SCHOOL

OUTLINE ON CORPORATE LAW

CENTRO ESCOLAR UNIVERSITY

OF

LAW

AND

JURISPRUDENCE
JUDGE ROMMEL O. BAYBAY 2nd Semester, 2011-2012

PHILIPPINE

I. HISTORICAL BACKGROUND 11 November 2011

- Castillo v Balinghasay, 440 SCRA 442

II. CONCEPTS Definition (Sec. 2; Articles 44(3), 45, 46 and 1775, Civil Code)
- Construction & Dev. Corp. v Cuenca, 466 SCRA 714 * Corporation is a creature of limited powers. - Pascual & Santos, Inc. v Members of Tramo Neighborhood, etc., 422 SCRA 438 III. NATURE AND ATTRIBUTES OF A CORPORATION
- PNB v Andrada Electric & Engineering Co., 381 SCRA 244

25 November 2011
1. Nature of Power to Create a Corporation, Sec. 16, Article XII, Constitution - Veterans Federation of the Philippines v Reyes, 483 SCRA 526 - Feliciano v Commision on Audit, 419 SCRA 363 - NDC v. Philippine Veterans Bank, 192 SCRA 257 2. Corporation as a Person a. Entitled to Equal Protection of the Law - Smith Bell & Co. v Natividad, 40 Phil, 136, 144 b. Unreasonable Searches and Seizure - Stonehill v. Diokno, 20 SCRA 383 c. But NOT Entitled to Privilege Against Self Incrimination - Bataan Shipyard v PCGG, 150 SCRA 181 3. Practice of Profession - ULEP v. The Legal Clinic, 223 SCRA 378 - Alfafara v. Acebedo Optical Co., 381 SCRA 4. Liability for Torts - PNB v. Court of Appeals, 83 SCRA 237 (1978) 5. Corporate Criminal Liability - West Coast Life Ins. Co. v. Hurd, 27 Phil 401 - People v. Tan Boon Kong, 54 Phil. 607 - Sia v. CA, 121 SCRA 655 - Arts. 102 and 103, RPC - Ching v. Sec. of Justice, 481 SCRA 602

6. Recovery of Moral and Other Damages - Mambulao Lumber Co v. PNB, 22 SCRA 359 - NPC V. Philipp Brothers Oceanic, Inc., 369 SCRA 629 - ABC CBN Broadcasting Network v. CA, 301 SCRA 589 7. Corporate Nationality: Under Whose Laws Incorporated (Sec. 123) Exceptions: Test of controlling ownership also applies in Exploitation of natural resources (Sec. 142; Sec. 2 Art. XII, 1987 Constitution; RCAA of Davao, Inc v. LRC & RD of Davao, 102 Phil. 596; JG Summit Holdings v. CA, 450 SCRA 169) Public Utilities (Sec. 11, Art. XII Constitution; People v. Quasha, 93 Phil 333) Mass Media (Sec. 11(1), Art. XII Constitution) Advertising business (Sec. 11(2), Art. XII Constitution) War-time test (89 Phil 54; 90 Phil 744) Investment test as to Philippine Nationals (Sec. 3(a) & (b) RA 7042, Foreign Investments Act of 1992 Grandfather Rule Special Classifications (Sec. 140) Four Corporate Attributes: a. Ability to contract and transact b. Creature of law c. strong juridical personality d. creature of limited powers IV. SEPARATE JURIDICAL PERSONALITY AND DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION A. A
MEMBERS.

25 November 2011
CORPORATION HAS A PERSONALITY SEPARATE AND DISTINCT FROM ITS STOCKHOLDERS OR

1. Sources: Sec. 2; Art 44, Civil Code 2. Importance of protecting main doctrine. LBP v. CA, 364 SCRA 375 McLeod v. NLRC, 512 SCRA 222 3. Tri-level existence of the corporation a. Aggregation of assets and resources b. Business enterprise or economic unit c. Juridical entity B. PIERCING THE VEIL OF CORPORATE FICTION 1. Nature and effect of the Doctrine Francisco Motors vs CA, 309 SCRA 72 General Credit Corp. vs. Alsons 513 SCRA 225 2. When legal fiction to be disregarded?

Umali vs CA, 189 SCRA 1990 China Banking Corp. vs. Dyne-Semi Electronics Corp., 494 SCRA 493 3. Classification of Piercing: Fraud, Alter-ego and Equity a. Fraud - Francisco vs. Mejia, 362 SCRA 738 - Mendoza v. Banco Real Dev. Bank, 470 SCRA 86 - Heirs of Durano, Sr. vs. Uy, 344 SCRA 238 b. Alter-Ego - Tan Boon Bee vs. Jarencio, 163 SCRA 205 - General Credit Corp. vs. Alsons, 513 SCRA 225 c. Equity Cases - Azcor Mftng. Inc. vs. NLRC, 303 SCRA 26 V. CLASSIFICATION OF CORPORATIONS 02 DECEMBER 2011 - Sawadjaan v. CA, 459 SCRA 516 - Pioneer Surety vs. CA, 175 SCRA 668 - Shipside, Inc. vs. CA, 352 SCRA 2001 - Baluyot vs. Holganza, 325 SCRA 248 VI. CORPORATE CONTRACT LAW 02 DECEMBER 2011 * Advantages and Disadvantages of Corporate Form (a) Four Basic Advantageous characteristics of corporate organization: 1. Strong legal personality - Remo, Jr. v IAC, 172 SCRA 405 2. Centralized management - Section 23, Corporation Code - Firme v Bukal Enterprises, 414 SCRA 190 3. Limited liability to investors and officers - San Juan Structral Steels v CA, 296 SCRA 631 - CBTC v CA, 356 SCRA 671 4. Free transferability of ownership for investors
- Remo, Jr. v IAC, 172 SCRA 405 - PNB v Rittarato Group, 362 SCRA 216

(b) Disadvantages: 1. Abuse of corporate management 2. Abuse of limited liability feature 3. High cost of maintenance 4. Double taxation Dividends received by individuals from domestic corporations are subject to final 10% income tax earned on or after 1 January 1998 (Sec. 24(B)(2), 1997 NIRC

Inter-corporate dividends between domestic corporations, however, are not subject to any income tax (Sec. 27(D)(4), 1997 NIRC There is reimposition of the 10% "improperly accumulated earnings tax" for holding companies (Sec. 29, 1997 NIRC) * Franchise * Steps in the Creation of a Corporation a. Promotion b. Incorporation c. Formal organization and commencemnet of business operations -Incorporation Contracts - Who are promoters? VII. ARTICLES OF INCORPORATION 09 December 2011 a. Procedure and Documentary Requirements (Secs. 14 and 15) a.1. As to number and residency of incorporators. (Sec. 10) a.2. Corporate Name (Secs. 18, 14(1) and 42) - Red Line Trans. v. Rural Transit, 60 Phil. 549 - Republic Planters Bank v. CA, 216 SCRA 738 (1992) - P.C. Javier & Sons, Inc. v. CA, 462 SCRA 36 a.3. Purpose Clause (Secs.14(2) and 42) - Uy Siuliong v. Director of Commerce and Industry, 40 Phil. 541 [1919]) - Gala v. Ellice Agro-Industrial Corp., 418 SCRA 431 (2003) a.4. Corporate Term (Sec. 11). See also Sec. 605 of the Civil Code a.5. Principal place of business (Sec. 51) - Hyatt Elevators & Escalators Corp. v. Goldstar Elevators, Phils., 473 SCRA 705 (2005) a.6. Minimum Capitalization (Sec. 12) - Why is maximum capitalization indicated? a.7. Subscription and Paid-Up Capital (Sec. 13) - Lanuza v. Court of Appeals, 454 SCRA 2005 a.8. Steps and Documents Required in SEC b. Grounds for Disapproval c. Ammendments to the Article (Sec, 16) d. Commencement of Corporate Existence (Sec. 19) VIII. BY-LAWS 09 December 2011 a. Nature and Functions - Grace Christian High School v. Court of Appeals, 281 SCRA 133 (1997) - Government of P.I. v. El Hogar Filipino, 50 Phil. 399 b. Adoption Procedure (Sec. 46) c. Contents (Sec. 47) d. Amendments (Sec. 48) IX. CORPORATE POWERS AND AUTHORITY

09 December 2011 1. Corporate Power and Capacity - (Art. 46, Civil Code; Secs. 36 and 45) - LBP v. COA, 190 SCRA 154 - Pilipinas Loan Co. vs. SEC, 356 SCRA 193 * Ultra-Vires Doctrine - (Sec. 45) - Manila Metal Container Corp. v. PNB, 511 SCRA 444 - Atrium Management Corp. vs. CA, 353 SCRA 23 - Woodchild Holdings, Inc. v. Roxas Electric, 436 SCRA 235 *Ratification of Ultra Vires Acts - NAPOCOR vs. Alonzo-Legasto, 443 SCRA 342 2. Express Powers - Secs.36, 37 and 81(1), 38, 40, 42, 43, 44, - Central Textile Mills, Inc. v. NWPC, 260 SCRA368 (1996) - Madrigal & Co. v. Zamora, 151 SCRA 355 (1987) - Litonjua v. Eternit Corp. , 490 SCRA 204 (2006) - Islamic Directorate v. CA, 272SCRA 454 (1997); - Nielson & Co. v. Lepanto Consolidated Mining Co., ,26 SCRA 540 3. Implied Powers - Asia Investments Industries v. CA, 403 SCRA 452 (2003) 4. Incidental Powers - Atrium Management Corp. v. CA, 353 SCRA 23 (2001) 5. Other Powers - Firme v.Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003) - China Banking Corp. v. CA, 270 SCRA 503 (1997) - TamWing Tak v. Makasiar, 350 SCRA 475 (2001) - Central Cooperative Exchange Inc. v. Enciso, 162 SCRA 706 - Lopez Realty v. Fontecha, 247 SCRA183, 192 (1995) - Tuason & Co. v. Bolanos, 95 Phil. 106 (1954); - SEC Opinion, dated 29 February 1980 X. DIRECTORS, TRUSTEES and OFFICERS 16 December 2011 1. Doctrine of Centralized Management: The board is the seat of corporate powers. (Sec. 23) - Gamboa v. Victoriano, 90 SCRA 40) 1.1. Rationale for Centralized Management Doctrine - Filipinas Port Services vs. Go, 518 SCRA 453 (2007) - Hornilla v. Salunat, 405 SCRA 220 1.2. Theories on source of board power - Angeles v. Santos, 64 Phil. 697 - Tan v. Sycip, 499 SCRA 216 1.3. Board Must Act As A Body (Sec. 25) - Board of Liquidators v. Heirs of Maximo M.Kalaw, 20 SCRA 987 - Lopez Realty v. Fontecha, 247 SCRA 183 1.4. Effects of Bogus Board -Islamic Directorate of the Philippines v. CA, 272 SCRA 454 2. Business Judgment Rule - Montelibano v. Bacolod-Murcia Milling Co., Inc., 5 SCRA 36 - PSE v. CA, 281 SCRA (1997) 3. Qualifications of Directors & Trustees (Secs. 23 and 27)

- Gokongwei, Jr. v. SEC, 89 SCRA 336 [1979] 4. Election of Directors & Trustees 4.1. Directors (Secs. 24 and 26) - Premium Marble Resources v. CA, 264 SCRA 11 - Monfort Hermanos Agricultural Dev. Corp. v. Monfort III, 434 SCRA 27 (2004) 4.2. Trustee (Secs. 92 and 138) 4.3. Cumulative Voting (Sec. 24) 5. Vacancy In Board (Sec. 29) - Grace Christian High School v. CA, 281 SCRA 133 (1997). 6. Term of Office, Hold-Over Principle - Government v. El Hogar Filipino, 50 Phil. 399 (1927) 7. Removal of Directors or Trustees (Sec. 28) - Roxas v. De la Rosa, 49 Phil. 609 - Raniel v. Jochico, 517 SCRA221, 230 (2007) 8. Directors' or Trustees' Meetings (Secs. 49, 53, 54 and 92) - Tan v. Sycip, 499 SCRA 216 - Lopez v. Ericta, 45 SCRA 539 (1972) 9. Compensation of Directors (Sec. 30) - Western Institute of Technology, Inc. v. Salas, 278 SCRA 216, 223 10. Fiduciary Duties of Directors and Officers 10.1. Directors as Fiduciaries 10.1.i . Pre- Corporation Code: Palting v. San Jose Petroleum, Inc., 18 SCRA 924 10.1.ii. Nature of Duties of Directors and Officers: Prime White Cement vs. IAC, 220 SCRA 103 10.2. Duty of Obedience - Lopez Realty, Inc. v.Fontecha, 247 SCRA 183 10.3. Duty of Diligence (Sec. 31) - Steinberg v. Velasco, 52 Phil 953 10.4. Duty of loyalty (Secs. 31-34). 10.4.i. Doctrine of Corporate Opportunity (Gokongwei vs SEC, 89 SCRA 336) 10.4.ii. Self-Dealingd (Secs 32 and 33) 10.4.iii. Using Inside Information - Strong vs. Repide, 41 Phil. 947 * This duty applies to even confidential employees. Sing Juco v. Llorente, 43 Phil. 589 10. 5. Duty to Creditors and Outsiders 10.6. Corporate Dealings with Directors and Officers (Sec. 32) - Gokongwei v. SEC - Prime White Cement Corp. v. IAC 10.7. Contracts Between Corporations with Interlocking Directors (Sec. 33) - DBP v.Court of Appeals, 363 SCRA 307 (2001). 10.8. SEC Code of Corporate Governance (SEC Memorandum. Circular No. 2, series of 2002) 11. CORPORATE OFFICERS (SEC. 25) 16 December 2011 - Pamplona Plantation Company v. Acosta, 510 SCRA 249 (2006)

- Easycall Communications Phils., Inc. v. King, 478 SCRA 102 [2005]. 11.1. Powers of Corporate Officers 11.2. Liabilities of Corporate Officers (Sec. 31) - Aratea v. Suico, 518 SCRA 501(2007) - Singian, Jr. v. Sandiganbayan, 478 SCRA 348 (2005) - Paradise Sauna Massage Corporation v. Ng, 181SCRA 719 (1990) XI. STOCKHOLDERS AND MEMBERS 06 JANUARY 2012 1. Subscription Contract (Sec. 60 & 72); Trillana v. Quezon Colegialla, 93 Phil. 383 [1953] -Pre-incorporation subscription (Sec. 61) On Yong v. Tiu, 375 SCRA 614 (2002) 2. Consideration - Lincoln Phil. Life v. Court of Appeals, 293 SCRA 92 3. Watered Stocks (Sec. 65) 4. Payment of Balance of Subscription (Secs. 66 and 67) - Lingayen Gulf Electric Power Co. v.Baltazar, 93 Phil. 404 [1953]) 5. Delinquency on Subscription (Secs. 68, 69, 70 and 71) - Miranda v. Tarlac Rice Mill Co. 57 Phil. 619 [1932] 6. Certificate of Stock (Sec. 63) a. Nature of Certificate - Nautica Canning Corp. v. Yumul, 473 SCRA 415 (2005) b. Right to Issuance (Sec. 64) - Baltazar v. Lingayen Gulf Elect. Power Co., Inc., 14 SCRA 522 c. Lost or Destroyed Certificate (Secs. 63 and 73) - SEC Opinion,dated 28 January 1999, addressed to Ms. Ma. Cecilia Salazar-Santos d. Forged and Unauthorized Transfers - J.Santamaria v.HSBC, 89 Phil. 780 - Neugene Marketing, Inc. v. CA, 303 SCRA 295 (1999) 7. Stocks and Transfer Books (Secs. 63, 72 and 74) - Lanuza v. Court of Appeals, 454SCRA 54 (2005) - BLTB Co. v. Bitanga, 362 SCRA 635 - Ponce v. Alsons Cement Corp., 393 SCRA 602 (2002) - Torres, Jr. v. CA, 278 SCRA 793 (1997) 8. Situs of Shares of Stocks (Sec. 55) - Tayag v. Benguet Consolidated, Inc., 26 SCRA 242 XII. RIGHTS OF STOCKHOLDERS AND MEMBERS 06 JANUARY 2012 1. Right to Certificate of Stock for Fully Paid Shares (Sec. 64) - Tan v. SEC, 206 SCRA 740 2. Preemptive Rights (Sec. 39) - Datu Tagoranao Benito v. SEC, 123 SCRA 722 [1983] - Dee v.SEC, 199 SCRA 238 [1991]) 3. Right to Transfer of Shareholdings (Sec. 63)

3.1. Non-transferability of Membership (Secs. 90 and 91) 3.2. Restriction on Transfers: Lambert v. Fox, 26 Phil. 588 (1914). - Right of Refusal: Padgett v. Babcock & Templeton, Inc., 59 Phil. 232

- Ponce v. Alsons Cement Corp., 393 SCRA 602 (2002).

4. Right to Dividends (Sec. 43) - President of PDIC v. Reyes, 460 SCRA 473 (2005) 5. Right to Vote and to Attend Meetings (Secs. 6 and 89) - Lanuza v. CA, 454 SCRA 54 5.1. Instances when stockholders entitled to vote (Secs. 24, 16, 36 & 42, 72, 38, 48, 43, 44 and 62) 5.2. Joint Ownership (Sec. 56) 5.3. Treasury Share No Voting Rights (Sec. 57) 5.4. Voting Rights of Members 5.5. Conduct of Stockholders' or Members' Meetings (Secs. 49 & 50, 51 & 93, 52) 6. Contracts and Agreements Affecting Shareholdings 6.1. Proxy (Sec. 58) 6.2. Voting Trust Agreements (Sec. 59; Lee v. CA, 205 SCRA 752) 6.3. Pooling Agreements or Shareholders Agreements (Sec. 100) , 7. Right to Inspect and Copy Corporate Records (Secs. 74, 75,141 and 142) - Gokongwei, Jr. v. SEC, 89 SCRA 336 - Veraguth v. Isabela Sugar Co., 57 Phil. 266 8. Appraisal Rights (Secs. 81 to 86 and 105) 9. Right to File Derivative Suits - SMC v. Kahn, 176 SCRA 447 - Chua v. Court of Appeals, 443 SCRA 259 10. Right to Proportionate Share of Remaining Assets Upon Dissolution (Secs. 122, 94 and 95) XIII. CAPITAL STRUCTURE: SHARES OF STOCK 06 JANUARY 2012 - Central Textile Mills v. Nat'l Wage and Productivity Commission, 260 SCRA 368 1. Subscription Contract (Sec. 60) 2. Pre-Incorporation Subscription 3. Consideration for Stocks - True Value Rule 4. Certificate of Stock - Tan v. SEC, 206 SCRA 740 5. Transfer of Shares - Rural Bank of Lipa v. CA, 366 SCRA 188 - Fleishcer v. Botica Nolasco, 47 Phil. 583 - Razon v. IAC, 207 SCRA 234

XIV. ACQUISITIONS, MERGERS AND CONSOLIDATIONS 13 January 2012 - McLeod v. NLRC, 512 SCRA 222 - Pepsi-Cola v. NLRC, 210 SCRA 277 - PNB v. Andrada Electric & Engineering Co., 381 SCRA 244 XV. REHABILITATION AND INSOLVENCY 20 JAN 2012 (Insolvency Act, PD 902-A, Securities Regulation Code [RA 8799] - PAL v. PALEA, 525 SCRA 29 (2007). - Radiola-Toshiba Phil. v. IAC, 199 SCRA 373 XVI. CORPORATE DISSOLUTION AND LIQUIDATION 20 Jan 2012 - Gonzales v. SRA, 174 SCRA 377 - Pepsi-Cola Products Phils., Inc. v. CA, 443 SCRA 580 XVII. CLOSE CORPORATION 20 JAN 2012 XIX. NON-STOCK CORPORATIONS AND FOUNDATIONS 20 JAN 2012 (Secs. 14(2), 43, 87, 88 and 94(5) - CIR v. Club Filipino de Cebu, 5 SCRA 321 - CIR v. University of Visayas, 1 SCRA 669 XX. FOREIGN CORPORATIONS 3 FEBRUARY 2012 - Mentholatum v. Mangalman, 72 Phil. 524 - Lorenzo Shipping v. Chubb and SOns, Inc., 431 SCRA 266 XXI. MISCELLANEOUS PROVISIONS 27 January 2012 MIDTERMS 10 February 2012 Digests 17 February 2012 Quiz 24 February 2012 Quiz 02 March 2012 Recitation, Quiz 09 March 2012 FINALS Cases: Cases: Recitation, Cases: Recitation, Submission of Case -