Case Doctrines Corpo

SEVILLA, CHOLO S.Y. 2013-2014. SAN BEDA COLLEGE, ALABANG BUSORG2 – ATTY. BUSMENTE DOCTRINES:

stockholders and the corporation may legally refuse the issuance of stock certificates.

SET 9 – 9 – STOCKS  STOCKS and STOCKHOLDERS SET 10 – 10 – MERGER  MERGER and CONSOLIDATION Nava v. Peers Gonzales v. PNB (1) A stock subscription is a subsisting liability from the time the subscription is made. The subscriber is as much bound to pay his subscription as he would be to pay any other debt. The right of the corporation to demand payment is no less incontestable. (2) There is no cause of action for mandamus to compel the corporation to register the transfer if the corporation has an unpaid claim on the share and no certificate has been issued. The transfer is effective only between t he parties. Lim Tay v. Court of Appeals (1)

The registration of shares in a stockholder's stockholder's name, the issuance of stock certificates, and the right to receive dividends which pertain to the said shares are all rights that flow from ownership. The determination of whether or not a shareholder is entitled to exercise the above-mentioned rights falls within the  jurisdiction of the SEC. However, if ownership of the shares is not clearly established and is still unresolved at the time the action for mandamus is filed, then jurisdiction lies with the regular courts.

The Rural Bank of Lipa City, Inc. v. Court of Appeals (1) For a valid transfer of shares of stock, the following must be strictly complied with: (a) delivery of the certificate; (b) endorsement by the owner or his agent; (c) to be valid to third parties, the transfer must be recorded in the books of the corporation. Ponce v. Alsons Cement Corporation (1) If certificates were never issued by the corporation, the transferee cannot demand for the issuance of the certificate of stock in his name. (2) A transfer of shares of stock not recorded in the Stock and Transfer Transfer Book of the corporation is non-existent as far as the corporation is concerned. Without such recording, the transferee may not be regarded by the corporation as one of its

(1) A stockholder who wants to avail of his right right to inspect must set forth in his request for inspection the reasons or purposes of his inspection. (2) The right of inspection granted to a stockholder are the following: following: (1) the records must be kept at the principal office of the corporation; (2) the inspection must be made on business days; (3) the stockholder may demand a copy of the excerpts of the records or minutes; and (4) the refusal to allow such inspection shall subject the erring officer or agent of the corporation to civil and criminal liabilities. (3) As a condition for such examination the one requesting it: (a) must not have been guilty of using improperly any information secured through a prior examination, and that (b) the person asking for such examinations must be "acting in good faith and for a legitimate purpose in making his demand." Associated Bank v. Court of Appeals (1) Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation. Although there is a dissolution of the absorbed corporations, there is no winding up of their affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and powers, as well as their liabilities. Mindanao Savings and Loan Association, Inc. v. Willcom (1) Merger or consolidation does not become effective effective by mere agreement of the constituent corporations. Since merger or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders and creditors, there must be an express provision of authorizing them. In this jurisdiction, for a valid merger or consolidation, the approval of the SEC is required. Babst v. Court of Appeals

SEVILLA, CHOLO S.Y. 2013-2014. SAN BEDA COLLEGE, ALABANG BUSORG2 – ATTY. BUSMENTE (1) In merger, the receivables of the dissolved corporation are transferred to the surviving corporation. Thus, the surviving corporation has the power to file an action to recover any debt that pertains to the other corporation.

not “dead members” are entitled to exercise their voting rights (through their executor or administrator), depends on those articles of incorporation or bylaws. SET 11- APPRAISAL RIGHT

SET 12 – NON-STOCK CORPORATIONS Turner v. Lorenzo Shipping Corporation Padcom Condominium Corporation v. Ortigas Center Association, Inc. (1) A stipulation on automatic membership in an association annotated at the back of the transfer certificate title binds the transferee and his successors in interest. This is so because any lien annotated on previous certificates of title should be incorporated in or carried over to the new transfer certificates of title. Such lien is inseparable from the property as it is a right in rem, a burden on the property whoever its owner may be. It subsists notwithstanding a change in ownership. Sta. Clara Homeowner’s Association vs. Gaston

(1) Persons cannot be compelled to become members of an association by the simple expedient of including them in its Articles of Incorporation and By-laws without their express or implied consent. It is possible only if the owners voluntarily agree, directly or indirectly, to become members of the association. Long vs. Basa (1) The basis of the relationship between a religious corporation and its members is the latter’s absolute adherence to a common religious or spiritual belief. Once this basis ceases, membership in the religious corporation must also cease. Thus, generally, there is no room for dissension in a religious corporation. And where, as here, any member of a religious corporation is expelled from the membership for espousing doctrines and teachings contrary to that of his church, the established doctrine in this jurisdiction is that such action from the church authorities is conclusive upon the civil courts. Tan vs. Sycip (1) Membership in and all rights arising from a nonstock corporation are personal and non-transferable, unless the articles of incorporation or the bylaws of the corporation provide otherwise. In other words, the determination of whether or

(1) A stockholder who dissents from certain corporate actions has the right to demand payment of the fair value of his or her shares. The right of appraisal may be exercised when there is a fundamental change in the charter or articles of incorporation substantially prejudicing the rights of the stockholders. It does not vest unless objectionable corporate action is taken. However, no payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to cover the payment. Cua v. Ocampo (1) A derivative suit cannot prosper without first complying with the legal requisites for its institution. A stockholder or member may bring an action in the name of a corporation or association provided that no appraisal rights are available for the act or acts complained of. The obvious intent behind the rule is to make the derivative suit the final recourse of the stockholder after all other remedies to obtain the relief sought have failed. SET 13 – CLOSE CORPORATIONS San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals (1) Mere ownership by a single stockholder of all or nearly all of the capital stock of a corporation does not make one a close corporation if the requisites specified under Section 96 are not stated in the Articles of Incorporation. Manuel R. Dulay Enterprises, Inc. v. Court of Appeals (1) Petitioner Corporation is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president.

SEVILLA, CHOLO S.Y. 2013-2014. SAN BEDA COLLEGE, ALABANG BUSORG2 – ATTY. BUSMENTE (2) A corporate action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting. SET 14 – SPECIAL CORPORATIONS IEMELIF v. Bishop Lazaro (1) A corporation sole may be converted to a corporation aggregate through the amendment of its Articles of Incorporation. Concurrence of 2/3 of the members of the corporation sole is necessary for the amendment of the Articles of Incorporation. Roman Catholic Apostolic Church v. Land Registration Commission (1) A corporation sole does not have any nationality but for purposes of applying out nationalization laws, nationality is determined not by the nationality of its head, but by the nationality of the members constituting the sect in the Philippines. Thus, the Roman Catholic Church can acquire land in the Philippines even if it is headed by the Pope. SET 15 – DISSOLUTION Vesagas v. Court of Appeals (1) The requirements (for dissolution) mandated by the Corporation Code should have been strictly complied with by the members of the club. The records reveal that no proof was offered by the petitioners with regard to the notice and publication requirements. Similarly wanting is the proof of the board members' certification. Lastly, and most important of all, the SEC Order of Dissolution was never submitted as evidence. Gelano v. Court of Appeals (1) Even the lawyers who are handling cases for the corporation can be considered the trustees of the assets of the dissolved corporation after the three-year period. If no trustee is appointed, the corporation cannot be permitted to take advantage of such non-appointment thereby allowing unjust enrichment at the expense of creditors.

Phil. Veterans Bank Employees Union-N.U.B.E. v. Vega (1) Liquidation, in corporation law, connotes a winding up or settling with creditors and debtors. It is the winding up of a corporation so that assets are distributed to those entitled to receive them. It is the process of reducing assets to cash, discharging liabilities and dividing surplus or loss. It is crystal clear that the concept of liquidation is diametrically opposed or contrary to the concept of rehabilitation, such that both cannot be undertaken at the same time. (2) On the opposite end of the spectrum is rehabilitation which connotes a reopening or reorganization. Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. Tan Tiong Bio v. CIR (1) Corporate creditors may follow its assets as in the nature of trust fund into the hands of the stockholders. Rebollido v. Court of Appeals (1) This continuance of its legal existence for the purpose of enabling it to close up its business is necessary to enable the corporation to collect the demands due it as well as to allow its creditors to assert the demands against it. If this were not so, then a corporation that became involved in liabilities might escape the payment of its just obligations by merely surrendering its charter, and thus defeat its creditors or greatly hinder and delay them in the collection of their demands. This course of conduct on the part of corporations the law in justice to persons dealing with them does not permit. The person who has a valid claim against a corporation, whether it arises in contract or tort should not be deprived of the right to prosecute an action for the enforcement of his demands by the action of the stockholders of the corporation in agreeing to its dissolution of a corporation does not extinguish obligations or liabilities due by or to it. SET 16 – FOREIGN CORPORATIONS Facilities Management Corporation v. De La Osa (1) If a foreign corporation, not engaged in business in the Philippines is not barred from seeking redress from courts in the Philippines, a fortiori , that same

SEVILLA, CHOLO S.Y. 2013-2014. SAN BEDA COLLEGE, ALABANG BUSORG2 – ATTY. BUSMENTE corporation cannot claim exemption from being sued in the Philippine courts for acts done against a person or persons in the Philippines

(1)  Apparently, it is not the absence of the prescribed license but the “doing (of) business” in the Philippines without such license which debars the foreign corporation from access to our courts.

The Home Insurance Company v. Eastern Shipping Lines SET 17 – SECURITIES REGULATION CODE (1) Subsequent acquisition of the license will cure the lack of capacity at the time of the execution of the contract. Hence, the foreign corporation can re-file the case that was previously dismissed after acquiring a license. Eriks PTE Ltd. V. Court of Appeals (1) A foreign corporation without such license is not ipso facto  incapacitated from bringing an action a license is necessary only if it is " transacting or doing business" in the country. (2) What is determinative of "doing business" is not really the number or the quantity of the transactions, but more importantly, the intention of an entity to continue the body of its business in the country. The number and quantity are merely evidence of such intention. The phrase "isolated transaction" has a definite and fixed meaning. Whether a foreign corporation is "doing business" does not necessarily depend upon the frequency of its transactions, but more upon the nature and character of the transactions. Hutchison Ports Philippines Limited v. Subic Bay Metropolitan Authority (1) Participating in the bidding process constitutes "doing business" because it shows the foreign corporation's intention to engage in business here. The bidding for the concession contract is but an exercise of the corporation's reason for creation or existence. (2) It is the performance by a foreign corporation of the acts for which it was created, regardless of volume of business, that determines whether a foreign corporation needs a license or not. The primary purpose of the license requirement is to compel a foreign corporation desiring to do business within the Philippines to submit itself to the jurisdiction of the courts of the state and to enable the government to exercise jurisdiction over them for the regulation of their activities in this country. MR Holdings, Ltd. v. Bajar

Sumndad vs Harrigan (1) It was held that the jurisdiction of the courts are conferred by law and determined by allegations in the complaint according to RA 8799 intracorporate disputes falls within the jurisdiction of RTF and no longer the SEC. Orendain vs BF Homes Inc (1) The better policy in determining which body has jurisdiction over a case would be to consider not only [1] the status or relationship of the parties but also [2] the nature of the question that is the subject of their controversy Section 5.2 of RA 8799 transferred exclusive and original jurisdiction of the SEC over actions involving intra-corporate controversies to the courts of general jurisdiction or the appropriate RTC. In the transition, all intra-corporate cases pending in the SEC, which were not ripe for adjudication as of August 8, 2000, were turned over to the RTC. Congress thereby recognized the expertise and competence of the RTC to take cognizance of and resolve cases involving intra-corporate controversies. Thus, "whether or not the issue is intra-corporate, it is now the [RTC] and no longer the SEC that takes cognizance of [and resolves cases involving intra-corporate controversies. Velarde vs Lopez (1) A corporate officer's dismissal is always a corporate act or an intra-corporate controversy. Timeshare Realty Corporation vs Cesar Lao (1) Section 4 of BP 178 provides that "no securities, exempt under any provisions of SEC 5 or unless sold in any transaction exempt under section 6, shall be sold or

SEVILLA, CHOLO S.Y. 2013-2014. SAN BEDA COLLEGE, ALABANG BUSORG2 – ATTY. BUSMENTE offered for sale or distribution to the public within the Phil. Unless such securities have been registered and permitted to be sold as herein after provided." Union Bank of the Phil vs SEC (1) A commercial banking corporation listed in the stock exchange must adhere not only to banking and other allied sp ecial laws, but also to the rules promulgated by Respondent SEC, the government entity tasked not only with the enforcement of the Revised Securities Act, but also with the supervision of all corporations, partnerships or associations which are grantees of government-issued primary franchises and/or licenses or permits to operate in the Philippines. Onapal Phil Commodities vs CA (1) If a contract which purports to be for the delivery of goods, securities or shares of stock is entered into with the intention that the difference between the price stipulated and the exchange or market price at the time of the pretended delivery shall be paid by the loser to the winner, the transaction is null and void. The loser may recover what he has paid CEMCO Holdings Inc vs National Life Insurance Co. (1) If there shall be violation of this Rule by pursuing a purchase of equity shares of a public company at threshold amounts without the required tender offer, the Commission, upon complaint, may nullify the said acquisition and direct the holding of a tender offer. This shall be without prejudice to the imposition of other sanctions under the Code. The foregoing rule emanates from the SEC's power and authority to regulate, investigate or supervise the activities of persons to ensure compliance with the Securities Regulation Code, more specifically the provision on mandatory tender offer under Section 19 thereof. Philippine Veterans Bank vs Justina Callangan (1) It is clear that a "public company," as contemplated by the SRC, is not limited to a company whose shares of stock are publicly listed; even companies like the

Bank, whose shares are offered only to a specific group of people, are considered a public company, provided they meet the requirements. Abacus Securities vs Ampil (1) In securities trading, the brokers are essentially the counter parties to the stock transactions at the exchange. Since the principals of the broker are generally undisclosed, the broker is personally liable for contracts made. SEC vs Interport Resources Corporation (1) The insider's misuse of nonpublic and undisclosed information is the gravamen of illegal conduct. The intent of the law is the protection of investors against fraud, committed when an insider, using secret information, takes advantage of an uninformed investor. Insiders are obligated to disclose material information to the other party or abstain from trading the shares of his corporation. This duty to disclose or abstain is based on two factors: 1. The existence of a relationship giving access, directly or indirectly, to information intended to be available only for a corporate purpose and not for the personal benefit of anyone; 2. The inherent unfairness involved when a party takes advantage of such information knowing it is unavailable to those with whom he is dealing.