CORPORATION LAW

Explain briefly the CONCESSION THEORY. Under this theory, a corporation is a creature without any existence until it has received the imprimatur of the state acting according to law.

Can a private corporation bring a suit for libel or any other form of defamation and claim moral damages?YES. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages. Moreover, where the broadcast is libelous per se, the law implies damages. In such a case, evidence of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. (FILIPINAS BROADCASTING NETWORK, INC. vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, G.R. No. 141994, 17 January 2005)

Explain briefly the DOCTRINE OF RELATION.

Under this doctrine, when the delay in effecting or filing the amended articles of incorporation for the extension of corporate term is due to an insuperable interference occurring without the corporations intervention which could not have been prevented by prudence, diligence, and care, the same will be treated as having been effected before the expiration of the original term of the corporation.

What shares could be deprived of voting rights?

Section of the Corporation Code explicitly provides that no share may be deprived of voting rights except those classified and issued as preferred or redeemable shares, unless otherwise provided in this Code, and that there shall always be a class or series of shares which have complete voting rights. There is nothing in the articles of incorporation or an iota of evidence on record that shows that class B shares were categorized as either preferred or redeemable shares. (CASTILLO, et. al. vs. ANGELES BALINGHASAY, et. al., GR No. 150976, 18 October 2004)

Explain the DOCTRINE OF EQUALITY OF SHARES. Where the articles of incorporation do not provide any distinction of the shares of stock, all shares issued by a corporation are presumed to be equal and entitled to the same rights and privileges and subject to the same liabilities.

Would substantial ownership of the shares of a corporation make the stockholder the owner of its properties or entitle him to the possession of any definite portion of the corporate properties? NO. A corporation is a juridical person distinct from the members composing it. Properties registered in the name of the corporation are owned by it as an entity separate and distinct from its members. While shares of stock constitute personal property, they do not represent property of the corporation. The corporation has property of its own which consists chiefly of real estate. A share of stock only typifies an aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed according to law and equity, but its holder is not the owner of any part of the capital of the corporation. Nor is he entitled to the possession of any definite portion of its property or assets. The stockholder is not a co-owner or tenant in common of the corporate property. (SILVERIO, JR., et al. vs. FILIPINO BUSINESS CONSULTANTS, INC., G.R. No. 143312, 12 August 2005)

Where, at the height of a labor dispute, properties of the corporation were sold to another company owned by the daughter of a major stockholder of the former, could the separate identities of the two corporations be disregarded in order to satisfy the labor claims of dismissed workers?

YES. The sale of franchise and certificates of public convenience as well as most of its bus units to a company owned by the daughter of one of the major stockholder of the corporation, right in the middle of a labor dispute is highly suspicious. It is evident that the transaction was made in order to remove the remaining assets of the first company from the reach of any judgment that may be rendered in the ULP cases filed against it.

State the requisites that must be established for the legal existence of a subsidiary to be disregarded.While a corporation may be a subsidiary of another, it does not necessarily follow that its corporate legal existence can just be disregarded. A subsidiary has an independent and separate juridical personality, distinct from that of its parent company; hence, any claim or suit against the latter does not bind the former, and vice versa. In applying the doctrine, the following requisites must be established: (1) control, not merely majority or complete stock control; (2) such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest acts in contravention of plaintiffs legal rights; and (3) the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. (Jardine Davis, Inc. vs. JRB Realty, G.R. No. 151438, 15 July 2005)

Explain the Instrumentality Rule.Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It must be kept in mind that the control must be shown to have been exercised at the time the acts complained of took place. Moreover, the control and breach of duty must proximately cause the injury or unjust loss for which the complaint is made. (Concept Builders vs. NLRC, G.R. No. 108734, 29 May 1996)

When the corporate mask is removed, is the corporate character necessarily abrogated?

NO. The corporate mask may be removed and the corporate veil pierced when a corporation is the mere alter ego of another. Where badges of fraud exist, where public convenience is defeated, where a wrong is sought to be justified thereby, or where a separate corporate identity is used to evade financial obligations to employees or to third parties, the notion of separate legal entity should be set aside and the factual truth upheld.When that happens, the corporate character is not necessarily abrogated. It continues for other legitimate objectives. (PAMPLONA PLANTATION COMPANY, INC et al. vs. TINGHIL, et al., G.R. No. 159121, 03 February 2005)

Should debtors be formally notified for the change of corporate name to be valid and binding?

The Court cannot impose on a bank that changes its corporate name to notify a debtor of such change absent any law, circular or regulation requiring it. Such act would be judicial legislation. The formal notification is, therefore, discretionary on the bank. Unless there is a law, regulation or circular from the SEC or BSP requiring the formal notification of all debtors of banks of any change in corporate name, such notification remains to be a mere internal policy that banks may or may not adopt. (P.C. JAVIER & SONS, INC., ET AL. vs. COURT OF APPEALS, ET AL. (G.R. No. 129552, 29 June 2005)

Could the corporation provide limitations on the voting rights of the members of a non-stock corporation?

YES. Section 89 of the Corporation Code pertaining to non-stock corporations provides that "(t)he right of the members of any class or classes (of a non-stock corporation) to vote may be limited, broadened or denied to the extent specified in the articles of incorporation or the by-laws." This is an exception to Section 6 of the same code where it is provided that "no share may be deprived of voting rights except those classified and issued as preferred or redeemable shares, unless otherwise provided in this Code. Hnece, the stipulation in the By-Laws providing for the election of the Board of Directors by districts is a form of limitation on the voting rights of the members of a non-stock corporation as recognized under the aforesaid Section 89. Section 24 of the Code, which requires the presence of a majority of the members entitled to vote in the election of the board of directors, applies only when the directors are elected by the members at large, such as is always the case in stock corporations by virtue of Section 6. (LUIS AO-AS, et al. vs. COURT OF APPEALS, et al., G.R. No. 128464, 20 June 2006).

Explain briefly the BUSINESS JUDGMENT RULE.

Questions of policy or of management are left solely to the honest decisions of officers and directors of a corporation, and so long as they act in good faith, their orders are not reviewable by the courts. (SABER vs. COURT OF APPEALS, G.R. No. 132981,August 31, 2004)

Under what conditions could a private corporation sell its real properties through an agent?

While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to be with the board of directors through its officers and agents as authorized by a board resolution or by its by-laws. An unauthorized act of an officer of the corporation is not binding on it unless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of real property of a corporation by a person purporting to be an agent thereof but without written authority from the corporation is null and void. The declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority (EDUARDO V. LINTONJUA JR., et al. vs. ETERNIT CORPORATION, ET AL., G.R. No. 144805, 08 June 2006).

In what instances are officers, directors, or trustees personally liable for corporate acts? The instances are: when 1.He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; 2.He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; 3.He agrees to hold himself personally and solidarily liable with the corporation; or 4.He is made, by a specific provision of law, to personally answer for his corporate action. (REPUBLIC vs. INSTITUTE FOR SOCIAL CONCERN, FELIPE SUZARA and RAMON GARCIA, G.R. No.156306 January 28, 2005; SOLIDBANK CORPORATION vs. MINDANAO FERROALLOY CORPORATION, et al., G.R. No. 153535, 28 July 2005)

Explain the DOCTRINE OF APPARENT AUTHORITY.

When a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agents authority. (LAPU-LAPU FOUNDATION vs. CA, 29 January 2004)

If, in a contract, the NIA Administrator has been empowered to grant or deny foreign differential claims, would such authority carry with it the power to verify computation of such claims? YES. It would be preposterous for the NIA Administrator to have the power of granting claims without the authority to verify the computation of such claims. Even assuming for the sake of argument that the Administrator had no authority to bind NIA, the latter is already estopped after repeatedly representing that the Administrator had such authority. A corporation may be estopped from denying as against third persons the authority of its officers or agents who have been clothed by it with ostensible or apparent authority. Although an officer or agent acts without, or in excess of, his actual authority but acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority. (HYDRO RESOURCES CONTRACTORS CORPORATION vs. NIA, G.R. No. 160215, 10November 2004)

In a resolution, the Board of Directors authorized its president to sell Lot 2, at a price and under such terms and conditions which he deemed most reasonable and advantageous to the corporation. The president agreed to give the buyer a right of way over Lot 1 and in case such right of way is insufficient, a portion of Lot 1 will be sold to the buyer. Determine whether the authority to sell Lot 2 includes the authority to sell portion of Lot 1.

The authority to sell Lot 2 did not include authority to sell portion of Lot 1. Neither may such authority be implied from the authority granted to sell Lot 2 on such terms and conditions which he deems most reasonable and advantageous. (WOODCHILD HOLDINGS, INC. vs.ROXAS ELECTRIC AND CONSTRUCTION COMPANY, INC., G.R. No. 140667, 12 August 2004)

Where an officer of a construction company revised and deviated from the structural plan of the building in order to reduce the costs without notice to or approval by the clients, could personal liability for damages attach to such officer?

YES. As a general rule, the officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. However, the personal liability of a corporate director, trustee or officer, along with corporation, may so validly attach when he assents to a patently unlawful act of the corporation or for bad faith or gross negligence in directing its affairs.

Indeed, bad faith exists when a material deviation from the structural plan was made without the clients being consulted first especially where it appears that the act was done to lower the cost of construction. (SPOUSES DAVID and COORDINATED GROUP, INC. vs. CONSTRUCTION INDUSTRY AND ARBITRATION COMMISSION and SPS. NARCISO & AIDA QUIAMBAO, G.R. No. 159795, 30 July 2004)

Could courts take judicial notice of board resolutions on a corporate officers authority to execute verification and certification against forum shopping?

NO. Courts are not expected to take judicial notice of corporate board resolutions on corporate officers authority to represent a corporation. Thus, the failure to submit a certified true copy of the board resolution authorizing an officer to represent the corporation is a sufficient ground for the dismissal thereof. (DEVELOPMENT BANK OF THE PHILIPPINES vs. HON. COURT OF APPEALS, et.al., GR No. 147217, 07 October 2004)

Is teleconferencing now legally permissible? YES. In this age of modern technology, the courts may take judicial notice that business transactions may be made by individuals through teleconferencing. In the Philippines, teleconferencing and videoconferencing of members of board of directors of private corporations is a reality, in light of Republic Act No. 8792. The Securities and Exchange Commission issued SEC Memorandum Circular No. 15, on November 30, 2001, providing the guidelines to be complied with related to such conferences. (EXPERTRAVEL & TOURS, INC. vs. COURT OF APPEALS and KOREAN AIRLINES, G.R. No. 152392, 26 May 2005)

In case the by-laws could not be filed within the prescribed period, would juridical existence automatically cease?

NO. A corporation would not ipso facto lose its powers for failure to file the required by-laws. (LOYOLA GRANVILLAS HOMEOWNERS ASSOCIATION vs. CA, 276 SCRA 681) At the very least, the corporation may be considered a de facto corporation whose right to exist may not be inquired into in a collateral manner. (SAWADJAAN vs. CA, 8 June 2005)

In the Agreement, the foreign companys activities in the Philippines were confined to (1) maintaining a stock of goods solely for the purpose of having the same processed by another company; and (2) consignment of equipment with such company to be used in the processing of products for export. Could such foreign corporation be considered doing business in the Philippines? NO. By and large, to constitute doing business, the activity to be undertaken in the Philippines is one that is for profit-making. Under Section 1 of the Implementing Rules and Regulations of the Foreign Investment Act, the foregoing activities do not constitute doing business. (AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD. vs INTEGRATED SILICON, GR 154618, 14 April 2004)

Explain the TRUST FUND DOCTRINE.

Under this doctrine, the capital stock, property and other assets of a corporation are regarded as equity in trust for the payment of the corporate debts. Hence, no disposition of corporate funds to the prejudice of creditors is allowed.

Under what conditions could the PCGG vote sequestered shares?

It is settled that as a general rule, the registered owner of the shares of a corporation, even if they are sequestered by the government through the PCGG, exercises the right and the privilege of voting on them. The PCGG as a mere conservator cannot, as a rule, exercise acts of dominion by voting these shares.

The registered owner of sequestered shares may only be deprived of these voting rights, and the PCGG authorized to exercise the same, only if it is able to establish that (1) there is prima facie evidence showing that the said shares are ill-gotten and thus belong to the State; and (2) there is an imminent danger of dissipation, thus necessitating the continued sequestration of the shares and authority to vote thereupon by the PCGG while the main issue is pending before the Sandiganbayan. (TRANS MIDDLE EAST (PHILS.) vs. SANDIGANBAYAN, et al., G.R. No. 172556, 09 June2006)

Is the issuance of a certificate of merger by the SEC a condition precedent to the transfer of shares of the absorbed corporation to the surviving corporation?

A merger does not become effective upon the mere agreement of the constituent corporations. As specifically provided under Section 79 of the Corporation Code, the merger shall only be effective upon the issuance of a certificate of merger by the Securities and Exchange Commission (SEC), subject to its prior determination that the merger is not inconsistent with the Code or existing laws. Where a party to the merger is a special corporation governed by its own charter, the Code particularly mandates that a favorable recommendation of the appropriate government agency should first be obtained. The issuance of the certificate of merger is crucial because not only does it bear out SEC's approval but also marks the moment whereupon the consequences of a merger take place. By operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its rights, and properties as well as liabilities shall be taken and deemed transferred to and vested in the surviving corporation (POLIAND INDUSTRIAL LTD. vs. NATIONAL DEVELOPMENT CO., et al., G.R. Nos. 143866 & 143877, 22 August 2005).

Would participation in a bidding for the development and operation of a modern marine container terminal constitute doing business in the Philippines for which a license must be secured?

Participating in the bidding process constitutes doing business because it shows the foreign corporations intention to engage in business here. The bidding for the concession contract is but an exercise of the corporations reason for its existence. xxx it is the performance by a foreign corporation of the acts for which it was created, regardless of the volume of business, that determines whether a foreign corporation needs a license or not. (HUTCHISON PORTS PHILIPPINES LIMITED vs SBMA, GR 131367, 31 August 2000; EUROPEAN RESOURCES AND TECHNOLOGIES, INC, et al. vs. INGENIEUBURO BIRKHAHN, et al., G.R. No. 159586, 26 July 2004)

What are the general tests to determine whether a foreign corporation is doing business in the Philippines?

Substance Test whether the foreign corporation is continuing the body of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another.

Continuity Test continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in the progressive prosecution of, the purpose and object of its organization (AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD. vs INTEGRATED SILICON, GR 154618, 14 April 2004)

Do the powers of a resident agent include the authority to execute a certification against forum-shopping on behalf of the foreign company?

NO. This is because while a resident agent may be aware of actions filed against his principal (a foreign corporation doing business in the Philippines, being the one authorized to receive services and other legal processes on its behalf), such resident may not be aware of actions initiated by its principal, whether in the Philippines against a domestic corporation or private individual, or in the country where such corporation was organized and registered, against a Philippine registered corporation or a Filipino citizen. (EXPERTRAVEL & TOURS, INC. vs. COURT OF APPEALS and KOREAN AIRLINES, G.R. No. 152392, 26 May 2005)

Where the insured (a foreign corporation doing business without license) is incapacitated to sue before the Philippine courts, would it follow that its insurer, in exercising its right of subrogation, likewise suffer such incapacity?

NO. Rights inherited by a subrogee pertain only to the obligations not to capacity. Incapacity of the insured will not affect the capacity of the insurer exercising its right of subrogation because capacity is personal to its holder. It is conferred by law and not by the parties. (LORENZO SHIPPING vs. CHUBB & SONS, 8 June 2004)

Could a foreign corporation not engaged and licensed to do business in the Philippines maintain a cause of action for unfair competition?

YES. The crime of unfair competition punishable under Article 189 of the Revised Penal Code is a public crime. It is essentially an act against the State and it is the latter which principally stands as the injured party. The complainant's capacity to sue in such case becomes immaterial. (MELBAROSE R. SASOT, ET.AL. vs. PEOPLE OF THE PHILIPPINES, G.R. No. 143193, 29 June 2005)

Would a pending intra-corporate case against an officer preclude the filing of a criminal action against the said officer?

The filing of the civil/intra-corporate case before the SEC (now RTC) does not preclude the simultaneous and concomitant filing of a criminal action before the regular courts; such that, a fraudulent act may give rise to liability for violation of the rules and regulations of the SEC cognizable by the SEC itself, as well as criminal liability for violation of the Revised Penal Code cognizable by the regular courts, both charges to be filed and proceeded independently, and may be simultaneously with the other.

A dispute involving the corporation and its stockholders is not necessarily an intra-corporate dispute cognizable only by the Securities and Exchange Commission. Nor does it ipso facto negate the jurisdiction of the Regional Trial Court over the subject cases. It should be obvious that not every conflict between a corporation and its stockholders involves corporate matters that only the SEC can resolve in the exercise of its adjudicatory or quasi-judicial powers. The better policy in determining which body has jurisdiction over a case would be to consider not only the relationship of the parties but also the nature of the questions raised in the subject of the controversy. (PEOPLE vs. FERNANDEZ and HAJIME UMEZAWA, GR No. 149403, 04 March 2005)

Discuss the effect/s of the creation of a management committee.

The appointment will result in suspension of all actions against the corporation, the avowed objective of which is to enable such management committee or rehabilitation receiver to effectively exercise its powers free from any judicial or extra-judicial interference that might unduly hinder or prevent the rescue of the distressed company.(TYSONS SUPER CONCRETE, INC., et al. vs. COURT OF APPEALS, et al., G.R. No. 140081, 23June 2005)

What could prevent the suspension of actions following the creation of a management committee or rehabilitation receiver?

When proceedings have already been pending for almost ten years and have already reached the Supreme Court, the management committee has been unduly burdened enough, its time and resources wasted by the proceedings that took place before the lower courts.Hence, to order the annulment of the previous proceedings in the lower courts will only result in further delay.The greater interest of justice demands that the issues raised in the present petition should be disposed of. (TYSONS SUPER CONCRETE, INC., et al. vs. COURT OF APPEALS, et al., G.R. No. 140081.June 23, 2005)

Explain the Mandatory Close Out Rule

The rule vests upon a broker or dealer, the obligation, not just the right, to cancel or otherwise liquidate 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," is imperative and operates to impose a duty, which may be legally enforced. (ABACUS SECURITIES CORPORATION vs. AMPIL, G.R. No. 160016, 27 February 2006)