TOPIC: Corporation; Separate Juridical Personality
PROBLEM: PR Co. owns a beach resort with several cottages. Jaime, the President of PR,
occupied one of the cottages for residential purposes. After Jaime’s term expired, PR wanted to
recover possession of the cottage. Jaime refused to surrender the cottage, contending that as a
stockholder and former President, he has a right to possess and enjoy the properties of the
corporation.
Is Jaime’s contention correct? Explain.
ANSWER: No. A corporation is a distinct legal entity to be considered as separate and apart
from the individual stockholders or members who compose it, and is not affected by the
personal rights, obligations and transactions of its stockholders or members. The property of
the corporation is its property and not that of the stockholders, as owners, although they have
equities in it. As a stockholder, Jaime is not vested with ownership of any legal right or title to
any of the property, his interest in the corporate property being equitable or beneficial in
nature. Hence, Jaime’s contention is incorrect and PR may recover possession of the cottage.
TOPIC: Corporation; Separate Juridical Personality
PROBLEM: Richard owns 90% of the shares of the capital stock of GOM Co. On one occasion,
GOM represented by Richard as President and General Manager executed a contract to sell a
subdivision lot in favor of Tomas. For failure of GOM to develop the subdivision, Tomas filed an
action for rescission and damages against GOM and Richard.
Will the action prosper? Explain.
ANSWER: No. The action may prosper against GOM but not against Richard. A corporation is a
distinct legal entity to be considered as separate and apart from the individual stockholders or
members who compose it. To disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established. It cannot be presumed. The contract
to sell was executed on behalf of GOM as a separate entity and any breach thereof may make
GOM liable. Absence of any wrongdoing, Richard cannot be held solidarily liable with GOM.
Hence, the action will only prosper against GOM.
TOPIC: Joint Venture
PROBLEM: May a corporation enter into a joint venture?
ANSWER: The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for some
temporary purpose. The Supreme Court has however recognized a distinction between these
two business forms, and has held that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others. (Philex Mining Corp. v.
Commissioner of Internal Revenue, G.R. No. 148187, April 16, 2008)
TOPIC: Power to Invest Corporate Funds in another Corporation
PROBLEM: When may a corporation invest its funds in another corporation or business or for
any other purpose?
ANSWER: Section 41 of the Revised Corporation Code provides that, a private corporation,
subject to the provisions of this Code, may invest its funds in any other corporation, business,
or for any purpose other than the primary purpose for which it was organized, when approved
by a majority of the board of directors or trustees and ratified by the stockholders representing
at least two-thirds (2/3) of the outstanding capital stock, or by at least two-thirds (2/3) of the
members in the case of nonstock corporations, at a meeting duly called for the purpose.
TOPIC: Board of Directors; Capacity of Directors
PROBLEM: Rodman, the President of TF Co., wrote a letter to Gregorio, offering to sell to the
latter 5,000 bags of fertilizer at P100.00 per bag. Gregorio signed his conformity to the letter-
offer, and paid a down payment of P50,000.00. A few days later, the Corporate Secretary of TF
informed Gregorio of the decision of their BOD not to ratify the letter offer. However, since
Gregorio had already paid the down-payment, TF delivered 500 bags of fertilizer which
Gregorio accepted. TF made it clear that the delivery should be considered an entirely new
transaction. Thereafter, Gregorio sought enforcement of the letter-offer.
Is there a binding contract for the 5,000 bags of fertilizer? Explain.
ANSWER: No. Under the Revised Corporation Code, the Board of Directors is one vested to
exercise corporate powers and a President can only act if it is authorized by the board or
empowered by the provisions of the Corporation’s By-laws. In the given case, Roman was not
authorized by the Board to enter into the dealership agreement. Furthermore, there is no
provision in the by-law enabling Roman to have the power to enter into said contract. Hence,
the contact will have no force and effect.
TOPIC: Directors and Officers; Interlocking Directorship
PROBLEM: Leonardo is the Chairman and President, while Raphael is a Director of NT
Corporation. On one occasion, NT Co., represented by Leonardo, and A Ent., a single
proprietorship owned by Raphael, entered into a dealership agreement whereby NT Co.
appointed A Ent. as the exclusive distributor of its products in Northern Luzon. Is the dealership
agreement valid? Explain.
ANSWER: No. The dealership agreement is voidable. Under Section 31 of the Revised
Corporation Code, a contract of the corporation with one (1) 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; and (c) The contract is
fair and reasonable under the circumstances. The facts do not indicate that the three
circumstances were met. Hence, the dealership agreement is voidable.
TOPIC: Liability of Directors, Trustees and Officers
PROBLEM: When may a corporate director, trustee, or officer be held personally liable with the
corporation?
ANSWER: A director, trustee, or officer of a corporation can be made solidarily liable in the
following instances:
1. The director or trustee willfully and knowingly voted for or assented to a patently
unlawful corporate act;
2. The director or trustee was guilty of gross negligence or bad faith in directing corporate
affairs;
3. The director or trustee acquired personal or pecuniary interest in conflict with his or her
duties as director or trustee.
4. When a director or officer has consented to the issuance of watered stocks or who,
having knowledge thereof, did not forthwith file with the corporate secretary his written
objection thereto;
5. When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the corporation; and
6. When a director, trustee or officer is made, by specific provision of law, personally liable
for his corporate action.
(Lanuza v. BF Corporation, G.R. No. 174938, October 1, 2014)
TOPIC: Sale or Other Disposition of Assets
PROBLEM: E Co sold its assets to M Inc after complying with the requirements of the Bulk Sales
Law. Subsequently, one of the creditors of E Co tried to collect the amount due to it, but found
out that E Co had no more assets left. The creditor then sued M Inc on the theory that M Inc is a
mere alter ego of E Co.
Will the suit prosper? Explain.
ANSWER: No. Under the Nell Doctrine, generally, where one corporation sells or otherwise
transfers all of its assets to another corporation, the latter is not liable for the debts and
liabilities of the transferor, except:
1. Where the purchaser expressly or impliedly agrees to assume such debts;
2. Where the transaction amounts to a consolidation or merger of the corporations;
3. Where the purchasing corporation is merely a continuation of the selling corporation;
and
4. Where the transaction is entered into fraudulently in order to escape liability for such
debts.
In the given case, there was no fact showing the presence of the aforementioned
circumstances. Hence, the suit will not prosper.
TOPIC: Transfer of Shares
PROBLEM: Arnold has in his name 1,000 shares of the capital stock of ABC Co as evidenced by a
stock certificate. Arnold delivered the stock certificate to Steven who now claims to be the real
owner of the shares, having paid for Arnold’s subscription. ABC refused to recognize and
register Steven’s ownership.
Is the refusal justified? Explain
ANSWER: Yes. Before a stock certificate can be validly transferred in the name of another, it
must be first endorsed in favor of the transferee. In the given case, the stock certificate was
under the name of Arnold. The facts do not show that the certificate was duly endorsed to
Steven at the time although it was transferred by Arnold. Hence, the refusal by ABC to
recognize and register Steven as the owner of the shares is justified.
TOPIC: Rights of Stockholders
PROBLEM: What are the rights of a stockholder?
ANSWER: Under the Revised Corporation Code, a stockholder has the following rights:
1. Right to attend meetings;
2. Right to vote;
3. Right to appoint proxy;
4. Right to execute voting trust agreement;
5. Right to inspection of corporate books and records;
6. Right of Appraisal;
7. Pre-emptive Right of Shares
8. Right to share in the profits of the corporation
9. Right to a proportionate share in the assets of the corporation upon liquidation; and
10. Such other rights as may contractually be granted to the stockholders by the
corporation or by law.
TOPIC: SEC Jurisdiction
PROBLEM: What is the original and exclusive jurisdiction of the SEC?
ANSWER: The SEC was never dispossessed of the power to assume jurisdiction over complaints,
even if these are riddled with intra-corporate allegations, if their invocation of authority is
confined only to the extent of ensuring compliance with the law and the rules, as well as to
impose fines and penalties for violation thereof; and to investigate even motu proprio whether
corporations comply with the Corporation Code, the Securities Regulation Code and the
implementing rules and regulations. Hence, the SEC still retains sufficient powers to justify its
assumption of jurisdiction over matters concerning its supervisory, administrative and
regulatory functions. (Roman, Jr. v. Securities and Exchange Commission, G.R. No. 196329, June
1, 2016)
TOPIC: Intra-Corporate Dispute
PROBLEM: In 1970, Magno joined AMD Co as Junior Accountant. He steadily rose from the
ranks until he became AMD’s Executive VP. Subsequently, however because of his involvement
in certain anomalies, the AMD BOD considered him resigned from the company due to loss of
confidence. Aggrieved, Magno filed a complaint in the SEC questioning the validity of his
termination, and seeking reinstatement to his former position, with backwages, vacation and
sick leave benefits, 13th month pay and Christmas bonus, plus moral and exemplary damages,
attorney’s fees and costs. AMD filed a motion to dismiss, arguing that the SEC has no
jurisdiction over cases of illegal dismissal, and has no power to award damages. Should the
motion to dismiss be granted? Explain.
ANSWER: Yes. To be considered as an intra-corporate dispute, the case: (a) must arise out of
intra-corporate or partnership relations, and (b) the nature of the question subject of the
controversy must be such that it is intrinsically connected with the regulation of the corporation
or the enforcement of the parties' rights and obligations under the Corporation Code and the
internal regulatory rules of the corporation. In the given case, intra-corporate disputes fall
under the jurisdiction of the RTC since it has been transferred by virtue of P.D. No. 902-A. Hence,
the motion to dismiss must be granted. (Aguirre II v. FQB+7, Inc., G.R. No. 170770, January 9,
2013)
TOPIC: Intra-Corporate Dispute
PROBLEM: Jennifer and Gabriel owned the controlling stocks in MFF Co and CLO Inc, both
family corporations. Due to serious disagreements, Jennifer assigned all her shares in MFF to
Gabriel, while Gabriel assigned all her shares in CLO to Jennifer. Subsequently, Jennifer and CLO
filed a complaint against Gabriel and MFF in the SEC seeking to recover the corporate records
and funds of CLO which Gabriel allegedly refused to turn over, and which remained in the
offices of MFF. Is there an intra-corporate controversy in this case?
ANSWER: Yes. An intra-corporate controversy is one which pertains to any of the following
relationships: (1) between the corporation, partnership or association and the public; (2)
between the corporation, partnership or association and the State in so far as its franchise,
permit or license to operate is concerned; (3) between the corporation, partnership or
association and its stockholders, partners, members or officers; and (4) among the
stockholders, partners or associates themselves. In the given case there was controversy
between Jennifer and Gabriel who were both stockholders of the same corporation at the time
of the assignment. Hence, an intra-corporate controversy exists in this case. (Go v. Distinction
Properties Development and Construction, Inc., G.R. No. 194024, April 25, 2012)
