CORPORATION LAW (Case Doctrines)

San Beda College Alabang- School of Law S.Y. 2013-2014 Atty. Busmente

Lex Talionis Fraternitas, Inc.

1st SET Good Earth Emporium vs. CA, 154 SCRA 594 A corporation has a personality distinct and separate from its individual stockholders or members. Being an officer or stockholder of a corporation does not make ones property also of the corporation, and vice-versa, for they are separate entities. Shareowners are not the owners of corporate property (or credits). The corporate debt or credit is not the debt or credit of the stockholder, and vice-versa. Article 1240 NCC: Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. Jesus Marcos Roces was no longer President or even an officer of Roces-Reyes Realty, Inc. at the time he received the money. Cruz vs. Dalisay, 152 SCRA 482 (Piercing the veil of corporate entity) A Corporation has a personality distinct and separate from its individual stockholders or members; Sheriff usurped a power that belonged to the court when he chose to pierce the veil of corporate entity. Bank of America vs. CA, GR No. 120135, March 31, 2013 The private respondents, being stockholders of the foreign corporations, have such personalities to sue. (1) they have the right to demand for an accounting from defendants, as trustees, by reason of the fiduciary relationship that was created between the parties in question; (2) defendants have the obligation, as trustees, to render such an accounting; and (3) defendants failed to do the same. As to the issue on forum shopping, the court held that there is no forum shopping due to the pendency of the foreign action.

Avon Dale Garments, Inc. vs. CA, 246 SCRA 733 Absent any showing that there was indeed an actual closure and cessation of the operations of a corporation is not enough to establish that a corporation is a separate and distinct entity from the other. Mere filing of the Articles of Dissolution with the Securities and Exchange Commission, without more, is not enough to support the conclusion that actual dissolution of an entity in fact took place. The two entities cannot be deemed as separate and distinct where there is a showing that one is merely the continuation of the other. Concept Builders, Inc. cs. NLR, 257 SCRA 149 (Test in determining the applicability of the doctrine of piercing the veil of corporate fiction) 1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so 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 to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of ones legal rights. 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. ***The absence of any one these elements prevents piercing of the corporate veil. In applying the instrumentality or alter ego doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendants relationship to that operation.*** First Phil. International Bank vs. CA, 252 SCRA 259 When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the veil which covers the corporation from the members and stockholders will be lifted. Corporate veil cannot be used to shield a blatant violation of the prohibition against forum shopping. Stockholders cannot trifle the case. To rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules against forum shopping. Francisco Motors Corp. vs. CA, 309 SCRA 72 (Erroneous invocation of piercing the corporate veil) Instead of holding certain individuals or persons responsible for an alleged corporate act, the situation has been reversed. It is the corporation which is being ordered to answer for the personal liability of a certain individual directors, officers and incorporators concerned. Such application of piercing the corporate veil has been turned upside down because of its erroneous invocation. ***According to private respondent Gregorio Manuel his services were solicited as counsel for members of the Francisco family to represent them in the intestate proceedings over Benita Trinidads estate. These estate proceedings did not involve any business of petitioner*** Doctrine according to Atty. Busmente: In case of personal liabilities of members or stockholders of a corporation, the corporation cannot be held liable for such personal liabilities. However, if it is the corporation who incurred such liability then the members or stockholders may be held liable. Bibiano Reynoso vs. CA, 345 SCRA 335 (Identity Rule) The defense of separateness will be disregarded where the business affairs of a subsidiary corporation are so controlled by the mother corporation to the extent that it becomes an instrument or agent of its parent. But even when there is dominance over the affairs of the subsidiary, the doctrine of piercing the veil of corporate fiction applies only when used to defeat public convenience, justify wrong, protect fraud, or defend crime. Factually & legally, CCC had dominant control of the business operations of CCC-QC: (1) The exclusive management contract insured that CCC-QC would be managed & controlled by CCC & not deviate from the commands of the mother corp. (2) CCC appointed its own employee as the resident manager of CCC-QC. (3) Salaries, pensions, benefits, etc. were from CCC, which later became GCC. (4) Unity of interest, management, control, intensive auditing function of CCC over CCC-QC, sharing of office space.

(5) Lawyers of the CCC-QC case were all in-house counsels of CCC. Simeon De Leon vs. NLRC, 358 SCRA 274 It appears from the records that FISI, while having its own corporate identity, was a mere instrumentality of FTC, tasked to provide protection and security in the company premises. The records show that the two corporations had identical stockholders and the same business address. FISI also had no other clients except FTC and other companies belonging to the Lucio Tan group of companies. Moreover, the early pay slips of petitioners show that their salaries were initially paid by FTC. Hence, the Labor Arbiter correctly applied the doctrine of piercing the corporate veil to hold all respondents liable for ULP and illegal termination of petitioners employment. PNB vs. Andrada Electric & Engr. Co., 381 SCRA 244 1. Gen. Rule: A corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith, and paid adequate consideration for such assets. Exceptions: (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; (3) where the purchasing corporation is merely a continuation of the selling corporation; (4) where the transaction is fraudulently entered into in order to escape liability for those debts. 2. The merger does not become effective upon the mere agreement of the constituent corporations. There must be an express provision of law authorizing them. In order that a valid merger or consolidation may become effective, the approval by the SEC of the articles of merger or consolidation is required. These articles must likewise be duly approved by a majority of the respective stockholders of the constituent corporations. Estelita Burgos Lipat vs. Pacific Banking Corp., 402 SCRA 339 (Doctrine of Apparent Authority) Whenever a corporation knowingly permits one of its officers or any other agent to act within the scope of an apparent authority (such as a special power of atty.), it holds him out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agents authority.

2nd SET International Travel Express & Tours Inc. vs. CA, 343 SCRA 674 (Doctrine of Corporation by Estoppel) The doctrine of corporation by estoppel applies to a third party only when he tries to escape liability on a contract from which he has been benefited on the irrelevant ground of defective incorporation. In the case at bar, the doctrine of corporation by estoppel is mistakenly applied since the petitioner is not trying to escape liability from the contract but rather is the one claiming from the contract. Lim Tong Lim vs. Phil. Fishing Gear Industries, Inc., 317 SCRA 728 (Doctrine of Corporation by Estoppel)

A third party who, knowing as association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought against the alleged corporation. in such case, all those who benefited from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of. It follows under the law on estoppel, that those acting on behalf of a corporation and those benefitted by it, knowing it to be without valid existence, are held liable as general partners. Lozano vs. De Los Santos, 273 SCRA 452 The grant of jurisdiction to the SEC must be viewed in the light of its nature and function under the law. This jurisdiction is determined by a concurrence of two elements: (1) the status or relationship of the parties; and (2) the nature of the question that is the subject of their controversy. There is no intracorporate nor partnership relation between petitioner and private respondent. The controversy between them arose out of their plan to consolidate their respective jeepney drivers and operators associations into a single common association. This unified association was, however, still a proposal. It had not been approved by the SEC. Consolidation becomes effective only upon issuance of the certificate of consolidation by the SEC. the KAMAJDA and SAMAJODA are duly registered with the SEC, but the two associations are two separate entities. The SEC therefore has no jurisdiction over the complaint because there is no intracorporate controversy. Lyceum of the Philippines, Inc. vs. CA, GR No. 101897, March 5, 1993 (Doctrine of Secondary meaning) Doctrine of secondary meaning can be extended to corporation name but must comply with the requirement that it has been used so long and so exclusively by one that the said name has come to mean in the mind of the general public that it is referred to as that corporation. Industrial Refractories Corp. vs. CA, GR No. 122174. October 3, 2002 Confusing and deceptive similarity of corporate names prohibited under Section 18 of the Corporation Code. Petitioners corporate name is Industrial Refractories Corp. of the Phils. while respondents is Refractories Corp. of the Phils. Obviously, both names contain the identical words Refractories, Corporation and Philippines. The only word that distinguishes petitioner from respondent RCP is the word Industrial which merely identifies a corporations general field of activities or operations. These two corporate names are patently similar that even with reasonable care and observation, confusion might arise. Furthermore, both cater to the same clientele, i.e., the steel industry. Hall vs. Piccio, GR No. L-2598, June 29, 1950 (De Facto Corporations) Can a corporation transact business as a de facto corporation while application is still pending with SEC?

No. In the case of Hall v. Piccio (86 Phil. 603; 1950), where the supposed corporation transacted business as a corporation pending action by the SEC on its articles of incorporation, the Court held that there was no de facto corporation on the ground that the corporation cannot claim to be in good faith to be a corporation when it has not yet obtained its certificate of incorporation.

In the case of Hall v. Piccio, where the supposed corporation transacted business as a corporation pending action by the SEC on its articles of incorporation, the Court held that there was no de facto corporation on the ground that the corporation cannot claim to be in good faith to be a corporation when it has not yet obtained its certificate of incorporation.

Seventh Day Adventist vs. Northeastern Mindanao, GR No. 150416, July 21, 2006 (De Facto Corporations) The donation could not have been made in favor of an entity yet inexistent at the time it was made. Nor could it have been accepted as there was yet no one to accept it. ***Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person who accepts it. The deed of donation was not in favor of any informal group of SDA members but supposed SPUM-SDA Bayugan (the local church) which, at the time, had neither juridical personality nor capacity to accept such gift.***

3rd SET Grace Christian high school vs. CA, GR No. 108905, October 23, 1997 The former and present corporation law leave no room for doubt as to their meaning: the board of directors of corporations must be elected from among the stockholders or members. There may be corporations in which there are unelected members in the board but it is clear that in the examples cited by petitioner the unelected members sit as ex officio members, i.e., by virtue of and for as long as they hold a particular office. Nor can petitioner claim a vested right to sit in the board on the basis of practice. Practice, no matter how long continued, cannot give rise to any vested right if it is contrary to law. Even less tenable is petitioners claim that its right is coterminous with the existence of the association. Gokongwei vs. SEC, GR No. L-45911, April 11, 1979 The doctrine of corporate opportunity is a recognition by the courts that the fiduciary standards could not be upheld where the fiduciary was acting for two entities with competing interests. This doctrine rests on unfairness, in particular circumstances, of an officer or director taking advantage of an opportunity for his own personal profit when the interest of the corporation unjustly calls for protection.

Whether the corporation has the power to provide for the (additional) qualifications of its directors.

It is recognized by all authorities that "every corporation has the inherent power to adopt by-laws 'for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs.'" In this jurisdiction under section 21 of the Corporation Law, a corporation may prescribe in its by-laws "the qualifications, duties and compensation of directors, officers and employees."

Inter-Asia Investments vs. CA, GR. No. 125778, June 10, 2003 An officer of a corporation who is authorized to purchase the stock of another corporation has the implied power to perform

all other obligations arising therefrom such as payment of the shares of stock. ***By allowing its president to sign the Agreement on its behalf, petitioner clothed him with apparent capacity to perform all acts which are expressly, impliedly and inherently stated therein.*** Nacpil vs. International Broadcasting, GR No. 144767, March 21, 2002 The rule is that dismissal or non-appointment of a corporate officer is clearly an intra-corporate matter and jurisdiction over the case properly belongs to the SEC, not to the NLRC. As to the argument that the nature of Nacpils functions is recommendatory thereby making him a mere managerial officer, the Court has previously held that the relationship of a person to a corporation, whether as officer or agent or employee is not determined by the nature of the services performed, but instead by the incidents of the relationship as they actually exist.

4th SET Western Institute of Technology, Inc. vs. Salas, GR No. 113032, August 21, 1997 1.COMMERCIAL LAW; CORPORATION LAW; BOARD OF DIRECTORS; GENERAL RULE ON COMPENSATION; EXCEPTION; CASE AT BAR. There is no argument that directors or trustees, as the case may be, are not entitled to salary or other compensation when they perform nothing more than the usual and ordinary duties of their office. This rule is founded upon a presumption that directors/trustees render service gratuitously, and that the return upon their shares adequately furnishes the motives for service, without compensation. Under the foregoing section, there are only two (2) ways by which members of the board can be granted compensation apart from reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation; and (2) when the stockholders representing a majority of the outstanding capital stock at a regular or special stockholders' meeting agree to give it to them. The proscription, however, against granting compensation to directors/trustees of a corporation is not a sweeping rule. Worthy of note is the clear phraseology of Section 30 which states: " . . . [T]he directors shall not receive any compensation, as such directors, . . . ." The phrase as such directors is not without significance for it delimits the scope of the prohibition to compensation given to them for services performed purely in their capacity as directors or trustees. The unambiguous implication is that members of the board may receive compensation, in addition to reasonable per diems; when they render services to the corporation in a capacity other than as directors/ trustees. In the case at bench, Resolution No. 48, s. 1986 granted monthly compensation to private respondents not in their capacity as members of the board, but rather as officers of the corporation, more particularly as Chairman, Vice Chairman, Treasurer and Secretary of Western Institute of Technology. Thus, the prohibition with respect to granting compensation to corporate directors/trustees as such under Section 30 is not violated in this particular case. 2.ID.; ID.; DERIVATIVE SUIT; NOT THE CASE AT BAR WHICH IS MERELY AN APPEAL ON THE CIVIL ASPECT OF A CRIMINAL CASE. A derivative suit is an action brought by minority shareholders in the name of the corporation to redress wrongs committed against it, for which the directors refuse to sue. It is a remedy designed by equity and has been the principal defense of the minority shareholders against abuses by the majority. Here, however,

the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 filed with the RTC of Iloilo for estafa and falsification of public document. Among the basic requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on behalf of the corporation must allege in his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all other shareholders similarly situated who wish to join. This is necessary to vest jurisdiction upon the tribunal in line with the rule that it is the allegations in the complaint that vests jurisdiction upon the court or quasi-judicial body concerned over the subject matter and nature of the action. This was not complied with by the petitioners either in their complaint before the court a quo nor in the instant petition. By no amount of equity considerations, if at all deserve, can a mere appeal on the civil aspect of a criminal case be treated as a derivative suit. 3.ID.; ID.; ID.; JURISDICTION; SECURITIES AND EXCHANGE COMMISSION. Granting, for purposes of discussion, that this is a derivative suit, the same is out rightly dismissible for having been wrongfully filed in the regular court devoid of any jurisdiction to entertain the complaint. The case should have been filed with the Securities and Exchange Commission (SEC) which exercises original and exclusive jurisdiction over derivative suits, they being intra-corporate disputes, per Section 5(b) of P.D. No. 902-A.. Once the case is decided by the SEC, the losing party may file a petition for review before the Court of Appeals raising questions of fact, of law, or mixed questions of fact and law. It is only after the case has ran this course, and not earlier, can it be brought to us via a petition for review on certiorari under Rule 45 raising only pure questions of law. Santos vs. NLRC, GR No. 101699, March 13, 1996 COMMERCIAL LAWS; CORPORATION; LIFTING OF CORPORATE VEIL; CONCEPT . A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The rule is that obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to warrant, albeit done sparingly, the disregard of its independent being and the lifting of the corporate veil. As a rule, this situation might arise when a corporation is used to evade a just and due obligation or to justify a wrong, to shield or perpetrate fraud, to carry out similar other unjustifiable aims or intentions, or as a subterfuge to commit injustice and so circumvent the law. INSTANCES WHEN PERSONAL CIVIL LIABILITY CAN BE LAWFULLY ATTACHED TO A CORPORATE DIRECTOR, TRUSTEE OR OFFICER. In Tramat Mercantile, Inc. vs. Court of Appeals, (238 SCRA 14, 19) the Court has collated the settled instances when, without necessarily piercing the veil of corporate fiction, personal civil liability can also be said to lawfully attach to a corporate director, trustee or officer; to wit: When "(1) He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons; (2) He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) He agrees to hold himself personally and solidarily liable with the corporation; or (4) He is made, by a specific provision of law, to personally answer for his corporate action."

. CORPORATE OFFICERS; WHEN PERSONALLY ACCOUNTABLE FOR THE PAYMENT OF WAGES AND MONEY CLAIMS TO ITS EMPLOYEES. It is true, there were various cases when corporate officers were themselves held by the Court to be personally accountable for the payment of wages and money claims to its employees. In A.C. Ransom Labor Union-CCLU vs. NLRC, for instance, the Court ruled that under the Minimum Wage Law, the responsible officer of an employer corporation could be held personally liable for nonpayment of back wages for "(i)f the policy of the law were otherwise, the corporation employer (would) have devious ways for evading payment of back wages." In the absence of a clear identification of the officer directly responsible for failure to pay the back wages, the Court considered the President of the corporation as such officer. The case was cited in Chua vs. NLRC (182 SCRA 353) in holding personally liable the vice-president of the company, being the highest and most ranking official of the corporation next to President who was dismissed, for the latter's claim for unpaid wages. The basic rule is still that which can be deduced from the Court's pronouncement in Sunio vs. National Labor Relations Commission (127 SCRA 390, 397-398); thus: "We come now to the personal liability of petitioner, Sunio, who was made jointly and severally responsible with petitioner company and CIPI for the payment of the back wages of private respondents. This is reversible error. The Assistant Regional Director's Decision failed to disclose the reason why he was made personally liable. Respondents, however, alleged as grounds thereof, his being the owner of one-half (1/2) interest of said corporation, and his alleged arbitrary dismissal of private respondents." Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of Petitioner Corporation. There appears to be no evidence on record that he acted maliciously or in bad faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act. "It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality. Petitioner Sunio, therefore, should not have been made personally answerable for the payment of private respondents' back salaries." Sps. David et al. vs. Construction Industry, GR No. 159795, July 30, 2004 As a general rule, the officers of a corporation are not personally liable for their official acts unless it is shown that they have exceeded their authority. However, the personal liability of a corporate director, trustee or officer, along with corporation, may so validly attach when he assents to a patently unlawful act of the corporation or for bad faith or gross negligence in directing its affairs. Malayang Samahan ng mga manggagawa sa M. Greenfield vs. Ramos, GR No. 113907, April 20, 2001

A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general from the people comprising it. The rule is that obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. True, solidary liabilities may at times be incurred but only when exceptional circumstances warrant such as, generally, in the following cases:

(1) When directors and trustees or, in appropriate cases, the officers of a corporation

(a) Vote for or assent to patently unlawful acts of the corporation;

(b) act in bad faith or with gross negligence in directing the corporate affairs;

(c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons.

(2) When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto.

(3) When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the Corporation.

(4) When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action Prime White Cement Corporation vs. IAC, GR No. 68555, March 19, 1993 COMMERCIAL LAW; CORPORATIONS; GENERALLY CORPORATE POWERS SHALL BE EXERCISED BY THE BOARD OF DIRECTORS; EXCEPTIONS. Under the Corporation Law, which was then in force at the time this case arose, as well as under the present Corporation Code, all corporate powers shall be exercised by the Board of Directors, except as otherwise provided by law. Although it cannot completely abdicate its power and responsibility to act for the juridical entity, the Board may expressly delegate specific powers to its President or any of its officers. In the absence of such express delegation, a contract entered into by its President, on behalf of the corporation, may still bind the corporation if the board should ratify the same expressly or impliedly. Implied ratification may take various forms - like silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. Furthermore, even in the absence of express or implied authority by ratification, the President as such may, as a general rule, bind the corporation by a contract in the ordinary course of business, provided the same is reasonable under the circumstances. These rules are basic, but are all general and thus quite flexible. They apply where the President or other officer, purportedly acting for the corporation, is dealing with a third person, i.e., person outside the corporation. BOARD OF DIRECTORS; RULE IN CASE OF CONFLICT OF INTEREST. A director of a corporation holds a position of trust and as such, he owes a duty of loyalty to his corporation. In case his interests conflict with those of the corporation, he cannot sacrifice the latter to his own advantage and benefit. As corporate managers, directors are committed to seek the maximum amount of profits for the corporation. This trust relationship "is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and hence of the property interests of the stockholders." In the case of Gokongwei v. Securities and Exchange Commission, this Court quoted with favor from Pepper v. Litton, (89 scra 336) thus: ". . . He cannot by the intervention of a corporate entity

violate the ancient precept against serving two masters . . . He cannot utilize his inside information and his strategic position for his own preferment. He cannot violate rules of fair play by doing indirectly through the corporation what he could not do directly. He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandizement, preference, or advantage of the fiduciary to the exclusion or detriment of the cestuis . . ." DEALINGS OF DIRECTORS, TRUSTEES OR OFFICERS WITH THE CORPORATION; RULE. A director's contract with his corporation is not in all instances void or voidable. If the contract is fair and reasonable under the circumstances, it may be ratified by the stockholders provided a full disclosure of his adverse interest is made as provided in Section 32 of the Corporation Code.

5th SET Dee vs. SEC, GR No. 60502, July 16, 1991 The pre-emptive right of stockholders is recognized only with respect to new issue of shares, and not with respect to additional issues of originally authorized shares. The issuance of the 113,800 stocks is not invalid even assuming that it was made without notice to the stockholders as claimed by Dee, et. al.. The power to issue shares of stocks in a corporation is lodged in the board of directors and no stockholders meeting is required to consider it because additional issuance of shares of stocks does not need approval of the stockholders. Consequently, no pre-emptive right of Natelco stockholders was violated by the issuance of the 113,800 shares to CSI. McLeod vs. NLRC, GR No. 146667, January 23, 2007 Gen. Rule: A corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith, and paid adequate consideration for such assets. Exceptions: (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; (3) where the purchasing corporation is merely a continuation of the selling corporation; (4) where the transaction is fraudulently entered into in order to escape liability for those debts. The parties to a merger or consolidation are called constituent corporations. In consolidation, all the constituents are dissolved and absorbed by the new consolidated enterprise. In merger, all constituents, except the surviving corporation, are dissolved. In both cases, however, there is no liquidation of the assets of the dissolved corporation, and the surviving or consolidated corporation acquires all their properties, rights and franchises and their stockholders usually become its stockholders. The surviving or consolidated corporation assumes automatically the liabilities of the dissolved corporations, regardless of whether the creditors have consented or not to such merger or consolidation.

Islamic Directorate of the Philippines vs. CA, GR No. 117897, May 14, 1997 Where a corporate body never gave its consent, thru a legitimate governing board, to a deed of absolute sale, the subject sale is void for lack of consent and thus, produces no effect whatsoever. PNB vs. Andrada Electric, GR No. 142936, April 17, 2002 1. Gen. Rule: A corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith, and paid adequate consideration for such assets. Exceptions: (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; (3) where the purchasing corporation is merely a continuation of the selling corporation; (4) where the transaction is fraudulently entered into in order to escape liability for those debts. 2. The merger does not become effective upon the mere agreement of the constituent corporations. There must be an express provision of law authorizing them. In order that a valid merger or consolidation may become effective, the approval by the SEC of the articles of merger or consolidation is required. These articles must likewise be duly approved by a majority of the respective stockholders of the constituent corporations. Nielson and Co., Inc. vs. Lepanto Mining, GR No. L-21601, December 28, 1968 Section 16 of the Corporation Law, Stock dividends cannot be issued to a person who is not a stockholder in payment of services rendered. - No corporation shall issue stocks or bond except in

exchange for actual cash paid to the corporation or for property actually received by itor for profits earned by it but not distributed among its stockholders or members.

- Stocks issued in exchange for cash or property are issued for capital generation and can be issued to a non-stockholder.

- Stock dividends should be considered as 1.) a dividend, and 2.) an enforced use of the dividend money to purchase additional shares at par.

- A dividend is defined as the portion of the profits of the enterprise which the corporation sets apart for ratable division among the holders of the capital stock.

- As such, stock dividends can only be granted to existing stockholders in proportion to their shares.

Hydro Resources Contractors Corp. vs. NIA, GR No. 160215, November 10, 2004 The CA erred in ruling that Cesar L. Techs act of signing the Joint Computation was an ultra vires act. It must be noted that the Administrator is the highest officer of the NIA. Furthermore, Hydro has been dealing with NIA through its Administrator in all of its transactions with respect to the contract and subsequently the foreign currency differential claim. The NIA Administrator is empowered by the contract to grant or deny foreign currency differential claims. It would be preposterous for the NIA Administrator to have the power of granting claims without the authority to verify the computation of such claims.

6th SET Loyola Grand Villas Association Inc. vs. CA, GR No. 117188, August 7, 1997 Automatic corporate dissolution for failure to file the by-laws on time was never the intention of the legislature. Section 46 reveals the legislative intent to attach a directory, and not mandatory, meaning for the word ''must" in the first sentence thereof. The second paragraph of the law which allows the filing of the by-laws even prior to incorporation. This provision in the same section of the Code rules out mandatory compliance with the requirement of filing the by-laws "within 1 month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission." It necessarily follows that failure to file the by-laws within that period does not imply the "demise" of the corporation. Although the Corporation Code requires the filing of by-laws, it does not expressly provide for the consequences of the non-filing of the same within the period provided for in Section 46. Nonetheless, failure to file them within the period required by law by no means tolls the automatic dissolution of a corporation. China Banking Corporation vs. CA, GR No. 117604, March 26, 1997 In order to be bound, the third party must have acquired knowledge of the pertinent by-laws at the time the transaction or agreement between said third party and the shareholder was entered into. Therefore, it is the generally accepted rule that third persons are not bound by by-laws, except when they have knowledge of the provisions either actually or constructively. For the exception to the general accepted rule that third persons are not bound by by-laws to be applicable and binding upon the pledgee, knowledge of the provisions of the By-laws must be acquired at the time the pledge agreement was contracted. Knowledge of said provisions, either actual or constructive, at the time of foreclosure will not affect pledges right over the pledged share. Salafranca vs. Philamlife Village Homeowners Association, Inc. et al., 300 SCRA 469 At that time, Salafranca already enjoys security of tenure because he is already a regular employee. It is true that PVHAI has the right to amend its by-laws but such amendment must not impair existing contracts or rights. In this case, the provision that Salafrancas position shall be co-terminus with the appointing Board impairs his right to security of tenure which has already vested even prior to the amendment of the by-laws in 1987.

7th SET Republic of the Philippines vs. COCOFED et al., GR Nos. 147062-64, December 14, 2001 General rule is that the registered owner of the shares of a corporation exercises the right and the privilege of voting. This principle applies even to shares that are sequestered by the government, over which the PCGG as a mere conservator cannot, as a general rule, exercise acts of dominion. From the foregoing general principle, has provided two clear public character exceptions under which the government is granted the authority to vote the shares:

(1) Where government shares are taken over by private persons or entities who/which registered them in their own names, and (2) Where the capitalization or shares that were acquired with public funds somehow landed in private hands. The exceptions are based on the common-sense principle that legal fiction must yield to truth; that public property registered in the names of non-owners is affected with trust relations; and that the prima facie beneficial owner should be given the privilege of enjoying the rights flowing from the prima facie fact of ownership. Chua vs. CA, GR No. 150793, November 19, 2004 Not every suit filed in behalf of the corporation is a derivative suit. For a derivative suit to prosper, it is required that: (1) The minority stockholder suing for and on behalf of the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholders similarly situated who may wish to join him in the suit; (2) It is a condition sine qua non that the corporation be impleaded as a party because not only is the corporation an indispensable party, but it is also the present rule that it must be served with process. In other words, the corporation must be joined as party because it is its cause of action that is being litigated and because judgment must be a res adjudicata against it. Expert Travel & Tours vs. CA, GR No. 152392, May 26, 2005 Teleconferencing is interactive group communication (three or more people in two or more locations) through an electronic medium. Other evidence must be presented to prove the existence of such meeting.

8th SET Ramon Lee vs. CA, GR No. 93695, February 1992 Voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory conditions and such other terms and conditions specified in the agreement. The five year-period may be extended in cases where the voting trust is executed pursuant to a loan agreement whereby the period is made contingent upon full payment of the loan. The most immediate effect of a voting trust agreement on the status of a stockholder who is a party to its execution from legal titleholder or owner of the shares subject of the voting trust agreement, is he becomes the equitable or beneficial owner. Ong Yong vs. Tiu, GR No. 144476, February 2002 Pre-subscription agreement is any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact that the parties refer to it as a purchase or some other contract. In the instant case, the rescission of the Pre-Subscription Agreement will effectively result in the unauthorized

distribution of the capital assets and property of the corporation, thereby violating the Trust Fund Doctrine and the Corporation Code, since rescission of a subscription agreement is not one of the instances when distribution of capital assets and property of the corporation is allowed.