CUNANAN, Milane Anne C.

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REVISED CORPORATION CODE

TASK 1

CASE PROBLEMS

1. ABC Construction planned to develop a housing project and a condominium project. To

finance the projects, ABC Construction, X Guaranty Corp., and Y Bank agreed to raise funds
through the issuance of 400,000,000 pesos worth of funds. The three (3) companies entered
into a Contract of Guaranty in which they agreed that ABC Construction would sell the bonds
and convey the funds into an asset pool. Y Bank would be the custodian of the assets, with the
corresponding obligation to pay the interests, and redeem the bonds at maturity. X Guaranty
Corp., as guarantor, would pay the value of the bond at maturity plus 8.5% interest per year.
Thereafter, Z Company purchased 100,000,000 worth of bonds but asked for additional
interest based on the letters written by the Senior Vice President of ABC Construction.
However, after the economic crisis, the construction suffered losses and could not proceed with
the construction. After the bonds matured, the 3 companies paid Z Company interest earnings
of 8.5% per year. Z company, however, sent a demand letter for the additional 7% unpaid
interest to which ABC construction refused.
ABC Construction alleged that it only agreed to pay the additional 7% on the condition
that all the asset pool fund would be released to it. Further, ABC Construction disavows the
obligation as it was made by an unauthorized officer. Z Company, on the other hand, alleged
that it was induced into buying the bonds after ABC Construction, through its Senior Vice
President’s letters, committed to pay 15.5%. It further alleged that ABC Construction paid the
additional interest twice during the holding period of the bonds.

a. Whether ABC Construction is liable to pay the additional unpaid interest of 7% to Z

Company based on the letter executed by its Senior Vice President.

YES. A corporation exercises its corporate powers through its board of directors.
This power may be validly delegated to its officers, committees, or agencies. The
authority of such individuals to bind the corporation is generally derived from law,
corporate bylaws or authorization from the board, either expressly or impliedly by habit,
custom or acquiescence in the general course of business.
ABC Construction’s subsequent act of twice paying the additional interest the
Senior Vice President committed to during the term of the bonds is considered a
ratification of the latter’s acts. ABC Construction’s only defense that they were
"erroneous payments" since it never obligated itself from the start cannot stand.
Corporations are bound by errors of their own making.

b. Was there an apparent authority given to the Senior Vice President to commit a higher
interest to Z Company.

YES. Although an officer or agent acts without, or in excess of, his actual
authority if he acts within the scope of an apparent authority with which the corporation
has clothed him by holding him out or permitting him to appear as having such authority,
the corporation is bound thereby in favor of a person who deals with him in good faith in
reliance on such apparent authority, as where an officer is allowed to exercise a
particular authority with respect to the business, or a particular branch of its continuously
and publicly, for a considerable time.
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Here, Z Company relied on the Senior Vice President’s apparent authority to

promise interest payments over and above the guaranteed 8.5%. His apparent authority
was further demonstrated by ABC Construction paying respondent what the Senior Vice
President promised during the term of the bonds (Terp Construction Corporation, vs.
Banco Filipino Savings and Mortgage Bank, G.R. No. 221771. September 18, 2019).

2. XYZ Corporation is a close corporation. It’s stockholders are A, his wife B, their children C
and D (ABCD as majority shareholders), and his sister E. The controversy arose when E
introduced improvements on a land owned by XYZ Corporation, without the proper resolution
from the corporation’s Board of Directors. Consequently, XYZ Corporation and A, B, C, and D
filed a complaint to the Regional Trial Court (RTC) against E and her employees for introducing
unauthorized improvements on corporate property, and operating a restaurant in the
improvements.
In E’s defense, she admitted introducing improvements on the properties. However, she
claimed that the suit was brought because she refused to heed to A’s demand that he buyout
his shares in XYZ Corporation. Further, she argued that XYZ Corporation never authorized the
institution of the suit. Without a resolution from the corporation’s Board of Directors, A, B, C, and
D has no legal standing to bring the case since the lots in question belonged to XYZ
Corporation.

a. Can a derivative suit be instituted absent a resolution or any other grant of authority from
its Board of Directors?

YES. Since the board is guilty of breaching the trust reposed in it by the
stockholders, it is but logical to dispense with the requirement of obtaining from its
authority to institute the case and to sign the certification against forum shopping . It has
been held that when "the corporation is under the complete control of the Board of
Directors, it is obvious that a demand upon the board to institute an action and prosecute
the same effectively would be useless, and the law does not require litigants to perform
useless acts." Thus, the institution of a derivative suit need not be preceded by a board
resolution.

b. Whether A, B, C, and D may sue on behalf of XYZ Corporation.

NO. As creatures of the law, corporations only possess those powers that are
granted through statute, either expressly or by way of implication, or those that are
incidental to their existence.
One of the powers expressly granted by law to corporations is the power to sue.
As with other corporate powers, the power to sue is lodged in the board of directors,
acting as a collegial body. Thus, in the absence of any clear authority from the board,
charter, or by-laws, no suit may be maintained on behalf of the corporation. A case
instituted by a corporation without authority from its board of directors is subject to
dismissal on the ground of failure to state a cause of action.

c. If there is no Board of Directors elected by the Corporation, may A, B, C, and D sue on

behalf of the Corporation.
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NO. Majority shareholders cannot be allowed to bypass the formation of a board

and directly conduct corporate business themselves. The Court cannot stress enough
that the law mandates corporations to exercise their powers through their governing
boards. Hence, if a person or group of persons truly desires to conduct business through
the corporate medium, then he, she, or they, as a matter of law, must form a board of
directors. To allow A, et al., to forego the election of directors, and directly commence
and prosecute this case would not only downplay the key role of the board in corporate
affairs, but also undermine the theory of separate juridical personality.
The aggrieved stockholders cannot now come before the Court, claiming that
their remedy is a derivative suit. Their failure to elect a board ultimately resulted in their
failure to exhaust all legal remedies to obtain the relief they desired. Since this case
could have been brought by XYZ Corporation, through its board, its stockholders cannot
maintain the suit themselves, purporting to sue in a derivative capacity. A, B, C, and D
should not be allowed to use a derivative suit to shortcut the law (Ago Realty and
Development Corporation v. Dr. Angelita F. Ago, G.R. No. 210906, October 16,
2019).

.
3. X Corporation was incorporated in January 19, 1952, for a term of twenty-five (25) years
which expired on January 19, 1977. On May 14, 1977, the members of the Board of Directors
executed a deed of assignment of all of the account receivables, properties, obligations and
liabilities of the old X Corporation in favor of John Lloyd Cruz, in his capacity as treasurer of the
new X Corporation, then in the process of incorporation. On June 14, 1977, the new X
Corporation was issued a Certificate of Incorporation by the Securities and Exchange
Commission (SEC).
In 1981, Bea Alonzo and other stockholders of old X Corporation, filed with the SEC a
petition for dissolution (not liquidation) of both the old and new X Corporation. The allegation
was that the former had become legally non-existent for failure to extend its corporate life and
that the latter had likewise been ipso facto dissolved for non-use of the charter and continuous
failure to operate within two (2) years from incorporation. It further contends the following:
 The new X corporation has not substantially complied with the requirement of the
corporation code on non-user because its stockholders never adopted a set of by-laws;
and
 The Board of Directors of an already dissolved corporation does not have inherent
power, without express consent of the stockholders, to convey all its assets to a new
corporation.

a. Whether the new X Corporation acquired juridical personality, even on its failure to adopt
the by-laws of the corporation within the prescribed period.

YES. According to the Supreme Court in the case of Chung Ka Bio v.

Intermediate Appellate Court, it is undeniable that the new X Corporation has in fact
been operating all these years. Its failure to file the by-laws does not automatically
operate to dissolve a corporation but is now considered only a ground for such
dissolution.
Substantial compliance with conditions subsequent will suffice to perfect
corporate personality. Organization and commencement of transaction of corporate
business are but conditions subsequent and not prerequisites for acquisition of corporate
personality. The adoption and filing of by-laws is also a condition subsequent.
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b. Whether the conveyance made by the Board of Directors of the assets and obligations of
old X Corporation, even after the expiration of the corporate term, still be considered as
valid.

YES. the board of directors is not normally permitted to undertake any activity
outside of the usual liquidation of the business of the dissolved corporation, there is
nothing to prevent the stockholders from conveying their respective shareholdings
toward the creation of a new corporation to continue the business of the old. Winding up
is the sole activity of a dissolved corporation that does not intend to incorporate anew. If
it does, however, it is not unlawful for the old board of directors to negotiate and transfer
the assets of the dissolved corporation to the new corporation intended to be created as
long as the stockholders have given their consent.
In the case at bar, the deed of assignment was executed in 1977, it was only in
1981 that it occurred to Bea Alonzo to question its validity. All of four years had elapsed
before she filed their action for liquidation of both the old and the new corporations, and
during this period, the new X Corporation was in full operation, openly and quite visibly
conducting the same business undertaken earlier by the old dissolved X Corporation.
Surely, these circumstances must operate to bar from questioning the deed of
assignment after this long period of inaction in the protection of the rights that are now
belatedly asserted. Laches has operated against them (Chung Ka Bio, et. al. v.
Intermediate Appellate Court, et. al., G.R. No. 71837, July 26, 1988).

4. German – Shepherd Chamber of Dogs of the Philippines, Inc. (GSCDPI) was originally
registered with the Securities and Exchange Commission (SEC) as Shepherd Chamber of Dogs
Manila, Inc. in 1951. It amended its corporate name to Shepherd Chamber of Dogs Philippines,
Inc (SCDPI), and further amended it into German – Shepherd Chamber of Dogs of the
Philippines, Inc. on 1977. Pursuant to its Articles of Incorporation, and without applying for an
extension of corporate term, the defunct GSCDPI’s term of existence expired in 2001.
In 2005, Mr. Arf-arf reserved the corporate name “German Shepherd Chamber of Dogs
in the Philippines., Inc” with the SEC. In a opposition, Mr. Woofwoof, claiming to be a
representative of the defunct GSCDPI, alleged that the corporate name has been used by the
defunct GSCDPI, and that the reservation by another person who is not its member of
representative is illegal. The SEC rendered a decision granting Mr. Arf-arf’s reservation, holding
that he possesses the better right over the corporate name. It further averred that the defunct
GSCDPI has no legal personality to oppose the reservation of the corporate name by Mr. Arf-
arf. After the expiration of the defunct GSCDPI’s corporate existence, without any act on its part
to extend its term, its right over the name ended. GSCDPI was incorporated March 14, 2006.
Meanwhile Mr. Rawr, who allegedly represented the defunct GSCDPI, filed a an
application with the SEC for the reservation of the corporate name “Shepherd Chamber of Dogs
Phils., Inc”. SCDPI was incorporated on April 5, 2006. Upon knowledge, Mr. Arf-arf opposed the
application . SEC granted the opposition, recognizing him as the one possessing better right
over the corporate name German Shepherd Chamber of Dogs in the Philippines., Inc.”

a. Did SCDPI acquired prior right based on its averment that it first incorporated and held
the name of the defunct GSCDPI in 1977?

NO. In Industrial Refractories Corporation of the Philippines v. Court of Appeals,

the Court applied the priority of adoption rule to determine prior right, taking into
consideration the dates when the parties used their respective corporate names. It ruled
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that "Refractories Corporation of the Philippines" (RCP), as opposed to "Industrial

Refractories Corporation of the Philippines" (IRCP), has acquired the right to use the
word "Refractories" as part of its corporate name, being its prior registrant on October
13, 1976. The Court noted that IRCP only started using its corporate name when it
amended its Articles of Incorporation on August 23, 1985.

In this case, GSCDPI was incorporated on March 14, 2006. On the other hand,
SCDPI was incorporated only on April 5, 2006, or a month after GSCDPI registered its
corporate name. Thus, applying the principle in the Refractories case, we hold that
GSCDPI, which was incorporated earlier, acquired a prior right over the use of the
corporate name.

b. Is there a similarity between the names “Shepherd Chamber of Dogs Phils., Inc” and
“German Shepherd Chamber of Dogs in the Philippines., Inc”, that would inevitably lead
to confusion.

YES. The Corporation Code expressly prohibits the use of a corporate name
which is identical or deceptively or confusingly similar to that of any existing corporation.
SCDPI’s corporate name is deceptively or confusingly similar to that of GSCDPI. It is
settled that to determine the existence of confusing similarity in corporate names, the
test is whether the similarity is such as to mislead a person, using ordinary care and
discrimination. In so doing, the court must examine the record as well as the names
themselves. Proof of actual confusion need not be shown. It suffices that confusion is
probably or likely to occur. In this case, the overriding consideration in determining
whether a person, using ordinary care and discrimination, might be misled is the
circumstance that both SCDPI and GSCDPI have a common primary purpose (Indian
Chamber of Commerce Phils., Inc. v. Filipino Indian Chamber of Commerce in the
Philippines., Inc., G. R. No. 184008, August 3, 2016).

5. Asserting his right as a stockholder, Ms. Maligalig wrote a letter to ABC Corporation
requesting that she be allowed to examine its books and records on September 17, 1999 at
1:30pm at the latter’s office. In its reply-letter, ABC Corporation denied for the request of
inspection and instead demanded that she show proof that she was a bona fide stockholder.
On September 16, 1999, Ms. Maligalig again sent another letter clarifying that her
request for examination of the corporate records was for the purpose of inquiring into the
financial condition of ABC Corporation and the conduct of its affairs by the principal officers. The
following day, Ms. Maligalig received a faxed letter from ABC Corporation's counsel advising her
not to continue with the inspection in order to avoid trouble.

a. Whether Ms. Maligalig was a stockholder entitled to inspect the books and records of
ABC Corporation despite her shareholding of 0.001% interest.

YES. The Corporation Code has granted to all stockholders the right to inspect
the corporate books and records, and in so doing has not required any specific amount
of interest for the exercise of the right to inspect. Ubi lex non distinguit nec nos
distinguere debemos. When the law has made no distinction, we ought not to recognize
any distinction.
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b. Whether Ms. Maligalig’s mere desire to inquire into the financial condition of ABC
corporation and conduct of the affairs of the corporation is a just and sufficient ground for
inspection of the corporate records.

YES. Under Section 74, third paragraph, of the Corporation Code, the only time
when the demand to examine and copy the corporation's records and minutes could be
refused is when the corporation puts up as a defense to any action that "the person
demanding" had "improperly used any information secured through any prior
examination of the records or minutes of such corporation or of any other corporation, or
was not acting in good faith or for a legitimate purpose in making his demand."
The right of the shareholder to inspect the books and records of ABC Corporation
should not be made subject to the condition of a showing of any particular dispute or of
proving any mismanagement or other occasion rendering an examination proper, but if
the right is to be denied, the burden of proof is upon the corporation to show that the
purpose of the shareholder is improper, by way of defense. In this case, no improper
purpose was proved against the Ms. Maligalig (Terelay Investment and Development
Corporation v. Cecilia Teresita J. Yulo, G.R. No. 160294, August 5, 2015).

6. ABC Development Corporation is a domestic company which was registered with the
Securities and Exchange Commission (SEC) on September 6, 1956. Pursuant to its Amended
by-laws, its regular annual stockholder’s meeting (ASM) was held on August 15, 2011 to elect
its Board of Directors (BOD) for Fiscal Year (FY) 2011-2012. The meeting was held in the Turf
Room of the Manila Polo Club, South Forbes Park, Makati City. In its affidavit, The Corporate
Secretary of the Corporation attested to the presence of the quorum representing 94.81% of the
corporation’s outstanding shares of stock, and the election of new set of Board of Directors,
namely; A, B, C, D, E, F, G, and H.
On October 20, 2011, more than two (2) months after the ASM, Mrs. X, wife of B, along
with their children, claiming to be stockholders of record filed a complaint before the RTC to
“declare null and void the ASM of ABC Development Corporation, including all proceeding taken
thereat, all the consequences thereof, and all acts pursuant thereto.” Plaintiffs alleged that they
received the notice of the ASM only on August 16, 2011. They further noted that the notice
unannounced a time and venue different from those set forth in the by-laws.
The defendant BOD of the Corporation sought dismissal of the case alleging that
complaint involved an election contest, thus, it should have been filed within 15 days from the
date of the election; that the plaintiffs have no cause of action because they were duly served
with notice of the said meeting, as the messenger mailed the notices on August 11, 2011 at the
Ortigas Post Office to all stockholders of record of NADECOR, four (4) days prior to the
scheduled ASM; that a valid ASM was held on August 15, 2011, the third Monday of August
2011, at which the required quorum was present and successfully conducted business; that the
plaintiffs although physically absent were in fact represented by their proxy, B, by virtue of
irrevocable proxies which they executed; that the true and beneficial owner of the shares of
stock issued in the plaintiffs' names is B, not the plaintiffs, as shown in the Nominee
Agreements which they executed; that aided by the irrevocable proxies and Nominee
Agreements, B won election to the NADECOR Board.

a. Whether Mrs. X and her children, were given due notice of the Annual Stockholder’s
meeting.
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YES. As shown in the Affidavit of the Corporation’s messenger, he mailed the

notices for the August 15, 2011 ASM to the petitioners' address on August 11, 2011, four
days prior to the ASM. It must be noted that under Article I, Section 3 of the
Corporation’s Amended By-Laws, what is required is the mailing out of notices by
registered mail at least three days before the ASM. The shorter notice of three days
instead of two weeks for stockholders' regular or special meeting is clearly allowed under
Section 50 of the Corporation Code.
By failing to file their complaint seasonably, the petitioners must be deemed to
have waived their right to notice of the August 15, 2011 ASM. Section 50 provides in
effect that failure to give notice of the regular or annual meetings, when the date thereof
is fixed in the by-laws, as in Section 1, Article 1 of the Amended By-Laws, which is "at
twelve thirty P.M., on the THIRD MONDAY OF AUGUST in each year, if not a legal
holiday, and if a legal holiday, then on the first day following which is not a legal holiday,"
will not affect the validity of the ASM or the proceedings therein.

b. Whether Mrs. X and her children have a cause of action against ABC Development
Corporation.

NO. The petitioners have no cause of action because they were duly represented
at the August 15, 2011 ASM by their proxy, Mr. B. The petitioners did participate in the
stockholders' meeting through their authorized representative and proxy, B. In his
affidavit, the Corporate Secretary, categorically declared under oath that B held a valid
irrevocable proxy from the petitioners to attend and vote their shares at all meetings of
the stockholders, and that B signed the attendance sheet for and in behalf of the
plaintiffs as shown by his signatures in the rows in the said attendance sheet for the
names of the plaintiffs who had appointed him as his proxy. During the stockholders'
registration for the August 15, 2011 ASM, no one questioned B’s Irrevocable Proxy as
attorney and proxy for the petitioners (Corazon H. Ricafort, et. al. v. Isaias P.
Dicdican, et.al.).

HYPOTHETICAL PROBLEMS

7. The Milane Company, Inc (TMCI) is a stock corporation engaged in the business of
manufacturing face masks. It was incorporated in 1920 with a corporate term of fifty (50) years
expiring on December 1, 1970. On November 15, 1969, TMCI’s corporate term was extended
for another 50 years expiring on December 1, 2020.

a. Whether the corporate term of TMCI expiring on December 1, 2020 is deemed extended
and amended to perpetual existence pursuant to Republic Act No. 11232 or the Revised
Corporation Code of the Philippines (RCC) without amending its Articles of Incorporation
(AoI).

YES. Section 11 of the RCC provides that “Corporations with certificates of

incorporation issued prior to the effectivity of this Code, and which continue to exist, shall
have perpetual existence, unless the corporation, upon a vote of its stockholders
representing a majority of its outstanding capital stock, notifies the Commission that it
elects to retain its specific corporate term pursuant to its articles of incorporation:
Provided, That any change in the corporate term under this section is without prejudice
to the appraisal right of dissenting stockholders in accordance with the provisions of this
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Code. “ It is clear from the aforementioned provision that the corporate term of a
corporation existing prior to, and which continues to exist upon the effectivity of the RCC,
shall be automatically deemed perpetual without any further action on the part of the
corporation.

b. The amendment of TMCI’s corporate term to perpetual existence does not require two-
third (2/3) affirmative vote of the outstanding shares of TMCI.

Since the automatic conversion of the corporate term to perpetual existence does
not require an amendment of the AoI, the 2/3 affirmative vote of the outstanding shares
to amend the AoI would not be required (RE: Corporate Term of Existing
Corporations under the Revised Corporation Code, SEC-OGC Opinion No. 19-28,
July 22, 2019).

c. If the TMCI’s corporate term expires of December 1, 2018, what can it do to acquire
perpetual existence?

Apply for a revival of its corporate existence. A corporation whose corporate

term has expired shall be deemed dissolved. However, the corporation whose term has
expired, may, at any time, apply for revival of its corporate existence as provided in
Section 11 of the RCC which states that “a corporation whose term has expired may
apply for a revival of its corporate existence, together with all the rights and privileges
under its certificate of incorporation and subject to all of its duties, debts and liabilities
existing prior to its revival. Upon approval by the Commission, the corporation shall be
deemed revived and a certificate of revival of corporate existence shall be issued, giving
it perpetual existence, unless its application for revival provides otherwise” (RE:
Corporate Term of Educational Institutions, SEC-OGC Opinion No. 19-48, October
7, 2019).

8. Kwaran Teen Global Corporation is a foreign stock corporation organized and existing under
the laws of Japan. The Securities and Exchange Commission (SEC) issued a license to do
business in the Philippines on October 23, 1970. The term of a corporation incorporated under
the laws of Japan is perpetual or indefinite unless its Articles of Incorporation expressly provides
a specific term. Kwaran Teen’s Articles of Incorporation did not provide for a definite corporate
term, hence, its corporate term is deemed perpetual or indefinite.
On the contrary, however, Section 11 of the then Corporation Code of the Philippines
provides that a corporation shall exist for a period not exceeding fifty (50) years from the date of
incorporation unless the period is extended. Further, at the passage of the Revised Corporation
Code (RCC) on February 23, 2019, it provides that a corporation shall have a perpetual
existence unless its articles of incorporation provides otherwise.

a. Whether Kwaran Teen needs to renew its SEC license before October 2020, the 50 th
year of its license.

NO. Section 143 of the RCC provides in part that “Upon issuance of the license,
such foreign corporation may commence to transact business in the Philippines and
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continue to do so for as long as it retains its authority to act as a corporation under the
laws of the country or State of its incorporation, unless such license is sooner
surrendered, revoked, suspended, or annulled in accordance with this Code or other
special laws.” Thus, as long as the foreign corporation still exists legally in its place of
incorporation, its license to do business in the Philippines remains valid, unless sooner
surrendered, revoked, suspended, or annulled in accordance with the RCC or other
special laws (Re: Term of License to do Business of a Foreign Corporation, SEC-
OGC Opinion No. 19-33, September 9, 2019).

b. If Kwaran Teen is a domestic corporation, does it still need to renew its SEC license at
the end of its 50th year of corporate existence?

NO. Section 11 of the RCC provides in part that “Corporations with certificates of
incorporation issued prior to the effectivity of this Code, and which continue to exist, shall
have perpetual existence, unless the corporation, upon a vote of its stockholders
representing a majority of its outstanding capital stock, notifies the Commission that it
elects to retain its specific corporate term pursuant to its articles of incorporation:
Provided, That any change in the corporate term under this section is without prejudice
to the appraisal right of dissenting stockholders in accordance with the provisions of this
Code.” In the case at bar, considering that the expiration of the corporate term will be on
October 23, 2020, which is already after the passage of the RCC, thus, the RCC will
govern.

9. Tiktok Corporation has one million (1,000,000) worth of outstanding capital stock. Mr X.
subscribed 100,000 shares of stock and paid 20,000 of the said subscription. Before the
payment of the full subscription, Tiktok Corporation conducted its annual stockholders’ meeting.

a. Can Mr. X exercise his right to vote even without the full payment of his current
subscription?

YES. Section 71 of the Revised Corporation Code (RCC) provides that “Holders
of subscribed shares not fully paid which are not delinquent shall have all the rights of a
stockholder.”
A subscriber acquires all the rights of a shareholder at the point of subscription.
His political and economic rights are not impaired by the fact that he has unpaid
subscription. He may attend and cast vote in meetings. He may be nominated and
elected as director. He can receive dividends. The board may not withhold payment of
dividends even when the subscriber has not yet fully paid his subscription. More
specifically when the balance of his subscription is not yet due. The board may only use
the dividends to pay off the unpaid subscription if the concerned subscriber has given his
consent (Re: Indivisibility of subscription contract; Payment of Balance of Unpaid
Subscriptions; Delinquent Shares; Delinquency Sale, SEC-OGC Opinion No. 16-05,
March 31, 2016).

b. If after Mr. X fails to pay his subscription six (6) months after the date specified in the
subscription contract, may Mr. X still exercise his right to vote?

NO. Failure to pay after 6 months made the shares under his subscription
delinquent. Section 66 of the RCC provides in part that “Failure to pay on such date shall
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render the entire balance due and payable and shall make the stockholder liable for
interest at the legal rate on such balance, unless a different interest rate is provided in
the subscription contract. The interest shall be computed from the date specified, until
full payment of the subscription. If no payment is made within thirty (30) days from the
said date, all stocks covered by the subscription shall thereupon become delinquent and
shall be subject to sale as hereinafter provided, unless the board of directors orders
otherwise.” There is no need for a formal declaration of the Board for an unpaid
subscription to become delinquent in the event of failure to pay the unpaid subscription
within the prescribed thirty (30) day period from the date specified in the subscription
contract or the date stated in the call. Henceforth, the subscription becomes
automatically delinquent upon the lapse of the 30 day period stated in the call, with the
stockholder failing to pay.

Section 70 of the RCC provides that “No delinquent stock shall be voted for, be
entitled to vote, or be represented at any stockholder’s meeting, nor shall the holder
thereof be entitled to any of the rights of a stockholder except the right to dividends in
accordance with the provisions of this Code, until and unless payment is made by the
holder of such delinquent stock for the amount due on the subscription with accrued
interest, and the costs and expenses of advertisement, if any.” Delinquency suspends
the rights of the subscriber, except the right to receive dividends. The dividends
corresponding to such shares, if any, shall be applied against the unpaid amount.

c. In relation to the immediately preceding question, may Mr. X be entitled to exercise his
right to vote up to the extent of the value of the shares covered by his partial payment
when his subscription becomes delinquent?

NO. Section 63 of the RCC provides that “No certificate of stock shall be issued
to a subscriber until the full amount of the subscription together with interest and
expenses (in case of delinquent shares), if any is due, has been paid.”
Under the indivisibility of subscription doctrine, the law requires payment of the
full amount of subscription. A subscription covers all stipulated shares. The corporation
accepted partial payment on the premise that non-payment of the balance renders all
subscribed shares delinquent. A subscriber may not demand the application of his partial
payment as full payment against a fraction of the entire subscription. It will diminish the
remedies of the corporation to collect the balance of the subscription. In particular, the
corporation may not be able to sell as many as his subscribed shares as would
necessary to cover the total amount due from him.

10. Mañanita Energy Corporation is engaged in the business of building, constructing,

generating, operating, and maintaining power plants which produce energy devised from coal,
fossil, fuel, geothermal, natural gas, biomass, solar, wind, hydroelectric, and other viable
sources of power. Mañanita was registered with the Securities and Exchange Commission in
2011. In 2016, Mañanita decreased its capital stock to one billion pesos (P5,000,000,000) and
reclassifies its shares into common and redeemable preferred shares.

Camp Karingal Group, Inc. is currently the sole subscriber to the preferred shares, and
that Mañanita intends to redeem and retire the five million pesos (P5,000,000) preferred shares
issued to Camp Karingal Group.
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a. Whether Mañanita can redeem the preferred shares even without unrestricted retained
earnings and even if the shares were not qualified as redeemable.

NO. Section 40 of the Revised Corporation Code (RCC) provides that “provided
that the corporation has unrestricted retained earnings in its books to cover the shares to
be purchased or acquired, a stock corporation shall have the power to purchase or
acquire its own shares for a legitimate corporate purpose or purposes.” The requirement
of unrestricted retained earnings to cover the shares is based on the trust fund doctrine
which means that the capital stock, property or other assets of a corporation are
regarded as equity in trust for the payment of creditors. Thus, without such available
retained earnings for the redemption of said shares, Mañanita cannot exercise its power
to redeem or reacquire the preferred shares in question.
b. Assuming the shares were classified as redeemable in the company’s article of
incorporation, can Mañanita redeem such shares even without unrestricted retained
earnigs?

YES. Section 8 of the RCC provides that “redeemable shares may be issued by
the corporation when expressly provided in the articles of incorporation. They are shares
which may be purchased by the corporation from the holders of such shares upon the
expiration of a fixed period, regardless of the existence of unrestricted retained earnings
in the books of the corporation, and upon such other terms and conditions stated in the
articles of incorporation and the certificate of stock representing the shares, subject to
rules and regulations issued by the Commission.”

Thus, although the general rule is that there must be unrestricted retained
earnings before a corporation can redeem, purchase, or reacquire its own shares, the
exception is when the share to be redeemed are redeemable as provided in the articles
of incorporation and certificates of stock of the corporation. But to redeem said shares,
there must be sufficient assets to cover the liabilities of the corporation. The right to
redeem shares is subject to the condition that the redemption would not render the
corporation insolvent, and that the corporation has sufficient funds to satisfy its debts
and liabilities. While a corporation, under its article of incorporation, is allowed to
redeem, this is still subject to applicable and existing laws, terms and conditions, and
must also not be in violation of the trust fund doctrine (Re: Redemption of Preferred
Shares; Subscribed Capital Stock, SEC-OGC Opinion 19-20, May 27, 2019).

11. Scarborough Shoal Yacht Club, Inc (SSYC) is a stock corporation whose primary purpose is
to construct, maintain, and operate a marina and yacht club house, tennis courts, squash
courts, swimming pools, and other indoor and outdoor related sports and recreational facilities,
especially those related to water sports, with the main objective of promoting the social,
educational, and athletic well-being of its stockholders. SSYC has largely unutilized spaces and
facilities within its Club House which may be dedicated to recreation, accommodations and
dining for purposes of promoting the social, physical, and well-being of its members. The
income derived from such spaces may also be used to augment its resources for purposes of
continuously maintaining and operating the yacht club house in a manner suitable and befitting
its members.

Third parties have expressed their intent to utilize the aforesaid spaces and facilities for
valuable consideration. However, leasing is not specified in SSYC’s purpose.
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a. Whether SSYC may lease its spaces and facilities to third persons, even if leasing is not
one of the purposes stated in its articles of incorporation.

YES. There are general powers that may be exercised by every corporation
whether or not such powers are stated in the Articles of Incorporation or by-laws. Section
35 (g) of the Revised Corporation Code (RCC) provides that “every corporation
incorporated under this Code has the power and capacity to purchase, receive, take or
grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal with such real and
personal property, including securities and bonds of other corporations, as the
transaction of the lawful business of the corporation may reasonably and necessarily
require, subject to limitations prescribed by law and the Constitution.”
In the case at bar, the proposed arrangements/ agreements with third parties will
result in the promotion of the social and physical well-being of its members. Further, the
income derived from such spaces and facilities may be used to augment its resources
for purposes of continuously maintaining and operating the marina and yacht club house
in a manner suitable and befitting its members. Thus, considering SSYC’s
representation, it can lease real property or enter into agreements with third parties, so
long as it remains necessary in the conduct of its corporate business (Re: Secondary
Purpose, SEC-OGC No. 19-22, June 14, 2019).

b. If SSYC is a non-stock corporation, what is the limitation provided for the RCC in
providing for the purpose of the corporation?

Section 13(b) of the RCC provides that “where a corporation has more than one
stated purpose, the articles of incorporation shall indicate the primary purpose and the
secondary purpose or purposes. Provided, that a nonstock corporation may not include a
purpose which would change or contradict its nature as such.”

12. Pay Build Rent Corporation (BPRC) is a non-stock corporation engaged in building
condominiums around Batangas City. In its by-laws, it provides that the holding of Annual
Membership Meeting shall be conducted every month of July. However, the 2018 Annual
Membership Meeting originally fixed on July 15, 2018 was postponed several times by PBRC’s
Board of Trustees for failure to achieve a quorum. In October 2018, one of the trustees of BPRC
resigned.
Further, despite the non-holding of the 2018 Annual Membership Meeting, BPRC
intends to proceed with the filing of its 2018 General Information Sheet (GIS) by availing of a
provision which seemingly allows corporations that were unable to hold their Annual
Membership Meeting to submit its GIS “not later than January of the following year.”

a. Whether the GIS submitted by BPRC within the month of January 2019 be valid
notwithstanding failure to conduct and Annual Membership Meeting for Calendar Year
2018.

YES. SEC Memorandum Circular No. 3 Series of 2007, provides in part “if the
corporation is unable to hold meeting for the calendar year, the GIS shall be filed not
later than January 30 of the following year.” This is also reflected under paragraph 2 of
the General Instructions found in the GIS Form for Non-Stock Corporations, with an
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addendum stating that “should an annual member’s meeting be held thereafter; a new
GIS shall be submitted/ filed.”
However, the non-holding of an annual meeting is a violation of Section 49 of the
Revised Corporation Code (RCC) and subject to a corresponding penalty pursuant to
Section 170 of the same code.

b. How should a vacancy in the Board of Trustees (BOT) due to resignation of a trustee be
reflected in the 2019 GIS.

Section 25 of the RCC provides in part that “should a director, trustee or officer
die, resign or in any manner cease to hold office, the secretary, or the director, trustee or
officer of the corporation, or in case of death. The officer’s heir shall within seven (7)
days from knowledge thereof, report in writing such fact to the Commission.” In this case,
the resignation by a trustee of BPRC is considered a change in the composition of the
BOT which must be reflected and clearly highlighted in an Amended GIS to be submitted
by the above authorized persons within 7 days from knowledge of the trustee’s
resignation. In the absence of a replacement trustee to the vacated position, the same
may be reflected as vacant in the amended GIS.

In relation, Section 28 of the RCC provides for the guidelines in the filling-up of
vacancy in the BOT, to wit: “any vacancy occurring in the board of directors or trustees
other than by removal or by expiration of term may be filled by the vote of at least a
majority of the remaining directors or trustees, if still constituting a quorum; otherwise,
said vacancies must be filled by the stockholders or members in a regular or special
meeting called for that purpose.” Thus, if the remaining trustees of BPRC still constitute
a quorum, they may elect a replacement trustee to the Board without necessarily holding
an Annual Membership Meeting (RE: Non-holding of Annual Membership Meeting,
SEC-OGC Opinion No. 19-43, September 19, 2019).

13. In 2005 and earlier, despite written notices and publication, a substantial number of
stockholders have not been communicating with or attending the stockholder’s meeting of the
Antarticans Savings Bank (ASB). Personal notices to the stockholders have been returned
unopened or they have not communicated with any of the savings’ associations. No legal heir,
claimant, or transferee has likewise come over to advise ASB of his/her right to the shares. If
these shares are not represented in the stockholders’ meeting, the ASB would not be able to
pass resolutions for it to be financially viable or to comply with regulatory obligations.

Thus, the ASB only uses these shares for quorum purposes and for matters requiring
stockholders’ consent or approval. The ASB has refrained from using the shares to vote for the
election of directors. From 2005 to 2017, the ASB, thru its chairman of the Board, has been
representing inactive and dormant stockholders, in the stockholders’ meeting, as authorized by
its Board of Directors. ASB based the its decision on the application of negotiorum gestio and
the implied trust between the corporation and its stockholders where the stockholders cannot be
located.

a. Assuming the case falls under the negotiorum gestio, can the corporation exercise the
stockholder’s right to vote?

NO. Only stockholders of record as of the date fixed in the by-laws shall enjoy
the right to vote. The Revised Corporation Code (RCC) provides only three instances
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when a stockholder may vote indirectly, through a representative: (1) by means of a

written proxy [Section 57, RCC]; or (2) by a trustee under a voting trust agreement
[Section 58, RCC]; or (3) by executors, administrators, receivers, and other legal
representatives duly appointed by the court [Section 54, RCC].

An officious manager cannot be presumed to have the power to exercise the

stockholder’s right to vote, which is an act of ownership or an act of strict dominion. Even
a duly appointed agent under Article 1878 (15) of the Civil Code, has no power to
exercise any act of strict dominion on behalf of the principal unless authorized by a
special power of attorney. The grant of special powers cannot be presumed from the
general powers. Moreover, the authority to exercise special powers must be duly
established by evidence, even though it need not be in writing. Thus, an officious
manager can exercise only acts of administration.
b. What can the corporation do to solve the recurring problem of “no quorum- no meeting”
and avoid standstill of bank operations?

The RCC provides for an emergency quorum under paragraph 4, Section 25 of

the RCC, for purposes of conducting an election, to wit: “notwithstanding any provision of
the articles of incorporation or bylaws to the contrary, the shares of stock or membership
represented at such meeting and entitled to votes shall constitute a quorum for purposes
of conducting an election under this section.” Based on this provision, if no election is
held consecutive times, or if the non-holding of election is unjustified, the Securities and
Exchange Commission (SEC) may, upon application of a stockholder or member,
director or officer and after verification of the unjustified non-holding of election,
summarily that an election be held. The shares or members represented at such a
meeting and entitled to vote shall constitute a quorum for conducting an election (RE:
Mustering the required quorum; representation of the dormant/ inactive
stockholders, SEC-OGC Opinion No. 19-37, September 13, 2019).

14. Condo Minyo Properties, Inc., is a non-stock corporation engaged in the business of
business of building, selling, and leasing residential and commercial units. It owns eight (8)
condominium units in Condo Minyo Tower II, the legal title has been transferred from Condo
Minyo to an assignee by way of a Deed of Assignment. The project consists of sixty two (62)
individually tiled condominium units owned by thirty six (36) persons, natural and corporate.
Condo Minyo II Association held a membership meeting on September 22, 2019 and an
election on October 6, 2019.The notices of meetings were posted in the common areas of the
project. Contrary to what is provided in the By-laws, the members were not served with notice
personally or by special delivery mail at least two (2) weeks before the dates set for the
meetings. During the October 6, 2019 meeting, the election proceeded with seventeen (17)
attended. Out of the 62 individually titled units, only thirty four (34) units were represented in the
meeting and voted in the election.

a. Since the notice requirement in the By-laws was not complied with, are the decisions or
resolution adopted during the meetings/ election absolutely considered void and
ineffective?
NO. Section 50 of the Revised Corporation Code (RCC) provides that written
notice of the meetings shall be sent through the means of communication provided in the
by-laws, which notice shall state the time, place and purpose of the meetings. Thus, if
the corporate by-laws provide that notices of meetings shall be either by ordinary mail or
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personal delivery, it is not valid to notify the stockholders by mere publication. Hence, in
the case at bar, since the notice was simply posted in the common areas of the project,
the same is not compliant with the By-laws, and the September 22, 2019 and the
October 6, 2019 meetings were improperly called or held.
However, even if the meetings were improperly called or held, all proceedings
and any business transacted at such meetings shall be valid provided that such
proceedings and business transacted are within the powers or the authority of the
corporation, and that all the members of the corporation are present or duly represented
at the meeting and not one of the expressly states at the beginning of the meeting that
the purpose of their attendance is to object to the transaction of any business because
the meeting is not lawfully called or convinces. Hence, if the above conditions are met,
the decisions/ resolutions adopted during the September 22, 2019 and October 6, 2019
meetings would be valid.
b. If in the Condominium Act and the corporation’s by-laws states that the simple majority
shall be on a floor area of ownership basis, is it appropriate for Condo Minyo Properties
to cast 8 votes on the basis of its ownership of 8 individually titled condominium units in
the project?

NO. Section 88 of the RCC provides that “the right of the members of any class
or classes to vote may be limited, broadened, or denied to the extent specified in the
Articles of Incorporation or the by-laws. Unless so limited, broadened or denied, each
member, regardless of class, shall be entitled to one vote. In this case, it is not
appropriate for Condo Minyo Properties to cast 8 votes on the basis of the 8
condominium units. Instead, Condo Minyo Properties shall be entitled to vote up to the
extent of the total interest of its 8 units in the common areas.

c. What is the quorum requirement in order that a decision in a meeting may be considered
valid if there are 62 individually titled condominium units owned by 36 persons, natural
and corporate?

Sec 51 of the RCC provides as a general rule that “unless otherwise provided in
this Code or in the by-laws, a quorum shall consist of the stockholders representing a
majority of the outstanding capital stock or a majority of the members in the case of non-
stock corporations.” Thus, any corporation, whether stock or non-stock, is authorized to
provide in its by-laws a specific number of stockholders or members necessary to
constitute quorum for the transaction of corporate business, except in cases where the
law requires a minimum stockholders’ or members’ vote for a certain corporate action
which would in effect be the required quorum.
In the case at bar, the voting rights of the 36 members of Condo Minyo II
Association attached to the ownership of 62 units should be considered in determining
the quorum. Since the voting rights of the members are determined by the percentage
which the floor areas of the units bear to the total floor area of all units, as provided for in
the Master Deed with Declaration of Restrictions, the quorum shall be such number of
members representing a simple majority of the total floor area covered by the 62 units
(RE: Notice and Quorum in membership meetings, SEC-OGC Opinion No. 19-36,
September 13, 2019).

15. Sovereign Tea, Inc. is a close corporation engaged in the business selling milk tea products.
The Securities and Exchange Commission issued the corporation’s Articles of Incorporation on
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Jan 1, 2020. Its owners are the brothers Row Que, Dew Que, and Duter Que. Duter owns
seventy percent (70%) of the subscribed capital stock of the corporation while Row and Dew
owns fifteen percent (15%) each of the remaining capital stock.
Row Que also owns ten percent (15%) share on a corporation that supplies sanitary
products, janitorial company, and security agencies, and is also one of its Board of Directors
(BOD). In behalf of the office building needs of Sovereign Tea, Inc. Row Que engaged the
services of the companies to render services to the office Building of Sovereign tea.

a. Are the service contracts entered into by Sovereign Tea, Inc. valid?

YES. Section 32 of the Revised Corporation Code (RCC) provides that “except in
cases of fraud, and provided the contract is fair and reasonable under the
circumstances, a contract between two (2) or more corporations having interlocking
directors shall not be invalidated on that ground alone: Provided, That if the interest of
the interlocking director in one (1) corporation is substantial and the interest in the other
corporation or corporations is merely nominal, the contract shall be subject to the
provisions of the preceding section insofar as the latter corporation or corporations are
concerned.”

In the case at bar, as a general rule, the presence of interlocking directors does
not make the contract void or unenforceable provided that there is no fraud and such
contract entered into between the parties are fair and reasonable. Row Que is a director
of several companies and he owns nominal interest on all the companies. Thus, in the
absence of fraud and unreasonableness in the service contracts, such will be valid.

b. Will your answer will still be the same on the previous question assuming that Row Que
is the sole owner of the service companies.

NO, the contract will be voidable as it will fall under self-dealing directors under
section 31 of the RC which provides that:
“A contract of the corporation with (1) one or more of its directors, trustees, officers or
their spouses and relatives within the fourth civil degree of consanguinity or affinity is
voidable, at the option of such corporation, unless all the following conditions are
present:
(a) The presence of such director or trustee in the board meeting in which the
contract was approved was not necessary to constitute a quorum for such
meeting;
(b) The vote of such director or trustee was not necessary for the approval of the
contract;
(c) The contract is fair and reasonable under the circumstances;
(d) In case of corporations vested with public interest, material contracts are
approved by at least two-thirds (2/3) of the entire membership of the board, with
at least a majority of the independent directors voting to approve the material
contract; and
(e) In case of an officer, the contract has been previously authorized by the board of
directors.
Where any of the first three (3) conditions set forth in the preceding paragraph is
absent, in the case of a contract with a director or trustee, such contract may be
ratified by the vote of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting
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called for the purpose: Provided, That full disclosure of the adverse interest of the
directors or trustees involved is made at such meeting and the contract is fair and
reasonable under the circumstances.”

In this case, considering that Row Que owns the companies which provided the
services for Sovereign Tea, Inc., the contracts may be considered as voidable unless the
abovementioned conditions are complied with.

16. Coron Nabeerus Corporation is a company whose common shares have been listed with
the Philippine Stock Exchange (PSE) since 1988. On February 14, 2020, the Securities and
Exchange Commission (SEC) approved Coron’s equity restructuring wherein the par value of
the shares were reduced from One Peso (P1.00) to fifty centavos (P0.50) per share, and
thereby, resulting in the increase of Coron’s additional paid-in capital (APIC) which was used to
eliminate the corporation’s deficit.
Further, significant number of Coron’s outstanding shares were only partially paid, and
as such, were not immediately tradeable. As such, Coron’s Board of Directors (BOD) has been
considering available options to help make its listed securities more attractive in the market by
ensuring that there are more fully paid and immediately tradeable shares that could not be
transacted in the stock exchange.

a. Can Coron Nabeerus condone subscription receivable due from its stockholders?

NO. The Trust Fund Doctrine emanates from Section 139 of the Revised
Corporation Code (RCC) provides that “Except by decrease of capital stock and as
otherwise allowed by this Code, no corporation shall distribute any of its assets or
property except upon lawful dissolution and after payment of all its debts and liabilities.”

Upon the acceptance of a stock subscription by a corporation, the subscription

becomes a binding contract to which a subscriber cannot withdraw. Neither does the
corporation have the power to release an original subscriber from its subscription, and as
against the creditors, a reduction of the capital stock can only take place in the manner
and under the conditions prescribed by law or other charter of the corporation. TO do so
would be violative of the Trust Fund Doctrine since it does not fall under any of the
allowable instances where a corporation may distribute its assets to its creditors and
stockholders. As such, subscription contracts cannot be cancelled by the BOD without
justifiable cause. This is tantamount to relieving an original subscriber from the
subscription, a contractual obligation, which a corporation has no power to do so.

Further, an APIC already forms part of equity emanating from the original
subscription agreement. APIC, as a premium, forms part of the capital of the corporation
and therefore, falls within the purview of the Trust Fund Doctrine. Therefore, Coron
Nabeerus may not condone subscription receivable due from its stockholders as it
violates the Trust Fund Doctrine.

b. Can Coron Nabeerus consider the portion paid by a partially paid shareholder, by virtue
of the equity restructuring, as full payment for the corresponding number of shares and
cancel the subscription as to the rest.
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NO. Section 63 of the RCC which enunciates the “ Doctrine of Indivisibility of

Subscription Contracts”, provides that “No certificate of stock shall be issued to a
subscriber until the full amount of the subscription together with interest and expenses
(in case of delinquent shares), if any is due, has been paid”. The purpose of the doctrine
is to prevent the partial disposition of a subscription, which is not fully paid, because if it
is permitted and the stockholder subsequently becomes delinquent in the payment of his
subscription, the corporation may not be able to sell the as many of his subscribed
shares as would necessary to cover the total amount from him pursuant to Section 67 of
the RCC.

Applying the aforementioned doctrine, Coron Nabeerus cannot issue certificates

of stock for the portion of the subscription that is paid and cancel the portion which
remains unpaid as it violates the doctrine of indivisibility of subscription contracts. In
effect, it is also condonation of part of the subscription of a stockholder, which is violative
of the Trust Fund Doctrine (RE: Condonation of Subscriptions Receivables or
Cancellation of Subscriptions, SEC-OGC No. 19-50, October 11, 2019).

17. Flat Curve, Inc., a domestic corporation engaged in manufacturing household items and
furniture in the Philippines. It is duly registered with the Securities and Exchange Commission in
March 25, 2019. It is composed of 10 Board of Directors (BOD) as stated in its Articles of
Incorporation. Mr. A and B Died in September 2019, Ms. C and D resigned in October 2019.
In December 2019, because of the disagreement with the BOD and a threat by the BOD
to expel her for misconduct and inefficiency, Mr. E offered in writing to resign as President and
member of the BOD, and to sell to the company all her shares therein for five hundred thousand
pesos (P500,000). Her offer to resign was effective as soon as his shares are fully paid. At its
meeting, the BOD accepted Mr. E’s resignation, approved her offer to sell back her shares of
stock to the company, and promised to buy the stocks on staggered basis. Mr. E was informed
of the BOD resolution in a letter-agreement to which she affixed her consent.

a. Can the remaining members of the BOD fill up the vacancy in the board?

NO. Section 28 of the Revised Corporation Code (RCC) provides in part that any
vacancy occurring in the board of directors or trustees other than by removal or by
expiration of term may be filled by the vote of at least a majority of the remaining
directors or trustees, if still constituting a quorum; otherwise, said vacancies must be
filled by the stockholders or members in a regular or special meeting called for that
purpose.” In the case at bar, after the resignation of Mr. E, there is no more quorum in
the BOD because it was left with 5 BOD from the original 10 BOD as stated in its Articles
of Incorporation. Thus, the vacancy shall be filled by the stockholders in a regular or
special stockholders’ meeting.

b. If there is an emergency action needed to be decided by the Board urgently, will the vote
of the majority of the remaining directors suffice to act on such matter.

NO. Section 28 of the RCC also provides in part that “when the vacancy prevents
the remaining directors from constituting a quorum and emergency action is required to
prevent grave, substantial, and irreparable loss or damage to the corporation, the
vacancy may be temporarily filled from among the officers of the corporation by
unanimous vote of the remaining directors or trustees. The action by the designated
director or trustee shall be limited to the emergency action necessary, and the term shall
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cease within a reasonable time from the termination of the emergency or upon election
of the replacement director or trustee, whichever comes earlier. The corporation must
notify the Commission within three (3) days from the creation of the emergency board,
stating therein the reason for its creation.” In this case, the vote of the majority of the
remaining directors will not suffice to pass a valid decision for the emergency situation.
What is needed in emergency situation is that a unanimous vote of the remaining BOD
temporarily fill up the vacancy from the corporate officers, whose decision shall only be
limited to the emergency action.

c. In a stockholder’s meeting called for the filling of the vacancies in the BOD in April 2020,
Ms. Manda Rambong was nominated as one of the BOD. One of the stockholders
questioned Ms. Manda Rambong’s qualification saying that she was convicted for Estafa
in 2010. May Ms. Manda Rambong be allowed to be one of BOD of Flat Curve, Inc?

YES. Section 26 of the RCC provides in part that “a person shall be disqualified
from being a director, trustee or officer of any corporation if, within five (5) years prior to
the election or appointment as such, the person was: (a) Convicted by final judgment: (1)
Of an offense punishable by imprisonment for a period exceeding six (6) years; (2) For
violating this Code; and (3) For violating Republic Act No. 8799, otherwise known as
“The Securities Regulation Code”; (b) Found administratively liable for any offense
involving fraudulent acts; and (c) By a foreign court or equivalent foreign regulatory
authority for acts, violations or misconduct similar to those enumerated in paragraphs (a)
and (b) above.”
In the case at bar, Ms. Manda Rambong was convicted in 2019, which is already
ten (10) years prior the BOD election. The RCC only disqualifies a person from being a
director, if within 5 years prior his appointment or election, a person is convicted by final
judgment of an offense punishable by imprisonment for a period exceeding 6 years.
Thus, even though Ms. Manda Rambong is convicted by estafa, her conviction is already
outside the period disallowed by law.

18. A Sale and Purchase Agreement (SPA) between Bong Gow (the seller) and Batow
Development Corporation(the buyer) was executed on February 6, 2020 for the ninety percent
(90%) shares in Ro Drigo Construction Corporation (RDCC) which amounts to ninety-nine
million pesos (99,000,000). Batow has already paid a total of thirty-two million pesos
(P32,000,000) to Bong Gow which is equivalent to 29.10% of the shares in RDCC.
Sometime thereafter, RDCC received a mandate from the Philippine Contractors
Accreditation Board (PCAB) to increase its capitalization to one hundred eighty million pesos
(P180,000,000) to maintain Triple A Accreditation. RDCC plans to issue a new set of shares to
increase its capitalization to meet the PCAB requirement.

a. How can Batow Development Corporations (BDC) ensure that its interest be protected
and would not be diluted in the event that RDCC issues additional shares?
BDC may maintain its proportionate interest in RDCC by exercising its pre-
emptive right. Pre-emptive right refers to the right granted to the stockholders to have the
first option to subscribe to any issuance or disposition of shares from the capital stock in
proportion to their respective shareholdings in the corporation. Under the Section 38 of
the Revised Corporation Code (RCC), “All stockholders of a stock corporation shall enjoy
preemptive right to subscribe to all issues or disposition of shares of any class, in
proportion to their respective shareholdings, unless such right is denied by the articles of
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incorporation or an amendment thereto: Provided, That such preemptive right shall not
extend to shares issued in compliance with laws requiring stock offerings or minimum
stock ownership by the public; or to shares issued in good faith with the approval of the
stockholders representing two-thirds (2/3) of the outstanding capital stock, in exchange
for property needed for corporate purposes or in payment of a previously contracted
debt.”
Thus, in the absence of any provision in RDCC’s Articles of Incorporation
denying pre-emptive rights to its shareholders and provided the issuance of shares does
not fall under any of the exceptions enumeration under Section 38 of the RCC, BDC, as
long as it is already a stockholder of record, is entitled to exercise its pre-emptive right to
subscribe to additional shares of stock in proportion to its present stockholdings, in the
event RDCC issues a new set of shares (Re: Pre-emptive right, SEC-OGC Opinion
No. 19-15, March 13, 2019).

b. Does the right of pre-emption extends even to the re-issuance of treasury shares?

YES. Section 38 of the RCC provides that the pre-emptive right extends to all
issues or disposition of shares in any class. Section 9 of the RCC defined treasury
shares as shares of stock which have been issued and fully paid for, but subsequently
reacquired by the issuing corporation through purchase, redemption, donation, or some
other lawful means. Such shares may again be disposed of for a reasonable price fixed
by the board of directors. Thus, the term disposition in Section 38 includes the
reissuance of the treasury shares.

19. Bawal Lumabas, Inc. is a domestic corporation duly registered with the Securities and
Exchange Commission whose business is to supply and manufacture facial masks, alcohol, and
gloves. Last March 30, 2020, notices were sent to all stockholders for the annual stockholder’s
meeting that will be held on April 20, 2020. However, in lieu of the COVID-19 pandemic, some
stockholders that are living abroad cannot go back to the Philippines because all public airports
are closed.

The April 20, 2020 annual stockholder’s meeting pushed through. The stockholders who
represent 30,000 shares out of the 100,000 outstanding capital stock of the company were able
to attend physically and vote for the newly elected Board of Directors. However, stockholders
representing 25,000 shares who are abroad participated and voted through the electronic voting
system that the company provided. One losing director questioned the validity of the meeting
and moved to declare that such meeting is invalid because of the lack of quorum. After the
meeting, all the stockholders who were present were arrested for the violation of the quarantine
protocol.

a. Is the stockholder’s meeting valid despite that only 30% of the capital stock are present
physically?

YES. Section 57 of the Revised Corporation Code (RCC) provides in part that
“When so authorized in the bylaws or by a majority of the board of directors, the
stockholders or members of corporations may also vote through remote communication
or in absentia: Provided, That the votes are received before the corporation finishes the
tally of votes. A stockholder or member who participates through remote communication
or in absentia, shall be deemed present for purposes of quorum.” In the case at bar,
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there is a total representation of 55,000 of the 100,000 authorized capital stock of the
corporation. Thus, following the quorum requirement in section 51 of the RCC which
provides that “Unless otherwise provided in this Code or in the bylaws, a quorum shall
consist of the stockholders representing a majority of the outstanding capital stock or a
majority of the members in the case of nonstock corporations”, the 55% attendance
complied with the quorum requirement.

b. Assuming that the 25,000 shares represent stocks from the treasury of the corporation,
to which the corporation voted as owner of the said reacquired shares, is there a valid
election of the board of directors?

NO. Section 56 of the RCC provides that “treasury shales shall have no voting
right as long as the shares remain in the treasury.” In this case, the corporation cannot
exercise right to vote as owners of the reacquired shares placed in the treasury. Thus, it
cannot be included in the quorum requirement for the attendance nor for the quorum
requirement in the election of the BOD of the corporation. Treasury shares are regarded
as properties of the corporation. However, the same being merely issued but not
outstanding shares, they have no voting rights. Only issued and outstanding shares have
voting rights. Thus, the 30,000 representative shares will not comply with the quorum
requirement.
20. Mr. Koro Nah incorporated Zoom Transportation and Solutions, OPC with the Securities and
Exchange Commission. Its business is primarily engaged to establish, operate and manage
transportation services, including vehicle rental/ leasing, taxi or shuttle services, and
transportation of goods or persons for any person. SEC issued its Certificate of Incorporation on
May 7, 2020. Sometime thereafter, Mr. Koro Nah registered another One Person Corporation
(OPC) named Quia Consultancy and Management Services, OPC.
Thereafter, Mr. Koro, in the conduct of its business acquired several obligations for
Zoom and failed to pay them on time. It was found out that Mr. Koro Nah is co-mingling the
funds of Zoom and Quia. He had been circulating the money and capital to fund all such
businesses. Thus, the creditor, after several demands, filed a claim for the collection of sum of
money against Zoom Transportation. In its complaint, the creditor alleged that Mr. Koro Nah, as
the sole stockholder, shall be held liable for the obligation of Zoom to them. In his answer, Mr.
Koro Nah averred that he cannot be made liable to the liabilities of Zoom Transportation
because it is treated as a separate juridical entity.

a. Can Mr. Koro Nah be held liable to the creditors of Zoom Transportation?

YES. As a general rule, a One Person Corporation (OPC) is an entity separate

and distinct from its single stockholder. However, Section 130 of the Revised
Corporation Code (RCC) provides that “a sole shareholder claiming limited liability has
the burden of affirmatively showing that the corporation was adequately financed. Where
the single stockholder cannot prove that the property of the One Person Corporation is
independent of the stockholder’s personal property, the stockholder shall be jointly and
severally liable for the debts and other liabilities of the One Person Corporation. The
principles of piercing the corporate veil applies with equal force to One Person
Corporations as with other corporations.”
Where a single stockholder of an OPC has created other OPCs, segregation of
the businesses, financing, operations, transactions, assets and properties, of one OPC
from those of each other related OPC, or third persons, must be maintained. Any
confusion or consolidation may lead to piercing the corporate veil for all the OPCs having
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the same single stockholder. In the case at bar, Mr. Koro Nah’s claim of limited liability
cannot be given merit, considering that he cannot show that the Zoom Transportation
was adequately financed. The act of commingling the assets may be a ground to pierce
the corporate veil of Zoom Transportation and make Mr. Koro Nah solidary liable with the
Zoom and Quia, for their debts and other liabilities.

b. Ms. Eezie Que, a Certified Public Accountant (CPA), after hearing that a single
stockholder may form a One Person Corporation, went to the SEC and filed her
application to form an accounting firm. Can the SEC grant her application?

NO. Section 116 of the RCC provides in part that “Banks and quasi-banks, pre-
need, trust, insurance, public and publicly-listed companies, and non-chartered
government-owned and -controlled corporations may not incorporate as One Person
Corporations: Provided, further, that a natural person who is licensed to exercise a
profession may not organize as a One Person Corporation for the purpose of exercising
such profession except as otherwise provided under special laws.” Thus, Ms. Eezie Que,
a CPA, is prohibited in setting up an accounting firm because the RCC prohibits a
natural person to set up an OPC in the exercise of her profession