I.

Brief History of Philippine Corporate Law

A. Sociedad Anonima
Prior to the arrival of American in the Philippines, the main business under the Spanish regime was that
of sociedad anonimas. It was introduced in the Philippines on December 1, 1888 with the extension of
the application of Spanish Code of Commerce Article 151 to 159.
Sociedad anonimas was considered a commercial partnership, a sort of corporation, whereupon the
execution of the public instrument in which its articles of agreement appears, and the contributions
thereto, becomes a juridical person. The inscribing of its agreement in the commercial register does not
operates as grant of juridical personality but to show only that it partook the form of a commercial
partnership.
Although there were similarities, it does not correspond to the notion of corporation under the American
and English law particularly to the organization of the enterprise, distribution of dividends and equity
intervention with respect to the creditors.
With the coming of the American, the old Corporation Law (Act. No. 1459) opted to grant the sociedad
anonima and option to transform and be organized as a corporation to be governed by the Corporation
Code or to retain its character and to be govern by the Spanish Code of Commerce.

B. Cuentas en Participacion
It is an accidental partnership constituted in such a manner that its existence was known only to those
person who has interest in it, there being no mutual agreement between partners, and without a corporate
name indication that there were other people besides the one who ostensibly managed the business.
Those who contract with the person under whose name the business is conducted has only right of action
against such person and not against any person who has interest in the venture.

C. Corporation Law (Act. No. 1459)

The Act is the very first corporate statute in the Philippines and was made effective in April 1, 1906. It
rapidly became antiquated and not adapted to changing times.
Act. No. 1459 showed an ambivalent appreciation of corporation as medium of doing business. It
imposes restriction on ownership of real estate, restriction to capital with respect to agricultural
corporations and mining corporations and the absence of provisions of mergers and consolidation.

D. The Corporation Code (B.P. Blg. 68)

The current Code become effective on May 1, 980. It adopted various corporate doctrines enunciated
by the Supreme Court. It clarified obligations of corporate officers and directors, provided for a chapter
in closed corporation. The Code did away with the various restriction that previously existed under the
old Corporation Law and provided a general penal clause with respect to violation of its provisions.

II. Nature and Attributes and Classification of Corporations

A. Theories on Formation
1. Theory of Concession under this theory, although the fiction cannot be created unless there is an
enterprise or group of individuals upon whom it maybe conferred and in spite of the underlying contract
among the person wanting to form the corporation, the grant is only by virtue of a primary franchise
given by the State and it is within the power of the State to grant or deny such.
The theory looks at the corporation simply as a creature of the State with limited powers and
capabilities within the complete control of the State. A corporation as known to Philippine jurisprudence
is a creature without any existence until it has received the imprimatur of the state according to law. It
is logically inconceivable therefore that it will have rights and privileges of a higher priority than that
of its creator.
2. Theory of Enterprise Entity the theory epitomize that it is not legal fiction alone that creates a corporate
entity. Any state-grant must presuppose the existence or consent among those who will form the
corporation. Although it is within the power of the State to grant or deny such, no corporate existence
will be created unless there is an enterprise or group upon which it will be conferred. It emphasize that
once juridical personality is granted, it is not a creature of the State but a creature of its own who has
inherent right under the law.

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B. Constitutional Provision and Civil Code Provisions on Corporations

1. Congress cannot, except by general law, provide for the formation, organization, or regulation of private
corporations. (Sec. 16, Art. XII of the 1987 Constitution)

2. The following are juridical persons:

a. The State and its political subdivision;
b. Other corporations, institutions and entities for public interest or purpose, created by law; their
personality begins as soon as they have been constituted according to law;
c. Corporations, partnerships and association for private interest or purpose to which the law grants a
juridical personality, separate and distinct from that of each shareholder, partner or member. (Art.
44 of the New Civil Code)

3. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the laws creating
or recognizing them. Private corporations are regulated by laws of general application on the subject.
Partnerships and associations for private interest or purpose are governed by the provisions of this Code
concerning partnerships. (Art. 45 of the New Civil Code)

C. Franchises of Corporation
Franchise of corporation maybe divided into (a) corporate or general franchise and (b) special or
secondary franchise;
1. Corporate or general franchise this is a franchise to exist as a corporation and is usually vested
to individuals who compose the corporation and not in the corporation itself and cannot be
conveyed in the absence of a legislative authority to do so.
2. Special or secondary franchise this is a franchise which grants certain rights and privileges to
existing corporation, not to the individuals who compose the corporation, and may be conveyed
or mortgaged under a general power granted to a corporation to dispose of its property except
secondary franchise charged with public use. (J.R.S. Business Corp vs. Imperial Insurance Inc.)

D. Attributes of a Corporation
A corporation is an artificial being created by operation of law, having the right of succession and the
powers, attributes and properties expressly authorized by law or incident to its existence. (Sec. 2)

The following are the four basic attributes of a corporation;

1. Artificial Being corporation is an artificial being created by operation of law and, upon
coming into its existence, is invested with a personality separate and distinct from those persons
comprising it, as well as from any other legal entity to which it may be related.
The mere fact that its personality is owing to a legal fiction and must necessarily act
through an agent, does not make the latter personally liable on contract duly entered into, or for
an act lawfully performed by them, for and in its behalf.
2. Creature of law the juridical existence of a corporation is dependent on the consent or grant
of the State. A corporation cannot come into existence by mere consent of the parties; there
must be a law granting it, and once granted, forms the primary franchise of the corporation.
3. Right of Succession corporation has the capacity for continuous existence despite the death
or replacement of its shareholders, for it has a personality separate and distinct from those who
compose it.
4. Creature of Enumerated powers, attributes and properties every corporation is a creature of
limited powers. A corporation has no power except those expressly granted by the Corporation
Code and those that are implied and incidental to its existence. In turn, a corporation exercise
its powers through the Board of Directors.

E. Advantages and Disadvantages of Corporate Form vis--vis Other Forms of Business Organization
(2010 BAR)

Advantages:

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 1. Strong Juridical Personality the corporation has legal capacity to act and to contract as a
distinct person in its own name; and it has a continuity of existence. As distinguished from
partnership, it is unaffected by death, withdrawal or insolvency of any of its members or
stockholders. In addition a corporations organization, creation, management and dissolution
are governed by general incorporation law.
2. Centralized Management corporate management is centralized in the Board, to whom also
are granted the powers of corporation. Unlike in partnership, shareholders are not agents of the
corporation nor can they bind the corporation. As a general rule, stockholders are bound by the
management decision and transactions of the Board, whether they like it or not.
3. Limited Liability to Investors the liability of an investor is limited only to their share as
distinguished from the partnership where creditors can still go after the individual properties
of the partners.
4. Free Transferability of Units of Investments as a general rule, the shares of stocks can be
transferred without the consent of the stockholders. This would assure investors of ready
mechanism when their personal or financial situation requires.
5. Advantages Over Unregistered Associations Corporation established in accordance with the
Corporation Code has benefits over unregistered associations, namely; perpetual succession,
corporate name, capacity to acquire and dispose property, contract obligation, to sue and be
sued under its corporate name as a juridical person, capacity to received and enjoy grants of
privileges and immunities, and limited liability of stockholders.

Disadvantages:
1. Complicated and Costly Formation and Maintenance Compared to sole proprietor and
partnership, the corporation entails high cost of formation, maintenance and greater degree of
governmental control and supervision.
2. Lack of Personal Element and Abuse of Corporate Management. There exist lack of personal
element in view of the transferability of shares and the vesting of management powers to the
Board. This has spawned corporate irresponsibility because the Board has no personal stake in
the corporation.
3. Limited Liability Hits Innocent Victims the limited liability feature has been used in order to
avoid providing adequate compensation and protection for victims of the business venture. This
abused has been countered by the application of the doctrine of piercing the veil of corporate
fiction.
4. Double Taxation the profits of the corporation which has already been subject to corporate
income tax when declared as dividends to stockholders are again subject to further income tax.

F. Entitlement to Constitutional Guarantees

1. Due Process and Equal Protection Clause In Smith, Bell & Co. vs. Natividad, The Court held that the
guarantees are universal in their application to all person within the territorial jurisdiction, without regard
to any race, color or nationality. It further held that the word person includes aliens Private
corporations, likewise, are persons within the scope of the guarantees in so far as their properties are
concerned.

2. Right Against Unreasonable Searched and Seizures.

Stonehill vs. Diokno

20 SCRA 383

Facts: Upon application of the State, a total of 42 search warrants was issued by Municipal Court of
Quezon City directing any peace officer to search the person of Harry Stonehill, Robert Brooks, John
Brooks and Karl Beck, the premise of their offices, their warehouses, and residences and to seize and
take possession the following; books of accounts, financial records, vouchers, correspondences, receipts,
ledgers, journals, portfolios, typewriters ad any documents and/or papers showing all business
transaction, disbursement and receipts, balance sheets, profits and loss statement and Bobbins (cigarette
wrappers), as the subject of an offense in violation of Central Bank Laws, Tariffs and Customs Law,
Internal Revenue Code and the Revised Penal Code.

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 The documents and papers seized during the search maybe divided into two categories; (1) those found
and seized in the office of the aforementioned corporation, and (2) those found and seized in the
petitioners residence. The petitioners are questioning the validity of the warrant and the search
conducted alleging violation of their constitutionally protected right against unreasonable searched and
seizures and praying to declare the same as inadmissible for being the fruit of poisonous tree.

Held: As to the first class of documents, corporations are held by constitutional guarantee against
unreasonable searches and seizures. However, officers of a corporation from which the documents,
papers and things were seized have no cause of action to assail the legality of the seizures, regardless of
the amount of shares of stock or of the interest of each of them, and whatever offices they hold therein,
because the corporation has a personality distinct and separate from those of the said officers. The
legality of the seizure can only be contested by a party whose rights has been impaired. The objection to
an unlawful search is purely personal and cannot be availed of by third parties. As to the second class,
the same is hereby declared as inadmissible being covered by a general search warrant in violation of
petitioners constitutional right.

3. Right Against Self-Incrimination

Bataan Shipyard & Engineering Co., Inc. vs. PCGG

150 SCRA 181

Facts: PCGG, pursuant to Executive Order (E.O.) No. 1 and 2, s. 1986, initiate sequestration proceeding
of Bataan Shipyard & Engineering Co., (BASECO), a private corporation, allegedly used by Marcos and
cronies in their acquisition of their ill-gotten wealth. Pursuant to the sequestration order, Acting PCGG
Chairman, among others, required the BASECO President and its officers the production of documents
relative to financial reports, stockholders list, the stock and transfer book and legal documents, such as
Articled of Incorporation and By-Laws. Before the Court, the petitioner alleged that the order to produce
the documents was issued without court authority and infringed its constitutional right against self-
incrimination.

Held: The Corporation is a creature of the State. It is presumed to be incorporated for the benefit of the
public. It received certain special privileges and franchises and holds them subject to the laws of the
State and limitations of the charter. Its right to act as a corporation are only preserved to it so long as it
obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts and
find out whether it has exceeded its powers. It will be a strange anomaly to hold that a State, having
chartered a corporation, could not, in the exercised of its sovereignty, inquire how these franchise had
been employed and whether they had been abused. While an individual may lawfully refused to answer
incrimination questions unless protected by immunity statute, it does not follow that a corporation, vested
with special privileges and franchises may refused to shows its hand when charged with an abuse of such
privileges.

NB: The difference between the stance of Court between the right against unreasonable searches and
seizures and the right against self-incrimination, lies to the fact that the latter does not really result in the
physical intrusion of State agents into the premise of the corporation but only requires the corporation,
through its agent, to produce records and books before the court. The denial of the former however, will
result into the intrusion of State authorities into corporate premise and therefore would also intrude into
the personal and business privacy of the stockholders and members of the corporation. Lastly, a
corporation has no soul that can be damned by a lie.

G. Liability of Corporation for Torts

The liabilities for torts committed by its agent of the corporation must generally follows the rules provided
for by the laws on agency. That is;

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 1. A corporation must be held liable for all the contracts and default that arise from those entered
into by its agents within the scope of his authority or even those outside of the scope of his
authority, by which has been ratified by the corporation through its Board of Directors.
2. The acting officer is solidarily liable with the corporation for the damages resulting from his
negligence.

Philippine National Bank vs. Court of Appeals

83 SCRA 237

Facts: Plaintiff Philippine American General Insurance Co., and defendant Rita Tapnio, as the
principal, entered into an agreement with PNB San Fernando, Pampanga, wherein the Plaintiff
will guarantee the obligation of Tapnio with the Bank. In turn to guarantee the payment of
defendant to the plaintiff, defendant and PNB entered into an indemnity agreement. It is
admitted that Tapnio was indebted to the bank in the amount of P2, 000 plus unpaid interest.
The Bank wrote letter to the plaintiff demanding that it be paid, which the latter did so. Plaintiff
in turn made several demands to the defendant Tapnio to pay but to no avail. In her defense,
Tapnio impleaded the Bank as third-party defendant and alleged that the agreement between
her and Jacobo Tuazon was rescind when the Board of Directors of the Bank demand an
increased in the Sugar Lease Quota Agreement from P2.8 per picul to P3.0 per picul being a
mortgagee on the standing crop. The amount of the expected income would have been P2,800,
sufficiently enough to cover Tapnios indebtedness to the Bank. Worthy of note that both the
Branch Manager and the Vice-President of the Bank approved of the P2.8 price but the Board
rejected the same.

Held: A corporation is civilly liable in the same manner as the natural person for torts, because
the rules governing the liability of the principal or the master or the agent is the same whether
they are natural person or a corporation. A corporation is liable, therefore, whenever a tortuous
act is committed by an officer or agent under the express direction or authority from the
stockholders or members acting as a body, or, generally, from the directors as the governing
body.

H. Criminal Liability of a Corporation

Ultimately, a crime committed in the name of a corporation is actually committed by an individual who act
for and in behalf of the corporation. No criminal action can lie against an accused who is a corporation
because of lack of essential element of malice, being a mere artificial being without mind.

People vs. Tan Boon Kong

54 Phil. 607

Facts: The trial court sustained the demurrer to an information charging Kong of violation of
Section 1458 of Act No. 2711 for failure to pay percentage taxes in the amount of P2, 960.12
and to make a true return of receipt and sales in the amount of P 2,543, 303. 44. The trial court
applied the doctrine of separate juridical personality and reasoned that the offense charged must
be regarded as committed by the corporation and not of the officials or agents.

Held: A corporation can only act through its officers and agents, and where the business itself
involves a violation of the law, the correct rule is that all who participate in it are liable. The
veil of corporate fiction cannot be used to avoid penalty imposable for committing a criminal
offense.

I. Entitlement to Moral Damages

Mambulao Lumber vs. PNB

22 SCRA 359

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Facts: Plaintiff Mambulao Lumber Company contracted a loan with PNB-Naga Branch in the
amount of P155, 000 which only P 100,000 was approved. To secure the loan, plaintiff
mortgaged to defendant a parcel of land together with building thereon and improvements, saw
mills, rolling unit and other fixed assets all located in Camarines Norte. The agreement
provides that in case of foreclosure, such will be made in the City of Manila. PNB release the
loan in installment basis; first, the amount of P27, 500 and second P 15, 500. Unable to pay the
amortization of the loan despite repeated demands, PNB informed the Sheriff of Camarines
Norte to foreclose the mortgaged properties and conduct auction sale. The sale was made in
bulk, was immediately sold to third party and was conducted in violation of the mortgage
agreement. Among others, Plaintiff seeks moral damages due to the irregular foreclosure and
auction sale made by defendant PNB.

Held: The claim for moral damages has no basis. An artificial person cannot experience
physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or
social humiliation which are the basis of moral damages. A corporation may have a good
reputation, if besmirched, may also be a ground for moral damages. The same cannot be
considered under the facts of the case, not only because the corporation has already ceased in
its business operation at the time of foreclosure, but also for the reason that whatever adverse
effects the foreclosure sale would have the same effect whether the same was conducted in
Camarines Norte or in Manila.

Asset Privatization Trust vs. CA

300 SCRA 579

Facts: The Republic, thru the Surigao Mineral Reservation Board, granted Marinduque Mining
and Industrial Corporation (MMIC) the exclusive right to explore, develop and exploit mineral
resources in Surigao mineral reservation. The Republic obtained a firm commitment from DBP
and PNB to support and guarantee foreign loans obtained by MMIC. In exchanged thereof,
MMIC mortgaged all its assets, including real estate to PNB and DBP as a security to the
guarantee. MMIC had a difficult time complying with its obligation with DBP and PNB and
the loans to both financial institutions has already ballooned to P22.6 Billion Pesos. Thus a
financial restructuring plan (FRP) was develop by SGV Co., and was adopted by the
stockholders during the stockholders meeting. The FRP was never been approved, adopted or
ratified by DBP or PNB. Unable to pay, DBP and PNB foreclosed the properties mortgaged by
MMIC, in which PNB was the lone bidder. PNB then assigned the assets to Nonoc Mining
Corporation, Maricalum Mining and Industrial Corporation and Island Cement Corporation.
Currently, the assets were transferred to Asset Privatization Trust (APT). Jesus Cabarrus Jr.,
and other stockholders filed a derivative suit before RTC of Makati, among others they prayed
that moral damages be awarded due to improper foreclosure made by PNB and DBP. On the
course of the trial, the parties agree to submit their issues before an Arbitration Panel. The RTC
dismissed the derivative suit filed because of the agreement. The Arbitration Panel among
others, awarded moral damages to MMIC, which was also sustained by the Court of Appeals.

Held: MMIC cannot be entitled to big moral damages when its credit reputation was not exactly
to be considered sound and wholesome. Under Art. 2217 of the Civil Code, moral damages
include besmirched reputation which a corporation may possibly suffer. A corporation whose
overdue and unpaid debts to the Republic alone reached a tremendous P22 Billion Pesos cannot
certainly have solid business reputation to brag about. Besides, it is not yet a well settled
jurisprudence that corporations are entitled to moral damages. It must be pointed out that when
the supposed wrongful foreclosure was done, MMICs credit was no longer a desirable one.
The company then was already suffering from serious financial crisis.

ABS-CBN vs. CA
301 SCRA 572

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Facts: ABS-CBN and Viva executed a Film Exhibition Agreement in which the latter gave the
former exclusive right to exhibit some of Viva Films and gave ABS-CBN the right of first
refusal to the next 24 Viva films. Viva, through Vicente del Rosario, offered ABS-CBN,
through Charo Santos-Concio, 36 titles from which ABS-CBN may choose from. As per letter
of Ms. Concio to del Rosario, she can only choose 10 titles from the list of 36. Again, del
Rosario approached Ms. Concio and offered 104 movie titles in the amount of P60 Million
Pesos. Del Rosario then meet, Mr. Eugenio Lopez III, ABS-CBNs general manager, to discuss
the proposal of Viva. According to Mr. Lopez, an agreement has been made that Viva will
grant ABS-CBN an exclusive film right to 14 titles for a consideration of P 36 Million Pesos
and the agreement was written in the napkin which Mr. Lopez signed and gave to del Rosario.
On the other hand, del Rosario claimed that there was no agreement made and denied the
existence of the napkin. The subject matter of the meeting, according to him, was the proposal
of 104 movie titles for P60 Million Pesos and that Mr. Lopez promised a counter-offer. Ms.
Concio then made a counter offer of 53 films for P35 Million pesos, which again, was rejected
by the Viva Board of Directors. The Board opined that Viva will not sell anything less than
that of 104 films. After rejection, Viva and RBS entered into an agreement in which the former
will sell to the latter an exclusive right to air the 104 Viva produced films for P60 Million
Pesos.
ABS-CBN filed before the RTC a complaint for specific performance with injunction
alleging that a contract has been perfected between Viva and ABS by virtue of the Film
exhibition agreement. The RTC dismissed the case and ruled that there is no perfected contract
and the right of first refusal granted to ABS-CBN was already exercised by Ms. Concio in
choosing the 10 titles from the 36. Further, the RTC awarded moral damages to RBS. The
Court of Appeals affirmed the decision of the RTC. Both court reasoned that the justification
of moral damages arise from the fact that RBS reputation was debased by filing of the
complaint and by the non-showing of the shows, which is the subject matter of the injunction.

Held: The award of moral damages cannot be granted to a corporation because, being an
artificial person and having existence only in legal contemplation, it has no feelings, no
emotions, no senses. It cannot therefore experience physical suffering and metal anguished
which can be experienced only by one having a nervous system. The statement in People vs.
Manero and Mambulao Lumber & Co. vs. PNB that a corporation may recover moral damages
if it has a good reputation that is debased resulting in social humiliation is a mere obiter
dictum. On this score alone, the award of moral damages must be set aside, since RBS is a
corporation.

Jardine Davies Inc. vs. CA

333 SCRA 684

Facts: To remedy electrical shortage, Purefoods Corporation held a bidding for the supply and
installation of two (2) 1,500 KW generators in its office in Marikina City. After bidding, the
contract was awarded to Far East Mills Supply Corporation (FEMSCO. Losing no time,
FEMSCO immediately comply with the terms and conditions set forth by Purefoods. It has
submitted the necessary bond and ordered the necessary equipment to its suppliers. Later,
Purefoods, through its Sr. Vice President, unilaterally cancelled the contract due to significant
factors that were uncovered which warrant total rebidding of the project. FEMSCO protested
but was unheeded and the project was awarded to Jardine Davies Inc. which incidentally is not
one of the bidders. FEMSCO filed a case before the Regional Trial Court of Pasig City. The
RTC ruled in favor of FEMSCO but dismissing the claim by FEMSCO to Jardine Davies. On
appeal before the CA, it affirmed in toto the ruling of the RTC and further ordered Jardine
Davies to pay FEMSCO moral damages in the amount of P2 Million Pesos for inducing
Purefoods to violate its contract.

Held: This Court has awarded in the past, moral damages to a corporation whose reputation
has been besmirched. Respondent FEMSCO has sufficiently shown that its reputation was
tarnished after it immediately ordered equipment from its suppliers on account of the urgency

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 of the project, only to be unilaterally cancelled. We thus sustain the appellate courts award
of moral damages

Meralco vs. Team Electronics

540 SCRA 62

Facts: Team Electronics Corporation (TEC) was formerly known as NS Electronics and as
National Semi-Conductors. TEC is wholly owned by Technology Electronics Assembly and
Management Pacific Corporation (TPC). While Meralco is a utility company supplying
electricity in Metro Manila area. Meralco and NS Electronics entered into an agreement for
sale of electric energy. Under the agreement, Meralco will supply TEC building known as
DCIM and to NS Building, which also owned by TEC. TEC entered into a contract of lease to
Ultra for the use of DCIM Building for a period of 5 years. Ultra, however, was ejected to
various violation of terms and conditions of the lease by court order. Subsequently, a team of
inspector from Meralco conducted surprise inspection of the electric meters located in the
DCIM building and found out that the meters were tampered. Meralco then demanded to TEC
a differential in billing. TEC forwarded the demand letter to Ultra. Ultra intimated only that
the demand by Meralco was execessive as to amount. For failure to pay, Meralco disconnected
electrical service to the DCIM building. A complaint before the ERB which ordered immediate
reconnection upon payment of P1 Million by TEC under protest. The complaint was
subsequently withdrawn. Meralco again conducted surprise inspection to the NS building. The
inspection revealed that the meteres were again tampered. Meralco demanded payment of
billing differentials and TEC paid under protest to avert electrical disconnection. TEC and TPC
filed a complaint for damages against Meralco before the Regional Trial Court of Pasig City.
The RTC ruled in favor of TEC and TPC and awarded, among others, moral damages. It
reasoned that there is insufficiency of evidence to support the claim of tampering considering
that the access to transformers were given only to Meralco employees. The Court of Appeals
affirmed in toto the decision of the trial court with a modification of the actual damages and
the interest thereon.

Held: We (the Court) deem it proper to delete the award of moral damages. TEC claim was
premised on the alleged damage to its goodwill and reputation. As a rule, a corporation is not
entitled to moral damages because, not being a natural person, it cannot experienced physical
suffering or sentiments. The only exception to this rule is when the corporation has a reputation
that is debased resulting to humiliation in the business realm. But in such a case, it is imperative
for the claimant to present proof and justify the award. It is essential to prove the existence of
the factual basis of the damage and its relation to petitioners acts. In the present case, the
records are bereft of any evidence that the reputation of TEC or TPC has been debased. Besides,
the trial court simply awarded moral damages in the dispositive portion of its decision without
stating the basis thereof.

J. Nationality of a Corporation
Place of Incorporation Test the principal test of nationality of a corporate entity, that a corporation
is a national of the country under whose laws it has been organized and registered. This is embodied
in Sec. 123 of the Corporation Code which provides that a foreign corporation is one formed,
organized or existing under any laws other than those of the Philippines and whose laws allows
Filipino citizens and corporations to do business in its own country or state.

Control Test the nationality of the corporation is determined by the nationality of the majority of
the stockholders on whom equity control is vested, on the theory that they would be able to elect the
majority of the Board of Directors.

NB No. 1: The general rule is that the control test cannot overcome the place of incorporation test.
The only exception to this rule recognized by SEC, under SEC Opinion No. 04-40 dated August 10,
2004, is that found in the provision of FIA of 1991 that a corporation organized abroad and

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registered as doing business in Philippines under the Corporation Code, 100% of the capital stock
outstanding and entitled to vote is wholly owned by Filipinos.

NB No. 2: although the place of incorporation test is the primary test of nationality of corporations
in the Philippines, in the following cases, in addition to the place of incorporation test, the control
test also applies;
o Exploitation of Natural Resources The state may directly undertake such activities, or it
may enter into co-production, joint venture or production sharing agreement with Filipino
Citizens, or corporation or associations which at least 60% of whose capital is owned by
such citizens

Register of Deeds of Rizal vs. Ung Sui Temple

97 Phil 58

Facts: The Register of Deeds of Rizal has refused to accept for record a deed of donation
executed by Jesus Dy, a Filipino citizen, in favor of the unregistered religious organization
Ung Sui Temple operating through three trustees, all of which Chinese citizen, a parcel of
land residential land located in Rizal. The denial was raised in the Court of First Instance which
sustained such denial.

Held: The Constitution provides that save in cases of hereditary succession, no private
agricultural land shall be transferred or assigned except to individuals, corporations or
associations qualified to acquire or hold lands of public domain in the Philippines. The
Constitution makes no such exception in favor of religious association. Neither is there in
Section 1 and 2 of Article XIII, restricting the acquisition of public agricultural land and other
resources to corporations or associations at least 60% of the capital is owned by such
citizens. The fact that appellant is a religious organization that has no capital stock will operate
as an exception to the Constitutional inhibition, since it is admitted that its members are of
foreign nationality. The purpose of the 60% requirement is obviously to ensure that
corporations or associations allowed to acquire land or to exploit natural resources shall be
controlled by Filipinos; and the spirit of the Constitution demands that in the absence of capital
stock, the controlling membership should be composed of Filipino Citizens

Roman Catholic Administrator of Davao, Inc. vs. The LRC and the Register of Deeds of
Davao 2012 BAR
102 Phil. 597

Facts: Mateo Rodis, a Filipino citizen and a resident of Davao City, executed a deed of sale of
parcel of land located in Davao City in favor of the Roman Catholic Administrator of Davao
City, a corporation sole organized and existing under Philippine laws with Clovis Thibault, a
Canadian Citizen, as actual incumbent. Upon presentment of the deed for registration and
having in mind the resolution of the 4th Branch of CFI in Manila wherein it requires the
Carmelite Nun of Davao to prepare an affidavit showing that 60% of their member are Filipino
citizen, the Register of Deeds required the said corporation to submit the same. The vendee
express willingness but argued that, unlike the Prioress of Carmelite Nun which has five
incorporators, the corporation sole has only one and the totality of the Catholic population of
Davao will become the owner thereof. The matter was elevated to the LRC, which rendered
the resolution declaring that the vendee was not qualified to acquire private lands pursuant to
the constitutional requirement of 60%. The LRC argued that the corporation sole was headed
by a Canadian Citizen.

Held: Corporation Sole have no nationality at all to disqualify it from owning the land even
though its only incorporator was a Canadian citizen. Under the circumstances of the present
case, it is safe to say that every corporation sole organized and registered by express provision
of law has the necessary power and qualification to purchase in its name private lands
independent of the nationality of its incumbent single member head. It can also be maintained

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that the framers of the Constitution did not have in mind the religious corporation sole when
they provided the 60% requirement. A corporation sole is a special form of corporation usually
associated with the clergy designed to facilitate the exercise of ownership of the church which
was regarded as the property owner: it is created not only to administer the temporalities of the
church or religious society where the corporator belongs, but to hold and transmit the same to
his successor in said office. Even if nationality is ascribed to the corporation sole, the
nationality of the constituents of the dioceses and not the nationality of the actual incumbent
of the parish, should be taken into consideration, because the corporation sole ordinarily holds
the property in trust for the benefit of the Roman Catholic faithful of their respective locality
and diocese.

o Owning and Operating Public Utilities unlike the provisions on the exploitation of natural
resources, the provision in owning and operating public utilities only includes that place of
incorporation test and requires that only domestic corporation with at least 60% of the
capital stock owned by Filipino may own and operate public utilities in the Philippines.

People vs. Quasha

93 Phil. 333

Facts: William Quasha was convicted by the Court of First Instance of Manila for falsification
of public and commercial document in violation of the Revised Penal Code. The State allege
that Quasha, in the Articles of Incorporation, makes it appears that 60.005 % of the shares of
Pacific Airways Corporation is owned by Arsenio Baylon but which, in truth and in fact, were
dummies by other American investors to circumvent the 60% requirement of the Constitution
with respect to operation of public utilities. The conclusion was supported by the fact that
Baylons shares were held in trust for the American investors who paid the shares. The trial
court convicted Quasha.

Held: The Constitution does not prohibit the mere formation of a public utility corporation
without the required formation of Filipino capital. What it does prohibit is the granting of
franchise or other form of authorization for the operation of a public utility to a corporation
already in existence but without the required proportion of Filipino capital. The franchise meant
in the provision is the secondary franchise or the privilege to operate as a public utility and not
the primary franchise which that invest corporate existence. The moment for determining
whether a corporation is entitled to operate as a public utility is when it applies for franchise,
certificate or any other form of authorization.

o War Time Test in times of war, the nationality of the private corporation is determined
by the citizenship of the controlling stockholder.

Filipinas Compania de Seguros vs. Christern

89 Phil. 54

Facts: Christern, Hunefield & Co., corporation organized under the Philippine law but the
majority of its stockholders were Germans, entered into a fire insurance policy with Filipinas
Compania De Seguros, an American corporation for P100, 000. During the Japanese invasion,
the property subject of the insurance was burned and Christern submitted its claim under the
insurance policy. Initially, herein petitioner refused to pay the claim but eventually paid the
same pursuant to the order by the Director of Bureau of Financing and the Philippine Executive
Commission, under the Japanese Military Administration. After the war, petitioner instituted
an action before the Court of First Instance of Manila for the purpose of recovering the amount
paid. The Court of First and Instance and the Court of Appeals dismissed the case.

Held: The respondent corporation became an enemy corporation upon the outbreak of the war
between the United States and Germany. As such, the insurance policy has ceased to be valid

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 and enforceable. The nationality of a private corporation is determined by the character or
citizenship of its controlling stockholders.

o Investment Test and the Grandfather Rule the grandfather rule, as a sub-application under
the control test, is a method by which the percentage of Filipino equity is computed, in a
corporation engaged fully or partly in a nationalized areas of activities, in cases where the
corporate shareholders are present in the situation, by attributing the nationality of the
second or even subsequent tier of ownership to determine the nationality of the corporate
shareholder. It is a three level test; the target corporation may be termed as the grandson,
the holding company as the father and the person or entity holding shares in the holding
company would be considered as the grandfather. The case of Palting vs. San Jose
Petroleum Inc. renders the issue of whether the tracing would be made ad infinitum.

Palting vs. San Jose Petroleum Inc.

18 SCRA 924

Facts: San Jose Petroleum Inc., filed before the SEC a registration and licensing of its Voting
Trust Certificates, and the proceeds of which will be devout and exclusively used to finance
the operations of San Jose Oil Company, a domestic corporation. Pedro Palting and others,
allegedly prospective investor of San Jose Petroleum opposed the registration and licensing of
the securities on the ground that, among others, San Jose Petroleum is a Panamian Corporation
and the tie-up between the latter and San Jose Oil, a domestic corporation, is violative of the
Constitution, the Corporation Law, the Laurel-Langley Act and the Petroleum Act of 1949. In
its answer, San Jose Petroleum claimed that it enjoyed parity rights under Laurel-Langley
Agreeement. It claimed that it was a corporation, indirectly, owned by the Americans which
was cover by the Laurel-Langley Agreement. The Laurel-Langley Agreement grants American
citizens, whether natural or judicial, the same rights with that of Filipino citizens to explore,
exploit and utilized natural resources in the Philippines. The SEC dismissed the opposition
filed by Palting and others, holding that they are not aggrieved party to institute the proceeding.

Held: San Jose Petroleum is not an American business or enterprise entitled to parity rights in
the Philippines. San Jose Petroleum, a Panamian corporation, the majority of stockholder of
which is Oil Investment Inc., another Panamian corporation. Oil Investment Inc. is in turn
wholly owned by Pantepec Oil Company and Pancoastal Petroleum Company, both of which
are organized and existing under the laws of Venezuela Pantepec Oil Company and Pancoastal
Petroleum Company, the majority of their stockholders were scattered in 49 American states
and U.S. territories. With a long chain of intervening corporation, to declare that San Jose
Petroleum is an American enterprise, is to unduly stretch and strain the language of the law.

NB: In short, the application of the grandfather rule to determine the nationality of the ultimate
controller of a subject corporation cannot go beyond the level of what is reasonable. The farther
the level of ownership from the subject corporation, the less can one practically associate
control over the subject corporation.

Place of Principal Business Test under this test, the corporation is subject to the jurisdiction of the
place where its principal office or center of management is located.

Grand Father Rule - the grandfather rule, as a sub-application under the control test, is a method by
which the percentage of Filipino equity is computed, in a corporation engaged fully or partly in a
nationalized areas of activities, in cases where the corporate shareholders are present in the situation,
by attributing the nationality of the second or even subsequent tier of ownership to determine the
nationality of the corporate shareholder. It is a three level test; the target corporation may be termed
as the grandson, the holding company as the father and the person or entity holding shares in
the holding company would be considered as the grandfather. The case of Palting vs. San Jose
Petroleum Inc. renders the issue of whether the tracing would be made ad infinitum.

Page 11 of 33
 Foreign Investment Act
o "Philippine national" shall mean
a citizen of the Philippines;
a domestic partnership or association wholly owned by citizens of the Philippines;
or a corporation organized under the laws of the Philippines of which at least sixty
percent (60%) of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines;
or a corporation organized abroad and registered as doing business in the
Philippines under the Corporation Code of which one hundred percent (100%) of
the capital stock outstanding and entitled to vote is wholly owned by Filipinos or
a trustee of funds for pension or other employee retirement or separation benefits,
where the trustee is a Philippine national and at least sixty percent (60%) of the
fund will accrue to the benefit of Philippine nationals:
o Provided, That where a corporation and its non-Filipino stockholders own stocks in a
Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent
(60%) of the capital stock outstanding and entitled to vote of each of both corporations
must be owned and held by citizens of the Philippines and at least sixty percent (60%) of
the members of the Board of Directors of each of both corporations must be citizens of the
Philippines, in order that the corporation, shall be considered a "Philippine national."

o "Foreign investment" shall mean an equity investment made by non-Philippine national in

the form of foreign exchange and/or other assets actually transferred to the Philippines and
duly registered with the Central Bank which shall assess and appraise the value of such
assets other than foreign exchange.

o The phrase "doing business" shall include;

soliciting orders, service contracts, opening offices, whether called "liaison"
offices or branches;
appointing representatives or distributors domiciled in the Philippines or who in
any calendar year stay in the country for a period or periods totaling one hundred
eighty [180] days or more;
participating in the management, supervision or control of any domestic business,
firm, entity or corporation in the Philippines; and
any other act or acts that imply a continuity of commercial dealings or
arrangements and contemplate to that extent the performance of acts or works, or
the exercise of some of the functions normally incident to, and in progressive
prosecution of commercial gain or of the purpose and object of the business
organization:
o Provided, however, That the phrase "doing business" shall not be deemed to include;
Mere investment as a shareholder by a foreign entity in domestic corporations
duly registered to do business, and/or
the exercise of rights as such investor;
nor having a nominee director or officer to represent its interests in such
corporation; nor
Appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account. (2012 BAR)

o The term "export enterprise" shall mean an enterprise wherein a manufacturer, processor
or service [including tourism] enterprise exports sixty percent (60%) or more of its output,
or wherein a trader purchases products domestically and exports sixty percent (60%) or
more of such purchases.

o The term "domestic market enterprise" shall mean an enterprise which produces goods for
sale, or renders services to the domestic market entirely or if exporting a portion of its
output fails to consistency export at least sixty percent (60%) thereof.

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o The term "Foreign Investments Negative List" or "Negative List" shall mean a list of areas
of economic activity whose foreign ownership is limited to a maximum of forty percent
(40%) of the equity capital of the enterprises engaged therein.

o Foreign investment in export enterprises whose products and services do not fall within
Lists A and B of the Foreign Investment Negative List is allowed up to one hundred percent
[100%] ownership.
o Non-Philippine nationals may own up to one hundred percent [100%] of domestic market
enterprises unless foreign ownership therein is prohibited or limited by the Constitution
and existing law or the Foreign Investment Negative List.

o For purposes of this Act, former natural born citizens of the Philippines shall have the same
investment rights of a Philippine citizen in;
Cooperatives under Republic Act No. 6938,
Rural Banks under Republic Act. No. 7353,
Thrift Banks and Private Development Banks under Republic Act No. 7906, and
Financing Companies under Republic Act No. 5980.

o These rights shall not extend to activities reserved by the Constitution, including;
the exercise of profession;
in defense related activities unless specifically authorized by the Secretary of
National Defense; and
Activities covered by Republic Act No. 1180 [Retail Trade Act]. Republic Act
No. 5187 [Security Agency Act], Republic Act No. 7076 [Small Scale Mining
Act], Republic Act No.3018 [Rice and Corn Industry Act], and P.D. No. 449
[Cockpits Operation and Management].

o Any natural-born citizen who has lost his Philippine citizenship and who has the legal
capacity to enter into a contract under Philippine laws may be a transferee of a private land
up to a maximum area of five thousand [5,000] square meters in the case of urban land or
three [3] hectares in the case of rural land to be used by him for business or other purposes.

o In the case of married couples, one of them may avail of the privilege herein granted:
Provided, that if both shall avail of the same, the total area acquired shall not exceed the
maximum herein fixed.

o In case the transferee already owns urban or rural land for business or other purposes, he
shall still be entitled to be a transferee of additional urban or rural land for business or other
purposes which when added to those already owned by him shall not exceed the maximum
areas herein authorized.

o A transferee under this Act may acquire not more than two [2] lots which should be situated
in different municipalities or cities anywhere in the Philippines: Provided, That the total
land area thereof shall not exceed five thousand [5,000] square meters in the case of urban
land or three [3] hectares in the case of rural land for use by him for business or other
purposes. A transferee who has already acquired urban land shall be disqualified from
acquiring rural land and vice versa.

o The Foreign Investment Negative List shall have two [2] component lists: A and B:
a) List A shall enumerate the areas of activities reserved to Philippine nationals
by mandate of the Constitution and specific laws.
b) List B shall contain the areas of activities and enterprises regulated pursuant
to law:
which are defense-related activities, requiring prior clearance and
authorization from the Department of National Defense [DND] to
engage in such activity, such as the manufacture, repair, storage and/or

Page 13 of 33
 distribution of firearms, ammunition, lethal weapons, military ordnance,
explosives, pyrotechnics and similar materials; unless such
manufacturing or repair activity is specifically authorized, with a
substantial export component, to a non-Philippine national by the
Secretary of National Defense;
which have implications on public health and morals, such as the
manufacture and distribution of dangerous drugs; all forms of gambling;
nightclubs, bars, beer houses, dance halls, sauna and steam bathhouses
and massage clinics (BAR 2016)

o Foreign Investment Negative List A

LIST A: FOREIGN OWNERSHIP IS LIMITED BY MANDATE OF THE

CONSTITUTION AND SPECIFIC LAWS
No Foreign Equity
1. Mass Media except recording (Art. XVI, Sec. 11 of the Constitution; Presidential
Memorandum dated 04 May 1994)
2. Practice of professions
3. Retail trade enterprises with paid-up capital of less than US$ 2,500,00 (Sec. 5 of RA
8762)
4. Cooperatives (Ch. III, Art. 26 of RA 6938)
5. Private Security Agencies (Sec. 4 of RA 5487)
6. Small-scale Mining (Sec. 3 of RA 7076)
7. Utilization of Marine Resources in archipelagic waters, territorial sea, and exclusive
economic zone (Art. XII, Sec. 2 of the Constitution)
8. Ownership, operation and management of cockpits (Sec. 5 of PD 449)
9. Manufacture, repair, stockpiling and/or distribution of nuclear weapons (Art. II Sec. 8
of the Constitution)
10. Manufacture, repair, stockpiling and/or distribution of biological, chemical and
radiological weapons and anti-personal mines (Various treaties to which the
Philippines is a signatory and conventions supported by the Philippines)
11. Manufacture of firecrackers and other pyrotechnic devices

Up to Twenty Percent (20%) Foreign Equity 80% Filipino Equity

1. Private radio communication network (RA 3846) Up to Twenty-Five Percent (25%)
Foreign Equity
2. Private recruitment, whether for local or overseas employment (Art. 27 of PD 442)
3. Contracts for the construction and repair of locally-funded public works (Sec. 1 of CA
541, LOI 630) except:
i. infrastructure/development projects covered in RA 7718; and
ii. projects which are foreign funded or assisted and required to undergo
international competitive bidding (Sec. 2(a) of RA 7718)
4. Contracts for construction of defense-related structure (Sec. 1 of CA 541)

Up to Thirty Percent (30%) Foreign Equity 70% Filipino Equity

1. Advertising (Art. XVI, Sec. 11 of the Constitution)

Up to Forty Percent (40%) Foreign Equity 60 % Filipino Equity

1. Exploration, development and utilization of natural resources (Art. XII, Sec. 2 of the
Constitution)
2. Ownership of Private Lands (Art. XII, Sec. 7 of the Constitution; Ch. 5, Sec. 22 of CA
141)
3. Operation and management of public utilities (Art. XII, Sec. 11 of the Constitution;
Sec. 16 of CA 146)
4. Ownership/establishment and administration of educational institutions (Art. XIV,
Sec. 4 of the Constitution)

Page 14 of 33
 5. Culture, production, milling, processing, trading excepting retailing, of rice and corn
and acquiring, by barter, purchase or otherwise, rice and corn and the by-products
thereof (Sec. 5 of PD 194; Sec. 15 of RA 5762)
6. Contracts for the supply of materials, goods and commodities to government-owned
or controlled corporation, company, agency or municipal corporation (Sec. 1 of RA
5183)
7. Project Proponent and facility Operator of a BOT project requiring a public utilities
franchise (Art. XII, Sec. 11 of the Constitution; Sec. 2a of RA 7718)
8. Operation of deep sea commercial fishing vessels (Sec. 27 of RA 8550)
9. Adjustment Companies (Sec. 323 of PD 612 as amended by PD 1814)
10. Ownership of condominium units where the common areas in the condominium
projects are co-owned by the owners of the separate units or owned by a corporation
(Sec. 5 of RA 4726)

Up to Sixty Percent (60%) Foreign Equity 40% Filipino Equity

1. Financing companies regulated by the Securities and Exchange Commission (Sec. 6
of RA 5980 as amended by RA 8556)
2. Investment housed regulated by the SEC (Sec. 5 of PD 129 as amended by RA 8366)

o Foreign Investment Negative List B

LIST B: FOREIGN OWNERSHIP IS LIMITED FOR REASON OF SECURITY,

DEFENSE, RISK TO HEALTH AND MORALS AND PROTECTION OF
SMALL- AND MEDIUM-SCALE ENTERPRISES

Up to (to Forty Percent (40 %) Foreign Equity 60% Filipino Equity

1. Manufacture, repair, storage and/or distribution of products and/or ingredients
requiring Philippine National Police (PNP) clearance.
2. Manufacture, repair, storage and/or distribution of products requiring Department of
National Defense (DND) clearance.
3. Manufacture and distribution of dangerous drugs (RA 7042 as amended by RA
8179)
4. Sauna and steam bathhouses, massage clinics and other like activities regulated by
law because of risks posed to public health and morals (RA 7042 as amended by RA
8179)
5. All forms of gambling, e.g. race track operation (RA 7042 as amended by RA,
8179).
6. Domestic market enterprises with paid-in equity capital of less than the equivalent of
US$200,000 (RA 7042 as amended by RA 8179)
7. Domestic market enterprises which involve advanced technology or employ at least
fifty (50) direct employees with paid-in-equity capital of less than the equivalent of
US$100,000 (RA 7042 as amended by RA 8179)

Narra Nickel Mining and Development Corporation vs. Redmont Consolidated

Mines
G.R. No. 195580

Facts: Redmont, a domestic corporation, took interest in mining and exploring certain areas in
Palawan. Upon inquiry with the DENR, it learned that these areas were already covered by
Mineral Production Sharing Agreement (MPSA) application of Narra, Tesoro and McArthur.
Redmont challenged the application contending that 60% of the capital of Narra, Tesoro and
McArthur are owned and controlled by MBMI Resources Inc., a 100% Canadian corporation.
In their answer, the three claim that only 40% were owned by MBMI and that the tools to be
used in determining nationality of a corporation is the control test as embodied in Section 3
of the Foreign Investment Act. Nevertheless, the DENR Panel of Arbitrators disqualified them.
The Panel gave credence to the claim of Redmont. On appeal before the DENR- Mines

Page 15 of 33
Adjudication Board (MAB), the three claimed that their MPSA application was converted to
Financial Technical Assistance Agreement (FTAA), effectively qualifying them under the law.
Pending the resolution of MAB, Redmont filed before the SEC cancelling the Certificate of
Registration of the three and the suspension of proceeding before the MAB to the RTC. Before
the resolution of the RTC, the MAB granted the appeal and effectively dismissing the claim of
Redmont. On appeal before the CA, the appellate court reinstated the order of the Panel of
Arbitrators.

Held: The petitioners are foreign corporation. Their conversion of MPSA to FTAA after
Redmont sought the denial of their application demonstrate their lack of qualification. The
control test is still the prevailing mode of determining the nationality of a corporation within
the ambit of Section 2, Art. II of the Constitution the development, exploration and utilization
of natural resources. When in the mind of the Court, significant doubt exist in the 60%-40%
Filipino equity ownership, it may apply the grandfather rule. While the act of corporate
layering is not prohibited by the Foreign Investment Act, the same becomes illegal when used
to circumvent the law. The framers of the Constitution themselves, intended the application of
the grandfather rule. Worthy to note that the petitioners have the same corporate structures,
the major Filipino stockholders had not paid their subscribed shares and MBMI owns more
than 60% of their equity when the same was grandfathered.

Gamboa vs. Teves

652 SCRA 690

Facts: GTE, an American corporation, sold the 26% share of PLDT to PTIC. Subsequently,
Prime Holdings Inc. (PHI) was incorporated and it became the owner of 111,415 shares of
PTIC by virtue of deed of assignment issued by PTIC stockholders. The 111, 415 shares of
PTIC which represent 46.125% was sequestered by PCGG and was declared to be owned by
the Republic. First Pacific, a foreign corporation, acquired the remaining 54% of the
outstanding capital stock of PTIC. The Republic, intending to dispose of the 111,415 shares of
PTIC conducted public bidding in which Parallax Venture Fund won with a bid of P25.6 Billion
Pesos. First Pacific exercised its right of first refusal and the latter, through its subsidiary
MPAH, entered into a sale with the Republic. As claimed then by herein petitioners, since
PTIC is a stockholder of PLDT, the sale of the Republic of the 111,415 shares of stocks
representing 46.125% of PTIC was an indirect sale of 12 Million shares or 6.3% of common
shares of PLDT. With sale, First Pacific common shareholdings to PLDT increased from 30.7%
to 37%, bringing the total common shareholdings of foreigners in PLDT to about 81.47%.
Petitioners then postulated that the term capital in the Constitution refers only to those voting
common shares because only through voting that control over a corporation is exercised. The
crux of the controversy lies therefore in the definition of the term capital. It is undisputed
that majority of the non-voting preferred shares of PLDT are non-voting and the same
comprised of 77.85% of its outstanding capital stock. The remaining 22.15% of the common
stock were held by foreigners 64.27% and by Filipinos 35.73%.

Held: The term capital in Sec. 11, Art. XII of the Constitution refers only to shares of stocks
entitled to vote in the election of directors and thus, in the present case only to shares of stocks
entitled to vote in the election of directors, and thus in the present case only to common shares
and not to the total outstanding capital stock comprising both common and non-voting
preferred shares. Indisputably, one of the rights of the stockholder is the right to participate in
the control of management and this is exercised through his vote in the election of the Board
of Directors that controls or manages the corporation. In the absence of provisions in the
articles of incorporation, preferred shares have the same voting rights as common shares.
However, preferred shareholders are deprived from right to vote on the theory that the preferred
shareholders are mere investors in the corporation for income in the same manner as
bondholders. Considering that common shares have voting rights which translates to control,
as opposed to preferred shares which usually have no rights to vote, the term capital refers
only to common shares but in cases where the preferred shares have the power to vote in the

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election of directors then the term shall include preferred shares. This interpretation is
consistent with the intention of the framers to place in the control and management of public
utilities in the hands of Filipinos. As culled from the Constitutional Committee deliberations
that capital refers to voting stock or controlling interest. Mere legal title is insufficient to
meet the 60% owned capital required in the Constitution. Full beneficial ownership of 60%
of the outstanding capital stock, coupled with the 60% voting rights, is required. The legal and
beneficial ownership of 60% of the outstanding capital stock must rest in the hands of Filipino
nationals.

Roy III vs. Herbosa

November 22, 2016

Facts: Pursuant to the decision of Gamboa vs. Teves wherein the Court directed the definition
of capital in determining compliance with the nationality requirement of public utility
companies and after due notice and hearing to the interested general public, issued SEC-MC
No. 8 entitled Guidelines on Compliance with the Filipino-Foreign Ownership Requirements
Prescribed in the Constitution and/or Existing Laws by Corporations Engaged in Nationalized
and Partly Nationalized Activities and under Section 2 of the said circular provides that All
covered corporations shall, at all times, observe the constitutional or statutory ownership
requirement. For purposes of determining compliance therewith, the required percentage of
Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of
stock entitled to vote in the election of directors; AND (b) the total number of outstanding
shares of stock, whether or not entitled to vote in the election of directors. Petitioner Jose Roy
III, as a Filipino and a taxpayer, filed a petition for certiorari under Rule 65 seeking to annul
the circular that was allegedly issued with grave abuse of discretion amounting to lack or in
excess of jurisdiction, for flagrant departure from the ruling in Gamboa and to direct the SEC
to issue a new guidelines. Petitioner alleged that the 60-40 Filipino ownership requirement
should be applied separately to each class of shares of a public utility corporation, whether
common, preferred nonvoting, preferred voting or any other class of shares.

Held: The SEC Memorandum Circular was issued in accordance with the principle laid down
in Gamboa. To recall, the sole issue in the Gamboa case was "whether the term 'capital' in
Section 11, Article XII of the Constitution refers to the total common shares only or to the total
outstanding capital stock. The ruling was more categorical in declaring that the term "capital"
in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in the
election of directors. The definition was adopted in line with the intent and letter of the
Constitution that the State shall develop a self-reliant and independent national economy
effectively controlled by Filipinos. Section 2 of SEC-MC No. 8 clearly incorporates the
Voting Control Test or the controlling interest requirement. In fact, Section 2 goes beyond
requiring a 60-40 ratio in favor of Filipino nationals in the voting stocks; it moreover requires
the 60-40 percentage ownership in the total number of outstanding shares of stock, whether
voting or not. Petitioners insistence of the application of the requirement to both preferred and
common shares is misplaced. There are basically only two types of shares or stocks, i.e.,
common stock and preferred stock. However, the classes and variety of shares that a
corporation may issue differ. Preferred shares may either be equity or debt instrument
depending upon their substance. Thus, to require Filipino shareholders to acquire preferred
shares that are substantially debts, in order to meet the "restrictive" Filipino ownership
requirement that petitioners espouse, may not bode well for the Philippine corporation and its
Filipino shareholders. The intricacies and delicate balance between debt instruments
(liabilities) and equity (capital) that stock corporations need to calibrate to fund their business
requirements and achieve their financial targets will be affected. In fine, the corporation will
be deprived of capital that would otherwise be accessible. The fact that all shares have the right
to vote in 8 specific corporate actions as provided in Section 6 of the Corporation Code does
not per se justify the favorable adoption of the restrictive re-interpretation of "capital" as the
petitioners espouse. In simple terms, the right to vote in the 8 instances enumerated in Section
6 is more in furtherance of the stockholder's right of ownership rather than as a mode of control.

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 K. Classification of Corporation

Phil. Society for Prevention and Cruelty of Animals vs. COA

September 25, 2007

Funa vs. MECO

February 4, 2014

III. Corporate Juridical Personality; Piercing the Veil of Corporate Fiction

A. Nature and Consequence of Piercing Doctrine (2013 BAR, 2012 BAR)

B. Classification of Piercing Case; Elements (2014 BAR)

Concept Builders vs. NLRC

257 SCRA 149

Kukan International Corp. vs. Reyes

September 29, 2010

G. Holdings vs. Namawu

604 SCRA 73

PEA-PGTWO vs. NLRC

581 SCRA 598

Heirs of Uy vs. International Exchange Bank

February 13, 2013

Lanuza Jr. vs. BF Corporation

October 1, 2014

WPM International Trading Inc. vs. Labayen

September 17, 2014

Pioneer Insurance Surety Corp. vs. Morning Star Travel & Tours
July 8, 2015

Guillermo vs. Uson

March 7, 2016

Page 18 of 33
IV. Corporate Contract Law

A. De Facto Corporation; Requisites (2012 BAR)

De facto Corporation are corporations where there exist a defect in its incorporation.

Sec. 23 of the Corporation Code provides that The due incorporation of any corporation
claiming in good faith to be a corporation, and its right to exercise corporate powers shall not be
inquired into collaterally in any private suit. Such inquiry shall only be made only by the State in
a quo warranto proceeding.

The grant of juridical personality is an exercise of State power and not a matter of private affair.
Consequently, under the de facto corporation doctrine, the defect in the juridical personality cannot be
inquired into by private individuals except in a quo warranto proceeding brought in behalf of the State
where the main action is to question the validity or the existence of such juridical personality.

Requisites of a De Facto Corporation

1. Organized under existing law
2. Bona fide compliance with formalities of law
3. User of corporate powers
4. SEC issuance of articles of incorporation

Corporation by Estoppel

Section 21. All persons who assume to act as a corporation knowing it to be without authority to
do so shall be liable as general partners for all debts, liabilities and damages incurred or arising
as a result thereof: Provided, however, That when any such ostensible corporation is sued on any
transaction entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.

On who assumes an obligation to an ostensible corporation as such, cannot resist performance

thereof on the ground that there was in fact no corporation.

Estoppel is a common law principle which holds the theory that an admission or representation is
rendered conclusive upon the person making it and cannot be denied or disproved as against the person
relying thereon in good faith and having changed his position based on such reliance.

The corporation by estoppel doctrine operates as an exemption to the general treatment of unregistered
corporation. The application of the doctrine seeks to enforce a contract where the element of consent is
lacking because the purported corporation does not in face exist. This doctrine also operates also as an
exception in Sec. 2, the corporation as a creature of the State.

Where a group of persons misrepresent themselves as a corporation, they are subsequently estopped
from claiming lack of corporate life in order to avoid liability.

An unincorporated association, which represents itself as to be a corporation, will be estopped from

denying its corporate capacity in a suit brought to it by a third person who relied in good faith. It cannot
allege lack of personality to be sued to evade its responsibility for a contract entered into and by virtue
of which it received an advantage or benefit. On the other hand, a third party who, knowing an
association to be unincorporated, treated the same as a corporation and received benefits therefrom,
maybe barred from denying the corporate existence in a suit brought against the alleged corporation.
Clearly, under the law on estoppel, those acting on behalf of the corporation and those benefitted from
it, knowing it to be without existence, shall be liable as general partners.

Doctrine of In Pari Delicto

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 The doctrine applies when both parties had knowledge that the corporate party to the contract did not
exist. As such, the doctrine of estoppel will not apply and the doctrine of in pari delicto will.

The doctrine provides that when both parties are at fault, neither can recover nor have cause of action
against each other. The law will leave them where they are.

Arnold Hall vs. Piccio

86 Phil. 603

Facts: Petitioners Arnold and Bradley Hall and private respondents Fred and Emma Brown,
Hipolita Chapman and Ceferino S. Abella signed and acknowledge in Leyte the Articles of
Incorporation of the Far Eastern Lumber and Commercial Inc. The corporation proceeded to
do business and adopt its by-laws and the articles of incorporation was submitted to SEC.
Pending the issuance of the certificate of incorporation, some of the incorporators filed an
action before the court to have the unregistered partnership be dissolved on the ground of fraud
and mismanagement. In their motion to dismiss, it alleged that the court has no jurisdiction
over the subject matter since, being a de facto corporation, their existence cannot be collaterally
attack by a private party except upon in a quo warranto proceeding brought in behalf of the
State.

Held: Since the certificate of incorporation has not yet been issued by the SEC, the de facto
corporation doctrine cannot apply. The directors cannot claim good faith to be a corporation,
being fully aware the non-existence of the certificate of incorporation. Furthermore, the
litigation involves between stockholders of the purported corporation for its dissolution, even
the dissolution of a de jure corporation maybe terminated in a private suit, without the
intervention of the State.

International Express Travel and Tours vs. CA

October 19, 2000

Facts: Petitioner International Express offered its services to the Philippine Football
Federation, through its President Henri Kahn, as a travel agency to the latter. Petitioner then
secured airlines ticket for the Federation to the SEA Games as well as various international
event competition. The total cost of the ticket amounted to P449, 654.83. The Federation only
paid partial in the amount due despite repeated demands by the Petitioner. This prompted the
petitioner to file an action before the Regional Trial Court of Manila impleading Henri Kahn
liable for the outstanding due as guarantor and the Federation as alternative defendant. The
Federation did not file an answer and was declared in default, while Kahn filed his answer with
counterclaim alleging that the Petitioner has no cause of action against him either in his
personal capacity or as President of the Federation. Kahn claimed that he acted merely as an
agent of the Federation, which has separate and distinct personality. The trial court rendered
judgment against Kahn as personally liable to the outstanding balance. The trial court reasoned
that neither the petitioner nor Kahn prove the corporate existence of the Federation. It further
held that a voluntary unincorporated association has no power to enter or ratify a contract and
the contract entered into by its agents are unenforceable against such association (the
Federation), the officers and its agents are in themselves personally liable. On appeal by Kahn,
the appellate court reverse the ruling of the trial court. In reversing the decision of the trial
court, the appellate court recognized the existence of separate juridical personality of the
Federation and the failure of the petitioner to prove that Kahn guaranteed the obligation.

Held: The imprimatur of the State is lacking for the Federation to be considered as a corporation
with a personality separate and distinct. This being said, Kahn should be held liable for the
unpaid obligation. It is a settled rule that any person acting on behalf of a corporation who has
no valid existence assumes such privileges and becomes personally liable for contract entered
into or for other acts performed by such agent. As a President of the Federation, Henry Kahn
has a knowledge about the corporate inexistence of the Federation. The ruling of the appellate

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 court that assuming the Federation was defectively incorporated, International Express cannot
deny the corporate existence of the Federation because it had contracted and dealt with the
latter in a manner which admit its existence is erroneous. The doctrine of corporation by
estoppel is mistakenly applied by the appellate court. The application of the doctrine applies to
a third party who tries to escape its obligation by pointing to the defect incorporation. In the
case at bar, the petitioner is not trying to escape the liability but rather is the one claiming from
the contract.

Lozano vs. De los Santos

274 SCRA 452

Facts: Reynaldo Lozano was the President of Kapatirang Mabalacat-Angeles Jeepney Drivers
Association (KAMAJDA) and respondent Antonio Anda was the President of Samahang
Angeles-Mabalacat Jeepney Operators and Drivers Association (SAMAJODA). Upon the
request of the Sangguiniang Bayan of Mabalacat, petitioner and respondent agreed to form the
Unified Mabalacat-Angeles Jeepney Operators and Drivers Association (UMAJODA) and
both also set an election of the officers who shall be given the sole authority to collect daily
dues from the member of the consolidated association. An election was held and both of the
petitioner and respondent ran. Petitioner Lozano won but respondent Anda refused to recognize
the election due to allegation of fraud and continued to collect dues despite several demands to
desist. Petitioner Lozano filed a complaint before the Municipal Trial Court to restrain
respondent Anda but the latter filed a motion to dismiss on the ground of lack of jurisdiction
pointing out that the SEC has jurisdiction over the case being an intra-corporate controversy.
The motion was denied by the MTC, prompting respondent Anda to raise the matter via
certiorari before the RTC. The RTC granted the certiorari ruling that the matter is an intra-
corporate controversy.

Held: There arise no intra-corporate controversy among the petitioner and the respondent. The
controversy between them arose from the plan to consolidate their existing jeepney association.
This unified association was still in a proposal stage. The plan has not yet been approved by
the SEC not the officers or members submitted their articles of consolidation. Consolidation
becomes only effective upon approval by the SEC and not upon the consent of the parties.
Furthermore, the two associations which the petitioner and respondent belongs are duly
registered with SEC and are two separate entities. The dispute therefore is between members
of separate and distinct association. The doctrine of corporation by estoppel cannot override
the jurisdictional requirements. The doctrine applies when persons who assume to form a
corporation, exercise corporate functions and enter into a relation with third persons. Where
there is no third person and the conflict involves among members assuming to form a
corporation, who therefore know that it has not yet been registered, there is no corporation by
estoppel.

V. Articles of Incorporation and By-laws

The articles of incorporation is a basic contract document defining the charter of the corporation. The articles
described that the charter of the corporation is a contract between the State and the corporation, between the
stockholders and the State and between the corporation and the stockholders. The State, as the grantee, is
equally bound by the provision of the articles. (Government of the Philippine Islands vs. Manila Rail Road
Co.,)

By-laws, unlike the articles of incorporation, are meant to be an intramural document designed to govern the
relationship between and among the members of the corporate family. They are intended merely for the
protection of the corporation, and prescribe regulations and not restrictions. The rule is that although the
power to adopt by-laws is an inherent right, the same cannot contravene the law. The validity and
reasonableness of a by-law provision is a question of law. The issue in such cases would be whether the by-
law provisions contradict the articles of incorporation, the charter or the law.

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A. Ultra-Vires Doctrine; Types; Basis; Business Judgment Rule; Doctrine of Apparent Authority

The Ultra-Vires Doctrine

Section 2. A corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or incident to
its existence.

Section 23. Unless otherwise provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees to be elected from among
the holders of stocks, or where there is no stock, from among the members of the corporation,
who shall hold office for one (1) year until their successors are elected and qualified. (28a)

Every director must own at least one (1) share of the capital stock of the corporation of which he
is a director, which share shall stand in his name on the books of the corporation. Any director
who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which
he is a director shall thereby cease to be a director. Trustees of non-stock corporations must be
members thereof. A majority of the directors or trustees of all corporations organized under this
Code must be residents of the Philippines.

Section 45. No corporation under this Code shall possess or exercise any corporate powers except
those conferred by this Code or by its articles of incorporation and except such as are necessary
or incidental to the exercise of the powers so conferred.

The doctrine deals with the corporate capacity to validly enter into contracts and transactions and
involves either of the following principles;
o That every corporation organized under the law is a creature of the State having only
powers which are expressly granted by law, those implied or incident to its existence and
that any act or contract entered into outside of these powers is ultra-vires and therefore
void; and
o That every corporation can only validly act through its Board of Directors and agents duly
authorized by the board and any contract not entered into by the Board is not binding on
the corporation.

Types of Ultra-Vires Cases

o Those entered into or done beyond the powers of the corporation as provided for in the law
or in its articles of incorporation this first type was embodied in Sec. 45 of the Corporation
Code recognizing that the corporation as a creature of the State and with limited powers
can only exercise those which are express, implied or incidental to its existence.
When it comes to specific corporate powers and contracts governed by the
Corporation Code, the Court held that there must be a strict observance of
the procedures mandated by the provision, otherwise the act or contract is
void, even against third persons who acted in good faith under this
circumstances.

o Those entered into or done on behalf of the corporations by persons who have no corporate
authority this second type covers act, transactions and contracts entered into, on behalf of
the corporation, by representative and agents who has no authority to do so. Such contract
are deemed ultra-vires on the ground that it offend against the principle of centralized
management under Sec. 23 of the Corporation Code, which provides that all corporate
powers and authority is vested in the Board of Directors.
When the acts of the officers exceeds their authority their action cannot bind
the corporation, unless it has ratified such acts or is estopped from
disclaiming them. The officer acting without authority cannot, by his act, be

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 the basis upon which the corporation is to be bound without the necessary
ratification nor can third person rely upon such unauthorized act.
However, the plea of ultra-vires cannot be made when the purpose of
which is not to advance justice but to promote a legal wrong to the prejudiced
of the person who acted in bad faith. To temper the effects of the ultra-vires
doctrine, courts have developed the concept of the doctrine of apparent
authority.
The doctrine of apparent authority provides that of a corporation
knowingly permits one of its officers, or any other agent, to act within the
scope of apparent authority, holds him out to the public as possessing the
power to do those act, the corporation will, as against anyone who has acted
in good faith dealt with it through such agent, be estopped from denying the
agents authority. In other words, the Board of a company has, by its acts or
omissions, by previous or contemporary practice, given the impression to the
dealing public that it has clothed the officer with proper authority to bind the
company. (Banate vs. Philippine Countryside Rural Bank)

o Those acts or contracts which are per se illegal as being contrary to law this third type
refers to acts, transactions and contracts entered in the name of the corporation, even when
done with the authority of the Board. Such contract, acts or transactions are deemed ultra-
vires and considered as void on the ground that they are contrary to law, morals, good
customs, public order and public policy.

Business Judgment Rule corporate power and competence is lodged primarily with the Board. The
Rule provides that questions of policy and of management are left to the honest decision of the officers
and directors of the corporation, and the courts are without authority to substitute their judgment for the
judgment of the Board.

Sec. 23. xxx all business conducted and all property of such corporations controlled and held by
the board of directors or trustees xxx

The Business Judgment Rule is embodied under the Sec. 23 of the Code. All corporate powers and
prerogatives are vested directly to the Board. This rule has two consequences;
o The resolution, contracts and transactions entered into by the Board cannot be overturned
or set-aside by the stockholders or member and not even by the courts under the principle
that the business of the corporation has been left to the hands of the board.
o Directors and duly authorized officers cannot be held personally liable for acts or contract
done with the exercise of their business judgment.

Exception to the business judgment rule

o When expressly provided otherwise in the Corporation Code
o When the directors or officers acted with fraud, negligence or in bad faith
o When the directors or officers act against the corporation in conflict of interest situation.

Montelibano vs. Bacolod-Murcia Milling

5 SCRA 36

Facts: Plaintiff-appellants Alfredo Montelibano, Alejandro Montelibano and the limited

partnership of Gonzaga and Company are sugar planters of herein sugar central mill.
Originally, the contract entered into between the Plaintiff-appellants and herein sugar central
mill contains a provision of product sharing in the amount of 55% for the planters and 45% for
the sugar central mill. An amendment was proposed increasing the share of planters to 60%
and extending the contract duration from 30 to 45 years. Pursuant to this, an amended milling
contract was drawn and the Board of Directors of herein sugar central adopted a resolution
accepting the amended terms. The amended contract was then signed. Plaintiff-appellants filed

Page 23 of 33
an action before the Court of First Instance to enforce the provision of the contract. In their
answer, the sugar mill alleged that stipulations were made without consideration and was
therefore null and void, being in effect a donation that was ultra-vires and beyond the powers
of the corporate directors to adopt. The trial court ruled in favor of the sugar central and
dismissed the complaint.

Held: There can be no doubt that the directors of the sugar mill has the authority to modify the
proposed terms of the Amended Milling Contract for the purpose of making it acceptable to
the other contracting party. If that act is one which is lawful, and not otherwise prohibited, and
is reasonably tributary to the promotion of those ends, in a substantial and not in a remote or
fanciful manner, it may fairly be considered within the charter powers. The test to be applied
is whether an act in question is in direct and immediate furtherance of the corporate business,
fairly incident to the express powers of the corporation and reasonably necessary to their
exercise. If so, the corporation has the power to do it.

Phil. Realty vs. Ley

June 13, 2011

Facts: Ley Construction and Development Corporation (LCDC) entered into a contract with
Philippine Realty and Holdings Corporation (PRHC) wherein the former agreed to construct
buildings for the latter denominated as Project 1, Project 2, Project 3 and the Tektite Building.
To facilitate and oversee the construction, Engr. Dennis Abcede was the project construction
manager and Joselito Santos was the general manager and vice-president for operations. The
terms embodied in the construction agreements were identical except those contract price.
Specifically, the agreement provides a prohibition on escalation of prices and liquidated
damages in case of delay. In the course of the construction of the Tektite Building, it was
evident to both parties that the project will not be completed on time. As such LCDC met with
Abcede to discuss the cause of delay wherein the former explained that the unexpected delay
from construction arise from the hike in the prices of cement and construction materials.
Plainly, LCDC wants PRHC to disregard the prohibition on escalation of prices, in which
Abcede replied that the matter will be brought before the Board of PRHC. The proposal was
denied by the Board of PRHC and the denial was not communicated to LCDC. Despite this, a
letter was sent by Abcede to LCDC asking the latter of its conformity to infuse additional P 36
Million into the project so that a contract for price escalation will be granted in its favor.
Interestingly, the letter was signed only by Abecede and the name under which PRHC will sign
remain blank. Despite this, LCDC proceed to the construction of the Tektite Building. It
infused the additional P 36 Million and sent monthly progress reports to PRHC. PRHC did not
reply to various letter sent by LCDC. The project was completed and after reconciliation of
accounts, LCDC wrote a demand letter to PRHC to pay, among others, the P 36 Million price
escalation. PRHC reply and denied any liability. Among its defenses was that, the letter sent
by Abcede regarding the infusion of additional P 36 Million, PRHC was never a conforme
therewith as can be shown that the space where PRHC will sign is blank. Litigation before the
Regional Trial Court commenced and the trial court ruled in favor of LCDC. On appeal before
the Court of Appeals, the appellate court reverse the decision of the trial court and ordere LCDC
to pay PRHC of the difference between the P 36 Million price escalation claimed by LCDC
and the P 39 Million liquidated damages claimed by PRHC. Both appealed the decision to the
Supreme Court.

Held: The letter sent by Abecede was not a mere letter but a letter-agreement a contract
which because the existence of consent of both parties becomes valid and binding. It is true
that no representative of PRHC signed the letter-agreement. However, the signature of Abecede
is sufficient to bind PRHC. As its construction manager, the act of signing the letter produced
legal effect, even if PRHC did not sign. At the very least, he indicated authority to make such
representation on behalf of PHRC. This is evident from the direct examination in which
Abecede represented PRHC in running its affairs. It was established further that all throughout
the existence and execution of the contract, LCDC would approached Abecede and Santos

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whenever LCDC has concerns over the project. As far as LCDC is concerned, Abecede and
Santos were the fully authorized representatives of PRHC. Santos was the Vice-President and
tasked with enforcing the policies of the Board. In addition, LCDC was able to establish the
fact that Santos and Abecede signed other documents which has the same contents. PRHC did
not contest the validity of these documents. Lastly, PRHC did not question the validity of this
agreement when it seeks to apply liquidated damages to as a counterclaim to the price
escalation. In essence, PRHC is liable under the doctrine of apparent authority. Santos and
Abcede held themselves out as possessing authority to act, negotiate and sign documents on
behalf of PRHC and the PRHC sanctioned these acts. Abecedes role as a contruction manager
is akin to that of general manager with regard to the general operations of the corporation.
Lastly, the denial of the supposed proposal of infusing price escalation was never
communicated to LCDC and the latter performed its obligation and sending monthly progress
reports.

Atrium Management vs. Court of Appeals

353 SCRA 23

Facts: Petitioner Lourdes de Leon, treasurer, and Antonio de las Alas, Chairman, both of Hi-
Cement Corp. issued a check in favor of E.T. Henry and Co., in the amount of P 2 Million
Pesos. E.T. Henry and Co. in turn endorsed the check to Atrium after the latter verified the
same to Hi-Cement. During the verification, de Leon confirmed that the checks was issued in
favor to E.T. Henry and Co. for the payment of petroleum products. Upon presentment by
Atrium, the checks were dishonored by the bank for the reason of payment stopped. With its
demand letter unheeded, Atrium filed a collection suit before the trial court. The trial court
ruled in favor of Atrium finding de Leon, her husband Rafael, E.T. Henry and Co. and Hi-
Cement liable to the check. On appeal, the appellate court modified the decision of the trial
court. Absolving Hi-Cement of liability and declaring the act of de Leon and de las Alas in
issuing the checks, ultra-vires. Both de Leon and Atrium raised the case via Rule 45 before the
Supreme Court.

Held: The record reveals that the checks were issued, not as payment of petroleum products,
but to extend financial assistance to Henry and Co. This is evident from the fact that de Leon
ask for counterpart checks. De Leon is the corporate treasurer and authorized to write and issue
checks. At the time of issuance of the checks, there is sufficient funds in bank to cover the said
payment. The act of issuing check is well within the ambit of a valid corporate, for it was
securing a loan to finance corporate activities, hence not an ultra vires act. An ultra vires act is
an act committed outside the object for which a corporation is created as defined by law of its
organization and therefore beyond the powers conferred to it by law. The term ultra-vires is
distinguished from illegal act in the sense that the former is merely voidable and maybe
enforced by ratification, performance or estoppel, while the latter is void and cannot be
validated. Lastly, de Leon may be held personally liable through her negligent act in confirming
that the checks were issued as a payment for gasoline instead of as a financial assistance to
Henry and Co.

Rural Bank of Milaor vs. Ocfemia

325 SCRA 99

Facts: Spouses Felicisimo and Juanita Ocfemia were not able to redeem the 7 parcels of land
mortgaged to the petitioner bank. Hence was foreclosed. Of the 7 parcels, 5 were in the
possession of private respondent Marife O. Nino, their granddaughter. The possession arise
from the deed of sale entered into between the bank and Nino. Seeking to register the 5 parcels
of land, the Registry of Deeds required her to submit the Board Resolution pertaining to the
sale of land. After inquiring to the bank and giving roundabout, the bank cited that the Board
Resolution requested by the Nino cannot be issued because the bank has no record of the sale
and had a new manager. Nino filed an instant petition for mandamus before the trial court. The
trial court declared the bank in default for failure to file a responsive pleading, set the case for

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hearing, received the evidence of Nino ex-parte and ruled in favor therein. The bank filed an
instant petition harping that the deed of sale executed between Nino and the former bank
manager were not authorized by the Board, in the same effect, the board resolution requested
cannot be complied with.

Held: By the failure to file a responsive pleading specifically denying the deed, its authenticity
and due execution is deemed admitted. In any event, the bank acknowledged, by its own acts
or omissions, the authority of the previous bank manager Fe S. Tena to enter into binding
contracts. After the execution of the contract, respondents has occupied the land and the bank
didnt initiate measures to protect its right, assuming the lack of authority. Furthermore, Tena
had previously transacted in behalf of the bank and the latter acknowledged such authority. A
bank is liable to innocent third persons where representation is made in the ordinary course of
its normal business. Where similar acts have been approved by the Board as a matter of general
practice, custom, and policy, the general manager may bind the corporation without formal
authorization from the board. In varying language, existence of such authority is established
by proof of the course of business, the usages and the practice of the company and by the
knowledge the board has, or must be presumed to have, of acts and doings about it subordinates
in and about affairs of the corporation. In this light, the petitioner bank is estopped from
questioning the authority of the bank manager to enter into a contract. If a corporation permits
one of its officers or any other agent to act within the scope of their apparent authority, it holds
the agent 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 an agent, be estopped from
denying the agents authority.

Riosa vs. Tabaco La Suerte Corporation

108 SCRA 653

Facts: Aquiles Riosa was the owner of 52 square meter parcel of land located in Albay City.
His daughter, Annie Riosa renovated the commercial building located in the parcel of land
costing P300, 000 and on three occasions, Aquiles obtained a loan in the amount of P50, 000
with P 2, 000 interest to Sia Ko Pio. As a security for payment, Sia Ko Pio request a photocopy
of the deed of cession and quitclaim of the 52 sqaure meter land. Sia Ko Pio then presented a
document purporting to be a receipt of indebtedness and Aquiles, signed the same without
reading it. That after a while, notice of eviction from La Suerte was received by Aquiles
informing the latter that the former is already the owner of the parcel of land and the subject
lot was already in its name. Aquiles filed an action before the trial court alleging that by means
of fraud, deceit and misrepresentation, Sia Ko Pio made him to sign document which allegedly
receipt of indebtedness but actually a document of sale. In its answer, La Suerte insist that it
was the owner of the land and that the sale entered into between La Suerte and Aquiles was
valid. The trial court ruled in favor of Aquiles, giving credence to the fact that Aquiles signed
receipt of indebtedness and not of document of sale. On appeal, the appellate court reverse the
ruling of the trial court. It cited the indefeasibility of the title of La Suerte and the lack of proof
of fraud, deceit and misrepresentation as claimed by Aquiles. Before the Supreme Court,
among others, Aquiles was harping on the issue that Sia Ko Pio was never authorized by the
Board of La Suerte to enter into any transaction with respect to the acquisition of the parcel of
land.

Held: The appellate court should not have favorably considered the document of sale absent
any written authority from La Suertes Board of Director. The court notes that there is no
records in the corporation which gives the authority to Sia Ko Pio, an officer of the said
corporation, to purchase the disputed property. Under Sec. 23 of the Corporation Code, it is the
Board which exercises almost all the corporate powers of the corporation and this includes
those of Sec. 36 par. 7 the power to purchase property. Under the aforementioned provisions,
the power to purchase real property is vested in the board of directors or trustees. While a
corporation may appoint agents to negotiate for the sale, the final say rest on the board in
which its imprimatur will finalize the transaction. A corporation can only exercise its powers

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and transact its business through the board, and through its officers and agents when authorized
by a board resolution or its by-laws. Absent such valid delegation or authorization, the rule is
that the declaration of an individual director relating to the affairs of the corporation but not in
the course or in the performance of his duties do not bind the corporation. Sia Ko Pio, although
an officer of the corporation, had no authority from its Board of Directors to enter into the
contract involving Aquiles properties.

Advance Paper Corp. vs. Arma Traders Corp.

December 11, 2013

Facts: Advance Paper and Arma Traders were dealing to each other for the past 14 years. On
various dates on September to December 1994, Arma Traders purchased on credits notebooks
and other paper products amounting to P 7.1 Million Pesos. Upon the representation of Tan
and Uy, the President and Treasurer of Arma respectively at that time, Advance Paper granted
loan in the total amount of P 7.7 Million Pesos to Arma, as the latter needed funds to cover its
obligation to other suppliers pending the arrival of its collectibles. As payment for the supplies
and the loans it entered into, Arma issued 82 post-dated checks in favor of Advance Paper. The
checks issued were dishonored by the bank and despite repeated demand, Arma failed to settle
its account. As such, a collection suit was then filed to the Regional Trial Court by Advance
Paper against Arma Traders. Arma Traders denied any liability. It pointed out that purchases
on credits were spurious and that Tan and Uy, with the assistance officers of Advance Paper,
fraudulently embezzled the funds of Arma Traders and further claimed that the loans entered
into by Tan and Uy, in the absence of any board resolution, were ultra-vires. During trial,
officers of Arma Paper admitted that the board did not even meet prior to the institution of the
action by Advance Paper. The trial court ruled in favor of Advance Paper and held that it
sufficiently established its claims. On appeal, the appellate court reversed the ruling of the trial
court and exonerate Arma Traders and held, among others, that the absence of authority from
the board renders the act of obtaining a loan ultra-vires. Since the act of writing a check and
the act of obtaining a loan are two different things.

Held: Arma Traders is liable to pay the loans on the basis of the doctrine of apparent authority.
The doctrine of apparent authority provides that a corporation will be estopped from denying
the agents authority if it knowingly permits one of its officers or any other agent to act within
the scope of an apparent authority, and it holds him out to the public as possessing the power
to do those acts. The doctrine of apparent authority does not apply if the principal did not
commit any acts or conduct which a third party knew and relied upon in good faith as a result
of the exercise of reasonable prudence. Moreover, the agents acts or conduct must have
produced a change of position to the third partys detriment. Apparent authority is derived not
merely from practice. Its existence may be ascertained through;
(1) The general manner in which the corporation holds out an officer or agent as having
the power to act or, in other words the apparent authority to act in general, with which
it clothes him; or
(2) The acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, within or beyond the scope of his ordinary powers. It requires
presentation of evidence of similar act or acts executed either in its favor or in favor of
other parties.
It is not the quantity of similar acts which establishes apparent authority, but the vesting of a
corporate officer with the power to bind the corporation. To begin with, Arma Traders Articles
of Incorporation provides that the corporation may borrow or raise money to meet the financial
requirements of its business by the issuance of bonds, promissory notes and other evidence of
indebtedness. Furthermore, the respondents testified that the sole management of Arma
Traders was left to Tan and Uy and that he and the other officers never dealt with the business
and management of Arma Traders for 14 years. He also confirmed that since 1984 up to the
filing of the complaint against Arma Traders, its stockholders and board of directors never had
its meeting.Thus, Arma Traders bestowed upon Tan and Uy broad powers by allowing them to
transact with third persons without the necessary written authority from its non-performing

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board of directors. Arma Traders failed to take precautions to prevent its own corporate officers
from abusing their powers. Because of its own laxity in its business dealings, Arma Traders is
now estopped from denying Tan and Uys authority to obtain loan from Advance Paper.

University of Mindanao vs. BSP

January 11, 2016

Facts: Guillermo Torres and Dolores Torres were University of Mindanaos (UM) Chairman
of Board of Trustees and Assistant Treasurer, respectively. Both were also officers of First
Iligan Savings & Loan Association (FISLAI) and Davao Savings and Loan Association
(DSLAI). Upon the request of Guillermo, P1.9 Million was granted by the BSP to FISLAI as
standby emergency credit. Subsequently, UMs Vice-President Saturnino Petalcorin executed
a deed of real estate mortgage over UMs property in CDO in favor of BSP as a security for
FISLAIs P1.9 Million Peso loan. As proof of his authority, he presented the Secretarys
Certificate issued by the Corporate Secretary, Aurora de Leon, stating that a Board meeting
was conducted and UMs property was authorized to be mortgage by the Board and appointing
Petalcorin as its agent. The Secretarys Certificate was supported by an excerpt from the
minutes of meeting. The mortgage then was duly annotated. BSP granted additional loan to
FISLAI in the amount of P 620, 700. Again, Petalcorin executed another deed of mortgage
covering the property of UM in Iligan City. The mortgage was again annotated. BSP also
granted loan to DSLAI in the amount of P 8.1 Million Pesos. Landbank (LBP), FISLAI and
DSLAI entered into MOA to rehabilitate the thrift banks and the merger of FISLAI and DSLAI
to form Mindanao Savings and Loan Association (MSLAI). MSLAI failed to meet its loan
obligation to BSP. Thereafter, BSP notify UM that it will be foreclosing its properties which
is the subject matter of the deed of mortgage. In its reply to BSP, UM denied having received
any loan proceeds nor the property being mortgaged. UM filed a cancellation of deed of
mortgage before the Regional Trial Court of CDO and Iligan. In its complaint, UM claimed
that the act done was ultra-vires and was never ratified by the Board of Trustees of UM and
the Secretarys Certificate is anomalous. Moreover, it held that as an educational institution, it
cannot mortgaged its properties for an obligation of another. Both the trial court annulled the
deed of mortgage and ruled that the absence of the required board resolution made the contract
essentially unenforceable. BSP appealed the decision of both of the trial court to the Court of
Appeals and consolidate the same. The appellate court reversed the findings of the trial courts.
The appellate court applied the doctrine of apparent authority and ruled that, even if there is no
board resolution, the secretarys certificate clothed Petalcorin of apparent authority and that
BSP relies on that fact in good faith. It held further that knowledge of corporate officers is
knowledge to the corporation. The failure of UM to disown the mortgage deed effectively
estopped UM.

Held: Securing the loans of another person is not one of those purposes to which UM was
created. Corporations may exercise its powers only within those expressly granted by law,
implied or incident to its existence. Corporate acts outside of those are considered ultra-vires.
Appropriate amendments to the law or Articles of Incorporation of the corporation be made
before a corporation can validly exercise powers outside of the law or articles of incorporation.
The mortgage contracts entered into does not bind UM. They were executed without the
authority of UM. Relationship entered into between a corporation and its duly authorized
representatives is govern by the laws on agency. Here, without delegation of the board, acts of
a person cannot bind the corporation. Contracts entered into then becomes essentially
unenforceable. As aptly found by the trial court, the Secretarys Certificate is either non-
existent or fictitious and that, in reality, there is no board resolution. To be clear, unauthorized
acts that are simply merely beyond the powers of the corporation are not void ab initio. They
may be susceptible to ratification, either express or implied, or by estoppel. Knowledge of
corporate officers in relation to matters within his official function is knowledge to the
corporation whether such officer communicate the same to the corporation. The doctrine of
apparent authority is inapplicable in this case. The doctrine does not dwell on questions of
whether the corporation has the power but on whether the corporation has clothe such officer

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 with power. A finding that there is apparent authority does not necessary equate that the act is
within the corporations limited power. The doctrine is based on the principle of estoppel.
There can be no apparent authority and the corporation cannot be estopped in the absence of
evidence pointing to similar acts and other circumstances which would support that the
corporation holds them out to the public as having authority. Petalcorins authority cannot be
presumed from the Corporates secretary certificate and the minutes of board meetings that
were simulated. These documents cannot be considered as corporate acts that held out
Petalcorin as authorized agent of UM to mortgage the properties. They were not supported by
actual board meeting.

B. Articles of Incorporation (Sec. 14); Procedure; Contents (Sec. 18) 2014 BAR, 1990 BAR; Amendment
(Sec. 16)

Articles of Incorporation articles constitutes the very charter and the basis by which a corporation
exist for legal purpose.

Section 14. Contents of the articles of incorporation. All corporations organized under this code
shall file with the Securities and Exchange Commission articles of incorporation in any of the
official languages duly signed and acknowledged by all of the incorporators, containing
substantially the following matters, except as otherwise prescribed by this Code or by special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the corporation is being incorporated. Where a
corporation has more than one stated purpose, the articles of incorporation shall state which
is the primary purpose and which is/are the secondary purpose or purposes: Provided, That
a non-stock corporation may not include a purpose which would change or contradict its
nature as such;
3. The place where the principal office of the corporation is to be located, which must be within
the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the incorporators;
6. The number of directors or trustees, which shall not be less than five (5) nor more than fifteen
(15);
7. The names, nationalities and residences of persons who shall act as directors or trustees until
the first regular directors or trustees are duly elected and qualified in accordance with this
Code;
8. If it be a stock corporation, the amount of its authorized capital stock in lawful money of the
Philippines, the number of shares into which it is divided, and in case the share are par value
shares, the par value of each, the names, nationalities and residences of the original
subscribers, and the amount subscribed and paid by each on his subscription, and if some or
all of the shares are without par value, such fact must be stated;
9. If it be a non-stock corporation, the amount of its capital, the names, nationalities and
residences of the contributors and the amount contributed by each; and
10. Such other matters as are not inconsistent with law and which the incorporators may deem
necessary and convenient.

The Securities and Exchange Commission shall not accept the articles of incorporation of any
stock corporation unless accompanied by a sworn statement of the Treasurer elected by the
subscribers showing that at least twenty-five (25%) percent of the authorized capital stock of the
corporation has been subscribed, and at least twenty-five (25%) of the total subscription has been
fully paid to him in actual cash and/or in property the fair valuation of which is equal to at least
twenty-five (25%) percent of the said subscription, such paid-up capital being not less than five
thousand (P5,000.00) pesos.

Procedure for Registration of the Articles of Incorporation the articles does not become binding as the
charter of the corporation unless they have been filed, registered and certified by the Securities and
Exchange Commission (SEC);

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 o Upon filing of the articles of incorporation, the SEC will examine whether the provisions
thereof are in accordance with law. If the articles are violative of law, SEC shall give
reasonable time within which to correct or modify the objectionable portions.
P.D. 902-A gives the SEC, after consultation with the BOI and NEDA or other
appropriate government agencies, the power to refuse or deny any application for
registration of the corporation, if its establishment, organization or operation will
not be consistent with the declared national economic policies.
o In cases of special corporations such as bank, public utilities, insurance companies and the
likes, their articles of incorporation will not be certified unless the said articles are
accompanied by a favorable recommendation from the appropriate government agency
supervising such special corporation, to effect that the articles are in accordance with the
specific laws applicable.
Special rule for banks the SEC shall not register the articles of incorporation of
any bank, or amendment thereto, unless accompanied by a certificate of authority
issued by the Monetary Board under its seal.
o The SEC shall not accept articles of incorporation of a stock corporation unless
accompanied by a sworn statement by the Treasurer (Treasurers Affidavit), that at least
25% of the total capital stock authorized is subscribed and at least 25% of such (those
which are subscribed) have been fully paid in cash or in property. Such paid-up capital
shall not be less than P5, 000 Pesos (Subscription Requirements).
The 25% subscription requirement refers to the total amount of subscription and
not to individual subscription regardless of the class of shares. (SEC Opinion, 18
April 1995).
Bank Certificate covering the deposit of the paid-up capital must accompany the
incorporation papers.
Letter of authority authorizing SEC to examine not only the bank deposit account
but also the corporations book of accounts and supporting records to determine
the existence and utilization of the paid up capital. The letter of authority,
notwithstanding the change of corporate officer, is binding upon the corporation.
o Upon satisfaction that all legal requirement in the course of its examination, the SEC issues
the certificate of incorporation. Only then shall the corporation have a personality separate
and distinct from its stockholders and/or members.
The approval of the articles of incorporation and the issuance of the certificate of
registration do not preclude SEC, if it later finds that the incorporators were guilty
of fraud in procuring the certificate of incorporation, from revoking the same upon
proper hearing.

Grounds for disapproval of the Articles of Incorporation

Section 17. The Securities and Exchange Commission may reject the articles of incorporation or
disapprove any amendment thereto if the same is not in compliance with the requirements of this
Code: Provided, that the Commission shall give the incorporators a reasonable time within which
to correct or modify the objectionable portions of the articles or amendment. The following are
grounds for such rejection or disapproval:
1. That the articles of incorporation or any amendment thereto is not substantially in
accordance with the form prescribed herein;
2. That the purpose or purposes of the corporation are patently unconstitutional, illegal,
immoral, or contrary to government rules and regulations;
3. That the Treasurers Affidavit concerning the amount of capital stock subscribed
and/or paid is false;
4. That the percentage of ownership of the capital stock to be owned by citizens of the
Philippines has not been complied with as required by existing laws or the
Constitution.

Contents of the Articles of Incorporation the basis contents of the articles are considered important
and jurisdictional.

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1. The name of the corporation;
i. Since the corporate name is the main practical means of identifying the
corporation from its members or stockholders, and from other entities, the
Corporation Code does not allow a corporation to adopt a name identical
confusing or deceptively similar to another name already protected or contrary to
law.
ii. SEC Guidelines on Corporate Names governs the matters to consider in creating
a name. Essentially, to fall in the prohibition on confusingly or deceptive name,
two (2) requisites must concur;
1. The complainant corporation acquired a prior right over the use of such
corporate name priority of adoption
2. The proposed name is either identical or deceptively or confusingly
similar to that of any existing corporation, name already protected by
law or contrary to existing laws
iii. Although a corporation has the power to change its name pursuant to the
procedure laid down by law, the change of name does not result into dissolution
or the corporation.
iv. The Securities Regulation Code transferred corporate cases (Sec. 5) to trial
courts, the SEC has still the absolute jurisdiction over cases involving corporate
name in the exercise of its regulatory and administrative powers to enforce the
Corporation Code. (Industrial Refractions Corp. vs. CA)

2. The specific purpose or purposes for which the corporation is being incorporated. Where a
corporation has more than one stated purpose, the articles of incorporation shall state which
the primary purpose is and which is/are the secondary purpose or purposes: Provided, That
a non-stock corporation may not include a purpose which would change or contradict its
nature as such (The Purpose Clause);
i. The significant purpose clause is that it confers, as well as limits the powers of
the corporation which it may exercise. The primary and secondary purpose need
not be related.
ii. The indication for the primary purpose in the articled is for the supervision and
monitoring of the State, as it can determine the jurisdiction in which the
operations of the corporation will fall.
iii. If the purpose of the corporation as stated in the articles of incorporation is lawful,
the SEC cannot ask for any other purpose other than those stated, hence
mandamus may apply, except in cases where the SEC may need to regulate
certain activities pursuant to declared national economic policies.
iv. Although the duties of SEC is ministerial, it does not necessarily follow that it
may not, in the administration of his office, determine questions of law. It is the
duty of the SEC to determine whether the objects of the corporation as expresses
in its articles of incorporation is lawful pursuant to the Corporation Code.
(Asuncion vs. De Yriarte)
v. Further, investment in secondary purpose requires 2/3 votes of members or
shareholders, as the case maybe, wherein investment to primary purpose does not
require votes of members or shareholders.

3. The place where the principal office of the corporation is to be located, which must be
within the Philippines;
i. The residence of a corporation is the place where its principal office is located as
stated in its articles of incorporation. This rule is pursuant to Art. 51 of the Civil
Code which provides that the residence or domicile of a juridical person is
determined by the law creating or recognizing it. This is important in determining
the venue of an action by or against a corporation.

4. The term for which the corporation is to exist;

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 i. The corporate existence and juridical personality only commence from the date
the SEC issues a certificate of incorporation.
ii. A corporation shall exist for a period not exceeding 50 years from the date of the
incorporation unless sooner dissolved or the period is extended.
iii. Such extension of corporate life cannot be made earlier than five years before the
end of its original term unless there is justifiable reasons. In such case of
extension, the articles of incorporation must be amended.

5. The names, nationalities and residences of the incorporators;

i. Any number of natural persons not less than five (5) but not more than fifteen
(15), all of legal age and a majority of whom are residents of the Philippines, may
form a private corporation for any lawful purpose or purposes. Each of the
incorporators of a stock corporation must own or be a subscriber to at least one
(1) share of the capital stock of the corporation. (Sec. 10)
ii. There is no general requirement for citizenship since only a majority of the
incorporators must be resident of the Philippines. However, there are some areas
of business in which ownership is reserved wholly or partially to Filipinos. (See
Foreign Investment Act)
iii. An incorporator may cease to be a stockholder, lose all the rights and interest in
the corporation but will always be known as the incorporator. The articles cannot
be amended to delete the name of an incorporator and change the name with that
of another.

6. The number of directors or trustees, which shall not be less than five (5) nor more than
fifteen (15);
7. The names, nationalities and residences of persons who shall act as directors or trustees
until the first regular directors or trustees are duly elected and qualified in accordance with
this Code;
8. If it be a stock corporation, the amount of its authorized capital stock in lawful money of
the Philippines, the number of shares into which it is divided, and in case the share are par
value shares, the par value of each, the names, nationalities and residences of the original
subscribers, and the amount subscribed and paid by each on his subscription, and if some
or all of the shares are without par value, such fact must be stated;
i. Capital stock is the amount fixed in the articles of incorporation procured to be
subscribed and paid-in. It refers to the value of the property or assets of a
corporation. (PLDT vs. NTC)
ii. Outstanding Capital Stock is the total shares of stocks issued to shareholders
whether fully or partially paid except treasury shares.
iii. Subscribed Capital Stock is the portion of the capital stock subscribed whether
or not fully paid.
iv. Subscription is the mutual agreement of the corporation and shareholders to take
and pay for the stock of a corporation.
v. Par value refers to the nominal value of a share which appears in the articles of
incorporation. If no-par value was issued by a corporation, such fact must appear
in the articles of incorporation, and the value of which should not be less than P
5 Pesos.
vi. Issued value is the consideration for which par value may be issued. The issued
value maybe fixed in three ways;
1. By the Articles of incorporation
2. By the Board when authorized by the articles of incorporation or by-
laws.
3. By the stockholders representing at least the majority of the outstanding
capital stock.
vii. No par value shares cannot be issued by banks, public utility companies,
insurance companies and buildings and loan associations. The reason for the
prohibition is that the activity is imbued with public interest and proper

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 accountability is served if nominal amounts are assigned to the shares as basis of
capital structure.

9. If it be a non-stock corporation, the amount of its capital, the names, nationalities and
residences of the contributors and the amount contributed by each; and
10. Such other matters as are not inconsistent with law and which the incorporators may deem
necessary and convenient.

Amendment of Articles of Incorporation

Section 16. Unless otherwise prescribed by this Code or by special law, and for legitimate
purposes, any provision or matter stated in the articles of incorporation may be amended by a
majority vote of the board of directors or trustees and the vote or written assent of the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock, without
prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of
this Code, or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-
stock corporation.

The original and amended articles together shall contain all provisions required by law to be set
out in the articles of incorporation. Such articles, as amended shall be indicated by underscoring
the change or changes made, and a copy thereof duly certified under oath by the corporate
secretary and a majority of the directors or trustees stating the fact that said amendment or
amendments have been duly approved by the required vote of the stockholders or members, shall
be submitted to the Securities and Exchange Commission.

The amendments shall take effect upon their approval by the Securities and Exchange
Commission or from the date of filing with the said Commission if not acted upon within six (6)
months from the date of filing for a cause not attributable to the corporation.

The Procedure for amendment would involve only two steps; majority of the vote of the board and vote
or mere written assent of 2/3 of outstanding capital stock or, in case of non-stock corporation, by its
members.

However, there are certain matters which are beyond the power of amendment to change in the articles
of incorporation because they are accomplished facts at the time of incorporation;
1. Name of the incorporators
2. Name of the incorporating directors or trustees
3. The treasurer-in-trust elected by original subscribers
4. Name of the original subscriber to the capital stock of the corporation and their subscribed
and paid-up capital
5. Members who contributed to initial capital of a non-stock corporation
6. Witnesses and the acknowledgement thereof.

IRCP vs. Court of Appeals

October 3, 2002

Facts: Respondent

Held:

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