1. Marking the close – is the placing of purchase or sale order, at or near the close of the
trading period.
2. Watered Stocks – may be defined as one which is issued by the corporation as fully paid-
up shares, when in fact the whole amount of the value thereof has not
been paid.
3. Trust Fund Doctrine – is a legal proposition that a subscription to the capital stock of a
corporation constitute a trust fund which the creditors have the
right to look upon to for the satisfaction of their claims and that their
assignee in insolvency can maintain an action upon any unpaid
stock subscription in order to realize assets for the payment of its
debts.
5. “Transfer” – is the act by which the owner of a thing delivers the same to another with the
intent of passing the rights which he has in it to the latter. It contemplates an
absolute transfer of dominion and ownership.
7. Define and state whether they are illegal per se or when they may become illegal.
a. Wash Sale – any transaction in a security which involves no change in the
beneficial ownership thereof.
b. Matched Order – order or orders for the purchase or sale of security with the
knowledge that a simultaneous order or orders of substantially the
same size, time and price for the sale or purchase of such security
has or will be entered by or for the same or different parties.
Wash sale and matched orders are not illegal per se. They only
become illegal when they are used as a means to create a false
or misleading appearance of active trading in the security
concerned.
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The contents of this compilation are based on Atty. Ladia’s Lectures during the 2nd Semester of S.Y. 2009-2010.
Corporation Law 2
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c. Short Sale – refers to the selling of security which the vendor does not own. It is
illegal per se, unless it is done in accordance with the rules and
regulations of the SEC.
8. Insider Trading – the act of an insider to buy or sell security of the issuer while in
possession of material information with respect to such security that is
not generally made known to the public, unless:
(a) the insider proves that the information was not gained from such relationship;
or
(b) if the other party selling to or buying from the insider (or his agent) is identified,
the insider proves:
i. that he disclosed the information to the other party, or
ii. that he had reason to believe that the other party otherwise is also in
possession of the information.
10. “doing business” in the Philippines – a series of commercial dealings which signify an
intent on the part of a foreign corporation to do
business in the Philippines as judged in the light of the
peculiar circumstances of the case.
Voting rights of stockholders in a stock corporation vs. Voting Rights of members in a non-stock
corporation.
1. In a stock corporation, stockholders have the right to cumulative voting which may
not be withheld from them; whereas
In a non-stock corporation, members generally have no such right because they are
entitled only to one vote each, unless the by-law of the corporation limits or broadens
their right to vote.
2. In a stock corporation, proxy voting may not be denied to any stockholder entitled to
vote; whereas
In a non-stock corporation, proxy voting may be denied to members pursuant to
Section 89 of the Corporation Code.
This doctrine is resorted to in cases where the corporation is used or being used to
defeat public convenience, justify wrong, protect fraud, defend crime, confuse
legitimate issues, or to circumvent the law or perpetuate deception, or an alter-
ego, adjunct or business conduit for the sole benefit of a stockholder or a group
of stockholders or another corporation.
In such cases, the law will regard the corporation as a mere association of
persons, or in the case of two corporations, merge them into one, the one being
merely regarded as part or instrumentality of the other.
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The contents of this compilation are based on Atty. Ladia’s Lectures during the 2nd Semester of S.Y. 2009-2010.
Corporation Law 4
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7. Pre-emptive Right
Pre-emptive right is a right granted by law to all existing stockholders of a stock
corporation to subscribe to all issues or disposition of shares of any class, in
proportion to their respective stockholdings, subject only to the limitations
imposed under Section 39 of the Corporation Code.
Mere ultra vires acts, which are not illegal per se, may become binding and
enforceable, either by ratification, estoppel or on equitable grounds, unless the
public or third parties are thereby prejudiced.
9. “Non-filing of by-laws will not result to the automatic dissolution of the corporation”
“Non-filing of by-laws will not result to the automatic dissolution of the
corporation” as explained in the case of Loyola Grand Villa Homeowners (South)
Association, Inc. vs. CA, means that there must first of all be a hearing to
determine the existence of the ground of failure to file by-laws within the required
period, and secondly, even assuming such finding, the penalty is not necessarily
revocation, but may only be suspension of the charter. In fact, under the rules
and regulations of the SEC, failure to file the by-laws on time may be penalized
merely with the imposition of an administrative fine without affecting the
corporate existence of the erring firm.
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The contents of this compilation are based on Atty. Ladia’s Lectures during the 2nd Semester of S.Y. 2009-2010.
Corporation Law 5
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A one-man form of business entity and is defined as one conducted for profit
by a lone or single individual who owns all the assets, personally owes and
answers all the liabilities or suffers all the losses and enjoys all the profits to the
exclusion of others
(2) Partnership
Partakes the nature of a partnership contract and it is created for the purpose
of prosecuting a particular business transaction. It is a one time grouping of
two or more persons, natural or juridical, in a specified undertaking.
(4) Corporation
2. Attributes of a corporation:
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The contents of this compilation are based on Atty. Ladia’s Lectures during the 2nd Semester of S.Y. 2009-2010.
Corporation Law 6
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(4) it has the powers, attributes and properties expressly authorized by law or incident
to its existence
it can only exercise only such powers and can hold only such properties
as are granted to it by the enabling statutes unlike natural persons who
can to anything as they please
3. Exceptions to the General Rule that corporations can never enter into a contract of
partnership:
(2) the agreement of the articles of partnership must provide that all the partners will
manage the partnership
(3) the article of partnership must stipulate that all the are and shall be jointly and
severally liable for all obligations of the partnership.
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The contents of this compilation are based on Atty. Ladia’s Lectures during the 2nd Semester of S.Y. 2009-2010.
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(1) Non-voting shares are not entitled to vote except in those instances provided for
in the last paragraph of Section 6;
(2) Treasury shares have no voting rights while they remain in the treasury;
(3) Shares of stock declared delinquent are not entitled to vote at any meeting;
(4) Unregistered transferees of shares of stock.
7. Generally, where one corporation sells or otherwise transfers all of its assets to another
corporation, the latter is not liable for the debts and liabilities of the transferor, except
where:
(1) The purchaser expressly or impliedly agrees to assume such debts;
(2) The transaction amounts to a consolidation or merger of the corporations;
(3) The purchasing corporation is merely a continuation of the selling corporation;
(4) The transaction is entered into fraudulently in order to escape liability for such
debts.
Sec 6 of PD 902-A provides for the grounds for involuntary dissolution as follows:
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The contents of this compilation are based on Atty. Ladia’s Lectures during the 2nd Semester of S.Y. 2009-2010.
Corporation Law 8
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Other grounds can be found in other special laws like the Securities Regulation
Code and the General Banking Act.
(1) It must be in writing and duly notarized, and shall specify the terms and
conditions thereof;
(2) A certified true copy must be filed with the Securities and Exchange
Commission;
(3) The voting trust shall not exceed 5 years at any one time, except if it is
specifically required under a loan agreement, in which case, the period
may be more than 5 years, but it shall automatically expire upon full
payment of the loan;
(4) Unless the voting trust is renewed, all rights granted in the agreement
shall automatically expire at the period agreed upon, and the voting
trust certificates and the stock certificates issued in the name of the
trustee shall be deemed cancelled, and new stock certificates issued in
the name of the transferors.
(5) No voting trust agreement shall be entered into to circumvent laws
against monopolies and illegal combinations in restraint of trade or used
for purposes of fraud.
Such rights include the right to vote and be voted for, the right to receive
dividends and other rights of a stockholder, except the right to be issued
certificate of stock.
13. Instances when a foreign corporation with no license to do business in the Philippines can
sue:
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The contents of this compilation are based on Atty. Ladia’s Lectures during the 2nd Semester of S.Y. 2009-2010.
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(2) Where the purpose of the suit is to protect its trademark, trade name, corporate
names, reputation or goodwill;
(4) Where the foreign corporation is merely defending a suit filed against it; or
14. The three methods of liquidation and their effects on the 3-year period to liquidate the
corporate affairs:
1. All liabilities and obligations of the corporation shall be paid, satisfied and
discharged, or adequate provision shall be made therefore;
similar purposes, but not held upon a condition requiring return, transfer or
conveyance by reason of the dissolution, shall be transferred or conveyed to
one or more corporations, societies or organizations engaged in activities in
the Philippines substantially similar to those of the dissolving corporation
according to a plan of distribution adopted pursuant to this Chapter;
16. Suspension of Payments Rules of Thumb for the guidance of the Bench and Bar:
a. All claims against corporations, partnerships, or associations that are pending
before any court, tribunal or board, without distinction as to whether or not a
creditor is secured or unsecured, shall be suspended effective upon the
appointment of a management committee, rehabilitation receiver, board or
body in accordance with the provisions of PD 902-A.
Expect in the case of election of officers where the voting requirement would
ordinarily be a majority of all the members of the board.
ii.) If the contract is executory on both sides, as a rule, neither party can maintain
an action for its non-performance; and
iii.) Where the contract is executory on one side only, and has been fully
performed on the other, the courts differ as to whether an action will lie on the
contract against the party who has received benefits of performance under it.
Majority of the courts, however, hold that the party who has received benefits
from the performance is estopped to set up that the contract is ultra vires to
defeat an action on the contract. This is more in conformity with the doctrine that
no person shall be allowed to enrich himself at the expense of another.
1. Explain the effects of declaration of delinquency vis-à-vis the rights of the stockholder.
a. To vote and be voted upon
Section 71 of the Corporation Code provides that no delinquent shares
shall be voted for or be entitled to vote or to representation at any
stockholders’ meeting.
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The contents of this compilation are based on Atty. Ladia’s Lectures during the 2nd Semester of S.Y. 2009-2010.
Corporation Law 12
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Sherryl Anne Balane Sarmiento
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Section 104 of the Corporation Code gives the SEC a very wide discretion
in respect to management of a close corporation in the event of a
deadlock. It may:
3. Can the court determine the rules in the Corporation Sole when there are no rules on
discipline? Explain.
No, because a corporation sole is by its very nature, ecclesiastical and religious,
and under the Doctrine of Separation of Church and State, the State, through the
courts, may not interfere with the rules on discipline of the church.
4. Explain the Service of Summons under the 1997 Rules of Civil Procedure.
Section 11 Rule 14 of the Revised Rules of Civil Procedure which took effect on
July 1, 1997 repealed the provision of Section 13 Rule 14 of the Rules of Court.
The changes introduced include the general manager instead of manager, the
corporate secretary instead of secretary, the in-house counsel as may be
distinguished from an outside counsel, treasurer instead of cashier, the managing
partner in case of partnership.
The new rules brushed aside the relaxation of service of summons upon a
corporation which, through the years was liberalized by the Supreme Court. The
resultant effect of the new rules would thus render the service of summons upon
persons other than those named thereat to be without force and effect.
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The contents of this compilation are based on Atty. Ladia’s Lectures during the 2nd Semester of S.Y. 2009-2010.
Corporation Law 14
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Sherryl Anne Balane Sarmiento
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In one decided case by the Supreme Court after the effectivity of the new rules, it
was said that strict compliance with the mode of service is necessary to confer
jurisdiction of the court over a corporation. Service must therefore be made on
the one named by the statute.
1. What does it mean by the provision that directors / trustees shall hold office for one (1)
year, until their successors are elected and qualified?
It means that the directors / trustees have one year to serve. However, they can
continue their office, in a hold-over capacity, as directors / trustees if there is no
successor duly elected and qualified in accordance with law. For instance, Director
X, after his one year term, shall continue to serve as director of Corporation Y if any
aspiring nominee for his position is not qualified.
2. Can a corporation extend its corporate term after the expiration of its term originally
indicated in its Articles of incorporation?
A corporation can no longer extend its corporate term after the expiration of the
term of existence originally fixed by its charter or the general law, since as a rule, the
corporation is ipso facto dissolved as soon as that time expires, which means that
there would really nothing to extend. However, upon reaching said expiration of the
term, it may be thereafter continued to act for 3 years for the purpose of closing up
its business, but only for that purpose. This is the ruling in Alhambra Cigar vs. SEC.
3. Why is it important to state the purpose for which the corporation was organized?
It is important to state the purpose / purposes for which a corporation is organized
because it will be the basis for determining the scope of the corporate powers and
authority. It will define the rights and powers that a corporation and its officers and
members / stockholders can perform. It will also provide for the limitations in the
exercise of the said rights and powers.
4. What is the test to be applied in determining whether a corporation has implied power to
do a certain act?
In determining whether a corporation has implied power to do a certain act, it is
important to look into the “purpose clause” indicated in its articles of incorporation,
and check whether the questioned corporate act has a logical relation with the
purpose or purposes of the corporation.
In the Montelibano vs. Bacolod Murcia Milling Co, Inc., the Supreme Court said that
the test to be applied is “whether the act in question is in direct and immediate
furtherance of the corporation’s business, fairly incident to the express powers and
reasonably necessary to their exercise. If so, the corporation has the power to do it,
otherwise, not.
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The contents of this compilation are based on Atty. Ladia’s Lectures during the 2nd Semester of S.Y. 2009-2010.
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6. May the vacancy in the board of directors be filled at the same meeting?
If the vacancy in the board of directors is due to removal, it may be filled up by
election of a replacement at the same meeting even without further notice. If
vacancy id due to increase in number of directors, such vacancy may be filled up in
the same meeting authorizing the increase in directors or trustees, provided that it is
so stated in the notice of the meeting.
The term “may be served with summons” in the Rules of Court does not apply when
the defendant resides in the Philippines for, in such case, he may be sued only in the
municipality of his residence regardless of the place where he may be found and
served with summons.
The facts that a corporation maintains a branch office in some parts of the country
does not mean that it can be sued in any of there places. To allow otherwise would
create confusion and work untold inconveniences to the corporation.
1. A director whose shares are declared delinquent does not automatically cease to be a
director. True
Reason: The only qualification to be a director is that he must own at least 1
share and since his shares stand in his name pending the sale, he remains to be
and act as a director. And even if there is a sale, he may still be a director
because the winning bidder may not bid or pay for all the shares or there might
be remaining shares, which would be credited in favor of the delinquent
stockholder.
3. Non-filing of by-laws within the period of time provided for by laws results to the
automatic dissolution of the corporation. False
The Supreme Court ruled in the case of Loyola Grand Villa Homeowners (South)
Association, Inc. vs. CA, that non-filing of by-laws will not result to the automatic
dissolution of the corporation. There must first of all be a hearing to determine the
existence of the ground of failure to file by-laws within the required period, and
secondly, even assuming such finding, the penalty is not necessarily revocation,
but may only be suspension of the charter. In fact, under the rules and regulations
of the SEC, failure to file the by-laws on time may be penalized merely with the
imposition of an administrative fine without affecting the corporate existence of
the erring firm.
4. The by-laws of a stock corporation may provide that stockholders’ meeting may be held
anywhere within the Philippines. False
Only non-stock corporations may provide that members’ meeting may be held
anywhere within the Philippines. In case of stock corporations, stockholders’
meetings, whether regular or special, shall be held in the city or municipality
where the principal officer of the corporation is located, and if practicable, in the
principal office of the corporation.
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The contents of this compilation are based on Atty. Ladia’s Lectures during the 2nd Semester of S.Y. 2009-2010.
Corporation Law 17
Lex Centurion Notes
Sherryl Anne Balane Sarmiento
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Corporation Law 18
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12. Pre-emptive right is available to shares issued in exchange for corporate property.
False. Section 39 of the Corporation Code expressly provides that pre-emptive
right shall not extend to shares to be issued in good faith with the approval of the
stockholders representing 2/3 of the outstanding capital stock in exchange for
property needed for corporate purposes.
13. The power and authority of a corporation sole to own, dispose and alienate real
properties is the same as in any other corporation. False
A corporation sole can acquire, alienate and / or dispose of its real properties in the
same way and manner as any other ordinary corporation. False
Under Section 113 of the Corporation Code, for a corporation sole to own,
dispose or alienate real properties, it must first secure a court order for that
purpose, except when there is a regulated method, in which case, a court order
may be dispensed with. This requirement is not imposed upon other corporations.
14. All religious corporations commence to exist and are vested with juridical personality
upon filing of the Articles of Incorporation with the Securities and Exchange Commission.
False
Only a Corporation Sole commence to exist and is vested with juridical
personality upon filing of the verified Articles of Incorporation with the Securities
and Exchange Commission. Other religious corporations such as religious societies
acquire juridical personality, only upon the issuance of the certificate of
incorporation by the SEC or the appropriate government agency.
15. A religious society does not commence to have a juridical personality until the issuance
of the certificate of registration / incorporation by the SEC. False
Other government agencies may also issue in favor of a corporation, a certificate
of registration or incorporation, such as the bureau of cooperatives for
cooperatives, and homeowners, for home insurance guaranty corporations.
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The contents of this compilation are based on Atty. Ladia’s Lectures during the 2nd Semester of S.Y. 2009-2010.
Corporation Law 19
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17. It is not the lack of the requisite license, but doing business without a license that bars a
foreign corporation from access to our courts. False
The statement is a general rule, which is subject to certain exceptions. In the
following instances, a foreign corporation can sue before the Philippine courts
even without a license:
2. Where the purpose of the suit is to protect its trademark, trade name,
corporate names, reputation or goodwill;
4. Where the foreign corporation is merely defending a suit filed against it; or
18. The remaining assets of a dissolved non-stock corporation may be distributed among
themselves, absent a by-law provision or articles of incorporation to that effect. False
This act is prohibited by law in order to avoid fly by night foundations.
19. The averment of a foreign corporation’s capacity to sue is not necessary for it to gain
access to our court if it is merely defending a suit filed against it. True.
Basis: Time, Inc. vs. Reyes
20. In a corporate controversy, service of summons upon a corporation is valid if made upon
any of its directors / trustees. True
Basis: Under Section 5(a) Rule 1 of the Interim Rules of Procedure on Intra-
corporate Controversies, if the defendant is a domestic corporation,
service shall be deemed adequate if made upon any of the statutory or
corporate officers as fixed by the by-laws or their respective secretaries. A
director or trustee is necessarily a “statutory officer”.
21. No corporation can be formed / organized unless there are at least 5 incorporators
creating it. False
An exception to the rule that corporations must have at least 5 incorporators is
the corporation sole which consists of one person or individual only.
25. A government-owned or controlled corporation, is for all intents and purposes, a public
corporation. False
Not all government-owned or controlled corporations are necessarily public
corporations. The true test to determine the nature of a corporation as public or
private is found in relation of the body to the State. Strictly speaking, a public
corporation is one that is created, formed or organized for political or
governmental purposes with political powers to be exercised for purposes
connected with the public good in the administration of civil government.
26. It is the NLRC that is possessed with jurisdiction to hear and decide cases involving
employer-employee relationship in corporations created/ organized under the
Corporation Code. True
Employees of corporations created or organized under the Corporation Code
are subject to the provisions of the Labor Code. Under the Labor Code, cases
involving employer-employee relationship in such corporations are under the
jurisdiction of the NLRC.
27. A corporation can not exist as such without the consent of the State thru its authorized
agency. False
Not all corporations in order to exist, need prior consent, clearance and/or
approval of the State through its authorized agency. Only those corporations
whose purpose or objective includes any purpose under the supervision of
another government agency need prior consent of the concerned government
agencies or instrumentalities, pursuant to the provisions of the Corporation Code.
28. Common shares can never be denied the right to vote. False
In case of founder’s shares, a common stock may be deprived of voting rights,
subject to a limited period.
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The contents of this compilation are based on Atty. Ladia’s Lectures during the 2nd Semester of S.Y. 2009-2010.
Corporation Law 21
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Sherryl Anne Balane Sarmiento
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29. All corporations de jure can come into existence upon the issuance of the certificate of
registration by the SEC. False
As a general rule, corporations de jure can come into existence only upon the
issuance of the certificate of registration by the SEC. An exception to the rule is
corporation sole, where it comes into existence upon the filing of the verified
articles of incorporation. Once filed, it is vested with a juridical capacity.
30. Corporation by Estoppel will apply if there are no third persons prejudiced by the
questioned act of the person who have represented himself as an agent of the
corporation. False
Corporation by Estoppel will not apply if there are no third persons involved in the
conflict.
Corporation by Estoppel will only apply if there are third persons involved in the
conflict.
31. In all cases, filling up of vacancy of the Board of Directors must be based on the election
held for its purpose by the stockholders representing 2/3 of the outstanding capital stock.
False
If the vacancy in the board of directors or trustees occur by virtue of a removal,
Section 28 authorizes the filling of vacancy by the election of a replacement at
the same meeting, without further notice. If the vacancy is due to an increase in
number of directors, it may likewise be filled up in the same meeting authorizing
the increase in directors or trustees, provided that it is so stated in the notice of
the meeting.
32. The approval by the SEC is not necessary for an amendment of the by-laws to be valid
and effective. False
The Corporation Code provides that there should be an approval by the SEC for
a by-law amendment to become valid and effective. It will not become valid
and effective if the SEC fails to act on it within 6months from filing. It is the
amendment to the articles of incorporation that will become valid if the SEC fails
to act on it within 6months.
34. Declaration or payment of stock dividends results in a decrease in corporate assets. False
The declaration or payment of stock dividends does not result in a decrease in
corporate assets. It gives the stockholders nothing in the way of distribution of
assets but merely divides his existing shares into smaller units.
- End -
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The contents of this compilation are based on Atty. Ladia’s Lectures during the 2nd Semester of S.Y. 2009-2010.