Professional Documents
Culture Documents
Appraisal Right
Appraisal Right
Corporation is one of the types of - They may enter into joint venture,
business organizations. It is also the but generally they cannot enter into
most important in economic a partnership, but there are
development. exceptions allowed by the SEC: the
3 exceptions must go hand in hand
2
theoretical because of disinterested - profits obtained cannot be distributed as
in management, wide-scale ownership dividends but are used merely for the
and inaccessible place of meeting; furtherance of their purpose or purposes.
7. "Double taxation" may be imposed
on corporate income; Stock (Section 51)
8. Corporation are subject to many Two (2) requisites must be complied with,
legal controls and restrictions.
1. a capital stock divided into
A corporation is a person, therefore shares, and
protected by the due process clause
2. authorized to distribute dividends
and equal protection clause of the
or allotments as surplus profits to its
Constitution
stockholders on the basis of the
shares held by each of them.
- Primarily governed by the law creating - Article must provide that there will
them be no public offering
4
- Attached directly only by the state in a - Metro Manila - paid up capital
quo warranto proceeding requirement is 10 M
- Mandatory in close
3 stages - Non-stock
3. Dissolution/winding-up Section 19
7
- YES. There is nothing to prevent a The board of directors, where
corporation from being a stockholder authorized in the articles of
incorporation, may fix the terms and
- Incorporator must subscribe to 1 share conditions of preferred shares of
stock or any series thereof:
- There are those that are exclusively Provided, That such terms and
reserved to Filipinos conditions shall be effective upon
the filing of a certificate thereof with
- An incorporator maybe a corporator as the Securities and Exchange
long as he is a stockholder Commission.
10
such compensation other than per - To better insure return on investment
diems may be granted to directors by which can be affected through the
the vote of the stockholders issuance of redeemable shares or
representing at least a majority of the
preferred shares, i.e., granting the
outstanding capital stock at a regular
or special stockholders' meeting. In no holders thereof, preference as to
case shall the total yearly dividends and/or distribution of
compensation of directors, as such assets in case of liquidation; and,
directors, exceed ten (10%) percent of
the net income before income tax of - For flexibility in price, particularly, no
the corporation during the preceding par shares may be issued or sold
year. (n) from time to time at different price
depending on the net worth of the
Minimum for a domestic corporation?
company since they do not purport
- In no case shall the paid- up capital be to represent an actual of fixed value.
less than 5k Section 6
Is there a minimum authorized capital - Each shall be equal in all respects to
imposed by the code?
every other share
- If there is minimum paid-up logically Preferred shares
there should also be a minimum
capital =5000 - Specific preference
13
- Even common shares may be denied If they are reissued will they be
the right to vote of founders’ shares denied the right to vote?
issued <sec.7>
- Once reissued they shall become
Section 7. Founders' shares. - outstanding stocks again and
Founders' shares classified as such in purchasers shall be entitled to all the
the articles of incorporation may be rights and privileges as the other
given certain rights and privileges not holders have
enjoyed by the owners of other stocks,
provided that where the exclusive right Section 57 treasury shares have no
to vote and be voted for in the election voting and dividend rights. Why not?
of directors is granted, it must be for a
limited period not to exceed five (5) Section 57. Voting right for
years subject to the approval of the treasury shares. - Treasury shares
Securities and Exchange Commission. shall have no voting right as long as
The five-year period shall commence such shares remain in the Treasury.
from the date of the aforesaid approval (n)
by the Securities and Exchange
Commission. (n) - Answer: commissioner vs. manning
page 62 first par.
Do you include non-voting shares in
passing a valid corporate act? “Although authorities may
differ on the exact legal and
- Even non-voting shares are entitled to
accounting status of so-called
vote under section 6
treasury shares, they are more or
Redeemable shares less in agreement that treasury
shares are stocks issued and fully
- Discretionary/optional paid for and reacquired by the
corporation either by purchase,
- Obligatory or mandatory
donation, forfeiture or other means.
Generally a corporation can reacquire Treasury shares are therefore
its own shares if it has unrestricted issued shares but being in the
retained earnings treasury they do not have the status
of outstanding shares.
Exception: redeemable shares may be Consequently, although a treasury
reacquired irrespective of retained share, not having been retired by the
earnings corporation re-acquiring it, may be
Treasury shares re-issued or sold again, such
shares, as long as it is held by the
- They are treasury while in the treasury corporation as a treasury share,
account of the corporation participates neither in dividends,
because dividends cannot be
May they be reissued by the declared by the corporation to itself,
corporation? nor in meetings of the corporation as
- YES voting stock, for otherwise equal
distribution of voting powers among
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stockholders will be effectively lost and - Restrictions and preferences are
the directors will be able to perpetrate mandatorily required in close
their control of the corporation, though corporations
it still represents a paid for interest in
the property of the corporation. The - If it does not provide restrictions it is
foregoing essential features of a not a close corporation
treasury stocks are lacking in the
- Specified persons- close
questioned shares.
corporations
In this case, and under the
- If not one of those specified you are
terms of the trust agreement, the
not included because there is
shares of stock of Reese
exclusivity in close corporations
participated in dividends which the
trustee received and the said shares - Should also be in the by-laws not
were voted upon by the trustee in all only in the articles of incorporation
corporation meetings. They were not,
therefore, treasury shares.” No transfer clause
15
Provided, That the Commission shall - Section 19
give the incorporators a reasonable
time within which to correct or modify Section 19. Commencement
the objectionable portions of the of corporate existence. - A private
articles or amendment. The following corporation formed or organized
are grounds for such rejection or under this Code commences to have
disapproval: corporate existence and juridical
personality and is deemed
1. That the articles of incorporation or incorporated from the date the
any amendment thereto is not Securities and Exchange
substantially in accordance with the Commission issues a certificate of
form prescribed herein; incorporation under its official seal;
and thereupon the incorporators,
2. That the purpose or purposes of the stockholders/members and their
corporation are patently successors shall constitute a body
unconstitutional, illegal, immoral, or politic and corporate under the name
contrary to government rules and stated in the articles of incorporation
regulations; for the period of time mentioned
therein, unless said period is
3. That the Treasurer's Affidavit extended or the corporation is
concerning the amount of capital stock sooner dissolved in accordance with
subscribed and/or paid is false; law. (n)
- TRUE
No articles of incorporation or
amendment to articles of incorporation
- EXCEPTION: CORPORATION
of banks, banking and quasi-banking
institutions, building and loan SOLE <sec. 112>
associations, trust companies and
other financial intermediaries, Section 112. Submission of
insurance companies, public utilities, the articles of incorporation. - The
educational institutions, and other articles of incorporation must be
corporations governed by special laws verified, before filing, by affidavit or
shall be accepted or approved by the affirmation of the chief archbishop,
Commission unless accompanied by a bishop, priest, minister, rabbi or
favorable recommendation of the presiding elder, as the case may be,
appropriate government agency to the and accompanied by a copy of the
effect that such articles or amendment commission, certificate of election or
is in accordance with law. (n) letter of appointment of such chief
archbishop, bishop, priest, minister,
- But the grounds in section 17 are not rabbi or presiding elder, duly
exclusive certified to be correct by any notary
public.
When will the corporation commence
to exist?
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From and after the filing with the - Commence to exist upon issuance
Securities and Exchange Commission by the CONCERNED government
of the said articles of incorporation, corporation or agency
verified by affidavit or affirmation, and
accompanied by the documents - Prior there to it has no being
mentioned in the preceding paragraph,
such chief archbishop, bishop, priest, - The transfer of the property was not
minister, rabbi or presiding elder shall valid, it likewise did not have the
become a corporation sole and all
right to transfer
temporalities, estate and properties of
the religious denomination, sect or De jure
church theretofore administered or
managed by him as such chief - Strict or substantial compliance
archbishop, bishop, priest, minister,
rabbi or presiding elder shall be held in De facto
trust by him as a corporation sole, for
the use, purpose, behalf and sole - 4 requisites must go hand in hand
benefit of his religious denomination, take out anyone of them there can
sect or church, including hospitals,
be no de facto corporation
schools, colleges, orphan asylums,
parsonages and cemeteries thereof. 1. There is a valid statute under which
(n)
the corporation could have been
- CORPORATION SOLE- upon filing of created as a de jure corporation.
the verified articles of incorporation, 2. An attempt, in good faith, to form a
once filed it is vested with a judicial corporation according to the
capacity requirements of law, which goes far
enough to amount to a “colorable
General rule section 19
compliance” with the law;
- Vested with judicial capacity upon
3. A user of corporate powers, the
issuance of the certificate by the SEC
transaction of business in some way
o However it is not accurate as if it were a corporation; and,
according to atty. Ladia
4. Good faith in claiming to be and
because there are those that
doing business as a corporation.
can issue for example
cooperatives- BUREAU OF Are the rights and obligations
COOPERATIVES which between officers and directors of a
register, home insurance de jure and de facto the same?
guaranty corporation- HOME
OWNERS - YES. Governed by the same law,
rules and regulations
Cagayan Fishing vs. Sandika
Only important in determining, is for
- Corporations are created by law the purpose of applying the rules
with regards to the direct and
collateral attack
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The existence of a de jure cannot be - General partners- liable even
questioned even by the State, either beyond his promise even his
directly or indirectly personal properties are prone to
attachment
Existence of a de facto can be
questioned only by the State directly in Lozano vs. Delos Santos
a quo warranto proceeding only
- Founded on principle of equity
Municipality of Malabang vs. Benito
- Exercise corporate powers
- What is the missing link so as to
consider it a de facto? A law, because - Enters with business with 3rd parties
the executive order is unconditional
- When there is no 3 rd persons
- An unconditional act affords no rights, involved and the problem arises
creates no office between there members, therefore
they themselves know that there is
- Legal contemplation it was never no corporation by estoppel
passed at all
Albert vs. University
- It can therefore be questioned by any
person - 1965 case, no section 21 yet
If the certificate of registration has not - Applied where the rules governing
been issued, may a corporation de agency
facto exist?
- A person purporting in behalf of a
- NO! non existing corporation
- Number 4 requirement, good faith in - Section 21, you arrive at the same
claiming to be and doing business as a decision
corporation
Chiang Kai Siek vs. CA
Hall vs. Piccio
- SC based its decision from the
- Missing link is good faith provision of the education act
- The certificate was not yet issued by - It cannot immune itself by virtue of
the SEC, the members knew and its non compliance with the law
therefore they were not acting in good
Assuming there was no law?
faith, therefore anybody can question
its existence - YES, it may still be sued as a school
for the past 32 years the school
Corporation by estoppel
represented itself as possessed of
- So defectively formed so that they are juridical personality
not to be considered a de jure or de
facto
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General rule: a 3rd party transacting A foreign corporation cannot gain
with a non existent corporation shall be access to our courts unless they
estopped to deny attain a license to engage in
business in the Philippines but
Asia banking vs. standard products applying corporation by estoppels,
- General rule: absence of fraud a the court allowed
person who has dealt with a non Municipality of Malabang case
incorporated corporation shall be
stopped to deny from actions in which - No law, hence may be questioned
it had benefited by any person
You cannot pierce the veil of corporate - Fely trans and the other corporation
fiction when there are no facts is one and the same
attendant in the case
Marvel bldg. vs. David
Corporate Entity Theory
- There must be facts before the court
- The corporation is possessed with a will be justified in piercing the veil of
personality separate and distinct from corporate fiction
the individual stockholders or
members and is not affected by the - Corporation was a mere extension
personal rights, obligations or of the personality of the person
transactions of the latter
Yutivo and sons vs. Court of Tax
Instrumentality rule Appeals
21
- Two corporations managed by the contravention of plaintiff’s legal
same family, workers were made rights; and,
interchangeably
3. The aforesaid control and breach of
Emilio Cano vs. CIR duty must proximately cause the
injury or unjust loss complained of.
- Sued in there official capacity
- The absence of one of the elements
- Reverse of Soriano vs. CA (signed in prevents “piercing the corporate
their official capacity) veil.” In applying the “instrumentality”
or “alter ego” doctrine, the courts are
Tesco vs. WCC
concerned with reality and not form,
- The two corporations where located in with how the corporation operated
the same office and the individual defendant’s
relationship to that operation.
Claparols vs. CIR
There must facts and circumstances
- Same as NAFLU and A.C. Ransom before warrant piercing the veil of
corporate fiction
Concept builders vs. NLRC
The control necessary does not
- Instrumentality rule. What is the
mean stock ownership
instrumentality rule? “where one
corporation is so organized and MCConnel vs. CA
controlled and its affairs are conducted
so that it is, in fact, a mere - were located in the same floor
instrumentality or adjunct of the other,
- “while the mere ownership of all or
the fiction of the corporate entity of the
nearly all of the capital stock of a
“instrumentality” may be disregarded.”
corporation does not necessary
- Has no separate mind of its own. What mean that it is a mere business
is the degree of control? conduit of the stockholder, that
conclusion is amply justified where it
1. Control, not mere majority or complete is shown, as in the case before us,
stock control, but complete that the operations of the
domination, not only of finances but of corporation were so merged with the
policy and business practice in respect stockholders as to be practically
to the transaction attacked so that the indistinguishable from them. To hold
corporate entity as to this transaction the latter liable for the corporation’s
had at the time no separate mind, will obligations is not to ignore the
or existence of its own. corporation’s separate entity, but
merely to apple the established
2. Such control must have been used by
the defendant to commit fraud or principle that such entity cannot be
invoked or used for purposes that
wrong, to perpetuate the violation of a
statutory or other positive legal duty or could not have been intended by the
dishonest and unjust act in
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law that created that separate - How do you distinguish this ruling to
personality.” La Campana, having the same
issues:
Tan boon bee vs. Jarencio
- La campana, one payroll,
- Why would a drug company need a
employees were made
printing machine
interchangeable. Acrylic had its own
- The property must be in pursuance of standards
a company business PNB vs. Ritratto Group
Cease vs. CA
- Control test
- Alter-ego or the extension of the
- Not mere majority but rather
person of forest ware does the court
complete
pierced the veil of corporate fiction
- Twin ace was only a subsequent
- As to not deprive the holders of their
interested party
successional rights
- Assets and machineries
- Mere ownership of all or substantially
all is not a justification of piercing the Amendment of the articles of
veil of corporate fiction incorporation
24
stock or incur, create or increase any no-par stock allotted to each stock-
bonded indebtedness unless approved holder if such increase is for the
by a majority vote of the board of purpose of making effective stock
directors and, at a stockholder's dividend therefor authorized;
meeting duly called for the purpose,
two-thirds (2/3) of the outstanding (4) Any bonded indebtedness to be
capital stock shall favor the increase or incurred, created or increased;
diminution of the capital stock, or the
incurring, creating or increasing of any (5) The actual indebtedness of the
bonded indebtedness. Written notice corporation on the day of the
of the proposed increase or diminution meeting;
of the capital stock or of the incurring,
creating, or increasing of any bonded (6) The amount of stock represented
indebtedness and of the time and at the meeting; and
place of the stockholder's meeting at
which the proposed increase or (7) The vote authorizing the increase
diminution of the capital stock or the or diminution of the capital stock, or
incurring or increasing of any bonded the incurring, creating or increasing
indebtedness is to be considered, of any bonded indebtedness.
must be addressed to each
stockholder at his place of residence Any increase or decrease in
as shown on the books of the the capital stock or the incurring,
corporation and deposited to the creating or increasing of any bonded
addressee in the post office with indebtedness shall require prior
postage prepaid, or served personally. approval of the Securities and
Exchange Commission.
A certificate in duplicate must
be signed by a majority of the directors One of the duplicate
of the corporation and countersigned certificates shall be kept on file in
by the chairman and the secretary of the office of the corporation and the
the stockholders' meeting, setting other shall be filed with the
forth: Securities and Exchange
Commission and attached to the
(1) That the requirements of this original articles of incorporation.
section have been complied with; From and after approval by the
Securities and Exchange
(2) The amount of the increase or Commission and the issuance by
diminution of the capital stock; the Commission of its certificate of
filing, the capital stock shall stand
(3) If an increase of the capital stock, increased or decreased and the
the amount of capital stock or number incurring, creating or increasing of
of shares of no-par stock thereof any bonded indebtedness
actually subscribed, the names, authorized, as the certificate of filing
nationalities and residences of the may declare: Provided, That the
persons subscribing, the amount of Securities and Exchange
capital stock or number of no-par stock Commission shall not accept for
subscribed by each, and the amount filing any certificate of increase of
paid by each on his subscription in capital stock unless accompanied by
cash or property, or the amount of the sworn statement of the treasurer
capital stock or number of shares of of the corporation lawfully holding
25
office at the time of the filing of the What provision may be amended,
certificate, showing that at least altered or repealed
twenty-five (25%) percent of such
increased capital stock has been Can you change name, address for
subscribed and that at least twenty-five example she married or changed
(25%) percent of the amount address?
subscribed has been paid either in
actual cash to the corporation or that - NO. you cannot change that
there has been transferred to the
corporation property the valuation of Fait accompli, are beyond the
which is equal to twenty-five (25%) powers or authority of the
percent of the subscription: Provided, corporation to change, alter or
further, That no decrease of the capital
stock shall be approved by the modify. These would include the
Commission if its effect shall prejudice following:
the rights of corporate creditors.
- Names of the incorporators and
Non-stock corporations may
- The incorporating directors or
incur or create bonded indebtedness,
or increase the same, with the trustees,
approval by a majority vote of the
board of trustees and of at least two- - The name of the treasurer originally
thirds (2/3) of the members in a or first elected by the subscribers or
meeting duly called for the purpose. members to act as such until his
successor has been duly elected
Bonds issued by a corporation and qualified,
shall be registered with the Securities
and Exchange Commission, which - The number of shares and amount
shall have the authority to determine originally subscribed and paid out of
the sufficiency of the terms thereof.
the original authorized capital stock
(17a)
of the corporation,
The vote must be cast at the meeting
- The date and place of execution of
called for that purpose
the articles of incorporation,
Written assent would not suffice
- The signatories and
When do amendments become valid acknowledgment thereof.
and effective?
- All other provisions or matters stated
- Only upon the approval of the SEC or contained in the articles are
TRUE OR FALSE? subject to amendment.
27
BOARD OF DIRECTORS/TRUSTEES - Corporations must sit and act as a
body
Section 23
- Will be bound by corporate officers if
Section 23. The board of they acted within the 5 classification
directors or trustees. - Unless page 150
otherwise provided in this Code, the
corporate powers of all corporations Ramirez vs. Orientalist co.
formed under this Code shall be
exercised, all business conducted and - What was the position of Fernandez
all property of such corporations in this case? TREASURER
controlled and held by the board of
directors or trustees to be elected from - Why did the court rule that actions of
among the holders of stocks, or where
Fernandez bound the corporation
there is no stock, from among the
members of the corporation, who shall when he is not even a board of
hold office for one (1) year until their director?
successors are elected and qualified.
(28a) “if a man is found acting for a
corporation with the external indicia
Every director must own at least of authority, any person not having
one (1) share of the capital stock of the notice of want of authority, may
corporation of which he is a director, usually rely upon those
which share shall stand in his name on appearances; and if it be found that
the books of the corporation. Any
the directors had permitted the
director who ceases to be the owner of
at least one (1) share of the capital agent to exercise that authority and
stock of the corporation of which he is thereby held him out as a person
a director shall thereby cease to be a competent to bind the corporation,
director. Trustees of non-stock or had acquiesced in a contract and
corporations must be members retained the benefit supposed to
thereof. A majority of the directors or have been conferred by it, the
trustees of all corporations organized
corporation will be bound,
under this Code must be residents of
the Philippines. notwithstanding the actual authority
may never have been granted.”
- Controlled by the board of directors
- Contracts must be made by the
- Authority are however restricted to the director and not the stockholders
day to day
- Actions of the stockholders in such
- Stockholders may have all the profit matters is only advisory and not in
but will turn over the management to any way binding in the corporation
the governing board
Barreto vs. La previsora Filipina
- But unless the law provides the power
- Everything emanates from the board
may be delegated
of directors
General rule
28
- Stockholders action is merely advisory - As long as you are listed in the
except their approval or vote is books as owner of one share
necessary to prove a valid corporate
act - Under the old law he must be the
beneficial owner and legal owner
Qualifications: thereof but in the new law it is not
required as long as it stands in his
- No citizenship requirement, at least
name he is qualifies
majority must be residents
1 A-100t/S B (own in the trust of X) is B
- Can have a governing board qualified to be a director?
consisting solely of foreigners
2
- But we have to take into consideration
partly nationalized industries and other 3-10
laws which prohibits or limits foreign
2– transferring there voting rights in favor
ownership
of VT
- Anti-dummy act
Other rights will accrue in favor of them, but
- Utilization development of natural not the voting rights
resources 60% must be owned by
voting rights must be recorder in the books
Filipino citizens, therefore they only
of the corporation that it is transferred
own 40%---10 members they can only
have 4 seats, but not entirely correct PNB-IFL- wholly owned subsidiary of PNB
because the law may provide
otherwise; educational institutions PNB will assign to PNB-IFL nominal shares
restricted to Filipinos, but there are and PNB-IFL now will be able to be
exceptions when created by religious nominated
and charitable institutions. Gen. Rule:
- By-laws may provide additional - Term of one year who will serve as
qualifications and disqualifications such until there successors are
- To qualify as a director he must own at elected and qualified
least 1 share Exception:
Should the stockholder be the - Non-stock corporation can serve for
equitable or beneficial owner in order a term of 3 years
to qualify as a director?
- Educational non-stock- term of the
- NO, it is not necessary, as long as you governing board can be 5 years
are listed in the books as owner of one
share May this term exceed one year?
Lee vs. CA
29
- Yes, they may serve in a hold over =1MS
capacity until their successors have
1&2 is absent, 3&4 ayaw tumakbo and
been duly elected and qualified
hindi nagvote 6-10, tumakbo and
Detective and protective bureau vs. ninominate nila yung sarili nila and cast all
Cloribel their shares on themselves
- In the by-laws, managing director must Who wins? Or who gets elected?
be elected from among themselves
- No vote requirement, the one who
- Must be duly elected and qualified gets the most number of votes gets
elected, section24.
How are the directors elected?
What is cumulative voting?
1-100T/S
- Process of multiplying the number of
2-100T/S shares to the number of director to
3-100T/S be elected
- Where the officer or agent is clothed - General manager usually has the
with actual or apparent authority power to hire but the SC said the
contract must be reasonable
- Otherwise it will not bind the
corporation - The contract here is so onerous that
it would throw the corporation into
Yao Ka Sin Trading case “already insolvency
asked in the bar”
Francisco vs. GSIS
- Only bind the corporation to the extent
of authority confined to him or virtue of - GSIS cannot evade the binding
customs, usage and policy effect of the telegram
- Must pass first the controller and - Only 15 months later that the
counsel corporation said there was a mistake
What if the notice requirement is not - The silence coupled with the
complied with? unconditional acceptance of the
other subsequent remittances is
Lopez Realty vs. Fotencha
binding to the corporation
- Notice requirement must be complied
Board of Liquidators vs. Kalaw
with hence it should have been with
force and effect, but according to the “Settled jurisprudence has it
SC, it may be ratified expressly if there that where similar acts have been
is a subsequent meeting called for that approved by the directors as a
purpose matter of general practice, custom
and policy, the general manager
- Impliedly through acts may bind the company without
- Asuncion was aware of the formal authorization of the board of
directors. In varying language,
corporations obligation
32
existence of such authority is - Implied ratification is through:
established, by proof of the course of silence or acquiescence,
business, the usages and practices of acceptance benefits and lastly
the company and by the knowledge recognition or adoption
which the board of directors has, or
must be presumed to have, of acts and - An unauthorized act may
doings of its subordinates in and about nevertheless be binding either by
the affairs of the corporation. So also, express or implied by estoppels
“xx authority to act for and bind a
- By virtue of silence the board had
corporation may be presumed from
impliedly accepted the act
acts of recognition in other instances
where the power was in fact - By recognition or adoption
exercised.” “xx Thus, when, in the
usual course of business of a - By virtue of payment of obligations
corporation, an officer has been arising therefore- Lopez realty
allowed in his official capacity to
May directors or trustees be disqualified to
manage its affairs, his authority to
act as such?
represent the corporation may be
implied from the manner in which he - YES, crime, etc. disqualifications in
has been permitted by the directors to book
manage its business.”
- Possess or dispossess any of the
In the case at bar, the practice qualifications or disqualifications ,
of the corporation has been to allow its cease to hold at least one share
general manager to negotiate and
execute contracts in its copra trading May directors be ousted from office?
activities for and in NACOCO’s behalf
- At least 2/3 of members
without prior board approval. If the by-
representing outstanding capital
laws were to be literally followed, the
stock. Again notice requirement
board should give its stamp of prior
must be complied with
approval on all corporate contracts.
But that Board itself, by its acts and 1-200 1-5 same family
through acquiescence, practically laid
aside the by-law requirement of prior 2-200
approval. 3-200
- Kalaw signed alone and said contracts 4-100
were submitted to the board of
directors after its consummation and 5-100 electing
not before
6-100 6 to 10 not
Buenaseda vs. Bowen related
Who will fill up the vacancy created Election due to increase in number-
it must be so stated in the meeting
due to the ouster of a member of the
board of directors <section 29> Section 30
35
3. He agrees to hold himself personally subject to judicial review.
and solidarily liable with the Montelibano vs. Bacolod Murcia
corporation; Milling
Distinction between section 31 and 34 E goes to Z and offers to pay the property
relative to the ratification by the for 26 M and later he sells it for 30M
stockholders making 4M profit, one of the stockholders
learned and complains that he should
- The second paragraph of section 31 submit the profits. E said that he will move
which makes a director liable to for ratification of his actuation. Can it be
account for profits if he attempts to ratified?
acquire or acquires any interest
- It can be ratified he merely acquired
adverse to the corporation in respect
to any matter reposed in him in a business owning to the corporation
confidence as to which equity imposes - It would be different if it was
a disability upon him to deal in his own entrusted in his confidence
behalf is not subject to ratification by
the stockholders. Whereas, in section Another scenario:
34 if a director acquires for himself a
Had A not attended the meeting he would
business opportunity which should
not have known of the sale it is then a
belong to the corporation, he is bound
matter reposed in him in confidence
to account for such profits unless his
act is ratified by the stockholders A corporation cannot reaquire its
owning ore representing at least 2/3 of share if it has no restricted
the outstanding capital stock. unretained earnings
- If reposed in him in confidence, not Strong vs. Rapide
subject to ratification
- What duty did he violate?
- If the acquisition is merely that of a
business opportunity which has not - He violated his duty of loyalty
been reposed in him in confidence, the
- The law would be impotent if the
same may be subject to ratification by
sale were not invalidated
the stockholders.
- Self-dealing director and interlocking
Director x co.
director
A-REALTY
What is a self-dealing director?
B
- Director of a corporation dealing or
C Z owns property and is transacting business with his
going abroad never to corporation
Return, he wants to sell
37
Are the contracts and dealing of a self- - the contract is fair and reasonable
dealing director valid? under the circumstances
39
remedy a wrong done directly to the attorney’s fee ONLY IF the case is
corporation and indirectly to the SUCCESSFUL to avoid harassment
stockholders, if the board refuses to do suit to their management
so. Otherwise if not they would be left
without any recourse Pascual vs. Orozco
- Wrong done against his person as a - Depend on how, when and what
stockholder reason
3. The stockholder bringing the suit must - Not allowed under the OLD law
allege in his complaint that he is suing
on a derivative cause of action on How may executive committee
behalf of the corporation and all other created and constituted?
stockholders similarly situated, - Section 35
otherwise, the case is dismissible. This
is because the cause of action actually Section 35. Executive
devolves on the corporation and not to committee. - The by-laws of a
a particular stockholder. corporation may create an executive
committee, composed of not less
4. The corporation should be made a than three members of the board, to
party, either as party-plaintiff or be appointed by the board. Said
defendant, in order to make the court’s committee may act, by majority vote
judgment binding upon it, and thus, of all its members, on such specific
matters within the competence of
bar future litigation of the same issues.
the board, as may be delegated to it
42
in the by-laws or on a majority vote of - BOD cannot act by proxy it would be
the board, except with respect to: (1) abdication of powers
approval of any action for which
shareholders' approval is also Purpose clauses necessary because
required; (2) the filing of vacancies in it confers and also limits the actual
the board; (3) the amendment or authority of the corporation
repeal of by-laws or the adoption of
new by-laws; (4) the amendment or CORPORATE POWERS AND
repeal of any resolution of the board AUTHORITY
which by its express terms is not so
amendable or repealable; and (5) a Corporate authority may be
distribution of cash dividends to the classified into three classes namely:
shareholders.
1. Those expressly granted or
- Said committee may act and bind the authorized by law inclusive of the
corporation by the majority vote of all corporate charter or articles of
its members except with respect to incorporation;
those matters provided for in sec. 35
these are: 2. Those impliedly granted as are
essential or reasonably necessary to
1. Approval of any action for which the carrying out of the express
shareholders’ approval is also required powers;
2. The filing of vacancies in the board; 3. Those that are incidental to its
3. Amendment or repeal of by-laws or the existence.
adoption of new by-laws; Section 36 to 45- POWER
4. Amendment or repeal of any resolution GRANTED BY LAW
of the board which by its express
Section 36. Corporate powers and
terms is not so amenable or
capacity. - Every corporation incorporated
repealable; and, under this Code has the power and
capacity:
5. Distribution of cash dividends to the
shareholders. 1. To sue and be sued in its
corporate name;
May the board alone create an
executive committee without any 2. Of succession by its corporate
authority provided for the by-laws? name for the period of time stated in
the articles of incorporation and the
- NO board of directors must sit and act certificate of incorporation;
as a body to have a valid transaction
3. To adopt and use a corporate
May a non-member of the board of seal;
directors be a member of the executive
committee? 4. To amend its articles of
incorporation in accordance with the
- NO, all of them must be members of provisions of this Code;
the board of directors
43
5. To adopt by-laws, not contrary to corporation may extend or shorten its term
law, morals, or public policy, and to as stated in the articles of incorporation
amend or repeal the same in when approved by a majority vote of the
accordance with this Code; board of directors or trustees and ratified at
a meeting by the stockholders representing
6. In case of stock corporations, to at least two-thirds (2/3) of the outstanding
issue or sell stocks to subscribers and capital stock or by at least two-thirds (2/3)
to sell stocks to subscribers and to sell of the members in case of non-stock
treasury stocks in accordance with the corporations. Written notice of the
provisions of this Code; and to admit proposed action and of the time and place
members to the corporation if it be a of the meeting shall be addressed to each
non-stock corporation; stockholder or member at his place of
residence as shown on the books of the
7. To purchase, receive, take or grant, corporation and deposited to the addressee
hold, convey, sell, lease, pledge, in the post office with postage prepaid, or
mortgage and otherwise deal with served personally: Provided, That in case
such real and personal property, of extension of corporate term, any
including securities and bonds of other dissenting stockholder may exercise his
corporations, as the transaction of the appraisal right under the conditions
lawful business of the corporation may provided in this code. (n)
reasonably and necessarily require,
subject to the limitations prescribed by Section 38. Power to increase or
law and the Constitution; decrease capital stock; incur, create or
increase bonded indebtedness. - No
8. To enter into merger or corporation shall increase or decrease its
consolidation with other corporations capital stock or incur, create or increase
as provided in this Code; any bonded indebtedness unless approved
by a majority vote of the board of directors
9. To make reasonable donations, and, at a stockholder's meeting duly called
including those for the public welfare for the purpose, two-thirds (2/3) of the
or for hospital, charitable, cultural, outstanding capital stock shall favor the
scientific, civic, or similar purposes: increase or diminution of the capital stock,
Provided, That no corporation, or the incurring, creating or increasing of
domestic or foreign, shall give any bonded indebtedness. Written notice of
donations in aid of any political party or the proposed increase or diminution of the
candidate or for purposes of partisan capital stock or of the incurring, creating, or
political activity; increasing of any bonded indebtedness
and of the time and place of the
10. To establish pension, retirement, stockholder's meeting at which the
and other plans for the benefit of its proposed increase or diminution of the
directors, trustees, officers and capital stock or the incurring or increasing
employees; and of any bonded indebtedness is to be
considered, must be addressed to each
11. To exercise such other powers as stockholder at his place of residence as
may be essential or necessary to carry shown on the books of the corporation and
out its purpose or purposes as stated deposited to the addressee in the post
in the articles of incorporation. (13a) office with postage prepaid, or served
personally.
Section 37. Power to extend or
shorten corporate term. - A private
44
A certificate in duplicate must be signed by a other shall be filed with the Securities and
majority of the directors of the corporation Exchange Commission and attached to the
and countersigned by the chairman and the original articles of incorporation. From and
secretary of the stockholders' meeting, after approval by the Securities and
setting forth: Exchange Commission and the issuance
by the Commission of its certificate of filing,
(1) That the requirements of this the capital stock shall stand increased or
section have been complied with; decreased and the incurring, creating or
increasing of any bonded indebtedness
(2) The amount of the increase or authorized, as the certificate of filing may
diminution of the capital stock; declare: Provided, That the Securities and
Exchange Commission shall not accept for
(3) If an increase of the capital stock, filing any certificate of increase of capital
the amount of capital stock or number stock unless accompanied by the sworn
of shares of no-par stock thereof statement of the treasurer of the
actually subscribed, the names, corporation lawfully holding office at the
nationalities and residences of the time of the filing of the certificate, showing
persons subscribing, the amount of that at least twenty-five (25%) percent of
capital stock or number of no-par stock such increased capital stock has been
subscribed by each, and the amount subscribed and that at least twenty-five
paid by each on his subscription in (25%) percent of the amount subscribed
cash or property, or the amount of has been paid either in actual cash to the
capital stock or number of shares of corporation or that there has been
no-par stock allotted to each stock- transferred to the corporation property the
holder if such increase is for the valuation of which is equal to twenty-five
purpose of making effective stock (25%) percent of the subscription:
dividend therefor authorized; Provided, further, That no decrease of the
capital stock shall be approved by the
(4) Any bonded indebtedness to be Commission if its effect shall prejudice the
incurred, created or increased; rights of corporate creditors.
(5) The actual indebtedness of the Non-stock corporations may incur or create
corporation on the day of the meeting; bonded indebtedness, or increase the
same, with the approval by a majority vote
(6) The amount of stock represented at of the board of trustees and of at least two-
the meeting; and thirds (2/3) of the members in a meeting
duly called for the purpose.
(7) The vote authorizing the increase
or diminution of the capital stock, or Bonds issued by a corporation shall be
the incurring, creating or increasing of registered with the Securities and
any bonded indebtedness. Exchange Commission, which shall have
the authority to determine the sufficiency of
Any increase or decrease in the capital stock the terms thereof. (17a)
or the incurring, creating or increasing of any
bonded indebtedness shall require prior Section 39. Power to deny pre-
approval of the Securities and Exchange emptive right. - All stockholders of a stock
Commission. corporation shall enjoy pre-emptive right to
subscribe to all issues or disposition of
One of the duplicate certificates shall be kept shares of any class, in proportion to their
on file in the office of the corporation and the respective shareholdings, unless such right
45
is denied by the articles of incorporation or an After such authorization or approval by the
amendment thereto: Provided, That such pre- stockholders or members, the board of
emptive right shall not extend to shares to be directors or trustees may, nevertheless, in
issued in compliance with laws requiring its discretion, abandon such sale, lease,
stock offerings or minimum stock ownership exchange, mortgage, pledge or other
by the public; or to shares to be issued in disposition of property and assets, subject
good faith with the approval of the to the rights of third parties under any
stockholders representing two-thirds (2/3) of contract relating thereto, without further
the outstanding capital stock, in exchange for action or approval by the stockholders or
property needed for corporate purposes or in members.
payment of a previously contracted debt.
Nothing in this section is intended to restrict
Section 40. Sale or other disposition the power of any corporation, without the
of assets. - Subject to the provisions of authorization by the stockholders or
existing laws on illegal combinations and members, to sell, lease, exchange,
monopolies, a corporation may, by a majority mortgage, pledge or otherwise dispose of
vote of its board of directors or trustees, sell, any of its property and assets if the same is
lease, exchange, mortgage, pledge or necessary in the usual and regular course
otherwise dispose of all or substantially all of of business of said corporation or if the
its property and assets, including its goodwill, proceeds of the sale or other disposition of
upon such terms and conditions and for such such property and assets be appropriated
consideration, which may be money, stocks, for the conduct of its remaining business.
bonds or other instruments for the payment of
money or other property or consideration, as In non-stock corporations where there are
its board of directors or trustees may deem no members with voting rights, the vote of
expedient, when authorized by the vote of the at least a majority of the trustees in office
stockholders representing at least two-thirds will be sufficient authorization for the
(2/3) of the outstanding capital stock, or in corporation to enter into any transaction
case of non-stock corporation, by the vote of authorized by this section.
at least to two-thirds (2/3) of the members, in
a stockholder's or member's meeting duly Section 41. Power to acquire own
called for the purpose. Written notice of the shares. - A stock corporation shall have the
proposed action and of the time and place of power to purchase or acquire its own
the meeting shall be addressed to each shares for a legitimate corporate purpose
stockholder or member at his place of or purposes, including but not limited to the
residence as shown on the books of the following cases: Provided, That the
corporation and deposited to the addressee corporation has unrestricted retained
in the post office with postage prepaid, or earnings in its books to cover the shares to
served personally: Provided, That any be purchased or acquired:
dissenting stockholder may exercise his
appraisal right under the conditions provided 1. To eliminate fractional shares arising out
in this Code. of stock dividends;
46
3. To pay dissenting or withdrawing representing not less than two-thirds (2/3)
stockholders entitled to payment for their of the outstanding capital stock at a regular
shares under the provisions of this Code. (a) or special meeting duly called for the
purpose. (16a)
Section 42. Power to invest corporate
funds in another corporation or business or Stock corporations are prohibited from
for any other purpose. - Subject to the retaining surplus profits in excess of one
provisions of this Code, a private corporation hundred (100%) percent of their paid-in
may invest its funds in any other corporation capital stock, except: (1) when justified by
or business or for any purpose other than the definite corporate expansion projects or
primary purpose for which it was organized programs approved by the board of
when approved by a majority of the board of directors; or (2) when the corporation is
directors or trustees and ratified by the prohibited under any loan agreement with
stockholders representing at least two-thirds any financial institution or creditor, whether
(2/3) of the outstanding capital stock, or by at local or foreign, from declaring dividends
least two thirds (2/3) of the members in the without its/his consent, and such consent
case of non-stock corporations, at a has not yet been secured; or (3) when it
stockholder's or member's meeting duly can be clearly shown that such retention is
called for the purpose. Written notice of the necessary under special circumstances
proposed investment and the time and place obtaining in the corporation, such as when
of the meeting shall be addressed to each there is need for special reserve for
stockholder or member at his place of probable contingencies. (n)
residence as shown on the books of the
corporation and deposited to the addressee Section 44. Power to enter into
in the post office with postage prepaid, or management contract. - No corporation
served personally: Provided, That any shall conclude a management contract with
dissenting stockholder shall have appraisal another corporation unless such contract
right as provided in this Code: Provided, shall have been approved by the board of
however, That where the investment by the directors and by stockholders owning at
corporation is reasonably necessary to least the majority of the outstanding capital
accomplish its primary purpose as stated in stock, or by at least a majority of the
the articles of incorporation, the approval of members in the case of a non-stock
the stockholders or members shall not be corporation, of both the managing and the
necessary. (17 1/2a) managed corporation, at a meeting duly
called for the purpose: Provided, That (1)
Section 43. Power to declare where a stockholder or stockholders
dividends. - The board of directors of a stock representing the same interest of both the
corporation may declare dividends out of the managing and the managed corporations
unrestricted retained earnings which shall be own or control more than one-third (1/3) of
payable in cash, in property, or in stock to all the total outstanding capital stock entitled
stockholders on the basis of outstanding to vote of the managing corporation; or (2)
stock held by them: Provided, That any cash where a majority of the members of the
dividends due on delinquent stock shall first board of directors of the managing
be applied to the unpaid balance on the corporation also constitute a majority of the
subscription plus costs and expenses, while members of the board of directors of the
stock dividends shall be withheld from the managed corporation, then the
delinquent stockholder until his unpaid management contract must be approved by
subscription is fully paid: Provided, further, the stockholders of the managed
That no stock dividend shall be issued corporation owning at least two-thirds (2/3)
without the approval of stockholders of the total outstanding capital stock
47
entitled to vote, or by at least two-thirds (2/3) Upon whom service of summons be
of the members in the case of a non-stock made?
corporation. No management contract shall
be entered into for a period longer than five - Section 11. Service upon domestic
years for any one term. private juridical entity- when the
defendant is a corporation,
The provisions of the next preceding
partnership or association organized
paragraph shall apply to any contract
whereby a corporation undertakes to manage under the laws of the Philippines
or operate all or substantially all of the with a juridical personality, service
business of another corporation, whether may be made upon the president,
such contracts are called service contracts, managing partner, general manager,
operating agreements or otherwise: Provided, corporate secretary, treasurer, or in
however, That such service contracts or house counsel.
operating agreements which relate to the
exploration, development, exploitation or Delta motor vs. Mangosing
utilization of natural resources may be
entered into for such periods as may be - strict compliance is necessary
provided by the pertinent laws or regulations.
(n) - should be served to those named in
the statute
Section 45. Ultra vires acts of
corporations. - No corporation under this - secretary of a dep’t are not those
Code shall possess or exercise any corporate included in the statute
powers except those conferred by this Code
or by its articles of incorporation and except E.B. Villarosa vs. Benito
such as are necessary or incidental to the
exercise of the powers so conferred. (n) - decision En Banc repeals all other
pronouncement
Section 36
- section 13 Rule 14 was repealed
Where should the corporation be
sued? - the old rules was ambiguous and
broad and at all time illogical
- principal office is important because it
establishes the residence of the the particular revision under Section
corporation and determining service of 11 of Rule 14 was explained by
summons, venue of action retired Supreme Court Justice
Florenz Regalado, thus:
- it can be sued in the city or
municipality where its principal office is “xxx the then section 13 of
found this Rule allowed service
upon a defendant corporation
Principal office is also important for
to “be made on the president,
venue of meetings
manager, secretary, cashier,
Non-stock corporation may provide in agent or any of its directors.”
its by-laws that the venue of meeting The aforesaid terms were
be anywhere in the Philippines obviously ambiguous and
48
susceptible of broad and - section 16
sometimes illogical
interpretations, especially the - special 37,38,120
word “agent” of the corporation.
Power to adopt by-laws
The Filoil case, involving the
litigation lawyer of the - section 46-48
corporation who precisely
appeared to challenge the Power to issue or sell stocks and to
validity of service of summons admit members
but whose very appearance for - stock of stockholders and provision
that purpose was seized upon
governing non-stock
to validate the defective service,
is an illustration of the need for Power to acquire or alienate real or
this revised section with limited personal property
scope and specific terminology.
Thus the absurd result in the - is there any limitation? YES
Filoil case necessitated the - Two specific limitation
amendment permitting service
only on the in-house counsel of 1. Section 36, as lawful transactions of
the corporation who is in effect business of the corporation may
an employee of the corporation, reasonably and necessarily require
as distinguished from an
independent practitioner.” 2. Constitution and law
49
- Alienable public land performed outside of the scope of
the powers expressly conferred if
- Converts the property to a private land they are necessary to promote
automatically once converted it can the interest or welfare of the
now be registered corporation. Thus, it has been held
that “although not expressly
Power to make donation
authorized to do so a corporation
- Limitation Section 36 par.9 may become a surety where the
particular transaction is
Provided, That no corporation, domestic or reasonably necessary or proper
foreign shall give donations in aid of any to the conduct of its business,”
political party or candidate or for purposes of and here it is undisputed that the
partisan political activity. establishment local post office is a
- These are circumstances, however, reasonable and proper adjunct to
the conduct of the business of
under which a donation by a
appellant company. Indeed, such
corporation may be to its benefit as a
post office is a vital improvement in
means of increasing its business or
the living condition of its employees
promoting patronage. Thus, paragraph
and laborers who came to settle in
9 of section 36 expressly authorizes a
its mining camp which is far
corporation to make donations. The
removed from the postal facilities or
only limitations imposed are the
means of communication accorded
following:
to people living in a city or
1. The donation must be “reasonable”; municipality.
52
- In order that the existing stockholders a. In exchange for property
may maintain their proportionate right needed for corporate purpose
as not to dilute their right or,
54
Will the acquiring purchaser be - YES
liable for debts of the former
corporation? May 1-5 subscribe to the
unsubscribed capital stock to the
- Generally no, corporate entity theory exclusion of 6-10?
because there may be instances when
purchasing corporation may be held - If a corporation makes 2M
liable unrestricted retained earnings, it is
the shares and not the number of
May a corporation acquire its own persons that matters
shares?
May 6-10 complain for a dilution
- Yes of their interest?
- 1) RESOLUTION 2)
EXAMPLE:
AUTHORIZATION 3)
ACS 2M RATIFICATION 4) PRIOR WRITTEN
NOTICE 5) SALE SUBJECT TO
SUBSCRIBED 1M PROVISIONS OF EXITING LAWS
6) DISSENTING STOCKHOLDERS
PAID UP 1M
HAVE THE RIGHT TO EXERCISE
1 100K THEIR APPRAISAL RIGHT
- Generally where one corporation sells The corporation must at all times
or otherwise transfers all of its assets have “unrestricted retained
earnings” to exercise this
to another corporation, the latter is not
corporate power
liable for the debts and liabilities of the
transferor, except: Steinberg vs. Velasco
- For as long as there are debts and
1. Where the purchaser expressly or
liabilities, a corporation may not
impliedly agrees to assume such
reacquire its shares (subject to
debts;
exceptions)
2. Where the transaction amounts to
- Creditors of a corporation have the
a consolidation or merger of the
right to assume that so long as there
corporations;
are outstanding debts and liabilities,
3. Where the purchasing corporation the board of directors will not use
is merely a continuation of the the assets of the corporation to
selling corporation; purchase its own stock, and that it
will not declare dividends to
4. Where the transaction is entered stockholders when the corporation is
into fraudulently in order to escape insolvent.
liability for such debts.
Power to invest funds <sec.42>
Power to acquire own shares
Section 42. Power to invest
Section 41. Power to acquire corporate funds in another
own shares. - A stock corporation shall corporation or business or for
have the power to purchase or acquire any other purpose. - Subject to the
its own shares for a legitimate provisions of this Code, a private
corporate purpose or purposes, corporation may invest its funds in
including but not limited to the any other corporation or business or
following cases: Provided, That the for any purpose other than the
corporation has unrestricted retained primary purpose for which it was
earnings in its books to cover the organized when approved by a
shares to be purchased or acquired:
57
majority of the board of directors or members in case of non-stock
trustees and ratified by the corporations;
stockholders representing at least two-
thirds (2/3) of the outstanding capital 3. The ratification must be made at a
stock, or by at least two thirds (2/3) of meeting duly called for that purpose;
the members in the case of non-stock
corporations, at a stockholder's or 4. Prior written notice of the proposed
member's meeting duly called for the investment and the time and place
purpose. Written notice of the of the meeting shall be made,
proposed investment and the time and
addressed to each stockholder or
place of the meeting shall be
addressed to each stockholder or member by mail or by personal
member at his place of residence as service, and;
shown on the books of the corporation
and deposited to the addressee in the 5. Any dissenting stockholder shall
post office with postage prepaid, or have the option to exercise his
served personally: Provided, That any appraisal right
dissenting stockholder shall have
appraisal right as provided in this Dela rama vs. Ma-ao Sugar
Code: Provided, however, That where
the investment by the corporation is - There is a substantial and not
reasonably necessary to accomplish remote connection between the
its primary purpose as stated in the sugar bags and the sugar
articles of incorporation, the approval manufacture, thus stockholder’s
of the stockholders or members shall approval is not necessary for validity
not be necessary. (17 1/2a)
- A private corporation, in order to
- For any other purpose other than the accomplish its purpose as stated in
primary purpose, stockholder’s its articles of incorporation, and
consent or approval is necessary imposed by the Corporation Law,
- Thus, if it’s for the secondary purpose, has the power to acquire, hold,
it is necessary mortgage, pledge, or dispose of
shares bonds, securities and other
- If it’s in connection with the primary evidences of indebtedness of any
purpose, only board resolution is domestic or foreign corporation.
necessary Such an act, if done in pursuance of
the corporate purpose, does not
Requirements and steps to be need the approval of the
followed for a valid investment of stockholders; but when the purchase
corporate funds are: of shares of another corporation is
1. Resolution by the majority of the board done solely for investment and not
of directors or trustees; to accomplish the purpose of its
incorporation, the vote of approval of
2. Ratification by the stockholders the stockholders is necessary.
representing at least 2/3 of the
outstanding capital stock or 2/3 of the Gokongwei vs. SEC
58
- Investments made by SMC is - Stockholder’s consent/ approval is
necessarily connected with its primary not necessary and mere board
purpose and this was ratified in a action is sufficient if in accordance
meeting with primary purpose
60
- No revocation of dividend may be has TO
unless it has not been officially
10 100K
communicated to the stockholders or
is in the form of stock dividends which 1M
is revocable at any time prior to
distribution. May they be compelled?
Stock dividends- no reduction, you - NO. You cannot declare if it does not
capitalize your restricted retained come from unrestricted retained
earnings, what is issued is a piece earnings.
of paper. The restricted earnings
1. 1M-U.R.E. (is it true there is no way
remain in the corporation
to compel?)
Cash and property- reduces
2. 2M-U.R.E.
corporate assets
May they be compelled to declare
Stock dividends increase corporate
dividends
assets? No, it will only have the effect
of increasing the subscribed and paid- - Mandatory if earned, the board may
up capital of the corporation be compelled to declare dividends
Will there be a corresponding - if exceeds 100% of the paid-up
increase in their proportionate capital the boards may be compelled
interest?
ACS 2M 1M U.R.E.
- REMAINS THE SAME
SUB 1M
Exception: when stock dividends will result
in a fractional share PU 800K
61
Delinquency occurs, you are called - Right to receive vest upon
to pay, but you failed to pay. In case declaration. Who ever owns at the
of stock dividend, the delinquent time of declaration owns the
stock holder will not be entitled dividends
thereto until he has paid his
subscription in full. - Unless there is a stipulation to the
contrary
Are non-stockholders entitled to
receive dividends? TRUST FUND DOCTRINE
- No, tock dividends are civil fruits of the - The power to declare it if paid-up
original investment, and to the owners capital is not maintained or is
of the shares belong the civil fruits. impaired
How did the court decide dividends - Trust fund must be kept intact for the
in the case of Neilsen protection of creditors who have the
right to rely on such subscription and
- Stock dividends cannot be issued to a the paid-up capital for the
person who is not a stockholder in satisfaction of their claims
payment of services rendered.
- Cannot accumulate surplus
- Whether cash, property or stock, only unreasonably
stockholders may receive dividends.
Dividends are fruits of investments. - Basis is the paid-up capital
They come from the U.R.E. or surplus
- Entitled to dividends
profits of the corporation.
- Irrespective of whether the
ACS 2M 1M U.R.E.
subscription is full
SUB 1M JULY 24 DECLARATION
- Illegally declared
JULY 31
64
a. If the contract is fully executed on Carlos vs. Mindoro sugar Co.
both sides, the contract is effective
and the courts will no interfere to - PTC- trust company as such, it also
deprive either party of what has has implied powers as to make them
been acquired under it more attractable
- May it sell computers? NO! other line - Merely a ground, there must be
of business. Its trading! proper notice and hearing
66
5. It must be reasonable. - Rules governing equity, considering
the fact that there was always lack
- Must not be inconsistent with existing
of quorum
laws. Not be inconsistent with articles
of incorporation - Section 29 BOD if still constituting a
quorum may fill up a vacancy other
By-laws
than by removal, etc.
- None filing would not affect the status
Gokongwei vs. SEC
of the corporation, Loyola grand villas
case - Section 48 allows a corporation to
amend it by-laws
- The word “must” is not always
imperative - Section 47 of the code, the by-laws
may provide for the qualification and
- Stockholders are conlusively
disqualification
presumed to know the provisions of
the by-laws - It cannot be said Gokongwei has a
vested rights
How about 3rd persons?
- Prevent directors from taking
- NO. unless there is actual knowledge
advantage of position to promote his
of the same they are not presumed to
individual interest to the damage of
know of the provisions of the by-laws
others
Fleischer vs. Botika Nolasco
- The validity or reasonableness of a
- Shares of stock are personal by-laws is a question of law
properties
- Subject to the limitations that
- Shares of stock may transfer to whom reasonableness of a by-law is a
ever he wishes mere matter of judgment
- The by-laws is contrary to law - Rule of the majority and not the
tyranny of the minority
Articles of incorporation
May the by-laws be amended
- May provide reasonable restriction altered or appealed?
67
2. By the board of directors alone when thereof, duly certified under oath by
delegated by 2/3 of the outstanding the corporate secretary and a
capital stock or 2/3 of the members in majority of the directors or trustees,
shall be filed with the Securities and
a non-stock corporation.
Exchange Commission the same to
- This delegated power, however, is be attached to the original articles of
incorporation and original by-laws.
considered revoked whenever a
majority of the outstanding capital The amended or new by-laws
stock or members shall so vote at a shall only be effective upon the
regular or special meeting. issuance by the Securities and
Exchange Commission of a
If it is to be amended what is the certification that the same are not
proceeding? inconsistent with this Code. (22a
and 23a)
- Section 48 2nd paragraph provides:
Baretto vs. La Previsora
Section 48. Amendments to
by-laws. - The board of directors or - Any corporate act emanates from
trustees, by a majority vote thereof, the board
and the owners of at least a majority of
the outstanding capital stock, or at - Directors themselves cannot amend
least a majority of the members of a the by-laws if they were not granted
non-stock corporation, at a regular or the same
special meeting duly called for the
purpose, may amend or repeal any by- Section 48
laws or adopt new by-laws. The
owners of two-thirds (2/3) of the The power granted is not subject
outstanding capital stock or two-thirds to revocation T or F?
(2/3) of the members in a non-stock
corporation may delegate to the board - FALSE
of directors or trustees the power to
amend or repeal any by-laws or adopt If the by-laws are amended when
new by-laws: Provided, That any will they become valid?
power delegated to the board of
directors or trustees to amend or - Upon issuance of the SEC that they
repeal any by-laws or adopt new by- are not inconsistent
laws shall be considered as revoked
whenever stockholders owning or What if the SEC failed to act
representing a majority of the within 10 months without fault
outstanding capital stock or a majority attributable to the corporation?
of the members in non-stock
corporations, shall so vote at a regular T or F any amendment of the by-
or special meeting. laws will never become valid until
it gives its stamp of approval
Whenever any amendment or
new by-laws are adopted, such even after 1 year
amendment or new by-laws shall be
- TRUE. Articles of incorporation and
attached to the original by-laws in the
office of the corporation, and a copy by-laws are different
68
MEETINGS What if the notice requirement is
not complied with?
Meetings
What happened to any act passed
- Meetings of stockholders 1. in a meeting when notice
Date fixed in the by-laws or by-law requirement was not required
- Meetings of director or trustees with?
69
the meeting which shall be within the Is there any exception?
Philippines.
- Section 28 only instance
T or F the by-laws of a stock
corporation may validly provide that Section 28. Removal of
meetings shall be held anywhere in directors or trustees. - Any director
the Philippines? or trustee of a corporation may be
removed from office by a vote of the
- FALSE. Non-stock corporations lang stockholders holding or representing
at least two-thirds (2/3) of the
pwede provided nakalagay sa by-laws
outstanding capital stock, or if the
and provided proper notice is given corporation be a non-stock
corporation, by a vote of at least
Corporation can do only such
two-thirds (2/3) of the members
things as the law allows it to do, entitled to vote: Provided, That such
DOCTRINE OF LIMITED CAPACITY removal shall take place either at a
regular meeting of the corporation or
San Miguel office located in Ortigas at a special meeting called for the
Center. May stockholders meeting purpose, and in either case, after
be held in PICC center? previous notice to stockholders or
members of the corporation of the
- YES. Metro Manila, one single city intention to propose such removal at
the meeting. A special meeting of
Must be called by the proper party the stockholders or members of a
corporation for the purpose of
Who calls? removal of directors or trustees, or
any of them, must be called by the
- President until and unless there is a
secretary on order of the president
provision , secretary on order of the or on the written demand of the
president stockholders representing or holding
at least a majority of the outstanding
What if there is nobody who can capital stock, or, if it be a non-stock
call? corporation, on the written demand
of a majority of the members entitled
- The petitioner, stockholder may to vote. Should the secretary fail or
petition the court refuse to call the special meeting
upon such demand or fail or refuse
What if there is a person who can to give the notice, or if there is no
call, but he fails or neglects to call secretary, the call for the meeting
the meeting? May a stockholder may be addressed directly to the
petition to authorize a meeting? stockholders or members by any
stockholder or member of the
- Ponce case only applies when there is corporation signing the demand.
NO person authorized to call the Notice of the time and place of such
meeting, as well as of the intention
meeting. If there is a person, but
to propose such removal, must be
neglects his duty. Ponce will not apply. given by publication or by written
notice prescribed in this Code.
Writ of injunction may never be
Removal may be with or without
issued ex parte cause: Provided, That removal
70
without cause may not be used to Date not complied with, notice,
deprive minority stockholders or place, not complied with and the
members of the right of representation person who called not authorized,
to which they may be entitled under
what happens to any resolution
Section 24 of this Code. (n)
called?
Cases of removal or ouster of a
- Section 51, any meeting shall be
director
valid provided all the stockholders
Mandamus would be appropriate are present or duly represented and
remedy if there is a person authorized provided it is within the power of the
but refuses corporation. 3RD paragraph of 324
71
Is there any notice requirement? A special meeting is valid
without notice where the
- YES. 1 day unless otherwise provided directors are all present or
by the by-laws where they consent to the
What happens if notice is not meeting. Presence at the
complied with? meeting waives the want of
notice. Moreover, it has been
- If the notice requirement is not ruled that the meeting of the
complied with the meeting is illegal directors without a formal call
and will not bind the corporation first being had, and notice
except when subsequently ratified or in thereof given to the members,
the case of a close corporation where did not operate to invalidate it
the act of any one director may bind or to render the proceedings
the corporation even without a meeting which were taken at it void,
under the special provision of Section for every member of the
101 of the Code. board were present, and their
joint action had completely
Can notice be waived? <sec.53> bound the corporation as if
the meeting has been called
Section 53. Regular and
with due formality, and
special meetings of directors or
trustees. - Regular meetings of the everyone of the directors had
board of directors or trustees of every received proper notice.
corporation shall be held monthly,
unless the by-laws provide otherwise. What is the quorum and voting
requirement in the directors
Special meetings of the board meeting?
of directors or trustees may be held at
any time upon the call of the president - Majority of the members of the
or as provided in the by-laws. board of directors (entire
membership)
Meetings of directors or trustees
of corporations may be held anywhere Vote required to pass a valid
in or outside of the Philippines, unless corporate act?
the by-laws provide otherwise. Notice
of regular or special meetings stating - Majority of those present at which
the date, time and place of the meeting there is a quorum (3 present, vote of
must be sent to every director or
2 sufficient)
trustee at least one (1) day prior to the
scheduled meeting, unless otherwise - Exception, majority of all the
provided by the by-laws. A director or
members of the board in case of
trustee may waive this requirement,
either expressly or impliedly. (n) election of corporate officers, unless
the articles provide for a greater
- YES. Expressly and impliedly quorum or voting requirement
73
- Generally revocable, unless coupled management in situations where it is
with interest needed.
74
otherwise, said agreement is at the end of the agreed period, and
ineffective and unenforceable. The the voting trust certificates as well as
certificate or certificates of stock the certificates of stock in the name
covered by the voting trust agreement of the trustee or trustees shall
shall be cancelled and new ones shall thereby be deemed cancelled and
be issued in the name of the trustee or new certificates of stock shall be
trustees stating that they are issued reissued in the name of the
pursuant to said agreement. In the transferors.
books of the corporation, it shall be
noted that the transfer in the name of The voting trustee or trustees
the trustee or trustees is made may vote by proxy unless the
pursuant to said voting trust agreement provides otherwise. (36a)
agreement.
Does it need to be notarized?
The trustee or trustees shall
execute and deliver to the transferors - Yes, otherwise it is ineffective and
voting trust certificates, which shall be unenforceable
transferable in the same manner and
with the same effect as certificates of Only legal ownership is
stock. transferred
The voting trust agreement filed Being still the beneficial owner
with the corporation shall be subject to they may transfer these rights
examination by any stockholder of the
corporation in the same manner as Is the right granted to a voting
any other corporate book or record: trust agreement absolute? (to
Provided, That both the transferor and inspect)
the trustee or trustees may exercise
the right of inspection of all corporate - NO.
books and records in accordance with
the provisions of this Code. - The voting trust agreement filed with
the corporation shall be subject to
Any other stockholder may
examination by any stockholder of
transfer his shares to the same trustee
or trustees upon the terms and the corporation in the same manner
conditions stated in the voting trust as any other corporate book or
agreement, and thereupon shall be record. Provided, that both the
bound by all the provisions of said transfer and the trustee or trustees
agreement. may exercise the right of inspection
of all corporate books and records in
No voting trust agreement shall
accordance with the provisions of
be entered into for the purpose of
circumventing the law against this Code.
monopolies and illegal combinations in
Legal title is transferred to the
restraint of trade or used for purposes
of fraud. voting trustee
76
notwithstanding the fact that the parties Z did not pay on the date called and was
refer to it as a purchase or some other declared a delinquent share
contract. (n)
Corporation paid 100T/S therefore
Under the old law the 4th mode is the corporation reacquired the
PURCHASE shares again, what are they called?
Purchase - Treasury shares
- Reciprocal in nature Y- 80T/S DECEMBER 08
78
- Section 65, they will be considered as paid, is entitled to exercise all the
watered stocks rights of a stockholder and the
corresponding liability that attach
Section 65. Liability of directors thereunder. Thus, the Code
for watered stocks. - Any director or provides:
officer of a corporation consenting to
the issuance of stocks for a Section 72. Rights of unpaid
consideration less than its par or shares. - Holders of subscribed
issued value or for a consideration in shares not fully paid which are not
any form other than cash, valued in
delinquent shall have all the rights of
excess of its fair value, or who, having
knowledge thereof, does not forthwith a stockholder. (n)
express his objection in writing and file
Is the issuance of a certificate of
the same with the corporate secretary,
shall be solidarily, liable with the stock necessary to consider the
stockholder concerned to the subscriber a stockholder?
corporation and its creditors for the
difference between the fair value - NO, shall be considered a
received at the time of issuance of the stockholder even without a
stock and the par or issued value of certificate of stock
the same. (n)
Instances when he may not be able
- Subscribers may be compelled to pay to exercise his rights as such
the value stockholder
82
How may shares of stock be - Petitioner failed to establish a clear
transferred? legal right and alleged ownership is
without merit
- Endorsement of stock certificate by
owner or attorney-in-fact with delivery - Did not acquire ownership by virtue
of the contract of pledge
Embassy farms vs. CA
- In a contract of pledge there must be
- Must be endorsed by owner or
foreclosure
attorney-in-fact coupled with delivery
- In the case there was no attempt to
- Endorsed not delivered
foreclose
- Proper mode and manner must be
- Petitioner must have a prima facie
complied with
right
Razon vs. IAC
Nava vs. Peers Marketing
- Delivered not endorsed
- A stock subscription is a subsisting
- Reverse of Embassy Farms liability from the time the
subscription is made
- Endorsement alone is not sufficient nor
delivery without endorsement is not - The subscriber is as much bound to
allowed pay his subscription as he would be
to pay any other debt
- Endorsement plus delivery is
mandatory - No stock certificate was issued.
Without stock certificate, which is
Is there any other mode of transferring the evidence of ownership of
stock? corporate stock, the assignment of
corporate shares is effective only
- Notarized deed
between the parties to the
- Deed of assignment transaction
83
After certificate of stock is issued, may Why are they non-negotiable when
it be effectively transferred even they may be transferred?
without endorsement or delivery of the
stock certificate? - Transferees pays it without prejudice
to all the rights and defenses as the
- Person sought to be a stockholder is true and lawful owner may have
an officer and has custody under the law except insofar as such
rights and defenses are subject to
Endorsement and delivery is not the limitations imposed by the
necessary (TAN vs. SEC) principles governing estoppels
Tan vs. SEC (FULL KNOWLEDGE, HE Delos Santos vs. Republic
IS ESTOPPED)
- Why is he, not considered as the
- Persons sought to be stockholder is
owner of shares? When it has been
officer and has custody of the book said that when endorsed by the
(estopped) owner it is considered as strict
General Rule for valid transfer certificate? Because certificate of
stocks are non-negotiable
- Certificate of stock must be endorsed
by owner or attorney-in-fact coupled - Although a stock-certificate is
with delivery sometimes regarded as quasi-
negotiable, in the sense that it may
Exceptions be transferred by endorsement,
coupled with delivery, it is well
- Section 63 uses the word “may”
settled that the instrument is non-
- Showing that there may be other negotiable, because the holder
modes of transferring shares thereof takes it without prejudice to
such rights or defenses as the
Is there a time frame or fixed period as registered owner or creditor may
when transfer can be made? have under the law, except insofar
as such rights or defenses are
- NO, (WON vs. WACK WACK)
subject to the limitations imposes by
Won vs. Wack Wack the principles governing estoppels.
84
Stock certificate now in possession
of D. A knew of what happened and
went to the corporation and
complains. Who will have a better
title?
ENDORSEMENT FORM
- the corporation may be compelled to
C armed with the endorsement form recognize both, A as stockholder
certificate, sold to D (innocent (non-negotiable) D, reliance that the
purchaser for value), will D acquire stock certificate is valid and existing
title? and owned by C
- NO, subject to such rights and Forged transfers
defenses as the true and lawful owner
may have - If the corporation should issue a new
certificate in pursuance of a forged
What if C now goes to the corporation transfer, the corporation incurs no
and presents the form? liability to the person in whose favor
it is issued and it may demand its
- Then the corporation shall cancel the old
return for cancellation. The
certificate and issues a new one, now
corporation in such case has been
in the name of C, now registered in the
guilty of no misrepresentation. On
name of C, will C acquire title?
the other hand, it is the duty of the
A found out what happened and goes purchaser to determine that the
to the corporation who has a better title indorsement of the owner is
C or A? genuine. However, if the new
certificate issued to the purchaser
- A, A cannot be deprived of his right by comes into the hands of a bona fide
virtue of an unauthorized transfer purchaser for value, the corporation
will be stopped from denying validity
Corporation can compel C to deliver
thereof, since by issuing such new
the new stock certificate because he
certificate it represents that the
made a representation that the
person named therein is a
certificate where good.
stockholder of the corporation. The
Armed with the new certificate issued corporation is thus forced to
to C, C delivers to D a purchaser in recognize both the original certificate
good faith and for value will D acquire and new certificate-the original,
title? because the true owner could not be
deprived of his title by a forged
- D will acquire title took the shares not by transfer, and the new, because of its
virtue of a forged or unauthorized representation that the person
transfer, but on the reliance that the named therein is the owner of
stock certificate is valid and owned by shares in the corporation. But if the
C recognition of both stockholders
would result in an over issue of
85
shares, then only the original and true damages, attorney’s fees and cost
owner can be recognized as a of suit. What may the corporation
stockholder. The bona fide purchaser do?
of the new certificate will however
have a right of damages against the - NO defense, no valid defense,
corporation. The corporation, in turn, because it was represented to other
would have a right of action against parties that the certificate of stocks
the person who made false is valid, subsisting, etc.
representations and in whose favor it 2nd situation, what cause of action
issued a new certificate. The true may the corporation have?
owner of the shares which were Remedy?
wrongfully transferred would of course
have a right to compel the corporation - Third party complaint against C, but
to issue him a certificate in lieu of the what if he is a purchaser for value?
original one which was wrongfully 4th party claim against B
cancelled.
When may certificate of stocks be
Authorized capital stock 1M shares issued?
86
Code and heretofore authorized, Watered stock
licensed or registered by the Securities
and Exchange Commission, shall be - One which is issued by the
deemed to have been authorized, corporation as fully paid-up shares,
licensed or registered under the when in fact the whole amount of the
provisions of this Code, subject to the value thereof has not been paid.
terms and conditions of its license, and
shall be governed by the provisions - Basis is par value and not the fair
hereof: Provided, That if any such
market value
corporation is affected by the new
requirements of this Code, said Section 62 states that stocks shall
corporation shall, unless otherwise
not be issued for a consideration
herein provided, be given a period of
not more than two (2) years from the less than par or issued price thereof,
effectivity of this Code within which to while section 13 states that in no
comply with the same. (n) case shall be paid-up capital be less
than five thousand [P5000] pesos.
Subscription to shares of stocks are
indivisible If issued below par, issued value
considered as water
Also apparent is that once a subscriber
has paid his subscription in full, he How may watered stocks be issued?
becomes entitled to be issued a stock
1. For a monetary consideration less
certificate and in the event that the
than its par or issued value;
corporation refuses to do so, the
stockholder my institute a case for 2. For a consideration in property,
mandamus with damages. Thus, it has tangible or intangible, valued in
been said that the duty of the excess of its fair market value;
corporate officers to issue stock
certificates to those entitled thereto is 3. Gratuitously or under an agreement
a ministerial duty enforceable by that nothing shall be paid at all; or
mandamus. 4. In the guise of stock dividends when
Fua Cun vs. Summers and China there are no surplus profits of the
Banking Corp. corporation.
- The court erred in holding the plaintiff Why is stock watering illegal?
as the owner of 250 shares of stock; 1. The corporation is deprived of its
“the plaintiff’s rights consist in equity in capital thereby hurting its business
500 shares and upon payment of the prospects, financial capability and
unpaid portion of the subscription price responsibility;
he becomes entitled to the issuance of
certificate for said 500 shares in his 2. Stockholders who paid their
favor.” subscriptions in full, or promised to
pay the same, are injured and
- No certificate of stock until the full prejudiced by the reduction of their
amount has been paid.
87
proportionate interest in the 5. As to creditors - They may enforce
corporation; and, payment of the difference in the
price, or the water in the stock,
3. Present and future creditors are solidarily against the responsible
deprived of the corporate assets for directors/officers and the
the protection of their interest. stockholders concerned; and’
- Corporation is prejudiced 6. As against transferees of the
- Stockholders, dilution of interest watered stock – His right is the
same as that of his transferor. If,
- Creditors are prejudiced, virtue of right however, a certificate of stock has
to look upon corporations properties been issued and duly indorsed to a
for the satisfaction of their claims bona fide purchaser, without
knowledge, actual or constructive,
What is the effect of issuance of the latter cannot be held liable, at
watered stocks least as against the corporation,
1. As to the corporation - when a since he took the shares on reliance
corporation is guilty of ultra-vires or of the misrepresentation made by
illegal acts which constitute an injury to the corporation that the stock
or fraud upon the public, or which will certificate is valid and subsisting.
tend to injure or defraud the public, the This is because a corporation is
State may institute a quo-warranto prohibited from issuing certificates of
proceeding to forfeit its charter for the stock until the full value of the
misuse or abuse of its franchise. subscriptions have been paid and
could not, therefore, deny the
2. As between the corporation and the validity of the stock certificate it
subscriber- The subscription is void. issued as against a purchaser in
Such being the case, the subscriber is good faith. Thus, Ballentine states
liable to pay the full par or issued value that whether there is any liability on
thereof, to render it valid and effective. the part of the transferee of watered
stock is made to depend upon
3. As to the consenting stockholders -
whether he acquired the same
They are stopped from raising any
without notice, either as purchaser
objection thereto;
or donee. If he had knowledge
4. As to dissenting stockholders - In view thereof, he is subject to the same
of the dilution of their proportionate liability as his transferor.
interest in the corporation, they may
What is the nature of the liability of
compel the payment of the “water” in
the corporate directors consenting to
the stock solidarily against the
the issuance of watered stocks and
responsible and consenting directors
the extent of their liabilities?
and officers inclusive of the holder of
the watered stocks; - Solidarily liable with the holder of the
watered stocks to the extent of the
water from said shares of stocks
88
Will all the directors be liable? What if There is a denial of pre-emptive rights
you objected will you also be liable? and directors A,B,C,D,E decided to
issue the remaining 50M and
- If you do not issue a written objection, subscribed for 10M each at 2 per share.
you are still liable
Is there stock watering if the fair
- Even passive directors may be liable market value is 12.00?
- Those having knowledge thereof, but - No stock watering
did not interpose their objection shall
be liable - The basis is the par value
89
When are unpaid subscriptions due - General rule is they are not liable to
and payable? pay interest because the code says
unless requires in the by-laws
- Section 67. Payment of balance of - Aside from the mandate of the law
subscription. - Subject to the that subscribers to shares of stock
provisions of the contract of must pay the full value of their
subscription, the board of directors of subscription, they may likewise be
required to pay interest on all unpaid
any stock corporation may at any time
subscriptions if so imposed in the
declare due and payable to the contract or in the corporate by-laws
corporation unpaid subscriptions to the at such rate as may be indicated
capital stock and may collect the same thereat or the legal rate if not so
or such percentage thereof, in either fixed. Unless so required or
case with accrued interest, if any, as it provided, however, subscribers to
shares of stock, not fully paid, are
may deem necessary.
not liable to pay interest on their
unpaid subscriptions. The code thus
Payment of any unpaid subscription or provides:
any percentage thereof, together with
the interest accrued, if any, shall be Section 66. Interest on
made on the date specified in the unpaid subscriptions. - Subscribers
contract of subscription or on the date for stock shall pay to the corporation
stated in the call made by the board. interest on all unpaid subscriptions
Failure to pay on such date shall from the date of subscription, if so
render the entire balance due and required by, and at the rate of
payable and shall make the interest fixed in the by-laws. If no
stockholder liable for interest at the rate of interest is fixed in the by-
legal rate on such balance, unless a laws, such rate shall be deemed to
different rate of interest is provided in be the legal rate. (37)
the by-laws, computed from such date
until full payment. If within thirty (30) Until a call is made, they are not due
days from the said date no payment is and payable, but still subject to the
made, all stocks covered by said provisions of the contracts
subscription shall thereupon become Procedures in case of sale of
delinquent and shall be subject to sale delinquent stocks
as hereinafter provided, unless the
board of directors orders otherwise. Section 68. Delinquency sale. - The board
(38) of directors may, by resolution, order the
sale of delinquent stock and shall
Remedies of the corporation to enforce specifically state the amount due on each
payment of unpaid subscription subscription plus all accrued interest, and
the date, time and place of the sale which
1. By board action in accordance with the shall not be less than thirty (30) days nor
procedure laid down in sections 67 to more than sixty (60) days from the date the
69 of the code stocks become delinquent.
2. By a collection case in court as
provided for in section 70 Notice of said sale, with a
copy of the resolution, shall be sent
Are subscribers of shares of stocks not to every delinquent stockholder
fully paid, liable to pay interest? either personally or by registered
90
mail. The same shall furthermore be corporation in accordance with the
published once a week for two (2) provisions of this Code. (39a-46a)
consecutive weeks in a newspaper of
general circulation in the province or Who is the winning bidder in a
city where the principal office of the delinquency sale?
corporation is located.
- Bidder who shall “offer to pay the full
Unless the delinquent amount of the balance on the
stockholder pays to the corporation, on subscription together with accrued
or before the date specified for the interest, cost of advertisement and
sale of the delinquent stock, the expenses of sale, for the smallest
balance due on his subscription, plus number of shares or fraction of a
accrued interest, costs of share.”
advertisement and expenses of sale,
or unless the board of directors X Co. has 1M authorized capital
otherwise orders, said delinquent stock stock
shall be sold at public auction to such
bidder who shall offer to pay the full 500 thousand is already subscribed
amount of the balance on the
subscription together with accrued A subscribed to 100 thousand
interest, costs of advertisement and shares, 50 thousand is already paid
expenses of sale, for the smallest leaving 50 thousand unpaid
number of shares or fraction of a
share. The stock so purchased shall The corporation is at a loss of 250
be transferred to such purchaser in the thousand, the board decides to
books of the corporation and a make a call for the payment of the
certificate for such stock shall be unpaid subscriptions, however A
issued in his favor. The remaining could not paid, hence declared
shares, if any, shall be credited in favor delinquent and decides to sell his
of the delinquent stockholder who shall share at a public auction
likewise be entitled to the issuance of
a certificate of stock covering such 55 thousand is to be paid, remaining
shares. balance plus cost and expenses
- Discretionary on the part of the board - Where it not for the promise, the
of directors to do whatever is provided defendants would have not
in the said article relative to the subscribed
application of the part of the 70
percent of the profit distributable in - Trust Fund Doctrine, it is established
equal parts on the payment of the doctrine that subscriptions to the
shares subscribed to and fully paid capital of a corporation constitute a
fund to which creditors have a right
Lingayen Gulf vs. Baltazar to look for satisfaction of their claims
and that the assignee in insolvency
- Exception: pursuant to a bona fide can maintain an action upon any
compromise or to set off a debt due unpaid stock subscription in order to
from the corporation, a release realize assets for the payment of its
supported by consideration, will be debts.
effectual as against dissenting
stockholders and subsequent and - A corporation has no power to
existing creditors. A release which release an original subscriber to its
might originally have been held invalid capital stock from the obligation of
may be sustained after a considerable paying for his shares, without a
lapse of time valuable consideration for such
release; and as against creditors a
Apocada vs. NLRC reduction of the capital stock can
take place only in the manner and
- Set-off is without any legal basis under the conditions prescribed by
- It was premature the statute or the charter or the
- Unpaid subscriptions will become due articles of incorporation.
and payable only upon certain
instance Edward Keller and Co. vs. COB
- Call or if there is a stipulation in
contract - May the stockholder be held liable
- If no call and no stipulation in contract for the debts of the corporation?
then it will not be demandable or YES. To the extent of their unpaid
payable at all subscription
94
Stock corporations are newspaper of general circulation
prohibited from retaining surplus profits published in the place where the
in excess of one hundred (100%) corporation has its principal office,
percent of their paid-in capital stock, once a week for three (3)
except: (1) when justified by definite consecutive weeks at the expense
corporate expansion projects or of the registered owner of the
programs approved by the board of certificate of stock which has been
directors; or (2) when the corporation lost, stolen or destroyed. The notice
is prohibited under any loan shall state the name of said
agreement with any financial institution corporation, the name of the
or creditor, whether local or foreign, registered owner and the serial
from declaring dividends without its/his number of said certificate, and the
consent, and such consent has not yet number of shares represented by
been secured; or (3) when it can be such certificate, and that after the
clearly shown that such retention is expiration of one (1) year from the
necessary under special date of the last publication, if no
circumstances obtaining in the contest has been presented to said
corporation, such as when there is corporation regarding said certificate
need for special reserve for probable of stock, the right to make such
contingencies. (n) contest shall be barred and said
corporation shall cancel in its books
When a certificate of stock is loss or the certificate of stock which has
destroyed, what must be done by the been lost, stolen or destroyed and
owner thereof? issue in lieu thereof new certificate
of stock, unless the registered owner
Section 73. Lost or destroyed certificates. - files a bond or other security in lieu
The following procedure shall be followed for thereof as may be required, effective
the issuance by a corporation of new for a period of one (1) year, for such
certificates of stock in lieu of those which amount and in such form and with
have been lost, stolen or destroyed: such sureties as may be satisfactory
to the board of directors, in which
1. The registered owner of a case a new certificate may be
certificate of stock in a corporation or issued even before the expiration of
his legal representative shall file with the one (1) year period provided
the corporation an affidavit in triplicate herein: Provided, That if a contest
setting forth, if possible, the has been presented to said
circumstances as to how the certificate corporation or if an action is pending
was lost, stolen or destroyed, the in court regarding the ownership of
number of shares represented by such said certificate of stock which has
certificate, the serial number of the been lost, stolen or destroyed, the
certificate and the name of the issuance of the new certificate of
corporation which issued the same. He stock in lieu thereof shall be
shall also submit such other suspended until the final decision by
information and evidence which he the court regarding the ownership of
may deem necessary; said certificate of stock which has
been lost, stolen or destroyed.
2. After verifying the affidavit
and other information and evidence Except in case of fraud, bad
with the books of the corporation, said faith, or negligence on the part of the
corporation shall publish a notice in a corporation and its officers, no
95
action may be brought against any be suspended until the final decision
corporation which shall have issued by the court regarding the ownership
certificate of stock in lieu of those lost, of said certificate of stock which has
stolen or destroyed pursuant to the been lost, stolen or destroyed.
procedure above-described. (R.A.
201a) May corporate officers be held liable
for the unauthorized issuance?
- The rationale of the above-quoted law
is to avoid duplication of certificates of - YES, the code provides that:
stock and the avoidance of fictitious
and fraudulent transfers. Except in case of fraud, bad
faith, or negligence on the part of the
When will the replacement certificate corporation and its officers, no
be issued? action may be brought against any
corporation which shall have issued
- The code provides that: certificate of stock in lieu of those
lost, stolen or destroyed pursuant to
after the expiration of one (1) the procedure above-described.
year from the date of the last (R.A. 201a)
publication, if no contest has been
presented to said corporation Assuming the last paragraph is not
regarding said certificate of stock, the there; would it be not the same, that
right to make such contest shall be they should be held liable due to
barred and said corporation shall fraud, bad faith or negligence?
cancel in its books the certificate of
stock which has been lost, stolen or - YES. Section 31 provides that:
destroyed and issue in lieu thereof
new certificate of stock, Section 31. Liability of
directors, trustees or officers. -
Could it be issued earlier than 1 year? Directors or trustees who willfully
and knowingly vote for or assent to
- Yes it can be, the code states that: patently unlawful acts of the
corporation or who are guilty of
unless the registered owner gross negligence or bad faith in
files a bond or other security in lieu directing the affairs of the
thereof as may be required, effective corporation or acquire any personal
for a period of one (1) year, for such or pecuniary interest in conflict with
amount and in such form and with their duty as such directors or
such sureties as may be satisfactory to trustees shall be liable jointly and
the board of directors, in which case a severally for all damages resulting
new certificate may be issued even there from suffered by the
before the expiration of the one (1) corporation, its stockholders or
year period provided herein: members and other persons.
Provided, That if a contest has been
presented to said corporation or if an When a director, trustee or
action is pending in court regarding the officer attempts to acquire or
ownership of said certificate of stock acquires, in violation of his duty, any
which has been lost, stolen or interest adverse to the corporation in
destroyed, the issuance of the new respect of any matter which has
certificate of stock in lieu thereof shall been reposed in him in confidence,
96
as to which equity imposes a disability allowed by law such as section 42
upon him to deal in his own behalf, he and 105;
shall be liable as a trustee for the 8. To institute and file a derivative suit;
corporation and must account for the 9. To recover shares of stock
profits which otherwise would have unlawfully sold for delinquency as
accrued to the corporation. (n) may be allowed under section 69;
10. To inspect the books of the
Certificate of stock was lost, the owner corporation subject only to the
transfers his shares by way of a limitations imposed by section 73;
notarized deed will it be valid? 11. To be furnished by the most recent
financial statement of the
- He cannot do so, if a certificate of corporation as by section 75;
stock is issued by a corporation, a 12. To be issued a new stock certificate
mere notarized deed will not suffice in lieu of the lost or destroyed one
- Deed of assignment was not sufficient subject to the procedure laid down in
since there was no endorsement section 73;
(Rural Bank of Lipa vs. CA) 13. To have the corporation dissolved
under section 118 to 121, and
Rights and liabilities of stockholders section 105 in a close corporation;
14. To participate in the distribution of
- RIGHTS the assets of the corporation upon
dissolution under section 122;
1. Participation in the management of the 15. In the case of a close corporation, to
corporate affairs by exercising their petition the SEC to arbitrate in the
right to vote and be voted upon either event of a deadlock as allowed
personally or by proxy as provided for under section 104; and,
under sections 50 and 58 of the code; 16. Also in the case of a close
2. To enter into a voting trust agreement corporation, to withdraw therefrom,
subject to the procedure, requirements for my reason, and compel the
and limitations imposed under section corporation to purchase his shares
50; as provided for under section 105.
3. To receive dividends and to compel
their declaration if warranted under
section 43;
4. To transfer shares of stock subject only
to reasonable restrictions such as
options and preferences as may be
allowed by law inclusive of the right of
the transferee to compel the
registration of the transfer in the books
of the corporation as provided for in
section 63;
5. To be issued a certificate of stock for
fully paid-up shares in accordance with
64;
6. To exercise pre-emptive rights as
provided for in section 39;
7. To exercise their appraisal right in
accordance with the provision of
section 81 and in those instance
97
LIABILITIES director, trustee, stockholder or member
on any action or proposed action must
1. To pay to the corporation the balance be recorded in full on his demand.
of his unpaid subscriptions subject to
the provision of section 67 to 70; The records of all business
2. To pay interest on his unpaid transactions of the corporation and
subscription if required by the by-laws the minutes of any meetings shall be
or by the contract of subscription in open to inspection by any director,
accordance with section 66; trustee, stockholder or member of
3. To answer to the creditors for the the corporation at reasonable hours
unpaid portion of his subscription on business days and he may
under the TRUST FUND DOCTRINE; demand, in writing, for a copy of
4. To answer the “water” in his stocks as excerpts from said records or
provided for in section 65; minutes, at his expense.
5. To be liable, as general partners, for all
debts, liabilities and damages of a Any officer or agent of the
determinable corporation as corporation who shall refuse to allow
envisioned under section 21 any director, trustees, stockholder or
(corporation by estoppel); and, member of the corporation to
6. To be personally liable for torts, in the examine and copy excerpts from its
event that a stockholder in a close records or minutes, in accordance
corporation actively participates in the with the provisions of this Code,
management of the corporate affairs. shall be liable to such director,
trustee, stockholder or member for
CORPORATE BOOKS AND RECORDS damages, and in addition, shall be
guilty of an offense which shall be
What are these books and records that punishable under Section 144 of this
are required to be kept? Code: Provided, That if such refusal
is made pursuant to a resolution or
Section 74. Books to be kept; stock transfer order of the board of directors or
agent. - Every corporation shall keep and trustees, the liability under this
carefully preserve at its principal office a section for such action shall be
record of all business transactions and imposed upon the directors or
minutes of all meetings of stockholders or trustees who voted for such refusal:
members, or of the board of directors or and Provided, further, That it shall
trustees, in which shall be set forth in be a defense to any action under
detail the time and place of holding the this section that the person
meeting, how authorized, the notice given, demanding to examine and copy
whether the meeting was regular or excerpts from the corporation's
special, if special its object, those present records and minutes has improperly
and absent, and every act done or ordered used any information secured
done at the meeting. Upon the demand of through any prior examination of the
any director, trustee, stockholder or records or minutes of such
member, the time when any director, corporation or of any other
trustee, stockholder or member entered or corporation, or was not acting in
left the meeting must be noted in the good faith or for a legitimate purpose
minutes; and on a similar demand, the in making his demand.
yeas and nays must be taken on any
motion or proposition, and a record Stock corporations must also
thereof carefully made. The protest of any keep a book to be known as the
98
"stock and transfer book", in which 2. Minutes of all meetings of
must be kept a record of all stocks in stockholders or members and of the
the names of the stockholders directors or trustees setting forth in
alphabetically arranged; the detail the date, time, and place of
installments paid and unpaid on all meeting, how authorized, the notice
stock for which subscription has been given whether the same be regular
made, and the date of payment of any or special, and if special, the
installment; a statement of every purpose thereof shall be specified,
alienation, sale or transfer of stock those present and absent, and every
made, the date thereof, and by and to act done or ordered done there at
whom made; and such other entries as which ,must likewise be kept at the
the by-laws may prescribe. The stock principal office of the corporation;
and transfer book shall be kept in the and,
principal office of the corporation or in 3. Stock and transfer book showing the
the office of its stock transfer agent names of the stockholders, the
and shall be open for inspection by amount paid or unpaid on all stocks
any director or stockholder of the for which subscription has been
corporation at reasonable hours on made, a statement of every
business days. alienation, sale or transfer of stock
made, if any the date thereof, and by
No stock transfer agent or one whom and to whom made which
engaged principally in the business of must also be kept at the principal
registering transfers of stocks in behalf office of the corporation or in the
of a stock corporation shall be allowed office of its stock transfer agent.
to operate in the Philippines unless he
secures a license from the Securities These corporate books and records,
and Exchange Commission and pays inclusive of all business transactions
a fee as may be fixed by the and minutes of meetings, are
Commission, which shall be renewable subject to inspection by any of the
annually: Provided, That a stock directors, trustees, stockholders or
corporation is not precluded from members of the corporation at
performing or making transfer of its reasonable hours on business days
own stocks, in which case all the rules and a copy of excerpts of said
and regulations imposed on stock records may be demanded. In fact,
transfer agents, except the payment of in so far as financial statement is
a license fee herein provided, shall be concerned, the Code clearly
applicable. (51a and 32a; P.B. No. provides:
268.)
Section 75. Right to financial
To summarize: statements. - Within ten (10) days
from receipt of a written request of
1. Records of all business transactions any stockholder or member, the
which include, among others, journals, corporation shall furnish to him its
ledger, contracts, vouchers and most recent financial statement,
receipts, financial statements and which shall include a balance sheet
other books of accounts, income tax as of the end of the last taxable year
returns, and voting trust agreements and a profit or loss statement for
which must be kept and carefully said taxable year, showing in
preserved at its principal office; reasonable detail its assets and
99
liabilities and the result of its records and minutes has
operations. improperly used any information
secured through any prior
At the regular meeting of stockholders examination of the records or
or members, the board of directors or minutes of such corporation or of
trustees shall present to such any other corporation, or was not
stockholders or members a financial acting in good faith or for a
report of the operations of the legitimate purpose in making his
corporation for the preceding year, demand.”
which shall include financial
statements, duly signed and certified What is the stock and transfer?
by an independent certified public Where should stock and transfer be
accountant. kept? Can it be kept elsewhere?
103
Telecommunications- special Assuming you are a stockholder of
franchise, it is a legislative grant PNB, and then it was privatized,
may you already have the right to
Gonzales vs. PNB inspect?
- Provisions of the old law was - No, unless its charter has been
unqualified, when it granted altered or repealed it is still subject
stockholders the right to inspect to the same law
- However, whole seemingly enlarging
the right of inspection, the new code 3 stages in the life of a corporation
has prescribed limitations to the same.
It is now expressly required as a - Formation or birth
condition for such examination that the - We now discuss the union of the
one requesting it must not have been corporation
guilty of using improperly any - The last would be its death or
information secured through a prior dissolution
examination and that the person
asking for such examination must be MERGER AND CONSOLIDATION
acting in good faith and for a legitimate
purpose in making his demand Merger and consolidation
- Admittedly, he sought to be a
stockholder in order to pry into - In corporate parlance it is called
transactions entered into by the spin-off
respondent bank even before he - Almost a year ago San Miguel
became a stockholder. His obvious separated its brewery business
purpose was to arm himself with - San Miguel Corporation is now a full
materials he can use against the time holding company; it can later on
respondent bank for acts done by the absorb the company
latter when the petitioner was a total - Corporations are granted by the
stranger to the same. code to merge or consolidate
- Bank was created by a special law, it - most common type of corporate
has its own charter and primarily recognition
governed by the law creating them - not the same in every case
- The bank is only subject to the - but most common in the weal
inspection of the Central Bank and any financial or insolvent condition, aim
information pertaining to the bank is is to bring it back to its financial
confidential and shall not be revealed capability
to any person other than the President
- also a method of recapitalization
of the Philippines, the Secretary of
Finance and the Board of Directors,
o purchase and sale of corporate
nor shall any information relative to the
funds in its custody, its current assets is another form of
accounts or deposits belonging to corporate reorganization
private individuals, corporations or
other entities except by order of a How do you value the assets of the
Court of Competent Jurisdiction, hence merging corporation, do you
inspection sought to by the petitioner is consider goodwill?
violative of the provisions of its charter First secure favorably
and is even subject to penal sanctions recommendation of government
agency
104
Section 79. Effectivity of merger or A B
consolidation. - The articles of merger or of
consolidation, signed and certified as herein A transfers all assets, properties,
above required, shall be submitted to the rights, obligations, liabilities to B
Securities and Exchange Commission in
quadruplicate for its approval: Provided, B issues shares of stocks in
That in the case of merger or exchange of the transfer
consolidation of banks or banking
institutions, building and loan A is then dissolved and B
associations, trust companies, insurance SURVIVES
companies, public utilities, educational
institutions and other special corporations o Parties to a merger are called
governed by special laws, the favorable constituent corporation
recommendation of the appropriate
government agency shall first be Consolidation
obtained. If the Commission is satisfied that
the merger or consolidation of the - The uniting or amalgamation of two
corporations concerned is not inconsistent or more existing corporations to form
with the provisions of this Code and existing a new corporation
laws, it shall issue a certificate of merger or of - In merger there is a surviving
consolidation, at which time the merger or corporation, the others are
consolidation shall be effective. dissolved, while in consolidation, all
constituent are dissolved and a new
If, upon investigation, the one organized
Securities and Exchange Commission
has reason to believe that the A B
proposed merger or consolidation is
contrary to or inconsistent with the
provisions of this Code or existing
laws, it shall set a hearing to give the C
corporations concerned the
opportunity to be heard. Written notice Like all other corporate acts, it
of the date, time and place of hearing emanates from the board
shall be given to each constituent
corporation at least two (2) weeks 1. The board of directors or trustees of
before said hearing. The Commission each constituent corporations shall
shall thereafter proceed as provided in approve a plan of merger or
this Code. (n) consolidation setting forth the
matters required in section 76;
Merger 2. Approval of the plan by the
stockholders representing 2/3 of
- A union effected by absorbing one or the outstanding capital stock or
more existing corporations by another 2/3 of the member in non-stock
which survives and continues the corporations of each of such
combined business corporations at separate corporate
- It is the uniting of two or more meetings called for the purpose;
corporations by the transfer of property 3. Prior notice of such meeting, with a
to one of them which continue in copy or summary of the plan of
existence, the other or the others merger or consolidation shall be
being dissolved and merged therein. given to all stockholders or members
105
at least two (2) weeks prior to the 3. The surviving corporation or the
scheduled meeting, either personally consolidated corporation will
or registered mail stating the purpose possess all the rights, privileges,
thereof; immunities and powers and shall be
4. Execution of the articles of merger or subject to all the duties and liabilities
consolidation by each constituent of a corporation organized under the
corporations to be signed by the Code;
president or vice-president and 4. The surviving or consolidated
certified by the corporate secretary corporation shall possess all the
or assistant secretary setting forth rights, privileges, immunities and
the matters required in section 78; franchises of the constituent
5. Submission of the articles of corporations, and all property and all
merger or consolidation in receivables due, including
quadruplicate to the SEC subject to subscriptions to shares and other
the requirement of section 79 that if it choses in action, and every other
involve corporations under the direct interest of, or belonging to or due to
supervision of any other government the constituent corporations shall be
agency or governed by special laws deemed transferred to and vested in
the favorable recommendation of the such surviving or consolidated
government agency concerned shall corporation without further act and
first be secured and; deed; and,
6. Issuance of the certificate of merger 5. The rights of creditors or any lien on
or consolidation by the SEC at which the property of the constituent
time the merger or consolidation shall corporations shall not be impaired
be effective. If the plan, however, is by the merger or consolidation.
believed to be contrary to law, the SEC
shall set a hearing to give the Is there a liquidation process in case
corporations concerned an opportunity of merger or consolidation?
to be heard upon proper notice and
thereafter, the Commission shall - None, there is nothing to distribute
proceed as provided in the Code.
Associated Bank vs. CA
Although merger and consolidation is
an express power granted to - By virtue of a specific provision in
corporation, it is subject to limitations, the merger agreement
as maybe proscribed by law - Although the subject promissory
note names CBTC as the payee, the
What would be the effect of merger or reference to CBTC in the note shall
consolidation? <sec. 80> be construed, under the very
provision of the merger agreement,
1. There will only be a single corporation. as a reference to petitioner bank, “as
In case of merger, the surviving if such reference (was a) direct
corporation or the consolidated reference to the latter for all intents
corporation in case of consolidation; and purposes
2. The termination of the corporate - Section 80 par. 4 states:
existence of the constituent
corporations, except that of the The surviving or the
surviving corporation or the consolidated corporation shall
consolidated corporation; thereupon and thereafter possess all
the rights, privileges, immunities and
106
franchises of each of the constituent o Hardest part is the financial act,
corporations; and all property, real or regarding how many shares
personal, and all receivables due on would be issued, probability of
whatever account, including collection and the like
subscriptions to shares and other o In merger and consolidation,
choses in action, and all and every there is due diligence and an
other interest of, or belonging to, or economist is usually hired
due to each constituent corporation,
shall be deemed transferred to and APPRAISAL RIGHT
vested in such surviving or
consolidated corporation without Define appraisal
further act or deed; and
- Right to withdraw from the
- Without further acts, meaning it is corporation and demand payment of
automatic the fair value of his shares after
dissenting from certain corporate
When do merger and consolidation acts involving fundamental changes
become effective? What if the SEC in corporate structure <sec. 81>
fails to act on it without fault
attributable to the corporation What property? When may this right
involved? be exercises?
107
May it be exercised by a stockholder depreciation in anticipation of such
who dissents to the act of a business corporate action.
other than a primary purpose?
If within a period of sixty (60)
X Co. inc days from the date the corporate
action was approved by the
Principal office is in Quezon city, it was stockholders, the withdrawing
changed to Paranaque stockholder and the corporation
cannot agree on the fair value of the
A objects and makes a written shares, it shall be determined and
demand. May he exercise his right of appraised by three (3) disinterested
appraisal? persons, one of whom shall be
named by the stockholder, another
- It is not available in all amendments of by the corporation, and the third by
the corporation the two thus chosen. The findings of
- It must be changing or restricting the the majority of the appraisers shall
rights of any stockholder be final, and their award shall be
paid by the corporation within thirty
What if the principal office is changed (30) days after such award is made:
from QC to TAWI-TAWI, will it change Provided, That no payment shall be
or affect the rights of A? made to any dissenting stockholder
unless the corporation has
- To some it may change or restrict the unrestricted retained earnings in its
rights to others it may not books to cover such payment: and
Provided, further, That upon
How is the right exercised? payment by the corporation of the
agreed or awarded price, the
- According to section 82 of the code: stockholder shall forthwith transfer
his shares to the corporation. (n)
Section 82. How right is
exercised. - The appraisal right may be X Co.
exercised by any stockholder who
shall have voted against the proposed Principal Office- QC, it was changed
corporate action, by making a written to Manila
demand on the corporation within thirty
(30) days after the date on which the A objects and makes a written
vote was taken for payment of the fair demand for payment of fair value of
value of his shares: Provided, That shares. Can he make a demand of
failure to make the demand within payment of shares?
such period shall be deemed a waiver
of the appraisal right. If the proposed True or False, no stockholder in a
corporate action is implemented or stock corporation can ever demand
affected, the corporation shall pay to if the principal office is amended,
such stockholder, upon surrender of changing it from QC to Manila
the certificate or certificates of stock
representing his shares, the fair value - False, a stockholder in a close
thereof as of the day prior to the date corporation may for any reason
on which the vote was taken, compel the close corporation that he
excluding any appreciation or be paid the fair value of his shares
108
Can he exercise his appraisal rights in stockholder, another by the
the first place? He hasn’t even paid his corporation, and the third by the two
subscription in full. thus chosen. The findings of the
majority of the appraisers shall be
May a stockholder who hasn’t paid his final, and their award shall be paid
subscription in full exercise his by the corporation within thirty (30)
appraisal rights? days after such award is made:
Provided, That no payment shall be
- Yes, he can exercise his appraisal made to any dissenting stockholder
rights, by reconciling the provisions of unless the corporation has
section 72, section 82 and section 86 unrestricted retained earnings in its
books to cover such payment: and
Section 72. Rights of unpaid Provided, further, That upon
shares. - Holders of subscribed shares payment by the corporation of the
not fully paid which are not delinquent agreed or awarded price, the
shall have all the rights of a stockholder shall forthwith transfer
stockholder. (n) his shares to the corporation. (n)
118
6. Corporations vested with public corporation wherein only directors
interest meetings may provide for greater
quorum requirement and in
Classification of directors stockholders meeting which may not
be altered or increased, as provide
- Ordinary stock- no such right for in section 25, following the
- Close corporation-yes there is such a doctrine of limited capacity
right
The articles of a close corporation
Section 97 is a permissive provision may likewise provide that the
business of the corporation shall be
Section 97. Articles of managed by the stockholders rather
incorporation. - The articles of than by the board of directors.
incorporation of a close corporation However the same must contain the
may provide: continuing provisions required in
paragraph 2 of section 97, that is:
1. For a classification of shares or
rights and the qualifications for owning 1. No meeting of stockholders need
or holding the same and restrictions on be called to elect directors;
their transfers as may be stated 2. Unless the context clearly
therein, subject to the provisions of the requires otherwise, the
following section; stockholders of the corporation
shall be deemed to be directors;
2. For a classification of directors into and;
one or more classes, each of whom 3. The stockholders of the
may be voted for and elected solely by corporation shall be subject to all
a particular class of stock; and liabilities of directors.
126
(2) or more positions may be held however, require increased Filipino
concurrently by the same person, equity participation in all educational
except that no one shall act as institutions. The control and
president and secretary or as administration of educational
president and treasurer at the same institutions shall be vested in
time. citizens of the Philippines.
131
- Section 116 provides: 4. That the religious society or
religious order, or diocese, synod, or
Section 116. Religious district organization desires to
societies. - Any religious society or incorporate for the administration of
religious order, or any diocese, synod, its affairs, properties and estate;
or district organization of any religious
denomination, sect or church, unless 5. The place where the principal
forbidden by the constitution, rules, office of the corporation is to be
regulations, or discipline of the established and located, which place
religious denomination, sect or church must be within the Philippines; and
of which it is a part, or by competent
authority, may, upon written consent 6. The names, nationalities, and
and/or by an affirmative vote at a residences of the trustees elected by
meeting called for the purpose of at the religious society or religious
least two-thirds (2/3) of its order, or the diocese, synod, or
membership, incorporate for the district organization to serve for the
administration of its temporalities or for first year or such other period as
the management of its affairs, may be prescribed by the laws of the
properties and estate by filing with the religious society or religious order, or
Securities and Exchange Commission, of the diocese, synod, or district
articles of incorporation verified by the organization, the board of trustees to
affidavit of the presiding elder, be not less than five (5) nor more
secretary, or clerk or other member of than fifteen (15). (160a)
such religious society or religious
order, or diocese, synod, or district Is it required to indicate its term of
organization of the religious existence?
denomination, sect or church, setting
forth the following: - Likewise to exist in perpetuity, the
law does not require to indicate its
1. That the religious society or term of existence
religious order, or diocese, synod, or
district organization is a religious When will it acquire juridical
organization of a religious personality?
denomination, sect or church; - Only a corporation sole may come
into existence without SEC approval,
2. That at least two-thirds (2/3) of its section 19 will thus govern, Vested
membership have given their written
with judicial capacity upon issuance
consent or have voted to incorporate,
at a duly convened meeting of the of the certificate by the SEC
body;
o However it is not accurate
3. That the incorporation of the according to atty. Ladia
religious society or religious order, or because there are those that
diocese, synod, or district organization can issue for example
desiring to incorporate is not forbidden cooperatives- BUREAU OF
by competent authority or by the COOPERATIVES which
constitution, rules, regulations or
register, home insurance
discipline of the religious
denomination, sect, or church of which guaranty corporation- HOME
it forms a part; OWNERS
132
How may religious societies be continuation of its business is
dissolved? concerned.
- The rights of the lessor and the
- Go to the general rules governing lessee over the improvements which
dissolution, because the rules under the latter constructed on the leased
special corporations do not provide for premises are governed by Article
such rule 1678 of the Civil Code. The
provision gives the lessee the right
DISSOLUTION to remove the improvements if the
lessor chooses not to pay one half of
What is dissolution? the value thereof. However, in the
case at bar the law will not apply
- Extinguishment of the corporate because the parties herein have
franchise and the termination of stipulated in the contract their own
corporate existence terms and conditions concerning the
improvements before the termination
3 modes of dissolution of the lease. Petitioner PNB as
assignee of PBM succeeded to the
1. By expiration of its term; obligation of the latter under the
2. By voluntary surrender of its primary contract of lease. It could not
franchise (voluntary dissolution); possess rights more than what PBM
3. By revocation of its corporate franchise had as lessee under the contract.
(involuntary dissolution) Hence, petitioner was duly bound to
remove the improvements before
Philippine National Bank vs. CFI the expiration of the period of lease.
Its failure to do so when the lease
- When the period of corporate life was terminated was tantamount to a
expires, the corporation ceases to be a waiver of its rights and interest over
body corporate for purposes of the improvements on the leased
continuing the business for which it is premise.
organized. But it shall nevertheless be
continued as a body corporate for o 3 modes of dissolution, 3
three years after the time when it modes of voluntary
would have be dissolved, for the dissolution and 3 modes of
purpose of prosecuting and defending liquidation and winding up-
suits by or against it and for enabling it FREQUENTLY ASKED IN
gradually to settle and close its affairs THE FINALS
to dispose of and convey its property
and to divide its assets. There is no What are the 3 modes of voluntary
need for the institution of a proceeding dissolution?
for quo warranto to determine the time
and date of the dissolution of a 1. Voluntary dissolution where no
corporation because the period of creditors are affected; <sec.118>
corporate existence is provided in the 2. Voluntary dissolution where creditors
articles of incorporation. When such are affected; <sec. 119>
period expires and without any 3. Shortening of corporate term. <sec.
extension having been made pursuant 120>
to law, the corporation is dissolved
automatically insofar as the Voluntary dissolution where no
creditors are affected <sec.118>
133
- The formal and procedural other steps, administrative or judicial
requirements necessary are the is necessary. (Daguhoy Enterprises
following: vs. Ponce)
- Since it is the State which grants its
1. Majority vote of the board of directors right to exist, it is only through the
or trustees; State which can allow the
2. Sending of notice of each stockholders termination of its existence; without
or member either by registered mail or consent of the State, it will not be
personal delivery at least thirty (30) dissolved.
days prior to the meeting (scheduled
by the board for the purpose of Voluntary dissolution where creditors
submitting the board action to dissolve are affected <sec.119>
the corporation for approval of the
stockholder or members.); - By virtue of a petition, when there
3. Publication of the notice of time, place are creditors affected
and subject of the meeting for three (3) - The following formalities would thus
consecutive weeks in a newspaper be required:
published in the place where the
principal office of said corporation is 1. Affirmative vote of the stockholders
located or in a newspaper of general representing at least 2/3 of the
circulation in the Philippines; outstanding capital stock or at least
4. Resolution adopted by the affirmative 2/3 of the members at a meeting
vote of the stockholders owning at duly called for that purpose;
least 2/3 of the outstanding capital 2. Petition for dissolution shall be filed
stock or 2/3 of the members at the with the SEC signed by a majority of
meeting duly called for the purpose; its board of directors or trustees or
5. A copy of the resolution authorizing the other officers having the
dissolution must be certified by a management of its affairs, verified by
majority of the board of directors or the president or secretary or one of
trustees and countersigned by the its directors or trustees, setting forth
corporate secretary; all claims and demands against it.
6. Issuance of a certificate of dissolution 3. Issuance of an order by the SEC
by the SEC. reciting the purpose of the petition
and fixing the date on or before
Should this be strictly complied with? which objections thereto may be
filed by any person, which date shall
- Yes, compliance with the requirements not be less than thirty days nor more
and formalities prescribed above is than sixty days after entry of the
mandatory such that failure to comply order.
therewith will have no effect on the 4. Before such date, a copy of the
legal existence of the corporation. order must be published once a
week for three (3) consecutive
Will dissolution be effective and valid weeks in a newspaper of general
by a mere resolution of the BOD and circulation published in the city or
stockholders? municipality where the principal
office is situated or in a newspaper
- No, a mere resolution by the of general circulation in the
stockholders or the BOD of a Philippines.
corporation to dissolve the same does 5. Posting of the same order for three
not affect the dissolution but that some (3) consecutive weeks in three (3)
134
public places in such city or Section 120. Dissolution by
municipality. shortening corporate term. - A
6. Upon five (5) days’ notice, given after voluntary dissolution may be
the date on which the right to file effected by amending the articles of
objections has expired, the SEC shall incorporation to shorten the
hear the petition and try any issue corporate term pursuant to the
made by the objections filed. provisions of this Code. A copy of
7. Judgment dissolving the corporation the amended articles of
and directing of its assets as justice incorporation shall be submitted to
requires and the appointment of a the Securities and Exchange
receiver (if necessary in its discretion) Commission in accordance with this
to collect such assets and pay the Code. Upon approval of the
debts of the corporation. amended articles of incorporation of
the expiration of the shortened term,
o The foregoing are also as the case may be, the corporation
mandatory requirements shall be deemed dissolved without
any further proceedings, subject to
Is the appointment of a receiver the provisions of this Code on
mandatory? liquidation. (n)
135
What are the grounds for involuntary - Other grounds can be found in other
dissolution? special laws like the Securities
Regulation Code and the General
- It is commenced through a verified Banking Act as well as the Insurance
complaint or motu proprio by the Code.
proper courts
- Section 6 of PD 902-A provides for the Government vs. Philippine Sugar
grounds for involuntary dissolution as Estate
follows:
- It is necessary in order to secure
1. Fraud in procuring its certificate of judicial foreclosure of respondent’s
registration; charter to show a mis-user of its
2. Serious misrepresentation as to what franchise justifying such a forfeiture
the corporation can do or is doing to - Object is to protect the public, and
the great prejudice of or damage to the not to redress private grievances,
general public; the mis-user must be such as to
3. Refusal to comply or defiance of any work or threaten a substantial injury
lawful order of the Commission to the public, or such as to amount
restraining commission of acts which to a violation of the fundamental
would amount to a grave violation of its condition of the contract by which
franchise; the franchise was granted and thus
4. Continuous inoperation for a period of defeat the purpose of the grant
at least five (5) years; - Courts proceed with extreme caution
5. Failure to file by-laws within the which has for their object the
required period; forfeiture of corporate franchise, and
6. Failure to file required reports in forfeiture will not be allowed, except
appropriate forms as determined by under express limitation, or for plain
the Commission within the prescribed abuse of power by which the
period. corporation fails to fulfill the design
and purpose of its organization. But
- Other grounds are provided for in the when the abuse or violation
corporation code itself: among them constitutes or threatens a substantial
are: injury to the public or such as to
amount to a violation of the
1. Violation of any provision of the Code fundamental conditions of its charter,
under section 144; or its conduct is characterized by
2. In case of deadlock in a close obduracy or pertinacity in contempt
corporation as provided for in section of law, dissolution will be granted
105; - Did the court dissolve the
3. In a close corporation, any acts of corporation? No, it did not, it granted
directors, officers or those in control of the corporation 6 months to cease
the corporation which is illegal or and desist the performance of the
fraudulent or dishonest or oppressive questioned act otherwise it will be
or unfairly prejudicial to the corporation dissolved
or any stockholder or whenever
corporate assets are being misapplied Government vs. El Hogar
or wasted under section 105.
- 3 causes of action, the first is that
- Mere dishonesty is also a ground in a the corporation violated the law by
close corporation holding on the property beyond that
136
provide for by law, the second is that can be, or are, protected in some
the corporation undertook the other way
management f petitioners belonging to - Misuse and misapplication of the
delinquent shareholders of the funds and assets of the respondent
association, and lastly that the by-law were committed particularly by the
provision, which empowers the BD to corporate officers, where they can
cancel shares and to return to the instead be held personally liable
owners thereof the balance returning - Since there is another remedy
from the liquidation available dissolution is not
warranted
Compare to Philippine Sugar Estate,
wherein the court ruled conditional Assuming the above stated
dissolution. Why decree conditional corporation is a close corporation,
dissolution in one and not in the other would the court decree otherwise?
case?
- Yes, because in a close corporation,
- Because in El Hogar the government mere dishonesty is a ground for the
was at fault, the government wasn’t dissolution
able to issue the certificate of title on - Can even be dissolved by petition of
time only one stockholder on the
- When the case was instituted, El grounds stated in the code < sec.
Hogar was already able to dispose the 105>
properties in question, in Philippine
Sugar Estate it was still the holding the Financing Corporation of the
properties in order to enrich itself at Philippines vs. Teodoro
the expense of the taxpayers
- Minority stockholders may not ask
Republic vs. Security Credit and for the dissolution of a corporation in
Acceptance Corp. et al. private suits and that such actions
should be brought by the
- The corporation here is a lending Government through its legal
institution and not a banking institution officers, except in cases where the
- Defendant corporation violated the law intervention of the State, for one
because before a corporation may reason or another, cannot be
engage into a banking activity it must obtained, as when the State is not
first obtain a secondary franchise from interested because the complaint
the Central Bank is strictly a matter between the
- Defendant corporation threatens stockholders and does not
substantial injury to the general public, involve, in the opinion of the legal
dissolution is warrant officer of the Government, any of
- If there is a bank run kawawa naman the acts or omissions warranting
yung depositors quo warranto proceeding , in
which minority stockholders are
Republic vs. Bisaya Land entitled to have such dissolution.
Transportation Co. Inc It should be exercised if necessary
in order not to entirely ignore and
- The relief of dissolution will be disregard the rights of said minority
awarded only where no other remedy stockholders, especially when said
is available and it will not be allowed minority stockholders are unable to
where the rights of the stockholders obtain redress and protection of their
137
rights within the corporation itself. Section 145. Amendment or
Stockholders should not be left without repeal. - No right or remedy in favor
recourse of or against any corporation, its
stockholders, members, directors,
Present set up trustees, or officers, nor any liability
incurred by any such corporation,
- Any stockholder or member of a stockholders, members, directors,
corporation can institute a dissolution trustees, or officers, shall be
proceeding against his own removed or impaired either by the
corporation before the proper forum subsequent dissolution of said
- Special Commercial Courts, shall hear corporation or by any subsequent
and decide intra-corporate disputes amendment or repeal of this Code or
of any part thereof. (n)
May a corporation ask for dissolution
of the corporation when there is no Buenaflor vs. Camarines Sur
prejudice to the general public? Industry Corp.
138
- Even a cursory reading of the - Preferred shares may give the
provision would convey the idea holder thereof, preference only in
clearly manifested in the limitation “but the dividends but also in the
not for the purpose of continuing the distribution of corporate assets upon
business for which it was established,” liquidation or termination of the
that the 3-year period allowed by the corporate existence. If such is the
law is only for the purpose of winding intent, the contract of subscription
up its affairs. must so indicate lest they are placed
on equal footing with common
Gonzales vs. Sugar Regulatory shareholders
Administration - Preference may be participating or
non-participating
- Instead of applying the corporation
code, the court applied the Dissolved corporations are granted
constitutional provision a period of 3 years to liquidate
- Cannot be read as permitting to
destroy the substantive rights Section 122. Corporate
- Such would collide with the non- liquidation. - Every corporation
impairment of contracts clause of the whose charter expires by its own
constitution limitation or is annulled by forfeiture
- Complainants will have the right to or otherwise, or whose corporate
follow the assets of the corporation in existence for other purposes is
the hands of SRA or any other agency terminated in any other manner,
for that matter shall nevertheless be continued as a
body corporate for three (3) years
After dissolution what next? after the time when it would have
been so dissolved, for the purpose
- Liquidation and winding up should of prosecuting and defending suits
follow by or against it and enabling it to
settle and close its affairs, to dispose
What is the definition of liquidation and of and convey its property and to
winding up? distribute its assets, but not for the
purpose of continuing the business
- Collection of all corporate assets, the for which it was established.
payments of all its debts and
settlement of its obligations and the At any time during said three
ultimate distribution of the corporate (3) years, the corporation is
assets, if any of it remains, to all authorized and empowered to
stockholders in accordance with their convey all of its property to trustees
proportionate stockholdings in the for the benefit of stockholders,
corporation or in accordance with their members, creditors, and other
respective contracts of subscription. persons in interest. From and after
any such conveyance by the
Preference upon liquidation corporation of its property in trust for
the benefit of its stockholders,
- If there are preferred shares, the members, creditors and others in
interest, all interest which the
preference granted to such should be
corporation had in the property
complied with
terminates, the legal interest vests in
the trustees, and the beneficial
139
interest in the stockholders, members, - The corporation may opt to convey
creditors or other persons in interest. all corporate assets to a trustees
who will take charge of liquidation
Upon the winding up of the - If this method is used, the three year
corporate affairs, any asset period limitation imposed by section
distributable to any creditor or 122 will not apply provided the
stockholder or member who is designation of the trustee is made
unknown or cannot be found shall be within that period
escheated to the city or municipality
where such assets are located. 3. By appointment of a receiver
140
- Should the corporation, therefore, finds - If there is a trustee, assignee or
it difficult to finish its liquidation, it may, liquidator, it can continue
at any time during the three year prosecuting suit even beyond the 3
period, convey all its assets and year period fixed by law because he
receivables to a trustee to prosecute becomes the legal owner of the
and defend suits by or against the rights, assets and properties
corporation begun before the conveyed to him
expiration of said period
- The effect of the conveyance is to Gelano vs. CA
make the trustees the legal owners of
the property conveyed, subject to the - “Trustee” as used in the corporation
beneficial interest therein of creditors statute must be understood in its
and stockholders general concept which could include
the counsel to whom was entrusted
Sumera vs. Valencia in the instant case, the prosecution
of the suit filed by the corporation.
- Thus it was held that when a The purpose in the transfer of the
corporation is dissolved and the assets of the corporation to a trustee
liquidation of the assets is placed in upon its dissolution is more for the
the hands of receiver or assignee, the protection of its creditors and
period of 3 years prescribed by law is stockholders. Debtors like the
not applicable and the assignee may petitioners herein may not take
institute all actions leading to the advantage of the failure of the
liquidation of the corporation even after corporation to transfer its assets to a
the expiration of 3 years. trustee, assuming it has any to
- If the corporation carries out the transfer which petitioner has failed to
liquidation of its assets through its own show, in the first place. To sustain
officers and continues and defends the petitioners’ contention would be to
actions brought by or against it, its allow them to enrich themselves at
existence shall terminate at the end of the expense of another, which all
three years from the time of enlightened legal systems condemn.
dissolution; but if a receiver or - The counsel who prosecuted and
assignee is appointed, with or without defended the interest of the
a transfer of its properties within 3 corporation may be considered as a
years, the legal interest passes to the “trustee” at least with respect to the
assignee, the beneficial interest matter in litigation only
remaining in the members,
stockholders, creditors and other May a corporation that is already
interested persons and said assignee dissolved, transfer and assign its
may bring an action, prosecute that assets and properties to a new
which has already been commenced corporation which will continue the
for the benefit of the corporation, or business of the dissolved one?
defend the latter against any other
action already instituted or which may - Yes, provided all the stockholders
be instituted even outside of the period gave their consent (Chung Ka Bio
of three years fixed for the offices of vs. IAC)
the corporation.
Republic vs. Marsman Development
Board of Liquidators vs. Kalaw Company & Chung Ka Bio vs. IAC
141
- During the three year period granted to absence of a BOD or BOT, those
a corporation to liquidate or wind up its having any pecuniary interest in the
affairs, the BOD is not normally assets, including not only the
permitted to undertake any activity shareholders but likewise the
outside the usual liquidation of the creditors of the corporation, acting
corporation. There is, however, nothing for and in its behalf, might make
to prevent the stockholders from proper representations with the
conveying their respective SEC, which has primary and
shareholdings toward the creation of a sufficiently broad jurisdiction in
new corporation to continue the matters of this nature, for working
business of the old. This is because out a final settlement of the
winding up is the sole activity of the corporate concerns (Clemente vs.
dissolved corporation that does not CA)
intend to incorporate a new. If it does,
however, it is not unlawful for the old o According to atty. Ladia the
board of directors to negotiate and ruling of the Supreme Court
transfer the assets of the dissolved in the case of Clemente vs.
corporation to the new corporation CA is wrong, opinion is further
intended to be created as long as the discussed after the Clemente
stockholders have given their consent Case
(Republic vs. Marsman Development
Company) Clemente vs. CA
- Winding up is the sole activity of a
dissolved corporation that does not - Who owns the properties?
intend to incorporate anew. If it does, SOCIEDAD ANONIMA
however, it is not unlawful for the old - The termination of the life of a
board of directors to negotiate and juridical entity does not by itself
transfer the assets of the dissolved cause the extinction or diminution of
corporation to the new corporation the rights and liabilities of such entity
intended to be created as long as the or those of its owners and creditors.
stockholders have given their consent If the three year extended life has
(Chung Ka Bio vs. IAC) expired without a trustee or receiver
having been expressly designated
What happens to the remaining assets by the corporation within that period,
and properties of the dissolved the board of directors o trustees
corporation if liquidation and winding itself, following the rationale of the
up as provided in section 122 is not Supreme Court’s decision in Gelano
complied with, as a result of which the vs. CA may be permitted to do so
3 year period has elapsed continue as” trustees” by legal
implication to complete the
- If the three year extended life has liquidation. Still in the absence of a
expired without a trustee or receiver BOD or BOT, those having any
having been expressly designated by pecuniary interest in the assets,
the corporation within that period, the including not only the shareholders
board of directors o trustees itself, but likewise the creditors of the
following the rationale of the Supreme corporation, acting for and in its
Court’s decision in Gelano vs. CA may behalf, might make proper
be permitted to do so continue as” representations with the SEC, which
trustees” by legal implication to has primary and sufficiently broad
complete the liquidation. Still in the jurisdiction in matters of this nature,
142
for working out a final settlement of the interest, all interest which the
corporate concerns corporation had in the property
terminates, the legal interest vests in
o the ruling is wrong according the trustees, and the beneficial
to atty. Ladia interest in the stockholders,
members, creditors or other persons
According to atty Ladia: What happens in interest.
to a corporation that is already
dissolved, that has not been able to Upon the winding up of the
appoint a trustee with in the 3 year corporate affairs, any asset
period? distributable to any creditor or
stockholder or member who is
- a corporation dissolved which failed to unknown or cannot be found shall
exercise its rights granted in section be escheated to the city or
122 after the 3 year period has municipality where such assets
elapsed, ceases to exist for all intents are located.
and purposes, it can no longer sue or
be sued Except by decrease of capital
- according to 122 of the code, the stock and as otherwise allowed by
property should be escheated, this Code, no corporation shall
accordingly: distribute any of its assets or
property except upon lawful
Section 122. Corporate dissolution and after payment of all
liquidation. - Every corporation whose its debts and liabilities. (77a, 89a,
charter expires by its own limitation or 16a)
is annulled by forfeiture or otherwise,
or whose corporate existence for other FOREIGN CORPORATIONS
purposes is terminated in any other
manner, shall nevertheless be Definition
continued as a body corporate for
three (3) years after the time when it - Section 123. Definition and rights of
would have been so dissolved, for the foreign corporations. - For the
purpose of prosecuting and defending purposes of this Code, a foreign
suits by or against it and enabling it to corporation is one formed, organized
settle and close its affairs, to dispose or existing under any laws other
of and convey its property and to than those of the Philippines and
distribute its assets, but not for the whose laws allow Filipino citizens
purpose of continuing the business for and corporations to do business in
which it was established. its own country or state. It shall have
the right to transact business in the
At any time during said three (3) Philippines after it shall have
years, the corporation is authorized obtained a license to transact
and empowered to convey all of its business in this country in
property to trustees for the benefit of accordance with this Code and a
stockholders, members, creditors, and certificate of authority from the
other persons in interest. From and appropriate government agency. (n)
after any such conveyance by the
corporation of its property in trust for What if the law of the state of the
the benefit of its stockholders, foreign corporation does not allow
members, creditors and others in
143
Filipino citizens to do business in their incorporation and by-laws, certified
country? in accordance with law, and their
translation to an official language of
- The phrase “and whose laws allow the Philippines, if necessary. The
Filipino citizens and corporations to do application shall be under oath and,
business in its own country or state” is unless already stated in its articles
not, however, an accurate inclusion in of incorporation, shall specifically set
the definition as ay corporation forth the following:
registered or organized under the laws
of another state is necessarily a 1. The date and term of
foreign corporation whether or not the incorporation;
state of its incorporation allow Filipino
citizens or corporations to do business 2. The address, including the street
in that forum. number, of the principal office of the
- The said phrase was inserted by the corporation in the country or state of
framers of the law only as a condition incorporation;
precedent to the grant of a license of a
foreign corporation to do business in 3. The name and address of its
the Philippines. resident agent authorized to accept
summons and process in all legal
Composed of 100% Americans; proceedings and, pending the
organized under the laws other than establishment of a local office, all
the Philippines notices affecting the corporation;
- Treaties for part of the law of the land - Even if Lacoste did business in the
- Quoting the Paris Convention and the Philippines it can bring action
case of Vanity Fair Mills Inc. vs. T. because the case involves a
Eaton Co. this court further said: violation of our penal code
- Such was a violation of article 189 of
“By the same token, the the RPC, if prosecution follows after
petitioner should be given the the completion of the preliminary
same treatment in the investigation being conducted by the
Philippines as we make Special Prosecutor the information
available to our own citizens. shall be in the name of the People of
We are obliged to assure to the Philippines and no longer the
nationals of countries of the petitioner which is only an aggrieved
Union an effective protection party since a criminal offense is
against unfair competition on essentially an act against the State.
the same way that they are It is the latter which is principally the
obligated to similarly protect injured party although there is a
Filipino Citizen and firms private right violated
- The records show that the goodwill
- The ruling in the aforecited case is in and reputation of the petitioner’s
consonance with the Convention of the products bearing the trademark
Union of Paris for the protection of Lacoste date back even before 1964
Industrial Property to which the when Lacoste clothing apparels
Philippines became a party. Article 8 were forst marketed in the
thereof provides that a trade name Philippines. To allow Hemandas to
shall be protected in all the countries continue using the trademark
of the Union without the obligation of Lacoste for the simple reason that
filing or registration, whether or not it he was the first registrant in the
forms part of the trademark Supplemental Register of a
trademark used in international
Le Chemiste Lacoste vs. Fernandez commerce and not belonging to him
is to render nugatory the very
- The French company may gain access essence of the law on trademarks
to our courts, in the first place it was and trade names
not doing business in the Philippines
- The marketing of its products in the Atlantic Mutual Insurance Co. vs.
Philippines is done through an Cebu Stevedoring Co.
exclusive distributor, Rustan
Commercial Corporation. The latter is - The law denies to a foreign
an independent entity which buys and corporation the right to maintain suit
then markets not only products of the unless it has previously complied
petitioner but also many other products with a certain requirement, then
bearing equally well-known and such compliance, or the fact that the
established trademarks and trade- suing corporation is exempt there
names from, becomes a necessary
averment in the complaint
153
- These are matters peculiarly within the public in general are governed not
knowledge of appellants alone, and it by Philippine laws but the law under
would be unfair to impose upon which the foreign corporation was
appellee the burden of asserting and formed or organized
proving the contrary. It is enough that
foreign corporations are allowed by Section 129. Law applicable.
law to seek redress in our courts under - Any foreign corporation lawfully
certain conditions: the interpretation of doing business in the Philippines
the law should not go so far as to shall be bound by all laws, rules and
include, in effect, an inference than regulations applicable to domestic
those conditions have been met from corporations of the same class,
the mere fact that the party suing is a except such only as provide for the
foreign corporation creation, formation, organization or
dissolution of corporations or those
Olympia Business Machines Co. vs. E. which fix the relations, liabilities,
Razon responsibilities, or duties of
stockholders, members, or officers
- How do you distinguish this case with of corporations to each other or to
Atlantic? the corporation. (73a)
- In Atlantic it dismissed the case, while
in Olympia it did not Will the pre-emptive rights of a
foreign corporation be governed by
Time Inc. vs. Reyes the same section of the code? Is the
pre-emptive rights of a stockholder
- We fail to see how these doctrines can in a domestic corporation same as
be a propos in the case at bar, since the pre-emptive of a stockholder of a
the petitioner is not “maintaining any foreign corporation.
suit” but is merely defending one
against itself; it did not file any - No
complaint but only a corollary
defensive petition to prohibit the lower M.E. Grey vs. Insular Lumber
court from further proceeding with a Company
suit that it had no jurisdiction to
entertain - PNB vs. Gonzales, will this apply to
a foreign corporation? How do you
What law govern foreign corporation distinguish this case from a
doing and transacting business in the Philippine law?
Philippines with a license - Since it concerns the rights of
stockholders it is the law of New
- Laws of the Republic of the Philippines York that should govern
save and except that would normally
be those matters which concern its Is the license to do business of a
formation, organization or dissolution, foreign corporation subject to
or those fixing the relationship, suspension or revocation? What are
liabilities, responsibilities, or duties of the grounds?
the stockholders, members or officers
of the foreign corporation or their - Section 134 provides:
relations to each other.
- In effect, intra-corporate or internal Section 134. Revocation of
matters not affecting creditors or the license. - Without prejudice to other
154
grounds provided by special laws, the 9. Any other ground as would render
license of a foreign corporation to it unfit to transact business in the
transact business in the Philippines Philippines. (n)
may be revoked or suspended by the
Securities and Exchange Commission SEC does not have the sole
upon any of the following grounds: authority to suspend or revoke the
license of a foreign corporation
1. Failure to file its annual report or doing business in the Philippines,
pay any fees as required by this Code; other government agencies like the
Central Bank , the Insurance
2. Failure to appoint and maintain a Commission may also do so within
resident agent in the Philippines as their respective dominion, despite
required by this Title; the provision of section 134
If the SEC believes that revocation
3. Failure, after change of its resident is warranted, section 135 provides
agent or of his address, to submit to that:
the Securities and Exchange
Commission a statement of such Section 135. Issuance of
change as required by this Title; certificate of revocation. - Upon the
revocation of any such license to
4. Failure to submit to the Securities transact business in the Philippines,
and Exchange Commission an the Securities and Exchange
authenticated copy of any amendment Commission shall issue a
to its articles of incorporation or by- corresponding certificate of
laws or of any articles of merger or revocation, furnishing a copy thereof
consolidation within the time to the appropriate government
prescribed by this Title; agency in the proper cases.
157
- The reason for suspending actions for rehabilitation play or suspension of
claims against the corporation is not payments accompanied by a
really to enable the management proposal for rehabilitation (with or
committee or the rehabilitation receiver without rehabilitation)
to substitute the defendant in any
- corporation has sufficient assets to
pending action against it before any
court, tribunal or body. The real cover its liabilities, but sees the
justification is to enable the possibility; is or without rehabilitation
management committee or plans; normally would attach the
rehabilitation receiver to effectively rehabilitation plan
exercise his powers free from any - For purpose of economic
Judicial or extra-judicial interference development
that might unduly hinder or prevent the
“rescue” of the debtor company. To 3. Suspension of payments when the
allow such other actions to continue corporation has no sufficient assets
would only add to the burden of the to its liabilities
management committee pr
May it still be revived?
rehabilitation receiver, whose time,
effort and resources would be wasted - Yes, it may still be revived
in defending claims against the
corporation instead of being directed How can a corporation with more
towards restructuring and liabilities than assets continue its
rehabilitation.(PAL vs. Spouses Sadic operations profitably?
and Kurangking)
- Even if the distressed company has
- To enable the receiver to effectively no sufficient assets and liabilities it
exercise his or her power free form can go for suspension
any judicial or extra-judicial that may
- It asked for a management
disturb
committee without a receiver plan
3 types of suspension of payments (Victorius Milling case)
- where deferment of payment of claims - Their liability was almost wiped out
against a distress company; ask the they became stockholders instead of
court to be given time to the payment creditors
of liability by postponing the payment
- After 5 years those who converted
- When it has sufficient assets and sold it back to the corporation,
liabilities but forces the impossibility of thereby making profits
meeting them when they respectively
Amendment is for the economic
fall due
development of the country
2. Suspension of receiver with a
management committee with a
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What if walang amendment, e mas his lien while rehabilitation is going
maraming liabilities kesa assets (Alemar case)
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Under old rule, creditors have no right The management committee and
to institute an action for receivership; rehabilitation receiver are
now creditors, if they sold 20% they empowered to:
can institute an action for receivership
1. Take custody and control of all
Section 5 assets of the corporation
- Right to payment, whether or not it is - Also known as the Blue Sky Law since it
reduced to judgment, liquidated or was enacted to protect the public from
unscrupulous promoters who stake
unliquidated, fixed or contingent, business which have no basis and sell
matured or unmatured, disputed or shares and interest therein to investors,
undisputed, legal or equitable and who are then left holding certificates
secured or unsecured representing nothing more than a claim to a
square of the blue sky.
Investment contracts
-SEC. 2. Declaration of State Policy. – The
- A contract, transaction or scheme State shall establish a socially conscious,
whereby a person invests his money in free market that regulates itself, encourage
a common enterprise and is led to the widest participation of ownership in
expect profits primarily from the effects enterprises, enhance the democratization
of others of wealth, promote the development of the
capital market, protect investors, ensure full
and fair disclosure about securities,
minimize if not totally eliminate insider
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trading and other fraudulent or manipulative by SEC. Prior to such sale, information on
devices and practices which create the securities, in such form and with such
distortions in the free market. substance as the Commission may
prescribe, shall be made available to each
BROKER - person who buys and sells prospective purchaser. (Sec 8)
securities for the account of others.
EXCEPT: Exempt Securities under Sec 9
DEALER - person who buys and sells a) Any security issued or
securities for his/her own account in the guaranteed by the Government of
ordinary course of business. the PH, or by any political
subdivision or agency thereof, or by
NOTE: No person shall engage any person controlled or supervised
in the business of buying or selling by, and acting as an instrumentality
securities in the Philippines as a of said Government.
broker or dealer, or act as a b) Any security issued or
salesman, or an associated person guaranteed by the government of
of any broker or dealer unless any country with diplomatic relations
registered as such with the with the PH, or by any state,
Commission. (Sec 28) province or political subdivision
thereof on the basis of reciprocity:
SECURITES - shares, participation or Provided, that the SEC may require
interests in a corporation or in a commercial compliance with the form and
enterprise or profit-making venture and content of disclosures the
evidenced by a certificate, contract, Commission may prescribe.
instrument, whether written or electronic in c) Certificates issued by a
character. It includes: receiver or by a trustee in
CODE: COFDIPS bankruptcy duly approved by the
a) Certificates of assignments, proper adjudicatory body.
certificates of participation, trust d) Any security or its derivatives
certificates, voting trust certificates or the sale or transfer of which, by law,
similar instruments; is under the supervision and
b) Other instruments as may in the future regulation of the Office of the
be determined by the Commission; Insurance Commission, Housing and
c) Fractional undivided interests in oil, Land Use Regulatory Board, or the
gas or other mineral rights; Bureau of Internal Revenue.
d) Derivatives like option and warrants; e) Any security issued by a bank
e) Investment contracts, certificates of except its own shares of stock.
interest or participation in a profit
sharing agreement, certificates of AND Exempt Transactions under Sec 10
deposit for a future subscription; a) A judicial sale, or sale by an
f) Proprietary or non proprietary executor, administrator, guardian or
membership certificates receiver or trustee in insolvency or
incorporations; and bankruptcy.
g) Shares of stock, bonds, debentures, b) By or for the account of a
notes, evidences of indebtedness, pledge holder, or mortgagee or any
asset-backed securities; other similar lien holder selling or
offering for sale or delivery in the
GR: Securities shall not be sold or offered for ordinary course of business and not
sale or distribution within the PH, without a for the purpose of avoiding the
registration statement filed with and approved provisions of this Code, to liquidate a
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bona fide debt, a security pledged in such exchange shall be deemed the
good faith as security for such debt. price at which the securities issued
c) An isolated transaction in which and delivered in such exchange are
any security is sold, offered for sale, sold.
subscription or delivery by the owner h) Broker’s transactions,
thereof, or by his representative for the executed upon customer’s orders,
owner’s account, such sale or offer for on any registered Exchange or other
sale, subscription or delivery not being trading market.
made in the course of repeated and i) Subscriptions for shares of
successive transactions of a like the capital stock of a corporation
character by such owner, or on his prior to the incorporation thereof or
account by such representative and in pursuance of an increase in its
such owner or representative not being authorized capital stock under the
the underwriter of such security. Corporation Code, when no expense
d) Distribution by a corporation, is incurred, or no commission,
actively engaged in the business compensation or remuneration is
authorized by its AOI, of securities to paid or given in connection with the
its stockholders or other security sale or disposition of such securities,
holders as a stock dividend or other and only when the purpose for
distribution out of surplus. soliciting, giving or taking of such
e) Sale of capital stock of a subscriptions is to comply with the
corporation to its own stockholders requirements of such law as to the
exclusively, where no commission or percentage of the capital stock of a
other remuneration is paid or given corporation which should be
directly or indirectly in connection with subscribed before it can be
the sale of such capital stock. registered and duly incorporated, or
f) Issuance of bonds or notes its authorized capital increased.
secured by mortgage upon real estate j) The exchange of securities by
or tangible personal property, where the issuer with its existing security
the entire mortgage together with all holders exclusively, where no
the bonds or notes secured thereby commission or other remuneration is
are sold to a single purchaser at a paid or given directly or indirectly for
single sale. soliciting such exchange.
g) Issue and delivery of any k) The sale of securities by an
security in exchange for any other issuer to fewer than twenty (20)
security of the same issuer pursuant to persons in the Philippines during any
a right of conversion entitling the twelve-month period.
holder of the security surrendered in l) The sale of securities to any
exchange to make such conversion: number of the following qualified
Provided, That the security so buyers: (i) Bank; (ii) Registered
surrendered has been registered under investment house; (iii)insurance
this Code or was, when sold, exempt company; (iv) Pension fund or
from the provisions of this Code, and retirement plan maintained by the
that the security issued and delivered Government of the Philippines or
in exchange, if sold at the conversion any political subdivision thereof or
price, would at the time of such managed by a bank or other persons
conversion fall within the class of authorized by the Bangko Sentral to
securities entitled to registration under engage in trust functions; (v)
this Code. Upon such conversion the investment company or; (vi) Such
par value of the security surrendered in other person as the Commission
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may by rule determine as qualified FRAUDULENT TRANSACTIONS AND
buyers, on the basis of such factors as OTHER MARKET MANIPULATIONS
financial sophistication, net worth,
knowledge, and experience in financial 1. Wash Sale (Sec 24.1(a)(i)) – any
and business matters, or amount of transaction in a security which involves no
assets under management. change in the beneficial ownership thereof.
2. Matched Order (Sec 24.1(a)(ii)) –
PROTECTION OF SHAREHOLDERS order or orders for the purchase or sale of
INTEREST security with the knowledge that a
simultaneous order or orders of
1. Tender Offers (Sec 19) substantially the same size, time and price
2. Proxy solicitation (Sec 20) for the sale or purchase of such security
3. Internal record keeping and has, or will be entered by or for the same or
accounting (Sec 22) different parties.
OPTION TRADING
Put – a transferrable option or offer to
deliver a given number of shares of stock at a
stated price on any given time during the
stated period.
Call – a transferrable option to buy a
specified number of share at a stated price
Straddle – a combination of put and
call.
SETTLEMENT OFFERS
At any time, during an investigation or
proceeding under this Code, parties being
investigated and/or charged may propose in
writing an offer of settlement with the
Commission. The Commission may only
agree to a settlement offer based on its
findings that such settlement is in the public
interest. Any agreement to settle shall have
no legal effect until publicly disclosed. Such
decision may be made without a
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