CORPORATION LAW

Part VI

JGA Medina
Bus. Org II, Philippine Law School
Section 74: Keep and carefully preserve at its principal office:
• A record of all business transactions and minutes of all meetings
• Records and minutes shall be open to inspection at reasonable hours on business
days and may demand a copy of excerpts at his expense.
• Refusal of inspection and to provide copies of excerpts results in liability for
damages offense punishable under Section 144 (fine of 1k to 10k and/or
imprisonment 30 days to 5 years)
• If refusal is pursuant to a resolution or order of the board, the liability shall be
imposed upon the directors or trustees who voted for refusal.
• Defense: Person demanding improperly used information secured through any
prior examination of the records or minutes of a) such corporation b) any other
corporation, or c) was not acting in good faith or for a legitimate purpose.
F & S Velasco Co., Inc. v. Madrid,
G.R. No. 208844, November 10, 2015

Madrid may compel the issuance of certificates of stock in his favor, as well as the
registration of Angela's stocks in his name in FSVCI's Stock and Transfer Book.

Be that as it may, it must be clarified that Madrid's inheritance of Angela's shares of

stock does not ipso facto afford him the rights accorded to such majority ownership
of FSVCI's shares of stock. Section 63 of the Corporation Code governs the rule on
transfers of shares of stock. It reads . . .

Verily, all transfers of shares of stock must be registered in the corporate books in
order to be binding on the corporation. Specifically, this refers to the Stock and
Transfer Book, which is described in Section 74 of the same Code as follow
Philippine Associated Smelting and Refining Corp. v. Lim,
G.R. No. 172948, October 5, 2016

• The clear provision in Section 74 of the Corporation Code is sufficient authority to

conclude that an action for injunction and, consequently, a writ of preliminary
injunction filed by a corporation is generally unavailable to prevent stockholders
from exercising their right to inspection. Specifically, stockholders cannot be
prevented from gaining access to the (a) records of all business transactions of
the corporation; and (b) minutes of any meeting of stockholders or the board of
directors, including their various committees and subcommittees.

• Although the corporation may deny a stockholder's request to inspect corporate

records, the corporation must show that the purpose of the shareholder is
improper by way of defense:
Puno v. Puno Enterprises, Inc.,
G.R. No. 177066, September 11, 2009

• The stockholder's right of inspection of the corporation's books and records is

based upon his ownership of shares in the corporation and the necessity for self-
protection. After all, a shareholder has the right to be intelligently informed about
corporate affairs. Such right rests upon the stockholder's underlying ownership of
the corporation's assets and property.

• Similarly, only stockholders of record are entitled to receive dividends declared by

the corporation, a right inherent in the ownership of the shares.

• Upon the death of a shareholder, the heirs do not automatically become

stockholders of the corporation and acquire the rights and privileges of the
deceased as shareholder of the corporation.
Section 74. Stock and transfer book and stock transfer agent:

• Stock corporations must keep a stock and transfer book which keeps a record,
among others, of all stocks in the names of the stockholders, statement of every
alienation, sale or transfer of stock made, the date thereof, and by and to whom
made; and such other entries as the by-laws may prescribe.

• Kept in the principal office of the corporation or in the office of its stock transfer
agent.

• Stock transfer agent or one engaged principally in the business of registering

transfers of stocks in behalf of a stock corporation shall be licensed by SEC. A
stock corporation is not precluded from performing or making transfer of its own
stocks.
Ferro Chemicals, Inc. v. Garcia,
G.R. Nos. 168134, 168183 & 168196, October 5, 2016.

Only absolute transfers of shares of stock are required to be recorded in the corporation's
stock and transfer book in order to have "force and effect as against third persons." In
Chemphil Export and Import Corporation v. Court of Appeals, et al., the Court enunciated
the rule that attachments of shares are not considered "transfer" and need not be
recorded in the corporations' stock and transfer book, viz.:

"Are attachments of shares of stock included in the term "transfer" as provided in Sec.
63 of the Corporation Code? We rule in the negative. As succinctly declared in the case
of Monserrat v. Ceron, chattel mortgage over shares of stock need not be registered in
the corporation's stock and transfer book inasmuch as chattel mortgage over shares of
stock does not involve a "transfer of shares," and that only absolute transfers of shares
of stock are required to be recorded in the corporation's stock and transfer book in
order to have "force and effect as against third persons."
Section 75. Right to financial statements. –

• Within ten (10) days from receipt of a written request of furnish to him its most
recent financial statement,

• At the regular meeting board shall present a financial report of the operations of
the corporation for the preceding year, including audited financial statements.

• If than P50,000.00, the financial statements may be certified under oath by the
treasurer or any responsible officer of the corporation.
Section 76. Plan of Merger or Consolidation. –
• Merger - two or more corps. merge into one of the constituent corporations
• Consolidate - two or more corps. form a new consolidated corporation.
• The board of each corporation shall approve a plan of merger or consolidation setting
forth:
1. The names of the constituent corporations;
2. The terms of the merger or consolidation and the mode of carrying into effect;
3. For mergers: A statement of the changes, if any, in the articles of incorporation of
surviving corporation.
For consolidation: All statements required to be set forth in the articles of
incorporation for corporations.
4. Such other provisions deemed necessary or desirable.
Bank of Commerce v. Radio Philippines Network, Inc.,
G.R. No. 195615, April 21, 2014], 733 PHIL 491-581
• Merger is a re-organization of two or more corporations that results in their
consolidating into a single corporation, which is one of the constituent corporations, one
disappearing or dissolving and the other surviving. To put it another way, merger is the
absorption of one or more corporations by another existing corporation, which retains its
identity and takes over the rights, privileges, franchises, properties, claims, liabilities and
obligations of the absorbed corporation(s). The absorbing corporation continues its
existence while the life or lives of the other corporation(s) is or are terminated.

• A merger does not become effective upon the mere agreement of the constituent
corporations. All the requirements specified in the law must be complied with in order
for merger to take effect. Section 79 of the Corporation Code further provides that the
merger shall be effective only upon the issuance by the Securities and Exchange
Commission (SEC) of a certificate of merger.
Section 77. Stockholder’s or member’s approval. –
• At least two (2) weeks notice personally or by registered mail to all members/SH.
Notice shall state the purpose of the meeting and include summary of the plan.
• The vote of at least two-thirds (2/3) of stockholders or members of constituent
corporations.
• Dissenting stockholder in stock corporations may avail of appraisal right. If after
the approval the plan is abandoned, the appraisal right is extinguished.
• Any amendment to the plan of merger or consolidation must be ratified by two-
thirds (2/3) of stockholders or members of constituent corporations.
• Such plan, together with any amendment, shall be considered as the agreement
of merger or consolidation.
Section 78. Articles of merger or consolidation.
After the approval by the stockholders or members, the articles of merger or
articles of consolidation shall be executed by each of the constituent corporations,
to be signed by the president or vice-president and certified by the secretary or
assistant secretary of each corporation setting forth:
1. The plan of the merger or the plan of consolidation;
2. As to stock corporations, the number of shares outstanding, or in the case of
non-stock corporations, the number of members; and
3. As to each corporation, the number of shares or members voting for and
against such plan, respectively. (n)
*These take the place of the articles of incorporation of the consolidated
corporation, or amend the articles of incorporation of the surviving corporation.
Section 79. Effectivity of merger or consolidation. –
• The articles of merger or of consolidation shall be submitted to the SEC. In the
case of merger or consolidation of banks or banking institutions, building and
loan associations, trust companies, insurance companies, public utilities,
educational institutions and other special corporations governed by special laws,
the favorable recommendation of the appropriate government agency shall first
be obtained.

• If necessary, the SEC shall set a hearing.

• If merger or consolidation is not inconsistent with the provisions of existing laws,
SEC shall issue a certificate of merger or of consolidation, at which time the
merger or consolidation shall be effective.
Mindanao Savings and Loan Association, Inc. v. Willkom,
G.R. No. 178618, October 20, 2010

• The issuance of the certificate of merger is crucial because not only does it bear out
SEC's approval but it also marks the moment when the consequences of a merger take
place. By operation of law, upon the effectivity of the merger, the absorbed corporation
ceases to exist but its rights and properties, as well as liabilities, shall be taken and
deemed transferred to and vested in the surviving corporation.

• The same rule applies to consolidation which becomes effective not upon mere
agreement of the members but only upon issuance of the certificate of consolidation by
the SEC. When the SEC, upon processing and examining the articles of consolidation, is
satisfied that the consolidation of the corporations is not inconsistent with the provisions
of the Corporation Code and existing laws, it issues a certificate of consolidation which
makes the reorganization official. The new consolidated corporation comes into
existence and the constituent corporations are dissolved and cease to exist.
Section 80. Effects of merger or consolidation. –

• The constituent corporations shall become a single corporation in case of merger,

or the consolidated corporation designated in the plan of consolidation;

• The separate existence of the constituent corporations shall cease, except that of
the surviving or the consolidated corporation;

• The surviving or the consolidated corporation shall take over all the assets and
liabilities of each of the constituent corporations without further act or deed;

• The rights of creditors or liens upon the property of any of the constituent
corporations shall not be impaired by such merger or consolidation.
Philippine Geothermal, Inc. Employees Union v. Unocal
G.R. No. 190187, September 28, 2016

• The merger of a corporation with another does not operate to dismiss the employees of
the corporation absorbed by the surviving corporation. This is in keeping with the nature
and effects of a merger as provided under law and the constitutional policy protecting
the rights of labor. The employment of the absorbed employees subsists. Necessarily,
these absorbed employees are not entitled to separation pay on account of such merger
in the absence of any other ground for its award.

• This acquisition of all assets, interests, and liabilities of the absorbed corporation
necessarily includes the rights and obligations of the absorbed corporation under its
employment contracts. Consequently, the surviving corporation becomes bound by the
employment contracts entered into by the absorbed corporation. These employment
contracts are not terminated. They subsist unless their termination is allowed by law.
Sumifru (Philippines) Corp. v. Baya,
G.R. No. 188269, April 17, 2017
• Sumifru's contention that it should only be held liable for the period when Baya stayed
with DFC as it only merged with the latter and not with AMSFC is untenable. Section 80
of the Corporation Code of the Philippines clearly states that one of the effects of a
merger is that the surviving company shall inherit not only the assets, but also the
liabilities of the corporation it merged with.
• In this case, it is worthy to stress that both AMSFC and DFC are guilty of acts constitutive
of constructive dismissal performed against Baya. As such, they should be deemed as
solidarily liable for the monetary awards in favor of Baya. Meanwhile, Sumifru, as the
surviving entity in its merger with DFC, must be held answerable for the latter's liabilities,
including its solidary liability with AMSFC arising herein. Verily, jurisprudence states that
"in the merger of two existing corporations, one of the corporations survives and
continues the business, while the other is dissolved and all its rights, properties and
liabilities are acquired by the surviving corporation," as in this case.
Section 81. Any stockholder shall have the right to dissent and demand payment of
the fair value of his shares in the following instances:

• The Amendment to the articles of incorporation

changes or restricts the rights of any stockholder or class of shares;
authorizes preferences in any respect superior to those of outstanding shares
of any class,
extends or shorts the term of corporate existence;

• Sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or

substantially all of the corporate property and assets;

• In case of merger or consolidation.

Turner v. Lorenzo Shipping Corp.,
G.R. No. 157479, November 24, 2010], 650 PHIL 372-392
No payment shall be made to any dissenting stockholder unless the corporation has
unrestricted retained earnings in its books to cover the payment. In case the corporation has
no available unrestricted retained earnings in its books, Section 83 of the Corporation Code
provides that if the dissenting stockholder is not paid the value of his shares within 30 days
after the award, his voting and dividend rights shall immediately be restored.
The trust fund doctrine backstops the requirement of unrestricted retained earnings to fund
the payment of the shares of stocks of the withdrawing stockholders. Under the doctrine, the
capital stock, property, and other assets of a corporation are regarded as equity in trust for the
payment of corporate creditors, who are preferred in the distribution of corporate assets. The
creditors of a corporation have the right to assume that the board of directors will not use the
assets of the corporation to purchase its own stock for as long as the corporation has
outstanding debts and liabilities. There can be no distribution of assets among the stockholders
without first paying corporate debts. Thus, any disposition of corporate funds and assets to the
prejudice of creditors is null and void.
Section 82. The appraisal right procedure:

• Written demand on the corporation for payment of the fair value of the shares. Failure to
make the demand within such period shall be deemed a waiver of the appraisal right.

• Corporation shall pay to such stockholder the fair value thereof as of the day prior to the
date on which the vote was taken, excluding any appreciation or depreciation.

• If within sixty (60) days from the date of the vote, there is no agreement on the fair value
of the shares, it shall be determined by three (3) disinterested persons and their award
shall be paid within thirty (30) days after such award.

• No payment shall be made to any dissenting stockholder unless the corporation has
unrestricted retained earnings in its books to cover such payment.
Section 83. Effect of demand :
• All rights accruing to such shares, including voting and dividend rights, shall be
suspended in accordance.
• If the dissenting stockholder is not paid the value of his shares within 30 days
after the award, his voting and dividend rights shall immediately be restored.

Section 84. When right to payment ceases. –

• No demand for payment under this may be withdrawn unless the corporation
consents thereto.
• If, the corporation consents to the withdrawal or proposed corporate action is
abandoned or disapproved by the SEC, the right to be paid the fair value of his
shares shall cease, his status as a stockholder shall thereupon be restored, and
all accrued dividend distributions shall be paid to him.
Section 85. Who bears costs of appraisal:
• The costs and expenses of appraisal shall be borne by the corporation.
• If appraisal value is approximately the same as the price the corporation offered.
stockholder, shall bear appraisal costs.
• In the case of an action to recover such fair value, all costs and expenses shall be
assessed against the corporation, unless the refusal of the stockholder to receive
payment was unjustified.

Section 86. Notation on certificates; rights of transferee.

• Within ten (10) days after demanding payment for his shares, submit the certificates of
stock representing his shares to the corporation for notation as dissenting shares. His
failure to do so shall, at the option of the corporation, terminate appraisal rights.
• If shares represented by the certificates bearing such notation are transferred, the rights
of the dissenting stockholder shall cease and the transferee shall have all the rights of a
regular stockholder; and all dividend distributions which would have accrued shall be
paid to transferee.
 NON-STOCK CORPORATIONS

• No part of its income is distributable as dividends except on dissolution.

• Any profit earned used for the furtherance of the purpose.
• May be formed for charitable, religious, etc. or similar purposes.
• Right to vote may be limited, broadened or denied by articles or by-laws.
• Proxy voting allowed unless prohibited by articles or by-laws.
• Voting by mail or other similar means by members may be authorized.
• Membership and all rights arising therefrom are personal and non-transferable, unless
the articles of incorporation or the by-laws otherwise provide.
• Membership terminated in the manner and for the causes provided in the articles or the
by-laws. Termination extinguishes all rights in the corporation or in its property, unless
otherwise by articles by-laws.
 TRUSTEES AND OFFICES

• Board may be more than fifteen (15)

• May classify themselves that the term of office of one-third (1/3) of their number
shall expire every year; and subsequent elections of trustees comprising one-
third (1/3) of the board of trustees shall be held annually and trustees so elected
shall have a term of three (3) years.
• The by-laws may provide that the members of a non-stock corporation may hold
their regular or special meetings at any place even outside the place where the
principal office but within the Philippines.
• Quorum based on members living.
 DISTRIBUTION OF ASSETS IN NON-STOCK CORPORATIONS
• Majority of the board shall adopt a resolution recommending a plan of distribution which
shall be adopted upon approval of at least two-thirds (2/3) of the members.
• In case dissolution assets shall be applied and distributed as follows:
Settle all liabilities and obligations
Assets subject to condition of return, transfer or conveyance by reason of the
dissolution shall be returned, transferred or conveyed in accordance with such
requirements;
Assets subject to limitations permitting their use only for specific purpose shall be
transferred or conveyed to corporations, societies or organizations engaged in
activities in the Philippines substantially similar to those of the dissolving corporation.
Other assets other than those mentioned in the preceding paragraphs, if any, shall be
distributed in accordance with the provisions of the articles or the by-laws.
In any other case, assets may be distributed to such persons, societies, organizations or
corporations, whether or not organized for profit, as may be specified in a plan of
distribution.
Valley Golf & Country Club, Inc. v. Vda. de Caram, G.R. No. 158805, April 16, 2009
Former SEC Chairperson, Rosario Lopez, explains Section 91:
“The prevailing rule is that the provisions of the articles of incorporation or by-laws of
termination of membership must be strictly complied with and applied to the letter. Thus,
an association whose member fails to pay his membership due and annual due as required
in the by-laws, and which provides for the termination or suspension of erring members as
well as prohibits the latter from intervening in any manner in the operational activities of
the association, must be observed because by-laws are self-imposed private laws binding
on all members, directors and officers of the corporation. “
[I]n order that the action of a corporation in expelling a member for cause may be valid, it
is essential, in the absence of a waiver, that there shall be a hearing or trial of the charge
against him, with reasonable notice to him and a fair opportunity to be heard in his
defense. (Fletcher Cyc. Corp., supra) If the method of trial is not regulated by the by-laws
of the association, it should at least permit substantial justice. The hearing must be
conducted fairly and openly and the body of persons before whom it is heard or who are to
decide the case must be
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