CORPORATIONS LAW

CORPORATIONS

Board of Directors –– Home Guaranty is governed by its Board of Directors, which directs, controls, and manages its activities; as a government-owned and -controlled corporation, Home Guaranty is also governed by R.A. No. 10149; under Sec. 30 of R.A. No. 10149, the Corporation Code applies suppletorily to government-owned and -controlled corporations; Sec. 23 of the Corporation Code provides that the Board of Directors of a corporation exercises all the corporation’s powers, conducts all its business, and controls all its properties; thus, it is Home Guaranty’s Board of Directors that is primarily responsible for the sale. (Canlas vs. Bongolan, G.R. No. 199625, June 06, 2018)

––      Ratification by a corporation of an unauthorized act or contract by its officers or others relates back to the time of the act or contract ratified, and is equivalent to original authority; and that the corporation and the other party to the transaction are in precisely the same position as if the act or contract had been authorized at the time;implied ratification may take the form of silence, acquiescence, acts consistent with approval of the act, or acceptance or retention of benefits; however, silence, acquiescence, retention of benefits, and acts that may be interpreted as approval of the act do not by themselves constitute implied ratification; for an act to constitute an implied ratification, there must be no acceptable explanation for the act other than that there is an intention to adopt the act as his or her own. (Viatra vs. Ng Wee, G.R. No. 220926, March 21, 2018)  

Close corporations –– A close corporation is allowed under the Corporation Code to provide for restrictions on the transfer of its stocks; discussed. (Florete, Sr. vs. Florete, Jr., G.R. No. 223321, April 11, 2018)

Concept –– It is difficult to impute confusion and bad faith, which are states of mind appropriate for a natural individual person, to an entire corporation; the fiction where corporations are granted both legal personality separate from its owners and a capacity to act should not be read as endowing corporations with a single mind; a corporation is a hierarchical community of groups of persons both in the governing board and in management. (Makati Tuscany Condominium Corp. vs. Multi-Realty Dev’t. Corp., G.R. No. 185530, April 18, 2018)

Corporate liquidation –– A corporation whose charter is annulled, or whose corporate existence is otherwise terminated, may continue as a body corporate for a limited period of three years, but only for certain specific purposes enumerated by law; these include the prosecution and defense of suits by or against the corporation, and other objectives relating to the settlement and closure of corporate affairs. (Reyes vs. Bancom Dev’t. Corp., G.R. No. 190286, Jan. 11, 2018)

––      An appointed receiver, an assignee, or a trustee may institute suits or continue pending actions on behalf of the corporation, even after the winding-up period; the mere revocation of the charter of a corporation does not result in the abatement of proceedings. (Reyes vs. Bancom Dev’t. Corp., G.R. No. 190286, Jan. 11, 2018)

––      Once a corporation is dissolved, be it voluntarily or involuntarily, liquidation, which is the process of settling the affairs of the corporation, will ensue; this consists of: (1) collection of all that is due the corporation; (2) the settlement and adjustment of claims against it; and (3) the payment of its debts. (Dr. Rich vs. Paloma III, G.R. No. 210538, March 07, 2018)

Corporate names –– As early as Western Equipment and Supply Co. v. Reyes, the Court declared that a corporation’s right to use its corporate and trade name is a property right, a right in rem, which it may assert and protect against the world in the same manner as it may protect its tangible property, real or personal, against trespass or conversion; our Corporation Code established a restrictive rule insofar as corporate names are concerned; the policy underlying the prohibition in Section 18 against the registration of a corporate name which is “identical or deceptively or confusingly similar” to that of any existing corporation or which is “patently deceptive” or “patently confusing” or “contrary to existing laws,” explained. (De La Salle Montessori Int’l. of Malolos, Inc. vs.  De La Salle Brothers, Inc., G.R. No. 205548, Feb. 07, 2018)

––      In determining 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 look to the record as well as the names themselves; petitioner’s use of the phrase “De La Salle” in its corporate name is patently similar to that of respondents. (De La Salle Montessori Int’l. of Malolos, Inc. vs.  De La Salle Brothers, Inc., G.R. No. 205548, Feb. 07, 2018)

Corporate officers –– Corporate officers are those officers of a corporation who are given that character either by the Corporation Code or by the corporation’s by-laws; Sec. 25 of the Corporation Code explicitly provides for the election of the corporation’s president, treasurer, secretary, and such other officers as may be provided for in the by-laws; if the position is other than the corporate president, treasurer, or secretary, it must be expressly mentioned in the by-laws in order to be considered as a corporate office. (Cacho vs. Balagtas, G.R. No. 202974, Feb. 07, 2018)

Corporate rehabilitation –– Corporate rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being to enable the company to gain a new lease on life and allow its creditors to be paid their claims out of its earnings; an essential function of corporate rehabilitation is the Stay Order. (Cabrieto Dela Torre vs. Primetown Property Group, Inc., G.R. No. 221932, Feb. 14, 2018)

––      Intervention is prohibited under Sec. 1, Rule 3 of the Interim Rules; while respondent is undergoing rehabilitation, the enforcement of all claims against it is stayed; claim, defined in Rule 2, Sec. 1 of the Interim Rules; the RTC’s Order granting petitioner’s intervention and directing respondent to execute a deed of sale in her favor and to deliver the copy of the owner’s duplicate copy of the condominium certificate, is a violation of the law. (Cabrieto Dela Torre vs. Primetown Property Group, Inc., G.R. No. 221932, Feb. 14, 2018)

––      The law on rehabilitation and suspension of actions for claims against corporations is P.D. 902-A, as amended; in January 2004, R.A. No. 8799, otherwise known as the Securities Regulation Code, amended Sec. 5 of PD 902-A; on December 15, 2000, the Court promulgated A.M. No. 00-8-10-SC, or the Interim Rules of Procedure on Corporate Rehabilitation, which applies to petitions for rehabilitation filed by corporations, partnerships and associations pursuant to P.D. 902-A, and which is applicable in this case. (Cabrieto Dela Torre vs. Primetown Property Group, Inc., G.R. No. 221932, Feb. 14, 2018)

Directors, officers or employees –– As a general rule, directors, officers, or employees of a corporation cannot be held personally liable for the obligations incurred by the corporation, unless it can be shown that such director/officer/employee is guilty of negligence or bad faith, and that the same was clearly and convincingly proven. (Mactan Rock Industries, Inc. vs. Germo, G.R. No. 228799, Jan. 10, 2018)

––      Before a director or officer of a corporation can be held personally liable for corporate obligations, the following requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith. (Mactan Rock Industries, Inc. vs. Germo, G.R. No. 228799, Jan. 10, 2018)

Doctrine of piercing the veil of corporate fiction –– It is a fundamental principle of law that a corporation has a personality that is separate and distinct from that composing it as well as from that of any other legal entity to which it may be related; moreover, the existence of interlocking directors, corporate officers and shareholders without more, is not enough justification to pierce the veil of corporate fiction in the absence of fraud or other public policy considerations; the doctrine of piercing the corporate veil also finds no application in this case because bad faith cannot be imputed to petitioner company. (Marsman & Co., Inc. vs. Sta. Rita, G.R. No. 194765, April 23, 2018)

Financial Rehabilitation Rules of Procedure –– Rehabilitation proceedings seek to give insolvent debtors the opportunity to reorganize their affairs and to efficiently and equitably distribute its remaining assets; the filing of a petition for the rehabilitation of a debtor, when the court finds that it is sufficient in form and substance, is both (1) an acknowledgment that the debtor is presently financially distressed; and (2) an attempt to conserve and administer its assets in the hope that it will eventually return to its former state of successful financial operation and liquidity. (Allied Banking Corp. vs. In the Matter of the Petition to Have Steel Corp. of the Phils. Placed Under Corporate Rehabilitation with Prayer for the Approval of the Proposed Rehabilitation Plan, Equitable PCI Bank, G.R. No. 191939, March 14, 2018)

––      The Court enacted A.M. No. 12-12-11-SC, or the Financial Rehabilitation Rules of Procedure (Rehabilitation Rules), which amended and revised the Interim Rules and the subsequent 2008 Rules of Procedure on Corporate Rehabilitation (2008 Rules), in order to incorporate the significant changes brought about by R.A. No. 10142, otherwise known as the Financial Rehabilitation and Insolvency Act of 2010 (FRIA). (Allied Banking Corp. vs. In the Matter of the Petition to Have Steel Corp. of the Phils. Placed Under Corporate Rehabilitation with Prayer for the Approval of the Proposed Rehabilitation Plan, Equitable PCI Bank, G.R. No. 191939, March 14, 2018)

––      The immediate effectivity of the stay order can be traced to the purpose of rehabilitation; once the necessity of rehabilitating the debtor is recognized, through a petition duly granted, it is imperative that the necessary steps to preserve its assets are taken at the earliest possible time. (Allied Banking Corp. vs. In the Matter of the Petition to Have Steel Corp. of the Phils. Placed Under Corporate Rehabilitation with Prayer for the Approval of the Proposed Rehabilitation Plan, Equitable PCI Bank, G.R. No. 191939, March 14, 2018)

––      The immediate effectivity of the stay order means that the RTC, through an order commencing rehabilitation and staying claims against the debtor, acknowledges that the debtor requires rehabilitation immediately and therefore it can not only prohibit but also nullify acts made after its effectivity, when such acts are violative of the stay order, to prevent any irreparable detriment to the debtor’s successful restoration. (Allied Banking Corp. vs. In the Matter of the Petition to Have Steel Corp. of the Phils. Placed Under Corporate Rehabilitation with Prayer for the Approval of the Proposed Rehabilitation Plan, Equitable PCI Bank, G.R. No. 191939, March 14, 2018)

––      The inherent purpose of rehabilitation is to find ways and means to minimize the expenses of the distressed corporation during the rehabilitation period by providing the best possible framework for the corporation to gradually regain or achieve a sustainable operating form.  (Allied Banking Corp. vs. In the Matter of the Petition to Have Steel Corp. of the Phils. Placed Under Corporate Rehabilitation with Prayer for the Approval of the Proposed Rehabilitation Plan, Equitable PCI Bank, G.R. No. 191939, March 14, 2018)

––      The publication requirement only means that all affected persons must, to satisfy the requirements of due process, be notified that as of a particular date, the debtor in question requires rehabilitation and should temporarily be exempt from paying its obligations, unless allowed by the court; once due notice is made, the rehabilitation court may nullify actions inconsistent with the stay order but which may have been taken prior to publication, precisely because prior to publication, creditors may not yet be aware that they are to desist from pursuing claims against the insolvent debtor. (Allied Banking Corp. vs. In the Matter of the Petition to Have Steel Corp. of the Phils. Placed Under Corporate Rehabilitation with Prayer for the Approval of the Proposed Rehabilitation Plan, Equitable PCI Bank, G.R. No. 191939, March 14, 2018)

Intra-corporate controversy –– A two-tier test must be employed to determine whether an intra-corporate controversy exists in the present case: (a) the relationship test, and (b) the nature of the controversy test; a dispute is considered an intra-corporate controversy under the relationship test when the relationship between or among the disagreeing parties is any one of the following: (a) between the corporation, partnership, or association and the public; (b) between the corporation, partnership, or association and its stockholders, partners, members, or officers; (c) between the corporation, partnership, or association and the State as far as its franchise, permit or license to operate is concerned; and (d) among the stockholders, partners, or associates themselves. (Cacho vs. Balagtas, G.R. No. 202974, Feb. 07, 2018)

––      It is clear that the termination complained of is intimately and inevitably linked to respondent’s role as petitioner’s Executive Vice President; explained; respondent’s dismissal is an intra-corporate controversy, not a mere labor dispute. (Cacho vs. Balagtas, G.R. No. 202974, Feb. 07, 2018)

––      Under Sec. 25 of the Corporation Code, the President of a corporation is considered a corporate officer; the dismissal of a corporate officer is considered an intra-corporate dispute, not a labor dispute; in Matling Industrial and Commercial Corporation v. Coros, the Court stated that jurisdiction over intra-corporate disputes involving the illegal dismissal of corporate officers was with the Regional Trial Court, not with the Labor Arbiter; explained. (Malcaba vs. Prohealth Pharma Phils., Inc., G.R. No. 209085, June 06, 2018)

––      Under the nature of the controversy test, the disagreement must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain to the enforcement of the parties’ correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation. (Cacho vs. Balagtas, G.R. No. 202974, Feb. 07, 2018)

Juridical personality –– Officers who supervise and manage the corporation’s affairs, such that they are responsible for the commission of the offense, cannot escape criminal or administrative liability by invoking the separate and distinct personality of the corporation; the party who will be meted the penalty is the public officer or employee who is guilty of the administrative offense; this is consistent with the principle that when the separate juridical personality of a corporation is used “to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons.” (Canlas vs. Bongolan, G.R. No. 199625, June 06, 2018)

Merger –– The surviving corporation not only acquires all the rights, privileges and assets of the constituent corporation but likewise acquires the liabilities and obligations of the latter. (Sps. Ong vs. BPI Family Savings Bank, Inc., G.R. No. 208638, Jan. 24, 2018)

Private entity –– Philippine Veterans Bank is a private, not a government entity. (Laya, Jr. vs. Phil. Veterans Bank, G.R. No. 205813, Jan. 10, 2018)

Quorum in meetings –– It is settled that unissued stocks may not be voted or considered in determining whether a quorum is present in a stockholders’ meeting; only stocks actually issued and outstanding may be voted; thus, for stock corporations, the quorum is based on the number of outstanding voting stocks; application. (Que Villongco vs. Que Yabut, G.R. No. 225022, Feb. 05, 2018)

Rights of stockholders –– It is basic that a stockholder has the right to inspect the books of the corporation, and if the stockholder is refused by an officer of the corporation to inspect or examine the books of the corporation, the Corporation Code grants the stockholder a remedy—to file a case in accordance with Sec. 144. (Que Villongco vs. Que Yabut, G.R. No. 225022, Feb. 05, 2018)

Transfer of shares of stock –– Even if it could be assumed that the sale of shares of stock contained in the photocopies had indeed transpired, such transfer is only valid as to the parties thereto, but is not binding on the corporation if the same is not recorded in the books of the corporation. (Tee Ling Kiat vs. Ayala Corp., G.R. No. 192530, March 07, 2018)

––      No transfer shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred; the transfer, not having been recorded in the corporate books in accordance with law, is not valid or binding as to the corporation or as to third persons. (Tee Ling Kiat vs. Ayala Corp., G.R. No. 192530, March 07, 2018)

––      Sec. 63 of the Corporation Code; as held in the case of Interport Resources Corporation v. Securities Specialist, Inc.: A transfer of shares of stock not recorded in the stock and transfer book of the corporation is non-existent as far as the corporation is concerned; as between the corporation on the one hand, and its shareholders and third persons on the other, the corporation looks only to its books for the purpose of determining who its shareholders are. (Que Villongco vs. Que Yabut, G.R. No. 225022, Feb. 05, 2018) ––      Sec. 99 of the Corporation Code provides for the effects of transfer of stock in breach of qualifying conditions; even if the transfer of stocks is made in violation of the restrictions enumerated under Sec. 99, such transfer is still valid if it has been consented to by all the stockholders of the close corporation and the corporation cannot refuse to register the transfer of stock in the name of the transferee; in this case, the sale of the shares had already been consented to by respondents and may be registered in the name of petitioner. (Florete, Sr. vs. Florete, Jr., G.R. No. 223321, April 11, 2018)

Source: Supreme Court of the Philippines - Case Index