CORPORATION LAWATTY. ANTHONY B. PERALTA

Class: Attendance is mandatory and I expect you to be prepared to contribute to every class discussion. Absence from 25% of classes or more will bar a student from taking the final exam. Expect to be called at random.

Evaluation: 40% of the grade is based on a 2-hour final exam. 30% of the grade is based on participation in class and the remaining 30% is based on quizzes/short writing assignments.

Course Code : CORPORATION LAWType of Course : Regular CourseCredit : 4 unitsTotal Hours : 56 hoursTerm/Time/Room : Second Trimester 2013-2014

I. Course objectives

This course surveys the role of legal controls on business organizations with emphasis on the control of managers in publicly held corporations. The course begins with an historical view of corporate form followed by a brief review of the law of agency, partnership, and closely held corporations. Topics include basic fiduciary law, shareholder voting, derivative suits, executive compensation, and control transactions. The course takes a critical perspective on corporate law throughout.

This course surveys the role of legal controls on business organizations with emphasis on the control of managers in publicly held corporations. Aspects of the law of agency, partnership, and closely held corporations are reviewed to highlight continuities and discontinuities with the publicly held corporation. Topics include basic fiduciary law, shareholder voting, derivative suits, executive compensation, reorganizations, and control transactions. The emphasis throughout is on the functional analysis of legal rules as one set of constraints on corporate factors among others.

This course introduces students to the legal rules protecting creditors and shareholders of a corporation. Topics include limited liability, veil piercing, equitable subordination, fraudulent conveyances, leveraged buyouts, the duties of care and loyalty, shareholder voting, derivative suits, executive compensation, insider trading, and control transactions.

INTRODUCTION

1. Role of Corporation in Modern BusinessHistorical Background of the Corporation – In Brief Adolf A. Berle, Jr., Historical Inheritance of American CorporationsDefinition and Attributes of a CorporationSec. 2, Corporation CodeLaws Governing Philippine CorporationsChoice of Business OrganizaationsThe Sole ProprietorshipThe Partnership Sec. 1767, Civil CodeThe Close Corporation Sec. 96, Corp. Code

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The Limited PartnershipThe Business Trust

The Departure of Restrictions upon Corporate Activity Liggett Co. v. Lee 88 U.S. 517, 53 S. Ct. 481, 77 L. Ed. 929 (1933) The Delaware Corporation Act, and the Trend Toward “Liberal Acts Federal Impact on Corporate Activity Public Issue and Closely Held Companies (a) The Public Issue Corporation (b) The Close Corporation

2. CLASSIFICATION OF PRIVATE CORPORATIONS

Stock and Non-Stock CorporationsSection 8, 87 and 88 Corp. Code

Collector of Internal Revenue vs. Club Filipino, Inc. de Cebu5 SCRA 321 (31 May 1962)Corporation Sole Sec. 110, Corp. CodeParent and Subsidiary Corporations; Holding Corporations; Affiliate Corporations

3.ORGANIZING THE CORPORATIONWho May Form Corporation Sec. 10 Corp. CodeMust be natural personsAt least five incorporatorsResidence requirement; citizenship requirement in certain areasGamboa v. TevesG.R. 176579 (9 October 2012)Restrictions on stock ownership of closely knit groupsSec. 140 and 97 Corp. Code

The Process of Incorporation1. Promotional stage2. Drafting Articles of Incorporation

Secs. 14 and 16, Corp. Code(1) Corporate name

Phil. First Insurance Co. v. Maria Carmen Hartigan, et. al. 34 SCRA 252 (1970)Lyceum of the Phils. vs. CA(219 SCRA 610)

Republic Planters Bank v. CA, 216 SCRA 738 (1992).

Universal Mills Corp. v. Universal Textile Mills Inc. , 78 SCRA 62 [1977

Laureano Investment and Development Corporation v. Court of Appeals, 272 SCRA 253 (1997).

Pison-Arceo Agricultural Development Corp. v. NLRC, 279 SCRA 312 (1997).

(2) Purpose ClauseUySiuliong v. Director of Commerce and Industry, 40 Phil. 541 [1919]

(3) Principal office of the corporationClavecilla Radio System v. Antillon, 19 SCRA 379 (1967) Sy v. Tyson Enterprises, Inc., 119 SCRA 367 (1982).

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(4) Term of existence, Sec. 11 Corp. Code

Alhambra Cigar v. SEC, 24 SCRA 269 (1968).

(5) Incorporators and directors; number and qualifications(6) Capital Stock; subscription; payment(7) Other matters(8) Close Corporations, Sec. 96, Corp. Code

3. Filing of articles; payment of fees4. Examination of articles; approval or rejection by SEC5. Issuance of certificate of incorporation Sec. 19, Corp. Code

Defective Attempt to Incorporate; De Facto Corporations Sec. 20, Corp. Code

(1) Use of corporate powers(2) Law subsequently declared void

MUNICIPALITY OF MALABANG V. BENITO29 SCRA 533 (1969)

(3) “Substantial” or “colorable” compliance with legal requirements in good faith

BERGERON V. HOBBS (71 N.W. 1056, 65 Am. St. Rep. 85)

HARRIL V. DAVIS (168 F. 187; 1909)

HALL v. PICCIO 29 SCRA 533(1969)

Corporation by estoppel Sec. 21, Corp. Code

EMPIRE vs. STUART (46 Mich. 482, 9 N.W. 527; 1881)

LOWELL-WOODWARD vs. WOODS (104 Kan. 729; 1919)

ASIA BANKING vs. STANDARD PRODUCTS46 Phil. 145 (1924)

CRANSON VS IBM (234 MD. 477, 200 A. 2D 33 ; 1964)

SALVATIERRA VS GARLITOS (103 Phil. 757; 1958)

ALBERT VS UNIVERSITY PUBLISHING CO., INC. (Jan. 30, 1965)

Internal Organization of Corporation1. By-laws Sec. 36, Corp. Code

Sec. 46 and 47, Corp. Code

GOKONGWEI v. SEC, 89 SCRA 337 [1979]

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PEÑA v. CA, 193 SCRA 717 [1991])

FLEISCHER V. BOTICA NOLASCO CO. 47 Phil. 583 (1925)

GOVT. OF P.I. V. EL HOGAR 50 Phil. 399 (1927)

CITIBANK, N.A. v. CHUA (220 SCRA 75)

LOYOLA GRAND VILLAS v. CA (276 SCRA 681)ISSUE:

2. Election of Directors and Officers; Commencement of BusinessSec. 22 and Sec. 25, Corp. Code

Theory of Corporate Entity: Its EffectsGALLEGHER VS. GERMANIA BREWING CO.54 N.W. 115,1893

SAN JUAN STRUCTURAL & STEEL FABRICATORS v. CA (296 SCRA 631)

STOCKHOLDERS OF F. GUANZON V. REGISTER OF DEEDS (6 SCRA 373)

CARAM V. CA (151 SCRA 373; 1987

PALAY V. CLAVE (124 SCRA 640; 1983)

MAGSAYSAY V. LABRADOR (180 SCRA 266)

Disregarding Corporate Entity

Contrary to law / public policy;   evasion of liability to government

STATE V. STANDARD OIL (49 Ohio, St., 137, N.E. 279, 15; 1892)

LAGUNA TRANS V. SSS (107 Phil. 833; 1960)

MARVEL BLDG. CORP. V. DAVID (94 Phil. 376; 1954)

TAN BOON BEE CO. V. JARENCIO (163 SCRA 205; 1988)

NAMARCO v. AFCorp (19 SCRA 962; 1967)

JACINTO V. CA (198 SCRA 211)

CLAPAROLS V. CIR (65 SCRA 613; 1975)

INDOPHIL TEXTILE MILL WORKERS UNION V. CALICA (205 SCRA 698)Rule:

NAFLU V. OPLE(143 SCRA 125; 1986)

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ASIONICS PHILS. v. NLRC (290 SCRA 164)

VILLA-REY TRANSIT V. FERRER (25 SCRA 849; 1968)

Close Corporations

CEASE V. CA (93 SCRA 483; 1979)

DELPHER TRADES V. CA (157 SCRA 349; 1988) What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher and placing the control of their properties under the corporation. This saved them inheritance taxes.

This is the reverse of Cease; however, it does not modify the other cases. It stands on its own because of the facts.

Parent-Subsidiary Relationship

GARNETT v. SOUTHERN RAILWAY CO. 173 F. Supp. 915, ED Tenn. (1959)KOPPEL (PHIL), INC, v. YATCO 77 Phil. 496 (1946)LIDELL AND CO., INC. v. THE COLLECTOR OF INTERNAL REVENUE 2 SCRA 632 (1961)YUTIVO v. COURT OF TAX APPEALS 1 SCRA 160 (1961)STONE ET. AL. v. EACHO 127 F. 2D 284 (1942) BERKEY v. THIRD AVE. RY. CO. 244 N.Y. 84, 155 N.E. 58, 50 A.L.R. 599 (1926)LA CAMPANA COFFEE FACTORY v. KMM SA LA CAMPANA 93 PHIL. 160 (1953)

Nationality of Corporations

Sec. 15 par. 11, Corporation Code

GAMBOA v. TEVES G.R. No. 1766579, 28 June 2011STRATEGIC ALLIANCE DEV. CORP. v. RADSTOCK SEC. LTD. 607 SCRA 413 (2009) J.R.S. BUSINESS CORP. v. IMPERIAL INSURANCE 11 SCRA 634 (1964)PALTING v. SAN JOSE PETROLEUM, INC. 18 SCRA 924 (1966)TATAD v. GARCIA, JR. 243 SCRA 436 (1995)UNCHUAN v. LOZADA 585 SCRA 421 (2009)

5. PROMOTER’S CONTRACTS PRIOR TO INCORPORATION

Liability of Corporation for Promoters’ Contracts 

McARTHUR v. TIMES PRINTING CO. 48 Minn. 319, 51 N.W. 216 (1892)CLIFTON, ET. AL. v. TOMB 21 F. 2d 893 (1921)CAGAYAN FISHING DEV. CO., INC v. TEODORO SANDIKO 25 SCRA 285 (1968)

Corporate Rights Under Promoters on Pre-Incorporation ContractsBUILDERS’ DUNTILE CO. VS. DUNN MFG. CO. 229 Ky. 569, 17 S.W. 2D 715 RIZAL LIGHT AND ICE CO., INC. V. PSC AND MORONG ELECTRIC 25 SCRA 285

Personal Liability of Promoter on Pre-Incorporation ContractsWELLS VS. FAY & EGAN CO. 143 Ga. 732, 85 S.E. 873 (1915)HOW AND ASSOCIATES, INC. V. BOSS 222 F. SUPP. 936 (S.D. IOWA, 1963)

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QUAKER HILL, INC. V. PARR 148 Colorado 45, 364 P. 2d 1056 (1961)

Compensation of Promoters

Fiduciary relationship between corporation and promoter

OLD DOMINION COPPER MINING v. BIGELOW 89 N.E. 193 (1909)OLD DOMINION COPPER MINING v. LEWISOHN 210 U.S. 206 (1907)

6. CORPORATE POWERS

General Powers of Corporation

Secs. 36 and 45, Corporation Code

LAND BANK v. COA 190 SCRA 154 (1990)PILIPINAS LOAN COMPANY v. SEC 356 SCRA 193 (2001)

Specific Powers

MADRIGAL & CO. v. ZAMORA 151 SCRA 355 (1987)CENTRAL TEXTITLE MILLS, INC. v. NWPC 260 SCRA 368 (1996)ISLAMIC DIRECTORATE v. CA 272 SCRA 454 (1997)CALTEX (PHILS.), INC. v. PNOC 498 SCRA 400 (2006)

Implied Powers

LUNETA MOTOR CO. v. A.D. SANTOS, INC. 5 SCRA 809 (1962)NPC v. VERA 170 SCRA 721 (1989)PILIPINAS LOAN CO. v. SEC 356 SCRA 193 (2001)HEIRS OF ANTONIO PAEL v. CA 372 SCRA 587 (2001)INTER-ASIA INVESTMENTS INDUSTRIES v. CA 403 SCRA 452 (2003)

The Ultra Vires Doctrine

REPUBLIC v. ACOJE MINING CO., INC. 7 SCRA 361 (1963) CARLOS v. MINDORO SUGAR CO., ET. AL. 57 PHIL. 343 (1932)GOVERNMENT v. EL HOGAR FILIPINO 50 PHIL. 399 (1927)BISSEL V. MICHIGAN SOUTHERN & N.I.R. CO. 22 N.Y. 258 (1860)PIROVANO, ET AL V. DE LA RAMA STEAMSHIP CO. 96 PHIL. 335 (1954)HARDEN, ET AL V. BENGUET CONSOLIDATED 58 PHIL. 141 (1933)

7. CONTROL AND MANAGEMENT OF CORPORATION

Allocation of Power and Control

Who Exercises Corporate Powers

Board of Directors of TrusteesSec. 23, Corporation Code

(1) Board must act as a body in a meetingSec.25, Corporation Code

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(2) Requirements of MeetingSec. 53, Corporation Code

(3) Close CorporationsSec. 97, Corporation Code

RAMIREZ v. ORIENTALIST CO. AND FERNANDEZ 38 PHIL. 634 (1918) SALVADOR P. LOPEZ v. HON. VICENTE ERICTA 45 SCRA 539 (1972)ZACHARY, ET AL V. MILIN, ET. AL. 293 N.W. 770 (1940)KAPLAN, ET AL V. BLOCK 31 S.E. 2d 893 (1944)PNB V. COURT OF APPEALS 83 SCRA 238 (1978)BENGUET ELECTRIC COOPERATIVE v. NLRC 209 SCRA 55EPG CONSTRUCTION v. CA 210 SCRA 210BOYER-ROXAS v. CA 211 SCRA 470CITIBANK N.A. v. CHUA 220 SCRA 75PRIME WHITE CEMENT v. IAC 220 SCRA 103WOODCHILD HOLDINGS, INC. v. ROXAS ELECTRIC 436 SCRA 235

Corporate Officers and AgentsSec. 125, Corporation Code

YU CHUCK v. KONG LI PO 46 PHIL. 608 (1924)BOARD OF LIQUIDATORS v. KALAW 20 SCRA 20 SCRA 987 (1967)ZAMBOANGA TRANSPORTATION v. BACHRACH MOTOR 52 PHIL. 244 (1928)ACUÑA V. BATAC PRODUCERS COOPERATIVE 20 SCRA 526 (1967)LAPU-LAPU FOUNDATION, INC. v. CA 421 SCRA 329

Board CommitteesSec. 35, Corporation Code

HAYES V. CANADA, ATLANTIC & PLANT S.S. CO. LIMITED 181 F. 289 (1910)

Stockholders or members(1) Requirements of stockholders’ or members’ meeting, and of

Voting

NoticeSec. 50, Corporation Code

BOARD OF DIRECTORS V. TAN, ET. AL. 105 PHIL. 426 (1959)

Place of meetingSec. 51, Corporation CodeSec. 93, Corporation Code

QuorumSec. 52, Corporation Code

VoteSec. 137, Corporation CodeSec. 89, Corporation CodeSec. 56, Corporation CodeSec. 55, Corporation Code

Non-voting stocks or membersSec.6, Corporation Code

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Where all stockholders presentSec. 51, Corporation Code

LOGAN JOHNSTON, ET. AL. v. LOUIS A. JOHNSTON, ET. AL. 61 O.G. No. 39, 6160 (1965) (CA)

(2) Where no meeting calledPONCE v. ENCARNACION 99 PHIL. 81 (1953)

Instances when stockholders’ or members’ action in necessary(1) Election of directors of trusteesSec. 24, Corporation CodeSec. 92, Corporation CodeSec. 93, Corporation Code

Quorum required

Manner of voting

In close corporation

Qualifications and disqualifications of directorsSec. 23, Corporation Code-DETECTIVE & PROTECTIVE BUREAU INC. v. CLORIBEL 26 SCRA 225 (1968)GOKONGWEI v. SEC 89 SCRA 336 (1979)

Term of Director or TrusteeSec. 92, Corporation CodeSec. 108, Corporation Code

Vacancies in the BoardSec. 29, Corporation Code

(2) Removal of DirectorsSec. 28, Corporation CodeROXAS v. DE LA ROSA 49 PHIL 609 (1926)ANGELES, ET. AL. v. SANTOS, ET. AL. 64 PHIL. 687 (1937)CAMPBELL v. LEOW’S INCORPORATED 134 A. 2d 852 (1957)

(3) Fundamental changes

Amendment of articles of incorporationSec. 16, Corporation CodeSec. 103, Corporation Code

Sale or other disposition of substantially all assetsSec. 40, Corporation Code

Investment in another business or corporationSec. 42, Corporation CodeSec. 36, Corporation CodeDE LA RAMA V. MA-AO SUGAR CENTRAL 27 SCRA 247 (1969)GOKONGWEI V. SEC 89 SCRA 336 (1979)

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Merger and ConsolidationSec. 77, Corporation Code

Appraisal RightSec. 81, Corporation CodeSec. 82, Corporation CodeSec. 83, Corporation CodeSec. 84, Corporation CodeSec. 86, Corporation CodeSec. 105, Corporation Code

Increase and decrease of capital stockSec. 38, Corporation Code

Adoption, amendment and repeal of by-lawsSec. 48, Corporation Code

(4) Other instances requiring stockholders’ action

Declaration of stock dividends

Management contractsSec. 44, Corporation Code

Fixing consideration for on-par sharesSec. 62, Corporation Code

Fixing compensation of directors

Deadlock in close corporationsSec. 104, Corporation Code

Devices affecting control

1. The proxy deviceSec. 58, Corporation CodeIN RE GIANT PORTLAND CEMENT CO 21 A. 2D 697 (1941)STATE EX. REL. EVERETT TRUST & SAVINGS BANK v. PACIFIC WAXEDPAPER CO., ET. AL. 152 P. 2d 707, 159 ALR 297 (1945)ALEJANDRINO v. DE LEON G.R. NO. 49043 (1943)CAMPBELL v. LEOW’S INC. 134 A. 2d 852 (1957)ROSENFIELD v. FAIRCHILD 128 N.E. 2d 291 (1955)DUFFY v. LOFT, INC. 152 A. 2d 849 (1930)

2. Voting TrustSec. 59, Corporation CodeABERCOMBIE V. DAVIES 130 A. 2d 338 (SC 1957)EVERETT v. ASIA BANKING CORP. 49 PHIL. 512 (1926)MACKIN, ET. AL. v. NICOLLET HOTEL, INC. 73 L. Ed. 541 (1928)NIDC v. AQUINO 163 SCRA 153 (1988) 

3. Pooling and voting agreementsSec. 100, Corporation CodeRINGLING v. RINGLING BROS. 49 A. 2d 603 (1946)E.K. BUCK RETAIL STORES v. HARKERT 62 N.W. 2d 288 (1954)SENSABAUGH v. POLSON PLYWOOD CO. 342 P. 2d 1064 (1959)MCQUADE V. STONEHAM, ET. AL. 189 N.E. 234 (1934) CA-NY

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CLARK V. DODGE, ET AL. 199 N.E. 641 (1936)

4. Cumulative voting

5. Classification of sharesSec. 6, Corporation CodeGOTTSCHALK, ET AL V. AVALON REALTY CO. 23 N.W. 2d 606 (1946)

6. Restriction on transfer of shares

7. Prescribing qualifications for directorsSec. 7, Corporation Code

8. Management contractsSec. 44, Corporation CodeSHERMAN & ELLIS, INC v. INDIANA MUTUAL 41 F. 2d 588 (1930)

9. Unusual voting and quorum requirementsSec. 97, Corporation CodeBENINTENDI v. KENTON HOTEL 60 N.E. 2d 829 (1945)

8. DUTIES OF DIRECTORS AND CONTROLLING STOCKHOLDERS

Section 31, Corporation Code

Duty of Diligence: Business Judgments RuleOTIS & CO. V. PENNSYLVANIA R. CO.61 F. SUPP. 905 (1946)MONTELIBANO, ET AL V. BACOLOD-MURCIA MILING CO., INC. 5 SCRA 36 (1962)LITWIN V. ALLEN 25 N.Y.S. 2D 667WALKER V. MAN 253 N.Y.S. 458 (1931)STEINBERG V. VELASCO 52 PHIL. 953 (1929)BARNES V. ANDREWS298 F. 614 (1924)POOL V. POOL, ET.AL. 22 SO. 2D 131 (1945)FOSTER V. BOWEN, ET.AL. 41 N.E. 2D 181LOWELL HOIT & CO. V. DETIG, ET.AL. 50 N.E. 2D 602 (1943)BATES V. DRESSER40 S. CT. 247 (1920)

Fiduciary Duties; Conflict of Interests

1. The self-dealing director

Sec. 32, Corporation CodePALTING V. SAN JOSE PETROLEUM, INC. L-14441 (1966)MEAD V. MCCULLOUGH, ET.AL. 21 PHIL. 95 (1911)PICCARD V. SPERRY CORPORATION, ET.AL. 48 F. SUPP. 465

2. Fixing compensation of directors and officersSec. 30, Corporation CodeSec. 70, Corporation CodeGOVERNMENT OF THE PHIL. V. EL HOGAR FILIPINO 50 PHIL. 399 (1927)BARRETTO V. LA PREVISORA FILIPINA(1929)CENTRAL COOPERATIVE EXCHANGE, INC. V. TIBE, ET.AL. 33 SCRA 596 (1970)FOGELSON V. AMERICAN WOOLEN CO. 170 F. 2D 660 (1948)KERBS V. CALIFONIA EASTERN AIRWAYS90 A. 2D 652 (1952)

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3. Using inside informationSec. 36, Sec. ActSec. 30, Sec. ActSec. 53, Sec ActSTRONG, ET.AL. V. REPIDE41 PHIL. 947 (1909)TAYLOR V. WRIGHT, ET.AL. 159 P. 2D 980 (1945)

4. Seizing corporate opportunitySec. 34, Corporation CodeSec. 31, Corporation CodeSINGER, ET AL V. CARLISLE, ET.AL. 26 N.Y.S. 2D 172 (1940)IRVING TRUST CO. V. DEUTSCH, ET.AL. 73 F. 2D 121 (1934)LITWIN V. ALLEN, ET.AL. 25 N.Y.S. 2D 667 (1940)

5. Interlocking directorsSec. 33, Corporation CodeGlobe Woolen Co. v. Utica Gas & Electric Co.121 N.E. 378 (1918)

Close CorporationSec. 97, Corporation Code

Duty of Controlling InterestInsurance Shares v. Northern Fiscal Corporation35 F. Supp. 22 (1940)

Duty to Creditors

9. THE RIGHT OF INSPECTIONBasis of RightWhat Records CoveredSec. 74, Corporation CodeSec. 75, Corporation CodeExtent of and Limitation on Right1. Limitations as to time and place2. PurposeWho May Exercise RightRemedies Available if Inspection RefusedPHILPOTTS V. PHILIPPINE MANUFACTURING CO.40 PHIL. 471 (1919)PARDO V. HERCULES LUMBER CO., ET.AL.41 PHIL. 965 (1824)GONZALES V. PNB122 SCRA 490 (1983)VERAGUTH V. ISABELA SUGAR CO.57 PHIL. 266 (1932)GOKONGWEI V. SEC89 SCRA 336 (1979)SLAY V. POLONIA PUBLISHING CO. 229 N.W. 434 (1930)KLEIN, ET. AL. V. SCRANTON LIFE INS. CO. ET.AL. 11 A. 2D 770 (1940)

10. DERIVATIVE SUITSNature and Basis of Derivative Suit: Distinguished from Individual and Representative SuitRequirements Relating to Derivative Suit

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PASCUAL V. OROZCO, ET.AL. 19 PHIL. 82 (1911)EVANGELISTA, ET.AL. V. SANTOS 86 PHIL. 387 (1950)LIKEN V. SHAFFER64 F. SUPP. 432 (1946)KEENAN V. ESHLEMAN 2 A. 2D 904OTIS & CO. V. PENNSYLVANIA R. CO., ET.AL. 57 F. SUPP. 680 (1944)REPUBLIC BANK V. CUADERNO, ET.AL. 19 SCRA 67 (1967)REYES V. TAN, ET.AL. 3 SCRA 198 (1961)CHASE V. COURT OF FIRST INSTANCE OF MANILA, ET.AL. 18 SCRA 602 (1966)HOLMES V. CAMP167 N.Y. SUPP. 840 (1917)GAMBOA V. VICTORIANO90 SCRA 40 (1979)SAN MIGUEL CORP. V. KAHN176 SCRA 447 (1989)

11. FINANCING THE CORPORATION; CAPITAL STRUCTURESources of FinancingCapital StructureCapital and Capital Stock DistinguishedShares of Stock; KindsSection 6, Corporation Code1. Common stocks2. Preferred stocks

(1) Preference as to dividends- Participating and non-participating- Cumulative and non-cumulative- Discretionary dividend type- Mandatory dividend type- Earned cumulative or dividend credit type

(2) As to voting rightsELLINGWOOD V. WOLF’S HEAD OIL REFINING 38 A. 2D 743 (1944)

(3) Preference upon liquidationHAY V. HAY 230 P. 2D 791 (1951)

(4) Preference stockholder is not a creditorAUGUSTA TRUST CO. V. AUGUSTA HALLOWELL 134 ME. 314, 187 A.I. (1938)

3. Par or no par shares4. Treasury sharesSec. 9, Corporation Code5. Redeemable sharesSec. 8, Corporation Code6. Founder’s shares

Nature of Subscription ContractSection 66GARCIA V. LIM CHU SING 59 PHIL. 562 (1934)

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1. Pre-incorporation subscriptionSection 13Section 61UTAH HOTEL CO. V. MADSEN 134 PAC. 557 (1913)WALLACE V. ECLIPSE POCAHONTAS COAL CO. 93 S.E. 293 (1919)

2. Post-incorporation subscriptionSections 60, 80BAYLA, ET.AL. V. SILANG TRAFFIC CO., INC.73 PHIL. 557 (1942)

The Preemptive Right to SharesDATU TAGORANAO BENITO V. SEC 123 SCRA 722 (1983)STROKES V. CONTINENTAL TRUST CO. 186 N.Y. 285 (1906)THOM V. BALTIMORE TRUST CO. 158 MD. 352, 148 ATL. 234 (1930)FULLER V. KROGH113 N.W. 2D 25 (1962)DUNLAY V. AVENUE M. GARAGE & REPAIR CO. 170 N.E. 917 (1930)ROSS TRANSPORT INC. V. CROTHERS185 MD. 573, 45 A. 2D 267

Debt Securities1. Form of Borrowings2. Bonds and Debentures3. Convertible Securities; stock optionsMERITT-CHAPMAN & SCOTT CORP. V. NEW YORK TRUST CO. 184 F. 2D 9544. Hybrid SecuritiesJOHN KELLEY CO. V. COMMISSIONER OF INT. REVENUE326 U.S. 521 (1946)JORDAN V. ALLEN85 F. SUPP. 437 (1949)5. The Trust indentureALADDIN HOTEL CO. V. BLOOM200 F. 2D 627

Requirements under Revised Securities Act1. Purpose and history of Securities Act2. Registration of securitiesPALTING V. SAN JOSE PETROLEUM CO.18 SCRA 924 (1966)3. Exempt securities and transactions4. Registration of brokers, dealers and salesmen5. Registration of stock exchanges6. Remedies of investor, SEC powers

Underwriting Securities1. Strict Underwriting Method2. Firm Commitment Underwriting3. Best Efforts Underwriting

12. CONSIDERATION FOR ISSUANCE OF SHARESForm of ConsiderationSection 62

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Liability on Watered StocksSection 65TRIPLEX SHOE CO. V. RICE & HUTCHINS, INC. 152 A. 342 (1930)MCCARTY V. LANGDEAU337 S.W. 2D 407 (1960)RHODE V. DOCK-HOP CO. 184 CAL. 367 (1920)BING CROSBY MINUTE MAID CORP. V. EATON46 CAL. 284 (1956)

How Payment of Shares EnforcedSections 13, 67, 68, 69 and 701. Delinquency sale; requisites2. Court actionVelasco v. Poizat 37 PHIL. 802 (1918) Lingayen Gulf Electric Power Co., Inc v. Baltazar 93 PHIL. 404 (1953)Miranda v. Tarlac Rice Mill Co. G.R. No. 35961 (1932)Da Silva v. Aboitiz & Co., Inc. 44 PHIL. 755 (1923)National Exchange Co. v. Dexter 51 PHIL. 601 (1928)Lumanlan v. Cura 59 {HIL. 746 (1934)

Effect of DelinquencySection 71Rights and Obligations of Holders of Unpaid but Non-delinquent StockSection 72, 66, 63 and 64FUA CUN V. SUMMERS 44 PHIL. 704 (1923)BALTAZAR V. LINGAYEN GULF ELECTRIC POWER CO., INC. 14 SCRA 522 (1965)NAVA V. PEERS MARKETING CORP. 74 SCRA 65 (1976)

Issuance of CertificateLost or Destroyed CertificateSection 73

13. DIVIDENDS AND PURCHASE BY CORPORATION OF ITS OWN SHARES

Form of DividendsNIELSON & CO. V. LEPANTO CONSOLIDATED MINING CO. 26 SCRA 540 (1968)

Source of DividendsSection 43BERKS BROADCASTING CO. V. CRAUMER 356 PA. 620 (1947)LICH V. UNITED STATES RUBBER 39 F. SUPP 675 (1941)

Dividend Declaration Discretionary with BoardSection 43KEOUGH V. ST. PAUL MILK CO. 205 MINN. 96, 285 NW 809DODGE V. FORD MOTOR CO 204 MICH. 459, 170 N.W. 668 (1919)PREFERENCE AS TO DIVIDENDSWABASH RAILWAY CO. V. BARCLAY 280 U.S. 197 (1930)BURK V. OTTAWA GAS & ELECTRIC CO. 87 KAN. 6, 123 PAC. 875 (1912)WHEN RIGHT TO DIVIDENDS VESTS; RIGHT OF TRANSFEREEMCCLARAN V. CRESCENT PLANNING MILL CO. 117 MO. APP. 40 (1906)

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Liability for Illegal Dividends1. Directors2. StockholdersPurchase by Corporation of Its Own Shares1. Limitations on power: proper purposes and existence of surplusSection 412. Remedies in case of improper purchaseChapter XIVAmendment by LegislatureSection 145Amendment by StockholdersSection 36 (4)Section 161. Limitations on power2. Grounds for rejection of amendmentSection 173. Amendment changing stockholder’s rightsSection 81HARTFORD ACCIDENT & INDEMNITY CO. V. W.S. DICKEY 24 A. 2D 315 (1942)MARCUS V. R.H. MACY &CO., INC. 297 N.Y. 38 (1947)KELLER V. WILSON & CO., INC. 21 DEL. CH. 391, 190 A. 115 (1936)4. Effectivity of amendment5. Special amendments(1) Increase of capital stockSection 38(2) Reduction of capital stockSection 122PHILIPPINE TRUST CO. V. RIVERA 44 PHIL. 469 (1923)SHAW V. NOYES 13 S.W. 2D 443 (1929)(3) Change in corporate termSections 37, 116. Amendments in close corporationsSection 103

15. TRANSFER OF SHARESManner and Effectivity of TransferSection 631. Indorsement of stock certificate; registration in corporate books2. Effect of lack if registrationUSON V. DIOSOMITO 61 PHIL. 535 (1935)ESCAÑO V. FILIPINAS MINING CORP. 74 PHIL. 711 (1944)RAZON V. IAC 207 SCRA 235RURAL BANK OF SALINAS V. CA 210 SCRA 511NAUTICA CANNING CORP. V. YUMUL 473 SCRA 415

3. No registration of transfer of unpaid shares4. Remedy if registration refusedHANGER V. BRYAN 19 PHIL. 139 (1911)

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RIVERA V. FLORENDO 144 SCRA 647 (1986)

1. General rule: free transferability of shares2. Exception: in close corporations Section 96, 97, 98 and 993. Intrinsic validity of various kinds of restrictions(1) Consent restriction(2) Option restriction; valid if reasonable(3) Prescribing qualifications of stockholders, a transfer restriction(4) Redeemable common stock

4. Formal validity of restrictionsFLEISCHER V. BOTICA NOLASCO 47 PHIL. 583 (1925) [Transfer restrictions did not appear in the AOI, contrary to Sec. 5 of Corp. Law. No time limit for the option to be exercised. SC did not refer to either of these as a basis for holding the by-laws void]LAWSON V. HOUSEHOLD FINANCE CORP. 152 ATL. 723 (1930)ALLEN V. BILTMORE TISSUE CORP. 2 N.Y. 2D 534 (1957)ELSON V. SCHMIDT 1 N.W. 2D 314 (1941)

Unauthorized Transfers1. Certificate indorsed in blank; when quasi-negotiable2. Forged transfersSTA. MARIA V. HSBC 89 PHIL. 780 (1951)DE LOS SANTOS V. J.H. MCGRATH 96 PHIL. 577 (1955)

Collateral TransfersCHUA GUAN V. SAMAHANG MAGSASAKA, INC. ET. AL. 62 PHIL. 473 (1935)Non-transferability and Termination of Membership in Non-Stock CorporationsSections 90 and 91ßß

16. DISSOLUTIONCauses of Dissolution1. Expiration of original, extended or shortened termSection 1202. Voluntary dissolution when creditors affectedSection 1183. Voluntary dissolution where creditors affectedSection 119Section 122LEBOLD V. INLAND STEEL CO. 125 F. 2D 369 (1941)

4. Dissolution by minority in close corporationsSelection 105FINANCING CORP. V. TEODORO 93 PHIL. 404 (1953)

5. Failure to organize and commence business; cessation of business for 5 yearsSection 22Article 3, Code of Commerce

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6. Involuntary dissolution(1) Revocation of certification of registration by SECSection 121Section 6, P.D. 902-ASection 2, Rule 66, Rules of Court(2) Quo Warranto proceedingsGOVERNMENT V. EL HOGAR FILIPINO 50 PHIL. 399 (1927)GOVERNMENT V. PHILIPPINE SUGAR ESTATES 38 PHIL. 15 (1918)REPUBLIC V. SECURITY CREDIT G.R. NO. 20583 (1967)REPUBLIC V. BISAYA LAND TRANS. CO., INC. 81 SCRA 9 (1978)GONZALES V. SRA 174 SCRA 377 (1989)PEPSI-COLA PRODUCTS PHILIPPINES, INC. V. CA 443 SCRA 580 (2004)

Effects of Dissolution; Winding Up and LiquidationSection 1221. Loss of juridical personalityBUENAFLOR V. CAMARINES SUR G.R. NOS. 14991-14994, 30 MAY 1960NATIONAL ABACA CORP. V. PORE 2 SCRA 989 (1961)2. Executory contractsSection 1453. Methods of liquidation4. Distribution of assets after payment of debtBOARD OF LIQUIDATORS V. KALAW 20 SCRA 987 (1967)CHINA BANKING CORP. V. MICHELIN & CO. 58 PHIL. 261 (1933)SUMERA V. VALENCIA 67 PHIL. 721 (1939)REPUBLIC V. MARSMAN DEVELOPMENT CO. 44 SCRA 418 (1972)TAN CHIONG BIO V. CIR G.R. NO. L-15778 (1962)Distribution of Assets of Non-stock CorporationsSection 94Section 95

17. CORPORATE COMBINATIONSPurposes of Combinations; MethodsSection 20Merger and Consolidation1. Nature and distinction2. Only de facto merger under Corporation Law3. Express authority to merge granted by Code; requirementsSection 76, Sections 77, 78, 79 and 804. Remedies of creditors and dissenting stockholders; appraisal rightPETRY V. HARDWOOD ELECTRIC CO 124 ATL. 302 (1924) DUCASSE V. AMERICAN YELLOW TAXI OPERATORS 224 APP. DIV. 516 (1928)HOTTENSTEIN V. YORK ICE MACHINERY 136 FED. 2D 944 (1943)

Sale of substantially All Assets1. Legal requirementsSection 40

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2. No assumption of liabilities; exceptions3. Remedies of dissenting stockholders; appraisal right4. Compared with merger and consolidationREYES V. BLOUSE 91 PHIL. 305 (1952)FARRIS V. GLEN ALDEN 143 A. 2D 25 (1958)EDWARD J. NELL CO. V. PACIFIC FARMS, INC. 15 SCRA 415 (1965)BABST V. CA 350 SCRA 341 (2001)POLIAND INDUSTRIAL LTD. V. NDC 467 SCRA 500 (2005)MCLEOD V. NLRC 512 SCRA 222 (2007)Exchange of Stocks

18. FOREIGN CORPORATIONSDefinition, StatusMethods of Entry of InvestmentPermitted Areas of Investment1. Partially nationalized areas2. Preferred areas; incentives for investment therein3. Non-preferred areas of investmentLegal Requirements Prior to Transaction of BusinessSection 1231. BOI certificate 490Arts. 48 and 49, Omnibus investment Code2. SEC license to do businessSection 125Section 1263. Certificate from appropriate governmental agency

Effects of Failure to Secure SEC licenseSection 133Section 21-A, R.A. 166, as amended by R.A. 638MARSHALL WELLS V. ELSER 46 PHIL. 71 (1924)WESTERN EQUIPMENT & SUPPLY CO. V. REYES 51 PHIL. 115 (1927)ATLANTIC MUTUAL V. CEBU STEVEDORING CO. G.R. NO. 18961 (1966)GENERAL GARMENTS CORP. V. DIRECTOR 41 SCRA 50 (1971)LEVITON INDUSTRIES V. SALVADOR 114 SCRA 420 (1982)LE CHEMISE LACOSTE V. FERNANDEZ 129 SCRA 377 (1984)CONVERSE RUBBER V. UNIVERSAL PRODUCTS 147 SCRA 155 (1987)HOME INS. CO V. EASTERN SHIPPING LINES 123 SCRA 424 (1983)COLUMBIA PICTURES V. CA 261 SCRA 144 (1996)

What Constitutes Transacting BusinessArt. 44, Omnibus Investment CodeMENTHOLATUM V. MANGALIMAN 72 PHIL. 524 (1941)FAR EAST INTERNATIONAL V. NANKI KOGYO 6 SCRA 725 (1962)FACILITIES MANAGEMENT CORP. V. DE LA ROSA 89 SCRA 131 (1979)PACIFIC VEGETABLE OIL CO. V. SINGSON G.R. NO. 7917 (1955)AETNA CASUALTY & SURETY CO. V. PACIFIC STAR LINE 80 SCRA 635 (1977)TOPWELD MANUEL V. ECED, S.A. 138 SCRA 120 (1985)ANTAM CONSOLIDATED V. CA 143 SCRA 289 (1986)

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CLAUDE NEON LIGHTS V. PHIL. ADVERTISING CORP. 57 PHIL. 607 (1932)PHILIPPINE PRODUCTS CO. V. PRIMATERIA S. A. 15 SCRA 101 (1965)AGILENT TECHNOLOGIES SINGAPORE PTE., LTD. V. INTEGRATED SILICON TECHNOLOGY PHILIPPINES CORPORATION 427 SCRA 693 (2004)MERRILL LYNCH FUTURES V. CA 211 SCRA 824 (1992)

How Courts Acquire Jurisdiction over Foreign CorporationsSection 128Section 14, Rule of CourtsGENERAL CORP. OF THE PHIL V. UNION INSURANCE 87 PHIL. 313 (1950)

Laws Governing Licensed Foreign CorporationsSection 129GREY V. INSULAR LUMBER CO. 67 PHIL. 139 (1939)

Income Tax LiabilityMerger of Licensed Foreign CorporationSection 132Withdrawal of Foreign CorporationSection 136Revocation and Suspension of LicenseSection 13Section 247, P.D. 612Section 16, R.A 337 as amendedExisting Licensed Foreign Corporations

19. SPECIAL AND MISCELLANEOUS PROVISIONSSpecial Corporations1. Educational corporations(1) Stock or non-stock(2) Temporary permit(3) Government recognition(4) Special requirement to be University(5) Incorporation under the CodeSection 108(6) Educational foundations2. Religious corporation Sec. 109(1) Corporation sole Sec. 110-115(2) Religious societiesSection 116LONG, ET. AL. V. BASA ET. AL. 366 SCRA 113 (2001)Close Corporations

20. SECURITIES AND EXCHANGE COMMISSIONPD 902-A (1976), as amended by PD 1653 (1979), 1758 (1981), 1799 (1981), and R.A. 8799 (2000)

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OrganizationSecs. 4,6,7 and 76, RA 8799Powers and functionsSecs. 3 and 6, PD 902-A; Sec. 5.1, RA 8799; SRC Rule 5.1 [a])Jurisdiction (Sec. 5.2, RA 8799)Transfer of regulation of pre-need companies to the Office of the Insurance Commissioner by The Pre-Need Code of the Philippines (RA 9829, approved December 3, 2009).SEC V. CA, 246 SCRA 738 (1995)PROVIDENT INTERNATIONAL V. JOAQUIN T. VENUS 554 SCRA 540 (2008)GSIS V. CA, ET AL. 585 SCRA 679 (2009)

SEC Memorandum Circular No. 11, dated August 5, 2003, re Supervision Over Registered Corporations

INTRA-CORPORATE CONTROVERSIES SC Interim Rules of Procedure for Intra-Corporate Controversies (A.M. No. 01-2-04-SC), effective April 1, 2001.

Cases covered (Rule 1, SEC. 1)Election contests (Rule 6, Sec.2)Inspection of corporate books and records (Rule 7, Secs. 1,2 and 7)Derivative suits (Rule 8, Secs. 1 and 2)Management committee (Rule 9, Secs. 1,2,4,5,7,9 and 12; see Secs. 31,36 to 41, and 148, RA 10142 aka Financial Rehabilitation and Insolvency Act [FRIA] of 2010])

1. Derivative SuitsCHUA VS. CA G.R. 150793, NOVEMBER 19, 2004.SYMACO TRADING CORPORATION VS. SANTOS G.R. 142474, AUGUST 18, 2005.ANTHONY YU, ET AL., VS. JOSEPH YUKAYGUAN, JUNE 18, 2009

2. Intra-corporate ControversiesESPINO VS. NLRC, G.R. 109642-43, JANUARY 5, 1995.PEARSON AND GEORGE (S.E.ASIA), INC. VS. NLRC, G.R. 113928, FEBRUARY 1, 1996EASYCALL COMMUNICATIONS PHILS., INC. VS. KING,G.R. 145901, DECEMBER 15, 2005.GARCIA VS. EASTERN TELECOMMUNICATIONS PHILIPPINES, INC., G.R. 173115, APRIL 16, 2009.MATLING INDUSTRIAL ET AL. VS. COROS, G.R. NO. 157802, OCTOBER 13, 2010REAL VS. SANGU PHILIPPINES, INC., G.R. 168757, JANUARY 19, 2011MARC II MARKETING, ET AL., VS. JOSON, G.R. NO. 171993, DECEMBER 12, 2011.

 

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