BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
NOV 17, 2016 Acosta, M.
We will study the:
1.Corporation Code (BP 68),
2.Securities Regulation Code (BP 902-A), t
3,The soon to be amended Real Estate xx Law,
Commentaries-you can use De Leon or Villanueva, just
do not use Campos.
The SEC comes up with a decision it wants to forget
because it’s based on ignorance; I was surprised this
morning that it came up with a decision again citing that
decision of the Supreme Court, it’s a laughing stock. Did
you know that the Philippines still has no approval or
membership with the Associations of Securities
Commission of the xx there are some that are almost
backward.
They are still based on paper certificate of shares; the
whole world is a really digital forms of evidence of
ownership. Why is that? Herbosa said because there is
no budget. If there’s no budget, there might as well be
no SEC. Tao gani ka pagcarsones, unggoy gani
maghubo. Tao ka mag ingon ka wa man koy budget di
wa kay carsones nya unggoy ta ka.
The costs on transactions in SEC is one of the greatest
barriers for investments; very expensive to be trading on
paper shares, you have to physically deliver certificate
of stock. It has to be verified and so on for it can be
cancelled just a 3-day gap so many things can happen
in 3 days. That’s why checks, there is now same-day
clearance in US, in Europe, wherever jurisdiction you go
through same-day clearance. Now even if they are still
using paper checks that’s already step facsimile to
clearing xx and its digital representation is enough to
clearing, securing. Here there is still no same-day
clearing, the xx like it because they had an allowance of
a day and a half, but, it’s a mark of backwardness.
 History
So you are studying history, if you stick to our
Corporation Code you study history so I suggest get
hold of Sarbanes-Oxley Law that is the forefront of
corporation law. Sarbanes-Oxley, this is the law that
congress is discussing as to what amendments to be
introduced, it’s just talking about removing the negative
investment lists in the constitution.
Just give me one example, because of the lobbying of
the Lopez family that particular provisions in our
constitution are requiring that media be 100% Filipino
that secured the dominance of the Lopez in ABS CBN.
How myopic can you be, a country will xx itself to incest
for more than half a century. Filipinos can only inform
Filipinos. That was allowed. Now nobody wants to
change the constitution because it’s a legacy of Cory
Aquino for all her rectitude was zero up here. Her heart
was in the right place her mind was bonkers.
Another piece, read that so you will know the issues and
weep.
1
Capital markets you’ve heard of the stock exchange-
that is the equities market, you’ve heard of bonds- that
is the long term credit markets, you’ve heard of money
markets- that’s also credit markets but for short term;
Instrument that mature within one year.
How many of you, when you’re surfing you have this
pop up earn 100k by trading dollars there are personal
testimonies. It’s everywhere it’s popping up. It’s even
publish in the daily print.
SEC has a memorandum that is illegal, we don’t have
any futures exchange trading in the Philippines that is
one capital market we don’t have futures contract or
foreign exchange contracts. So if you have the foreign
exchange denominated debt and you want to hedge
your debt managing ka ba, mangutang ka ron 100M
dollars, nagong nangutangman kag 100M dollars, 100M
yen, because in Japan now you are paid to borrow you
don’t pay interest, its negative interest rate in Japan
now; mudeposito kag kwarta sa bangko ikaw maoy
mubayad sa bangko aron dawaton imong deposito,
that’s negative interest, muingon kag kalooy sa mga
Hapon, kalooy gud, kaluy-I imong kaugalingon because
the effect of that practice is the deposits in the banks of
Japan has grown, mao ng ngilngig nga nasud 25 years
na halos negative growth in the economy sige ingon
recession wa jud matarog ang ilang panginabuhi, the
same standard of living, gangisi gihapon ang Hapon.
So when you borrowed yen and you are thinking can I
pay this 5 years from now when it matures when I am
earning in pesos, normally in business they call it
hedging your loan amount you try to get a futures
contract somebody will sell you yen at the price that you
bought the yen when you borrowed it, that’s hedging,
that’s called forward cover; imo ng protektahan daan but
if you do that here engage in foreign exchange trading,
that is illegal according to the memorandum of the
Bangko Sentral and then it quotes this case which our
capital markets associations here would like to forget
Junapal vs CA? Where the Supreme Court stated in
this wise the payments made under said contract where
payments of different in prices arising out of the rise or
fall in the market price above or below the contract price
thus making it purely gambling and declared null and
void by law.
Let us say you bought dollars, at the time you borrowed
the dollars the exchange rate was 45 to a peso you are
going to pay that 5 years from now so when you got
your dollar exchanged it in pesos used it in your plant
you got 1 is to 45, 5 years from now you’re going to pay
your debt in dollars, how will you fund your payment of
debt, you are earning in pesos you have to buy dollars
but what happens if the dollar is now rising vis a vis the
peso what is the exchange rate now? 49.20 supposed it
hits 55 5 years from now how do you protect yourself
because you’re earning in pesos?
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
You try to get a forward contract; find somebody who
will sell you dollars at 45 five years from now. You buy
that. Five years later when your loan matures it’s time
for you to pay. If the actual exchange rate is 42 to a
dollar do you still need that futures contract? No more,
because it’s cheaper to buy dollars than to use the
contract.
But supposed 5 years from now, the dollar has gone up
to 55 pesos to 1 dollar and here you have somebody
who will sell it you at 45, ginansya kag 10 pesos per
dollar. That fellow who obligates himself to sell you 55
per dollar will only give you 10 pesos to settle that
account, get it? Since anyway you have to produce the
45. That is how futures contract is settled in Chicago, in
Amsterdam, in London. But our Central Bank says it is
null and void. Makauuwaw ning desisyona. That’s the
way how futures contract are settled. Ignoy ning kasuha
nani. You go to London’s futures exchange you check,
that is how they settle it. Read that and weep.
We are in the rear guard action, they say Russia was
saved by the onslaught of the war machines of
Germany when they attack because Russia was
backward; they did not have too many roads so when
the Germans attacked them they went to places where
there were no roads, what happened? When winter
came and the earth became soggy the war machines
become stuck there and they became sitting docks
target to the Russian army and that’s how they lose half
a million fighting men. Kumpleto pa to ilang dalan dali
lang unta to nila nacontrol.
When the financial crisis hit the world in 2012 kita nag
kinagamyang samad, ngano man? We are not that
exposed enough to have that many wounds. Tago
nalang ta kay wa man tay futures contract, our stock
market negligible.
The biggest traded instruments are “bond, the biggest
traded instruments are so called over the counter bill
that is, credit default swaps. Those are the biggest. I’ve
never see a credit default swap here. There are
estimated to be 60B of credit default swaps alone.
Now you came to this class and say what will I do when
I do not have any background in accounting, in banking,
I am a strictly PolSci guy, what do I do? My word to you
is- be an educated man; read the business pages and
then go to google, anything you don’t understand google
it. xxx
Corporation law is the missing aspect of modernization;
the world did not jump from the Industrial Revolution into
the modern contemporary world just because of
technology. It was technology that was harness used
under the corporate structure of limited liability. Without
limited liability there could have been no progress.
Because business is very dicey; you can lose your shirt
in so many ventures and there must be limited liability.
The ancient way to meet the harsh reality of risk in
business before was loans on bottomry. You lose the
bottom then you are forgiven. If you lose your bottom
that’s the East India Trading Company from London to
2
China, they give tea, and what did they give them in
return? Opium. They sold opium to China, that’s how
they enslave China for quite some time. But then they
have mother nature to contend with so many of the
ships coming back crashed, they lose their cargo. If you
lose the ship, you lose it all. At least that was the fate of
loans on bottomry. Then when you have bigger and
bigger ventures, like the opening of the Suez Canal,
Panama Canal, it took decades, whose willing to put
money there? That’s the corporation now. That is Mr.
Nobel, what was the product of Nobel? Dynamite, that is
how he acquired his millions by blowing up the canal.
Corporate risk, so much so that risk and loss has even
become profitable.
Now, here is bad corporation, this is what you should
not do, or if you do it, do it well. January 11, 2016 case,
University of Mindanao Inc. v. Bangko Sentral ng
Pilipinas G.R. No.194964-65, the Torres made the UM
by shares of their bank then the bank get into trouble, to
get advances from the Bangko Sentral, the BSP wanted
collaterals so Torres put as collateral UM properties.
Since the bank of Torres could not pay, had the bank
eventually got bankrupt, the BSP wanted to execute
from the collaterals but the stockholders bought it, ultra
vires, UM does not have the power to mortgage
company property to guaranty another corporation’s
obligation. So it’s either Torres is under a very good
legal counsel or the BSP is stupid as most government
entities are. They lose money because they did not
have the correct collateral. BSP lose the case. It’s on
record that Torres monkey around with the property of
the university because it is for profit. Read that case
again and weep.
Now you are familiar with the provision in the
Constitution that says only Filipino nationals can own
real property or corporations whose capital 60% is
owned by Filipinos. Years ago , the great PNoy signed
into law on May 24, 2013 R.A. 10574 or otherwise
known as An Act Allowing the Infusion of Foreign Equity
in capital of Rural Banks amending R.A. 7353.
Foreigners can now own up to 60% foreign capital of
rural banks. Then again Pres. PNoy signed R.A. 10641
an act allowing the full entry of foreign banks in the
Philippines. They are allowed by at least one bank
universal bank or commercial bank and own it 100%
even if they own real property. There has been no
challenge yet to that, just as there has been no
challenge as to why AXN Fox Media are now operating
in our, they are 1005 foreign-owned.
Why is it that there is no challenge because it was
defeated in Ridon et. al. v. AXN Networks Phil. GR
no. 210885 En Banc resolution per curiam August
26, 2014. Part of your assignment is to look for a copy
of this resolution because there is no copy of this in the
SCRA. Why is there no copy? You tell me. Why did no
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
member of the court sign it as if it’s a death sentence or
a dismissal of a judge that’s the only time the Supreme
Court signs per curiam decisions. Because frankly the
SC is ashamed of this decision. Why? Long story.
So, you can use any commentator, what do I suggest,
you read that which is helpful to you that which you
understand. If your mind is still hungry for
understanding then go surf the internet. Suddenly
you’re caught in insider trading. What is insider trading?
Read all about it.
Alright by way of introduction, let’s take up business
organizations because you have taken up corporation in
civil law but you took it up as a contract now we are
taking it as an organization, a platform for further
contracts. In fact, the way they call it is a vehicle, the
corporation is a vehicle. What other vehicles are there?
There are sole proprietorship, partnership, joint
accounts, business trust, joint ventures cooperatives
and finally you have the corporation which the most
sophisticated vehicle.
TYPES OF BUSINESS ORGANIZATIONS.
So to understand the corporation, we put it against the
range of these other business organizations.
I. SOLE PROPRIETORSHIP
A person who personally conducts business under his
name. The business is under an organization composed
of the proprietor himself and his employees, but it has
no personality separate and distinct form the proprietor.
The sole proprietorship does possess a juridical
personality and has no legal personality to file or defend
an action in court.
So you go over to Uyanguren and you go there to Bohol
Trading because you need to buy a lagaraw, but then
after you pay for it and bring it home- it does not cut. It’s
a lousy lagaraw so you want to return it, it cannot cut
anything, it cannot even hurt your husband, so you want
to return it and they refuse to accept it and you feel that
you’ve been a victim of a legal fraud so you sue Bohol
Trading. Can you do that? No, Bohol trading is a single
proprietorship, it does not have a personality so you
have to go to the proprietor, who is the proprietor then
you look at the receipt and it’s there- proprietor Mr. so &
so 100% Boholano. So you file a claim with the fiscal
office, serve it to Bohol Trading. Serving it to Bohol
Trading, is that proper service? No, that is not proper
service; the proper service is in the residence of the
single proprietor; that is the holding in Anita Mangila v.
CA 387 SCRA 162 G.R. No. 125027. Nagtinda siya dra,
lahi iyang gipuy-an, adto ka serve sa iyang gipuy-
an dili sa iyang tindahan-that is not the proper venue for
service.
Anita Mangila VS CA
3
GR No. 125027
A sole proprietorship does not possess a juridical
personality separate and distinct from the personality of
the owner of the enterprise.] The law merely recognizes
the existence of a sole proprietorship as a form of
business organization conducted for profit by a single
individual and requires its proprietor or owner to secure
licenses and permits, register its business name, and pay
taxes to the national government. The law does not vest a
separate legal personality on the sole proprietorship or
empower it to file or defend an action in court.
Thus, not being vested with legal personality to file
this case, the sole proprietorship is not the plaintiff in this
case but rather Loreta Guina in her personal capacity. In
fact, the complaint in the lower court acknowledges in its
caption that the plaintiff and defendant are Loreta Guina
and Anita Mangila, respectively. The title of the petition
before us does not state, and rightly so, Anita
Mangila v. Air Swift International, but rather Anita Mangila
v. Loreta Guina. Logically then, it is the residence of
private respondent Guina, the proprietor with the juridical
personality, which should be considered as one of the
proper venues for this case.
Now, Bohol Trading you have to register that name with
the local business bureau office. A proprietor’s true
name is already registered with the civil registrar upon
birth but the proprietor is required to register his
business’ name other than his true name with the
Bureau of Trade Regulation and Industry. That is his
firm name. if not registered, the proprietor cannot use
the sign saying Bohol Trading, he cannot print receipts
saying Bohol Trading.
But a corporation does not have to register its name
with the local business bureau. Why? Because its name
is already registered with the Securities and Exchange
Commission. When does it need to register a name? If it
uses other names than its corporate name. Naa may
nagreperesent nimo diha Jollibee, its description etc,
you register it in the patents office, trademark.
Davao Doctors Hospital that is registered with local
registry of the bureau, why? Because that is not the
name of the corporation. What is the name of the
corporation of Davao Doctors Hospital? Clinica Hilario
Inc. she’s still alive, she still go there. Clinica Hilario Inc.
that is the corporate name of Davao Doctors Hospital.
And that name, Davao Doctors, is now a misnomer,
why? Because the real controlling interest is no longer
Davao Doctors, it is now Makati Medical Center, that’s
now controlling, another corporation.
So, proprietors, what is the advantage of proprietors in
single proprietor? If you are a single proprietor whatever
you can think of, you can go into as a business. Ikaw
man magbuot; whatever you can think of.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
If you’re a corporation, you cannot go into any kind of
business; you can only do business that is denominated
in your purpose clause-that is one of the disadvantages
of a corporation that is as to purpose with respect to a
single proprietor. Single proprietor of course is, can last
only as your single proprietor’s natural life. The moment
he dies, what happen to him? What happens to his
properties? It is perforce by law either subjected to
testate proceedings or intestate proceedings. No matter
how big it is, that’s the end. But the corporation might be
little troublesome but it can have perpetual existence;
technical speaking. You can have perpetual existence
because the death of the stockholders is not the end of
the corporation. That is the same with partnership. You
know of course, the death of the partner what is the
consequence? As a vehicle, it’s the end of partnership,
partnership is dissolved. Why? Because partnership is
based on confidence and trust; there is no purpose
clause, whatever the partners decide they do well and
good. But, a partnership can last as long as the shortest
lifespan of a partner. Kinsay kinakatiguwangan nga
partner, ug kabliton na siya sa Gino okay pabalikon na
siya sa iyang gigikanan wan a, human ng partnership.
II. PARTNERSHIP
of course are created by consent of the parties, they do
not have to register unless it is a so called partnership
with limited liability in which case there must be a
general partner that requires registration. Where should
it be registered? It should be registered also with
Securities and Exchange Commission.
III. JOINT ACCOUNTS
it is Code of Commerce terminology “cuentas en
participacion”. It is a contract whereby merchant made
interest themselves in transactions with other merchants
contributing thereto the amount of capital they may
agree upon and participating in the favorable and
unfavorable results thereof in the proportion that they
may determine. That’s under Article 239 of the Code of
Commerce. Cuentas en participacion is an accidental
partnership; there is no indication to the public that there
is an existing arrangement because only the ostensible
partner is conducting the business. There is no juridical
personality separate and distinct form the ostensible
partner, there is no commercial name common for
participants that they adapt in the joint accounts; it’s just
the ostensible partners’ name that is there. And as to
the management, it’s just the general partners, the
ostensible partners who faces the public, conducts the
transaction. But, the silent partners, they are bound by
this transactions that is cuentas en participacion. It’s
only between the two of you. You hold an evidence that
you put money to this venture and he agrees that you
pay the venture.
4
Muingon ka, samok man kayo na Fr., that’s very
ordinary muingon ka, nagtangay mi corpo, mao na
cuentas en participacion na, kanang corpo-corpo. Adto
kag Diwalwal kannag mga tag iyag tunnel naa na silay
pandawat ug kwarta kay mahutdan man jud kag kwarta
ana mao nay tawag nilay corpo disabuse your mind that
corpo is corporation. Corpo2x cuentas en participation
because you only know the respective owner of the
tunnel, kanang mga tao nga mubutang ug kwarta dinha
accidental partnerships na, ngano man? Kay ako man
naghatag ug gasoline gamit nila didto sa ilalom nya di
man sila kabayad, so naapil nako. Kuha silag bomba sa
tubig kay tubig man tung sa ilawm, nya malumos to sila,
nya namalit ug bomba sa hardware nya kay di naman
sila kabayad, di apil nasad ko corpo na ko. Corpo na
corpo, informal partnership.
Kana gyung corpo na lisud kayo sudlan, unsa man?
Pirmi jud na mag-away- treasure hunting.kannag corpo
sa treasure hunting. Wa jud koy nailhan nga corpo sa
treasure hunting nga wa mag-away, away na kay ngano
man? Wa man juy treasure. Naa lang jud sa huna-huna
nila ang teasure. They suspect each other.
Nov 18 2016 Tongo, K.
Exam Coverage: 1-22
23 is already Board of Director. So this is the first part
and the heart of the first part is section 6.
You have to know section 6 like the back of your hand.
Section 6 is a kilometric provision and you have to
outline it if you want to know it. So when you are already
practicing and somebody will ask you, “can we provide
for this kind of shares?” You will know the answer right
away.
You know the big four in accounting, Pricewaterhouse
Coopers, Deloitte Touche Tohmatsu, Ernst & Young,
and KPMG, they are now internationally embarking on
legal services. They have their own lawyers. Why?
Because there is no more growth in accounting. Those
that can pay the big four have already, under the big
four, they are just stealing from each other. Nag away
away lang na sila. tulo ka tu-ig, KPMG, sunod na sad
kuhaon ang Ernst & Young, mao nan a. So wa na silay
growth. So they are beginning to go to the legal
services. What is the logic? The logic is this is the next
area of growth. So they are running slump against the
legal firms. Mga dagko kaayo Mckenzie, running against
them and the law firms are scared sheep because they
are incomplete. If you are auditing somebody then you
will have relationship over the years, then you begin to
be trustworthy and so it is little step towards getting
them for legal services.So that is a problem now.
Here in the Philippines, the big four, their correspondent
auditing firms are starting their legal services arms. So
once again, against the horizon of business vehicles,
business platforms, in other words the base from which
you conduct further contracts and transaction, that is a
point of view of business organizations. That is why we
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
are taking up these business organizations, seven of
them so that we can appreciate the business
organization that is they corporation.
The key to your understanding is to understand
abstraction.
 What is an abstraction?
It is a process of the mind by which you disentangled
certain contents and latch on to that which is common,
and by that which is common you will arrive at an
understanding.
Let’s say there are four cars. That is an abstraction.
Why? Because right there is a Toyota, a Nissan, a
Volkswagen and a Subaru. You look at each one of
them, you take away their being Subaru, there being
Nissan, Volkswagen, and Toyota and just latch on to the
kernel which is their ‘carness’. Then you can understand
it as four cars, not as Toyota, Nissan, Subaru and
Volkswagen, but four cars.
Now you will eliminate all the cars and you will say there
are four. Four what? Four! That is the ultimate
abstraction. Four, just four. What is the content of that?
That is distinctly human.
Ang iro, ang iring bisan ang unggoy na ngilngig kaayo di
makaingon ana. That is abstraction. That is a product of
mental process. Now when you say a corporation,
 What is a corporation?
It exists in the mere contemplation of law. It has no
referent. You have a referent. You occupy space. You
exert weight. You are out there and there is something
about you which is xx cant do anything about because
you are out there.
 Where is a corporation?
San Miguel corporation, mao ba na? kanang naay
karatula dira? That is a sign that there is a corporation.
But where is it? Suwayi. Kung wala ka kaila sa imong
akusado na nangawat, mahimo nimong ikiha nga si
‘John Doe’ wa nimo siya mailhi, wa nimo makit-i. Karon
na nadakpan nimo siya, motion to amend the
information. Simple! That is just a formal correction.
That is not a violation of a fundamental right. Nadakpan
naman, ang iyang ngalan diay, si Alannn Bicoy. Mao na
iyang ngalan. So imbis na People of the Philippines vs
John Doe, provisional name, tangtangon na na, Alan
Bicoy.Mao na na siya
Karon mukiha kag corporation, sayop imong ngalan na
nabutang, unya service-an nimo ang corporation ug
summons, pero sayop imong ngalan. Unsa may tubag
sa corporation na imong iserve-an ug summons? Ang
tubag niya, motion to dismiss for lack of cause of action.
Muingon siya “ Dili man na ako!” that is not San Miguel
Corporation, ang imong pagkiha diha San Miguel
5
Incorporated man. Makadakop ka anang San Miguel
Incorporated uniya imong ibutang diha provisional
name, imo lang gi change ang iyahang name, di man,
wa man na siya. It just exist in contemplation of law.
So it is very important that you will get the name
correctly before you can charge a corporation.
Simple kaayo na, those are the fundamentals. Mao ng
masayop ng UM, because they have not understood the
basic essence of the abstraction known as the
corporation.
Im giving this to you so that you will have some
appreciation of what we have to deal with.(notes) When
we take up other business organizations, very simple it
can be understood, there is as much a physical referent
as it is absent in a corporation.
 A partnership
There are partners, actual live bodies. In fact if a live
body dies that is the end of the organization. It is
dissolved.
 Cuentas en participacion or joint account.
There is an ostensible partner, there could be hundreds
of partners that put in money but they are not apparent
to the public. It is only the personality of the ostensive
partner. There is no juridical personality taking up all the
corporate investments that is placed. There is no
separate business name. Not everyone participates in
the management. Only the ostensive partner
participates. Only the ostensive partner can be sued by
and is liable to persons transacting with the former. In
partnership, all general partners may be liable even up
to the extent of their personal properties and may
therefore be sued by third persons. But in a joint
account, it is only the extensive partner.
Examples: kanang mag tunnel, that is a joint account.
Kanang fishing sa general santos, joint account na.
kanang mamulawan, joint account na. Only the
ostensive person is the known entity as the public is
concern. But as far as the investor and the general
partner, they have obligations to each other, they have
an understanding as to how they will divide the profits,
as to how they will share the loss, as to the right of the
investors to veto certain actions that are taken by the
ostensive partner.
Alright, another so-called organization is a business
trust.
IV. BUSINESS TRUST
What is prominent in the civil code is an implied trust.
There are many instances of implied trust. If you are a
seller of a merchandise and the buyer overpays you, to
the extent of the overpayment you are a trustee holding
it for the benefit of the customer who overpay you. That
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
is an implied trust. The customer who overpaid has the
right to comeback later on and ask for the amount in
excess of which he paid. You have a duty to safeguard
that amount. You cannot say later ‘uy! Nasayop man
kog butang sa , niya pag abri nako wala naman dinha,
sorry ha.” Can that excuse you of liability? No. You can
lose all your money but you cannot lose the money of
another which you hold in trust.
The rules governing property held in trust are more
stringent than the rules that you exercise over your
personal property. So nawani nimo, too bad bayran
nimo sa imong kaugalingong kwarta, because you have
the duty to hold it in favour of the one who overpaid you.
That is business trust—implied trust.
 Now we come to express trust.
You are taking up business tax. One of the provisions in
the National Internal Revenue of an ongoing concern
such as corporation is, it has the right to put up
retirement fund in favour of its employees, the officer
and members of the board of directors. It can put up a
retirement fund to answer for retirement benefits
according to its retirement rules. If your retirement is by
the age of 55 then by the time you reach the age of 55
then you are entitled to the retirement benefits of the
rules of the corporation.
 Now, before you can put up retirement fund
what do you need?
1. First, you need the approval of the National
Internal Revenue. The Bureau of Internal
Revenue must approve your plan. And then the
BIR requires that the plan must be an
irrevocable plan. Dili mahimo na muingon ang
coporation, “500 million atong igahin dinhi para
sa retirement plan” unya naglisod na ang
corporation, “asa na ta mangita? Ay diri ta sa
retirement plan, huwaman nato.” No you
cannot. It must be irrevocable. Dili na
‘irevoowwcable’, I-‘re-və-kə-bəl. Dili na nimo
mabawi. Those are the rules you have to
satisfy before the Bureau.
2. Second, the beneficiaries of the fund must be
represented in the governing body of the
retirement fund. So, if it is for the general rank-
and-file then there must be a representative in
the Board that oversees. There must be
representation for the rank-and-file. Ofcourse,
there will be members of the board, there will
be officers, etc. but there must be
representation from the beneficiaries.
3. Third, the company cannot manage its own
retirement fund. Why? Because it has its own
interest and the interest of that fund might be
sacrificed in order for its own personal interest
to be safeguarded. Now mahutdan ug kwarta,
manguha didto, bunluton dinhi, No. To make
6
sure that it does not going to happen, the
governing board must manage the fund. It has
to entrust it to an asset manager, normally a
bank-- a trustee. So the corporation is a trustor,
it creates the retirement fund for the benefit of
the employees, officers, directors of the
corporation, those are the beneficiaries and
then it must engage the services of a trustee to
manage the fund.
So when you have a business trust you have three
parties, the trustor, the trustee and the beneficiary. Now,
question,
 Does a business trust have a personality?
No. It does not have a business personality.
 But does the business trust have a tax
identification number (TIN)?
Yes. It has. The BIR requires that it has its own TIN. It
pays its own taxes from the earnings of its investments,
unless it is tax exempt. But even if it is tax exempt it
must continually year after year file a tax return,
because tax exemption does not exempt you from filing
a tax return.
So, you are not a person yet you have a TIN. Let it not
be said that personality is necessary in order that you
are identified with the BIR. Bisan multo ka, mubayad
kag tax kung naa kay TIN. The BIR does not care
whether you have actual, real, or ghostly existence as
long as you have TIN, you are subjected to, at the very
least, a tax return.
 Suppose the business trust acquires
property, under whose name is the title of
the property to be bought?
So we have a trust fund. Let us say Henry Sy invested
in sovereign bonds of the Republic of the Philippines,
treasury warrants. Ug mupalit siya ug treasury warrant
kang kinsa man ng ngalan ibutang? Ibutang nimo ‘San
Miguel Retirement Fund’? There is no such person.
Under whose name is it? It is under the name of the
trustee. So property can be disposed of, acquired by the
business trust and it pertains to the business trust. But
because it has no personality, it is in the name of the
trustee in trust for the business trust. Kuha mog civil
law, anang trust, di gyud na I explain kay wa man na
ning agi anang ga explain ana ninyo. Wa may
experience ana. Wa kasabot ana.
Example: Ikaw, you are Henry sy, Daghan kag mga
apo, nag awas awas na imong mga kwarta, di na gani
nimo ma ihap. Now mu ingon ka “I want to put up a trust
fund for each of my grand children.” Why? “I want them
to be secured. I want them to finish in the best schools.
If they have the talent to qualify in Oxford or Cambridge,
they should have enough money to go there and study
where Isaac Newton studied and Stephen Hawkings.
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ADDU-Law
Mao nay lisod sudlan. Dili ng Stanford, Harvard,
Cambrdige, suwayig sulod. Entrance exam pa lang
knock out ka na. naa may latin! Inintsik unta! The
members of the communist party dependence cannot
go there ecause they do not have latin. Kinahanglan
muskwela kag gradeschool to highschool interno ka.
Public schools in England which are very private,
mutuon kag latin, a little .. of greek. They say if you have
some greek or latin, you have pedigree . You know how
to recite the Odes of caesar.
 Now supposed you passed on properties as
part of the trust, How do you do it?
You have to execute an instrument of conveyance of
that property to the trustee, for the benefit of the
particular beneficiary. Henry Sy ka, daghan kag yuta,
naa kay yuta corner Pioneer and Edsa, 1000 sqm,
Gusto nimo ibutang anang trust fund sa isa sa imong
apo. Anak ni rubina. Pila may anak ni Rubina? Usa ray
anak ni Rubin. Ang amahan ana dean sa lawschool sa
University of Palawan. Himus himus na lawschool.
What do you do? You convey it to the trustee in trust.
So you execute. Why do you need to convey it?
Because for tax purposes, unless you make it an
irrevocable trust, irrevocable trust means in law a blind
trust. Kadungog namo anang blind trust? Mao nay
pasabot anang irrevocable trust. Then it is no longer
part of your corpus of wealth and possessions. It is
separate taxable entity. When you die it is not part of
your estate, it already belongs beneficially to the
beneficiary.Pictularly(?) it belongs to the trustee. He has
command over it in accordance with the so-called
articles of trust, kay gisuwant man nimo, articles of trust
ug unsa imong gustong buhaton ining mga kwarta you
invested, the trustee can engage it, and etc.
When does the trust end? When he reaches the age of
35? 32? 33? Or 40? By the time he reaches the age of
40 then the trustee will turn over everything to the
beneficiary. That is the end of the explicit business trust.
IV. JOINT VENTURE
It is an association of persons or companies jointly
undertaking some commercial enterprise. Generally all
contribute assets and share risks. It requires of
community of interest in the performance of the subject.
A right to direct and govern the policy connected
therewith and duty which may be altered by agreement,
to share both in profit and losses.
 What are the features of joint venture?
As to applicable provisions, the joint venture is actually
a form of partnership and should thus be governed by
the law on partnership under our jurisdiction.
Second, Corporations can now enter into Joint Venture
agreements. Before there was an old 1920s
pronouncement of the Supreme Court that corporations
7
cannot enter into joint ventures why? Because of the
now Section 23 of the Corporation Code
Section 23 of the Corporation Code mandates that all
powers are excercised ___, assets, rights are
possessed by the Corporation, through the board of
directors. So there can be no one higher than the board
of directors to direct a corporation.
Section 23. The board of directors or trustees. –
Unless otherwise provided in this Code, the
corporate powers of all corporations formed
under this Code shall be exercised, all business
conducted and all property of such corporations
controlled and held by the board of directors or
trustees to be elected from among the holders of
stocks, or where there is no stock, from among
the members of the corporation, who shall hold
office for one (1) year until their successors are
elected and qualified. (28a)
Every director must own at least one (1) share of
the capital stock of the corporation of which he
is a director, which share shall stand in his name
on the books of the corporation. Any director
who ceases to be the owner of at least one (1)
share of the capital stock of the corporation of
which he is a director shall thereby cease to be a
director. Trustees of non-stock corporations
must be members thereof. A majority of the
directors or trustees of all corporations
organized under this Code must be residents of
the Philippines
When you enter into a joint venture, the corporation no
longer become supreme because it must abide by the
decision of others that entered into the venture. So that
was the thinking. But then necessity forced us. And so
the Supreme Court came up with the decision in
Aurbach vs Sanitary Wares Inc allowing corporations
to enter into joint ventures.
 Where is joint venture very common?
Joint ventures are very common in oil and gas projects.
Oil and gas projects costs so much money, that even if
you are Exxon which used to be one of the most
valuable corporations in the world market value, you
cannot survive without joint ventures. If you bid,
solohon nimo ang isa ka exploration, that is all the
exploration that you can do because it is so expensive.
So what will you do? You invite others to come in so
that not all your venture capital, you risk capital will be
put it one basket.
Supposed you decide to look for oil in iced Siberia,
Mahal kaayo, iced naman. Why all of a sudden have
decided to do this? Because your technicians, your
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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
scientists are there saying, “The GPS data, our satellite
data is pointing to the existence of oil and natural gas,
we just don’t know. But mathematically this is the
computation. So if you don’t go there, somebody else
will.” So if you are big now you might not be later if
someone goes ahead with you. That’s why they go in
there.
When Obama pronounced the boycott against Russia
because Putin annexed Crimea, they delayed it for four
days before Exxon, chevron, and etc could find positive
confirmation of their drilling in the polar cap of Siberia.
Hapit naman sila, duol naman sila ka-igo. That is one
kilometer of sea and then two kilometres of earth at the
bottom of the sea. Hapit naman sila ka-igo. Pagkaigo
na nila, sirhan na nila sa taas, sirhan na nila sa ubos.
Wa man sila kahibaw unsa kadaghan ana. But they
cannot do it by themselves. It is too expensive. They
have to get joint ventures.
What is the most expensive project, business venture
in the Philippines? The most expensive is Malampaya.
Shell which is the majority owner operator of this joint
venture put in a pittance of 4 Billion US dollars for that
and has been supplying natural gas and cutting our
petroleum bill by one-half to produce 60-40 Philippine
Grid. But that is Shell, Oriental petroleum, Chevron, the
Philippine government, but the share of the Philippine
government cannot be accounted for. What happened
to it? Naay resibo ang joint venture na ning bayad sila
sa Philippine government but nobody knows where it
is.
So by necessity there has to be joint ventures.
Another business venture
V. COOPERATIVES
RA 9530 ART. 3. General Concepts. - A
cooperative is an autonomous and duly
registered association of persons, with a common
bond of interest, who have voluntarily joined
together to achieve their social, economic, and
cultural needs and aspirations by making
equitable contributions to the capital required,
patronizing their products and services and
accepting a fair share of the risks and benefits of
the undertaking in accordance with universally
accepted cooperative principles.
 Cooperatives for business.
It may engage in business but it might not be the lowest
price product producer its aim is social, to achieve a
lawful common social or economic end. It is social.
 What it is its biggest difference with a
corporation?
8
The highest body of the corporation is the board of
directors or the board of trustees. The highest body of a
cooperative is the general assembly of cooperative
members. No matter how many shares you have you
only have one vote because what you want to achieve is
a social end. It does not matter how many shares you
have. You just have one vote. That is why if you are a
member of the cooperative you need not be paid the
minimum wage if you work for the cooperative, because
the good of the cooperative is as much your good. It is
exempt from minimum wage.
VI. CORPORATIONS
Section 2. Corporation defined. – A corporation is
an artificial being created by operation of law,
having the right of succession and the powers,
attributes and properties expressly authorized by
law or incident to its existence. (2)
I would like to caution you, you will read in some other
commentaries that a corporation is an artificial person.
No. Its personality is as real in law as yours and mine. It
is its being that is artificial. It is not its personality. If you
disregard the personality because it’s artificial, then you
will suffer consequence of ignorance.
So a corporation is an artificial being created by
operation of law. The second phrase points to what
Mr.Cesar Villanueva says, is the theory of concession.
The basic undermine nucleus is the consent of the
state. That is what makes it a corporation. If the consent
of the State is not there then there is no corporation.
That is what Villanueva says. That is .. because there
are other competing theories that underlie a corporation.
But for this purpose, created by operation of law let us
first accept that theory, the theory of concession.
 When does the corporation begin to exist?
It is not like a partnership. The moment the partners
come together and they agree and put in money then
the partnership exists. It is by the agreement of the
parties.
You are incorporators and there must be atleast five
incorporators to register a corporation. You have come
to an agreement and you put in your subscription form
and .. corporation shares and you agree and you have
an interim treasurer holding it for and in behalf of the
corporation to be formed. But the SEC does not give
you a certificate of incorporation, what happens?
Muingon ka, ‘now there is an implied partnership’, is that
true? That is not what the Supreme Court says.
If there is a failure to incorporate, there is no certificate
of incorporation issued by the Securites and Exchange
Commission, there is no corporation, there is no implied
partnership then you have to give back all the
contribution. Even if a piece of real property is deeded
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

to the corporation to be formed that is considered null payments of the corporatio

and void and it goes back to the donor. debts of the n are
partnership. liable only
Operation of law--having the right of succession and the to the
powers, attributes and properties expressly authorized extent of
by law or incident to its existence. their
unpaid
(2nd hour) Abad, I, subscripti
on or
 Partnership vs. Corporation payment
of
The usual differentiation or distinctions between corporate
partnership and corporation are Contractual in nature. debts*
Some instances are as follows: 5. Effects of The death, While the
death, insolvency, death,
insolvency, insanity or civil insolvency,
insanity or civil interdiction of a insanity or
PARTNERSHIP COPRORATI interdiction general partner civil
ONS dissolves the interdiction of
1. Parties you need 2 or You need partnership a
more persons not less stockholder,
than 5 nor does not
more than affect the
15 corporation’s
incorporator existence.
s to form a 6. Power to  A partner  A
corporation. Dissolve the may dissolve the corporation
2.Basis of Based on the A corporation business partnership by cannot be
creation: agreement of the is created by organization his act or dissolved
parties, there is Operation of withdrawal. without the
Consensuality. It Law and its approval of
follows the existence  Sa the board
general rules on begins from partnership, it of directors
contracts where and after the is very easy( to and 2/3
they are perfected date of dissolve) confirmator
by mere consent issuance of its y votes of
Certificate of the
Incorporation stockholder
3. Term of While a s, voting
existence Just like the corporation and non-
contract, may be voting, and
partnerships may organized consent of
be organized for only for 50 the State.
an indefinite years, it is  While to
period of time, renewable for dissolve a
(Article 1785, CC). periods not corporation
But in reality, a exceeding 50 is more
partnership, lasts years for an complicate
as long as the indefinite d
shortest lifetime of number of 7.  A partner  while in a
a partner, times. So a Transferability cannot transfer corporation
because once a corporation, of Interest. his interest in ; the
partner dies, then is capable of the partnership stockholder
the partnership is an indefinite without the may
consumed. term of consent of the transfer his
existence, other partners shareholdi
legally.  Consequently, ngs without
a person the
4. Liability of General partners While cannot consent of
Constituents are liable with stockhold become a the
their properties for ers in a partner without stockholder

9
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

the consent of s subscriptions, if you have a balance that you have

the other  While a not yet paid, and then the corporation goes
partners person can bankrupt, the creditors of the corporation can run
become a after you as subscriber, up to your own personal
stockholder property to the extent of your unpaid balance plus
of the accrued interest on the balance of your
corporation subscription. That is the extent of a stockholders or
with the subscribers liability.
consent of
the other
stockholder **Now, there might be some restrictions as to the
s.** transferability of shares, but such restrictions
8. the scope of  A partnership  A cannot be more onerous, according to the
the powers may do corporation corporation code, than a grant to the corporation or
anything by the may the other stockholders the right of first refusal. If
agreement exercise they fail to exercise that, then the stockholder is
among the such free now to resort to anyone. But the essence of
partners. powers as shares in the corporation is that they are
 If you are may be transferrable. In other words, you cannot provide
partners, you granted by in the articles and by laws of the corporation that
can enter into law on its the shares of a certain corporation cannot be
any business Articles of transferred, because that is the essence of a
as long as you Incorporati corporation – transferability of shares.
agree. on or those
implied
therefrom, Now, to emphasize to you how important that
or those transferability of shares is, you have to read the case of
incidental JJ Summit vs. Court of Appeals, 345 S 143. (?)
thereto.
 . If you are JG Summit vs. Court of Appeals
partners, [G.R. No. 124293. September 24, 2003]
you can
enter into JG Summit is the holding company of Mr.
any Gokongwei. Here is the story:
business
as long as Baseco Bataan Shipyard Inc. was formed during
you agree. the heydays of Marcos. From the behest money of the
 But a Romualdez, they then sought out a partner, Mitsubishi in
Corporatio Japan and then they formed a shipbuilding, ship repair in
n is limited Bataan, Baseco. Now, the Japanese wanted security, so
to their the Japanese entered into a right of first refusal
purpose agreement with the Romualdez.
clause.
As to Unless otherwise While in a The Romualdez were unable to pay their debt
Representation: agreed upon, corporation, with the (PNB) Philippine National Bank’s investment
each partner may only those arm or the NIDC (National Investment and
act upon for and officers or Development Corporation), the PNB was still a
bind the persons GOCC. So as a consequence, NIDC took over the
partnership authorized by shares of the Romualdez. By that time, the
the board of Romualdez have already disappeared together with
directors for Marcos and ran into the hills of wherever. When
and bind the NIDC took over, it foreclosed all the debts.
corporation.
Now, NIDC wanted to liquidate the assets, so it
was already Cory Aquino’s term. They made an auction
sale of the Romualdez shares now owned by NIDC. The
one who won the bid was JG Summit, using the so called
debt equity swap.
*So, to be accurate, it is not the stockholders
number on what they put in to the corporation, but  The way you could participate in the bidding is
what he has committed to pay to the corporation. by paying the dollar denominated loans of the
That is the extent to his liability. As to your unpaid Philippines and you get certain credits and you
brought it with you and that is what you use to

10
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
exchange for the shares in the NIDC. Mubayad
ka og utang sa Pilipinas na grabe kadaghan for
Marcos really put us in debt.
So JJ Summit won. But when JJ Summit was
about to consolidate its title for the shares, Mitsubushi
said, “wait a minute, there is a right of first refusal in the
books of the corporation, that none of us can sell to 3rd
parties without giving the other a chance to buy.” So
therefore, Mitsubishi says we are exercising such right,
we do not have to offer a higher price, we just have to
equal the price at which JG Summit won.
Whereupon, JG Summit went straight to the CA
and sought an Injunction on a question of law. According
to JG Summit, the right of first refusal signed by the
parties is null and void, because if it were allowed, the
entire corporation, which owned land, and facilities
adhered to the land, they could no longer hold that
because it would be completely foreign owned. Diba?
Mitusbishi is foreign owned, at that time it was only 40%
Mitsubishi and 60% Romualdez, then NIDC.
Issue: Whether the right of first refusal was null and void
because if it is allowed then what would result would be
no longer a Filipino Corporation, is that correct?
Held: No. Supreme Court says, you are wrong JG
Summit. Mitsubishi can still exercise its right of first
refusal, in which case, it will have to disenfranchise itself
of the land, maybe sell it to a 3rd party because it is no
longer qualified to own land, or it could also sell its right
of first refusal to another Filipino Corporation, because
that in itself is a distinct right. You can sell your right of
first refusal. The one who can buy, can exercise, for and
in behalf of Mitsubishi, the right that has been transferred
to it – that is a distinct right!
So, that is important to pay attention to. You read
that case because these were no bantam weights of fight
between ACCRA, SYCIP-Salazar etc. And the Supreme
Court, it was a valid agreement of right of first refusal.
Alright, transferability of shares, that is the essence of a
corporation, the shares are transferrable.
Now, these are contractual differences. These
are not differences of business organizations. What is
the difference between a partnership or joint ventures,
as to the plat forms of doing further transactions, as a
business organization? This is where a corporation is a
result of creative necessity. Because of tremendous
risk, you have to manage the business so that you
would have a limited liability. You can also have that in
partnership if you are not a general partner. But then, in
a corporation, ownership is separated from
management, is separated from implementation.
 Those are the 3 distinct functions that are
separate in a corporation:
11
 Ownership (stockholder)
 Management (board of directors)
 Implementation (employees)
The stockholder is an Owner, but he has an indirect
interest into the corporation. The board of directors are
elected, but they are Management, they create policy.
Now the employees of a corporation are the
implementors, they implement the policy determined by
the management.
Now, who questions whether the implementation is
correct or not? It is not the implementors. If these were
single proprietors, ikaw ray magbu-ot og ni succeed ba
ka or dili, and many times, you cannot admit that you
fail, kay conflict of interest ma na.
That is not the case in a corporation, because the
implementor is judged by the policy maker, and the
policy maker is judged by the owner stockholders.
Those 3 separations make for a better business
possibility. In other words, now you can have objective
criteria and measurement of business performance. If it
is a partnership, kamo kamo lang mag determine sa
policy, and the partnership will also execute it, and then
you review yourself, in the end, that cannot stand.
The Lloyds of London was a partnership, 50 general
partners. It used to be the biggest reinsurance company
in the world, until something like 10 years ago, they
finally decided that they cannot stand as a partnership,
they finally have to reconstruct it and form a corporation,
and that is how it began.
To me, that is the telling difference between a
corporation and other lesser forms of business
organizations – the distinction between ownership,
management and implementation – it makes for a
more standard and objective way of measuring a
business on-going entity. It is on-going, dili man nimo
mahimo ingnan ang business na hunong, gadagan
mana pirmi. This is one thing you would realize when
you look at financial statements; it is always “as of a
certain date” whether it be a balance sheet or a profit
and loss statement. It is only technically correct “as of”
that certain date only, not of the following day or the day
before that. There is a date to it, it is a snapshot of an
on-going concern, because the assets are always
increasing or decreasing, its payments and cash flow is
always moving. Financial statements are always
relevant even it is only as of a certain date.
ATTRIBUTES OF A CORPORATION.
 There are 5 attributes of a corporation.
1. It is an artificial being.
2. It has a legal personality or judicial
capacity on its own, separate and
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
distinct from that of its constituents
(whether it be the stockholders or
members of the corporation).
3. It is created by operation of law. It is the
law that creates it. It is a creature of the
law. If there is no law, there is no
corporation.
4. It has the right of succession. It succeeds
itself. It may change its name but it is still
the same artificial being and it continues
to hold possession of its assets. It
continues to answer its obligations.
5. It has the powers, attributes and
properties expressly authorized by law or
incident to its existence.
 Three (3) kinds of powers of a corporation:
1. Express
2. Implied
3. Incidental powers
The most important of these 3 is the Incidental powers,
why? Because it is definitive of a corporation, the fact
that it can sue or be sued means that it is a person.
Because what is a person as described in the Civil
Code? A person is one who is a subject of rights and
obligations. If you have no rights, you are not a person.
If you have no obligations, you are not a person.
Now, let us begin with this first attribute:
1st attribute: The corporation is an
ARTIFICIAL BEING.
If it is an artificial being, a corporation can act only
through natural persons, it cannot act by itself. Why?
Because it is artificial, it does not have hands, mouth or
feet. It just exist in the contemplation of the law,
therefore it requires agents. And who are its agents?
The constituents, primarily, of the corporation, the
stockholders, officers and members of the board of
trustees.
The natural person is as essential to the corporation as
testimonial evidence is essential to all evidence.
Testimonial evidence testifies the act, the object
evidence cannot testify, also the documents, they
cannot testify. That is why we have to pay attention to
formalities in a corporation, because a corporation
does not act by itself.
You, as an ordinary person, can do anything,
makapanluwa ka, makapanghingog-mu ka, di man ka
kinahanglan og permiso ana. It might be uncool or
against civility but you have all the power to do it, unless
you are in Singapore.
But if you are a corporation, to do anything, how does a
corporation do that?
12
 The board of directors would pass a resolution,
it may state “be it resolved, as it is hereby
resolved, that a corporation shall open a bank
account at BPI Recto, with the following
signatories, and resolves further that any single
one of the signatories aforementioned can sign
up to 10,000, any 2 can sign higher than
10,000 but lower than 100,000, etc.” Then the
bank knows what the corporation wants. There
is this resolution certified by the corporate
secretary of the corporation. So that is one of
the important points of the first attribute.
 Criminal liability consequence.
Not having a physical existence, a corporation
cannot be imprisoned. It is incapable of intent, hence
it cannot commit felonies punishable under the
Revised Penal Code. It may be fined, but the fines are
a consequence of the officers being prosecuted for
violation of the law and only if the law says so. A good
example of that is PD 115 - Trust Receipts Law. Such
law expressly provides that if the violation or offense is
committed by a corporation, partnership, association or
other juridical entity, the penalty provided for in the said
law shall be imposed upon the directors, officers,
employees or other officials therein responsible for the
offense committed, without prejudice to the Civil
Liability arising xxx.
You are familiar with this Trust Receipts Law, naa may
trust so sa ato pa tulo ka party ang involved.
 You go to the bank to loan money, you are JP
Printing Inc., and you want to open a letter of
credit because you want to import a printing
press.
 Unya ang bangko, muingon, unsaon man
nimo pagbayad ana. Unya ana ang JP,
kanang halin sa printing kay naa nakoy mga
kontrata dinhia oh – Ateneo yearbook etc,
daghan na kaayo musalig nako. Ana ang
bangko, sige salig ko nimo pero pirma ka og
trust receipt.
 Sa ato pa, it is the bank who imports the
printing press and it is entrusted to you and
you pay by instalments to the bank, but it is
owned by the bank. And the proceeds that
you generate from the printing press, you hold
it in trust for the bank, mao nang imo na
ibayad sa bangko.
 And if you should not turn over, there is a
violation of trust and the same amounts to
Estafa, a criminal offense. Kaingon ba nako
og utang? Utang lagi, pero labaw pa sa utang
kay dili mana imoha. It is the corporation that
has assumed this trust.
 If the corporation fails to turn over the
remittance that is agreed upon in the trust
receipts, what happens? There is criminal
liability and the officers, agents and collectors
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
of the corporation would be subject to the
criminal penalties according to the trust
receipts law. Because a corporation has no
corporeal reality, dili mana mapreso. It is an
artificial being, therefore it is the officers under
the law that will suffer criminal penalties.
 Now, are corporations entitled to moral
damages?
Moral damages are the result of besmirch reputation,
sleepless nights, serious anxiety, katong tanan nga
imong giagwanta, bayran ka ana, the moral damages
awarded to you is to enable you to buy entertainments
to assuage the pain in your heart which you have to
endure, aron ma menus menusan ang inagulo sa imong
kasing kasing.
Naa bay kasing kasing ang corporation? Wala man. And
here you have the SC, all of a sudden coming out,
saying that corporations may be awarded moral
damages because of besmirch reputation. Although it
has no heart, it has a name and the name is hurt,
defamed.
The whole purpose of moral damages is to buy
entertainments, to assuage your pain, lingaw lingaw ba,
tambal sa kasakit. Sayup na si Justice Carpio sa
iyahang decision, sayop na. You read Manresa and
Sanchez Roman on moral damages to know its nature.
Punitive damages, that is the term, but moral damages,
that is wrong. The old doctrines stands ha. Because the
decision of Carpio is just in Division. The decision in
ABS-CBN Broadcasting Corporation vs. Court of
Appeals En Banc (1999) still stands.
 Corporations cannot claim moral damages at
all. Moral damages are awarded to enable the
injured party to obtain means, diversion or
amusements that is served to obviate the
moral suffering it has felt. The award of moral
damages cannot be granted in favour of
corporations, because being an artificial being,
and having existence only on legal
contemplation, it has no feelings, no emotions,
no senses.
November 23,2016 Ching, K.
Assigning this case to you beforehand,
Y-I LEISURE PHILIPPINES, INC., YATS
INTERNATIONAL LTD. AND Y-I CLUBS AND
RESORTS, INC., Petitioners, v. JAMES YU,
Respondent. (770 SCRA 56) G.R. No. 207161,
September 08, 2015 EN BANC Decision
13
We have been looking at the attributes of the
Corporation as it is discernable from the definition of a
corporation found in Section 2.
1st Attribute: The Corporation is an artificial
being.
 Implications of being an Artificial Being:
a.) Its number 1 implication of it artificial
being is that It cannot act by itself.
For a corporation to act it requires the agency of the
Natural Persons. That is why you have the board of
Directors. And the Board of Directors acts by passing
a resolution. Some acts of the board are incomplete
that require the ratification of sometimes the majority,
sometimes 2/3 of the stockholders/members of the
corporation. But all of that means that the artificial
being that is the Corporation requires the action of
natural persons, its agents.
What is a further corollary to that? To pay
attention to formalities. Is there a resolution? There
might have been no meeting, but there is a resolution
and it is signed by all the directors, in which case, there
was a meeting even if there was no meeting. Table
Minutes. WHY? Nobody can object anymore because
they signed. So for all intents and purposes, there was a
meeting even if in fact there was no meeting. Because
no one can prove anymore that there was no meeting,
because everybody signed. So, on the practical level, if
you are the secretary of board of directors, trustees or
corporate secretary of the corporation, more important
to you is the formality rather than reality. Because the
formality tells you what reality is, not the other way
around.
Aha man mas importante sa imo kung pila ang
nitambong sa meeting or pila man ang nipirma dinha,
niboto siya sa resolution. Wala pa gani meeting, wala na
papirmahon na nimo sila. Pag human nilag pirma,
bahalag masunog na sila, maunsa na sila diha, naa nay
pirma. Humana. Paminaw mo ini kay dili ni isulti sa libro.
 Why is that the essence?
Because precisely a corporation is an artificial
being. It does not have a physical referent. Wala mana.
Hain manang corporation, wala mana. It exists in mere
the contemplation of the law.
So that is that is the first very important
implication as to how a corporation acts.
REPUBLIC OF THE PHILIPPINES
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
The Republic of the Philippines is
Corporation. It’s just a public corporation.
 How does it Act?
There are different levels in which by which it
acts. The most level by which it acts is BY PASSING A
LAW. If there is no law, then the Republic cannot act.
Like spending money. How do you Spend money? Kuot
ka sa bulsa,kung naa kay kwarta, makaspend ka, kung
wala gani kay kwarta, dili ka makaspend. Gawas kung
mangawat ka diha.
 The Republic, how does it spend money?
First: IT PASSES A LAW. APPROPRIATIONS.
It is itemized up to certain level. After the law is
passed, it is signed by the President. Then the
President chief executive executes the law. Mao gani
gitawag siyag executive kay siya muexecute ana, siyay
mugasto ana gawas sa portion na solely earmarked for
Congress,for the Judiciary, for the constitutional
commission etc. But most is done by the executive.
Without the appropriations law, there cannot be an
expenditure. If there is an expenditure without an
appropriation law, its not covered by the appropriations
law, what is it? It is a CRIME. It is malversation.
Declaring A Holiday.
 How does the Republic declare a Holiday?
Sometimes there is a law that is passed. Mao ni ang
lista, dose ka adlaw regular holiday. Naa na sa
administrative code and then it is also incorporated into
the Labor Code. This 12 holidays. But can it declare a
holiday even if there is no law? The President has a
prerogative. The President issues an Executive Order.
On such a day, they called they called special events,
non-working holiday. That is also a law. Even if you
declare a holiday, you will need a sort of formality. A
corporation, it acts by legislation. It acts by passing
a law. That is why, legislation is very important.
b. Criminal liability
GENERAL RULE: Because the Corporation is
an Artificial Being, it has NO Criminal Liability. It cannot
be put in jail. There might certain special laws that
declare where xxx the Criminal act is a corporation such
as in Trust Receipts Law, then the officers and all those
who acceded to the act are themselves Criminally liable.
And then the Corporation is also made Criminally liable
by the penalty of a FINE.
c. Moral damages
 Can an artificial person be entitled to Moral
Damages?
ADDU-Law
a As I told you, as a General Rule, if you go to the original
purpose of Moral Damages, which is to enable a person
to purchase entertainments, and diversions or
amusements that will serve to obviate the moral
suffering that is experienced, that is not true with a
corporation.
Why? Because a Corporation does not suffer. And
because it does not suffer, concomitantly it cannot be
entertained.
There are 2 recent cases in DIVISION where
JUSTICE CARPIO says that the Corporation is
entitled to moral Damages if its name is
defamed. That is OBITER DICTUM, because 1.)
It is only a Division.
2.) The standing doctrine in so far a Decision en
Banc of the Supreme Court ABS-CBN
CORPORATION vs. COURT OF APPEALS 301
SCRA 572 (1999).
The corporation cannot claim
moral damages at all. That is also the
same holding of Manresa and Sanchez
Roman.
CONSTITUTIONAL PROTECTIONS OF THE
ARTIFICIAL BEING THAT IS THE CORPORATION
1.) A corporation’s property cannot be taken
without just compensation.
Why? Because he is a person. No person shall be
deprived of life, liberty or property nor shall any person
be denied of the equal protection of the law. Private
property shall not be taken for public purpose without
just compensation.
What did Sanchez Roman say? When does a thing
become a property? What is the difference between
propiedad and causa. Causa is a thing. Propiedad is
property. Muebles is movables.
A thing has not been subject to private
appropriation. Property has been subject to
appropriation. A thing, that’s causa. Naay buwaya diha
nagdagandagan sa Agusan, is that a property or a
causa? That is a causa because nobody owns it. How
do you own it? If it’s a wild thing, the mode of acquisition
of ownership is occupation. And your ownership is not
once and for all because the moment you lose
occupation over the wild thing, it ceases to be your
property. It reverts to be a thing.
Pwede ba nimo siya na makiha (referring to the
new owner of the buwaya kay nakawala daw ang
buwaya kay nagbaha ug naa nakakuha na lain)? NO.
Because the extent of his ownership lasts for as long as
14
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
you have actual occupation and control over that wild
animal. **chika about domesticated animals like dogs
with papers**
If the Corporation has a property and it is taken for
public purpose, the Coporation has to be paid just
compensation because property is something that is
appropriated by ownership that is protected under the
Constitution.
2.) A Corporation is protected against
unreasonable Searches and Seizures
STONEHILL vs. DIOKNO 20 SCRA 339 (1967)
-Very famous landmark case.
BUT… The corporation has NO Right against
Self-Incrimination.
Why? Because the Corporation cannot testify.
Wala man baba ang Corporation, unsaon pag testify.
The officers, the agents can testify and they have the
right against Self-Incrimination as to themselves. And
they cannot speak for the Corporation and say that they
refuse to testify because they might incriminate their
corporation, they cannot do that.
 HOW TO DETERMINE THE
NATIONALITY OF THE CORPORATION
1. Place of Incorporation Test
2. Wartime Test
3. Domicile Test
4. Nationality Test
 The Corporation is an artificial being,
artificial as it is, DOES IT HAVE A
NATIONALITY?
YES. And there are several rules as to the nationality of
the corporation.
1st Test/Rule: Place of Incorporation Test.
The Rule in the Corporation Code specifically
Section 123 which says that the place of incorporation is
the nationality of the Corporation. That is called the
Place of Incorporation Test.
GENERAL RULE (under the Corporation Code): it is
considered that National of the Country under whose
laws it was incorporated.
2nd Test: Wartime Test.
This test is only available during wartime.
During war time, if the controlling stockholders are
enemies, then veil of the corporate fiction will be pierced
15
and the nationality of the Corporation from the
citizenship of the majority of the stockholders in time of
war even if they are incorporated under Philippine Law.
That is the case of FILIPINAS COMPANA DE
SEGUROS vs. CHRISTERN HUENEFELD AND CO.
INC (G.R. NO L-2294, MAY 25,1951, 89 PHIL 54).
Landmark case.
 What is the reason for this rule?
According to the Supreme Court, the reason
for this rule is simple. If this rule were not present then it
is easy for our enemies to insure themselves, their
properties with Philippine Insurance Companies and if
we seek to destroy them, bomb them, we will just pay
from our insurance companies. Kadakong tinonto ana,
mura kag gigisa sa imong kaugalingong mantika. So the
Supreme Court says that it cannot be the rule. The
moment it is war, then you adopt the wartime test. That
the controlling citizenship of the stockholders becomes
the Citizenship of the corporation and the corporate
fiction will be pierced. So it is no longer a Philippine
Corporation by the incorporation test. It is now the
National of the Country of which the majority of the
Stockholders are citizens.
3rd Test. Domicile Test
 What is the Domicile of the Corporation?
The nationality of the corporation is determined by the
state where it is domiciled. The domicile of the
corporation is the place where its principal office or
place of business is situated. That is one of the
requirements in the Articles of the Corporation, you
have to put the specific address of the Corporation.
Where is it. That is the new rule now. Maybe the
implementing rules of the Corporation Code, before you
just have to put down the City, where your principal
office is. Why? Because if you think transferring, you
will have to amend the articles.
Now, The Securities and Exchange
Commission insist that you must put down the actual
address, just be specific. The specifics of the address of
the corporation. So the principal office of the corporation
is the Domicile of the Corporation. The place where its
principal office or place of business is situated. Section
14 of the Corporation Code. The transfer by itself does
not amount to a violation of the (Not Clear: anti-
dummy?).
4TH Test. Control Test
There is another test of Nationality. The other
test of nationality is constitutional and it is the
CONTROL TEST.
And there is a Landmark case for this which
was asked in the recently concluded 3rd Sunday bar
examination in commercial law. Why? Because the
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
ponente of this decision is no other than the Chairman
of the bar examination.
NARRA vs. REDMONT , GR 195580, January 28,
2015, second resolution of the Supreme Court from
it previous decision in NARRA vs. REDMONT
April 21,2014, Third Division penned by JUSTICE
VELASCO. Special third Division.
Illustration:
60 % FILIPINO 40% FOREIGN
 directors or board of trustees but also 2/3 vote of
60 % FILIPINO 40% FOREIGN
 Kini hapit nani (referring to the 64%). Kung
60 % 40%
FILIPINO FOREIGN
 This is the so-called GRANDFATHER RULE.
The Constitution says that you are considered
a Filipino Corporation, for purposes of ownership of land
and engaging in public utilities and so on, in other
words, under the omnibus investment act., if your capital
is 60% Filipino, it means 40% maximum foreign.
What happens if some of the stockholders in
the 60 % Filipino is also a corporation? How will you
determine the nationality of the shares of stock own by
the corporation? The shares of stock are considered as
100% Filipino if it is also own by a corporation, 60 % of
the capital is Filipino and only 40% maximum is foreign.
But let us say it is owned 50% Filipino and
50% foreign, instead of 60% Filipino and 40%
Foreign owning the 60 %, it is 50 % Filipino and 50%
Foreign, what happens?
This 60% only 30% will be considered as
Filipino because only 50 % of the Corporation is owning
the 60% is Filipino. Therefore 50% of 60 is 30. That is
16
so called the Grandfather Rule. It can stretch all the
way.
You do not therefore need any dummies to
create a foreign corporation to be controlling a Filipino
corporation. Why?
(Father refers to the illustration.) Tan awa ra gud ni,
60% ini is owned by a corporation that is 60 Filipino / 40
foreign. 40% foreign here, is the same 40% foreign
here. Actually in reality, they have 24% here.
Computation
40% x 60% = 24%
40% + 24% = 64%
Labaw naka, foreign nani. Butangan pa jud
nimo diri ug lain, labaw na.
There are certain acts of the corporation which
requires not only the majority vote of the board of
ratification of the stockholders or member. 2/3. How
much is that percentage wise? That is 66.66%.
naa kay 2 tiers, duha ka ang-ang, naa kay 64% proxy
nalang imong pangitaon, nga 2.2 of the shares, proxy
nalang kung naay kuyog muboto nimo, ratified nana.
Pero kung naa paka diri, wala nakay kinahanglan na
proxy. Kumpleto naka,sobra naka sa 66.66%. So
abogado ka, mubuhat kag corporation for foreigners,
mangita pa gani kag dummy, hina ka. Wala ka kahibalo
sa imong corporation law. Ug imong mathematics dili
kaabot sa percentage…either you are deficient
numerically or you are a poor lawyer. Makabuhat man
ka ani.
 What is the Issue in NARRA vs. REDMONT?
- Niingon ang Supreme Court kay Redmont
that you apply the grandfather rule if there is already a
60% Filipino ownership and 40% Foreign. Then you
examine the 60% Filipino. But if there is no 60/40
proportion, there is 50/50 you do not use the
grandfather rule anymore. You must first determine the
60/40. Kung naa gani proportion na ingnana then you
can examine what is the ownership composition of the
60%. That is the primacy of the SC ruling.
Next case you have read is the very famous case of:
1.) GAMBOA vs. TEVES En Banc June
28,2011 652 SCRA 690.
2.) Second Resolution, HEIRS OF WILSON
GAMBOA vs. TEVES, October 9, 2012
more than a year later still written by Senior
Justice Carpio. En Banc, resolution by the
Supreme Court.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
 What is the issue of this case?
The issue is what was the 60%. Is it all the
shares? Or is it voting shares? That is the issue.
Ruling:
2011: Carpio says that capital in the Constitution
means VOTING SHARES. That is in his first resolution
in 2011.
2012: But in 2012, he says the 60% in the main opinion,
not in the dispositive portion, he says that the 60% must
be verified if all the classes of shares. That is what
Carpio said. It must be verified in all the shares. So the
SEC, this is what Carpio says in the second resolution,
in short the 60/40 ownership requirement in favor of the
Filipino Citizens must apply separately to each class of
shares whether common, preferred, non-voting or
preferred voting, or any other class of shares.
That is not in the dispositive portion, that is in
the main opinion. In the dispositive portion, it is still
Voting Shares. So the SEC is now in a quandary how
will it implement the decision of the Supreme Court.
This is what the SEC said, Securities and
Exchange Commission Office of the General
Counsel, OPINION #8 SERIES OF 2013 Section 2,
All covered corporations shall at all times observe
the Constitutional or statutory ownership
requirement for purposes of determined compliance
therewith the required percentage of Filipino
ownership shall be applied to both, the total number
of standing shares of stock entitled to vote in the
elections of the Directors and total number of
outstanding shares of stock whether or note entitled
to vote in the election of Directors.
The SEC did not say all the classes but the SEC
only said over-all issued shares whether voting of non-
voting and voting shares whether they be common or
preferred.
 How did this case originate?
This case originated with Wilson Gamboa, a
lawyer from Bacolod who simply just went straight to the
Supreme Court and questioned the ownership structure
of the PLDT. So, to understand Wilson vs. Gamboa, you
must read the even longer case of :
YUCHENGCO vs. SANDIGANBAYAN 479 SCRA 1
January 20, 2006 EN BANC by JUSTICE CARPIO-
MORALES.
This is where the Supreme Court quotes the
case of PCGG vs. Pena. This is when the Marcoses
challenged the action of sequestration of different
shares of the Corporation all over the country. Their
17
ownership of properties and the SC shut down the
interference of RTCs that were issuing restraining
orders. This is what the SC said, In PCGG vs. PENA,
this court describe the rule of Marcos as well-
entrenched plundering regime of 20 years and noted the
magnitude of the past regimes organized pillage and the
ingenuity of the plunderers and pillagers with the
assistance of the experts and best legal minds available
in the market. The evidence presented in this case
reveals one more instance of this grand scheme. This
Court guardian of the high standards and noble
traditions of the legal profession has thus before it an
opportunity to undo, even if only to a certain extent, the
damage that has been done.
Twice this was said by the Court En Banc. All
you have to do is read the ratification cases. Javellana
vs Executive Secretary.
Wilson vs. Gamboa is 145 pages. Read that.
And Read Yuchengco vs. Sandiganbayan 479 SCRA
1 January 20,2006, this is where the Supreme Court
declared that this jump shares of line holdings
corporation which is supposed to be one of the
substantial stockholders of PIT, Philippine
Telecommunications Investment Corporation which is
the holding company of PLDT. The Supreme Court
declared that this prime is Marcos shares and it is the
product of Graft and Corruption, and so therefore the
Government. They bid it out to the highest bidder then
the costs, it was Pangilinan’s group that won the
bidding. Gamboa questioned it, according to Gamboa
this is a violation of 60/40. The SEC said 60/40 is based
on the entire issued share and not just voting shares.
Gamboa said: No , it is the voting shares. They go
straight to the Supreme Court. And the SC says, it is the
voting shares and in the main opinion also the other
shares. So everybody has to change because the SEC
has approved the so many corporation, ABS-CBN,
Buenget, Meralco, etc.
Here comes the case of RIDON vs. AXN
NETWORKS PHILIPPINES ET AL GR No.
210885 August 26,2014 RESOLUTION EN
BANC, And signed only by the CLERK Of
Court, Enriquita P. Vidal who says there was
such a resolution. Very good resolution, in
accordance with law.
Two petitions filed in the Supreme Court by
Congressman Ridon and Atty. Jonas Julius Ceasar
Asura under rule 65 of the rules of court. Straight to the
SC just like Gamboa. The SC DISMISSED their petition
by a per curiam vote. Why did they not signed it?
Because they had entertained Gamboa who went
straight to the Supreme Court . Uwaw man kaayo sila.
Nganong dili mani nila inetertainon na si Gamboa kay
nidiretso. That is why this is no longer in SCRA.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
 The Supreme Court says that you cannot
come to the Supreme Court straight. Why?
1.) You are asking us to cancel the legislation
of this foreign broadcasting companies on the basis of
the xxx in the constitution. This court is not a trier of
facts. The question is why did you handle the petition of
Gamboa? When your dispositive portion is even
conditional the requirement xxx is 60% voting shares
owned by the foreigners then it should be disciplined by
the SEC. They cannot say that there is no finding yet.
**Story about the ownership structure of the Marcoses
properties were. **
November 24, 2016 Duco, L.
All you have to meet to be a person if you’re a
natural person is to be born. You can be granted
provisional personality while you are still in your native
place, and that is the only native place, in the womb of
your mother, provided you are born later. That is what is
taught in family law. All you have to meet is to be born.
Now, you have an intrauterine law that is less than
enabling you to become a viable fetus to be brought out.
If you have to be born, you must survive for at least 24
hours. If you don’t survive, then you are deemed not to
have been born. You were never a person.
If somebody donated to you while you were in the
womb of your mother, and you were expelled when you
were not yet viable, and you did not live 24 hours, what
happens to the donation? The donation is
unenforceable. It is void. It is as if there was no donation
at all that was completed. It remains with the donor.
 What is required for a juridical person to
be a person?
To be person, first there must be a general enabling law
that allows you to become a person by the consent of
the state. There must be a general enabling law.
Disabuse your minds that the only general enabling law
is the Corporation Code. There are many other general
enabling laws.
 What is an example other than the
Corporation Code?
The Labor Code is a general enabling law
because it creates a union, and a union is a juridical
person. Its personality is separate and distinct from that
of its members. And you become a union the moment
the Department of Labor-Bureau of Labor Relations
issues a registration certificate.
Now, you are a person in contemplation of law.
Corporation, you register with the corporation or you
register as a general partnership of limited liability, you
have a juridical person separate and distinct from that of
your partners, separate and distinct from your
18
stockholders, separate and distinct from your members
if you are a non-stock non-profit corporation.
Again, if you are a cooperative, the cooperative
also has a personality separate and distinct from the
members of the cooperative. What office in the
government grants the consent of the state? Certificate
of registration is issued by the Cooperatives
Development Authority. So, the Cooperative Code is a
general enabling law.
The HLURB is also a general enabling law
because if you are an association of persons seeking
your home lots for housing purposes, where do you
register? You don’t register with the SEC. You register
with the HLURB.
I have seen so many associations, home seekers
of Balut Island Home, Seekers of Maa. You look at any
district there is a Home Seekers Association and every
single one of them is problematic. And what is the
solution of HLURB? They just appoint the Barangay
Captain as the head of the Home Seekers Association.
So what happens? The Barangay Captain appoints all
his relatives, from his wife all the way to his housemaid.
As a member of the Board, he is a king. He controls,
and all the contributions cease. Kita ka gani anang mga
tawo na ga yukop na sa pamilya na anang nag muno sa
association, gusto pa ka mucontribute? Nakit-an na na
nimo na pirti nang daghana sa pamilya na nag lingkod
dinha, wa na maundang na ang contribution.
Maundang.
Let me give you a practical advise. The ordinary
man in the street, he does not care about the facts or
the law. He cares about meaning. Pangutan-on nimo
siya
‘Nihatag na ka sa contribution nimo? Wa pa man
ka muhatag.’
‘Nihatag ko.’
‘Kinsa may imong gitagaan?’
‘Si Biring kay mao man nay among silingan, mao
man na siyay nag house to house namo na kinanglan
mu join ta sa housing association. Kana si Biring nag
ingun.’ Karun gihatag niya kay Biring. Sa panahon pa sa
organization, si Biring maoy organizer. Wa man siya
mapili. Unya sige man siyag padayun og pangulekta.
‘Nganung nag padayun man kag hatag kay
Biring?’ ‘Nganung di man nako siya masaligan na
magkulob siyag mag hayang kaila man ko niya. De
didto nako ihatag. Katong mga officials wa man ko kaila
nila.’
‘Wa day ka mutambong sa meeting.’
‘Nitambong ko sa meeting pero daghan
kaayog tawo naalimoot ko, niuli ko sa amo.’
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
‘Pagka way hinungdan nimo na member. Boto
ka unta.’ ‘Pirti na mang daghana nila syaro dili igo pa
ang mga boto nila na pirti namang daghana namo.
Nganung muapil pa man kog boto2x dinha na naa man
koy biko na akong ibaligya unya pag abre sa
eskwelahan dinha sa atbang.’
You see? There is a difference between meaning and
fact and the law, and the ordinary man does not care
about fact or law until there is a controversy.
When is there a controversy? ‘Aha na man day
tong mga contribution?’
‘Ingun ka naa kay daghang pondo? Aha na man
tong atong pondo?
Wa na. Di na ta makalawig. Mura na tag barko na
walay angkla, walay timon, wa mag andar ang makina,
na gi tuya2x na lang sa balud. Asa na man ta paingun?
Paingun na ta didto sa mga bato kay gilamba ta sa
balod kay wa na tay renda, wa na tay timon, wa na tay
angkla.’ Unya kay wa naman, iya dayung tan-awun sa
Constitution and By-Laws. “All collections must be
evidenced by a receipt.” “Only those authorized to
collect can do so.” “Those who collect and unauthorized
are violating the Constitution and By-Laws.”
‘Sa ato pa nanikas day ni si Biring. Nanikas day si
Biring nako.’
Wala na. Dinha pa sila mutultul sa balaod kung
nagkaguliyang na. Wa pa gani mag kaguliyang, walay
bali ang balaod.
Ow, you think I am saying this only because they
are poor people? That is the same thing in corporations.
For as long as there is no fight, nobody will read the
Constitution and By-Laws of the corporation. The
moment there is a conflict, then everybody goes to the
Constitution and By-Laws and they start from there. Too
late. Agree naman silang tanan, walay resolution. Pag
tan-aw pa, wa may incharge, sila man tanan, pag tan-
aw sa titulo na ilang gipalit naa man diay annotation, oh
di gubot.
So, when it is an artificial being, you have to pay
special attention to formalities. Because the artificial
being, the only it can act is through its agents, and the
agents can only act upon proper authorization. There
are some authorizations that can be done by the Board
of Directors or Board of Trustees, and there are other
acts that must be done with the concurrence of the
stockholders or members of the corporation.
Now, control test, the SC has said that the control
test presupposes compliance with the incorporation test.
That means it is not only 60/40 Filipino, it is also
incorporated under Philippine laws. Why? Because that
is the requirement of the Corporation Code.
Republic Act No. 7042 June 13, 1991
19
AN ACT TO PROMOTE FOREIGN INVESTMENTS,
PRESCRIBE THE PROCEDURES FOR
REGISTERING ENTERPRISES DOING BUSINESS IN
THE PHILIPPINES, AND FOR OTHER PURPOSES
So, the Foreign Investments Act of 1991 defines a
Philippine National as number one:
Section 3. Definitions. - As used in this Act:
a) The term "Philippine national" shall mean...
a corporation organized under the laws of the
Philippines of which at least sixty percent (60%)
of the capital stock outstanding and entitled to
vote is owned and held by citizens of the
Philippines;
Remember Gamboa v. Teves, the SC has said:
Gamboa v. Teves G.R. No. 176579 June 28,
2011
This 60% is computed on the basis of voting stock and
as implemented by the SEC, also the over all issued
stock of the corporation, voting and non voting.
Second:
Section 3. Definitions. - As used in this Act:
a) The term "Philippine national" shall mean...
a corporation organized abroad and registered as
doing business in the Philippines under the
Corporation Code of which 100% of the capital stock
entitled to vote belongs to Filipinos is considered a
Filipino corporation.
Remember, it is incorporated outside of the
Philippines but it subsequently obtains a license in the
Philippines from the SEC to do business. That is
equivalent to being incorporated under the laws in the
Philippines according to the Foreign Investments Act of
1991.
And third, the corporation that is incorporated in
the Philippines that complies with the grandfather rule is
considered a Filipino corporation. Grandfather rule.
I hope you have began to read Narra v. Redmont
G.R. No. 195580 January 28, 2015 penned by Justice
Velasco.
 What is the relation between the
grandfather rule and the control test?
The SC made a pronouncement; you do not begin
with the grandfather rule. First to determine is it 60%
owned by the Filipinos? If prima facie a corporation is
60% owned by Filipinos, then you can go ahead and
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examine it according to the grandfather rule. Who are
these Filipinos? If there are corporations owning the
60% attributable to Filipino, then those corporations
owning those shares must be atleast 60/40 Filipino.
That’s when you examine by using the yardstick of the
grandfather rule. Dili kay mangita naka daan anang
grandfather rule. ‘Kinsa may stockholders?’ Dili.
So you begin with, and here, I am jumping the gun,
the stock and transfer book. That is where the record of
ownership of shares of stocks are, the stock and
transfer book. Where is that kept? Corporation Code
says it is kept in the principal office of the corporation.
 Is there any exception to the rule?
There is. If the corporation engages the services of a
stock and transfer agent. Why? Because the
stockholders are so numerous that the corporation
cannot take care of it. Theoretically, the stockholders’
meeting of PLDT will be bigger than the pontifical mass
of Pope Francis. Why? Because the stockholders of
PLDT are over 2 million persons. Asa man sila mag
meeting? Adto na sila mag meeting sa Banahaw room
anang Mandarin Hotel. Ka gamay ra gud ana. Unsaun
pag kasulod anang 2 million? Dili. Kay ikaw duha, tulo
lang ka shares imong PLDT, dinha ka mag puyo sa
Tupi, Cotabato. Unya mulupad ka pa didto sa Manila
muattend lang anang meeting when your vote hardly
counts? Normally, you appoint a proxy.
Now, think of General Motors. How many
stockholders does General Motors have? If you count,
the mutual funds that owned General Motors shares,
they say, the number of stockholders is about 16 million,
and yet, with 3 percent of the outstanding shares of
General Motors, you control General Motors. 3% lang
ang gikinahanglan mucontrol. In other words, the wider
the spread of corporate share ownership, the easier it is
to control.
Now, but we refer you to the case of
J.G. Summit Holdings, Incorporated v. CA 450
SCRA 169 (2005).
This is a corporation that is divided 60% Filipino
and 40% foreign. The 40% foreign ownership is
Kawasaki Corporation of Japan who became a partner
of the Marcos cronies when they set up PHILSECO.
PHILSECO was the holding company of Bataan
Shipyard Company that engaged in ship repair and
also some ship building. 60% Filipino-Romualdez,
behest loans-Marcos, nag utang, gipautang silag
kwarta sa PNB. PNB at that time was still a
government owned and controlled corporation.
Through NIDC, nakahuwam silag kwarta-60% capital.
Kinsay ilang partner, Kawasaki-40%. Kawasaki
provided the technical know-how of shipbuilding and
ship repair. Pilipino, apil dinha, so much so that now
20
we have several ship-building corporations.
Now, what happened? The Romualdezes
abandoned PHILSECO. Why? Because they could no
longer pay the loan. And so, NIDC, the investment arm
of PNB, foreclosed on the shares. And when they
offered it for sale by public auction, there was no
bidder. So by default, NIDC became the owner. In
most cases, when banks foreclose property, especially
if the property is an ongoing concern, nobody will bid
for it. So it ends up with the bank holding the property
that is auctioned to satisfy the mortgage amount. So
NIDC na ron tag-iya. If the government decides ‘We
will liquidate it, ibaligya na lang nato’. ‘We will hold
another bidding, this is 3 years later after the
foreclosure.’ ‘We will work another bidding. This time
you will not bid with money. You will bid with credits.’
What credits? You pay the dollar-denominated loans
to the Philippines, and then you get the receipt of the
payments and you use that to bid for the government-
sequestered shares of the Marcos regime. That was
how JG Summit, Gokongwei, won ownership over PCI
Bank. The Lopezes and the Gokongweis combined.
They put up the credits, dollar credits, and then they
won, and they controlled PCI Bank.
This PHILSECO, JG Summit paid some loans
and then with the credits, he won the bid. After it was
announced that he won the bid, Kawasaki surfaced
and said ‘We have a right to first refusal agreement
with the former owners of the shares of stocks that
were bidded out. We agreed that before we could sell
our shares to 3rd parties, we must offer it to the other
party.’ If Kawasaki wanted to sell his 40%, he must
first offer it to NIDC. If NIDC sells its 60%, it must first
offer it to Kawasaki. So Kawasaki says ‘We are now
equaling the price at which JG Summit won the
bidding, and we will pay for the shares.’ Whereupon,
JG Summit went to the CA on injunction to stop the
exercise of Kawasaki of his right of first refusal. That is
the same as a Qualified Swiss Challenge. In other
words, you do not have to raise the amount at which
the bidder won. You just have to equal it. Because that
is how the right of first refusal is exercised. If you are 2
parties, 40/60, ang 60 gusto mubaligya. To get the
correct price, he looks for a 3rd party. Ka agree na gani
sila anang 3rd party, pahibaw-un niya ning isa. Ingnun
niya ‘Oh, naa nay mupalit nako, mao ning presyuha,
are you exercising your right of first refusal?’ Muingon
ganig dili, kay mahal rana, oh di mabaligya na niya,
but he has waived his right of first refusal.
Now, the argument of JG Summit is Kawasaki’s
right of first refusal is null and void. Why? Because if
he exercises it, he becomes 100% owner of all the
shares of stocks of PHILSECO, and PHILSECO
ceases to be a Philippine corporation. it can no longer
own the land where all the ship-buiding and ship-repair
is conducted. So it cannot be that he can exercise his
right of first refusal.
Now, the CA did not uphold JG Summit. So JG
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ADDU-Law
Summit went to the SC on certiorari. The SC says;
The agreement of co-share holders Kawasaki and
NIDC, both PHILSECO share holders, to mutually
grant this right to each other as one of the terms of the
JVA, by itself does not constitute a violation of the
provisions of the Constitution limiting land ownership
to Filipinos and Filipino corporations. As PHILYARDS
correctly puts it, if PHILSECO still owns land, the right
of first refusal can be validly assigned to a qualified
Filipino entity in order to maintain the 60%-40% ratio.
This transfer, by itself, does not amount to a violation
of the Anti-Dummy Laws, absent proof of any
fraudulent intent.
It was with the sanction of the State that the right
of first refusal was granted to each other. So, the SC
says Kawasaki could have sold the right of first refusal.
It is a right that has commercial value. It could have sold
it to another Filipino corporation.
So, this is an important case because our mind
jumps ahead of what corporation law allows. If the result
is no longer 60/40, then you can adopt to it. If it will
become 100% foreign for instance, now, foreigners can
purchase 100% of the outstanding capital stock of a uni-
bank or a commercial bank. What happens with the
purchase right? A uni-bank which owns real property,
what happens to it? Does it cease to own real property?
The law specifically says if certain properties that are
held as collateral are executed upon in an execution
sale,
 Can the corporation who is now 100%
foreign, can it purchase it, become the
winner of the bid by default, and thus own
land? Can it?
And the law says yes, they can do it, for as long as
they sell it after 5 years from and after the time that they
consolidate the ownership over this collateral.
 Is that a violation of the Constitution?
Read these laws. REPUBLIC ACT No. 10574 AN
ACT ALLOWING THE INFUSION OF FOREIGN
EQUITY IN THE CAPITAL OF RURAL BANKS,
AMENDING REPUBLIC ACT NO. 7353, OTHERWISE
KNOWN AS "THE RURAL BANK ACT OF 1992″, AS
AMENDED, AND FOR OTHER PURPOSES. Then you
have REPUBLIC ACT NO. 10641 AN ACT ALLOWING
THE FULL ENTRY OF FOREIGN BANKS IN THE
PHILIPPINES, AMENDING FOR THE PURPOSE
REPUBLIC ACT NO. 7721. They can acquire
ownership or own up to 100% of the voting stock of an
existing bank. They can invest in up to 100% of the
voting stock of a new banking subsidiary incorporated
under the laws of the Philippines. And they can
establish branches with full banking authority. July 18,
2014.
21
PNOY signed it into law. The Congress passed it,
despite what it says in the Constitution. What is the duty
of the President? To uphold the Constitution. Is he
upholding the Constitution? Obviously, the Congress
that passed that law, cannot impeach him, because they
are the same ones who passed the law. Now, it is a new
Congress, he is nowhere to be found. He cannot be
impeached. He has finished his term. Can they impeach
Duterte because he is obviously not doing away with
this law? Nganu man na nila gi pass bisan naa nang
Constitution?
You know what happened, the ASEAN met. And they
have decided no more restrictions in banking as to all
members. So, you allow us to come in 100% in your
country, you are also allowed in all the ASEAN
countries. They agreed by that solution. Ang Philippine,
kung di siya mu pass ana, what happens to PNB in
Singapore, BDO in Bangkok and Malaysia? Di mag
silibi. We will not be allowed to do business. What
happens to the Filipinos there who send remittances to
the Philippines? They can still send remittance to
foreign banks but that is a missed business opportunity
of Philippine banks. That is what happens.
Sooner or later, international pressures begin to
shape our corporation law. This is one field in law where
legislation is behind. The practice is way ahead of the
legal reality.
Alright, I leave it to you to look for the listings of the
corporations under the Constitution and the law which
do not allow foreign stockholders like:
1. Mass media
2. Retail and service establishments with paid-up
capital of less than 2.5 million dollars
3. Private security agencies
4. Small-scale mining corporations
5. Utilization of natural resources
6. Cockpits
 How do they circumvent the utilization of
natural resources by 100%?
It is the case of
B’laan Tribal Association
Incorporated v. Ramos 445 SCRA
G.R. No. 127882
This is horrendous. This is 1 up to 471. So, it is
470 pages. Beneficial ownership.
This is the gist of the decision:
Beneficial ownership has been defined as
ownership recognized by law and capable of
being enforced in the courts at the suit of the
beneficial owner.61 Black's Law Dictionary
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ADDU-Law
indicates that the term is used in two senses:
first, to indicate the interest of a beneficiary in
trust property (also called "equitable ownership");
and second, to refer to the power of a corporate
shareholder to buy or sell the shares, though the
shareholder is not registered in the corporation's
books as the owner.62 Usually, beneficial
ownership is distinguished from naked
ownership, which is the enjoyment of all the
benefits and privileges of ownership, as against
possession of the bare title to property.
Kining mga ‘naked ownership’, that is civil law
term. Common law term is ‘titular ownership’. That is
equivalent to ‘naked ownership’. You are the named
owner, and yet you are not the beneficial owner. What
the SC allowed are contracts in the development of
natural resources entered into with foreigners provided
that the benefits go to mostly the Philippine *. Titular
ownership does not matter. Beneficial ownership is what
matters. Beneficial and titular ownership. Naked and
equitable ownership. Civil law term versus common law
term.
November 25, 2016 Montefolca, C
We took up the list of corporations that are fully
nationalized corporation that is they must be composed
of 100% Filipino or Filipino corporation owned.
 25% foreign equity allowed in corporations
that are engaged in private recruitment
whether for local or overseas employment
thats under PD442 the Labor Code.
 Construction and repair of locally funded
works under commonwealth act 541
Contruction of defense related structures.
 40% foreign equity allowed in the
exploration development and utilization of
natural resources article 12 section 2 of the
constitution
SECTION 2. All lands of the public domain, waters,
minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or
timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the
exception of agricultural lands, all other natural
resources shall not be alienated. The exploration,
development, and utilization of natural resources
shall be under the full control and supervision of the
State. The State may directly undertake such
activities, or it may enter into co-production, joint
venture, or production-sharing agreements with
Filipino citizens, or corporations or associations at
least sixty per centum of whose capital is owned by
such citizens. Such agreements may be for a period
not exceeding twenty-five years, renewable for not
more than twenty-five years, and under such terms
22
and conditions as may be provided by law. In cases
of water rights for irrigation, water supply, fisheries,
or industrial uses other than the development of
water power, beneficial use may be the measure and
limit of the grant.
The State shall protect the nation’s marine wealth in
its archipelagic waters, territorial sea, and exclusive
economic zone, and reserve its use and enjoyment
exclusively to Filipino citizens.
 Realty companies and other
corporations that own private lands article 12
section 7 of the constitution
SECTION 7. Save in cases of hereditary succession,
no private lands shall be transferred or conveyed
except to individuals, corporations, or associations
qualified to acquire or hold lands of the public
domain.
The exception is the condominium corporation which
can be owned 100% by foreigners.
 Culture production milling processing trading
repair of rice and corn and byproducts. PD 194
as amended by RA 8762
Adjustment companies – In the Commonwealth of UK
they are called business valuators. In American
parlance they are called appraisers. Sa ato they are
called adjusters. Mabangga gani ka mao na sila ang
mutan-aw sa damage, mu assess sa damage.They are
supposed to be independent of insurance companies.
That is more in theory than in practice. Insurance
companies select their own adjuster. Adjusting
companies must be at least 40% foreign equity.
The problem is once you get into big insurance that
require reinsurance. Example PAL they insure a plane,
no local insurance company can accept the full value of
the policy xxx so they have to reinsure it. In order to
reinsure it the foreign insurance company will not accept
it unless their policy includes arbitration. Not the courts
in the Philippines they don’t trust the courts.
So there is an arbitration clause. Do they accept the
testimony in the arbitration courts of local adjusters?
They do not trust the local adjusters. So you must also
accept foreign business valuators or appraisers. That is
an international designation. Just like certified public
accountant, thats a designation. certified business
evaluators, that is the designation. You have to pass an
exam. In the US you have chartered appraisers you also
have to pass an exam. What is your use? You become
advisers lets say in mergers and acquisitions. If you
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
acquire a company, that company that you are about to
acquire has its own financial advisers part of the
financial advisers iare business valuators. They will say
“This is the true value of this particular factory” they
break down. The acquirer will also say “No, that is not
the true value” we have our own vusiness valuators.
They have to thresh it out because value is other than
fixed. So this whole thing that adjustment companies
become more solid because they are filipinos only
misguided Filipinos believe this. If you believe it then
you suffer the consequences of ignorance.
 40% foreign equities allowed in all businesses
sauna and steam bath houses massage clinics
and similar establishments under RA 7040.
Now it says here the old listing 60% foreign equity now
this can be 100% foreign equity. Financing companies,
investment houses because these are normally allied
businesses run by the universal banks and universal
banks can be 100% foreign owned.
 CORPORATION SOLE
There is a corporation where the SC says the nationality
of the constituent of the corporation is not determinative
of the nationality of that corporation. What is that
corporation? That is a Corporation sole. (Father talks
about his experience in the seminary; weak when it
comes to english pronunciation “TH” LOL)
Corporation sole. Contradiction in terms. How can there
be a corporation and it is only one person that makes up
the corporation? Namely the rabbi, bishop, elder, in a
religious organization. That is the case. We inherited it
from the Napoleonic Code. Because Napoleon did not
choose to challenge the authority of the Catholic
Church. That is how he managed to stay in power. He
respected it. So he put up a structure that the bishops
were actually potemplates (?). They did not have board
of directors. They decided on their own. They were like
princelings. So the entity known as corporation sole was
born.
Fast forward some 700 years and you have the case of
Roman Catholic Apostolic Administrator v ROD of
Davao 102 Ph 596 1957
What happened there? You have taken up land titles
and deeds. You took up this case. This is a landmark
case. The issue here is a deed of exchange. Once
piece of property exchange for another piece of
property. The property of the diocese of Davao which
was along Bankerohan was exchanged with a piece of
property of the RVM sisters in catalunan grande that
was given by the sorianos. The bishop here, bishop
thibault who was still an apostolic administrator at that
time when this case was filed did not want to erect his
seminary just above the market, he wanted a place
23
which was a little bit distant from the city. So nagbaylo
sila. Ang mga madre hatag nila ang property sa bishop
and the bishop gave his proeprty to the sisters. That’s
why UIC is there. Ibabaw sa bankerohan.
When the sisters registered their piece of property no
problem kay puros man sila Filipino way problema ang
ROD. But when the Bishop registered the property in
the name of Roman Catholic Bishop of Davao, the ROD
who was atty quitain the mother of judge quitain, one of
the first law graduates of UP, very good catholic, she
declined because she says the Bishop is a Canadian
citizen and he cannot own property. Now, at that time
the only way you can appeal the action of the ROD is to
raise the issue in consulta with the Land Registration
Commission. The LRC upheld the ROD quitain that’s
why the Roman C atholic Apostolic Administrator of
Davao City had to go to the SC on a question of law.
The court ruled:
The corp sole’s nationality is not determined by the
bishop because it is only an administrator. What is
determinative for the nationality of a corporation
sole? It is the majority of the nationality of the
congregation. The SC said that the court takes
judicial notice that majority of the catholics in davao
are Filipinos. So therefore even if the bishop is a
canadian citizen, the land can be registered under
the roman catholic apostolic administrator because
he is a mere administrator. The real beneficial
owners are the catholics in davao city. The one that
composes the corporation, his/her nationality does
not determine the nationality of the corporation.
These are landmark cases. It Is good for you to read
those cases. I would suggest you really read those
cases, there is another pronouncement there that the
many commentaries just pass over mainly the
significance of the bishop corporation sole. According to
the SC the bishop is the fulcrum or the focus of all
church properties. It is passed on from congregation to
congregation because there is a bishop. If there were
no bishop it would have been loaned and divided and
the congregation will be fighting over it. But because
there is a bishop it remains whole and intact and it can
be passed on from generation to generation.
So the bishop as a corporation sole is not just the
administrator, it is the fulcrum forthe passing on of
common church property.
Another case that I suggest you read is the celebrated
case of
Barlin v Ramirez
G.R. No. L-2832 November 24, 1906
This is where the SC made that unusual pronouncement
that there is a corporation in the Philippines unlike any
other corporation and it is the only corporation that is a
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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
corporation by prescription. It did not register it did not
incorporate but it is a corporation by prescription
because it antedates the republic itself that passed the
laws of the corporation. That is the Roman Catholic
Church. The Sc says there that It is part and parcel of
the culture and social fabric of the PH. That is the fact
according to the SC. It is an institution that antedates
the government of the Philippines.
The issue there is can government funds be expended
to print out these post office stamps that depicts the
international Eucharistic congress. That is the issue
because that is establishment of religion according to
those who attack it. Barlin was the bishop at the time of
Manila. The SC said suwayi atake ang Christmas.
christmas is not just religious it is already cultural.
Suwayi ayaw pag hatag ug gift sa imong anaksa
christmas. Mangita kag away? Kabaw ko ana kay
follower kong quiboloy. Suwayi.( lols. Mag butang man
gani si quiboloy ug christmas decoration. Christmas is
already cultural. In the same way the SC said that
Eucharistic congress is a reality. Recognition in a stamp
of a reality that is socially and culturally established in
the PH is not establishment of religion because the
Catholic church is now a corporation by prescription that
is the only corporation by prescription
What is the corporation of the Society of Jesus in the
Philippines? The corporation of the SJ in the Philippines
is Isabela Cultural Corporation. That is the corporate
name of the Jesuits in the Philippines. The first Jesuits
came here with Legaspi and they were employees of
the crown. They were receiving salaries from the king as
cultural officers and the entity they were representing
was the cultural foundation of Queen Isabela. Isabela,
ang nag-unang lungsod hain ang Abu Sayaf sa Basilan.
What is the capital of the biggest town? Isabela. Mao
nang ang patron sa Zamboanga gidala man na gikan sa
Espanya Nuestra Seńora Virgen Del Pilar. (Insert long
chika about europe “I hope I have encouraged you to
take a trip to spain”LOL)
So we have found out that there is this corporation
whose nationality is not dictated by the constituents of
the corporation. You know one classification of a
corporation is constituents. If you have a stock and profit
corporation or a non-stock non-profit corporation it has
multiple constituents its really a true corporation
because you have memebrs of stock holders but when
you come to this particular corporation, a corporation
sole which cannot be other than a religious corporation
there is only one constituent. It’s a contradiction, it is not
a corporation. It is a corporation because of the
congregation that it is supposed to administer but the
congregations is not a constituent of the corporation. if
the bishop disposes property he does not have to
consult the congregation. Why? Because it is governed
by its own laws. Canon law allows the bishop to dispose
of church proeprty internally, it has to ask permission
from rome. But that is internal. Under PH law he can
24
dispose without need of the permission of the
congregation. That is the concession given by Napoleon
to the Catholic church.
 Doctrine of Legal Entity
We go now to the second attribute fo a corporation
namely that it has a separate personality of its own. It is
called the Doctrine of Legal Entity it means that a
corporation is a juridical person with personality a
separate and distinct from that of each shareholder. It
also means that the stock holders of a corporation are
different from the corporation itself.
The consequences of having a separate legal
personality are the following: (Sorry but father did not
give an enumeration)
Stockholders are not the owners of the corporate
properties and assets. The interest of the stock holders
over the properties of the corporation is merely
inchoate. Hence stockholders have no personality to
intervene in collection a case covering the loans of the
corporation.
Common language says siya ang tag-iya anang
corporation, kinsay tag iya sa cebupac? Gokongwei
mana, but actually and legally, it is the corporation that
owns it, all the assets. Now if gokongwei is 60% owner
of cebu pac what does that mean? He has an interest in
the corporation. Why do we call it interest? Because it is
conditional namely that if this corporation is dissolved
and it has enough assets to pay for its debts and there
is a remainder asset left, then that asset is his after all
the just and legal obligations have been paid.
Gokongwei walking along by himself technically has no
ssignificance. Who has significance? It is the Board of
Directors under Section 23. Unless otherwise provided
by law, the board of directors shall exercise all the
powers of the corporation. All properties shall be held by
the board. It does not say main stockholder. So that is
the doctrine of legal entity.
Section 23. The board of directors or trustees. –
Unless otherwise provided in this Code, the
corporate powers of all corporations formed under
this Code shall be exercised, all business
conducted and all property of such corporations
controlled and held by the board of directors or
trustees to be elected from among the holders of
stocks, or where there is no stock, from among the
members of the corporation, who shall hold office
for one (1) year until their successors are elected
and qualified. (28a)
Every director must own at least one (1) share of the
capital stock of the corporation of which he is a
director, which share shall stand in his name on the
books of the corporation. Any director who ceases
to be the owner of at least one (1) share of the
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
capital stock of the corporation of which he is a
director shall thereby cease to be a director.
Trustees of non-stock corporations must be
members thereof. A majority of the directors or
trustees of all corporations organized under this
Code must be residents of the Philippines
There is no better way to illustrate than this relatively
current case of
Koji Yasuma v Heirs of Cecilio de Villa and East
cordillera mining corporation 499 scra 466 Aug 22,
2006 This is a case decided 2nd div penned by Justice
Corona.
Cecilio obtained loans from the petitioner Koji Yasuma
of 1.1 Million and then another 100k and another 100k
and his loans were secured by properties mortgaged
and these were the properties of East Cordillera Mining
Corp. To make the story short, he was unable to pay the
debt. Yasuma went to court for money claims, he
impleaded East Cordillera Mining and Cecilio S. De
Villa. They were declared in default and so they
executed on the mortgage.
Upon execution of the mortgage, the corporation said
there was no authority to mortgage. It is true that de villa
is the president but he was not able to obtain any
resolution from the board of directors to mortgage the
property and to incurr that loan. It was a personal loan.
Now the question is did the Corporation benefit from the
amounts borrowed? Yes. Did the corporation receive
the amount? Yes. So why can’t the corporation now be
liable? Here is the curious defense of the corporation.
The corporation said “We received we did not know it
was a loan. We thought it was an investment by cecilio
De villa and since the operation ended up in failure
because of landslide, there was a storm etc. That is the
xxx of a bona fide investment. We have nothing to
repay”
The SC said a corporation may be subjected to an act
which is not allowed or not with the prior approval of the
corporation but the corporation may ratify the
unauthorized acts. Did the admission of the receipt of
funds constitute ratification on the part of the corporation
so that now they are actually liable for the loan? The SC
said NO. they received it as an investment. So there is a
distinction. Cecilio, the president, he could have acted
for and in behalf of the corporation if there was a
resolution. There is no resolution! Both before and after
the receipt of the value there was no resolution And
then this Japanese Kohi Yasuma kept writing to Cecilio.
He did not write directly to the corporation and say pay
the debt. When he tried to enforce the obligation he
wrote to De Villa only. When he filed the case he
impleaded the corporation. So this brings out the good
idea of the separate and distinct personality of the
corporation and that of its stock holders.
25
If you are a corporation, you have a president and he is
authorized by a resolution to borrow 1m for and in
behalf of the corporation. You go to the bank and bring
your Financial Statements, 10 years of financial
statements and the bank will look through it whether
you have the cash generating capacity and finally when
the bank is convinced, it says ‘okay we will lend you the
amount but we would like you, Mr. president since you
are the owner of 70% of the outstanding capital stock to
also be personally and solidarily responsible for this
loan.’ Is that allowed?
 Corporation manghuwam ug kwarta, ingon
pud nimo ang overwhleming majority stock
holder will also sign. Is that allowed?
That is not only allowed, that is standard practice to
prevent the whole idea of the controlling stock holder
from hijacking the loan. Kuha-on niya ang proceeds sa
loan unya way mu abot ana sa corporation. 70% gud
iyaha. So there is no resolution that he cannot pass by
his own strength to vote because 70% of the board is
his and in a stockholders meeting 70% that is more than
2/3 which is the highest qualified majority required for
the ratificaiton of a stockholders. 2/3 ra manang kinatas-
an. Which is 66.6% so mao na ang bangko maniguro
jud. Stockholder ka, you are both solidarily liable. In that
case, the doctrine of separate personality is no longer
applicable because the stockholder has signed that he
himself is obligated to the same obligation as the
corporation
Naa may property sa corporation nga gi mortgage is
that not proof that this is an obligation of the
corporation? Cecilio de villa mortgage corporate
property of east cordillera, is that not proof that it is the
obligation of the corporation? Ang theory diri what is a
mortgage? A mortgage is a subsidiary contract is it not?
A subsidiary contract does not exist if there is no
primary contract. The primary contract is a loan. The
subsidiary contract is a mortgage it is another contract.
Usa ra man lagi kabuok ang papel na suwatan ana?
ngano mag subsidiary man nga naa may primary?
Kanang gi suwatan nga papel mao ng instrument
kanang contract mao kanang kasabutan. An instrument
like a single piece of paper may have so many
contracts. There is a distinction. Kanang mga tao nga
ga laroy2 dinha makakita silag ginotaryohan maka ingon
sila nga kontrata ni. Dili lang, Basaha na. It can be that
there are many contracts there. There is a distinction
between an instrument and a contract.
Now, the SC says here, there is no proof or evidence
that there was a distinct and specific approval by the
board to mortgage corporate property. Why does it need
specific authority to mortgage? If you are an officer of a
corporation and in the by laws it says you will be the
signatory for and in behalf of the corporation if the
corporation enters into a contract. Is that not sufficient
authority to you to mortgage and to sign for and in
behalf of the corporation?
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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
A mortgage by itself is a distinct act of disposition it is
not an act of administration. It is the same as sale. In a
sale you must have a specific authority that is why it is
called if you are selling somebody else’s property what
is it called? SPA. Special Power of Attorney. Kung naay
special naa puy power of attorney nga di special. What
is that authority? That is authority to administer. It is
special because you are disposing you are acting as if
you own it. Remember, ownership is a bundle of rights.
(enumerates all the jus) so for those acts of disposition
be careful if you are from the bank pangita-a dayun ang
authority for this corporate property.
If you are on the corporation side, and you are the
lawyer of the president make sure that the president
cannot be accused of acting beyond his powers. He
must have the authority from the board. There must be
a resolution from the board. Ikaw in house counsel ka,
di ka kabalo na kinahanglan diay ug resolution xxx. Di
ka kabaw musuwat ug resolution. ‘Wa man gud na
gitudlo sa law school.’ English ra man na. Be it resolves
as it is hereby resolved that and then you put it in a
positive form a resolution in a positive form not negative.
2nd hour Sadsad, A.
 Are there exceptions to the so called
business entity rule where the personality
of the corporation is considered no longer
distinct from the stockholder’s or the
member’s personality?
YES.
1st Exception: Contract of Subscription
Some say that a stockholder who has not yet paid fully
his subscription to shares of stock and the corporation
goes bankrupt, then the entire amount of his
subscription becomes due and demandable
immediately. So if he does not pay the creditors of the
corporation can file a money claims complaint with the
court and run after the subscriber. Can the subscriber
can say “I have not yet fully paid because the balance
has not yet become due.” There is no call from the
Board of Directors for the balance to be paid but the
bankruptcy of the corporation is a legal call.
 Why is it a legal call?
Because when you subscribe to shares of stock you
promise that you will answer for this much of the capital
of the corporation and you are held to your promise. In
other words, that is in the Articles of Incorporation and
that is for the whole world to rely upon - that this amount
is already answered for by the subscribers and you are
one of those who say you will answer for this much and
you have not yet paid in full. So when you will be sued,
you will be sued up to your personal property to the
extent of the balance of the unpaid subscription plus
26
interest and other charges. You have already made a
promise.
“Procured to be paid” There is paid-up capital, there is
issued shares and there is capital that is procured to
be paid which is the balance of a subscription of
shares. I hope you understand that. Daghan nag mga
buang na doctor diha sa Davao Doc, nag-subscribe
naman sila di na sila kabayad di na kuno sila mubayad
sa ilang susbscription balance. Ngano man tawon
dong? Subscribe ka subscribe unya di man diay ka
katugma ana? We will later on examine the remedies of
corporation for so called delinquent shares. So you
might confuse that as linking the personality of the
corporation and the stockholder, there is no longer any
difference? No! It is because of a contract of
subscription.
2nd Exception: Liabilities of the stockholders are
not personal liability or debts of the corporation
and vice versa.
Again here is the issue on forum shopping certification
in
Pet Plans Inc v CA (2004)
The President of Pet Plans was impleaded because he
is the ex-officio President of Pet Plans and it is a labor
case so he is just impleaded in his official capacity as
such and no specific claim or charge against him in his
personal capacity. The Labor Arbiter however comes up
with a decision holding the President in his personal
capacity as jointly and solidarily liable with the
corporation for the money claims of the employees. So
the President therefore became a real-party-in-interest.
He became a distinct party from that of the corporation.
The corporation appealed. Pag-appeal nila ni-submit
sila ug certication of non-forum shopping. The
corporation since it is a juridical person has to execute
this CNFS through a natural person: the President. So
the President signs the CNFS. Pero siya karon party
naman siya? He should file his own CNFS. Wa man
siya mu-file. Pagsaka niya sa NLRC, “As to you,
President, bayad na ka kay wa man ka mu-appeal”
Ingon siya “Ni-appeal ko, naa dinha! Ni-pirma ko.” Can
you not consider that as substantial compliance? No
because your personality is not the same. You are
signing there for and in behalf of the corporation. For
your own, since you appealed, you should have
submitted your own CNFS. Kaduha ka mu-pirma diha.
One in a representative capacity and the other for your
own behalf.
Bantayi intawon na kay sayop na sa abogado. Nag-
tinanga ang abogado sa Pet Plans!”
Rights belonging to the corporation cannot be invoked
by the stockholders or directors and officers even if the
later owns substantial majority of the shares in that
corporation - That is the holding of Stonehill v Diokno.
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ADDU-Law
The officers objected to the infirmity of the warrant but
the warrant was infirm because it gave the address of
the corporation as the address of Stonehill. The SC later
on reviewed itself. It should have been the corporation
itself, who objected, not the officers. They should have
objected formally – pass a resolution that you will
contest the formal validity of that warrant.
 Exceptions to the legal entity doctrine
I. Piercing the veil of the corporate entity
There are two kinds of piercing:
1st Kind: Two corporations are considered by the SC as
one: one is a parent and one is a subsidiary. When the
separate personalities are cancelled or pierced and only
one corporation is considered with personality that is
piercing the veil.
US v Milwaukee Refrigerator Transit (US case, 1907)
When the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud or defend
crime, the law will regard the corporation as a mere
association of persons and it will disregard the separate
juridical entity.
Just because you are a mother corporation and you own
99% of the shares of stock of a subsidiary, that is not a
reason to pierce the corporate veil of separate entity.
There must be either defeating public convenience,
justifying wrong, protection of fraud, defending crime
and disregarding the law, then you can pierce the veil.
If it is not there, there is no piercing of the veil.
When you say wholly owned corporation how much of
the outstanding capital stock is there? If you own 95% of
the outstanding capital stock then you are wholly-
owned. That corporation, 95% of which is owned by
another corporation is wholly-owned. Why not 100%?
Because later on you will find out that to form a
corporation you need 5 incorporators. One might own
95% but there must be 4 others who own at least one
share standing in their name. If you own more than 50%
of the outstanding capital stock, what are you? You are
a subsidiary of the mother corporation that owns more
than 50%. If the mother corporation owns less than
50%, what is that corporation called? It is called an
affiliate.
So those are the terminologies. Why is it important? It is
important for accounting purposes and to tell the
financial story of these corporations. Because if you are
wholly-owned or you are a subsidiary, your financial
statements is consolidated with the mother corporation.
27
If you’re an affiliate, you are unconsolidated with the
owning corporation. The owning corporation just has
equity in you financial statements.
Summary:
Mother corp owns
Wholly-owned At least 95% of OSC
Subsidiary More than 50% of OSC
Affiliate Less than 50% of OSC
Landmark cases on Piercing the Veil of Corporate
Entity:
Francisco v Mejia 2001 When any or a combination of
all these factors are present then the veil of the
corporate entity may pierced with respect to a subsidiary
corporation:
1. The parent corporation owns all the or most of the
capital stock of the subsidiary
2. The parent and subsidiary corporation have common
directors or officers
3. The parent finances the subsidiary
4. The parent company subscribes to all the capital
stock of the subsidiary or otherwise causes its
incorporation
5. The subsidiary has grossly inadequate capital
6. The subsidiary has substantially no business except
with the parent corporation or no assets except those
conveyed to or by the parent corporation
7. The papers of the parent corporation or in its
statements of its officers, the subsidiary is described as
a department or division of the parent corporation for its
business or financial responsibility is referred to as the
parent corporation’s own.
8. The parent corporation uses the property of the
subsidiary as its own and
9. The directors or executives of the subsidiary do not
act independently in the interest of the subsidiary but
take their orders from the parent corporation.
10. The formal legal requirements of the subsidiary are
not observed.
 What is an example of the formal legal
requirement of a subsidiary which are not
observed?
The subsidiary might not have its own bank account. It’s
just in the ledger of the parent company. In other words
it is commingled with the funds of the parent company.
The corporation must have its own separate bank
account because it is a separate person. It has its own
TIN. It must have its own separate account.
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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Let’s take the case of a corporation and a dominant
stockholder.
 When do you “pierce the veil” and say there
is no corporation?
That is described in:
PNB v Andrada Electric and Engineering Co (2002)
Elements when the corporation’s veil is pierced on the
ground that the corporation is a mere alter-ego:
(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;
(2) 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 unjust act in contravention of plaintiff’s
legal right; and
(3) The said control and breach of duty must have
proximately caused the injury or unjust loss
complained of.
 What is the extent of legal effects of
piercing the veil?
The SC has held in Koppel Inc. v Yatco (1946) that the
application of the piercing doctrine to a particular case
does not deny the corporation of legal personality for
any and all purposes but only for the particular
transactions or instances for which the doctrine was
applied.
Kasagaran ini ang mag-sugod ana BIR, like Yutivo
Imported Cars of the US. After 1848, it sold it to the its
own wholly-owned Yutivo Marketing Corporation. Then
Yutivo Marketing Corp sold it individually to the general
public. At that time there was still no VAT. At that time
there was sales tax. Sales tax is the tax you impose on
the first sale of a manufactured or imported good. Now,
if the corporation will sell it to it’s own corporation that is
what is called simply transfer-pricing. Barato kaayo
imong baligya ani, gamay ra ang sales tax. Pero
pagbaligya na nimo didto, mao na to ang tinuod na
presyo, naa naman to’y sales tax. Here’s a well-known
secret: Everybody does it.
If you are TADECO and you sell bananas to Japan. You
first sell it to your own corporation but it is outside the
jurisdiction of the Philippines. Where is it incorporated?
28
In the British Virgin Islands. So in the papers you first
sell it there. So you pay your export tax on the basis of
that price. That’s all paper work because the bananas
directly go to Japan. It does not pass by the British
Virgin Islands. That is transfer pricing and that is what
the UN wants to put an end to because it is a systematic
evasion of tax that is worldwide. So many governments
lose taxes because of this particular practice.
 Business Enterprise Transfers
You have a business sold to another entity and then the
issue is: Is the transferee liable for the debts and
obligations of the original transferor? In other words, are
their separate personality recognized by law? Or there
is none? The transferee has the same liabilities as the
transferor? That is the issue and that is called the
Business Enterprise Transfers Rule which was dealt
with by the SC En Banc in Y-I Leisure Phil Inc v
James Yu (Sept 8 2015) penned by Justice Mendoza.
The case enunciates the general rule which was taken
from
Nell v Pacific Farms (1965) En banc.
According to the SC in the Nell Doctrine generally
where one corporation sells or otherwise transfers all its
assets to another corporation, the latter is not liable for
the debts and liabilities of the transferor EXCEPT:
(1) Where the purchaser expressly or impliedly
agrees to assume such debts;
(2) Where the transaction amounts to a
consolidation or merger of the corporations;
*FGN: Because if there is a merger, the surviving
corporation which is the “merged corporation” or the
“new corporation” that is formed after the merger, it is by
law liable for all the obligations of the original constituent
corporations no matter how many there are.
(3) Where the purchasing corporation is merely a
continuation of the selling corporation; and
(4) Where the transaction is entered into
fraudulently in order to escape liability for such debts.
So these are the four exceptions which make the
transferee liable for the obligations of the transferor.
Normally the transfer puts an end to the obligation of the
transferor. But if any of these conditions is complied
with, then the transferee is liable.
The respondent in this case James Yu bought shares of
stock and land in Mt Arayat Development Corp. Bayran
niyag installment. After paying it for 10 years he goes
over and there is no development. Wala diay! So ngadto
siya sa Mt Arayat Dev’t Corp, pag-adto niya ingon man
sila “Wa naman mi. We have sold it to Y-I Leisure.”
(chika ni Father about OCWs who are victims of this
scheme) Mao nang si James Yu, gi-kiha niya ang
transferor ug ang transferee. The defense of the
transferee is simple: I am an innocent purchaser for
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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
value. There was no fraud. Is fraud essential when you
postulate the purchase and acquisition of the entire
business, including goodwill, so as to subsume all the
liabilities of the transferor. That is the issue. And the SC
said, no need. There is no need to postulate any fraud.
If you purchase an entity or substantially all of its
property, you are continuing the business and because
you continue you are liable for all the past liabilities of
the transferor.
Taas-taas ning desisyuna, I’ll give you a secret, basaha
ang concurring opinion ni Leonen. Mas klaro kaysa
language ni-ining Mendoza.
December 01, 2016 Casan, J.
We are now on the
II. 2nd attribute of a corporation of which it has a
personality separate and distinct from that of its
constituents whether they be stockholders or
whether they maybe members, The Doctrine of
Legal Entity.
The interest of the stockholders over the properties
of the corporation is merely inchoate; hence the
stockholders have no personality to intervene in a
collection case covering the loans of the corporation.
The liability of a corporation towards a bank for a loan
cannot embrace the stockholders as may liable as the
corporation. However if the bank has made these
principal stockholder, a co-signatory in the loan, then by
that modem the liability of the corporation is the same
liability of the principal stockholders.
You will find out later that it is a standard practice of
the banks. They will look for the principal stockholders
of the corporation especially if the corporation is not
listed, it is privately held, the shares are raffled and sold
in the stock market so normally there are one or two
stockholders who control the corporation. They are at
least 66% owners of the outstanding shares. Now that is
the case, normally the corporation will say you should
be solitarily liable with the corporation. That is the only
way the corporation can pre-empt any desperation
move by the principal stockholder from escaping the
obligation of the corporation.
So, liabilities of the stockholders does not make
personally liable for the liabilities if the corporation vice
versa. The stockholders are not liable to any corporate
acts unless otherwise provided by law. And I have told
you about the forum-shopping certification in Plans
incorporated vs. CA, the president’s failure to provide
his non-forum shopping signed by him or made in his
own behalf meant a judgment as to him became final.
But in the commission because he signed for and in
behalf of the corporation a non-forum shopping
29
certification in his appeals the liability of the corporation
was still considered by the Civil Code. Rights enjoyed
by the corporation cannot be invoked by the
stockholders, directors, or officers, even if the latter
owns substantially the majority of the shares of the
corporation and as an exception to the doctrine of the
legal entity you have to unveil the corporate entity. The
landmark cases are PNB vs. ___ and 362 SCRA 216
2001 and PNB vs. Andrada Electric and Engineering
Company 381 SCRA 244 2002
You have the Business Enterprise Transfers;
The General Rule is that the transferee corporation
does not usually have the obligation of the
transferor corporation.
And then there are exceptions to that rule:
If the effect of such transfer is a merger or
consolidation, the corporation code itself says that the
surviving corporation in a merger/consolidated
corporation in case of a consolidation is liable for all the
liability of the constituent corporation by participating in
the merger/consolidation
And then, there is this, Y-I Leisure Phil Incorporated
vs. James Yu 770 SCRA 56, Gr. 207161 September
08, 2015, an EN BANC decision by Mendoza, that
where realty development corporation transfers its
assets to another realty property development
corporation, and the realty property development
corporation essentially conducts its business without
corporation, then that corporation will be liable for the
liabilities of the transferor corporation. There is no need
to postulate that the transfer was done in order to
escape the original liabilities and obligations of the
transferor corporation.
Alright, we come to the
III. 3rd attribute of a corporation; it is created by
operation law.
This is generally called the CONCESSION
THEORY, the life of a corporation is a concession made
by the state. It is a principle that recognizes that a
corporation is an artificial creature without any existence
until it has been given the consent by the state acting
by a law or an general enabling act such as the
Corporation Code.
Now, Under Corporation created by law not by
operation of law, those corporations directly created by
congress though the enactment of a special law that
becomes the charter of that corporation, they are called
public corporations. For such corporation to be
created, it must be for public purpose. Private
corporations cannot be created by specific legislative
act. This is the rule in the case of
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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
National Development Corporation vs. Philippine
Veterans Bank
192 SCRA 257 1990.
You know in that case, there was a very
smooth talking former professor in the School of
Business in UP to convince so many UP Professors and
Retirees to put their money with him because he was
putting up his new agricultural corporation called (
AGRix Inc) but then it turn out that Agrix Inc. was a
scam. And you would think that all these UP Ph.D’s will
see though all these but you know “Greed is as
universal as Gravity” so they fell to this smooth talking
professor and he took the money and lost their money.
Now it was Marcos who was the head and
Marcos seen the opportunity to win the University of the
Philippines Community, So what did he do? He put out
the presidential decree creating the new Agrix
Corporation. He ordered the Philippine Veterans Bank
order to supply capital and then the purpose of the new
Agrix Corp was similar to the purpose of the old Agrix
who are the stockholders? Those who lost money in the
original Agrix venture who are professors of UP.
Now the new Agrix Corp just had the obligation
to pay back Philippine Veterans bank. Now that was
challenged.
How can a law create a corporation not for
public purpose but to save these failed investors?
The Supreme Court said, Congress cannot
enact a law creating a private corporation though a
special charter. Since private corporation cannot have
special charters, it follows that congress cannot create
private corporation.
That was the decision in the case of NDC vs.
Philippine Veterans Bank 192 SCRA 237, 1990.
Nangisug na ang Supreme Court kay 1990
naman. Wala na si Marcos. When did Marcos Fly away?
1986. As I often tell my students, The Supreme Court
has many times been tested and has been found
wanting. It is the weakest structure of the government.
It is only the lawyers who are lifting up the Supreme
Court because it has continued to maintain respect.
There are at least 2 en banc decision of Supreme Court
decisions describing Marcos build as bureaucracy, the
scale of which that has not been known to this nation.
That was the decision of the Supreme Court in the case
of Pena vs. PCGG and Yuchienco vs. Teves. En
Banc. What was the latest ruling of the Supreme Court
en banc? They say Marcos can be buried with the
heroes. What happened in the en banc decisions in the
past? The court has a short memory or chooses not to
remember. (Father continued his sharing about Marcos
and the latest decision of the Supreme Court about the
Marcos Burial) There were so many great justices who
are so good. You read them. Teehankee, Cecilia
30
munoz-palma. You read there dissenting opinions. That
is where law embraces philosophy. You read their
decisions. So that you will not forget.
Now under exceptions to the general rule that
for a corporation to be organized there must be a
general enabling law, there are exceptions.
The first exception is so called De facto
Corporation that is found in the section 20.
Section 20. De Facto Corporations- The due
incorporation of a de facto corporation claiming in
good faith to be a corporation under this Code, and
its right to exercise corporate powers, shall not be
inquired into collaterally in a private suit to which
such corporation may be a party. Such inquiry may
be made by the Solicitor General in a quo-warranto
proceeding.
 What is a de facto corporation?
There are FOUR ELEMENTS OF A DE
FACTO CORPORATION.
1.) There is a law under which such
corporation has been lawfully formed.
2.) There is a bonafide attempt to organize
under colorable compliance with the
conditions of the law. So these de facto
corporations actually filed articles of
incorporation with the Securities and
Exchange Commission.
3.) The corporate assumes corporate
powers. It acts as if it were a corporation.
4.) It was issued a certification of
incorporation but it has a fatal defect. The
corporation has a fatal defect which goes
into the heart of it being a corporation.
Because it is fatally defective, it is not a
corporation, even if it has a certificate of
incorporation.
 What is an example of a de facto
corporation?
Sawajaan vs. CA- 459 SCRA 516 2005-the
corporation this is a subdivision homeowners
corporations. La vista homeowner’s subdivision, ivery
famous right next to Loyola heights near ADMU. That is
where Gloria Macapagal Arroyo lives, that is where Kit
Tatad lives, that is where Mr. Ching lives. Who is this
Mr. Ching? He is the owner of the biggest incoprated
poultry in the Philippines. He smells some eggs
because he produces a million eggs a day.    He
has a house there and so on.
But what happened when they organized this
subdivision homeowner’s organization? They forgot to
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
submit by-laws. You know under the corporation code
you can submit by-laws upon application or within 30
days after the issuance of the certificate of
incorporation. But they did not file. So, all there
meetings are questionable, all there resolutions are
questionable, they did not have rules as to when their
regular meetings are, their special meetings, how do
you call a meeting, what is the number of days for
notice, etcetera,.
That is where the Supreme Court said, a
corporation which failed to submit its by-laws on time
may be considered a de facto corporation whose right to
exercise its corporate powers may not be attacked
collaterally in a suit to which a corporation may be a
party.
Let us say the La Vista homeowners Association
Inc. enters into a contract with it a construction
corporation which construct sidewalks and gutters and it
does not perform so La Vista files a collection case and
then construction company will say, we do not have to
answer you, we do not have to respond because you
are not a corporation, you do not have by-laws, that is a
collateral attack on the validity of the corporation,
that is not allowed even if you are a de facto
corporation. What is needed is that you institute is
separate and distinct action to attack the corporation
because you cannot a subject a de facto corporation to
a collateral attack.
Remember that I told you that it’s also the role of a
Labor Organization. The registration of a legitimate
labor organization cannot be a subject of a collateral
attack; it must be attacked in a separate proceeding.
Now, why is that called an exception to the rule of
separate, distinct personality by operation of law? Why
is it an exception to the Consensual Doctrine of the
state? It is because the law provides that the
government must come out of its way to protect the
fatally defective corporation so as to maintain the
stability of commercial transactions. That is an
exception to the so-called Principle of Concession.
Again, another exception is a corporation by
estoppel. A corporation by estoppel is when a
corporation assumes to act as a corporation knowing it
to be without authority to do so, such ostensible
corporation shall not be allowed to deny its corporate
personality and such person shall be liable a as general
partners for all its liabilities and damages incurred or
arising as a result therefrom, here, in a corporation by
estoppel, there is really no corporation, they have not
file the articles of incorporation, the SEC has not issued
a certificate of incorporation, what happened? They just
put a “karatola” there that they are incorporated but they
are not.
Now when they are being made to stand up for
the obligations they assume, they will say that they are
not a corporation, you are not allowed to hide behind
your non-existence because you are estopped, you
31
have misled the public that you are a corporation, you
cannot back tract now and say that you are really not a
corporation. You are liable. That is a corporation by
estoppel under section 21.
Section 21. Corporation by estoppel- All
persons who assume to act as a
corporation knowing it to be without
authority to dos o shall be liable as
general partners for all debts, liabilities,
and damages incurred or arising as a
result thereof; provided however, that
when any such ostensible corporation is
sued on any transaction entered by it as a
corporation or on any tort committed by it
as such, it shall not be allowed to use as a
defense its lack of corporate personality
One who assumes an obligation to an
ostensible corporation as such cannot
resist performance thereof on the ground
that there was in fact no corporation. (n)
So both the estopped constituents of an ostensible
corporation and those who incur liabilities towards that
corporation, they are not allowed to raise as a defense
the lack of a corporate personality. They are estopped
that is why it is called corporation by estoppel.
(Sharing about the common practice in Manila
wherein the leases posted in the classified ads of the
newspaper by a corporation will demonstrate an
example of corporation by estoppel. A person
misrepresents himself to be part of the corporation and
will lease the property to another person. The subject
property will be leased to many lessees in a day which
will cause the legal controversy. Father mentioned that
say if for instance the transactions will be caught by the
CCTV and the persons who misrepresents will be
charged of estafa, they cannot deny any more the
existence of the corporation)
The law says they will be liable as general partners
for all the debts, liabilities and damages arising as a
result of this corporation by estoppel.
 So is there a corporation? No.
 Is there a liability even if it is not duly
constituted as a corporation? Yes.
 Who are liable? The people who acted as
such. They are liable.
Diba ang principle sa corporation kay there will only
be a corporation if the state will give its consent by a
certificate of incorporation. Wala man kaha, why is it
that it is as if it is a corporation? This is an exception
to the doctrine state consent as the basic principle
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
of a corporation, otherwise if we do not do this
those which are not corporations will abuse.
 Now, what are the instances where the
principle of a corporation by estoppel
cannot be invoked?
1.) It cannot be invoked by a person who
misrepresented the corporation as duly
organized. The principle of estoppel can be
invoked against such person but not in favor of
such person.
2.) The principle of estoppel cannot be used to
any person who takes no part except to
subscribe for stock in the proposed corporation
which was never legally formed. Hence, he
cannot be liable as a partner of those who
engaged in business under the name of the
pretended corporation. So innocent victim, ni
subscribe gyud siya pero wala tuod na
corporation. He cannot have the liabilities of a
general partner.
3.) Corporation by prescription. I told you about
this in the case of Parlin versus Ramirez 7
Phil 41 where a body of men, have been for a
long time in the exercise of a corporate
powers. A presumption arises of an ancient
charter granted to the predecessors making
the exercise of such powers by them lawful
and valid. An example is a Roman Catholic
Church as pronounced in that case.
 Now we come to the distinction of Primary
Franchise and Secondary Franchise.
The primary franchise also called the general
franchise. It is the right to exist as a corporation which
right is present in the individuals who composed the
corporation and not in the corporation itself. So if you
are the incorporators and the law says that there must
be five not more than fifteen. The incorporators as a
body politic, to them are vested a primary franchise
which is the right to exist as a corporation.
Secondary franchise is also a special franchise.
It is a right and privilege conferred upon an existing
corporation such as the right to engage in public bus
transportation let us say from Davao City to Tagum. You
pay for that franchise with the LTFRB. Where is the right
to hold such franchise vested? It is in the corporation.
Example Yellow Bus. That corporation own the
franchise to buy 15 buses between Davao City and
Tagum.
 What is the difference between two?
1.) Primary - It cannot be transferred and cannot
be subject of commerce.
2.) Secondary-Maybe transferred for
consideration with the consent of the government
32
agency. Because it can be subject of commerce, it
can be subject of levy and execution together and
including all property necessary for the enjoyment
thereof. (Example failure to pay the loan, the bank
can execute the buses together with the franchise
with the approval of LTFRB subject to
qualifications to maintain and grant the franchise)
But the franchise to exist as a corporation cannot
be for sale precisely the reason for the law to have a
general enabling act is to put an end to existing as a
corporation for consideration.
Ato pa Hari pa ang mubuhat ug decree na
corporation na mo then Lagyan nila ang hari unya mu
issue dayun siya na corporation na mo. Dili gani ka
suod sa Hari ug wala gani ka kwarta dili ka ma-
corporation. Mao na ang gibuhat run in the Constitution
it is already forbidden to that you can exist as a private
corporation by direct legislation. No. It is just by
complying with the requirements of a general enabling
act. That is the reason. So primary franchise and
secondary franchise, the right to exist as a corporation
and the right to conduct some public utility service which
is a secondary franchise.
December 2, Enriquez, A
So we were into constituents of a corporation.
From now on henceforth you should envision the
Articles of Incorporation. Articles of Incorporation is
basically a contract. It begins with, ‘Know All Men By
these presents’ an ancient form which is held a tacit
amount it will _______, but is the secret of attorney’s
fees in the Philippines. So we still continue to maintain
the use of that formula. All contracts now begin with
“Know All Men by these Presents”. In the US, the
emphasis is ordinary English. In the Philippines, if it is
ordinary, it must not be a legal document.
So, Section 5 says, “Corporators, incorporators,
stockholders and members.”
Section 5. Corporators and incorporators,
stockholders and members. - Corporators are
those who compose a corporation, whether
as stockholders or as members.
Incorporators are those stockholders or
members mentioned in the articles of
incorporation as originally forming and
composing the corporation and who are
signatories thereof.
Corporators in a stock corporation are called
stockholders or shareholders. Corporators in
a non-stock corporation are called members.
(4a)
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Point view, they are that are of the articles of
incorporation that can never be amended.
The list of incorporators plus the fact that they sign
there, because they assume personal liability of any
misrepresentation of the articles to the general public
because the articles become a public document. They
become a public document.
Originally, they are contracts. But since that is required
by the government office of Securities of Exchange
Commission, the moment you submit it, it becomes a
public document and any non-disclosure or
misrepresentation and untruthful statement if they are …
constitutes falsification of document punishable under
the Revised Penal Code.
That is why, if you are a minor, you cannot be an
incorporator. Can they own shares of stock of a …
(primitive) corporation subscription. If you know a
corporation that is about to be formed, then you
subscribe to those shares.
 You are a minor. Can you subscribe to
those shares?
Yes, you can. Because age does not matter for
purposes of being a stockholder. You might require an
adult to help you exercise your rights. You might require
a guardian as to your property, but there is nothing that
prohibits you from being a subscriber. There must be an
adult who help you to guarantee the succeeding
payments of the subscription, if the subscription is by
instalment. There are subscriptions of shares, as we will
later find out, that cannot be by instalments.
So, if after the corporation is formed, one of the
incorporators becomes notorious, and commits a
grievous public anomaly, your corporation will be known
as having been formed by the notoriously well-known
public criminal. You would like to erase his name!
Can you do that? You cannot. So you better choose
your incorporators very well, because you cannot
change a historical track. That is the only item in the
Articles of Incorporation which cannot be amended
because it is historical. “Know all men by these
presents, we, the undersigned incorporators on this day
formed this corporation under the following condition:”
Then you begin to put the condition. The name of the
corporation shall be, then there’s the name. The term of
incorporation shall be - it is outlined by an identification
(card).
Corporators in a stock corporation are called
stockholders or shareholders. Corporators in a non-
stock corporation are called members. So, let me bring
to your attention the following provisions:
33
Section 15. Forms of Articles of Incorporation. -
Unless otherwise prescribed by special law, articles
of incorporation of all domestic corporations shall
comply substantially with the following form: xxx
So there is a form that is outlined in Section 15. And all
that is needed is substantial compliance. Now, how do
you know that it is substantial? You will know that it is
substantial when the categories include obligations.
Like, “corporators in stock corporations are called
stockholders or shareholders.” So, you better call your
stockholders or shareholders by item on that name. You
cannot say unit holder; that is no longer substantial
compliance. Because you escape liability. Because it
does not say in the Corporation Code ‘unit holders’, it
says ‘stockholders or shareholders’. Therefore, you
have to stick to the categories that are provided in the
provisions.
Again, you can use Filipino in writing your Articles of
Incorporation. You are so nationalistic. You like to put it
in Filipino. The Articles of Incorporation may be written
in any of the official languages of the Philippines.
“Section 14. Contents of the articles of
incorporation. - All corporations organized
under this code shall file with the Securities
and Exchange Commission articles of
incorporation in any of the official languages
duly signed and acknowledged by all of the
incorporators, containing substantially the
following matters, except as otherwise
prescribed by this Code or by special law:
xxx”
So, in any of the official languages, theoretically you can
put it in Filipino. I challenge you suwayi pag buhat diha
in Filipino pag file dinha sa SEC tanawon nato na ug
pag buhat diha sa sign forms tan-awon nato ug
mugawas ban a ang imong certificate of incorporation. I
have yet to read Articles of Incorporation in Filipino.
Wala pa gyud ko’y nakit-an. Sobra na akong 30 anyos
pagka abogado, wa pa jud koy nakitan. I have read
decisions of the Supreme Court in Filipino. Every year
during Linggo ng Wika, the Supreme Court comes out
with one decision in Filipino.
Tan-awa, suwayi ug naa ba silay decision involving
Rerva Troncal.
So, if the Corporation Code says, what is required is
substantial compliance, the categories, the technical
terms, cannot be substituted. Because if they’re
substituted, then they can claim that they are not
covered by the obligations and conditions. So,
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
‘stockholders, shareholders, members,’ you have to
stick to those terms.
 What is the rule with respect to
incorporators?
Only natural persons may be incorporators of
incorporations, or at least five of them should be
individuals.
 What is the reason for the rule?
The incorporators guarantee to the world that the
Articles of Incorporation are true. And if it turns out that
they are false, the incorporator may be held civilly and
criminally liable therefore. A corporation cannot be held
accountable in that manner. So, the incorporator MUST
BE a natural person.
Qualifications:
1. Natural Person
Exceptions:
 Registered coops may be incorporators
of rural banks under PD 175 (If it is a
rural bank, it could be incorporated by
registered coops)
I don’t know if you still remembered Cooperative
Rural Bank of Davao City. It went bankrupt. But
because it is a rural bank it could have been
incorporated by registered coops not necessarily
natural persons.
 Corporations primarily organized to own
a ___ Rural Banks may be incorporated
by rural banks. In which case, rural banks
are not natural persons. Corporations
may be incorporators of non-stock
corporations.
 Stockholders or shareholders. Owners of
shares in a corporation which have
capital stock.
Members, corporators of non-stock
corporations. Directors and trustees. The board
of directors is the government body in a stock
corporation. The board of trustees is the
governing body of a non-stock corporation. The
board exercises powers of incorporation, the
board of trustees may be disseminated by some
other name but not board of directors. This is
according to Sec. 113 Miscellaneous Provision.
But again, I challenge you, file a non-stock non-
profit corporation and your equivalent of board
of trsustees, you use another name, you will not
get approved by SEC, because there is a
chance that you can say that “ I am not covered
34
by that requirement in the Corporation Code,
because I am not a Trustee, I am an elder,
board of elder, So I am not covered.
So to opiate (oviate?) that possibility the SEC
will stick to the substantial requirement. The
name of the corporate body should be board of
trustees in a non-stock corporation.
2. Of legal age
3. At least five(not less than), but not more
than 15
Exceptions:
 Section 110. Corporation Sole
 More than 15 may form a cooperative.
(General Cooperatives.)
 More than 15 may form a civic
organization (Jaycees, Lions)
 More than 15 may form an
educational corporation.
 The merger or consolidation of banks
may allow at least 21 incorporators
4. Majority of whom are residents of the
Philippines.
Why? So that they are in the reach of
the legal reach of the Philippines. If you are
not a resident, you may not be within the
reach of the law. The arm of the law may be
long, but it cannot extend beyond the
territorial jurisdiction.) You must be majority
residents.
5. Must own or be a subscriber to at least
one share of capital stock of the
corporation.
Section 138. Designation of governing boards. - The
provisions of specific provisions of this Code to the
contrary notwithstanding, non-stock or special
corporations may, through their articles of
incorporation or their by-laws, designate their
governing boards by any name other than as board
of trustees. (n)
Corporate Officers. There are supposed to be three
original corporate officers.
 The president who shall be director,
 The treasurer who may or may not be
director,
 The secretary who shall be a resident and
citizen of the Philippines.
And then Section 63 mentions two additional officers,
namely: the vice president and assistant secretary.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
The by-laws provide for other officers two or more
positions may be held by the same person. Except that
no one shall act as president and treasurer at the same
time.
 What is the significance that these officers
are named in the articles?
The significance is, even if they are not mentioned or
not provided for in the by-laws you may see their
position. Remember the by-laws are the internal rules of
the Corporation. Suppose there is a provision there is a
provision for a chairman, but there is no President. Can
you institute an office of a president of the corporation?
Yes, because it is found in Section 63 of the Corporation
Code. There is no provision for the vice president, can
you set up a vice president? Yes because that is found
in Sec 63 of the Corporation Code. So, there being
mention in the Corporation Code makes them available
to all corporations to be installed.
Now, in a stock corporation, the power to determine who
the officers should be, and the power to elect them are
lodged in the Board of Directors. In those matters, the
stockholders have no say. Corporate officers are
elected by a majority of all the members.
In non-stock corporations: Unless otherwise provided in
the Articles of Incorporation or the by-laws, officers of
non-stock corporations may be elected by the members
directly. That is Section 92.
Section 92. Election and term of trustees. -
Unless otherwise provided in the articles of
incorporation or the by-laws, the board of
trustees of non-stock corporations, which
may be more than fifteen (15) in number as
may be fixed in their articles of
incorporation or by-laws, shall, as soon as
organized, so classify themselves that the
term of office of one-third (1/3) of their
number shall expire every year; and
subsequent elections of trustees comprising
one-third (1/3) of the board of trustees shall
be held annually and trustees so elected
shall have a term of three (3) years. Trustees
thereafter elected to fill vacancies occurring
before the expiration of a particular term
shall hold office only for the unexpired
period.
No person shall be elected as trustee unless
he is a member of the corporation.
Unless otherwise provided in the articles of
incorporation or the by-laws, officers of a
non-stock corporation may be directly
elected by the members. (n)
35
So the Board of Directors determine the officers. The
Board of Trustees does not determine the officers. It is
the members themselves directly who can elect.
There is a category that you should remember.
 Who is an executive director? Who is a
non-executive director?
Stock and profit Corporation- A non-executive director
is a director that has no lined position in the corporation.
He does not help in the department. He does not
manage any particular function.
An executive director is one who has responsibility in
the management. So, a general manager who is made
the president of the corporation and such president
having been given the title of Chief Executive Officer
(CEO) means that he is an executive director. He is not
a non-executive director. He has overall responsibility
on the business of the corporation.
It is not here in the Corporation Code but the Securities
and Regulation Code, may require certain corporation
an independent director.
 What conditions are required according to
the Securities Regulation Code?
 If you are a corporation that is 50M in
assets or at least 200 stockholders with at
least 100 stockholders owning 100 shares,
you are required to have an independent
director.
 If you are a corporation that has sole
securities that require to be registered in
the Securities and Exchange Commission.
For instance you brought bonds and those
bonds are required to be registered in the
SEC, then must have an independent
director.
 If you are a bank, into a public utility,
then you must have independent director.
 How many independent directors?
20% or 2 directors whichever is less, in no case less
than two. That is the requirement of the Securities and
Exchange Commission.
Read SEC Memorandum Circular No. 6 - 2009, which
detains the requirement of independent directors that
governance of a division of corporations.
You must be independent; you must not be connected
with a corporation in any way as a consultant or by
lesion in the key offices of the corporation.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Except for your shareholdings and there is a
TIPPING (Limit?) in the amount of shares you
can own in that corporation.
This was introduced by the Sarbanes Oxley Law in US,
from hencefort, after the Sarbanes Oxley law everybody
followed it. And Sarbanes Oxley Law was passed
because of the excesses in the different corporations in
the US in the 1990’s. And so those excesses, principally
the Hendron Corporation, this requirement of an
independent director …. The shortcut for Sarbanes
Oxley is SOX. The moment you sell bonds or ADRs
(Asian Depository Receipts) in New Yor, right away you
must comply with the SOX.
Meralco, ABS CBN - all those corporations comply. That
is why now, one of the essential officers of the
corporation is the compliance officer.
I remember in the late 90’s naguol ang SGV kay gipang
pirate tanan nilang accountant,kinsa may nag pirate?
All these many corporations that are compelled to have
Compliance Officers, and many of those are shared
corporations. Kay wa naman silay makuha didto sa
States. Makakuha ba diay ka didto ug CBA nga naa
didto nga star (puyo) sa Panama and Barbados, para
maka compliance officer ka ananag mga ginatawag nila
nga shared corporation? Wala may mangadto. 50K US
dollars ug tagaan ka ug mapuy-an... tapos slave worker
ka sa SGV, tax free pa jud na sa Barbados… sige lang
ka ug bikini. (more chika about migration of the
accountants).
Compliance Officers, daghan naman kailangan ireport,
because the corporations are now subjected to scrutiny.
So, we have gone through the main officers,
constituents of a corporation. But there are still other
personalities that we have to be familiar with. What are
those? And they are not found in the Corporation Code
but they are just as important.
I am talking about a promoter and an underwriter.
Many can understand what an underwriter is - basically
he is a salesman who sells shares of the corporation. If
it is a corporation still to be formed, it is a pre-
incorporation subscription. Then, these underwriters,
they enter into contracts with the issuer (that is, the
corporation issues its shares of stocks and other
securities).
 There are three types of contracts that they
may be issued:
1. The English type of underwriting;
2. The Burn commitment type; and
3. The TEST EFFORTS type
36
The English type of underwriting: an underwriting
agreement that is made before the shares are brought
into the public. That in the event the public does not
take all of the numbers mentioned in the agreement, the
underwriters will take the shares which the corporation
does not take. So guaranteed ang sale. This applies
also to other types of securities such as bonds. In
consideration of this engagement, the underwriter
receives a fee or commission / discount. So, who are
those underwriters’ agreement? BDO, universal banks ,
BPI with a securities arm, Metro bank. So, we have
underwriters who have investment banks.
But what is a promoter? Dinhi sa Pilipinas murag wala
naman tay promoter. If you are ABS-CBN, if you would
like to share, sell ADLs, you need foreign accounts. But
you are a media corporation, which must be 100%
Filipino. So, what does ABS CBN do?
PCB in an intermediary corporation which houses,
Let us say 2 million shares of ABS-CBN. PCB then
issues ADRs (Asian Depository Receipts). What happen
to the 2 Million ABS-CBN shares? These corpus of
shares is securitized, they have a mother security
capital. And it says “for every one of this ABS-CBN
shares, there is one ADR. Each ADR has the right of
dividends of 1 ABS-CBN corporation shares. An ADR
therefore, except for the naked title which remains, it is
the PCB that therefore …everything is .. especially the
right to the fruits of these shares.
Where do you sell these? You sell these in New York
Stocks Exchange. At what price is this sold? Normally it
is sold there at the equivalent peso to the dollar price of
ABS-CBN. There is a foreign exchange element.
Unya, ug matulog ka gani dire sa Pilipinas mag trading
man sila sa New York. Mamata sila sa NY mag trading
man ta dinhi. So there is a time gap.
If you can take advantage of the time gap, dakog
development, musakag kali tang presyo dinhi, unya sila
didto sa NY wala pa man sila nag trading. Pagka sayo
sa buntag ana place dayon ka sa imong order, and
kuhaon nimo. Nasipyat, ug maka ginansya ka sa
Foreign exchange, that is called ARBITRAGE.
Unsaon man na nimo actually to sell these in NY when
there are something like over a hundred thousand
issues it is not exchanged? Unsaon man nimo pag get
the interest of all those investors? Who are the
investors?
The insurance companies, the hedge funds, the
different institutional investors of the sovereign funds.
Unsaon man nimo? You need a promoter. Kanang
promoter imo ng bayran siya. Siya na muabag ug
dakong hall… siya na muarange sa tanang caterer, siya
na musuwat anang tanang mga funds, na dali mo dire
kay naa koy I present ninyo. Siyay mangimbitar.
Promoter ba.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Ngano man na muduol nganha, kay mao man nay iyang
trabaho. Sige na siyay panawag sa different funds,
nganhi mo dire mu invest dinhi, kay bag-ong negosyo,
google, facebook… sila man nay mag introduce. Mao
na silay promoter. Manuwat na sila, manuol sila, pag
abot sa investors kinsa may makigsulti nila dire… ah
ang mga bigwits sa ABS-CBN… naa na silay slides, naa
na silay presentation, mao ng ginatwag nila nga “road
show”. “This is our company, this is the
capitalization,the developing market, average income,
disposable income, marketing sa advertisement…
naglingkod na sila dinha, nag lingkod ang president,
treasurer ug kinsa pa ng officer ug ang mga inverstors.
Pag human dinha, mangaon na na sila. Kadtong magpa
bilin after mangaon,mao nay seryoso. Pero kadtong
misibat, ah wa ganahi nimo. Tanaw sa menu unsa ilang
ganahan, human na sila. Kay naa man silay explains
account, kay mao man ni silang ang with the big bucks,
kay sila man ang maka invest.
Pagtalikog ana nila, human na silag panga-on ah, nay
kanang ingon nila, kanang mga dagko kayo, naa na
silay CALPERS. CALPERS is California Public
Employees Retirement System. Dagko na na. How
much are you talking about? Close to 400 Million
CALPERS. Statistically they are required to before you
invest you are a nobody, you cannot afford their laws.
Di ka mahimo na mag invest ka lang sa US bagsak sa
US e di goodbye ang CALPERS, daghan kayo na sila
mga sundalo, mangita ug kung asa mag invest. Mao na
sila ang tawagon sa promoter. Dali mo dili. Gamay gani
ka, ABS-CBN, ang ipadala nila ana, mga junior. Dagko
kaayong tingog. Kana kunong mga dagkong tingog
kanang promotion, wa kanay labot.
Unya muingon ka dako kanang CALPERS, huna hunaa
lang ng NORWAY SOVEREIGN FUND. Ila man ng
NSF, di na sila mahimos himos. Naa na na silay
sovereign fund. Why because their constitution says
“Whatever proceeds from oil and gas, cannot be
extended because it is not only owned by the citizens of
Norway today, but the citizens still unborn. So the
constitution requires them to preserve the proceeds of
their natural resources.
Di na nila magasto. Ang ila lang magasto ang kita sa
nag tubo sa ilang sovereign funds. How much now is
the sovereign funds of Norway? It is now close to 1
billion US dollars. Manlimbawot imong balahibo. That’s
why their education now is number 1 in the world. Not
Japan, not China, not the US. Class size, 10 students.
Mao na ang mga studyante didto, they know three
languages. Naa pay uban tag-unom, pito ka languages
nahibalan. They are almost in a natural basis. Three-
fourths of their graduates go to STEM- Science
Technology Engineering Math. Kinsa may gagasto ana?
Kanang kita sa ilahang Supreme Fund. Kuyaw!
Tanawa nang Singapore. That is one of the divisions of
their Sovereign Fund. TEMASEK. Mao nay controlling
investment corporation sa Singapore Airlines, Singapore
Development Bank, Singapore Telecom. Kana mao ang
37
mga dagkong business nila. Ni-a sila diri sa Philippines.
They bought 30% of the hospitals of the Metro Pacific.
Kuyawan naman sila kay wala na silay mga supply ug
mga nurses ug doctors. Ilang population growth is below
zero, fertility na below zero. Naa na guy government
program na matchmaking. Aron manganak sila. Naay
incentive. Ang mga tao dili naman manganak.
Problemado sila ana. Nagka-anam ug katigulang ang
mga tao. So where will they get the personnel to take
care of the health of their senior citizens that are
growing. The only segment that is growing. Naay silay
supreme fund. Pila may population anang Singapore?
It’s just slightly 3 Million people. Dako pang Hong Kong.
Hong Kong is close to 7 Million. Mangutana ka, hain
man ang supreme fund sa Pilipinas? It’s all in our
dreams. Damgo ra!
What’s the difference between a share stock in ABS-
CBN and an ADR? The underlying asset on which the
value of the ABS-CBN shares are measured are actual,
physical and intellectual property assets. Naay
properties ang ABS-CBN. Naa silay equipment,
apparatus pang-broadcasting. Those are part (of it).
Then they have intellectual property. But here, the
ADRs, the underlying asset of the ADR is another
security, and that is the share of stock of ABS-CBN. So,
that is why an ADR belongs to the general genre of a
derivative that is called a derivative. It is traded in the
New York Stock Exchange. It is bought and sold in the
New York Stock Exchange.
Remember, there are over 100,000 issues traded in the
New York Stock Exchange because that is really where
the center of capital funding is. Maskig unsa gyud imong
kalagot sa mga Amerikano, naa gyud didto ang kwarta.
Why? Because it is the safest place to have your
money. They respect ownership and transaction. They
are predictable and organized.
You have promoters and underwriters. Muingon kag
ngano dili na lang man na isahon? Kanang promoter ug
underwriter. Di man na mahimo. Kanang underwriter,
mao na ang salesman gyud na mubaligya. Kanang
promoter, mao ra nay ga-advertise. Magkuyog ba na
sila? Di man na magkuyog. Mao nang maglahi ang
marketing ug sales. Hain may labaw, sales or
marketing? Kanang sales, naa na dinha ang point of
acquisition. Pila diskwento, unsaon nimo pagbayad, asa
ka mangita ug ibayad. Kanang mga underwriters, mao
na silay mu-suggest. ‘Ingani ka musulod sa market.
Aron dili ka mabigla, gusto gyud nimo makitan ang
tinuod nga presyo, you scale up. Dako-dako man ka,
musulod ka didto, musaka dayon ang presyo.’ Mao na
sila ang mu-advise.
Ang promoter, mao nay muingon didto ‘tanawa ning
ABS-CBN, icompare ni sa telco sa Indonesia.’ But then
you are talking about intangibles. So, there is a whole
different world of explaining to do. That is why they are
included in the persons or characters in shares of stock.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Tanawa ra gud na sa Pilipinas. The SSS, theoretically
can invest abroad. But. It’s always … under Nationalist
groups. Ngano man mo mamalit ug shares of stock
didto sa gawas, na dinhi sa Pilipinas, kinahanglan man
ta ., targeton na nila dinhi. Kining investment, there is no
nationality. Tanawa na run oh, ang Peso, niubos na.
Ang dollar… 50 pesos na gud to 1 dollar. There was a
time when it was 43 or 44. Unsaon man padaganon
anang inflation, if you do not have investments in
dollars. Kinsa may kaluluyon? Di ang mga members sa
SSS. Tungod kay nationalist ra lagi dinhi. Ngano
tanawon man na nimo? There are rules in investment
and you cannot be an exception just because you think
Filipino… pagka way hinungdan. Mao nay mabaw ra
kaayo.
The forcefulness, cogency and volume of their voice is
directly inverse with the content of their agreement.
 FORM AND CONTENTS OF THE ARTICLES
OF INCORPORATION
Let us go through the contents of the Articles of
Incorporation. There are two provisions here on the
Articles of Incorporation. There is a description of the
content and form. Section 15 is the Form of the Articles.
Section 14 is the contents.
Sec. 14. Contents of the articles of incorporation. -
All corporations organized under this code shall file with
the Securities and Exchange Commission articles of
incorporation in any of the official languages duly signed
and acknowledged by all of the incorporators, containing
substantially the following matters, except as otherwise
prescribed by this Code or by special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the
corporation is being incorporated. Where a corporation
has more than one stated purpose, the articles of
incorporation shall state which is the primary purpose
and which is/are he secondary purpose or purposes:
Provided, That a non-stock corporation may not include
a purpose which would change or contradict its nature
as such;
3. The place where the principal office of the corporation
is to be located, which must be within the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the
incorporators;
6. The number of directors or trustees, which shall not
be less than five (5) nor more than fifteen (15);
7. 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
qualified in accordance with this Code;
38
8. If it be a stock corporation, the amount of its
authorized capital stock in lawful money of the
Philippines, 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;
9. If it be a non-stock corporation, the amount of its
capital, the names, nationalities and residences of the
contributors and the amount contributed by each; and
10. Such other matters as are not inconsistent with law
and which the incorporators may deem necessary and
convenient.
The Securities and Exchange Commission shall not
accept the articles of incorporation of any stock
corporation unless accompanied by a sworn statement
of the Treasurer elected by the subscribers showing that
at least twenty-five (25%) percent of the authorized
capital stock of the corporation has been subscribed,
and at least twenty-five (25%) of the total subscription
has been fully paid to him in actual cash and/or in
property the fair valuation of which is equal to at least
twenty-five (25%) percent of the said subscription, such
paid-up capital being not less than five thousand
(P5,000.00) pesos.
Sec. 15. Forms of Articles of Incorporation. - Unless
otherwise prescribed by special law, articles of
incorporation of all domestic corporations shall comply
substantially with the following form:
ARTICLES OF INCORPORATION
OF
__________________________
(Name of Corporation)
KNOW ALL MEN BY THESE PRESENTS:
The undersigned incorporators, all of legal age and
a majority of whom are residents of the Philippines,
have this day voluntarily agreed to form a (stock)
(non-stock) corporation under the laws of the
Republic of the Philippines;
AND WE HEREBY CERTIFY:
FIRST: That the name of said corporation shall be
".............................................., INC. or
CORPORATION";
SECOND: That the purpose or purposes for which
such corporation is incorporated are: (If there is
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

more than one purpose, indicate primary and
secondary purposes);
THIRD: That the principal office of the corporation is
located in the City/Municipality
of............................................,
of................................................., Philippines;
FOURTH: That the term for which said corporation
is to exist is............... years from and after the date
of issuance of the certificate of incorporation;
(In case all the share are without par value):
That the capital stock of the corporation
is.......................... shares without par value. (In case
some shares have par value and some are without
Province par value): That the capital stock of said corporation
consists of....................... shares of
which...................... shares are of the par value
of............................. (P.....................) PESOS each,
and of which............................... shares are without
par value.

FIFTH: That the names, nationalities and residences EIGHTH: That at least twenty five (25%) per cent of
of the incorporators of the corporation are as the authorized capital stock above stated has been
follows: subscribed as follows:

NAME NATIONALITY RESIDENCE Name of Subscriber Nationality No of Shares

Amount
.........................................................................................
.................... Subscribed Subscribed

......................................................................................... .........................................................................................
.................... .........

......................................................................................... .........................................................................................
.................... .........

......................................................................................... .........................................................................................
.................... .........

......................................................................................... .........................................................................................
.................... .........

SIXTH: That the number of directors or trustees of .........................................................................................

the corporation shall be............; and the names, .........
nationalities and residences of the first directors or
trustees of the corporation are as follows: NINTH: That the above-named subscribers have
paid at least twenty-five (25%) percent of the total
NAME NATIONALITY RESIDENCE subscription as follows:

......................................................................................... Name of Subscriber Amount Subscribed Total Paid-

.................... In

......................................................................................... .........................................................................................
.................... .............

......................................................................................... .........................................................................................
.................... .............

......................................................................................... .........................................................................................
.................... .............

......................................................................................... .........................................................................................
.................... .............

SEVENTH: That the authorized capital stock of the .........................................................................................

corporation is................................................
(P......................) PESOS in lawful money of the
Philippines, divided into.............. shares with the par
value of.................................. (P.......................) Pesos
per share.
.............
(Modify Nos. 8 and 9 if shares are with no par value.
In case the corporation is non-stock, Nos. 7, 8 and 9
of the above articles may be modified accordingly,
and it is sufficient if the articles state the amount of

39
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

capital or money contributed or donated by until my successor has been duly elected and
specified persons, stating the names, nationalities qualified in accordance with the by-laws of the
and residences of the contributors or donors and corporation, and that as such Treasurer, I hereby
the respective amount given by each.) certify under oath that at least 25% of the authorized
capital stock of the corporation has been
TENTH: That...................................... has been elected subscribed and at least 25% of the total
by the subscribers as Treasurer of the Corporation subscription has been paid, and received by me, in
to act as such until his successor is duly elected cash or property, in the amount of not less than
and qualified in accordance with the by-laws, and P5,000.00, in accordance with the Corporation Code.
that as such Treasurer, he has been authorized to
receive for and in the name and for the benefit of the .......................................
corporation, all subscription (or fees) or
contributions or donations paid or given by the (Signature of Treasurer)
subscribers or members.
SUBSCRIBED AND SWORN to before me, a Notary
ELEVENTH: (Corporations which will engage in any Public, for and in the City/Municipality
business or activity reserved for Filipino citizens of................................. Province
shall provide the following): of........................................., this............ day
of........................, 19.......; by...........................................
"No transfer of stock or interest which shall reduce with Res. Cert. No..................... issued at................
the ownership of Filipino citizens to less than the on....................., 19.........
required percentage of the capital stock as provided
by existing laws shall be allowed or permitted to
recorded in the proper books of the corporation and NOTARY PUBLIC
this restriction shall be indicated in all stock
certificates issued by the corporation." My commission expires on.........................., 19.......

IN WITNESS WHEREOF, we have hereunto signed Doc. No...............;

these Articles of Incorporation, this.................. day
of............................., 19.......... in the City/Municipality Page No...............;
of......................................., Province
of................................................, Republic of the Book No..............;
Philippines.
Series of 19..... (7a)
........................................................................................
First, the name of the Corporation.
........................................................................................
 What are the rules with respect to the name
................................................ of a Corporation?

(Names and signatures of the incorporators) 1. You cannot use a name that is already
appropriated by another;
SIGNED IN THE PRESENCE OF: 2. Nor can you use a name that is similar to a
protected name. So the rule of confusingly similar
........................................................................................ or similarly confusing;
3. If you put up a Corporation, the Word Corporation
(Notarial Acknowledgment) or Incorporated must be part of the name. You can
no longer have a Corporate Name without those
two words;
TREASURER'S AFFIDAVIT 4. You cannot use the word now Philippines. Gone
are the days when you can use the word
REPUBLIC OF THE PHILIPPINES ) Philippines, Republic. Those are names that are
already appropriated by the Sovereign.
CITY/MUNICIPALITY OF ) S.S.
Now, when you go to the SEC here, you will give the
PROVINCE OF ) name that you have chosen and they will check it
immediately in their databank in Manila. Then you will
I,..................................., being duly sworn, depose get that the name is still unappropriated. You can pay
and say: 100 Pesos, it will remain open for you for 1 month,
because we already reserved it for you. Within 1 month
That I have been elected by the subscribers of the you must produce the Articles of Incorporation bearing
corporation as Treasurer thereof, to act as such that name. Now, if the 1 month is consumed and you

40
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
have not come up with the Articles of Incorporation,
what happens? You will check again in Manila, and if it
is still vacant, then they will extend it to you for another
30 days. Why? Because before, and with many
incorporators will say that when you file the Articles of
Incorporation, you must give your consent that the name
can be changed in case the name is found out to be
already appropriated. That is no longer the case, you
can already reserve the name because there is now a
way of consolidating the data of all names.
Now, there is one case which I am recommending that
you should read.
ANG MGA KAANIB SA IGLESIA NG DIOS KAY
KRISTO HESUS, H.S.K. SA BANSANG PILIPINAS,
INC., vs. IGLESIA NG DIOS KAY CRISTO JESUS,
HALIGI AT SUHAY NG KATOTOHANAN
G.R. No. 137592, December 12, 2001
This is the case of Brother Eddie. Si Brother Eddie
insisted na magbuhat siya ug iyahang simbahan. Pero
gusto niya gamiton ang kanang mga pulong Haligi at
Suhay ng Katotohanan. But it is already used by his
former church. So he added H.S.K. Haligi at Suhay ng
Katotohanan. But the SEC did not allow it. Confusingly
similar or similarly confusing. And it was upheld by the
Supreme Court. So Bro. Eddie lost the case.
From the FT: Parties organizing a corporation must
choose a name at their peril; and the use of a name
similar to one adopted by another corporation, whether
a business or a nonprofit organization, if misleading or
likely to injure in the exercise of its corporate functions,
regardless of intent, may be prevented by the
corporation having a prior right, by a suit for injunction
against the new corporation to prevent the use of the
name.
Ngano makadaog man ang Beer na Beer ni Lucio Tan.
Unya si Bro. Eddie, Haligi at Suhay ng Katotohanan,
wala. If you want to know, read the case.
Now, there is this so-called Doctrine of Secondary
Meaning. That rule begins with this: ordinary words
cannot be appropriated. Why? Because if you
appropriate the word, then nobody can use it. Unsa may
ngalan sa imong corporation? Pera Padala, Inc. Pera,
imuha na na! Wa nay makagamit ana kay imuha
naman. So you cannot register it as your corporate
name. But words can represent a secondary meaning
especially ordinary words that are put together.
The example is Ang Tibay Case, 74 Phil 50.
ANA L. ANG VS TORIBIO TEODORO
G.R. No. L-48226 December 14, 1942
It’s a trademark for the shoes and it’s also the name
of the Corporation that makes the shoes. The shoes are
called ‘Ang Tibay.’ But not two words. Gidugtong niya
41
tung duha ka words and then the secondary meaning is
the shoes that Ang Tibay makes. Nahimo na ng Ang
Tibay. Kay ingon nila, si Ang ang nagpatibay. Put them
together, it assumes a secondary meaning.
From the FT: We have said that the phrase "Ang Tibay,"
being neither geographic nor descriptive, was originally
capable of exclusive appropriation as a trade-mark. But
were it not so, the application of the doctrine of
secondary meaning made by the Court of Appeals could
nevertheless be fully sustained because, in any event,
by respondent's long and exclusive use of said phrase
with reference to his products and his business, it has
acquired a proprietary connotation.
Mao na run ang Lhullier, naa na man nay Trademark
karon. Pera Padala. Together it assumes a secondary
meaning. Mao na ang service na gihatag sa
kadaghanan. It has a secondary meaning now because
a new word has been created.
Over in Tagum, there’s a Corporation there, dako
kaayo. Ang pangalan sa Corporation, Tamay Lang, Inc.
(Note: not sure at all if mao ni) Kita na mo na? If you
want a name of the corporation, na sigurado gyud ka
nga wala pa na-appropriate, ibutang ug binisaya or
tagalog. Then you put them together then it’s the
Doctrine of Secondary Meaning. Then that name will be
appropriated.
If the Corporation Name contains initials and the
explanation must accompany the Articles stating the
meaning of the same and their relevance or the reason
for the use thereof. Unsa may ngalan sa imong
Corporation? RAMCAR, Inc. Unsa man na? You must
put an explanation. RAMCAR stands for Ramon Caro.
The first few letters of the name and the service is used
to come up with the name of the Corporation. So you
must explain.
The use of the words … and Barangay are already
prohibited. And if the name or the surname of a person
is used as part of the Corporate Name, the
Incorporators must have a basis for such name or
surname. For instance the name or the surname may be
that of one of the incorporators. If the name is that of
another person, the consent of that person must be
submitted.
The word NATIONAL cannot be used anymore as part
of the Corporation.
 What is the significance of the principal
place of business?
There is now a new circular issued by the SEC. It is no
longer enough to put down the city alone where the
principal office is. You must put the specific address, the
number, the street. Ang nakadaot lang ana, kung gamay
ka nga corporation unya dili naka maka-afford (sa rent)
so mubalhin ka, you have to amend your Articles of
Incorporation. Because after you transfer, that is no
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
longer truthful because that is no longer your address of
your principal office. So you have to amend and to
amend the Articles is very cumbersome. You need
majority vote of the Board of Directors/Trustees. So you
have 2/3 vote.. and the stockholders voting and non-
voting and all the members of the corporation. You have
to file, pay the filing fee.
But now, that is required of the corporations. Now, the
significance of the principal place of the office of the
corporation is that it determines service of summons or
service of court processes. It determines venue of court
cases involving the corporation. So, if you do not serve
it in the principal office, then there is no proper service.
The next item to principal office is
 The specific purpose of the corporation.
The Purpose Clause.
What should you know? If it is a Stock and Profit
Corporation, you must distinguish Primary Purpose from
Secondary Purpose. If it is a Non-Stock, Non-Profit,
there is no need to distinguish Primary Purpose and
Secondary Purpose.
 Why is there a need to distinguish Primary
Purpose from Secondary Purpose in a
Stock and Profit Corporation?
Because the law says that if a Corporation engages the
business of the Secondary Purpose, you cannot do so
without first obtaining:
1. Approval of the majority of the Board of Directors;
2. The confirmatory vote of 2/3 of the stockholders
voting and non-voting.
That is what Section 6 of the Corporation Code says. So
you must distinguish Primary Purpose and Secondary
Purpose.
 How should you state Primary Purpose?
Primary Purpose must be stated specifically. With
specificity according to the Supreme Court. You cannot
just put it in general terms. ‘The Purpose of the
Corporation is to make money: Lots of it.’ Is that specific
already? No, that is not specific. ‘The purpose of this
corporation is to establish, maintain, operate a Cement
Factory.’ So, specific.
Now, the Rule also requires that the Primary Purpose
and Secondary Purpose must be compatible. You
cannot have a Primary Purpose that is incompatible with
the Secondary Purpose.
Primary: ‘To organize, establish and maintain a hospital
for the purpose of diagnosing disease, treating disease
and all manner of therapy, etc.’
42
Secondary: ‘To establish, maintain and operate a
funeral parlor.’
Cannot be. That is not compatible.
The purpose must be legal purpose. Former
Congressman Cabangbang put up a Corporation. The
purpose of which is to establish a movement that will
support the transformation of the Republic of the
Philippines into the 52nd state of the United States. Mao
na iyahang purpose. Pwede gani na sa Recto. In 1981,
pag-abot nako dinhi naa dako nga karatula dinha sa
may Gaisano, Congressman Cabangbang’s statehood
movement. So magbutang siya ang corporation. It was
shut down by the SEC. It is unconstitutional according to
the SEC, asking for a foreign government to take over
the Philippines. Ngano man sad to si Cabangbang nga
abugado man unta to? Iya na lang untang gi-ingon ‘The
purpose of this Corporation is to conduct research and
alike studies on the propriety of the Philippines being a
52nd State of the United State.’ Iyaha untang
gibutangan, study, di magstudy ta tanan. Research.
There is no limitation as to what you can research.
Another purpose which the SEC has held to be immoral,
‘The purpose of this Corporation is to aid single Filipinas
in search for their foreign soulmates.’ Mail-order brides.
According to the SEC that is immoral. Why are there so
many sites like these being …? They are all foreign-
based websites. They are not from the Philippines
because in the Philippines you are not allowed to
engage in the business of facilitating mail-order brides
that is immoral. So those are the rues with respect to
purpose.
Now, it is the purpose that determines whether or not
the Articles of Incorporation will require the
endorsement of an appropriate governmental agency. If
you are establishing a school for primary and secondary
education, then you will need first the endorsement of
DEPED because the SEC will not act on your Articles of
Incorporation if the DEPED will not endorse it.
If you’re putting up like Aboitiz, a coal-fired power plant,
then you will need the endorsement of the Department
of Energy and Department of Environment and Natural
Resources. If you are opening a bank, even the smallest
rural bank, then you will need the endorsement of the
Bangko Sentral ng Pilipinas.
Now, there are so many supervising and overseeing
Philippine offices that almost all corporations now will
require the endorsement. Now, Quiboloy, the school
Jose Maria College is opening or has opened a law
school. What governmental agency must endorse? Very
few know it. It’s the LEB. Legal Education Board, which
until last year put up a moratorium to the opening of law
schools for something like 3 years. There was no law
school that was allowed to open for the past 3 years. So
no more law schools. I am in agreements. But finally the
LEB relented and allowed. One of the first to be opened
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
is the Jose Maria College that is now operating as the
newest law school in the Davao Region.
Now, if you are opening a daycare center for preschool
kids, who endorses your application? There is no need
for any endorsement, because they are not yet in formal
education. Mao nang every nook and cranny, there is a
preschool. Dili man gud na kinahnglan ug endorsement
sa DEPED or bisang unsa na government agencies.
In foreign countries to be able to take care of children,
you have to be licensed. To take care of children.
Ibutang nimo ang mga bata sa daycare center, ang mga
tao dira lisensyado na. Ikaw, wala man tay mga
lisnesya, Ibilin nato sa maid ang bata, way training na.
That is why the approach of daycare centers is also like
that. No government endorsement. Just the SEC.
 What is the term of corporate existence?
The term of the corporation, the maximum term is 50. It
can be 40, 30, or 20. 50 years. You can extend the term
by amending the Articles of Incorporation. But you
cannot do that until it is 5 years prior to the expiration of
the original or subsequent term. 45 years na lang gani,
5 years na lang nabilin, you can file an amendment to
extend to another 50 terms. Unless you have a good
reason, compelling reason, the SEC will allow you to
extend the term earlier. What could that reason be?
Suppose you go to the bank as a corporation and you
will borrow money, and you propose to borrow money
for 10 years. So the bank says ok, hand me your
Articles and Bylaws. Pagtanaw sa bylaws, 7 years na
lang diay mo. Sumala sa inyong Articles of
Incorporation, you will expire in 7 years. How can we
give you a 10-year loan? Wa na mo dinha pag panahon
sa pagbayad. Nagplano diay mo nga dili mubayad. So
you will apply for an amendment early because the bank
will not release you your 10-year loan. The SEC will
allow that even if the rule is that you should be applying
for an amendment only within the last 5 years of the
original term.
Remember, there are many cases now, if your term
ends 50 years, you have 3 more years to wind up. What
does that mean? You begin to sell all corporate
property. Why? The first obligation is to meet your just
and valid obligation. You have to pay your creditors.
You cannot pay them with assets. You have to liquidate
the assets and you will pay. If you are Stock and Profit
Corporation, whatever remains will be divided among
the stockholders or shareholders. That is called
liquidating dividends.
Question, during those 3 years that you are allowed to
wind up, can you file an amendment with the SEC to
extend the term? The Supreme Court has said, no
more, you cannot. Why? Because during those 3 years
you are no longer operating as an ongoing.. you are no
longer operating as a corporation. You are just winding
up. Sige na lang man kag pamaligya. There is no more
Board there. What do you need? You need a Trustee in
43
dissolution. Mao na silay mamaligya. With the approval
of the Court.
You know, the dissolution of the corporation is two
stages, first the SEC approves the dissolution. How? By
examining the formalities. Was there a majority vote of
the directors? Was there a 2/3 confirmation by the
stockholders or members? Has there been notice to all
creditors? Is there a plan for liquidation, etc.? Once the
SEC approves that, it endorses it to the Intra-Corporate
Court. The SEC cannot handle the liquidation part.
Why? Because the SEC is the office of limited, not
general jurisdiction.
The corporation enters into many contracts, contract of
sale, contract of lease, contract of use. So many
contracts. Who has jurisdiction over those nominate
contracts in the Civil Code? The regular courts. That is
why the dissolution has to be passed on to the regular
courts after the approval of the SEC.
 CLASSIFICATION OF SHARES
In general, we come now to the Section on capital.
Authorized capital, subscribed capital, paid-up capital
and shares of stock. That is Section 6, the heart of the
Corporation Code. Classification of shares: par value
shares, no par value shares; voting share, non-voting
shares; preferred shares, common shares.
Sec. 6. Classification of shares. - The shares of stock
of stock corporations may be divided into classes or
series of shares, or both, any of which classes or series
of shares may have such rights, privileges or restrictions
as may be stated in the articles of incorporation:
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: Provided, further, That there shall always be
a class or series of shares which have complete voting
rights. Any or all of the shares or series of shares may
have a par value or have no par value as may be
provided for in the articles of incorporation: Provided,
however, That banks, trust companies, insurance
companies, public utilities, and building and loan
associations shall not be permitted to issue no-par value
shares of stock.
Preferred shares of stock issued by any corporation
may be given preference in the distribution of the assets
of the corporation in case of liquidation and in the
distribution of dividends, or such other preferences as
may be stated in the articles of incorporation which are
not violative of the provisions of this Code: Provided,
That preferred shares of stock may be issued only with
a stated par value. The board of directors, where
authorized in the articles of incorporation, may fix the
terms and conditions of preferred shares of stock or any
series thereof: Provided, That such terms and
conditions shall be effective upon the filing of a
certificate thereof with the Securities and Exchange
Commission.
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ADDU-Law
Shares of capital stock issued without par value shall be
deemed fully paid and non-assessable and the holder of
such shares shall not be liable to the corporation or to
its creditors in respect thereto: Provided; That shares
without par value may not be issued for a consideration
less than the value of five (P5.00) pesos per share:
Provided, further, That the entire consideration received
by the corporation for its no-par value shares shall be
treated as capital and shall not be available for
distribution as dividends.
A corporation may, furthermore, classify its shares for
the purpose of insuring compliance with constitutional or
legal requirements.
Except as otherwise provided in the articles of
incorporation and stated in the certificate of stock, each
share shall be equal in all respects to every other share.
Where the articles of incorporation provide for non-
voting shares in the cases allowed by this Code, the
holders of such shares shall nevertheless be entitled to
vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate
property;
4. Incurring, creating or increasing bonded
indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with
another corporation or other corporations;
7. Investment of corporate funds in another corporation
or business in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding
paragraph, the vote necessary to approve a particular
corporate act as provided in this Code shall be deemed
to refer only to stocks with voting rights.
 What is par value?
Par Value is stated value. It was what is … there. Now,
what is the consequence if you classify shares in your
corporation as par value shares? That means: You can
sell your shares. You can issue your shares, on
installment, you are given your subscription, later on,
the balance will be may demand of (?). You are already
a stockholder. For as long as the shares are not
delinquent, you can vote the entire number of shares in
the subscription.
44
Now, no-par value shares, there is no stated value.
Because there is no stated value, when you issue as a
corporation your shares, the entire consideration that is
received is considered whole and complete, no more
can be required of you to _____. So that there can be
no subscription of no-par value share by installment.
Par-value shares have par-value and issued value.
The issued value is the value that the corporation
receives in exchange for the shares of stock that are
issued. The corporation cannot issue par-value
shares for less than the par-value. If the par-value let
us say is 1 peso per share, the corporation cannot issue
shares for the consideration of 90 centavos instead of 1
peso. It must be at least 1 peso. It can be more, 2
pesos, 3 pesos. But it cannot be less than 1 peso.
If it is no par-value shares, you issue it as a
corporation, you cannot issue it for the
consideration less than 5 pesos if it is no par-value
shares. If you will issue it for the minimum, 5 pesos,
that must be paid whole and complete times the
number of shares issues to you, completely. So it
will be fully-paid and considered non-assessing.
Section 6 says only par value shares may be classified
as voting or non-voting. Par-value shares may be
classified as preferred or redeemable shares. And
only preferred or redeemable shares may be
deprived of voting rights. So therefore, no par-value
share are always voting shares because they cannot
be classified as preferred or redeemable shares.
Dec. 7, 2016 Romero, R
Section 14. Contents of the articles of incorporation.
– All corporations organized under this code shall
file with the Securities and Exchange Commission
articles of incorporation in any of the official
languages duly signed and acknowledged by all of
the incorporators, containing substantially the
following matters, except as otherwise prescribed
by this Code or by special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the
corporation is being incorporated. Where 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 purposes: Provided, That a non-stock
corporation may not include a purpose which would
change or contradict its nature as such;
3. The place where the principal office of the
corporation is to be located, which must be within
the Philippines;
4. The term for which the corporation is to exist;
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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
5. The names, nationalities and residences of the
incorporators;
6. The number of directors or trustees, which shall
not be less than 5 nor more than 15;
7. 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 qualified in accordance with this Code;
8. If it be a stock corporation, the amount of its
authorized capital stock in lawful money of the
Philippines, 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 ach on his
subscription, and if some or all of the shares are
without par value, such fact must be stated;
9. If it be a non-stock corporation, the amount of its
capital, the names, nationalities and residences of
the contributors and the amount contributed by
each; and
10. Such other matters as are not inconsistent with
law and which the incorporators may deem
necessary and convenient.
The Securities and Exchange Commission shall not
accept the articles of incorporation of any stock
corporation unless accompanied by a sworn
statement of the Treasurer elected by the
subscribers showing that at least 25% of the
authorized capital stock of the corporation has been
subscribed, and at least 25% of the total
subscription has been fully paid to him in actual
cash and/or in property the fair valuation of which is
equal to at least 25% of the said subscription, such
paid-up capital being not less than P5,000.00 pesos.
Section 15. Forms of Articles of Incorporation. –
Unless otherwise prescribed by special law, articles
of incorporation of all domestic corporations shall
comply substantially with the following for:
xxx
ELEVENTH: (Corporations which will engage in any
business or activity reserved for Filipino citizens
shall provide the following):
"No transfer of stock or interest which shall reduce
the ownership of Filipino citizens to less than the
required percentage of the capital stock as provided
by existing laws shall be allowed or permitted to be
recorded in the proper books of the corporation and
45
this restriction shall be indicated in all stock
certificates issued by the corporation."
xxx
I’m giving you several actual Articles of Incorporation.
What you do is you go over Sec 14 and Sec 15, which
says what the Articles of Incorporation should contain.
And then you look at the true existing articles and be
able to explain what this says because that will
determine whether you understand the law and the
application. This has been approved by the SEC. So
that’s what you should do so it will not be theoretical. Dili
ng sige ra kag memorize unya wa ka kasabot!
I will also give you the certificate of filing, the amended
Articles of Incorporation of BDO Universal Bank, and the
amended Articles of Incorporation of Ayala Corporation.
I will also give you the obituary notice of Mercedes
Zobel McMicking, who passed away at the age of 90.
This frail lady, until 2005, controlled Ayala Corporation.
Many of them say that the capital structure of Ayala,
from the decision of the SEC in 1990 when Ayala listed
itself as a corporation, it wanted to bring down the
number of board of directors from 15 to 5, and it was
opposed and the Ayalas lost in the SEC. Instead of
going up to the Supreme Court, they went into a
compromise and the result is this amended Articles of
Incorporation. Instead of brining it to 5, they were able to
bring it down to 7.
(Zobel de Ayala family tree chismis)
Now the one who controls Ayala Corporation is a
rehabilitated drug addict. The controlling chair now is
Inigo Zobel de Ayala. He is also a big officer of New
Frontiers, the controlling corporation of San Miguel
Corporation. Why is he controlling in Ayala? Because
McMicking willed the very big division of her shares of
stock, which constituted 58% of outstanding shares of
stock per stirpes.
 What is per stirpes?
A: Regardless of the number of ultimate beneficiaries, it
must be divided between the direct beneficiaries.
Kani siya, kinamanghuran mani si Mercedes sa
grandparents ni Augusto Zobel de Ayala. So it should
be divided according to her number of brothers. Mao
man to iyang gusto. Daghan man karon ang igsuon ni
Augusto, edi nanipis na ang ilang number of shares.
Katong si Enrique Zobel de Ayala, isa sa iyang mga
igsuon, gipugos mag minyo sa ilang first cousin, to
maintain their properties in Batangas. They had 2
children. One was mentally challenged, and the other is
Inigo Zobel de Ayala. But Inigo is the guardian of the
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
properties of the sister who is mentally retarded. So he
now controls Ayala Corporation. It’s not the people who
are president, or chairman, or what, who controls. It is
Inigo Zobel de Ayala.
I am giving you copies of the certificate of filing of
amended Articles of Incorporation of Metro Pacific
Investments Corporation.
 What does it mean when something is
underlined in the Articles of Incorporation?
Refer to Sec 14 and 15
 Now if someone tells you, “I want to share
all my shares in the corporation but I still
want to control it, what should I do?”
Indofood
(Corporation A) Corporation B
BANK
(Background of Indofood)
Indofood was given a monopoly for the importing of
wheat for Indonesia. So it was the only one licensed to
make wheat into flour. That is for 240 million people. So
it was a monopoly for flour for around 25 years, and
therefore it also became a monopoly of instant noodles.
So it makes 40 billion packets of noodles every year.
Because it mills wheat, it also produces wheat bran.
And because it produces wheat bran, it has a whole
island, 1 hour from Singapore but still a part of
Indonesia. They also have 200,000 sows. They supply
20% of pork in Singapore. How do you find workers to
raise pigs when Indonesia is a Muslim country? There is
a part of Indonesia that is not Muslim. What is that part?
BALI. So they have different workers from Bali work in
this island in Indonesia called Bintang Island. Every day
there are barges going to Singapore bringing these 7
month pigs. So that is Indofood.
So Salim (the CEO of Indofood) says “I want to sell all
these shares of stocks in Indofood but I want to control
it.” So somebody taught him how to do it. Let us say
Indofood is a 2 billion corporation. My advice is you set
46
up just a 5 million corporation (Corporation B). If you
don’t have 5 million, all you need is 4 million. The other
1 million will come from your partners. Now, out of this,
you go to the bank and you borrow 1.1 billion. But why
would the bank lend you 1.1 billion when you are only a
5 million corporation? Because you will tell them that
you control Corporation A and Corporation B. So
Corporation B will now buy 51% of Corporation A using
that 1.1 billion and these shares will be pledged to the
bank and the earnings of the shares will pay the bank.
Where did the 1.1 billion go? It went to Mr. Salim. Siya
man ang owner anang Corporation A. Pero karon, siya
gihapon muboto dinhi sa Corporation B. Unsa man siya
diri sa Corporation B? He is about 75% owner of this
corporation. But 51% of Corporation A, muingon dayon
siya, this corporation will now go public. Mag IPO (Initial
Public Offering) siya of the 49% of Indofood. And
because it is a profitable corporation, it sells its shares
at 100% premium. If you have a par value of 5, you sell
it at 10. Where does the money go? It still goes to Mr.
Salim.
So what happened? The entire corporation has been
sold and yet he still controls it because he still has 51%.
You now appreciate what a corporate vehicle is. All
along Ayala Avenue in Makati, which is THE address for
a business office, all along, there are no individual
owners. There are only corporate owners in Ayala. Now
who is the biggest owner of business properties in Ayala
Avenue? It’s not Ayala anymore. Ayala sold it a long
time ago. Ayala has properties in the Ayala Business
District, but those big establishments, no more! He has
sold it. Who is the biggest land owner? JAKA
Incorporated.
Now can you imagine what the going rate is in Ayala?
Per square meter is P600,000! Can you imagine the
capital gains tax when you sell that? Now if this piece of
land, let’s say that the sizes there in Ayala are about
2,000 square meter. So ang value now would be 1.2
billion. Magkano na capital gains tax nyan?! Now if a
piece of property is sold by a corporation, but instead of
selling the property, you sell the corporation, who will
know? Does the ROD know? Does the BIR know? Once
you have a property, the value of which is around 30-40
million, it is already profitable to organize a corporation
to hold it.
 What is the purpose of the corporation
here?
A: To hold title to property. So you sell the corporation
and you can just amend the name of the corporation.
That is the fascinating thing about a corporate vehicle.
I’m telling you this because you will not find this in De
Leon! Ako ra may musulti ug tinuod!
Now if you are a listed corporation, the rules are
different. There is more scrutiny. Like for instance, if you
buy 5% of the outstanding capital stock of a listed
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
corporation, immediately you have the obligation to
disclose to the Philippine Stock Exchange who the
beneficial owner of the shares of stocks is. But there is
still a method of escape, but you can only postpone
because the Philippine Stock Exchange is obliged under
the SEC to investigate. Some people escape by doing a
done-through transaction.
 What is a done-through transasction?
A: Instead of buying through an agent here in the
Philippines, mutawag kag agent na naa sa
gawas/abroad. Mutawag kag, let’s say, you have an
investment bank account in Singapore. And you order
them “Buy me San Miguel stocks”. Use 2 layers. So
Singapore, your bank, and the investment bank, will find
the corresponding broker in Singapore, who will make
the order to the broker in the Philippines.
In excess of 5%, what will the broker here say when
asked if who is the beneficial owner? He will say that it
is a broker abroad. Iinvestigate na sad na and that will
take time because it is beyond the jurisdiction of the
Philippines. Madugay na. Abtan na ug pila ka tuig. By
that time, probably you have already constructed the
necessary corporate vehicles that will suit your need.
That is what you mean by a done-through transaction.
So you have to master shares of stock.
Shares can only be non voting if they are specifically
deprived of voting rights BOTH in the articles and in the
certificate of stock.
Common shares of stock is always voting and it can
never be non voting. Where is that provided? In Sec 6.
Only Sec 6 says that if you deprive shares, it must be
preferred or redeemable. Only these shares may be
deprived of voting rights. Now when you say common, it
must always be voting.
Now if there are preferred, redeemable, or common,
and there is no other stipulation in the articles, then ALL
of them have voting rights.
We have several kinds of preferred, such as:
 Cumulative preferred
 Participatory/participating preferred - If it is
participating, it receives its preferred rate of
dividends plus it joins the common stock in
dividing up whatever dividend is remaining. So
it participates with the common shares.
Practically it gets 2 dividends, the preferred
dividend which is given ahead, and what the
common dividend receives. This is guaranteed
by a 3rd party, not the corporation. No
corporation can guarantee a dividend.
 Guaranteed preferred – preferred dividend,
not disbursed in a given year, and is stipulated
47
for the next year. So the next year, it will be
entitled to dividends in arrears plus the
preferred dividends because it is cumulative.
You should read Nielsen vs SEC.
[Transcriber’s note: I’m not sure if this is included in the
case list given by Fr Gus, but I could not find the G.R.
number/details of this case ]
Nielsen vs SEC.
This case involves a gold mining company. This Nielsen
was a legendary geologist. Pirme makakita ug gold!
Now since Nielsen was so sought after, then this gold
company in Baguio entered into a contract with him.
They made an agreement that such gold company will
give 10% straight of the net income after Nielsen has
discovered the gold. Nielsen agreed and eventually they
did find gold. So the company declared dividends, but
10% of the dividends should go to Nielsen because the
corporation is committed. Pero naa may nag object.
Why did they object? Because Nielsen was not a
stockholder.
Q: Can he be given 10% dividend of the net profit?
A: NO.
General rule: Only shareholders are entitled to
dividends. Non shareholders are not entitled to
such dividends.
The pronouncement of the lower court said that only the
shareholders can receive dividends. So Nielsen’s case
elevated to the SC.
So the SC said that the contract is valid but the SC also
said that Nielsen cannot get 10% of the dividend. The
measure of how much he is recompensed is 10% of the
net profit as agreed upon, but it should be charged
against the expenses of the corporation because only
shareholders are entitled to dividends. Non
shareholders are not entitled to dividends.
If it is guaranteed by another corporation, then the
preferred dividend that is guaranteed is part of the
expense of that corporation.
 Common Shares
Voting and it has a junior right to preferred shares. So
even if dissolution, the remainder assets of the
corporation, once divided, the payout is first to the
preferred shareholder. And if there is something left to
the common stockholder. So you are a junior proprietary
interest in the corporation.
 Redeemable Shares
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From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Redeemable within the period of time. There is
redeemable at the option of the holder and there is
redeemable of the option of the corporation.
 At the option of the holder – the SC has said
that if it is a bank, even if you are the holder
and you have the choice, you cannot compel
the bank to redeem your shares even if it has
matured. This is because the bank cannot do
this unilaterally. It requires the prior permission
of the Banko Sentral.
o So even if by contract, you can
demand the redemption, that it is still
subject to the approval of the BSP.
 Redeemable at the option of the
corporation – The corporation may redeem
redeemable shares (by pack? Inaudible, sorry)
regardless of the existence or the non-
existence of surplus profits or unrestricted
retained earnings.
If there is no unrestricted retained earnings, then what is
the corporation using to redeem redeemable shares? It
is using capital stock. So when it redeems it with capital
stock, then the entire articles of incorporation no longer
becomes true because you have used that which you
have received for the shares and given it out to the
shareholders. The capital stock is reduced. But this is
allowed because in the articles it says “redeemable
shares”. Now when you do that, you must amend the
articles to reduce the authorized capital then you reduce
subscribed capital, and then you reduce the paid
income to reflect the extent of which the capital stock
was given back to stockholders by way of redemption.
And then you retire the shares.
But if you use surplus, capital stock is not impaired. The
redeemable shares become --- (?? Inaudible sorry!  )
They may be issued even at the price lower than par
value because there is no impairment of the capital
stock by releasing those shares. Those shares have
already been paid and the capital remains in the
corporation. What was used to buy it is surplus profits.
So there is no untruthful statement in the Articles of
Incorporation. The Trust Fund Doctrine is not violated.
 Convertible Shares
It may be:
- Preferred convertible – non voting. Kung
preferred gani ka, voting, unya convertible, so
ngano mag convert pa man ka kung voting na
ka?
General Rule: But normally, convertible
shares have no voting rights.
48
You exchange your being preferred for the
voting rights of the common shares. Within a
given period of time, you are allowed to convert
your shares from one category like preferred,
which is non-voting, to common shares with
voting rights.
Remember that in convertible, at the time of issuance in
the articles and in the by laws, there is already a fixed
conversion ratio. Let’s say that for every 1 preferred, it is
convertible to 1 common share. Fixed na siya.
Sometimes there could be a different ratio, but that
already depends. But normally this is fixed in the articles
and in the bylaws.
Dec 8, 2016 Banal JM
 When is a corporation’s existence, legally
commenced?
Section 19. Commencement of corporate existence.
– A private corporation formed or organized under
this Code commences to have corporate existence
and juridical personality and is deemed
incorporated from the date the Securities and
Exchange Commission issues a certificate of
incorporation under its official seal; and thereupon
the incorporators, stockholders/members and their
successors shall constitute a body politic and
corporate under the name stated in the articles of
incorporation for the period of time mentioned
therein, unless said period is extended or the
corporation is sooner dissolved in accordance with
law. (n)
So, it is from the date the SEC issues a certificate of
incorporation.
Ex: The Certificate of Incorporation is issued to
December 8, 2016 but the date in the certificate of
incorporation is November 8.
 When did the corporation begin to exist?
Pagbantay mo ini kay pagmoingon gani the date
issuance, the SEC says the date on the certificate of
incorporation is presumed to be the date of
issuance. Wa nimo madawat, the SEC says its your
fault, but the date stated there is presumed to e the date
of issuance.
Wa man nako madawat? Wa man nimo kwaa! Now,
why is that important?
That is important because of what section 22
says. Section 22 says effects of non-use of corporate
charter and continuous inoperation of the corporation.
This article talks about two things: non use and
continuous inoperation, it says:
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
Section 22. Effects on non-use of corporate charter
and continuous inoperation of a corporation. – If a
corporation does not formally organize and
commence the transaction of its business or the
construction of its works within 2 years from the
date of its incorporation, its corporate powers cease
and the corporation shall be deemed dissolved.
However, if a corporation has commenced the
transaction of its business but subsequently
becomes continuously inoperative for a period of at
least 5 years, the same shall be a ground for the
suspension or revocation of its corporate franchise
or certificate of incorporation.
“Date of its incorporation”, is the date that is written in
the incorporation certificate issued by the SEC. You
count date, true, it is issuance but technically it is issued
upon the date that it is placed on the certificate of
incorporation.
A corporation is dissolve:
(1) If it does not organize within 2 years,
(2) If it does not commence its works within two
years from the date of issuance of the
incorporation.
But then it says, “However, if a corporation has
commenced the transaction of its business but
subsequently becomes continuously inoperative”,
niundang ang corporation, the board no longer meets, it
no longer files financial statements with the BIR and as
a consequence it no longer files financial statements
with the SEC. Why? Because there are no transactions.
Why is there no transactions? Because the FBA has
taken over the plantation in Masina (example of a
corporation).
Section 22. x x x
“For a period of at least 5 years, the same
shall be a ground for the suspension or revocation
of its corporate franchise or certificate of
incorporation”.
This provision shall not apply if the failure
to organize, commence the transaction of its
businesses or the construction of its works, or to
continuously operate is due to causes beyond the
control of the corporation as may be determined by
the Securities and Exchange Commission.
So if you cannot comply with this then you must send a
formal notice, either the president of the corporation or
the secretary sends the formal notice that they are in
continuous inoperation.
Ex: because our rubber plantation has been
taken over the Abu Sayyaf, so we cannot go over there,
49
and then you attached what ever evidence you have,
news paper articles, certification from the military, etc.
that you cannot continue and the SEC might allow you
an extension of time within which to organize or resume
business operation. Remember its 2 – 5, two years to
begin, 5 years of continuous inoperation. Daghan na,
there are many corporations that happen that way, they
ceased to be inexistence because it has stop.
 What happens is, when you form and
organize, there are many things to be done.
1. First of all, you call a stock-holder’s meeting.
It must be a valid stock-holder’s meeting, at
least, if your articles of incorporation does not
say what the quorum is, then you follow the
Corporation Code, at least a majority of the
stockholders, or if it is a non-stock, non-profit,
the majority of its members. Majority is 50% + 1.
They must be present, then they elect the board
of directors or if they are non-stock non-profit,
they elect the board of trustees and the officers
of the corporation. Now, as soon as they elect,
there are already officers, they will pass a
couple of resolutions.
A resolution to open a bank account, current
and savings account and to what bank it will be
opened with, etc.
2. Second, they will pass a resolution,
designating a treasurer and who ever he or she
will engage to register the corporation with the
BIR, to obtain a TIN. Sya na ang magda ana sa
resolution because when you go to the BIR and
you are negotiating or transacting business for a
juridical person, a corporation, they will require
an authority because you are acting for the
corporation.
So, at the end of the fiscal year, found at the very least,
in the by-laws, that is the reckoning period of the
accounting period that is 12 months, not necessarily
exactly like the calendar year. It could struggle two
calendar years, like the Ateneo de Davao University
which has the fiscal year which is June 1 to may May
31, to coincide with the academic year because that is
the cash flow of the university; it goes with the academic
year. But many businesses are the same as the
calendar year. So that is placed in the by-laws, if you do
not have by-laws yet, then when you organize, the order
of business in the organizational meeting, you must
come up with by-laws.
There are two ways you can adopt by-laws: you can
either already adopt it, in which case, it is the
incorporators (who drafted the by-laws) and you file it
along with the articles of incorporation. So, when the
certificate of incorporation is issued, you already have
your by-laws.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
But if you don’t have the by-laws, then that is
one of the things you decide during the organizational
meeting.
Again there are two ways by which you will adapt in
an organizational meeting. (1) One, you will vote and
discuss the by-laws. (2) But the stockholders or the
members can delegate the drafting of the by-laws to the
board of the directors and now you will require a higher
majority vote, two-thirds of the outstanding capital stock
or two thirds of the members of the corporation, then it
will be the board of directors or trustees who will draw
up the by laws. Then you will fill it again.
So by-laws, election of officers then you will report this
to the SEC. Now at the end of the fiscal year you have
to come up with balance sheet and profit and loss
statement. You will submit that to the BIR and then you
will get a copy that is already submitted to the BIR,
stamped by the BIR then you will go to the SEC to file it.
Unahon gani nimo nang SEC na wala pay tatak sa BIR,
ilabay ran na sa SEC because the SEC will not accept
financial statements unless it has gone thru with the
BIR.
Now, when you ceased operation, you do not file
any file any financial statements. That is when the
SEC will know that you are not operating because you
are not filing any financial statements.
 Grounds to reject or disapprove
Sec. 17. Grounds when articles of incorporation or
amendment may be rejected or disapproved. – The
Securities and Exchange Commission may reject
the articles of incorporation or disapprove any
amendment thereto if the same is not in compliance
with the requirements of this Code.
Provided, that the Commission shall give the
incorporators a reasonable time within which to
correct or modify the objectionable portions of the
articles or amendment.
So, what does this tell you? If you are rejected with your
articles of incorporation, there is no res judicata. You
can keep re-filing it. In fact the SEC is told to tell those
who are filing what the defect is, and to modify the
articles so as to conform.
 What are the usual grounds for
disapproval?
The following are grounds for such rejection or
disapproval:
1. That the articles of incorporation or any
amendment thereto is not substantially in
accordance with the form prescribed herein;
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Gamit-gamit ka laing ngalan. You do not use
“stockholders” or “shareholders”, you use “unit holders”.
You are not substantially complying. You do not use
appropriate words, technical words.
2. That the purpose or purposes of the corporation
are patently unconstitutional, illegal, immoral, or
contrary to government rules and regulations;
Right there you can see so many grounds.
1. 52nd state of the US – unconstitutional.
2. Illegal – the purpose is to propagate a plantation of
cannabis, in the hope that it will be legalized in the near
future. Wa man ko mugamit ngtanom lng man ko,
pareha ran man na. Nag-import ra man ko pero wa man
nako gamita, importation of prohibited drugs is already
an offence.
3. That the Treasurer's Affidavit concerning the
amount of capital stock subscribed and/or paid is
false;
That means that the SEC has already verified the
treasurer’s affidavit. Gitawgan nya ang banko, because
you execute a waiver is it not? Together with the
treasurer’s certificate, the interim treasurer executes a
waiver of his right to secrecy of bank deposit under
existing laws. So the SEC checks it.
Remember the contributions that are made, or paid-up
subscriptions, is kept by the treasurer for and in-behalf
of the corporation still to be formed. So the corporation
is not yet there, it is just the interim treasurer who is the
trustee and he waives his right of secrecy of bank
deposit, because he is technically just a custodian, an
administrator. Now if the SEC calls the bank, “this is the
SEC” they explained and they cite the waiver, “now can
you tell me is there this deposit and how much is there
entrust for this corporation, and the treasurer-trustee is
this?”
“Wala man diri sa amo”, og mutubag ana ang banko ky
manager nagluch ang janitor diay to ang nakatubag.
That’s way you have to go to the SEC and present there
the deposit slip and tell the SEC and the SEC will call
again or you ask the bank manager to call back the
SEC, because it is your burden of proof to show that
there is really that much payment from the bank
already deposited for the corporation.
4. That the percentage of ownership of the capital
stock to be owned by citizens of the Philippines has
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
not been complied with as required by existing laws
or the Constitution.
No articles of incorporation or amendment to
articles of incorporation of banks, banking and
quasi-banking institutions, building and loan
associations, trust companies and other financial
intermediaries, insurance companies, public
utilities, educational institutions, and other
corporations governed by special laws shall be
accepted or approved by the Commission …
That is from an examination of the Articles of
Incorporation (AOI). Ex: If it is stated their that the
foreigners have more than 60 percent and it is a
corporation reserved for citizens of the republic, then the
SEC has no choice but to deny the corporation. You will
be told DENIED! Because of this defect; correct this
defect. Nakasala kana ba ana? Wa pa! You correct it;
you put more Filipinos, and then file it. Many times the
SEC will not even give you a flat written disapproval of
you application for incorporation, they will just tell you
“ihatag og balik ang imong papel, usbon nimo”.
They like people to register, why? Because
there are fees. You know what they say? There are only
three SEC offices in the whole country that is viable on
the basis of fees. NCR main office, Cebu and Davao
office, the rest are all subsidized office, nay
Zamboanga, naay Bicol, naay Ilo-ilo, but so many of
them are not viable financially.
So, I’d like to point out to you Section 16 - Amendment
of Articles of Incorporation.
Section 16. Amendment of Articles of Incorporation.
– Unless 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 majority vote of
the board of directors or trustees and the vote or
written assent of the stockholders representing at
least 2/3 of the outstanding capital stock, without
prejudice to the appraisal right of dissenting
stockholders in accordance with the provisions of
this Code, or the vote or written assent of at least
2/3 of the members if it be a non-stock corporation.
The original and amended articles together shall
contain all provisions required by law to be set out
in the articles of incorporation. Such 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 majority of the directors or trustees stating the
fact that said amendment or amendments have been
duly approved by the required vote of the
stockholders or members, shall be submitted to the
Securities and Exchange Commission.
xxx
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In Section 6, that is the first of the instances
enumerated thereto where non-voting shares may vote.
1. Amendment to the article of incorporation.
Go to Section 16 and then you will find out that there are
two ways by which the stockholders register there two-
thirds votes or assent to the amendments to the AOI.
Take note in Sec. 6, it is amendment to the AOI.
2. Adoption and amendment of by-laws.
When it comes to AOI its only amendment it is
not adoption and amendment because AOI is the
principal work of the incorporator. The original articles
are filed by the incorporators, subsequently, this are
amended when there are already functioning
stockholders and members. But, when it comes to by-
laws, the stockholders or members, may participate in
adapting the by laws and in amending the by-laws.
Alright Section 16, two ways by which the
stockholders or members can participate in the
amendment of articles. It says, (1st way to amend),
“may be amended by a majority vote of the board of
directors or trustees”, when they say majority vote of the
majority vote of the board of directors or trustees,
according to the SEC, this is absolute majority not
majority of the quorum. The number of the board is
always odd; 5, 7, 9, 11, 13 and 15, you cannot have
even numbers because you could have a deadlock.
Now, if the board it must be majority vote of the
board of directors or trustees (and take note) and
the vote or written assent of the stockholders
representing at least 2/3 of the outstanding capital
stock without prejudice to the appraisal right of
dissenting stockholders in accordance with the
provisions of this Code.
Note: the 1st way to amend the articles of
incorporation is by majority vote;
The 2nd Way TO AMEND the articles of
incorporation is by way of written assent.
We will take up appraisal right later but
 What does vote or written assent means?
Vote means there is social congress, there are sent
notices of the meeting and then they gather together in
a meeting and then they vote. Written assent, the
stockholders are just sent letters and they are told check
YES if you are in agreement, check NO if you’re not in
agreement with this amendment. Now, when the two-
thirds majority of the stockholders have checked YES,
the amendment is passed. It is thru the treasurer that it
is sent back.
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law
 What happens if less than two-thirds
assents?
Then you have to keep on writing to get them back,
because that is required by law.
Now, the next question is
 When is it voting and when is it written
assent?
It is voting if it is any of the instances provided in
section 6. It is written assent if it is not one of those (8)
instances mentioned in section 6.
Section 6. Classification of shares. – x x x
Where the articles of incorporation provide for non-
voting shares in the cases allowed by this Code, the
holders of such shares shall nevertheless be
entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate
property;
4. Incurring, creating or increasing bonded
indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with
another corporation or other corporations;
7. Investment of corporate funds in another
corporation or business in accordance with this
Code; and
8. Dissolution of the corporation.
XXX
I’ll give you a problem:
Suppose the corporation is capitalized at 1
million, at 1 peso par value and only common stocks is
provided in the articles. At the end of 10 years, the 1
million is completely subscribed and paid up and the
corporation is now in need of raising capital. Now the
board says maybe we should introduce preferred non-
voting shares. It is preferred non-voting shares because
those who are controlling might not be able to catch up
with later capital increases, so they will lose control of
the corporation. So you raise capital and yet your voting
rights remain the same.
So, the corporation’s board of directors calls the in-
house counsel, the secretary of the board and ask his
opinion. How do we go about this? Can we (1) introduce
the amendment once and for all, usa ka buok, increase
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the capital and also introduce the new category for
preferred non-voting shares or (2) do we break it up?
We increase the capital first and then, depending upon
the response of the people, we convert the new
common shares, some of it into preferred shares.
Unsa man itubag nimo ana kung ikaw ang secretary and
the in-house counsel?
Kaisahon lang gani na nimo, you must call a
meeting because increase or decrease of capital stock
is under section 6. So, you must have a meeting and
when you vote to increase, you must also vote for the
creation of new preferred non-voting shares. You must
be sure that the two-thirds of the stockholders will
approve the preferred voting shares.
Why?
Because they may approve the increase of
capital stock because they can see from the financial
statements that it’s making money and it need a new
capital but how about the new preferred non-voting
shares? Will they allow it?
Kung ikaw existing stockholder ka muingon ka,
muhulam ko og kwarta aron mupalit ko niini preferred
shares because its making money, unya muingon ka
ngano dili man ni voting? Ngano non-voting man ni?
Gusto ka og voting aron muincrese imong voting shares
dinha sa corporation diba?
If you break-it up; first you put an increase, you make
the stockholders vote and later on, you propose an
amendment reclassifying the common shares into
preferred voting shares, do you still need a meeting?
No more, you just need written assent. Dili gani ka
sigurado makakuha kag vote mas mayo ang written
assent kay mahimo man nimo personally serve na,
signan niya, sigurado ka na makuha pero kung voting,
unsa man, secret ballot man na, dili ka makasigurado.
Remember the rule I told you, you do not call a meeting
unless you know the result of the meeting (beforehand).
Ingon ka regular meeting man, wala man ka sigurado,
pangita og postponement ka nang regular meeting unya
ayoha nana daan na masigurado ka sa resulta nianang
meeting. You can ask for a postponement man of lets
say, regular annual meeting, if you are not sure of the
results.
Alright, we have discussed founder’s shares, in other
words, you can classify some of the shares as:
Founder’s shares – and for the period of 5 years those
shares will have the exclusive right to vote and be voted
for positions in the board of directors.
It’s not the same in the State of Delaware; in
the State of Delaware it is unlimited. So what did Mr.
Henry Ford do before he went public? He created his
 BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

own founders shares, and this shares, it was provided in
the articles that he has 10x the voting right of the
ordinary common Ford shares, so that until now, the
Fords still controls Ford Motors Company. Chrysler,
General Motors wala nana, the original owners have lost
control, it’s now owned by investment banks but Ford
still controls. Why? He has this founder’s share with 10x
voting rights.
Now the problem is the Fords already reached
fifth generation, og naay usa ka Ford muingon ibaligya
nana akong shares ky gusto na nako icash, unya unsa
may buhaton sa Ford Foundation(the heirs of Ford
incorporated it) who holds those shares. For those who
want to liquidate their shares, the Ford Foundation from
its accumaulated dividens, it began to buy ordinary
Ford or common shares and then it reaps, naa silay
pondo unya naa ko noy muingon ibaligya na nako ang
akong shares, adto nila kwaa dito. Kadto ila ibaligya,
kwartahon nila unya kato ila ihatag, so dili makwaan
ilang 10x-founders share. Mao nang nagpabilin lang
japon sila as incorporators.
In the Philippines, the longest you can be in control, as
founder’s share, is 5 years. The founder’s share if you
are the owner of the company, you have the exclusive
right to vote for and be voted for director of the company
for 5 years, after that pareho namo og voting rights.
Now, the other corporations nagsurvive, is that good for
the stock market? That there are shares with more
voting rights? That is inimical to equality is it not? But
why did Ford survived? Because it was extremely
profitable. And even now it has more than average
profitability.
But then let me tell you about the so called “Golden
Shares”. You know when Germany, Italy, France
decided to privatized government corporations like the
electricity, telecoms, the petroleum, when they decided
to privatized it they will not really convince that it will be
good for the country, what did they do? They amended
the articles to provide what is called the Golden Shares.
practice of an emergency exceptional interventionist
aspect that is written in the corporation in favor of
the sovereign. Dagko man gud kau ang ilang
investments.
For instance, Total, gusto nila iincrease ang maternity
leave nila from 2 years to 3 years and then they want to
shorten the work week, its already 37 working- hours,
and they want to shorten it further so that in effect you
really have a 3-day weekend. This is the unions moving
and then they have productivity because they have
many machines, computerized, so many of them can
work at home especially the white collar workers, but
the Golden Share blocked it. So this will be fought by
the legislators because there is no Golden Shares there.
So at least you know what a Golden Share, a
founder’s share is and you also know what a Bearer’s
Share is.
Bearer’s Share– the name stockholder is not written on
the face of the certificate of stock. What is written there
is “who ever is in permanent possession of this
certificate is the owner of the shares that it represents”.
The distinction between the shares which are intangible
property and a certificate of stock which is tangible
property and to which the shareholder also has a right to
have - the moment you have completed your payment
of the subscription fee.
“Believe you can and you’re halfway there”
Theodore Roosevelt

 What is a Golden Shares?

Just Like the French petroleum company Total, the

French government has one golden share.

Golden Share - just one share of stock to be

continued to be held by the sovereign. It can veto
any fundamental action of the corporation by just
casting a vote. The proposed action is dead on its
tracks.

It is golden for the sovereign but trash for the

stockholders because the stockholders already want to
do something and the government says no, and it has
only one vote. That is why they say that the stock
market in Europe leaves much to be desired, it is not as
free as stock market as New York Stock exchange,
London, Singapore, Hong Kong, because of this

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