the amended name.

Repu1li* )lanters Ban= 2. CA3 (66'

The corporation, upon such change in its name, is in no sense a new corporation, nor the

successor of the original corporation. &t is the same corporation with a different name, and its character is in no respect changed.

% change in the corporate name does not ma"e a new corporation, and whether affected by

special act or under a general law, has no affect on the identity of the corporation, or on its property,

rights, or

liabilities. The corporation continues, as before, responsible in its new name for all debts or

other liabilities which it had previously contracted or incurred. %s a general rule, officers or directors

under the old corporate name bear no personal liability for acts done or contracts entered into by

officers of the corporation, if duly authorized. &nasmuch as such officers acted in their capacity as agent

of the old corporation and the change of name meant only the continuation of the old 7uridical entity, the

corporation bearing the same name is still bound by the acts of its agents if authorized by the 3oard.

&. Corporate "er0 # Se 11

% corporation shall exist for a period not exceeding fifty 'B(* years from the date of

incorporation unless sooner dissolved or unless said period is extended. The corporate term as

originally stated in the articles of incorporation may be extended for periods not exceeding fifty 'B(*years in any single instance by an amendment of the articles of incorporation, in accordance with this

Code; rovided, That no extension can be made earlier than five 'B* years prior to the original or

subse!uent expiry date's* unless there are 7ustifiable reasons for an earlier extension as may be

determined by the ecurities and xchange Commission.

5. Mini0u0 Capital !to*= and !u1s*ription Reuire0ents " Se 12

%t least twenty0five percent '2B)* of the authorized capital stoc" as stated in the articles of

incorporation must be subscribed at the time of incorporation, and at least twenty0five '2B)* per cent of

the total subscription must be paid upon subscription, the balance to be payable on a date or dates

fixed in the contract of subscription without need of call, or in the absence of a fixed date or dates, upon

call for payment by the board of directors9 rovided, however, That in no case shall the paid0up capital

be less than five Thousand 'B,(((.((* pesos

.

4. Arti*les o In*orporation -

a. Nature and Fun*tion o Arti*les #

&t contains the purpose of which a corporation is organized. Contents of which are enumerated

below.

Page 29 of 91


30/91

1. Contents#!e* (&

%ll corporations organized under this code shall file with the ecurities and xchange

Commission articles of incorporation in any of the official languages duly signed and ac"nowledged by

all of the incorporators, containing substantially the following matters, except as otherwise prescribed

by this Code or by special law9

1. The name of the corporation;

2. The specific purpose or purposes for which the corporation is being incorporated. ?here a

corporation has more than one stated purpose, the articles of incorporation shall state which is the

primary purpose and which is#are the secondary purpose or purposes9 rovided, That a non0stoc"

corporation may not include a purpose which would change or contradict its nature as such;

$. The place where the principal office of the corporation is to be located, which must be within

the hilippines;

-. The term for which the corporation is to exist;

B. The names, nationalities and residences of the incorporators;

/. The number of directors or trustees, which shall not be less than five 'B* nor more than fifteen

'1B*;

. The names, nationalities and residences of persons who shall act as directors or trustees

until the first regular directors or trustees are duly elected and !ualified in accordance with this Code;

5. &f it be a stoc" corporation, the amount of its authorized capital stoc" in lawful money of the

hilippines, the number of shares into which it is divided, and in case the share are par value shares,the par value of each, the names, nationalities and residences of the original subscribers, and the

amount subscribed and paid by each on his subscription, and if some or all of the shares are without

par value, such fact must be stated;

6. &f it be a non0stoc" corporation, the amount of its capital, the names, nationalities and

residences of the contributors and the amount contributed by each; and

1(. uch other matters as are not inconsistent with law and which the incorporators may deem

necessary and convenient.

The ecurities and xchange Commission shall not accept the articles of incorporation of any

stoc" corporation unless accompanied by a sworn statement of the Treasurer elected by the

subscribers showing that at least twenty0five '2B)* percent of the authorized capital stoc" of the

corporation has been subscribed, and at least twenty0five '2B)* of the total subscription has been fully

paid to him in actual cash and#or in property the fair valuation of which is e!ual to at least twenty0five

'2B)* percent of the said subscription, such paid0up capital being not less than five thousand

'B,(((.((* pesos.

*. A0end0ent # !e* (4

xxx Dnless otherwise prescribed by this Code or by special law, and for legitimate purposes,

any provision or matter stated in the articles of incorporation may be amended by a ma7ority vote of the

board of directors or trustees and the vote or written assent of the stoc"holders representing at least

two0thirds '2#$* of the outstanding capital stoc", without pre7udice to the appraisal right of dissenting

Page 30 of 91


31/91

stoc"holders in accordance with the provisions of this Code, or the vote or written assent of at least

two0thirds '2#$* of the members if it be a non0stoc" corporation.

The original and amended articles together shall contain all provisions re!uired by law to be set

out in the articles of incorporation. uch articles, as amended shall be indicated by underscoring the

change or changes made, and a copy thereof duly certified under oath by the corporate secretary and

a ma7ority of the directors or trustees stating the fact that said amendment or amendments have been

duly approved by the re!uired vote of the stoc"holders or members, shall be submitted to theecurities and xchange Commission.

The amendments shall ta"e effect upon their approval by the ecurities and xchange

Commission or from the date of filing with the said Commission if not acted upon within six '/* months

from the date of filing for a cause not attributable to the corporation. xxx

d. on-Amenale Items -

$. Reistration and Issuan*e o Certii*ate o In*orporation-

• 9o)ments to e f&led w&t* SEC 2002 ar eams3

The documents to be submitted to the ecurities and xchange Commission 'C* to

incorporate a new company to be called 3 avings E


32/91

=*e or&g&nal and amended art&les toget*er s*all onta&n all $ro%&s&ons re@)&red + law to e set o)t

&n t*e art&les of &nor$orat&on# S)* art&les' as amended s*all e &nd&ated + )ndersor&ng t*e

*ange or *anges made' and a o$+ t*ereof d)l+ ert&f&ed )nder oat* + t*e or$orate seretar+

and a ma


33/91

'2* ecurities and xchange Commission Ahen effectie: :nly upon the C>s issuance of a certification that the by0laws

are not inconsistent with the Corporation Code.

pecial co%po%ations: 3y0laws and#or amendments thereto must be accompanied by a certificate of the appropriate government agency to the effect that such by0laws # amendments are in accordance with

law.

ban"s or ban"ing institutions building and loan associations trust companies insurance companies public utilities educational institutions other special corporations governed by special laws

a. Nature and Fun*tions o B+-Laws

C,ina Ban=in Corp. 2. CA3 (66$

ettled is the rule that, third persons are not bound by the by0laws of the Corporation as it

operates as an internal rules of the Corporation. &n order to be bound, the third party must have

ac!uired "nowledge of the pertinent by0laws at the time the transaction or agreement between said

third party and the shareholder was entered into. =erein, at the time the pledge agreement was

executed. ICC& could have easily informed C3C of its by0laws when it sent notice formally

recognizing C3C as pledgee of one of its shares registered in Calapatia@s name.

1. Reuisites o alid B+-Laws # !e* $&

i# It m)st e ons&stent w&t* t*e Cor$orat&on Code' ot*er $ert&nent laws and reg)lat&ons>

ii# It m)st e ons&stent w&t* t*e Art&les of Inor$orat&on# ?ene' &n ase of onfl&t' t*e AOI

$re%a&ls#

iii# It m)st e reasonale and not ar&trar+ or o$$ress&%e> and

i2# It m)st not d&st)r %ested r&g*ts' &m$a&r ontrat or $ro$ert+ r&g*ts of sto4*olders or

memers or reate ol&gat&ons )n4nown to law#

*. Bindin Ee*ts-

i. As to t,e Corporation and is *o0ponents/

Page 33 of 91


34/91

binding not only upon the corporation but also on its stoc"holder, members and those

having direction, management and control of its affairs.

ii. As to t,ird persons/

&t is not binding unless there is actual "nowledge. Third persons are not even bound to

investigate the content because they are not bound to "now the 3y0laws which are merely provisions of

the government of a corporation and notice to them will not be presumed.

d. A0end0ent or Re2ision # !e* &9

The board of directors or trustees, by a ma7ority vote thereof, and the owners of at least a

ma7ority of the outstanding capital stoc", or at least a ma7ority of the members of a non0stoc"

corporation, at a regular or special meeting duly called for the purpose, may amend or repeal any by0

laws or adopt new by0laws. The owners of two0thirds '2#$* of the outstanding capital stoc" or two0thirds'2#$* of the members in a non0stoc" corporation may delegate to the board of directors or trustees the

power to amend or repeal any by0laws or adopt new by0laws9 rovided, That any power delegated to

the board of directors or trustees to amend or repeal any by0laws or adopt new by0laws shall be

considered as revo"ed whenever stoc"holders owning or representing a ma7ority of the outstanding

capital stoc" or a ma7ority of the members in non0stoc" corporations, shall so vote at a regular or

special meeting.

?henever any amendment or new by0laws are adopted, such amendment or new by0laws shall

be attached to the original by0laws in the office of the corporation, and a copy thereof, duly certified

under oath by the corporate secretary and a ma7ority of the directors or trustees, shall be filed with the

ecurities and xchange Commission the same to be attached to the original articles of incorporation

and original by0laws.

The amended or new by0laws shall only be effective upon the issuance by the ecurities and

xchange Commission of a certification that the same are not inconsistent with this Code.

F. Corporate )owers

(. General )owers3 ",eor+ o General Capa*it+ # !e* ;4

e%$ co%po%ation inco%po%ated unde% this 8ode has the powe% and capacit$:

1. To sue and be sued in its corporate name;

2. :f succession by its corporate name for the period of time stated in the articles of incorporation and

the certificate of incorporation;

$. To adopt and use a corporate seal;

-. To amend its articles of incorporation in accordance with the provisions of this Code;

B. To adopt by0laws, not contrary to law, morals, or public policy, and to amend or repeal the same in

accordance with this Code;

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/. &n case of stoc" corporations, to issue or sell stoc"s to subscribers and to sell stoc"s to subscribers

and to sell treasury stoc"s in accordance with the provisions of this Code; and to admit members to the

corporation if it be a non0stoc" corporation;

. To purchase, receive, ta"e or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal

with such real and personal property, including securities and bonds of other corporations, as the

transaction of the lawful business of the corporation may reasonably and necessarily re!uire, sub7ect to

the limitations prescribed by law and the Constitution;

5. To enter into merger or consolidation with other corporations as provided in this Code;

6. To ma"e reasonable donations, including those for the public welfare or for hospital, charitable,

cultural, scientific, civic, or similar purposes9 rovided, That no corporation, domestic or foreign, shall

give donations in aid of any political party or candidate or for purposes of partisan political activity;

1(. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers

and employees; and

11. To exercise such other powers as may be essential or necessary to carry out its purpose or

purposes as stated in the articles of incorporation.

'. !pe*ii* )owers3 ",eor+ o !pe*ii* Capa*it+ # !e* ;$-&&

a. )ower to Es meeting at which the proposed increase or diminution of the capital stoc" or the incurring

or increasing of any bonded indebtedness is to be considered, must be addressed to each stoc"holder

at his place of residence as shown on the boo"s of the corporation and deposited to the addressee in

the post office with postage prepaid, or served personally.

% certificate in duplicate must be signed by a ma7ority of the directors of the corporation and

countersigned by the chairman and the secretary of the stoc"holders> meeting, setting forth9

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'1* That the re!uirements of this section have been complied with;

'2* The amount of the increase or diminution of the capital stoc";

'$* &f an increase of the capital stoc", the amount of capital stoc" or number of shares of no0par

stoc" thereof actually subscribed, the names, nationalities and residences of the persons

subscribing, the amount of capital stoc" or number of no0par stoc" subscribed by each, and the

amount paid by each on his subscription in cash or property, or the amount of capital stoc" or number of shares of no0par stoc" allotted to each stoc"0holder if such increase is for the

purpose of ma"ing effective stoc" dividend therefor authorized;

'-* %ny bonded indebtedness to be incurred, created or increased;

'B* The actual indebtedness of the corporation on the day of the meeting;

'/* The amount of stoc" represented at the meeting; and

'* The vote authorizing the increase or diminution of the capital stoc", or the incurring, creating

or increasing of any bonded indebtedness.

%ny increase or decrease in the capital stoc" or the incurring, creating or increasing of any bonded

indebtedness shall re!uire prior approval of the ecurities and xchange Commission.

:ne of the duplicate certificates shall be "ept on file in the office of the corporation and the other shall

be filed with the ecurities and xchange Commission and attached to the original articles of

incorporation. rom and after approval by the ecurities and xchange Commission and the issuance

by the Commission of its certificate of filing, the capital stoc" shall stand increased or decreased and

the incurring, creating or increasing of any bonded indebtedness authorized, as the certificate of filing

may declare9 rovided, That the ecurities and xchange Commission shall not accept for filing any certificate of increase of capital stoc" unless accompanied by the sworn statement of the treasurer of

the corporation lawfully holding office at the time of the filing of the certificate, showing that at least

twenty0five '2B)* percent of such increased capital stoc" has been subscribed and that at least twenty0

five '2B)* percent of the amount subscribed has been paid either in actual cash to the corporation or

that there has been transferred to the corporation property the valuation of which is e!ual to twenty0five

'2B)* percent of the subscription9 rovided, further, That no decrease of the capital stoc" shall be

approved by the Commission if its effect shall pre7udice the rights of corporate creditors.

Aon0stoc" corporations may incur or create bonded indebtedness, or increase the same, with the

approval by a ma7ority vote of the board of trustees and of at least two0thirds '2#$* of the members in a

meeting duly called for the purpose.

3onds issued by a corporation shall be registered with the ecurities and xchange Commission,

which shall have the authority to determine the sufficiency of the terms thereof.

*. )ower to Den+ )re-E0pti2e Ri,ts- !e* ;6

%ll stoc"holders of a stoc" corporation shall en7oy pre0emptive right to subscribe to all issues or

disposition of shares of any class, in proportion to their respective shareholdings, unless such right is

denied by the articles of incorporation or an amendment thereto9 rovided, That such pre0emptive right

shall not extend to shares to be issued in compliance with laws re!uiring stoc" offerings or minimum

stoc" ownership by the public; or to shares to be issued in good faith with the approval of the

stoc"holders representing two0thirds '2#$* of the outstanding capital stoc", in exchange for property

needed for corporate purposes or in payment of a previously contracted debt.

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d. )ower to !ell or Dispose o Corporate Assets- !e* &%

ub7ect to the provisions of existing laws on illegal combinations and monopolies, a corporation

may, by a ma7ority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or

otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon such

terms and conditions and for such consideration, which may be money, stoc"s, bonds or other

instruments for the payment of money or other property or consideration, as its board of directors or

trustees may deem expedient, when authorized by the vote of the stoc"holders representing at least

two0thirds '2#$* of the outstanding capital stoc", or in case of non0stoc" corporation, by the vote of at

least to two0thirds '2#$* of the members, in a stoc"holder>s or member>s meeting duly called for the

purpose. ?ritten notice of the proposed action and of the time and place of the meeting shall be

addressed to each stoc"holder or member at his place of residence as shown on the boo"s of the

corporation and deposited to the addressee in the post office with postage prepaid, or served

personally9 rovided, That any dissenting stoc"holder may exercise his appraisal right under the

conditions provided in this Code.

% sale or other disposition shall be deemed to cover substantially all the corporate property and

assets if thereby the corporation would be rendered incapable of continuing the business or

accomplishing the purpose for which it was incorporated.

%fter such authorization or approval by the stoc"holders or members, the board of directors or

trustees may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge or

other disposition of property and assets, sub7ect to the rights of third parties under any contract relating

thereto, without further action or approval by the stoc"holders or members.

Aothing in this section is intended to restrict the power of any corporation, without the

authorization by the stoc"holders or members, to sell, lease, exchange, mortgage, pledge or otherwise

dispose of any of its property and assets if the same is necessary in the usual and regular course of

business of said corporation or if the proceeds of the sale or other disposition of such property and

assets be appropriated for the conduct of its remaining business.

&n non0stoc" corporations where there are no members with voting rights, the vote of at least a

ma7ority of the trustees in office will be sufficient authorization for the corporation to enter into any

transaction authorized by this section.

e. )ower to A*uire Own !,ares # !e* &(

% stoc" corporation shall have the power to purchase or ac!uire its own shares for a legitimate

corporate purpose or purposes, including but not limited to the following cases9 rovided, That the

corporation has unrestricted retained earnings in its boo"s to cover the shares to be purchased or

ac!uired9

1. To eliminate fractional shares arising out of stoc" dividends;

2. To collect or compromise an indebtedness to the corporation, arising out of unpaid

subscription, in a delin!uency sale, and to purchase delin!uent shares sold during said sale;

and

$. To pay dissenting or withdrawing stoc"holders entitled to payment for their shares under the

provisions of this Code.

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. )ower to In2est Corporate Funds in Anot,er Corporation or Business- !e* &'

ub7ect to the provisions of 3 /5, a private corporation may invest its funds in any other

corporation or business or for any purpose other than the primary purpose for which it was organized

when approved by a ma7ority of the board of directors or trustees and ratified by the stoc"holders

representing at least two0thirds '2#$* of the outstanding capital stoc", or by at least two thirds '2#$* of

the members in the case of non0stoc" corporations, at a stoc"holder>s or member>s meeting duly called

for the purpose. ?ritten notice of the proposed investment and the time and place of the meeting shall

be addressed to each stoc"holder or member at his place of residence as shown on the boo"s of the

corporation and deposited to the addressee in the post office with postage prepaid, or served

personally9 rovided, That any dissenting stoc"holder shall have appraisal right as provided in this

Code9 rovided, however, That where the investment by the corporation is reasonably necessary to

accomplish its primary purpose as stated in the articles of incorporation, the approval of the

stoc"holders or members shall not be necessary.

g. Pow er to De*lare Di2idends # !e* &;

The board of directors of a stoc" corporation may declare dividends out of the unrestricted

retained earnings which shall be payable in cash, in property, or in stoc" to all stoc"holders on the

basis of outstanding stoc" held by them9 rovided, That any cash dividends due on delin!uent stoc"

shall first be applied to the unpaid balance on the subscription plus costs and expenses, while stoc"

dividends shall be withheld from the delin!uent stoc"holder until his unpaid subscription is fully paid9

rovided, further, That no stoc" dividend shall be issued without the approval of stoc"holders

representing not less than two0thirds '2#$* of the outstanding capital stoc" at a regular or special meeting duly called for the purpose. '1/a*

toc" corporations are prohibited from retaining surplus profits in excess of one hundred

'1(()* percent of their paid0in capital stoc", except9 '1* when 7ustified by definite corporate expansion

pro7ects or programs approved by the board of directors; or '2* when the corporation is prohibited

under any loan agreement with any financial institution or creditor, whether local or foreign, from

declaring dividends without its#his consent, and such consent has not yet been secured; or '$* when it

can be clearly shown that such retention is necessary under special circumstances obtaining in the

corporation, such as when there is need for special reserve for probable contingencies.

,. )ower to Enter Into Manae0ent Contra*t- !e* &&

Ao corporation shall conclude a management contract with another corporation unless such

contract shall have been approved by the board of directors and by stoc"holders owning at least the

ma7ority of the outstanding capital stoc", or by at least a ma7ority of the members in the case of a non0

stoc" corporation, of both the managing and the managed corporation, at a meeting duly called for the

purpose9 rovided, That '1* where a stoc"holder or stoc"holders representing the same interest of both

the managing and the managed corporations own or control more than one0third '1#$* of the total

outstanding capital stoc" entitled to vote of the managing corporation; or '2* where a ma7ority of themembers of the board of directors of the managing corporation also constitute a ma7ority of the

members of the board of directors of the managed corporation, then the management contract must be

approved by the stoc"holders of the managed corporation owning at least two0thirds '2#$* of the total

outstanding capital stoc" entitled to vote, or by at least two0thirds '2#$* of the members in the case of a

non0stoc" corporation. Ao management contract shall be entered into for a period longer than five

years for any one term.

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The provisions of the next preceding paragraph shall apply to any contract whereby a

corporation underta"es to manage or operate all or substantially all of the business of another

corporation, whether such contracts are called service contracts, operating agreements or otherwise9

rovided, however, That such service contracts or operating agreements which relate to the

exploration, development, exploitation or utilization of natural resources may be entered into for such

periods as may be provided by the pertinent laws or regulations.

i. Ultra ires A*ts # !e* &5

Ao corporation under this Code shall possess or exercise any corporate powers except those

conferred by this Code or by its articles of incorporation and except such as are necessary or incidental

to the exercise of the powers so conferred.

i. Appli*a1ilit+ o Ultra ires Do*trine "

Monteli1ano 2. Ba*olod Mur*ia Millin Co.3 GR (5%6'3 Ma+ (93 (64'

3acolod0


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"nowledge that the corporation was engaging in an act not included expressly or impliedly in its purposes clause.

Dltra vires acts may become binding by the ratification of all the stoc"holders, unless

third parties are pre7udiced thereby, or unless the acts are illegal.

;. @ow E

.# Sale' lease' e*ange' mortgage' $ledge or ot*er d&s$os&t&on of all or s)stant&all+ all of t*e or$orate

$ro$ert+>

/# In)rr&ng' reat&ng or &nreas&ng onded &ndetedness>

5# Inrease or derease of a$&tal sto4>

6# Merger or onsol&dat&on of t*e or$orat&on w&t* anot*er or$orat&on or ot*er or$orat&ons>

,# In%estment of or$orate f)nds &n anot*er or$orat&on or )s&ness &n aordane w&t* t*&s Code> and

8# 9&ssol)t&on of t*e or$orat&on#

1. B+ t,e Board o Dire*tors # !e* '; e


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oard' as ma+ e delegated to &t &n t*e +-laws or on a ma


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9otr&ne of a$$arent a)t*or&t+ " Asso*iated Ban= 2. )ronstroller3 '%%9

%pparent authority is derived not merely from practice. &ts existence may be ascertained

through 1* the general manner in which the corporation holds out an officer or agent as having

the power to act, or in other words, the apparent authority to act in general, with which it clothes

him; or 2* t

Documents

Syllabus Corpo/SRC/FIA