REVISED CORPORATION CODE  It is entitled to properties of its own.

 Properties it owns are not that of the

TITLE OF THE CODE stockholders, directors and officers but
owned by it as an entity.
Sec. 1. This Code shall be known as “The
Revised Corporation Code of the Philippines.”
Hence, a stockholder cannot sell, transfer,
mortgage or encumber the properties of the
The new law replaces the Old Corporation corporation without proper authority.
Code - Batas Pambansa Blg. 68 - which took
effect on May 1, 1980 - and was the general  The interest of its stockholders, directors
statute under which private corporations were and officers over the corporation’s
organized. properties are merely inchoate.

CORPORATION DEFINED
Sec. 2. A Corporation is an artificial being OBLIGATIONS:
created by operation of law, having the right of
succession and the powers, attributes and  The obligations of the corporation are not
properties expressly authorized by law or that of the stockholders, directors and
incident to its existence. officers and vice versa.

ATTRIBUTES OF A CORPORATION:
RIGHTS:
1. An Artificial Being (Capacity to Contract
and Transact Business)  Rights exercised by the corporation cannot
be invoked by the stockholders, directors
 A corporation exists by fiction of law. and officers and vice versa.
 It has a legal personality separate and
Ex: The right of the stockholders, directors
distinct from the people comprising it. Its
and officers against unreasonable searches
personality begins as soon as they have
and seizures cannot be invoked by the
been constituted.
corporation since the right is personal with
respect to the individuals.
 By virtue of the separate juridical
personality of a corporation, the corporate
debt or credit is not the debt or credit of
CONSTITUTIONAL RIGHTS:
the stockholder. This protection from
liability of shareholders is the Principle of
1. Right against unreasonable search and
Limited Liability.
seizures (since it is considered as a person by
fiction of law)
 As an artificial being, it cannot be awarded
moral damages in a suit because it has no
2. Due process
feelings, no emotions or senses.

Right that cannot be invoked by the

corporation: Right against self-incrimination
TORTS :

 The corporation is liable for torts when the

CONSEQUENCES OF BEING A act committed by the officer or agent is by
SEPARATE PERSONALITY the express direction or authority of the
stockholders or members acting as a body
PROPERTY: (Directors).
2. Created by Operation of Law 2. IMPLIED POWERS - those that are
 The existence of a corporation depends on necessary to carry into effect powers which are
certain requirements and formalities expressly granted, and which must therefore be
required by law. presumed to have been the intention in the
grant of said authority.
 Before a corporation may acquire juridical
personality, the State must give its consent 3. INCIDENTAL or INHERENT POWERS
either through a special law (in case of - refers to powers that a corporation may
government corporations) or a general law exercise by reason of its existence.
(Ii.e., Corporation Code in case of private
corporations).
DOCTRINE OF PIERCING THE VEIL OF
CORPORATE FICTION
3. Has the Right of Succession (Strong
Juridical Personality) This doctrine means that the court may
disregard the separate and distinct personality
 A corporation has the capacity for of the corporation from its members or
continuous existence despite changes in stockholders and treat the corporation as a
stockholders/members or by any transfer mere collection of individuals or an
of shares by a stockholder to a 3rd person. aggregation of persons undertaking business as
a group especially when the corporate legal
 This is one of the express powers granted entity is used as a cloak for fraud or illegality.
to it by law, for the succession of its
corporate name for the period of time It is merely an equitable remedy and may be
stated in the Articles of Incorporation granted only in the following cases:
and the Certificate of Incorporation.
3 BASIC AREAS WHERE PIERCING
4. Has the Powers, Attributes, and THE VEIL OF CORPORATE FICTION IS
Properties Expressly Authorized by Law or ALLOWED:
Incident to Its Existence (A creature of
Limited Powers) 1. When it will defeat public convenience;
2. When it will justify wrong, protect fraud; or
 As a mere creature of law, it can exercise 3. Alter ego of business conduit of a person.
only such powers:
 It is the protection of the interests of
1. As the law may choose to grant it, innocent 3rd persons dealing with the
either expressly or impliedly; corporate entity which the law aims to
protect by this doctrine.
2. Its Articles of Incorporation; and
3. Those that are incident to its Therefore, one cannot invoke the doctrine to
existence. save itself from transactions which it knew to
be defective or contrary to the law, rules or
Any act exercised outside of such powers are regulations applicable to its industry.
unauthorized and considered ultra vires.
GROUNDS FOR APPLICATION OF
KINDS OF POWERS OF A DOCTRINE:
CORPORATION:
1. If done to defraud the government of taxes
1. EXPRESS POWERS - those that are due it;
expressly granted to a corporation by its
2. If done to evade payment of civil liability;
charter.
3. If done by a corporation which is merely a
conduit or alter ego of another corporation;
4. If done to evade compliance with contractual 2. FOREIGN - one which was formed,
obligations; organized and operating by virtue of the laws
5. If done to evade compliance with financial of its country of origin which allows or observe
obligation to its employees. reciprocal rights with the Philippines.

 Whose law allow Filipino citizens and

CLASSES OF CORPORATIONS corporations to do business in its own
country of State (Principle of
Sec. 3. Corporations formed or organized under
Reciprocity)
this Code may be stock or non-stock
corporations. Stock corporations are those
 Licensed by SEC to do business in the
which have capital stock divided into shares,
Philippines after securing a certificate of
dividends, or allotments of the surplus profits
authority from the Board of Investments
on the basis of the shares held. All other
and after complying with the conditions
corporations are nonstock corporations.
for issuance of license on application
forms, structural organizations and
capitalization.
1. Stock corporations - are those which have
capital stock divided into shares, dividends, or
allotments of the surplus profits on the basis of
2 ACKNOWLEDGED TESTS TO
the shares held.
DETERMINE THE NATIONALITY OF
THE CORPORATION:
 They are organized for profit.
I. CONTROL TEST - A corporation shall be
 The governing body is usually the Board
considered a Filipino corporation if the Filipino
of Directors (except in certain instances -
ownership of its capital stock is at least 60%
i.e close corporations)
and where the 60-40 Filipino-Alien equity
ownership is NOT in doubt.
2. Non-stock corporations - those that exist
Therefore, its sharings in another corporation
for purposes other than the pursuit of profit.
shall be considered to be Filipino nationality
when computing the percentage of Filipino
 It does not issue stocks and does not
equity of the 2nd corporation.
distribute dividends.
 It is still the prevailing test.
 While a non-stock corporation may make a
profit as an incident to its principal
operation, it cannot distribute its earnings
or profits to its members but can only use
Control test is applied in the following:
it for furtherance of its purpose.
1. Exploitation of natural resources - “Only
 The governing body is usually the Board
Filipino citizens or corporations whose capital
of Trustees.
stock are at least 60% owned by Filipinos can
qualify to exploit natural resources.” (Sec. 2,
Art. II, Constitution)
OTHER CLASSIFICATIONS OF
CORPORATORS
2. Public Utilities - “xxx no franchise,
certificate or any other form of authorization
AS TO PLACE OF INCORPORATION:
for the operation of a public utility shall be
granted except to citizens of the Philippines or
1. DOMESTIC - one which was formed and
corporations organized under the laws of the
incorporated according to the laws of the
Philippines at least 60% of whose capital is
Philippines.
owned by such citizens.” (Sec. 11, Art. XII,
Constitution)
 2. Attempt in good faith to incorporate of
3. Mass Media - “Ownership of mass media “colorable compliance”;
shall be limited to the citizens of the 3. Assumption of corporate powers;
Philippines, or to corporations, cooperatives, or 4. Issuance of certificate of incorporation.
associations, wholly-owned and managed by
such citizens.” (100% Filipino management of
the entity) (Sec. 11, Art. XVI, Constitution) CORPORATIONS CREATED BY
SPECIAL LAWS OR CHARTERS
4. Advertising Industry - “xxx only Filipino
Sec. 4. Corporations created by special laws or
citizens or corporations or associations at least
charters shall be governed primarily by the
70% of whose capital is owned by such citizens
provisions of the special law or charter creating
is allowed to engage in the advertising
them or applicable to them, supplemented by
agency.” (Sec. 11, Art. XVI, Constitution)
the provisions of this Code, insofar as they are
applicable.
II. GRANDFATHER RULE - Is is a method
 Congress cannot enact a law creating a
of determining the nationality of a corporation
private corporation with a special charter.
which in turn is owned in part by another
corporation by breaking down the equity
Since private corporations cannot have special
structure of the shareholder corporation.
charters, it follows that Congress can create
corporations with special charters only if such
 The application of this test is limited to the
corporations are government-owned or
issues of investment. Only when the
controlled corporations.
corporation is less than 60% owned shall
the grandfather rule be applied.
Test to determine whether a corporation is
government-owned or controlled, or private
in nature:
As to Legal Status:
If a corporation is created by its own charter
1. DE JURE CORPORATION - a
for the exercise of a public function, or by
corporation organized in accordance with the
incorporation under the general corporation
requirements of law.
law.
 Every corporation is deemed de jure until
proven otherwise.
The Philippine National Red Cross is a
government-owned and controlled corporation,
2. DE FACTO CORPORATION - a
with an original charter under Republic Act
corporation claiming in good faith to be a
No. 95. Consequently, the employees are under
corporation under the Corporation Code.
the jurisdiction of the Civil Service
Commission and are compulsorily covered by
 A corporation where there exists a flaw in
the GSIS.
its incorporation, it falls short of the
requirements of law.
Corporations created by special laws:
 A de facto corporation will incur the same
obligation, have the same powers and
1. Government Service Insurance System
rights as a de jure corporation.
(GSIS)
2. Social Security System (SSS)
3. Philippine Amusement and Gaming
ELEMENTS OF A DE FACTO
Corporation (PAGCOR)
CORPORATION:
4. National Power Corporation (NAPOCOR)
1. A valid law under which it is incorporated;
 CORPORATORS AND
INCORPORATORS, STOCKHOLDERS
AND MEMBERS
Sec. 5. Corporators are those who compose a
corporation, whether as stockholders or
shareholders in a stock corporation or as
members in a nonstock corporation.
Incorporators are those stockholders or
members mentioned in the articles of
incorporation as originally forming and
composing the corporation and who are
signatories thereof.

CORPORATOR - is a member of a
corporation.

 It generally refers to the individuals who

comprise the corporation.

INCORPORATOR - is while being a

corporator is also of those who originally signs
the Articles of Incorporation that establishes
the corporation.

STOCKHOLDERS - are corporators in a

stock corporation.

 Popularly known as “shareholders.”

MEMBERS -

CORPORATE POWERS AND CAPACITY

Sec. 35. Every corporation has the power

and capacity:

(a) To sue and be sued in its corporate name

 The power of the corporation to sue and be

sued in any court is lodged with the Board
of Directors that exercise corporate
powers.

 In the absence of a special authority from

the Board of Directors to institute a
derivative suit, the President or
 Managing Director is disqualified by law
to sue in her own name or on behalf of the  As a body politic, it has the power not only
corporation. to admit members subject to established
qualifications but also to expel its
members.
(b) Power of succession

 A corporation has the right of succession (h) Power to own or dispose of real and
despite death or removal of its personal property
shareholders or members of the board, or
transfer of ownership of shares from one  This includes the power to purchase,
shareholder to another. receive, take or grant, hold, convey, sell,
lease, pledge, mortgage and otherwise deal
with such real and personal property,
(c) Power to adopt and sue a corporate seal including securities and bonds of other
corporations, as the transaction of the
 A corporation is granted the power to lawful business of the corporation may
adopt and use its own distinctive corporate reasonably and necessarily require, subject
seal. to the limitations prescribed by law and the
1987 Constitution.
However, a corporation may exist without a
seal.
(i) Power to enter into merger, joint venture,
partnership or consolidation
(d) Power to amend its articles of
incorporation  The present Revised Corporation Code
authorizes two or more corporations to
 Subject to the provisions of the Revised merge under one of the participating
Corporation Code, a corporation may constituent corporations, or to consolidate
amend its articles of incorporation. into a new single corporation called the
consolidated corporation.

(e) Power to adopt by-laws

 A corporation may amend or repeal its by- (j) Power to make reasonable donations
laws as long as it is not contrary to law,
morals, or public policy, observing the  The law provides that no corporation,
procedure provided under the Revised domestic or foreign, shall give donations in
Corporation Code. aid of any political party or candidate or
for purposes of partisan political activity.

(f) Power to issue or sell stocks to

subscribers and to sell treasury stocks, if a (k) Power to establish pension, retirement,
stock corporation and other provident plans

 Ownership and control of a corporation is  A corporation may establish a provident

determined in the number of shares a fund of any kind for the benefit of its
shareholder holds, thus, a corporation is directors, trustees, officers and employees;
empowered to issue or sell such shares to and
whoever desires to and is qualified.

(l) Power to exercise such other powers as

(g) Power to admit members, if it be a non- may be essential or necessary to carry out its
stock corporation purpose or purposes
 This power is defined by the Supreme
Court as “that which is necessary in
order to enable a corporation to carry
into execution the specific powers
conferred upon by its charter.”

POWER TO EXTEND OR SHORTEN

CORPORATE TERM
Sec. 36. A private corporation may extend
or shorten its term as stated in the articles of
incorporation when:

1. Approved by a majority vote of the board

of directors or trustees and

2. Ratified at a meeting by the stockholders

or members representing at least two-thirds
(2/3) of the outstanding capital stock or of its
members.

Written notice of the proposed action and of

the time and place of the meeting shall be
sent to stockholders or members at their
respective place of residence as shown in the
books of the corporation, and must be
deposited to the addressee in the post office Metro Heights Subdivision Homeowners
Association, Inc. vs. CMS Construction and
Development Corp.; G.R. No. 209159
 Except for the powers which are conferred
on it by the Revised Corporation Code and FACTS: Petitioner Metro Heights Subd.
those that are implied by or are incidental Homeowners Assoc., Inc. Filed with the RTC
to its existence, a corporation has no of Quezon City a complaint for damages
powers. against respondent CMS. Tomato Cruz, Tita
Cruz, Simonette Cruz, Angel Cruz, Ernesto
Cruz or the Cruzes and the Metropolitan Water
Works and Sewerage System.

CMS Construction made diggings, excavations

and started to lay water pipes along Fisheries
and Morning Star Bright streets in San Ville
Subdivision, Quezon City, petitioner’s
neighboring subdivision.

In the process, CMS with the knowledge and

consent of the MWSS but without petitioner’s
knowledge and consent, unilaterally cut off and
disconnected the water line. Thus, made them
waterless which lasted for 3 days.

PETITIONER METRO HEIGHTS:

 However, the SC did not agree with the CA’s
Alleged that their PVC pipes and radius elbow finding that respondent’s actions were merely
valued at around P30,000 were stolen by consequential to the exercise of their rights and
respondent CMS’ construction workers. obligation to manage and maintain the water
system.
Its officers discovered the illegal cutting of the
water connection on May 13, 1992 and they According to the SC, having the right should
immediately complained to respondents and not be confused with the manner by which such
demanded for the restoration of their water line right shall be exercised. The SC cited Article
and that respondent CMS only made a 19 of the New Civil Code, which states that:
temporary reconnection by the use of 2 inch
rubber hose to the new water line constructed “Every person must, in the exercise of his
at San Ville Subdivision. rights and in the performance of his duties, act
with justice, give everyone his due, and
Despite petitioner’s verbal and written observe honesty and good faith.”
demands respondents have failed to restore the
petitioner’s water line connection in its original It was admitted by Engr. Victor Carriaga, an
state and to return the missing PVC pipe and MWSS consultant and Mr. Tomasito Cruz,
radius elbow. respondent CMS’ construction president that
petitioner has its own pipeline or source of
RTC: water coming from Visayas Avenue.
Respondents also admitted that because of the
Found the respondents did not have the rehabilitation project they were undertaking,
authority to simply cut, disconnect and transfer petitioners’ water pipeline measuring 100 mm
petitioner’s water supply. in diameter along the side of the creek, was
On appeal, the CA reversed the decision of the replaced with a PVC plastic pipe, 115 mm in
RTC. diameter and that petitioners’ water line had to
be transferred and in the process of
CA: transferring, petitioners’ existing water line had
to be cut off.
Ruled that the respondent’s actions were
merely consequential to the exercise of their Considering that respondents would disconnect
rights and obligations to manage and maintain and change petitioners’ existing water line tap
water supply system. from Visayas Avenue to another tapping
source, good faith and prudence dictate that
An exercise includes water rehabilitation and petitioners should be informed and notified of
improvements within the area pursuant to their such actions. As respondents admitted that
agreement for the water supply system. prior notice to affected areas is a standard
operating procedure. More so, petitioner’s
Alleged abuse of right was not sufficiently members had spent their own money to pay for
established. existing water connection on Visayas Avenue
to address the perennial problem on the lack of
ISSUE: Whether or not respondent should water supply in their area.
be held liable for damages for the cutting of,
disconnection and transfer of petitioner’s Therefore, the SC find the respondents MWSS
existing separate water service connection and CMS Construction should be held liable
on the Visayas Avenue without the latter’s for damages to petitioner but not the Cruzes,
knowledge and consent. who are merely directors and stockholders of
respondent CMS Construction.

HELD: YES, respondent should be held liable Sec. 31 (now Sec. 30) of the Corporation
for damages. Code is the governing law on personal
liability of officers for the debts of the
corporation, to wit:
“Directors or trustees who willfully and  Multiply the number of directors to be
knowingly vote for or assent to patently elected with the number of shares that said
unlawful acts of the corporation or who are stockholder is holding.
guilty of gross negligence or bad faith in
directing the affairs of the corporation or Ex. There 5 BOD that need to be elected x 100
acquire any personal or pecuniary interest shares = 500 shares - the total number of votes
in conflict with their duty as such directors that the stockholder can cast.
or trustees shall be liable jointly and
severally for all damages resulting
therefrom suffered by the corporation, its * Cumulative voting is not present in a non-
stockholders or members and other stock corporation because there are no shares
persons.” held.

Petitioner failed to show that the Cruzes Ex: If there are 5 BODs to be elected, the
committed any of the above-quoted acts to stockholder would only be allowed to write 5
make them personally liable. The respondent BODs.
corporation will be held liable to answer for
damages but not the Cruzes, who are merely REMOVAL OF DIRECTOR OR
officers or directors of the respondent TRUSTEE
corporation. Section 27, RCCP

Requisites:
Read:
1. It must take place either at a regular or
 Ayala Land Inc. vs. ASB Realty Corp.; special meeting of the stockholders or members
G. R. No. 210043, September 26, 2018 duly called for that purpose;

 University of Mindanao vs. BSP; G.R. 2. There must be previous notice to the
No. 194964-65 stockholders or members of the intention to
propose removal of the meeting;

DIRECTORS AND OFFICERS 3. The removal must be by a vote of the

stockholders representing at least 2/3 of the
outstanding capital stock or 2/3 of the
ELECTION OF DIRECTORS AND members;
OFFICERS Section 23, RCCP
4. The director may be removed with or
without cause unless he was elected by the
Modes of Voting: minority. In which case, it is required that there
1. Straight voting is a cause for removal.
2. Cumulative voting for one candidate
3. Cumulative voting by distribution
* If minority shareholders pool their votes and
then one of the directors, coming from the
HOW TO COMPUTE THE TOTAL minority shareholders was elected, that cannot
NUMBER OF ALLOWABLE VOTES FOR director cannot be removed without a cause.
EACH STOCKHOLDER:
But all the other directors, can be removed by
STRAIGHT VOTING following the above the requisites as provided
under Section 27.
FOR Stock Corporation: It is cumulative
voting
 VACANCIES IN THE OFFICE OF the emergency board, stating therein the
DIRECTOR OR TRUSTEE; reason for its creation.
EMERGENCY BOARD
Section 28, RCCP
DOCTRINE OF CENTRALIZED
How vacancies in the Office of Director or MANAGEMENT - In a corporation, the
Trustees to be filled in: management is centralized with the Board of
Directors or Trustees of a corporation.
1. By the vote of the stockholders or members;
or For as long as it is not an action to which the
directors and trustees can incur liability,
2. By a majority vote of the Board, if the anything and everything is considered as valid
remaining Directors or Trustees still constitutes acts of the corporation as well as of its
a quorum. directors or trustees in relation to Business
Judgment Rule, wherein whatever is the
decision of the corporate directors or trustees,
is considered as a decision that is for the
WHEN ELECTION OR REPLACEMENT benefit of the corporation.
SHOULD BE MADE:

1. When the vacancy is due to term expiration; Francisco Esmendi, et al vs. Teodorico
Fernandez, G. R. 215280, September 5, 2019
2. When the vacancy occurs as a result of
removal by the stockholders or members; FACTS: On November 28, 2013, respondent
Teodorico Fernandez filed a Complaint for
3. In all other cases of vacancy such as death or Invalidation of Corporate Acts and Resolutions
incapacity, etc. with the Application for Writ of Preliminary
Injunction against the individual petitioners,
 If the vacancy was created by virtue of an namely: Francisco C. Eizmendi, Jr., Jose S.
increase in the number of directors or Tayag, Jr., Joaquin San Agustin, Eduardo
trustees, the positions can only be filled by Francisco, Edmidio Ramos, Jr., Albert
the shareholders through an election duly Blancaflor, Rey Nathaniel Ifmung, Manuel
held for the purpose. Acosta, Jr., who allegedly constituted
themselves as new members of the Board of
 The RCCP now provides: “In all elections Directors (BOD) of Valle Verde Country Club
to fill vacancies under this section, the , Inc. (VVCCI), despite lack of quorum during
procedure set forth in Sections 23 and 35 the annual members’ meeting on February 23,
shall apply. 2013. VVCCI is a duly organized non-stock
corporation engaged in promoting sports,
recreational and social activities, and the
CREATION OF EMERGENCY BOARD operation and maintenance of a sports and
clubhouse, among other matters .
When is Emergency Board created? (par. 3
of Sec. 28, RCCP)
RESPONDENT FERNANDEZ:
When the vacancy prevents the remaining
directors from constituting a quorum and Averred that the individual petitioners held a
emergency action is required to prevent grave, meeting on October 18, 2013, during which
substantial and irreplaceable loss or damage to they supposedly acted for and in behalf of
the corporation. VVCCI, and found him guilty of less serious
violations of the by-laws and imposed on him
the penalty of suspension of membership for 6
 The corporation must notify the SEC months.
within three (3) days from the creation of
Asserted that since petitioners were not validly Stresses that she will not touch the election
constituted as the new BOD in the place of the contest aspect of the Complaint, but only on
hold-over BOD of VVCCI, they had no legal the issue of his suspension from the VVCCI.
authority to act as such BOD, to find him guilty
and to suspend him.

Added that he was not accorded due process as

petitioners failed to give him opportunity to
defend himself and by not notifying him of the PETITIONERS:
charge and the verdict against him.
Filed their Answer with Counterclaim and and
Prayed that after hearing on the merits, Grounds for Dismissal.
judgement be rendered:
Specifically denied the material allegation of
1. Making Injunction permanent; Fernandez’s Complaint, and sought the
dismissal thereof on the following grounds:
2. Invalidating the claims of the individual
petitioners to the office of the directors of the 1. He has no cause of action against the
VVCCI; individual petitioners, who acted as members
of the BOD of the VVCCI, which is a collegial
3. Nullifying the annual members’ meeting on body;
February 23, 2013, as well as subsequent board
meetings similarly held and conducted by the 2. The case is an election contest filed more
individual petitioners, including resolutions than (15) fifteen days from the date of election,
and measures approved thereat, particularly a violation of Section 3 , Rule 6 of the Rules
those which are related to his suspension from Governing Intra-Corporate Controversies;
the VVCCI;
3. Non-exhaustion of intra-corporate remedies
4. Ordering the individual petitioners, jointly and non-compliance with condition precedent
and severally liable to pay him P500,000 as under the by-laws of VVCCI; and
attorney’s fees and not less than P500,000 as
exemplary damages, and P500,000 as moral 4. Violations of Rules on Notarial Practice.
damages.

In an Urgent Motion or Request for RTC:

Production/Copying of Documents, Fernandez
cited Rule 27 of the Rules of Court and In an order, the RTC pointed out that the
requested VVCCI, as owner and custodian of application of a Writ of Preliminary Injunction
corporate documents to produce them and has been rendered moot.
allow him to copy the matters in connection
with the hearing of his application for issuance Reminded the parties that it shall not entertain
of a Writ of Preliminary Injunction. any issue respective the February 23, 2013
elections; otherwise, the mandatory period
PETITIONERS: within which to file an Election Contest would
be rendered nugatory.
Opposed the Urgent Motion or Request for
Production/Copying of Documents , and Stressed that it cannot allow indirectly what is
prayed that it be denied for lack of merit, for barred directly by the Rules, accordingly, the
being unreasonable and for not being in their only issue remaining is whether due process
possession. was observed in suspending Fernandez.

In a resolution, the RTC denied the Urgent

JUDGE MARIA ROWENA SAN PEDRO: Motion or Request for Production/Copying of
Documents.
 reglementary period, then the salutary purposes
of the said period under the Interim Rules
Aggrieved by the RTC Order and Resolution, would be rendered futile; the floodgates to
Fernandez filed a Petition for Certiorari before election contests would be opened, to the
the CA. detriment of the regime of efficient and stable
CA: corporate governance.

Granted the Fernandez’s petition for certiorari, The RTC committed no abuse of discretion in
nullified and set aside the assailed Order and disallowing Fernandez from presenting
Resolution of the RTC insofar as it did not evidence during the hearing on his application
allow any evidence to be presented relating to for Preliminary Injunction relative to the lack
the February 23, 2013 elections of the board of of authority of the individual petitioners to
directors of the VVCCI. suspend him because it would inevitably
question the validity of the February 23, 2013
Ruled that in order to fully resolve the issue election.
regarding the legality of the suspension of
Fernandez from VVCCI, it was not necessary The RTC’s action of virtually dismissing the
for the trial court to admit pieces of evidence first cause of action in Fernandez’s complaint
which relate to the composition of the BOD of for being an election contest, filed beyond the
VVCCI during the time when the penalty of 15 day reglementary period is indeed consistent
suspension from the membership was imposed with the following provisions of the Interim
upon petitioner. Rules:

1. Section 3, Rule 1, because such act promotes

ISSUE: Whether or not Fernandez may the objective of securing a just, summary,
question the authority of the petitioners to speedy and inexpensive determination of every
act as the BOD of VVCCI and approve the action or proceeding; and
Board Resolution suspending his club
membership. 2. Section 4, Rule 6, which authorizes the court
to dismiss outright the complaint if the alleged
allegations thereof is not sufficient in form and
HELD: No, Fernandez cannot question the substance.
authority of the petitioners to act as the BOD of
VVCCI. The RTC’s action is, likewise, consistent with
the inherent powers of courts to amend and
To allow Fernandez to indirectly question the control its process and orders so as to make
validity of the February 23, 2013 them comfortable to law and justice, under
election,would be a clear violation of the 15 Section 5, Rule 135 of the Rules of Court.
day reglementary period to file an election
contest under the Interim Rules. In sum, the CA gravely erred in allowing
Fernandez to present evidence in connection
The Court agrees with Fernandez that the 15 with the election of the individual petitioners as
day reglementary period within which to file an members of the BOD of the VVCCI conducted
election under the Interim Rules is meant to on February 23, 2013, to invalidate their claims
hasten the submission and resolution of to the office of the director, because that is akin
corporate election controversies so that the to entertaining an election contest filed beyond
state of uncertainty in the corporate leadership the 15 day period under the Interim Rules.
is settled; and that the said period not meant to
block suits questioning the unlawful acts of The 15 day reglementary period within which
winning directors, including the legitimacy of to file an election contest under the Interim
their authority. However, if the Court were to Rules is meant to to hasten the submission and
entertain one of the causes of action in resolution of election controversies, so that the
Fernandez's complaint, which is partly an state of uncertainty in the corporate leadership
election contest raised beyond the said is settled; and that the said period not meant to
block suits questioning the unlawful acts of General Rule: Contracts are voidable at the
winning directors, including the legitimacy of option of the corporation.
their authority.

To allow Fernandez to indirectly question the

validity of the February 23, 2013 election SHARES AND SHAREHOLDERS
would be a clear violation of the 15 day
reglementray period to file an election contest
under the Interim Rules. SUBSCRIPTION CONTRACT (Section 59)
- is any contract for the acquisition of unissued
stock in an existing corporation or a
corporation still to be formed.
MIRROR DOCTRINE/DOCTRINE OF
CORPORATE OPPORTUNITY - Section 55, RCCP

- it refers to Section 30 and Section 33 of the

RCCP. Effect of Subscription Contract: To make the
subscriber a stockholder in the corporation, and
- this covers cases when a director take bind him to pay for his stock in accordance
business opportunity that belongs to the with the terms of his contract.
corporation, when the corporation is financially
able to undertake from its nature it is in line
with its corporate’s business and it is one in  If the shares are already subscribed by a
which the corporation has interest or a shareholder and it was subsequently sold
reasonable expectancy. to another, such shares are no longer
covered by the subscription contract but its
The requirement is, you really have the more of a purchase shares from the said
obligation to account because it is for the shareholder to another person.
corporation.

PRE-INCORPORATION SUBSCRIPTION
Section 60, RCCP
CONFLICT OF INTEREST
PRE-INCORPORATION SUBSCRIPTION
The self-interest of the director when in - is an agreement made by a subscriber to
conflict with the interest of the corporation in which he subscribes to a certain amount of the
that corporate opportunity. Hence, the law does proposed capital stock of a corporation still
not permit the director to seize the opportunity undergoing incorporation.
even if he will use his own funds in the
venture. - it is entered into before the incorporation and
irrevocable for a period of at least 6 months
from the date of subscription unless:

SELF-DEALING DIRECTORS A) All other subscribers consent to the

Section 31, RCCP revocation; or

- covers contracts between the corporation and: B) If the corporation fails to incorporate within
the same 6 month period or within a longer
1. The director or trustee; or period stipulated in the contract of
2. Officer; or subscription. (Section 60)
3. Their spouse; or
4. Relatives within the fourth civil degree of
consanguinity or affinity.
GROUNDS WHICH A PRE- 6. Outstanding shares exchange for stocks in
INCORPORATION SUBSCRIPTION MAY the event of reclassification or conversion;
BE REVOKED:
7. Shares of stock in another corporation;
1. All other subscribers agree to the revocation; and/or

2. The incorporation of the proposed 8. Other generally accepted form of

corporation does not push through; and consideration.

3. The revocation is before the articles of

incorporation is filed with the SEC. DOCTRINE OF INDIVIDUALITY AND
INDIVISIBILITY OF SUBSCRIPTION

It is one where a subscription is one, entire and

POST-INCORPORATION indivisible whole contract even if two or more
SUBSCRIPTION - shares are covered.

 The subscriber is not entitled to the

HOW DOES ONE BECOME A Certificate for a part or all of the
SHAREHOLDER IN A CORPORATION: certificates covered until full payment of
the subscription price plus interest and
1. Enters into a subscription contract with an expenses in case of delinquent shares.
existing corporation;
Ex. A subscribes 100 shares at P1/share. So,
2. Purchases treasury shares from the total subscription is P100 but A only paid P10.
corporation;
Is A entitled to 10 shares because he already
3. Acquires share from existing shareholders paid P10?
by sale or any other contract, or through other
modes of acquiring ownership like succession. No. Because of the Doctrine of Individuality
and Indivisibility of Subscription. A’s P10 is
pro rated for the entire 100 shares.

VALID CONSIDERATION FOR STOCKS

Section 61, RCCP  Shares of stocks are intangible personal
property for tax purpose.
CONSIDERATION FOR THE ISSUANCE
OF STOCK:
SHARES OF STOCK vs. CERTIFICATE
1. Actual cash paid to the corporation; OF STOCK

2. Property, tangible or intangible, actually Unit of interest in a Evidence of the hol

received by the corporation and necessary or corporation der’s ownership
convenient for its use and public purpose;
It is an incorporeal It is concrete and
3. Labor performed or services actually or intangible pro- tangible
rendered to the corporation; perty.
4. Previously incurred indebtedness of the
corporation; May be issued by May be issued only
the corporation when the subscription
5. Amount transferred from unrestricted Even if the sub- is fully paid.
earnings to stated capital ; and scription is not
fully paid.
 It provides that where the articles of
incorporation do not provide any distinction of
CLASSIFICATION OF SHARES shares of stocks, all shares issued by the
Section 8 corporation are presumed to be equal and enjoy
the same rights and privileges and are also
CLASSIFICATION OF SHARES : subject to the same liabilities.

1. Common Shares - the most common type

of shares, which enjoy no preference but with WATERED STOCKS (Section 64)
voting rights. - those issued not in exchange for its equivalent
either in cash, property, shares, stock dividends
2. Preferred Shares (Section 6) - is usually or services. Thus, the issuance of such stocks is
given certain guarantees and privileges not prohibited.
given to holders or owners of common shares
but are restricted or not granted voting rights in
exchange. CERTIFICATE OF STOCKS - is a written
acknowledgment by the corporation of the
3. Redeemable Shares (Section 8) - are shares interest of a shareholder in the corporate
which may be purchased by the corporation property and franchises.
from the holders of such shares upon the
expiration of a fixed period, regardless of the
existence of unrestricted retained earnings in TRANSFER OF SHARES
the books of the corporation. Section 62

4. Treasury Shares (Section 9) - are shares of IF REPRESENTED BY A CERTIFICATE,

stocks which have been issued and fully paid THE FOLLOWING MUST BE STRICTLY
for, but subsequently reacquired by the issuing COMPLIED WITH:
corporation by purchase, redemption, donation
or some other lawful means. 1. Delivery of the certificate;

5. Par value or Non Par Value Shares - 2. Endorsement by the owner or his agent;

PAR VALUE - refers to the amount one pays 3. To be valid as to third persons, the transfer
for a share of the capital stock. must be recorded in the books of the
corporation.
- it represents the value of said stock in relation
to the total outstanding capital stock.
IF NOT REPRESENTED BY A
CERTIFICATE:
6. Founder’s Shares (Section 7) - is a
privilege given in recognition of the fact that 1. By means of a Deed of Assignment; and
they are the ones who founded or incorporated
the corporation. 2. Such is duly recorded in the books of the
7. Escrow Shares corporation.

8. Non- voting shares

LIMITATION OF PAR VALUE SHARES

(Section 6)

DOCTRINE OF EQUALITY OF SHARES