Professional Documents
Culture Documents
INTRODUCTION
b
FLEISCHER V. BOTICA NOLASCO CO. (47 Phil. 583; 1925)
As a general rule, the by-laws of a corporation are valid if they are reasonable and
calculated to carry into effect the objective of the corporation and are not contradictory to the
general policy of the laws of the land. Under a statute authorizing by-laws for the transfer of
stock, a corp. can do no more than prescribe a general mode of transfer on the corp. books and
cannot justify an restriction upon the right of sale.
GOVT. OF P.I. V. EL HOGAR
Is a provision in the by-laws allowing the BOD, by vote of absolute majority, to cancel shares
valid?
No. It is a patent nullity, being in direct conflict with Sec. 187 of the Corp. Law which
prohibits forced surrender of unmatured stocks except in case of dissolution.
Is a provision in the by-laws fixing the salary of directors valid?
Yes. Since the Corporation Law does not prescribe the rate of compensation, the power
to fix compensation lies with the corporation.
Is a provision requiring persons elected to the Board of Directors to own at least P 5,000 shares
valid?
Yes. The Corporation Law gives the corporation the power to provide qualifications of
its directors.
Where the SEC grants a license to a foreign corporation, it is deemed to have approved
its
foreign-enacted by-laws. Sec. 46 of the Corporation Code which states that by-laws are
not valid without SEC approval applies only to domestic corporations.
A board resolution appointing an attorney-in-fact to represent the corporation during pretrial is not necessary where the by-laws authorize an officer of the corporation to make
such appointment.
according to law and equity, but its holder is not the owner of any part of the capital of the
corporation. Nor is he entitled to the possession of any definite portion of its property or assets.
The act of liquidation made by the stockholders of the corp of the latters assets is not and
cannot be considered a partition of community property, but rather a transfer or conveyance of
the title of its assets to the individual stockholders. Since the purpose of the liquidation, as well
as the distribution of the assets, is to transfer their title from the corporation to the stockholders
in proportion to their shareholdings, that transfer cannot be effected without the corresponding
deed of conveyance from the corporation to the stockholders. It is, therefore, fair and logical to
consider the certificate of liquidation as one in the nature of a transfer or conveyance.
CARAM V. CA (151 SCRA 373; 1987)
The case of the unpaid compensation for the preparation of the project study.
The petitioners were not involved in the initial stages of the organization of the airline.
They were merely among the financiers whose interest was to be invited and who were in fact
persuaded, on the strength of the project study, to invest in the proposed airline.
There was no showing that the Airline was a fictitious corp and did not have a separate
juridical personality to justify making the petitioners, as principal stockholders thereof,
responsible for its obligations. As a bona fide corp, the Airline should alone be liable for its
corporate acts as duly authorized by its officers and directors. Granting that the petitioners
benefited from the services rendered, such is no justification to hold them personally liable
therefor. Otherwise, all the other stockholders of the corporation, including those who came in
late, and regardless of the amount of their shareholdings, would be equally and personally liable
also with the petitioner for the claims of the private respondent.
PALAY V. CLAVE (124 SCRA 640; 1983)
The case of the reliance on a default provision of the contract granting automatic extra-judicial
rescission.
The court found no badges of fraud on the part of the president of the corporation. The
BOD had literally and mistakenly relied on the default provision of the contract. As president
and controlling stockholder of the corp, no sufficient proof exists on record that he used the corp
to defraud private respondent. He cannot, therefore, be made personally liable because he
appears to be the controlling stockholder. Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personality.
MAGSAYSAY V. LABRADOR (180 SCRA 266)
The case of the assignment by Senator Magsaysay of a certain portion of his shareholdings in
SUBIC granting his sisters the right to intervene in a case filed by the widow against SUBIC.
The words "an interest in the subject," to allow petitioners to intervene, mean a direct
interest in the cause of action as pleaded, and which would put the intervenor in a legal position
to litigate a fact alleged in the complaint, without the establishment of which plaintiff could not
recover.
Here, the interest, of petitioners, if it exists at all, is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the corporation and to share in the profits
thereof and in the properties and assets thereof on dissolution, after payment of the corporate
debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the
corp, it does not vest the owner thereof with any legal right or title to any of the property, his
interest in the corporate property being equitable and beneficial in nature. Shareholders are in no
legal sense the owners of corporate property, which is owned by the corp as a distinct legal
person.
Close Corporations
CEASE V. CA (93 SCRA 483; 1979)
The Cease plantation was solely composed of the assets and properties of the defunct
Tiaong plantation whose license to operate already expired. The legal fiction of separate
corporate personality was attempted to be used to delay and deprive the respondents of their
succession rights to the estate of their deceased father.
While originally, there were other incorporators of Tiaong, it has developed into a closed
family corporation (Cease). The head of the corporation, Cease, used the Tiaong plantation as his
instrumentality. It was his business conduit and an extension of his personality. There is not even
a showing that his children were subscribers or purchasers of the stocks they own.
Parent-Subsidiary Relationship
Q: What is the general rule governing parent-subsidiary relationship?
A: The mere fact that a corporation owns all or substantially all of the stocks of another
corporation is not alone sufficient to justify their being treated as one entity.
Q:
Q: What are the criteria by which the subsidiary can be considered a mere
instrumentality of the parent company?
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
the parent corp. owns all or most of the capital stock of the subsidiary.
the parent and subsidiary have common directors and officers
the parent finances the subsidiary
the parent subscribes to all the capital stock of the subsidiary or otherwise
causes its incorporation
the subsidiary has grossly inadequate capital
the parent pays the salaries and other expenses or losses of the subsidiary
the subsidiary has substantially no business except with the parent corp. or no
assets except those conveyed to or by the parent corp.
in the papers of the parent corp. or in the statements of its officers, the
subsidiary is described as a department or division of the parent corp. or its
business or financial responsibility is referred as the parents own
the parent uses the property of the subsidiary as its own
the directors or the executives of the subsidiary do not act independently in the
interest of the subsidiary but take their orders from the parent corp. in the latters
interest
the formal legal requirements of the subsidiary are not observed
GARRETT VS. SOUTHERN RAILWAY (173 F. Supp. 915, E.D. Tenn. 1959)
This case involved a Workers Compensation claim by a wheel moulder employed by
Lenoir Car Works. The plaintiff sought to claim from Southern Railway Company, which
acquired the entire capital stock of Lenoir Car Works. Plaintiff contended that Southern so
completely dominated Lenoir that the latter was a mere adjunct or instrumentality of Southern.
The general rule is that stock ownership alone by one corporation of the stock of another
does not thereby render the dominant corporation liable for the torts of the subsidiary, unless the
separate corporate existence of the subsidiary is a mere sham, or unless the control of the
subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation.
In the case, it was found that there were two distinct operations. There was no evidence
that Southern dictated the management of Lenoir. In fact, evidence shows that Marius, the
manager of the subsidiary, was in full control of the operation. He established prices, handled
negotiations in CBAs, etc. Lenoir paid local taxes, had local counsel and maintain a Workmens
Compensation Fund. There was also no evidence that Lenoir was run solely for the benefit of
Southern. In fact, a substantial part of its requirements in the field of operation of Lenoir was
bought elsewhere. Lenoir sold substantial quantities to other companies. Policy decisions
remained in the hands of Marius. Hence, the complaint against Southern Railway was
dismissed.
To allow the taxpayer to deny tax liability on the ground that the sales were made through
another and distinct corporation when it is proved that the latter is virtually owned by the former
or that they were practically one and the same is to sanction the circumvention of tax laws.
YUTIVO VS. CTA (1 SCRA 160; 1961)
Southern Motors was actually owned and controlled by Yutivo as to make it a mere
subsidiary or branch of the latter created for the purpose of selling vehicles at retail. Yutivo
financed principally, if not wholly, the business of Southern Motors and actually exceeded the
credit of the latter . At all times, Yutivo, through the officers and directors common to it and the
Southern Motors exercised full control over the cash funds, policies, expenditures and
obligations of the latter. Hence, Southern Motors, being a mere instrumentality or adjunct of
Yutivo, the CTA correctly disregarded the technical defense of separate corporate identity in
order to arrive at the true tax liability of Yutivo.
LA CAMPANA VS. KAISAHAN (93 Phil. 160; 1953)
The La Campana Gaugau Packing and La Campana Coffee Factory were operating under
one single business although with 2 trade names. It is a settled doctrine that the fiction of law of
having the corporate identity separate and distinct from the identity of the persons running it
cannot be invoked to further the end subversive of the purpose for which it was created. In the
case at bar, the attempt to make the two businesses appear as one is but a device to defeat the
ends of the law governing capital and labor relations and should not be permitted to prevail.
It must be noted, however, that the contract must be adopted in its entirety; the
corporation cannot adopt only the part that is beneficial to it and discard that
which is burdensome. Moreover, the contract must be one which is within the
powers of the corporation to enter, and one which the usual agents of the
company have express or implied authority to enter.
McARTHUR V. TIMES PRINTING CO. (48 Minn. 319, 51 N.W. 216; 1892)
It is not a requisite that a corporation's adoption or acceptance of a promoter's contract be
expressed, but it may be inferred from acts or acquiescence on the part of the corporation, or its
authorized agents, as any similar original contract might be shown.
The right of agents to adopt an agreement originally made by promoters depends upon
the purposes of the corporation and the nature of the agreement. The agreement must be one
which the corporation itself could make and one which the usual agents of the company have
express or implied authority to enter into.
CLIFTON v. TOMB (21 F. 2d 893; 1921)
Whatever may be the proper legal theory by which a corporation may be bound by the
contract (ratification, adoption, novation, a continuing offer to be accepted or rejected by the
corporation), it is necessary in all cases that the corporation should have full knowledge of the
facts, or at least should be put upon such notice as would lead, upon reasonable inquiry, to the
knowledge of the facts.
CAGAYAN FISHING DEV. CO. v. SANDIKO (65 Phil. 223; 1937)
A promoter could not have acted as agent for a corporation that had no legal existence.
A corporation, until organized, has no life therefore no faculties. The corporation had no
juridical personality to enter into a contract.
Also see Caram v. CA
Specific performance; or
Damages resulting from breach of contract.
The fact of bringing an action on the contract has been held to constitute
sufficient adoption or ratification to give the corporation a cause of action.
BUILDERS DUNTILE CO. v. DUNN (229 Ky. 569, 17 S.W. 2d 715; 1929)
When the corporation was formed, the incorporators took upon themselves the whole
thing, and ratified all that had been done on its behalf. Though there was no formal assignment
of the contract to the corporation, the acts of the incorporators were an adoption of the contract.
Therefore the corporation has the right to sue for damages for the breach of contract.
The core of the issue is WON the 4 abstentions will be counted in favor of Dr. Blanco's
appointment or against it. The SC held that such abstentions be counted as negative vote
considering that those who abstained, 3 of which members of the Screening Committee,
intended to reject Dr. Blanco's appointment.
ZACHARY VS. MILLIN (294 Mic. 622; 1940)
The issue in this case is regarding the validity of the director's meeting at the company's
laboratory on December 8, 1937 wherein Zachary was removed as president of the company.
Zachary that he was not notified of the meeting thus, the action was void. On the other hand, the
defendants contend that the notice requirement was waived by Zachary's presence at the meeting.
The SC held that the validity of the meeting was not affected by the failure to give notice
as required by the by-laws, provided that the parties were personally present. Since all the parties
were present at the meeting of December 8, and understood that the meeting was to be a
directors' meeting, then the action taken is final and may not be voided by any informality in
connection with its being called.
PNB VS. CA (83 SCRA 238; 1978)
The action was brought by the mortgagor (Tapnio) against PNB for damages in
connection with the failure of the latter's board of directors to act expeditiously on the proposed
lease of the former's sugar quota to one Tuazon.
The Supreme Court held that while the PNB has the ultimate authority to approve or
disapprove the proposed lease since the quota was mortgaged to PNB, the latter certainly cannot
escape liability for observing, for the protection of the interest of the private respondents, that
degree of care, precaution and vigilance which the circumstances justly demand in approving or
disapproving the lease of the said sugar quota.
THE BOARD OF LIQUIDATORS V. HEIRS OF MAXIMO KALAW (20 SCRA 987; 1967)
Kalaw was a corporate officer entrusted with general management and control of
NACOCO. He had implied authority to make any contract or do any act which is necessary for
the conduct of the business. He may, without authority from the board, perform acts of ordinary
nature for as long as these redound to the interest of the corporation. Particularly, he contracted
forward sales with business entities. Long before some of these contracts were disputed, he
contracted by himself alone, without board approval. All of the members of the board knew
about this practice and have entrusted fully such decisions with Kalaw. He was never questioned
nor reprimanded nor prevented from this practice. In fact, the board itself, through its acts and
by acquiescence, have laid aside the by-law requirement of prior board approval. Thus, it cannot
now declare that these contracts (failures) are not binding on NACOCO.
ZAMBOANGA TRANSPO V. BACHRACH MOTORS (52 Phil. 244; 1928)
A chattel mortgage, although not approved by the board of directors as stipulated in the
by-laws, shall still be valid and binding when the corporation, through the board, tacitly
approved and ratified it. The following acts of the board constitute implied ratification:
1. Erquiaga is one of the largest stockholder, and was the all-in-one officer (he was the
President, GM, Attorney, Auditor, etc.)
2. Two other directors approved his actions and expressed satisfaction with the advantages
obtained by him in securing the chattel mortgage.
3. The corporation took advantage of the benefits of the chattel mortgage. There were even
partial payments made with the knowledge of the three directors.
ACUNA V. BATAC PRODUCERS COOPERATIVE MARKETING ASSOCIATION (20
SCRA 526; 1967)
Acuna entered into an agreement with Verano, manager of PROCOMA, in which the
former would be constituted as the latter's agent in Manila. Acuna diligently went about his
business and even used personal funds for the benefit of the corporation. During the face-to-face
meeting with the board, Acuna was assured that there need not be any board approval for his
constitution as agent for it would only be a mere formality. Later on, the board disapproved the
agency and did not pay him. The SC ruled that the agreement was valid due to the ratification of
the corp. proven by these acts:
1. He was assured by the board that no board approval was necessary.
2. He delivered P 20,000, performed his work with the knowledge of the board.
3. Due to acquiescence, the board cannot disown or disapprove the contract.
HAYES V. CANADA, ATLANTIC AND PLANT S.S CO., LTD. (181 F. 289; 1910)
In this case, the Executive Committee:
a) removed the Treasurer and appointed a new one
b) fixed the annual salary of the members of the Executive Committee
c) amended the by-laws by giving the President the sole authority to call a stockholder's
meeting and a board of directors meeting
d) amended the composition of the ExeCom by limiting it to just 2 persons.
Was these actions valid?
No, because the Executive Commmittee usurped the powers vested in the board and the
stockholders. If their actions was valid, it would put the corp. in a situation wherein only two
men, acting in their own pecuniary interests, would have absorbed the powers of the entire
corporation. "Full powers" should be interpreted only in the ordinary conduct of business and
not total abdication of board and stockholders' powers to the ExeCom. "FULL POWERS" does
not mean unlimited or absolute power.
BOARD OF DIRECTORS AND ELECTION COMMITTEE OF SMB VS. TAN (105 Phil.
426; 1959)
Meeting was invalid for lack of notice. By-laws provide for a 5-day notice before
meeting. March 26 posting not enough for March 28 election.
Section 21 of the Corporation Law provides that a corporation may prescribe in its bylaws the qualifications, duties, and compensation of its directors.
A stockholder has no vested right to be elected director for he impliedly contracts that the
will of the majority shall govern.
Amended by-laws are valid for the corporation has its inherent right to protect itself.
- Sec. 100, par. 2 of the Corporation Code provides for pooling and voting
agreements in close corporations. Although there is no equivalent provision for
widely-held corporations, Justice and Prof. Campos are of the opinion that SHs of
widely-held corporations should not be precluded from entering into voting
agreements if these are otherwise valid and are not intended to commit any wrong or
fraud on the other SHs that are not parties to the agreement.
Straight voting:
2.
Cumulative voting:
(one candidate)
3.
Cumulative voting:
If A has 100 shares, there are 5 directors to be elected, and he only
(multiple candidates) wants to vote for two nominees, he can divide 500 votes between the
two, giving each one 250 votes.
2.
Baker & Carys formula (minimum no. of votes needed to elect multiple directors)
X= # of shares required
Y= # of shares represented at meeting
D= # of directors the minority wants to elect
D= total # of directors to be elected
X= Y x D + 1
D' + 1
NOTES
Levels playing field or at least ensures that the minority can elect at least one representative
to the board of directors (BOD)
Cannot of itself give the minority control of corporate affairs, but may affect and limit the
extent of the majoritys control
By-laws cannot provide against cumulative voting since this right is mandated by law in
Section 24.
Provision granting right to vote to preferred stock previously prohibited from voting,
constitutes diminution of the voting power of common stock.
Provision in the articles of incorporation granting holders of preferred stock right to vote in
case of default in payment of dividends after July 1, 1951 was construed as denial by
necessary implication of the right to vote even prior to July 1, 1951.
Device
Favorable To:
Limitations
Cumulative voting
Classification of shares
Restriction on transfer of
shares
*applicable only to close
corporations
See Sec. 98
Prescribing qualifications
for directors; founders
shares
Qualifications must be
reasonable and do not deprive
minority of representation on the
board
Management contracts
MEETINGS
DUTIES OF DIRECTORS AND CONTROLLING STOCKHOLDERS
trust.
Close Corporations
Sec. 97 provides that the AOI of a close corp. may specify that it shall be managed by the
stockholders rather than the BoD. So long as this provision continues in effect:
Generally, stockholders deemed to be directors for purposes of this Code, unless the context
clearly requires otherwise;
Stockholders shall be subject to all liabilities of directors. The AOI may likewise provide that
all officers or employees or that specified officers or employees shall be elected or appointed
by the stockholders instead of by the BoD.
Further, Sec. 100 provides that for stockholders managing corp. affairs:
They shall be personally liable for corporate torts (unlike ordinary directors liable only upon
finding of negligence)
If however there is reasonable adequate liability insurance, injured party has no right of
action v. stockholders-managers
Transfer of managerial control through BoD resignation & seriatim election of successors if
concomitant with the sale and actual transfer of majority interest or that which constitutes
voting control;
Disposal by controlling SH of his stock at any time & at such price he chooses
Selling corp. office or management control by itself, that is NOT accompanied by stocks or
stocks are insufficient to carry voting control;
Transferring office to persons who are known or should be known as intending to raid the
corporate treasury or otherwise improperly benefit themselves at the expense of the corp.
(Insuranshares Corp. V. Northern Fiscal);
Duty to Creditors
General rule: Corporate creditors can run after the corp. itself only, and not the directors for
mismanagement of a solvent corp.
If corp. becomes insolvent, directors are deemed trustees of the creditors and should therefore
manage its assets with due consideration to the creditors interest.
If directors are also creditors themselves, they are prohibited from gaining undue advantage over
other creditors.
2.
By-laws
These are expressly required to be open to inspection by SH/members during office
hours (Sec. 46). Note: There is no similar provision as to AOI, but these are filed with
the SEC anyway.
3.
4.
5.
6.
The exercise of this right is subject to reasonable limitations similar to a citizens exercise of the
right to information. Otherwise, the corp. might be impaired, its efficiency in operations hindered,
to the prejudice of SHs.
2.
Such limitations to be valid must be reasonable and not inconsistent with law ( Sec. 36[5] and
46).
3.
A corp. may regulate time and manner of inspection but provisions in its by-law which gives
directors absolute discretion to allow or disallow inspection are prohibited.
Limitations as to time and place:
Such business days should be THROUGHOUT THE YEAR. BoD cannot limit such
to merely a few days within the year. (Pardo v. Hercules Lumber)
4.
5.
Inspection should be made in such a manner as not to impede the efficient operations
6.
Place of inspection: Principal office of the corp. SH cannot demand that such records be taken
out of the principal office.
7.
As to purpose:
PRESUMPTION: that SHs purpose is proper. Corp. cannot refuse on the mere belief
that his motive is improper (sec 74).
BURDEN OF PROOF: lies with corp. which should show that purpose was illegal.
To be legitimate, the purpose for inspection must be GERMANE to the INTEREST of the
stockholder as such, and it is not contrary to the interests of the corporation.
Legitimate:
Not legitimate:
Belief in good faith that a corp. is being mismanaged may be given due course even if
later, this is proven unfounded.
: NO right of inspection
Writ shall not issue where it is shown that the petitioners purpose is
improper and inimical to the interests of the corporation.
Writ should be directed against the corporation. The secretary and
the president may be joined as party defendants.
(2) Injunction
(3) Action for damages against the officer or agent refusing inspection. Also, penal
sanctions such as fines and / or imprisonment (Sec. 74; Sec. 144)
What defenses are available to the officer or agent?
(1)
DERIVATIVE SUITS
Individual suits - wrong done to stockholder personally and not to other stockholders
(ex. When right of inspection is denied to a stockholder)
b.
c.
But since the directors who are charged with mismanagement are also the
ones who will decide WON the corp. will sue, the corp. may be left without
redress; thus, the stockholder is given the right to sue on behalf of the
corporation.
Suing stockholder is merely the nominal party and the corp. is actually the
party in interest.
A SH can only bring suit for an act that took place when he was a
stockholder; not before. (Bitong v. CA, 292 SCRA 503)
Stockholder/ member must have exhausted all remedies within the corp.
2)
3)
4)
The power to sue and be sued in any court by a corporation even as a stockholder is
lodged in the Board of Directors that exercises its corporate powers and not in the
president or officer thereof.
It was JAKA's Board of Directors, not Senator Enrile, which had the power to
grant Bitong authority to institute a derivative suit for and in its behalf.
The basis of a stockholder's suit is always one in equity. However, it cannot prosper
without first complying with the legal requisites for its institution. The most
important of these is the bona fide ownership by a stockholder of a stock in his own
right at the time of the transaction complained of which invests him with standing to
institute a derivative action for the benefit of the corporation.
NOTE: Only preferred and redeemable shares may be deprived of the right to vote. (Sec. 6, Corporation Code)
EXCEPTION: As otherwise provided in the Corporation Code.
* No-par value shares may not be issued by the following entities: banks, trust companies, insurance companies,
public utilities, building & loan association (Sec. 6)
Debt Securities
Borrowings
Borrowings are usually represented by promissory notes, bonds or debentures.
Oftentimes, a financial institution will be willing to lend large amounts to private
corporations only on the condition that such institution will have some representation on
the Board of Directors. The role of such representative is to see to it that his institution's
investment is protected from mismanagement or unfavorable corporate policies.
MERRITT-CHAPMAN & SCOTT CORP. VS. NEW YORK TRUST CO. (184 F. 2d 954;
1950)
If the corporation is allowed to declare stock dividends without taking account of the
warrant holders (who have not yet exercised their warrant), the percentage of interest in the
common stock capital of the corporation which the warrant holders would acquire, should they
choose to do so, could be substantially reduced/diluted. Thus, the corporation is wrong in
contending that a warrant holder must first exercise his warrant before they may be issued stock
dividend.
Hybrid securities
Because preferred shares and bonds are created by contract, it is possible to create stock which
approximates the characteristics of debt securities. Hybrid securities, as the name implies, therefore
combine the features of preferred shares and bonds.
Determining the true nature of the security is crucial for tax purposes. The American courts use
the following criteria:
(1) Is the corporation liable to pay back the investor at a fixed maturity date?
(2) Is interest payable unconditionally at definite intervals, or is it dependent on earnings?
(3) Does the security rank at least equally with the claims of other creditors, or is it subordinate
to them?
WHAT IS THE NATURE OF THE SECURITY AND THE PAYMENT MADE?
BONDS
STOCK
WHAT IS PAID?
Interest
Dividends
TO WHOM PAID?
Creditor-investor
Stockholder
WHEN PAID?
NATURE
Expense
Not an expense
TAXABILITY
CANNOT be deducted
MATURITY DATE?
Yes
No
RANK ON
DISSOLUTION
Superior to stockholders,
inferior to corporate
creditors
JOHN KELLY VS. CIR TALBOT MILLS VS. CIR (326 U.S. 521; 1946)
In the Kelly case, the annual payments made were interest on indebtedness (therefore, a
bond is held) because there were sales of the debentures as well as exchanges of preferred stock
for debentures, a promise to pay a certain annual amount if earned, a priority for the debentures
over common stock and a definite maturity date in the reasonable future.
In the Talbot Mills case, the annual payments made were dividends and not interest
(therefore, shares are held), because of the presence of fluctuating annual payments with a 2%
minimum, and the limitation of the issue of notes to stockholders in exchange only for stock.
Besides, it is the Tax Court which has final determination of all tax issues which are not clearly
delineated by law.
(1) debtor-corporation
(2) creditor-bondholder
(3) trustee: representative of all the bondholders
A subscriber to shares who pays only part of what he agreed to pay is liable to creditors for
the balance.
Holders of watered stock are generally held liable to the corporations creditors for the
difference between the par value of the stock and the amount paid in.
Under the misrepresentation theory, the creditors who rely on the misrepresentation of the
corporations capital stock are entitled to recover the water from holders of the watered stock.
Reliance of creditors on the misrepresentation is material.
However, under the statutory
obligation theory, reliance of creditors on the capital stock of the corporation is irrelevant. (It must
be noted that here in the Philippines, it is the statutory obligation theory which is prevailing.)
claim of China Bank, to have the receipt for the shares delivered to him, and to be awarded
damages for wrongful attachment, on the ground that he was owner of 250 shares by virtue of
Chua Soco's payment of half of the subscription price.
The Court held that payment of half the subscription price does not make the holder of
stock the owner of half the subscribed shares. Plaintiff's rights consist in an equity in 500 shares
and upon payment of the unpaid portion of the subscription price he becomes entitled to the
issuance of certificate for the said 500 shares in his favor.
BALTAZAR V. LINGAYEN GULF ELECTRIC POWER (14 SCRA 522; 1965)
Baltazar, et al. subscribed to a certain number of shares of Lingayen Gulf Electric Power.
They had made only partial payment of the subscription but the corporation issued them
certificates corresponding to shares covered by the partial payments. Corporation wanted to deny
voting rights to all subscribed shares until total subscription is paid.
The Court held that shares of stock covered by fully paid capital stock shares certificates
are entitled to vote. Corporation may choose to apply payments to subscription either as: (a) full
payment for corresponding number of stock the par value of which is covered by such payment;
or (b) as payment pro-rata to each subscribed share. The corporation chose the first option, and,
having done so, it cannot unilaterally nullify the certificates issued.
Note: The Camposes are of the opinion that 64 of Corporation Code makes
the Lingayen Gulf inapplicable at present.
NAVA V. PEERS MARKETING (74 SCRA 65; 1976)
Teofilo Co subscribed to 80 shares of Peers Marketing Corp. at P100.00 a share for a
total of P8,000.00. He, however, paid only P2,000.00 corresponding to 20 shares or 25% of total
subscription. Nava bought 20 shares from Co and sought its transfer in the books of the
corporation. The corporation refused to transfer said shares in its books.
It was held that the transfer is effective only between Co and Nava and does not affect the
corporation. The Fua Cun ruling applies. Lingayen Gulf does not apply because, unlike in
Lingayen Gulf, no certificate of stock was issued to Co.
TRANSFER OF SHARES
Is a bona fide transfer of the shares of corp., not registered or noted on the books of the corp.,
valid as against a subsequent lawful attachment of said shares, regardless of whether the
attaching creditor had actual notice of said transfer or not.
NO, it is not valid. The transfer of the 75 shares in the North Electric Co., Inc made by
the defendant Diosomito as to the defendant Barcelon was not valid as to the plaintiff. Toribia
Uson, on 18 Jan. 1932, the date on which she obtained her attachment lien on said shares of
stock which still stood in the name of Diosomito on the books of the corp. Sec. 35 says that No
transfer, however, is valid, except as between the parties, until the transfer is entered and noted
upon the books of the corporation so as to show the names of the parties to the transaction, the
date of the transfer, the number of the certificate, and the number of shares transferred.
All transfers of shares not so entered are invalid as to attaching or execution creditors of
the assignors, as well as to the corporation and to subsequent purchasers in good faith, and
indeed, as to all persons interested, except the parties to such transfers.
Form of Dividends
IN WHAT FORMS CAN DIVIDENDS BE ISSUED?
1.
Cash
2.
Property
scrip - certificate issued to SHs instead of cash dividends which entitles them to
a certain amount in the future
3.
Stock dividends
Stock dividends are distribution to the SHs of the companys own stock.
Stock dividends cannot be declared without first increasing the capital stock
unless unissued shares are available.
New shares are issued to the SHs in proportion to their interest.
No new income unless sold for cash.
Civil fruits belong to the usufructuary and not to the naked owner.
Can only be issued to SHs.
Whenever fractional shares result, corp may pay in cash or issue fractional share
warrants.
Stock Dividend
Voting requirements
for issuance
Board of Directors
Board of Directors +
2/3 OCS
Effect on delinquent
stock
Kimmel, Intermediate Accounting, 1977, ed. P. 635) The term implies the limitation that
no corporation can declare dividends unless its legal or stated capital is maintained. It
does not include:
premium on par stock i.e. difference between par value and selling price
of stock by corp since this is regarded as paid-in capital; but SEC
allowed declaration of stock dividends out of such premiums
If subscribed shares have not been fully paid, the unpaid portion of subscribed capital
stock is an asset, and as long as the net capital asset (after payment of liabilities)
including this unpaid portion is at least equal to the total par value of the subscribed
shares, any excess would be surplus or earnings from which dividends may be declared.
However, if a deficit exists, subsequent profits must first be applied to cover the deficit.
Restrictions on dividend distribution include:
The prohibition does not apply, however, to stock dividends because creditors and SHs
will not be affected by their declaration since they do not decrease the companys assets.
BOD has discretion whether or not to declare dividends and in what form.
Exception:
However, such discretion cannot be abused and the BOD cannot accumulate surplus
profits unreasonably on the excuse that it is needed for expansion or reserves.
2.
BOD should declare dividends when surplus profits of the corporation exceed 100%
of the corporation's paid-in capital stock.
Exceptions:
(a) When justified by definite corporate expansion projects or programs
approved by the Board;
(b) When creditors prohibit dividend declaration without their consent as a
condition for the loan, and such consent has not yet been secured;
(c) When retention is necessary under special circumstances obtaining in the
corporation, e.g. when there is a need for special reserve for probable
contingencies. (Sec. 43)
4.
The corporation may be subjected to additional tax when it fails to declare dividends,
thereby unreasonably accumulating profits. (See Sec. 25, NIRC)
5.
The dividends received are based on stock held whether or not paid. However, if the
stocks are delinquent, the amount will first be applied to the payment of the
delinquency plus costs and expenses; stock dividends will not be given to a
delinquent SH.
Preference as to Dividends
Review discussion under kinds of stock.
BURK V. OTTAWA GAS & ELECTRIC CO. (123 Pac. 875; 1912)
An action was brought by the preferred SHs of Ottawa against the directors of Ottawa to
(1) require the directors to account for all the property and assets of the corporation, (2) declare
such dividends from the net profits of the business of such co. as should have been declared since
1 Jan. 1906, and (3) restrain the officers and directors during the pendency of the action from
paying out any of the money or disposing of the assets of the company except such amounts as
should be necessary to pay the actual necessary current expenses of conducting the business of
the corporation.
The BOD maintained that the corporation's funds were exhausted by expenditures for the
extension of the cos plant, hence it was unable to declare dividends. Expenditures were said to
be necessary and for the betterment of the plant.
Were the corp funds were wrongfully diverted, and were preferred SHs entitled to dividends?
The case was remanded to the trial court, with instructions to make further findings to
protect the preferred SHs in their rights.
The fair interpretation of the contract between Ottawa and its SHS is that if in any year
net profits are earned, a dividend is to be declared. To hold otherwise, meaning if the BOD had
absolute discretion when to declare dividends and when not to, when the corporation has funds
for such dividends, would result in temptation to unfair dealing, giving one party the option to
pay the other or not. In the case at bar, the accumulated profits would be lost forever since the
dividends were non-cumulative.
Preferred SHs, however, are not generally creditors until dividends are declared. In the
case at bar, if dividends should have been declared to such SHs, they are considered creditors
from that time.
declaration, the dividend becomes immediately fixed and absolute in the stockholder and from
henceforth the right of each individual stockholder is changed by the act of declaration from that
of partner and part owner of the corporate property to a status absolutely, adverse to every other
stockholder and to the corporation itself, insofar as his pro rata proportion of the dividend is
concerned.
2.
3.
AMENDMENTS OF CHARTER
The charter of a private corporation consists of its articles of incorporation as well as the
Corporation Code and such other law under which it is organized.
Amendment by Legislature
Subject to the limitation that no accrued rights or liabilities be impaired, the
legislature has the power to make changes in existing corporations through an
amendment to the Corporation Code.
Amendment by Stockholders
One of the powers expressly granted by law to all corporations is the power to
amend its articles of incorporation. This, in effect, is a grant of power to owners of 2/3 of
the outstanding stocks to change the basic agreement between the corporation and its
stockholders, making such change binding on all the stockholders, subject only to the
right of appraisal, if proper.
must be legitimate
VOTE:
(1)
(2)
The appraisal right must be recognized in case the amendment has the
effect of changing rights of any stockholder or class of shares, or of
authorizing preferences in any respect superior to those of outstanding shares
of any class, or extending or shortening the term of corporate existence.
Extension of corporate term cannot exceed 50 yrs. in any one instance
(3)
A copy of the amended articles should be filed with the SEC, and with the
proper governmental agencies, as appropriate (e.g., in the case of banks,
public utilities, etc.)
(4)
Original and amended articles should contain all matters required by law to
be set out in said articles.
(5)
(6)
ON WHAT GROUNDS
AMENDMENTS?
CAN
THE
SEC
DISAPPROVE
THE
PROPOSED
The same grounds as for the disapproval of the original articles (Sec. 17):
preferred stockholders, voting rights equal to those of common stockholders. Marcus, objected
and demanded payment for the common stock owned by her.
The Court held that Marcus may invoke her appraisal right. The aggregate number of
shares having voting rights equal to those of common shares was substantially increased and
thereby the voting power of each common share outstanding prior to the meeting was altered or
limited by the resulting pro rata diminution of its potential worth as a factor in the management
of the corporate affairs. Considering that she held diminished voting power; that she notified the
corpo of her objection; that her shares were voted against the amendmentthese were sufficient
to qualify her to invoke her statutory appraisal right.
Effectivity of amendment
Amendments take effect only from the approval by the SEC. However, such
approval or rejection must be made within six months of filing of amendment; otherwise
it shall take effect even w/o such approval (as of the date of filing), unless cause of
delay is attributable to the corporation. (Sec. 16)
Special amendments
Increase of capital stock
After the authorized capital stock has been fully subscribed and the
corporation needs to increase its capital, it will have to amend its articles to
increase its capital stock. A corporation does not have the implied power to
increase capital stock; such a power can only be granted by law.
The power to increase or decrease capital stock must be exercised in
accordance with the provisions of Sec. 38 of the Code.
(1) All issued stock of all classes should be held by not more than 20;
(2) All issued stock shall be subject to one or more specified restrictions on
transfer permitted by law;
(3) Corporation should not be listed in the stock exchange or make any public
offering of its stock.
If any of these are deleted, then the corporation will cease to be a close
corporation and will lose the special privileges of such corporations. Thereafter, it will
be governed by the general provisions of the Code. Since such amendment involves a
change in the nature of the corporation, even non-voting stocks are given a voice in the
decision. A stockholders meeting is required and a 2/3 vote must approve the
amendment, unless otherwise provided by the articles of incorporation.
DISSOLUTION
Modes of Dissolution
HOW MAY A CORPORATION BE DISSOLVED?
This is effected by majority vote of the BOD and a 2/3 vote of the OCS or
members. (Note the special notice requirements.) The copy of the
resolution authorizing the dissolution shall be certified by a majority of
the BOD and countersigned by the secretary of the corporation. THE
SEC shall thereupon issue the certificate of dissolution.
(b) Where creditors are affected (Sec. 119)
(1) Filing of petition for dissolution with SEC
A petition for dissolution must be filed with the SEC after having
been signed by a majority of the BOD, verified by the president or
secretary or one of the directors, and resolved upon by the
affirmative vote of 2/3 of the OCS or members. The petition must set
forth all claims and demands against the corporation, and the fact
that the dissolution was approved by the SHs with the requisite 2/3
vote.
(2) Fixing of date by SEC for filing of objections to petition
If the petition is sufficient in form and substance, the SEC shall
fix a date on or before which objections thereto may be filed by any
person.
Date: not less than 30 days nor more than 60 days after the
entry of the order
(3) Publication of order
Before the date fixed by the SEC, the SEC order shall be
published and posted accordingly.
Newspaper:
Posting:
(b) Quo Warranto proceedings (See Sec. 5b, PD 902-A and Rule 66, Rules of
Court. Previously, the SEC had exclusive jurisdiction over quo warranto
proceedings involving corporation. Under the Securities Regulation
Code or RA 8799, however, the jurisdiction of the SEC over all cases
enumerated under Sec. 5 of PD 902-A have been transferred to the
Regional Trial Courts.
The grounds for involuntary dissolution of a corporation under quo
warranto proceedings are:
(1) When the corporation has offended against a
provision of an act for its creation or renewal;
(2) When it has forfeited its privileges and franchises by
non-user;
(3) When it has committed or omitted an act which
amounts to a surrender of its corporate rights,
privileges or franchises;
(4) When it misused a right, privilege or franchise
conferred upon it by law, or when it has exercised a
right, privilege or franchise in contravention of law
(PNB v. CFI, 209 SCRA 294; 1992)
(4) Shortening of corporate term (Sec. 120)
NOTE: The simplest and most expedient way of effecting dissolution
is by shortening the corporate term and waiting for such term
to expire.
Illegal;
Fraudulent;
Dishonest;
Oppressive or unfairly prejudicial to the corporation
or any other SH;
Effects of Dissolution
WHAT ARE THE EFFECTS OF DISSOLUTION?
Corporate existence continues for 3 years following dissolution for the ff.
purposes only:
Corporation can no longer continue its business, except for winding up.
NOTE that the subsequent dissolution of a corporation may not remove or impair any
right or remedy in favor of or against, nor any liability incurred by, any corporation, its
stockholders, members, directors, trustees or officers. (Sec. 145)
The Corp. Law allows a corporation to continue as a body for 3 years after the time when
it would have been dissolved for the purposes of prosecuting and defending suits by or against
it. But at any time during the 3 years, the corporation should convey all its property to trustees so
that the latter may be the ones to continue on with such prosecution, with no time limit on its
hands. Since the case against Pore was strong, the corp.'s amended complaint was admitted and
the case was remanded to the lower court.
Executory contracts
The prevailing view is that executory contracts are not extinguished by
dissolution. Sec. 145 of the Code states that "No right or remedy in favor of or against
any corporation.nor any liability incurredshall be removed or impaired either by the
subsequent dissolution of said corp. or by any subsequent amendment or repeal of this
Code or of any part thereof."
Liquidation
WHAT IS LIQUIDATION? (Sec. 122)
Liquidation, or winding up, refers to the collection of all assets of the corporation,
payment of all its creditors, and the distribution of the remaining assets, if any, among the
stockholders thereof in accordance with their contracts, or if there be no special contract,
on the basis of their respective interests.
WHAT ARE THE METHODS OF LIQUIDATING A CORPORATION? AND WHO MAY
UNDERTAKE THE LIQUIDATION OF A CORPORATION?
1.
2.
3.
(3)
(4)
EXCEPTION:
TAN TIONG BIO V. CIR (G.R. No. L-15778; April 23, 1962)
The creditor of a dissolved corp. may follow its assets, as in the nature of a trust fund,
once they pass into the hands of the stockholders. The dissolution of a corp. does not extinguish
the debts due or owing to it.
An indebtedness of a corp. to the government for income and excess profit taxes is not
extinguished by the dissolution of the corp. The hands of government cannot, of course, collect
taxes from a defunct corporation, it loses thereby none of its rights to assess taxes which had
been due from the corporation, and to collect them from persons, who by reason of transactions
with the corporation hold property against which the tax can be enforced and that the legal death
of the corporation no more prevents such action than would the physical death of an individual
prevent the government from assessing taxes against him and collecting them from his
administrator, who holds the property which the decedent had formerly possessed. Thus,
petitioners can be held personally liable for the corporation's taxes, being successors-in-interest
of the defunct corporation.
All liabilities and obligations of the corporation shall be paid, satisfied, and
discharged, or adequate provision shall be made therefor.
(2)
(3)
(4)
(5)
CORPORATE COMBINATIONS
(1) Merger (A + B = A)
(2) Consolidation (A + B = C)
(3) Sale of substantially all corporate assets and purchase thereof by another
corporation;
(4) Acquisition of all / substantially all of the stock of one corporation from its
SHs in exchange for the stock of the acquiring corporation
Merger or Consolidation
WHAT IS THE PROCEDURE FOR MERGER OR CONSOLIDATION?
(1) Board of Directors of the constituent corporations must prepare and approve
a plan of merger or consolidation.
(2) 2/3 vote of OCS of the constituent corporations.
(3) Execution of the Articles of Merger/Consolidation, to be signed by the
Pres/VP and certified by the secretary / assistant secretary.
(4) Submission to the SEC for approval.
WHAT ARE THE EFFECTS OF MERGER OR CONSOLIDATION? (Sec. 80)
(1) The constituent corporation shall become a single corporation:
If merger:
(3) The surviving or consolidated corporation shall possess all rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities of
a corporation organized under the Corporation Code.
(4) The surviving or consolidated corporation shall thereupon and thereafter
possess all the rights, privileges, immunities and franchises of each of the
constituent corporations;
(5) All property (real or personal) and all receivables due on whatever account
(including subscriptions to shares and other choses in action), and all and
every other interest of, or belong to, or due to each constituent corporation,
shall be deemed transferred and vested in such surviving or consolidated
corporation without further act or deed.
(6) The surviving or consolidated corporation shall be responsible and liable for
all the liabilities and obligations of each of the constituent corporations in the
same manner as if such surviving or consolidated corporation had itself
incurred such liabilities or obligations; and any pending claim, action or
proceeding brought by or against any of such constituent corporations may
be prosecuted by or against the surviving or consolidated corporation.
(Note: The merger or consolidation does not impair the rights of creditors or
liens upon the property of any such constituent corporations.)
(1) If the disposition is necessary in the usual and regular course of business; or
(2) If the proceeds of the disposition be appropriated for the conduct of its
remaining business (Sec. 40)
IS THE APPRAISAL RIGHT AVAILABLE TO DISSENTING STOCKHOLDERS?
Yes. However, it must be stressed that this right is generally available only to
dissenting stockholders of the selling corporation, not the purchasing corporation. (It can
be argued, though, that in instances wherein the purchase constitutes an investment in a
purpose other than its primary purpose, stockholders' approval of such investment is
necessary, and anyone who objects thereto will have the appraisal right under Sec. 42. )
Exchange of stocks
In this method, all or substantially all the stockholders of the "acquired"
corporation are made stockholders of the acquiring corporation. With the exchange,
the acquired corporation becomes a subsidiary of the acquiring corporation.
Although this method does not combine the 2 businesses under a single corporation
as in merger and sale of assets, from the point of view of the acquiring (parent)
corporation, there is hardly any difference between owing the acquired corporation's
business directly and operating it through a controlled subsidiary. In fact, the parent
corporation would have the power to buy all the subsidiary's assets and dissolve it,
achieving the same result as in the other methods of combination. (Campos &
Campos)
FOREIGN CORPORATIONS
70%-30% EQUITY:
Advertising
60%-40% EQUITY:
Other industries.
Application under oath setting forth the information specified in Sec. 125;
Statement under oath of the president or any other person authorized by the
corporation showing that the applicant is solvent and in good financial
condition, and setting forth the assets and liabilities of the corporation within
1 year immediately prior to the application.
Once the licensee ceases to do business in the Philippines, these deposited securities shall be returned,
upon the licensee's application and proof to the satisfaction of the SEC that the licensee has no liability to
Philippine residents or the Philippine government.
Note: Foreign banking and insurance corporations are the exceptions to this requirement.
PURPOSE:
(1) The corporation will not be permitted to maintain agency in the Philippines;
(2) The corporation will be subject to penalties and fines;
(3) The corporation will not be permitted to maintain or intervene in any action before
Philippine courts or administrative agencies; it can be SUED.
Isolated transactions
MARSHALL WELLS V. ELSER (46 Phil. 71; 1924)
Marshall Wells, a corporation organized under the State of Oregon, sued a domestic corp.
for the unpaid balance on a bill of goods. Defendant demurred to the complaint on the ground
that it did not show that plaintiff had complied with the law regarding corp. desiring to do
business in the Phil., nor that the plaintiff was authorized to do business in the Phil.
The Supreme Court, in ruling for Marshall Wells, stated that the object of the statute was
to subject the foreign corp. doing business in the Phil. to the jurisdiction of its courts. The object
of the statute was not to prevent it from performing single acts but to prevent it from acquiring a
domicile for the purpose without taking the steps necessary to render it amenable to suit in the
local courts. The implication of the law is that it was never the purpose of the Legislature to
exclude a foreign corp. which happens to obtain an isolated order for business from the Phil.,
from securing redress in Phil. Courts, and thus, in effect to permit persons to avoid their contract
made with such foreign corporation.
ATLANTIC MUTUAL V. CEBU STEVEDORING (G.R. No. 18961; Aug. 31, 1966)
A foreign corp. engaged in business in the Phil. can maintain suit in this jurisdiction if it
is duly licensed. If a foreign corp. is not engaged in business in the Phil., it can maintain such
suit if the transaction sued upon is singular and isolated, in which no license is required. In either
case, the fact of compliance with the requirement of license, or the fact that the suing cor p. is
exempt therefrom, as the case may be, cannot be inferred from the mere fact that the party suing
is a foreign corp. The qualifying circumstance, being an essential part of the element of the
plaintiffs capacity to sue, must be affirmatively pleaded. In short, facts showing foreign
corporations capacity to sue should be pleaded.
Curing of defect
HOME INSURANCE V. EASTERN SHIPPING (123 SCRA 424; 1983)
A contract entered into by a foreign insurance corp. not licensed to do business in the
Phil. is not necessarily void and the lack of capacity to sue at the time of execution of the
contract is cured by its subsequent registration.
NOTE: Sec. 160 of R.A. 8293 (Intellectual Property Code) provides that any
foreign national or juridical person who meets the requirements of Sec. 3
of the Act (i.e., is a national or is domiciled in a country party to any
convention, treaty or agreement relating to intellectual property rights or
the repression of unfair competition, to which the Philippines is also a
party, or extends reciprocal rights to Philippine nationals by law) and
does not engage in business in the Philippines may bring a civil or
administrative action for opposition, cancellation, infringement, unfair
competition, or false designation of origin and false description, whether
or not it is licensed to do business in the Philippines under existing laws.
FMC had appointed Jaime Catuira as its agent with authority to execute Employment
Contracts and receive, on behalf of the corp., legal services from, and be bound by processes of
the Phil. Courts, for as long as he remains an employee of FMS. If a foreign corp. not engaged
in business in the Phil., through an Agent, is not barred from seeking redress from courts in the
Phil., that same corp. cannot claim exemption done against a person or persons in the Phil..
NOTE:
Under Sec. 12, Rule 14 of the 1997 Rules of Civil Procedure, the term
"doing business" has been replaced with the phrase "has transacted
business," thereby allowing suits based on isolated transactions.
quantity of a particular item at a specified future settlement date and at a price agreed upon with
the purchase or sale being executed on a regulated futures exchange.)
The spouses refused to pay and moved to dismiss the case alleging that plaintiff had no
legal capacity to sue because (1) MLF is doing business in the country without a license; and (2)
the transactions were made with Merrill Lynch Pierce, Fenner and Smith and not with plaintiff
MLF.
Issue: Can MLF sue in Philippine courts to establish and enforce its rights against spouses in
light of the undeniable fact that it had transacted business without a license?
Legal capacity to sue may be understood in two senses: (1) That the plaintiff is
prohibited or otherwise incapacitated by law to institute suit in the Phil. Courts, or (2) although
not otherwise incapacitated in the sense just stated, that it is not a real party in interest.
The Court finds that the Laras were transacting with MLF fully aware of its lack of
license to do business in the Phils., and in relation to those transactions had made payments and
the spouses are estopped to impugn MLF's capacity to sue them. The rule is that a party is
estopped to challenge the personality of a corp after having acknowledged the same by entering
into a contract with it. The principle is applied to prevent a person contracting with a foreign
corporation from later taking advantage of its noncompliance with the statutes, chiefly in cases
where such person has received the benefits of the contract.
PACIFIC VEGETABLE OIL V. SINGSON (G.R. No. 7917; April 29, 1955)
This is an action instituted by the plaintiff, a foreign corporation, against the defendant to
recover a sum of money for damages suffered by the plaintiff as a consequence of the failure of
the defendant to deliver copra which he sold and bound himself to deliver to the plaintiff.
Defendant filed a motion to dismiss on the ground that the plaintiff failed to obtain a license to
transact business in the Phil and, consequently, it had no personality to file an action.
Has appellant transacted business in the Philippines in contemplation of law?
Contrary to the findings of the trial court, the copra in question was actually sold by the
defendant to the plaintiff in the US, the agreed price to be covered by an irrevocable letter of
credit to be opened at the Bank of California, and delivery to be made at the port of destination.
It follows that the appellant corporation has not transacted business in the Phil in contemplation
of Sec. 68 and 69 which require any foreign corporation to obtain a license before it could
transact business, or before it could have personality to file a suit in the Phil.. It was never the
purpose of the Legislature to exclude a foreign corporation which happens to obtain an isolated
order of business from the Phil., from securing redress in the Phil. Courts, and thus, in effect, to
permit persons to avoid their contracts made with such foreign corp.. The lower court erred in
holding that the appellant corporation has no personality to maintain the present action.
AETNA CASUALTY & SURETY CO. VS. PACIFIC STAR LINE (80 SCRA 635; 1977)
Aetna as subrogee of I. Shalom sued Pacific Star Line (PSL), the common carrier for the
loss of Linen & Cotton piece goods due to pilferage and damage amounting to US$2,300.00.
PSL contends that Aetna has no license to transact insurance business in the Philippines as
gathered from the Insurance Commission and SEC . It also argues that since said company has
filed 13 other civil suits, they should be considered as doing business here and not merely having
entered into an isolated transaction.
Based on rulings in Mentholatum and Eastboard Navigation, the Supreme Court held that
Aetna is not transacting business in the Philippines for which it needs to have a license. The
contract was entered into in New York and payment was made to the consignee in the New York
branch. Moreover, Aetna was not engaged in the business of insurance in the Philippines but was
merely collecting a claim assigned to it by consignee. Because it was not doing business in the
Philippines, it was not subject to Sec. 68-69 of the Corporation Law and therefore was not barred
from filing the instant case although it had not secured a license to transact insurance business in
the Philippines.
wanted to recover the loss it sustained from the failure of the petitioners to deliver the crude oil
under the first transaction and in order to give the latter a chance to make good on their
obligation. There was only one agreement between the parties, and that was the delivery of the
500 tons of crude coconut oil.
Johnlo Trading case holds that the service on the attorney of an FC who was also
charged with the duty of settling claims against it is valid since no other agent was
duly appointed.
(Sec. 136)
Failure to file its annual report or pay any fees as required by the
Corporation Code;
(2)
(3)
(4)
(5)
(6)
Failure to pay any and all taxes, imposts, assessments or penalties, if any,
lawfully due to the Philippine government or any of its agencies or political
subdivisions;
(7)
(8)
(9)
Religious corporations
(Sec. 109-116)
Religious corporations are governed by Title XIII, Chapter II of the Corporation Code and
by the general provisions of the Code on non-stock corporations insofar as they may be
applicable. (Sec. 109)
office, which must be taken into consideration. Thus, where at least 60% of the constituents are
Filipinos, land may be registered in the name of the corporation sole, although the holder of the
office is an alien. This ruling is based on the fact that the corporation sole is not the owner but
merely the administrator of the property, and that he holds it in trust for the faithful of the diocese
concerned. (See Gana v. Roman Catholic Archbishop of Manila, 43 O.G. No. 8, 3225; 1947)
Close Corporations
(Sec. 96-105)
Mining
Oil
Stock Exchange
Bank
Insurance
Public Utilities
Educational Institutions
Corporations declared vested with public interest
"Regular" Corporation
No. of stockholders
No limit
Management
Managed by Board of
Directors
Meetings
Pre-emptive right
Buy-back of shares
Resolution of
deadlocks
Dissolution
corporation and does not have the title and powers of a custodian or receiver. However,
he has all the rights and powers of a duly-elected director of the corporation, including the
right to notice of and to vote at meetings of directors, until such time as he shall be
removed by order of the SEC or by all the stockholders. (Sec. 104)
COMPARE APPRAISAL RIGHT AND WITHDRAWAL RIGHT IN CLOSE CORPORATIONS. (Sec. 105)
Withdrawal Right
Type
of
involved
corporation
Appraisal Right
Close corporation
"Regular" corporation
When availed of
Only
the
grounds
enumerated in Sec. 81
and Sec. 42
The SEC has the power to issue rules and regulations reasonably necessary to
enable it to perform its duties under the Code, particularly in the prevention of fraud
and abuses on the part of the controlling stockholders, members, directors, trustees
or officers. (Sec. 143)
Whenever the SEC conducts any examination of the operations, books and records
of any corporation, the results thereof must be kept strictly confidential, unless the
law requires them to be made public or where they are necessary evidence before
any court. (Sec. 142)
All domestic and foreign corporations doing business in the Philippines must submit
an annual report to the SEC of its operations, with a financial statement of its assets
and liabilities and such other requirements as the SEC may impose. (Sec. 141)
No right or remedy in favor of or against, nor any liability incurred by, any
corporation, its stockholders, members, directors, trustees or officers, may be
removed or impaired by the subsequent dissolution of said corporation or by any
subsequent amendment or repeal of the Code. (Sec. 145)
Violations of the Corporation Code not otherwise specifically penalized therein are
punishable by a fine of not less than P 1,000.00 but not more than P 10,000.00 or by
imprisonment for not less than 30 days but not more than 5 years, or both, in the
discretion of the court. If the violation is committed by a corporation, the same may
be dissolved in appropriate proceedings before the SEC. (Sec. 144)