612 COMME RCL, sw 3. Effacts of Merger or Consolidation 2. In manger, the constituent comporions shal becom ong Corporation, n consolation, the new consolidated coporaton sa be tho remaining corporation) al b. The separate. sustence of che constituent corporations cease; 6. ine surviving of consoisated corporatan shal possess al rghg, and liabilities of a corporation organized under the N.C.C., i 4. Al gts, prvlges, mmuntes, and franchises of each of na constituent corporations are transferred to the surviving/consolidatad « corporation. E ®. The euniving/consolidatad corporation shal absorb and be Lo forlabities ard obligations of each of the constituent corporation (Sec, 88, N.C.C.). . Bar Questicin: Two comoratio’ agrsed to mewye They then executed an egreement specifying the surviving corporation nd thy adsorbed corporation. Under the agreement of mérger datey Movember 5, 1998, tne surviving corporation acquired! all the right properties and liabilities of tho absorbed corporation. (6) Vial would happen 10 the absorbed comoration? Must the absorbed corporation undertake dissolution and the winding up = procedures? 4 (©) Panding the approval of the merger by the Securties end Exchange Commission. may the surviving corporation alroady ‘nsitute suits to collect ail receivables due to the absorbed corporation from its customers? Explein your answer. (6) A case was fled against a customer to colect on the promissory oie issued by him afer the date of the merger egreement The customer raised the defense that whie the receivables as oF the date ef the merger agreement wero trensfered lo the surviving corporation, those receivebies which were crscted after the marger egreement remained to be owned by the absorbed comoration. These receivables would be distibuied to the stockholdars conformably with the dissolution and liquidation procedures under the New Corporation Code? Discuss the menits of this argument? (1999 Bar) Answer: (a) (Ne adsormed comporetion is dissolved and all their rghis, properties and labilties Af enuited..by the, surviving... cnipbtdtion‘AHowevel athbugh" thd “absorbed” Eerporation is" dissolved, there fs 10 need io wind up their affars or hqu'cate their assets, because the surviving camoration automatically acquires ail SORPORATION CO} BSE osm on ee Meni by mere agracment of te consiuert corporetons Fspective stackhole @ merger shall be elective ony uel Eyance DY We SEC of ceri yor. Only then Bent ears boon dissolved but there is no longer eny dissaluti and ine stockholders. {nstead, the surviving corporation automatically Squires all (heir rights, privileges and lrabilties, Fvence, the survivingacorporation may collec! on the promissory ; lied al the rights of the absorbed comoration Pine may only do sola merger hae baer rer TY the-SEC, ‘or only thon may tha rights of the absorbed Sroraton pass on to the surviving corporation 4 ation that purchases tne assets of another will not be Ips foie dois ofthe selng crporcton proud the former gredin good fath and pais acequate Consiacraton fur pus) aasel sak when any of the folowing eioumstances is present. (1) ihere the purchaser expressly of impllecly agrees to assume the (2) where the transaction amourts to a consolidstion rger ofthe corporations, (3) where the purchasing corporation is rely a continuation of the seling corporation, and (4) where the fnsaction is fraudulently entered into in order to escape liability Ffoso debts (Philippine vs, Andrade, 381 SCRA 244), G. Corporate Bocks and Records cs marily, the best the books and records of the corporation are, ordinart st Ler’ Coporale ec and procaoding |Gale vs. Ellice, 418 SORA 431) 4. Books Required to bo Kept sift, Boek of MinutesssLaw Disctiss the sooce of this right (of a siocktolder fo inspeg examine tha books and records of the corporstion} under Bay Pambanse Bilang 68 otherwise known as the Corporation Cody the Philippines. (7985 Bar} fe Answer: Unike the right of a stocknolder under dot 1480 to inspagp the records of business transactions and minutes of eny meeting! during offca hours on any business day, which was absolute int Ine ngnt was exsrotsable tor wnetever Curpose he may want ft, present code allows the corporation to reject the request if j shown ihat in the past, the stockholder imoropenly used information he got from said inspection, or that he was not acting ood faith of fore fegitimate purpose in making the demand. The unjustified refusal by tho corporation or any ofits offcers 9 agents to allow a stocknolder the nght of inspection opens up i corporate offizers or agents responsible ior said unjustified refusal ig a sult for danfages, and to @ possible crminal action for violation of © the Code. Bar Question: Don Martone was able to socura @ favorable Judgment against Nestor Pe for recovery of a sum of money and the = said judgment hac become final and executary Don Mariano na inforrned by somedne that Nestor Pe mignt have a sizeable savings deposit with Xene Commercial Bank, of which Don Mariano is a’ stooanotcer, win cre (1) sare registered i nis name. Immediately ho rushed tothe bank and demended fom the bank managerthat he be shown the bank records to see if Nestor Pe really had suck savings deposit When the bank manager refused end invoked ' Repubie Act No. 7405, Den Mariana cited his right as a stookholdo {0 inspect comporaie records. 2) Is the stand of the bank manager legally tenable? Explain, 5) What remedy is availabie to Don Mariano? Explain. (1985, 1983 7 Bay) Answer: a) The stand of the bank maneger is legelly tenable, A stockholders right to inspection af corporate books will have to bow fo the provisions of the Law on Non-Disclosure of Oeposits, which provides as 2 generai rule that the dacosit account of e depositor in a benk cannol be inquired into, by any person, even Including the government. 4 yrtie inst general nite acimits.ct exceptions, the casa.ot Won» \Mafiand d6as neal! under any one of tie exceptions: 4) The remedy of Don Mariano is to securo a wiit-of-exoostion from the court to be served on the bank, ofA Bal eye terete SORPORATION CODE én a a Jer, devoat therein. The disclosure of tne deposit © purely Is ot an inquiry nto the bank deposit bu marty an ee: Decout whether or not the defendant io Roark Ly once tein exe proces an fs corer reas ee eed aa sek by centr to ove paren pigatons 4, Right to Financial Statements 10 days from request of 2 stockholder or member, the: Ral tomish rr a copy of Re most fecort fmancial datemenis including a balance shee! end profit and loss statement. embers, the ilar meetings of stockholders and members, i apon should furiah them © thancal repo of cperatiens Juding certified financial statements (Sec. 75, N.C.C). ¥ Corporate Powers and Liabilities 3 i |A. Theories on Corporate Powers: ‘There are to theories on corporate powers: the theary of general capacities and the theory of special capacities ' < corporation is said to. is nso ganar eopseton's ote Jel Sith poor a6 are ot prot or wihnet tom # by genes laws. ‘The theory of special capacities, on the other hand, advances the View that the corporation cannoi exercise powers exoert those ‘expressly or impliedly given to I. In the Philigpines, the second view applies: B. Clases of Corporate Powers rt sre of @ corporation Ber Question: What are the general power ‘organized in accordance with curlaws? (1946 Bar) Ber Question: Enumerate the powers of the Board of Directors. somersetAnswer: Corporete powers 6: Directors fall under thee clessiicailos ineiental powers Express powers ars those expressly vested in the corp purpose clause of és articles of i coporatow ae of incorporation, the corporetion fnplied powors aro those which can be fal xa sows. and al under ve awwteations, tows 2, Acls in the usual course of business; b. Acts to protect debts owing to the corporation, ¢, Emborking in @ different business, i 0. Aas 10 aid employees. @. Acts to incroace business express, implicg, entities such as porpotuel euacessicn, concession theory? (1972 Bar) comoly with requirements set by the stata heforo the iatter goo may later on be withdrawn by it Snip reserved It as'ong ast obsys the lof ts ‘ 5 is craton. Ther reserved a ight in tho ogelature fo investigate ts cortiats tod j ut whetner it has exceeded it fs us aa ts powers (Bataan vs. PCGG, 160 Bar Question: A was general manager, Ina urig’ which’ ime*itie corpcraboil"tiade Urea! progress After (ne deeth of A, the Board of Directors of X Inc. resolved to aive the Children of A P500,000.00 out of the proceeds of the surance policy sisable through the Boar ‘ncdental pomers are Dowers innerentin al corporations as legal 4 Bar Quostion: in tho creation of torpor on of tomoreions, what jurist prince 1 folowed in the Philppnes. ihe sennossenschat thor er te Answer: The concession theory is followed ‘ ‘ inthe Pritppt creetion of corporations. Under this ihean/ 2 group of persons wanting to creat a corporation wil hava o eeeutsSecumerte od Sa a ae eee i ote cong pararat. Te a ooh & a8 The poners ofa cotporeton arg nes. 2 a make no con rol ators byte care eos ae ae Scupeaion aa fop.toley weare CORPORATION CODE 619 Ean by X Ine. 0. A's fife. The donation was approved by the ERT nolders and accapted by tho donses, Later on, ne siockiokders eto revoke the donalion. Gan the doviees recover? Explain fully wer: The donaticn in the problem, having become irevocable by sience by tha donee, the donor corporation can no longer Hye plied Dower ofthe corporation lo protect ar aid employees and E stockholders subsequent approval of i erased al tints of being vires, I Was So ihe lator act of the stockholders to revoke the donation is invalid, Fad the donees who have not yet received the donation from the Guporation can recover the amaun! from the corporat. late: Under Sec. 36° par. 10, N.C.C., he corporation may establish pension, retirement and other plans benefiting officers, crectors jd employees.) . ‘question: Pursuant fo tie request contained in a resolution of @ Board of Directors of @ corporation, a post office branch was ned within the mining camp of the corporation. Ifthe opening of itn post office branch is outside of the scope of the powers Conterted upuns tire ewiporation, fs such an aot ofthe Board ‘Directors valid? Reason. (1972 Bar) E answer: The act of the board of requesting by resolution, tne opening of a post office in its mining camo, although cutside the F scope of the express powers of the corporation is val, © No doubt, the opening of a post office in the corporation's mining ‘caro not only will erovice Facilties needed by the corporation in the Usval course of its business, but also will aid its personnel and ‘emcloyees. They aie Implied powers of the corporation which it can exercise under the law. Bar Question: AEC Corpcration is engaged in the business of merwigeturing soft drinks. For the pest 10 yaers, ithas bought all its bottes from XYZ Corporstion. Considering the volume of its production, it now finds tet i will be more economical: to menuraciuring ts you oles. “Fhe Board of Directors; iter Stédying*anc discussing the: maiter thoroughly, decides to set aside the amount of P1, 000,000.00 for this project. Most of this amount wil go to the cost of equipment and matenals.CORPORATION CODE COMMERCIAL Law jus, it has been observed that the power ef a corporation to sue Bye sued in ony cout i lodged wih re board reco at Y gisas fs corporate powers. (Premium va, CA, 264 SCRA 11). In Be pysical acta oF the corporation ike the signing of cocuments, Bi Je performed cniy by Natural persons culy authorized for the jpose ty corporate by-laws of by 2 spesiic act of the board of uors (Ghipside vs. CA, 352 SCRA 334; BA Savings Bankvs. Sia, 5 M is @ stockholder of ASC Corporation end is agains) investment in ihe pibjet and wou ike to Wieren ten Corporation, by axatcsiog. ts eoprakal ight. ¢ Me: prose Gam inrough. Ho therefore demands that the project bo submited Cas Slockholders for approval, Dut the Board reiuses f0 do so on ground that there ie no need for such epproval end ta! the cain e birt Stoleies rene would entail too much expenses 8 cannot have the opportunity to exercise his agpiaisel naht tHe wants to sue the Board fo comoel to submt the melt stockholders and to anjoin it from pursuing the project yaa Seon Deets shail approve tt, sa 10 you think the matter needs the stockholders’ tb ection of tre Board of Drectors sunilent? Exalan (108 Bar 4, By the Board ‘The management of @ corporation is vested in the Board The are acis alvays by majonity vote of that number present during far of special meetings constituting 2 quorum, For acts of the vid to be valid, it is necessary in general that the board should Answer: 1 submn that the maiter needs 0 oe rn a Sy prove! by the ME roe na euler or special meeting vail called (See, 25, NCC.) Siockholdere. Tho corporation ‘being engaged in tusingss, the manuiacture byt of Cotes 6 conten Ine sof crn manuizcured by it is mersly-en exeriee by ft of en inplad comporaie power, and ins Impled corcorete power Is exercisable by tha board cf directors alone, without nov ofctoetnolars aoprover under the Corporation Code, unless otherwise provided by said {Gode, coxporate powers, such as the power to enter into contracts, die exercised by the Board of Directors. However, the Board may F jeegate cuch powers to either an executtve commitiee or officials or fontracled managers. The delegation, exeept for the executive fommittee, must be for specific purposes. Delegation 10 officers {rales the latler agents of the corporeton; accordingly, the general E tles of agency as fo the binding evTects of iielr auts would epply I for such officers to be deemed fully clothed by the corporation to | rercise © power of the Board, the falter must specially authorize ithem to do 50 (ABS-CBN vs. CA, 301 SCRA 572; People's vs. CA, 297 SCRA 170). ©. How Corporate Powors Exercised There aro throo levale of central in a corporation: +) the boats of drectrs, which exponsi , which a reazonsile fr corporate poies and the general management of the busine y e adie o siness ifs of fe 2) the officers, who in thaory execute the poll 4 polices laid down by th ioard, but in precios often have wide lattude In determining the Sune of business operations; and the soexlcers who have the rescuel power over fund Serorate changes, ike amoncmens of heel of inosrearevon Contracts or acts of a corporation must be made either by the © oard of drectors or by 2 corporate agent culy authorized by the foard. Absert such valid delegatiow/authorization, the rule Is that the declarations of an individual itectar relating to the offers of the corporation, but not in the course of, or connected wih, the petformance of authorized duties of such drector, are heli not binding on tne corporation (AF Realty ve. Disselman, 373 SCRA 385) However, ust as 4 natura person ay author 2 cota ach 9 hs beta 30 ay the board ef drectors of s corporation validly delegate some of its functions to indivi : : dual offioers: or agents appointed by it (Citibank vs. Chua, 220 SCRA 75; ‘Visayan vs. NLRC, 196 SCRA 410, BAvs. Sia, 336 SCRA 484) 6 SR aaa eR ee x Scoparston hes napons snc2pi hose arcs cootaic ans 8 te CoTporaice Code and nose tha oie tip ed a recenlic its existence. In turn,'a corporation exercises said powers through 18 bead of crviowe andor te Guy cuhorzed afer ane agents. While 2 corporation may appoint agants (o enter into @ contract in is,baralt the agent should not exceed Nis aullntily (APT v9. OA, '300 SCRA'S79): Wher the corporate Oificers exceed theif autianity, their actions cannot bind the corporation, unless it has ratified suchox COMMERCIAL LAW els or i estopped ‘rom cisslaiming them (Sen Juan vs. cA i SCRA G31), % The Court has aiso recognized the rue thet persons dealing an assumed ageni, whether the assumed agency be a geneay Special one, are bound at their peri if they would hold the pringpah liable, to ascertain not only the fact of agency but also the nature oy ‘xtant of authority, and in case either s controverted, the burden pivot Is upon tem to establish it (Keeler vs. Rodriguez, 4 Phi Unless duly authorized, a toacurer, whose sowers are inte Gannot bind the corporation in a sele of lis assets (Ibis) : the scape of an apparant authority, it holds him out to the public aes the power to co those acts (LapuLaou vs. CA, 421 SCR ‘The power to purchase real property ia vested in the board of directors or trusiees. While a corporation may appoint agents to | corporation, the final say will have to be with the board, whose approval will fnalize the transaction, 4 corporation can only exercise its powers and transact its business through its board of directors and through its officers and agents when authorized by a boerd _ resolution oF ts by-laws (Firme Vs, BUKa, 474 SURA 190; Ue Leano vs. CA, 370 SCRA 349), Authorization from the board of directors of a corporation is not feoossay here a stockade is not adtng on behalf of the corporation but in his own personal capacity (CMH coda pacity (CMH vs. CA. 378 ‘The power of a corporation fo sue and be sued in any court is lodged with the board of directors that exercises ils corporate powers. In the absence of an authority from the board of directors, no Person, not even the officers of tha corporation, can validly bind the corporation (Premium vs. CA, 264 SCRA 11; Visayan YS. NLRC, supra, People's vs. CA, supra} JeNo.personehot:even its officers,“ could-validly-sue-in- behalf of a” ‘corporation in the absence of any resolution from the governing body authoring the filing of such suit. Moreover, where the corporate Ia corporation knowingly oermits one ofits officers to act within negotiate for the purchase of real propery needed by the CORPORATION CODE ce) as an agent of the corporation did not derive from |d nonetheless be necessary to show 3 clear ce of authority from the charter, the by-lavrs or the implied acts fire eoverning bocy (Soctal vs, Commission, S84 SCRA 543) Fite complaint chould be dismissed bacause it was not [gebished that the members of ihe boars who authorized the fling Aine complaint were the lawfully elected officers ofthe corporation pnfor' vs, Monfort, 434 SCRA 2/), F The corporation transacts its ousiness only through its oficers or ts, Whatever authority thoce agonts may have is derived from fie board of directors 0° other governing Dody uniess conferred by e charter of the corporation. An office's power 2s an agent of the erporation must be sought from the statutes, by-laws or in the fegation of authority to auch officer from the acts of the posre, ‘mally expressed cr implied from a habit or custom of’ doing snes (Boyer-Rovas vs, CA, 211 SCRA 470; Aguanza vs. IAC, B71 SCRA 1; San Juan vs. CA, supra) ‘Tha guilty directors cr officers are the ones who should be liable y the demages, if any, ouffered by the corporaton (Asset vs. ‘andiganbayan, 360 SCRA 437) If'so authorized by law, bydaws, amucies oF incomporaiton or DoerS jution, an officer, net a director, may appoint an agent to act fore forperation. Such are referred to as express powers (Citiaank vs. iChua, supra) © tls a fundamental principle in the lew of egency that every elegation of authority, whather general or special, caries with ss the contrary be expressed, moled authority to o-al of those cts, raturely end otdinanly dono in such cases, which are Jpeasonanty nacessary ane proper to be done in order t cary iio tle! te main authority confoed (bid). fA coard resoluton appointing an allomey-ifact to represent tre [Bcorgoration in the pre-trial is not necessary where ihe by-laws [Jsutronzes an offeet ofthe corporation to make such appcintment Hav) “Cahe bdatd oF direst6rs flay lS bs Empoviered Underhe biSaws to create additional officers as may be necessary (Nacpil vs. Intercontinental, 378 SCRA 853)| | “authority, if herebts within thé scope of his’ apparent authority with COMMERCHL LAW CORPORATION CODE is ig cllowad to exercise a panicular authority with respect (0 the ness, of a paricular branch of it, continuously ane oublcly, fara User Gerabie timo, tho corperation will be in estoppel to deny thet te aoparent authority 1s "al, as 10 innocent third persons dealing i auch offizers and agents (Vao vs CA, 209 SCRA 763; Solervs 368 SCRA 57; San Juan vs. CA, Sucre; BPI vs. First, 429 e corporation by the same persons who wrongfully a: scunee ‘as goveming body having. cuthorit such’ e Seeanies etc ndek omarnasomatoig ‘The power to borrow meney is one of those cases where : ial \ is a rent authority is derived not merely from practice. Its spelpee fare) aed. ere sarah aco Mate ye ny taine trough (1) tre genefal manne: 1 Directors (Ibid). io be apprved by is Boag et tine corporation holds out an offeer er an agent as having the one wor, he epparet euttorly © a3 Fe oe clothes hor) ibe aazuloecence nis cls wth cova gr constucive kote Neeot the within ot. beyond the scope of his powers. It requires yoniafion of evidence of similar acts) executed elther fils favor SE cation Ws rat tno svaniy of endar cts a eco apngrent autor, but the vesting of @ corporate oe he pouar te bind be comporation (People's vs. CA, fas The property of the corporation is not the property of sour arta onda ttoakholer ithout express autgorization from the corporation Of directors (San Juan vs. CA supra) ie If the by-laws of the corporation requires the 1@ presence of three (3) only is not a quorum 330 ‘SCRA 717). 5 i cma __Where the by-laws of 2 corporation reserves to the stockholders ine power to determine the compensation of the directors, itis not ithin the power of the board to enact a resolution oroviding chemselves with compensation for additional cuties (Central vs. Tite, 153 SCRA 593), Courts cannot undertake t : direciors about saminstsive raters eo le whch they hale ae legitrste power of acon, and contracisenterec ino by the board Girectore aro birding upon the cerporetion ans cous wil interfere unless sich contracts are 30. oppressive. and urcoracinebl oie amounts a vane cent of he famboa vs. Victorian, ove te may SO SCRA, Salas SEC, 150 | a private corporation intentionally or negligently clothes ts ‘ficers or agents with apcarent power to perform acts for it, the F corporation will be estopped to deny that the apparent authorty is Heal as to innocent third. persons dealing in good ‘faith with such officers or agents. When the officers or agents of @ corporation “exceed their powers in entering into contracts or doing other acts, the corporation, when it has knowledge thereof, must promatly disafirm the contract or act and allow the olher party or thd persons tp act in the balief that it was authorized or has been retfied. fit acquiesces, with knowiedge of the facis, or fails to disatfim fafcation wil 62 implied or else it will be estopped to deny fatfication (Premiere vs, GA , 427 SCRA 686; LapuLapu vs. CA, 427 SCRA 228). i @ person acts fr @ corporation and deals wth anoint rt having notice of the want of authority, if it is shown that the beard of. dieclors had parmited the agent io exerase tat auinoty. of acquiesced in a contract entered into by saic agent, and retained the: a Berets carsegent here coporion ie band notwithstanding the fact that actual auth may n t issued (BPI vs. IAC, 164 SCRA 630). Pee ae Although an officer or agent acts without o- in. excess of his which the corporation has ‘A person who inerely acted 2s representative of ‘a corporaiion in iS es clothes in ey boda fim bul oe signing a contract. could no! be made personally liable for the permitting him to appear as having such authority, as where an628. nt ROMAD LAW corporation's failure to comply with its obligation thereu Wencasiao vs. Readycen, 433 SCRA “esr Bar Question: A group of stockhaldere of Soserns Corporation 2 court suit agains? the members of ihe Board af Directors to g00d to ihe sherehotdors,h procorton lo ther sherenotaned Sf (asses ncured by the comoration because of the dofordant ect of Directors’ mismanagement. i: Valine acton prosper?” easors Answer: No, the action wil no! prosper. It is not enough to si that losses wore houmed duo to mismanagement Is neces that the stockholders who, brought the suit should show thet f losses were incurred due to the fraud and malice of the celendan dieciors. If the cause for the loss is merely error of busine Judgment the directors could not be held able for ne loss. The remedy in the situation is to remdve the emrent directors by, ‘s0lution of the stockholders representing 2/3 of the outsiandiny. eapital stock, in a meeting culy called for the purpose. a Bar Question: Where the board of directors of a comoratiog consists of nine membre, lwo having died during theft term of ofes | one being abroad, what would be the quoam? How many affirmative votes would be necessary 10 pass a resolution? Explain. (1970 Be) Answer: in a boerd of nine members, the quorum Would dé five. And it remains at five inspite of the death of wo and the absence cfone who is abroad. ‘The majority of that number prosont and constituting a quo! T ran voting afimetiely for @ reschiton ‘can vally pase We, cold resolution, In the above example, if all Six of the semaining members of the Loard of irestors are present in a duly called for meeting, ihe affirmative vote of four can validly pass a resolution. If only five are present, that number is stil a quorum, and the affirmative vote of three of the five cen validly pass 9 resolution, Bar Question: Can ihe president of @ comoration or the chairman of the board of directors bind the comoration? Explain. (1960 Bar) Answer; No, ine Fresiaent of a corporation, or the chairman. of its ‘boait of directors taiinot bird tie Sarsbration because the powers of @ camoration generally reside in the hoard of directors unless the board delegates specific powers to the President. Resolutions FS: relied... Ratifoation: can be, made-by. the. comarate boar either Question: Which of ine folowing corporate acts are valid, void voldable? Indicate your answer by writing the paragraph rumber i tho query, followed by your corresponding answer 2s “Val” Toit” or ‘Voidabie," 2s the cese may be. If your answer is "Void, jplein your answer In the case of a “Voidahle” answer. speci Conditions must be present or complied with to make tho mporate act vac OT XL Foods Corporation, which is engaged in the fastfood jsinoss, entered inio a contract wih its President Jose Cruz ereby the latler would supply the corporation with its meet and ulby requirements. Pee, The board of directors XL Foods Corporation declared and paid gaan dividends without the approval of the stockhafders 3. XL Foods Corporetion gueranteed the loan of its sister ompany XL Meat Products, Inc. (2002, 1996, 1995 Gan “Answer: (1) Voidable - The transaction with President Jose, @ seli- | is yoidable, at the option of the corporation, unless BI the following conditions are present: That the presence of such director in the board mooting in which = ho contract was epproved was nai neeassery fo constitule a auGrUM = for such meeting |b. That the voto of such director was not nacessary for the approval cof the contract That the contract is fait and reasonable under the circumstances 4. That in the case of an officer, the contract has been previously aithorized by the boerd of directors Where any of the first !wo conaitions set forth in the preasding F paregreph is absent, in the case of 2 contract with a director, such coniract may be rated by the vols of the stockholders recresenting at east tworthiras (203) of thie outstanding capital stack (Seo. 32, NCC) (ay ‘li — Cash dividends are declared by the board only. There ts ro need of stockholders’ aoprovai (Sac. 43, NCC). (3) Voidable - The guarantee of the ioan of XL Foous Corporation to lis sister company 18 en ultra vies act boing an act not within its oxpreseee, incidental arimpliad powers. However. such act may be express or imptedly. iinelied reification may taxo varous farms ~ Ike silence or acquiascence by act snowing approval or adoption ofos COMMERCIAL LAW the contecl, cr by acceptance and therefrom (MWSS vs. CA, 297 SCRA 287). ee Bar auectn Pelaven om Pres of f ident of TF Corporation, wr i letrto Grog, ofonng tel foto later 3.000 begs ag at P100.00 per bag Gregorio signed his conformity to the lettan. Ofer ond pa a dovngeyment : P5 i Ceirnn error Tete Gregor ot he desu oe id of Directors not to ratify the le(ter-offer. oe & fertizor which Gregorio esc ris accepted. Tr made t dein, sult te conics an ania “now ante alter, Gregorio sough! eniorcement of the letter-ofter, ; is nding con 5 there 8 binding contract for the 5,000 bage of Fertizer: = ae Bar Question: Explain. (1996 Ber) : Answer: There is no bind contract between TF Ce Gregort forthe 5000 bags ono frizer. Tne case at bar does indicete that Rodmen was clothed with the authority to sell the 5.000 bags of fertilizer. In the absence of an autherity from the board of directors, no person, not even the officers of the coporation, can | validly bind the corporation (Prarmium vs, CA, 264 SCRA 11). Likewise, TF Carparetion, by delivering the 500 bags, made it 3 clear that # was an entirely raw transsetic th aw transzetion since tho erovious transaction with Rocman was not ratified by the comporation. By Gredoro’s azoeplance of the bage without prolate agreed that een Se a ts a ont ce Faeasi Bar tion: Israel, er "2,yar manager cont Conta! and managomart of ashe’: sushess and afare Sate treat les ores cr eco uated exes fe imran tre oe fr Tudo ajucloaton ht he menapemen’ santas veld? (fora bag =eetent 6s Answer: No, the delegation hy the board of cirect ard of directors of Noha o fn Ae ragernant: of ie bueisBeantid athe limutetic Sele (hvough the laiter's president, is invalid, ‘The total delegation of corporate powers by its board is not only unnecessary bit conan tolaw. That ho oxoreice of ai éoogsted Gregoro had arads paid the doursaymert TF colored S00 ee = wliolt CORPORATION Got wars cannot be terminated excapt by a court order all the more ‘siges on tho abdication, without reservation, oy the Loard of ower © superse anki manage the business ofthe corporation. PP eiance, { submit thet the management contract is invaild ie! Under Sec. 44, NCC, a cotporation may condude a Wofagement contract with another corporation for 2 pend not wing five years, which contract should be approved. by the mt of both corporations, and by stockholders helding a majority of ‘uistending capital stock or by a majonty of he memes ul bot ations. The majority requirement is increased to 2/3 in case of jerocking directors or ownership by the same persons of et least 2/3 01 the stocks In both corporations.) At an ennuel mesting of stockholders, a resclution syas approved empowering the president of the corporation to enter Hy fio 2 contract with a Nevs York firm. Can the President validly act by FEE rue of said resolutions? Why? (1946 Ban) ‘answer: No, the president cannot validly ect by virtue of a resolution Sassed by stockholders in their annual meeting. The powers of a Zporation, especialy the execution of contracts, are exercised FTrougn resolutions passed by the board of directors ina regular or special meeting lawfully called. ar Question: if a comporate lawyer who 's af ts seme time the aministrative manager of the coporation onters into 2 compromise ggreeme* in court so that a case involving tne corporation could be eetied, would the corporation itself be bound by such compromise agreement? Reason. (1976 Bar) ‘answer: No, the comoration will not be hound by the camaromise agreomont in 2 court case entered by Its corporate leuyer and admnistrative manager. nip tho board or a psesn-delegated.by sai! board to enter mto the compromise egreerment can bind the corporation Ber Question: By a resolution of the Boor of Directors of = 7A Corscration, its general manager is directed to purchase a cuantty 0 {| reo at P12 2 cavan. To implement the resolution, the generat {31 ranecer buys rice at tha! price. But the treasurer of the corporation FY pluses 10) fake ‘delivers ofc hee, oougiic.eavlahing. thet she eeknolders considered the price too high and in 8 mealing duly I} cared for tre purpose, neve aperoved a resolution repudiating the © purehase, : ‘i { i 620. COMMERCIAL Law: May the seller of ine rice comps! ihe corporation to respect tp sale and pay the price thersan? Explain yo: 163 Answer Yes, the sefor ofthe re can éomp the comport rescoct tne sels ed pay the cre hereon. & resouton pnssoa the board of directors of a corporetion binds the corporation, andi where the general manager of the corporation acis under author that resolution, his actuation is the actuation of the board. ‘Tha! stocxnolcers by tneIr collective act cannot countemand a resolution valiely passed by the boara. Henos, the corporation in the problem can be compelled io. respect the sala and pay ths price. Bar Question: Tho president of @ domestic corporation hued a) privaie secretary at a salary of P300 a month io assist him in his office. The by-laws of his company were silent as to whether he haa the aufhonty to engage employees. Actually, the other employees of the company wore engaged by the generel manager with ihe | approval of the board. After working a month, said private secretary + & tried to collect her salary but tho company cashier refused to pay her alleging thet there Was no iter in the budget for that purpose. The said employee thereupon filed cuit egainst the corporation for the collection of her salary. [s sne entitled to jucament? (1950 Ber) ‘Answer: NO, the Secretary 1S not ented to collect ner salary from | the corporation. The hiring of employees is done by the general manager with the approval of the board, and not by'the president. ~ This is without prejudice to the secretary collecting her salary from © the Prosidant personaly, Bar Question: Stikki Cement Corporation (STIKK)) was orgenized primary for cement manufacturing. Anticipating substantial profits its Prosident proposed that STIKKI invest in (a) a power plant project, (2) @ concreie road project. and (0) quarry operations for limestone used in the manufacture of cement a. What corporate approvals or voles are needed for the proposed investments? Explain. b. Desenbe ths procedure in securing these approvals. (1996 Bar) Answer: (3) Since the power plent and concrete road projects ere rot related 0 ne. manuracture, o| cement, winch. Js.the orimeny. purpose: foPlwhish STIKK} was incorporated, STIKKI must get the’ approval of majonty of the board of directors and ratification by SGRPORATION CODE 631 doknolders representing | lest two-thieds of the outsianding ital Siok Zas to the quany operations for limestone, il is refaied to the smenufecture of comant, honos STIKKI nesd anly get the approval of ipeonity of the Board of Directors (Se. 42, NCC), [n} The procedure is as Follows: E74, Notice to the directors of the mesting, stating the purpose inereo! ‘i “2, Approval by majority of the directors 1. Written notice to the stockholders of the time end place of ting, stating the purpose thereof "4, Relilication by stockholders representing et least 2 of F outstanding capital stock Directors are entitled to reasonable per diems for attendance of dard meetings. Compensation other than per diems mey be granted to directors by resolution of stockholders reoresenting al least 2 malorty of the outsianding capital, which total emount, however, shall not exceed 10% of net income before income tax during. the preceding year (Sec. 20, N.C.C), Vote or Intervention 2. Acts Needing Stockholders’ a, Vote of Stockholders Holding Majority of 3 Outstanding Capital Stock | 1) Fhting of issue value of no par value stocks (Sec. 62, N.C.C.). 2) Adoption, amendment or repeal of by-laws (Sec. 58, N.C.C.) 2) Compencetion, other than per diems, for directors (Sac. 20, NCC). b. Vote of Stockholders Holding 2/3 of Subscribed Capital Stock 4) Extension or shortening of corporate term (Sec. 97, .C.6.), 2) Amendment of artisles fo increase or decrease capital stock (Sec 38. N.C.0), 9) incurring, éreation or increase of bonded indebtacness (Sec. 38, NCC), Bar. Question: Deline tond.and. gue its essertay.juncnanseqt¥o, Sa)j oR a COMMERCIAL LAW CORPORATION CODE 633 Answer: A bond, #2 used in tho Corgoration Law, is 2 cerltcate op ncabtedness Issued by the corporation fer monay borrowed irom the ubloin nora. it used by to comoraion wire the some Fees cpl m 0 amounts nf as eet Nave oa inoroade is caplatecton z 14g) Removal of directors (Sac. 28, N.C.C.) i} Voluntary dissolution of corporation (Secs. 119 and 4 3. The Executive Committee * The by-Janss may create an executive conimitiee composed of not than three directors to be eppoinied by tho board. By majority @ of said committee. it may act on specific matters within the yrpetence of the board, as may be delegated to it by the by-aws, py the board Bar Question: Is registered bord transferable? ls # negoliabed 4 How? (1956 Ber) 4 Answer: A registered bond, which by its nature is registered in the. books of the corporaiian in the name of the Bonaholder. can be transferred but only by assignment. tis noi negotiable because it /S made payable in the name of @ specified person only |The following matters, however, cannot be acted upon by this sporoval ao, (2) tiling up of vacancies in the board, (3) nendment, repeal or adoption of new by-laws, (4) amendment or Bar Question: Define coupon bond and cqnvertible bond, and neal of an irrepealable Doerdtresolution, and (6) cash dividend explain briefly their utility and negotfabilty. (1956 Ber) Answer: A coupon bond is one with detachable coupons bearing dates end amounis, which on surrender to the comperation on the. dates stated, entitles ihe holder to receive cash which represents interest on the bond up to that dats. A coupon bond is payable io bearer, end theseiore negotiable by delivery. A convertible hand is one enttiing tne helder to exchange it with other types of bans D, Special Corporate Powers 4, Eminont Domain 8, Uso of Private Property No private corporation may cceupy or use property without the joneent of the owne's of prior condemnaton proceedings and paying or tendering just compensation. 4) Approval of issue of shares in exchange for properly needed for corporate purposes or payment of prior debts (Sec. 39, N.C.C.) 5) Sale or disposition of all or substantially all oF the corporato assets (Sec. 40, N.C.C.), 8) Investment of funds in cnother corporation (Sse. 42, N.C.) 7) Investment of funds for purposes different from those siatéd in the articles of incamoration (See. 42, N.C.C.] 8) Stock dividend deciaration (Sec. 44, N.C.C.) 8) Execution of management contracts (See, -b, N.0.C). 10) Delegation to the board of directors of the power to amend the by-laws, or adoot new by-tavs (Sec. 48, N.C.C), 11) Other amendments to the articles of incorporation (Geo. 16, NCC) 12) Raiicaton of certain corporate contracts with a director or officer (Seu. 92, N.0.0.) See H@xBaiicatlonionaequisition Of BUSHES Ooparidnity By's director: officer (Seo. 34, N.C.C.} 14) Approval of mergor or consolidation (Sea, 77, NCC) % 2. Franchises: ‘There ere two classes of franchises in corporations — the general ‘or corporate franchise, also called the primary franchisa, which is the franchise to exist as 2 corporation; and the seconcary franchise wihich is the right granted by the staic to: use public property for public use but with a private profit The special corporate power referred to here is the secondary franchise. ‘The rant to operate a messencet end delivery service by virtue of | jieilegislative enacimentis'a secondary tanchisewi2S:¢se1 mperial, 41 SORA 634), ‘oF14 COMMERCIAL Law 3. Investment in Other Corporations tor Pummeaas Sing ‘Those Stated In Articles Bar Question: When may a comaralion invest its iunds in ano th | Sommaralion or business or for eny other purposes? (1096 1947 Bg Answer, 4 comoration may invest ts tunds in another corpor tre PACES OF for any niher purpooce only i Uy can Comme wth the following requirements. i i) the invesiment must be approved by @ majority of the ore directors or trustoss, 2 fhe investment must be rated by the stockholders represa, a leas! hve thirds (2/2) ofthe outstanding capital stock, or at eas two-thirds (23) of the members in the case of ron-sice tre tations, at a stockholders’ or members! meeting duly pled for. tne purpose, “2 iten notice ofthe proposed investinent and the time and plage. | ofthe mesting shall be addressed ts each stockholder or member at iis place of residence, (Note: Answered under the N.C.C.) Leintifs-apeeliants contend that the investment of corporate Lunds by the defendant-appellents in another corporation constitutes Gout teh Of Section 17% af the Comoran Lew, ThS SupIaes coee that such an act, if done in pursuance of the compere oe vote of approval of the stockholders Is necessary and faree, sales that when the purpose or purposes are stated i te aries fa Repeat the abaroval of the stockholders is not necessary (be fa Rama vs, Ma-ao, 27 SCRA 247) Je lover court's order resttaining the appeliant corporation from aking invesmenis in other companies whose pues rat e eacted with the sugar central business should be reversed, The fo petalse Section 171 of the Corporaiion Law allows a corporates pups funds any other comporaion or busmese, of rary Provicea gree tiga the main purpose for which it was orgenizes Srnrmeae ayts BORtE of directors hao been su wuthonzes oy. the Stimatie vole cl, stockholders iaingishaeeonittne orc “Si exeise at ledol two-thirds of the vating power (Ibid) UGRGanoneseans EST RISE CORPORATION CODE 638 ie reo nies eee c falfied by stockholders holding nds in another corporation may b= See cen ens Question: M Corporation is @ Philippine Corporation engaged in ration wants ( oi eraions in deap see fishing, ihe corporation wal Erde I goreral consmiion bushes, one Of fs sarees poses. tho do not mant are the nights of the minonty stockholders ho 5 dro tho corporat tunes i. aaonaeny urpoce? (1977 Ba 1 e the board such "Anawer: Tho stockholder who did not vote to allow [puonty may. within #9 doy fom the Gate pes: waning and demand payment of his shares for an amount agresx hhin and the cororaton, f'no aureement is washed, than for any Caneunt determined by thee datterestc persons, one of whom F shall be named by tne stockholder Sorcemed a Second, by ton, and a third by the twa thus chesen, "nnn 30" cays trom sad ascaranment of th pice, the _ corporation shall pay tho amount te tho stocitolder alled the right ‘The withdrawal nght under the old law is now c: i E il operaeal ‘The periods to demand [now 30 days}, and to refer the © matter to a committee of three disinterested persons [now 80 days], + have been modified. ((Sec. 82, N.C.C\), E. Special Limitations on Corporate Powers yoted fom n: Whal particular corporations are prohi havg by lorect ih lhe’ omporaloca? (1847 Ba Anawer: Corporations engaged in spicuturrare pried fom Bean ay Hae ay aD coipenion cain ft purpose of engaging in agriculture. The seme finiletion extends ‘ising corporations Bay Question: Extent and limitations of tha power of Philipsine ‘corporations to own real estate. (1958 Bar) 1. BE OM ).CAN .-<¥. 7 A_Enippine .comporeton pai. a, realty-sojperation cor Rife aera iY Uf 18 the extend thal the purpose for ue the comoration was formed may permit end upto the extent that the Jawful business of the comoration may require. It cannot engage in the buying and selling of public lands. Aeh af aga pSiiancS Untrd vned Ber FBISIS 18 GAS Uhich is not CORPORATION CODE 337 in the exercise of the jncorporation or not necessary or incident F. Uli Vires ae E powers 9° conferred (Ibid ) Where stoskhalders, except for one, also sil ao members of the soard of directors, it will be illogical and superfluous & require the see cnolders’ approval of certain resolutions adopted by the booré of rectors (!bid.). 1. By the Corporation itself Bar Question: What is ites act? Gi 9 Be 20 ulira vies act? Give ai exemple. (1943 s Answer: ‘i : An ultra vires act is an act done by a corporation outside of. © an ultra vires act is one corrnited outside tho object for which a 3 aiporalion is created as defined by the law of ts organization end the express and imelied powers vested in ty on : lan; Example. @ merchordse coparston ean tna EAP. eretoreboyend ine power covered upon it by law The term ultra ae ne Tes is distinguished from an legal act jor the formes is merely tes Canieh may be enforced by performance, ratfcalion, ot pel, while the latter is ‘void and cannot be validated (Atrium vs. BCA, 353 SCRA 23). ‘par Question: Distinguish between utze vite acts andifegal acts of private corporations. Mustrate the dsncticn. (1970 Bar) a. Settled Rules YA wholy execu executor ula vires contact cennot be @ connot be entor. 2) whol cated Ua vies contact on oof ts il i a ie le nor interiered with by courts;, ie ning lira vires Contracts executed by one party but executor er, recovery may be had under the. pring Pee oer eo principle of urjist answer: An uitta vires act of @ private corporation may be | differentiated from an illegal act, in the following manner "4. Anuttra vires act is an act, ‘not necessarily unlaveiul, but outside the purposes and authority: ‘of the corporation io perform: an itegal ‘act is an ect which goes against ‘the law, morels, public policy anc a fe ocr and mererere unfantul for ary comorstion pati pe An ullra vires act may be ratified: an legal act cennot be ratified: 3, Anultra vires act, if fully or pertly ‘executed, can bind the parties to it, an illegal act cen never be: binding. tustraton: a Ne nres ect — @ corporation principally formed for general merchandising, engaging in the real estate business, although that ‘purpose is not included in the purpose clause of iis articles. 2. illegal ect — a bank as en insurer: for another person. ‘Contracts ultra vi : es entered Ino bythe boas inn onthe srorton and suena reruns) gnats ae s copresse aha Unconsdonebe 2s to amcuniio a Victoriano, 90 SCRA 40). Re ee cae ara Senora es thet = comeration, through its board of iecee sole site the manner and wine fomates, ay by the genaral law. Thus, directors must Bosc , directors mu fel at boty fn & mectng cated pursuat to the lew ori W's by-laws, otherwise, any Saton taken theremn rey be questioned by any oblecting airecior 0: Fontee! f shareholder (Lone: smcendd7 SNA 182) eee 2, By Corporate Officers Whete similer acts have been approved by the directors 2s matter of general practice, custom, and policy, the general manager Tey bind the company iwithout formal authorzaton of he board of Gractors, In varying language, existence of such authority is eatabisred by proot otc course of business, the ISAGES, an ‘practices ofthe cortpeny-any bythe inowledgeswhich.the board of Fireotore has, or must be presumed to hav, of acts and doings of = citotdinates in and about the affairs of the comoration. wmere the An calor ofthe bogid of rec (sci aatha a ROS sega ao foe, mayb raed ste sorte, ye gsi lite aves in sleeeqn egal ecg: pie 's subsequent course of conduct (Ibid) x the corporate powers conferred by the Corporation Code or artcles533 COMMERCIAL LAW practice of the corporation he negotiate and sxect in NACOCO's behat witout arior boar WAGOCO's bel ut prior boart approval ‘tae, by its acts and through acquiescence, practically laid aside ihe bylaw requirement of rer 2 oval ihe corracs ofthe manager, under the given circumstances, ae vald. corporate aut ‘ (Board vs. Heirs of Kalew, 20 SCRA 987) Acoroials omer enue th 6 control of its business, has implied SO rea has plied author 10 Go any other act urich s necessary or appropiate ne conduct et the ordinary business of the corporation. As such officer, he may, wnou any spacial suthorty ror he boars of directors, parfomn ah as of an ctdnerynetue, which by usage or necessity te nce: fo he offee, and may bind the corpora roots ' ind the cororaon oy contacts Sah inthe cual counscttusness (Wa)? Ratfcalon by a corporalon of en ration unauthorized a is ofr or oer rises bank to he tine of be ae or coray ratified and is equivalent to the orgi iginal authority, The con 2 the erent tnthe Vaacton ath pana seme psi as f tie acl or contract had been authorized at ths tne. The aon eae ‘of a contract by a corporation is nothing more less than the meking of an original contract. f Sara alten aries nthe Wt ee |, and ratification or edootio iv E m7 ‘and original authority (\bid.). ee The bank is estopped from questi oning the authority of maragerip enter te cones ha corporaton sonny alo Sige soe 09] i ine 4c NT ae it holds the agent out to the publi ase Vee fo cas ak ee copaaball ce inst enyone who had in cood faith desl with i through agent, be estopped from denying the (Rua Bank a the agent's authont a Olam, 388 SORA 96, Las ve, GA, 855 SCRA GOA, Se soled is the precept tat ratfoa mn tification can be made care board ele! exresy oy impiety tnled atten ay take various fors ~ the sien Trouiny onervel or edesten tie cathe oy soups ord 1 of bpneiite owing therefrom. /MAWSS.vs, CA, 207 SORA. CORPORATION CODE 938 4 question: X a domestic corporation, owns and operaien ¢ gar contral, in 7965, the ‘President of X invesied Pt million of ee oy und in shares of A, a dames: corporaten engeged any lure of sugar bags out of Dagesse as basie row material pecame the biggest ‘consumer of the bags produced by A. 1 1907, beet own is operations du 10 gh cost of production and huge ces already suifered. ‘Stockholder 8 of X assailed the investnent violative of te ‘Corporation Law. The Board of Directors of X then soe rated the investment made by iho President ‘What is the effect ‘of the ratification by ine board? Reasun, Ig B's claim valid? Reason. (1971 Ber) sor. wns ratitcetion by the board of the act of the President investing Dinas of tne corporation dd not operaie fo valkiste ihe Epresicent’s act Foporalion is on extraordinary comorate power which can be Sed by its noard of directors only on authonty trom eee eegers holding at least 2/4 ofthe outstanding capital stock of ccmaraton, the decision being made in a reguar or speci! meeting of said stceknalders. (pre claim of B that the investment is volative of he Corporation aw is not valic. Law ® porations are expressly authorized by the Corporation Law 10 E pvestin the eauily of other comporations. Honey, before ofher irvesje-can do so, they should be eulhorized by stockholders hcidind oct 2/3 ofthe outstonding corporate capfal stock. This aulhorty ffom the stockholders is what Is missing in the problem. a, Effect When There is No Ratification Under Article 1898 of the Civil Code, the acts of en agent beyond F ne seope of his authority do not bine the erinepal unless the ter ents ine same exprecely or impliedly. It also bears emphasizing rats en the tnird person knows that the agent wes acting beyond Tie power of author, the principal can rat be held Hable forthe ects thine agent If the said third person is aware of such limits of ot ahorty he is to blame, and isnot ened to recover damages ev Fe gent unless the latter undertook to secure the principal's ratificatian “There was no such ratification in this €ase, "When Monteverde ‘entered into the speculative. ‘contracts with Safic, he did not secure ester of tunds of corporation in the equly of anotneroa COMMERCIAL Law CORPORATION CODE the Stan sepicial saan . fe also de not subrak te cos 2euc fa terconnmmaton=o eure wns hag tosses lor rat tion, ne facts wers not reported: a 22es boo ard tu bos mtn NG feos a cunts nocoata a ee Board ef Directors, not Monteverde, exercises corporate cate Ste omer Spots conan vs oe va 10 an an lerefore enor ts HE (Safle vs, Imperial. 2855 SCRA 550). ucenne comers enti HHaCis to thy «elf was deing transferred to 2nd placed in the name of the Gapncration. Thai jabilty of the corporation should continue to Herc with it even efter the percentage of the estale’s shares of Pisin the corporation should be diluted (Suan vs, Akcantara, 127 RA 834), Even though a judgmert, decree or order is addressed to the jrpnration only. the officers as well as the corporation iiself may be punished for contempt for disobedience to its terms, ai least if they frowingly disobey the court's mandate, since 2 ‘ewiul judicial G. Constitutional Rights of Corporat rporation 2 Perimand to 2 corporation i in effect a command fo the. officers ame end a distinct legal entity, ee organizing itself 2s a collective body, ft w ‘ , it waives n inmurites appropriate fo such besy a gpery one gta woul ust compensation. It can ony be proneeded againet oy de law, and is protected egaine i (Sacre ve aa ange Reed east anew sci § the residence of a corporation is the place where its principal iptice is established. It can be suod in that place, not in the place re Its branch is located (Clavecille vs. Antilon, 19 SCRA 378). ‘The princioal piace of business of the suing corporation, not the While an indiviuel may lewflly refuse to answer inerminating mie PECE of esidence of ite Present, dtormines venue fr sue by he uestons unless protecod by an an ah sion ules iota, dows n that comoaton, vestec wth spocalorvieges and fareti seo fefuse to show ils hands when cher ae herged with an abuse ot the A camaratinn has no residence in the same sense in vihich this erm is applied to natural person. But for practical purposes, a F corporation is, in 2 metaphysical sense, 2 resident of the place F yhere its principal office is located as steted in the articles of “Tneorporation. The Corporation Code precisely requires each “corporation t9 soecity in its eticles of incorporation the place where 1 principal office of the corperation is to be located which must be: >uithin the Philippines (Seo. 14(3)). The purpose of tis requirement is to fix the residence of a comoration in a definite place, instead of allowing it to be ambulatory (Young vs, CA, 223 SCRA 670). Corporations are not entitled to tit : al the consttuionelprotecons which vale indvale have. They arene ata wise sees eins slFinciinnatcn athouph tat prvloge tone ve sty with the search and sei isi Sore Gent and seize provisions (GASECO va. PCGG, 150 H, Corporate Liabilities Actions cannot be filed agains! @ comoration in any piece where the corporation maintains its branch offices, To allow an action to be instituted in any place where the corporation has branch offices Would create confusion and work untoid inconvenience to said entity By the same token, a corporation cannot be allowsd to fla personal eetions in a pleee other than its princicel place of business unless isochia place ig. alzo:the resicenoa of a'so-plainitif or 2 defendant (bic.) 4. Contractuat 8 comoraiion is bound by contract be entero nto i Gaun by contacis entered ino, or authorized ‘As belween the esiate nf Ruam and oe of asta dingsito, bendiesthetretisportst p2t812. pro bifsinGss F the estale, the corpc ie, rporation would ist and perce obiuetons of te estale, as te Uanepea aa the corporation furmed aurngCORPORATION CODE 63 COMMERCIAL LAW TWF ony 0 ts directors” is conspicuously deleted in the new rule F fiarosa vs. Benito, 312 SCRA 85) Under the Ariolos cf Incorporation of Mang Industral Corperstion, its prmcinal place of business shall bet Pasig, Metro Mania. The priacieal corporate offees are et yt (rtgas Center, Pasi, Met Mania sible is Tactory process | ‘eather products is im Manila: The corporation nolds ts ang Stockholders’ meeting ai the Mani Hotel in tena and ts board directors meeting, af a hotel in Makat, Met Nerila The by-lace are silent as f0 the place of meotings of the stockhoiders and te | rectors 8) Who shall preside at the meeting ofthe crectors? , 2) Can Ting, @ stockholder, who dla not attand the slockholda annua! meeirg in Manie, question tho validity of the corporate resolutions passed at such meeting? : ‘¢) Can the same stockholder question tho valtty ofthe resolutions adopted by the board of arectors at the meeling held In Makers (190 Bap) - : Answer: (a) The Prosident shall preside et ell meetings of the directors unfess the bylaws provias otneruise (Sec. 54, NEC) (0) No. Wile the lw provides thet stockholders’ meetings shall be held in the city or municipality where the pancipal office of the” corporation is loceted, whieh is Pasig Clty in the case at bar the holaing of such meeting in Menta fs valid Since uncer Sec. 51 of the NCC, Metro Manila, to which Pasig Gil belongs, shal be considered a oft or muntepaity. (©) No. The law provides thet meetings of dlrectors of corporations can be held anywhere in or outside ofthe Philippines, untoss tho by lava provide olhemwise (Sec. 53, NCC). 4 20, A strict compliance with the mode of service is necessary jonfe’ jurisdiction of the court over e corporation. The officer ucon service is made must be one who is named in the statuts; giulse Ue sevive is insufficient. The purpose Is to render Ie sgonably certain that the corporation will receive prompt and japer notice in an action agains: it orto insure thet the summons be Bich person will know what to do nith the legal papers served on him. In other words, to bring home to the corporation notice of the ning of the action. The liveret construction rule cannot be invoked ind be utilized as @ substitute for the plain legal requirements as to | te manner in which summons should be served on a domestic poration (Ibi, citing Delta vs, Mangosing, 70 SCRA 508), nthe gerrerel manaver OF the insurance flm's Cebu branch was improper; default order could have been cbviated had the summons been served at the firm's principal office (Ibid, citing First Integrated ys. Dizon, 125 SCRA 440), b. Jurisdiction For the guidance of the Bench and Bar, stictest compliance with Section 11 of Rule 13 of the 1997 Rules of Civil Procecure (on priorties in modes of service and filing) is mandated and the Court ‘cannot rule otherwise, lest we allow circumvention of the innovation by the 1997 Rules in oitier to odviate deiay in the acministation of Justice (bic, citing Solar vs. Ricafor!, 293 SCRA 661), Under the 1997 Revised Rules of Civil Procedure, persons eligibie to receive service of summors for ¢ domestic juridical ently afe now limited to the ‘president, managing pariner, general ‘manager, corporate secretary, treasurer, of in-ncuse counsel (Seo 11, Rule 14), The service of summons upon the branch manager of petitioner at its branch office at Cagayan de Cro, instead of upon the general menager at its principal office at Davao City is improoer. Consequently, the trial court did not acquire jurisdiction over the e'son of the petitoner (Iota) The designation of parsons or officers who are authorized to zocept summons for @ comestic corporation or partnership is now limited and more clearly specified in Section 11, Rule 14 of the 1887 ules of Givil Frocedure, Ine rule now states “ceneral manage a Instead “ot “only ““manager'y “corboraté “secretary” ingiead of “sacratary’; and “treasurer instosd of cashier," The phrase ‘agent, Service of summons to 2 corporation upon counsel who previously appeared to argue on e mation fo dismiss, and who thusCe COMMERCIAL Law SGRPORATION CODE Jamplion of regularly and seid employee ic deemed to be an Fe oj said corporation (Mapa vs, CA, 214 SCRA 417) became 2n agent of the corporation, is 2 valid service (i Marine, 117 SCRA 86) Clogs (Note: Under the 1897 Revised Rules of Civil Procedts summons must bs made upon the in-house ecunsel.) S8rVice ee bookkeeper can be considered as an ageni of private nt corporation within the purview of Section 19, Rule 14 of J@ Rules of Court. The rationale of all rules with respect to ce. of orocess on a corporation is that such seivice must be @ to an agent or a repreceniative so integrated with the ration sued as to make it priori supposabie inat ne wil realize esponsibilties and know what he should do with any legal qs served on him, The bookKeeper's task Is one under Grsideration, The job of a bookkeeper is so integrated with the preration that his regular recorcing of the corporation’s. business founis and essential facts about the transactions of a business or prise safeguards the corporation from possible fraud eing led adverse to its own corporate,intorest (Pabon vs, NLRC, 'SCRA 7) Service on the wite of the secretary cid not confer jurisdiction the corporation (Delta vs. Mangosing, supra) The mete appearance of its president in ancther case before jig court, without the requisite surmnons does not confer jurisdet ‘over the corporation (Trimica vs. Polarts, 80 SCRA 324). Summons served on a mere elere of a corporation is nct a vaty service on the corporation (ATM vs. Buencamino, 124 SCRA 434) 5 Under the off Rules, service of summons on g comesile jun entity may be made on the president, manager, secretary, cashie fect’ of upholding the validity of service of summons [0 sai persons. For instance, the actual receipt of the summons “The word “office” or the phrase “teqular place of business” refers 1e office or place of business of the defendant at the time of "2 The rule specifically designates the persons to whom Mies of the process should be left Substituted service of j9nS in a person claiming to be authorizec to receive service of ;ors in behalt of the corporation was held to be invalid as far as diction over the person of ite chairmen of tne poara was sncerned inasmuch 2s he wes not holding office in the corporation win his residence. Thus, it does not necessarily follow that the ar place of business of a chzinnen of the board of directors is ‘same as the eddrass of the corporation 2s its possible for him to fal office elsewnere (United vs. Onggin, 368 SCRA 464) behalf of the officer of the corporation (Talsan vs. Ball bis 1B a Nes, 31 Summons sarved on the sscratary of a corporate prosident id @ valid service on the corporation (Summit vs. Avencano, 135 SCRA 307; Viason vs. CA, 310 SCRA 26). This ruie requires, however, | tat the secretary should be an employee of the corporation sought to be summoned. Orly in this manner cen there be an assurance that the secretary will bring home to the corporation [thal notice of the fling of the action against it (Viason vs, CA, supra) 4. Requirement of Certificate of Non-Forum Shepping Service of summons on an Assi, General Mager for operations From Gerporations f a transportation corporation, is a valid service on the corporation (vila Rey vs. Far East, 81 SCRA 298; Talsen vs. Belwa0, suor=) We disegree with petitioner that a corcoration cannct pessibly Tope to comply with tha requirement laid down by Revised Circular ‘No. 28-91 because itis a juridical ently and not a natural person. If His were so, then it would have been impossible for a corporation to fo anything at al. Needless to say, this is the reascn why Feorporations aye directors and officers, io represent it in its tansaciiors with others, The same is tre tof the cecmicacon Fegainst forum shopping. Ie eoule-easly have been matie’ty 2 culy ‘thorized director or officer of the corporation. That petitioner dict fot'in the tirst Instance comply wth the requirement of Revised Service of summons to a house counsel of 2 corporation or to the | Chief Administrative and Finance Section, is service trough an ‘agent, to bring the corporation within the jurisdiction of the court (Far vs. Francisco, 148 SCRA 197), Soivied ‘SF: Suminbne to" &' dorpévatich “thvcligh aa employee” thereof, described by the sheriff as authorized to receive said ‘summons, if uncontradicted by the corporetion, raises theos COMMERCIAL LAV CORPORATION cope ee (Digital vs. CA, 328 SCRA 286). eee 4), we axplzined that a ilerl interpretation ofthe Circular shoule y ided, if doing 20 would eubvert ts vary rationale (Ibi). erly, ne signatcry in the Cettfcation of the Petition before the ait i poicud not have been respondent’ retained counsel, who would gg ne eben hat Wap ikl of he oo e rrow wheitter there were other similar cases of the corporation. tor fenm shopping apples even fo compar. consis Fivise, this requirement would easily be circumvented by the the mandatory dractves ofthe ular and the Rules of Cou Srture of every counsel representing comorate parties (Zuluata isinetion between natural anc juridical persone Bests suis or afficer of the corporation, who has knowledge of tne matter By t ° TGR yynere the real party.n-interest is = body corporat, newer the pie, _n Rober Deveopment Copezaton ve, Quah Fainistiator of the agency or a projact manager could sign the Se 160 wt he Cates Ns oF pale against forum shopping without being Culy aurrized by fegonal legal counsel of the National Poner Coporan, gages. oR board of the corporation (Eslaban ve. Vda, De fanao, the Court held that he was no! merely a retained la rio, 380 SCRA 220) but an NPC in-houge counsel and officer, whose besic function 4 to prepare legal pleadings and to reprasent NPC-Mindanao in legal cases, As regional legal counsel for he Mindanao area, he was i officer wha was in the bes! postion to vent the truthfulness and correctness of the ellegations in the Camplaint for exprepration Davao City. As inietnal legal counsel, he was also in the b postion to knew and to catty if an action for exzroon ta ie epee us erence aay Fin tne absence of 2 board resolution authorizing a government er controlled corporation's office-in-charge te represent itn Testi, the verifeation ard certification of non-forum snoppng cited by said officer failed to sasly the requirement cf the Rules ic vs, Uy, 372 SORA 180) “jhe requirement thet the certfication of non-forum shopping should be executed and signed by the plainif or the principal means ee ynse\ war uct sign seid cortficaton unless clothed with special tionty fo do 60. The reason for ths is thatthe plaintif or prncpal ws better than anyone else whether a petition has previously on fled involving the sare case or substantizlly the same issues Hence, a cariicaton signed by counsel alone ie dafectve and B consituies a valid cauce for dismissal cf the petition. 11 the case of fatural persons, the Rule requires the parties themaelvas to sign the Petfcale of non-forum cropping. However, in the case of F corporations, the physical actot signing may be performed, on behalf E of the corporate entity, oniy by specifically authorized incly for F the simple reccon that corporations, as artficial persons, cannot P personaly do the task themselves [Mariveles vs. CA, 415 SCRA D573; BPI vs. CA, 418 SCRA 4) In the case of natural persons, Circuls Abaruaioes a ee sie ca ices olsah tones scpala. Lome such requirement cannot be Imposed on erfcla oersons, tha corporations, for tre simole reason that tney cannct personaly the task themselves, As already stated, corporations act 0: through ther officers and duly authorized agents. In fact, phy zetions, like the signing and the delivery cf documents, may be It is noteworthy that the Circular does not require. oor oficerslosanine coral, More rootant there no oc against authorizing agents to do so (bid). "a F mite the certificate of nontorum shosping may te sianed, for ‘end on behalf of a corporation, by a specifically authorized lawyer tino nas paysatal N uwedge of ho facts reared #9 ha disclosed Ip ahreoeartent does not mean that eny ieiryer Gating on behalf of. the corporation he is representing, may routinely sign a certification Ff noniorum shopping —- the lawyer must be “soecificaly and penalize the evis of forum shopeing. We see.ne “Pte Tatforie 1 the certificate’ was signed by the specifically authorzed counsel, who had personal knonledge of 8 matters required in the Circular. In Gerardo vs. NLRC (285 SC48 COMMERCIAL LAW CORPORATION CODE oo authorized" in order to validly sign the certification (BP) ura). | recruitment. has Epoely ard consciously participated in ile sn held thet the exetenca of the corporate snot shiek piosenution the comorate ageni who knowingly and Wionally ceuses the corporation to commit a crime The yperation abviously acts, and can act, only by ard through its Giren egents, and itis their conduct which tha lew mast deter. The ployee cr agent oF a corporation engages In uniawful business ily aids and abets in the carrying on of such businees and will B prosecuted ae principal if, wth knowledge of the business, iis Be aiose end effect, he consciously contributes his afforts to its Tuluet ard promotion, however sight nis contnbution may be [People vs. Chondury, 225 SCRA $72). nature brought for or against it and empowering him to en age te ec Or Se Serer necessary in Ine successTul prosecution of such suits, including the corporation (Grand vs. Genuine, 406 SCRA. 688) . 2. For Torts : _ ‘This is nct to sey thal private compizinants are leftwith no remedy ithe wrong committed against them, The Depertment of Justice i Gay stil fle 2 complaint against the ofjcers having control, Jpanagement o- direction of the business of Craftrade, so long as the Fense hes not yet prescribed, legal recrutment is a crime of gnomic sabolage which need to be curbed by the strong arm of ihe lew. It is important, However, to stress that the government's “tion must be ditecied to the real offenders, those who cemetrate fhe crime and bene’ from it Ibid). A corporation is liable for torts committed by it oF p i a v ‘subordinates in the performance of their: duties under te pipe : its negligence in the selection or supervision of its vis empl 2180, Chil Code; See also Bahia vs, Ltonjua, 30 Phi S24) ‘A principal or mester is liable for every tort which he ex directs or authorizes, and ths io just as true of e comoraiton ae of natural persons (PNB vs. CA, 83 SCRA 237), a _ The Trust Receipts Law recognizes the impossibility of imposing ihe penally cf imprisonment of a corporation, hence, it the antustee ‘tcomoralion, the law makes the officers or employees or cther persons resporsible for the offense liable to suffer the penally of Jnprisonment. The reason is obvious. corporations, partnerships Sociations ard ther juridical entities cannot be put to jal. Hance, eee sinal faoiily fais on the human agent responsible for the Aibialion of tne Trust Receipis Law (Ong vs. CA, 407 SCRA 648) 3. For crimes Generally, & corporation may not be hald liable f : A for a crime aaa beng capable of performing only those acts exoressiy oF mpliedly conferred on i, it cannot possibl ut el Som possibly commit a crime’ urder any a, Who Shall be Held Liable The existence of the corporate entity does not shield from prosecution the agent who knowingly and intentionally commits a “time at the instance of @ corporation (tbic) _ tis true that a cnminal case can only be filed against the officers | of 2 corporation and not against the corporation itself. It dose net. {oliow from this, however, that the corporation cannot be a real party ininterest for the purpose of bringing @ civil action for malicious prosecution (Comata vs, Ci, 301 SCRA 450). Under Section 6 of RA 8042 (Migrant Workers and Overseas Filipinos Ac), the persons who mey be held lieble for ilegel teenutment aro the principals, accomplices and accessories. An F employee of a company or corporation engaged in legal recruitment ‘ray be held liable as-principal, topether. vith-his: employer, if 1s “shown that he actively ‘Consdiously” particisiatst” in illegal recruitment. The existence of the corporate entity does not shield | om prosecution the corporate agent wna knowingly end Ae stated in the first senience of Section 6 of RA te 8042, the rsons who may be held liable. for.illegal.recn iment. are 2he principals\" accomplices “and “accassaiies. An employe a compary ar eorperstion engaged in llega recrutment may be held lable as principal, together with his employer, f tis shown that heoe COMMERCIEEN CORPORATION ODS ast intentionally causes the corporeton to commit 2 crime corporation obviously acts, and can act, oniy by and throug human agenis, and its their conduct which the lew must deter Cmplojes or agent of a corporation angaged in lawl busing naturally alcs and abets in the cattying on of such business and yj be prosecuted 22 principal i with knowledge of the business purpose and effect, he conscously contrigutes is efforts tq Corkluct and premetion, hewevar slight his sentrioution may be Executive vs, CA. 429 SCRA 81. citing Peoale vs, Chowdury, SCRA 572). p. Management Rights gre management ights ofa stockholder mey Be ndractor dite. fis Increct management rights Include two important rights: te Hor directors, and to remove directors, vis direct management rights include his right to ive nis vote of joval to coriain corporate actions where he acts in conjunciion other stockholders to give the tequired majority or 2/3 vote 10 VL. Rights of Stockholders date actuations of the board. A. In Genoral i Voting Rights Bar Question: Enymeraie the powers of stockholders. (1996, 19 Ban) Nature of Right ‘Answer, They tell under three categories: (a) Direct or drag) tae. A cout wil not deprive a stockncldel Of right to vote except participation in manegement, (b) proprietary rights, and (2) ay AB gon 2 clear showing fits denial under the Articles and By-Laws, 25 rights. site an inherent right in stock ownership (Seles vs. SEC, 469 SCRA ‘A. Management rights 09}. 1. Indirect @. right to vole directors 1 right to remove airectors 2 Dies! 2. right to give approval to certain corporete actions like Investment in another corporation B. Proprietary rights 4. right to dividends 2. right of appraisal 2. right fo issuance of stock certificate for fully pala sheres 4.right to proportionetely participate in the distribution of assets on iquidation 8. ght to transfer stocks 6. pre-emptive night or night of fist refusal 7. Fight to inscect books and records , right to financial statements 9, right lo recover stocks unlaurtully sold for delinquent payment of substriplins 1Q.nighio.soramence suits -~°"=2 C’Remedial rights 1 Iaividual sult 2, Represenative suit b. Meetings—How Called Atockholders have two classes of meetings: the regular orannual “meetings, and the special meetings. {intess proviced othenwise in the by-aws, annual meetings ere eld a the own or city ofthe principal corporate office on any date in Spor fed by the Board, and notice of the same shall bs Sent ve aks prior to the meeting unless the by-laws provice otnerwise- F Special meetings may be called when necessary oes provided ‘he etaws, on one week prior notice unless the by-laws provice otnerwise, {ro person is authorized to calla meeting, the SEC on petition of a stockholder, for good cause shown, may allow him to call satig oy avvina the required notice, and for him to preside heteat, etl, a majesty. chooses anather one for sad purpose (Eco, 65, Nice): Nebr sce ey, Sea EsBCG cannot vole Sequesiered shares, except vinen there are | 2 com SRCIAL LAW CORPORATION CODE 553 Bar Question: Atleast 23 of the stockholders of Soler Comoraioy, meeting upon the recommerdalion of the Boant of Directors Cholrod 2 50% stock dhidend rng thar annual esting | notice of tne annual stacknolders’ meeting aid not mention anything about a sicok dividend declarstion The maiter was token up ony under the item “Other Business in the agenda of the meeting 0, ‘Senne, a stockholder, who received i's copy ofthe notios but as attend the meeting, subsaquantly laamed aha the 50% slog dividend declaration. He desires to have the stock dividend aeclaration cancalied and set aside, and wishes to retain yoy services as a lewyer for the purpose. Wil you accept the case? Discuss with reasons. (1990 Bar}. ed" teat was developed fo determine whether the PUGS may vote questersd shares. At least wo faciual matters must be fpermined: (1) whether there is a prima facie evidence showing fa the said shares are ill-gotten 2nd thus belong to the stete; and B) whether there is an immediate danger of cissipation thus Bcossitating their continued sequestration anc votig by the >CGG wdiganoayan, 402 SCRA RA) ‘The two-tiered test does not apply in cases involving funds of public character.” In such cases, the goverment is granted the pihoril o vote eaid shares, namely: (1) Where government shares Fre taken over by private persons or entities wholwhich registerad them in thelt own names, and (2) Where the capitalization of shares rat were acquired with public funds somehow landed in private flands (Ibi). s Answer: No, { will not accept the case. Although under ordinary’ circumsiences, a mater not noraally taken up in the annual” stackholders meetings, should be included as pert of the ageRda stated in the notiae of the meeting; however, in the case at bar, the. matter taken up was only the approval by the stockholders of a stock dividend declaration previously mads by the board. The vote. § needed here is two thitds of the outstanding capital stock of the | corporation. There is no necessity for this resolution to be agproved by all of the stockholders representing the outstanding capital stock Unless therefore, the vole of Senna is determinative of whether or cc. How Voting Rights Exercised © Each stockholder has as much votes as his number of shar F and he may exercise his voting rights in the following manner: 4) Personel voting by the stockholder himself, including the pledgor uo chattel morgager, or eee eer te bese! 2) Representative voting, which may be by: previeusy « 2) Proxy - is @ person who votes for and thus represerts the corporate memiver of stoctholder. ils ife cannat exceed 5 (Gee. 38, NCC} 4. Right of Voting on Sequestered Shares, ‘The general rule is thet the registered owner of the shares of a corporation exercises the right and the privilege of voting This principle applies even to shares thai are seguestered by the government, over which the PCGG as a mere conservater cannot, as a general rule, exercise acts of dominion (Republic vs. COCOFED, 372 SCRA 462) ib) Legal - Through guardians, executors, administrators, receivers, or other court aopointed legal representative. other isnot ) Ordinary Voting Agreement - an agreement authorzin person to vote for him in stockholders’ meetings. The purpes: fo control vating The govemment should be allowed to continue voting the | sequestered shares inasmuch as they were purchased with coconut lew funds — funds that are prima facie oublic in character or ai the very loaet, aro clearly affected with public interest (Ibid ). 9) Voting trust agreements Dar Question; What is 2 “vcting inst” and what ay RRaIGHS of the “voting trust agreement? Whats Ie: When is itllegal? (1985 1951, 1949 Ba7. “demonstrably weighty and defensible grounds" or ‘when essential to prevent disappearance or wasiago of corporate property. A two-CORPORATION G 634 SOMMERCIAL LAW © al itl fo the stocks must be tensterred back oth jproved in ne agresment. Pens expiration of the voting iust agrserent does nol ive fc He Tay tha not (0 cemend the tumover and irarsfer {0 @ of 8 [ets, which wore never the subject ofthe agreement. ese 2 a aocve, al properties were mortgaged to the trust, ed 25 ctcequence of © foreciesure of ths Mortage, al provera syed therein were acguied by the trustee, tnen there was noting Aiay oF properlies to be ratumed ia the narmaany. ey pration of the voting tius| egreement would result in tne Fjicioe retuming fo the involved stockholders thet stacks, to the Unt of mating frese stooenolders the hokders ofthe legal (#e 12 ase StOcks. "aint form of management the siockholders would now want par soaks are ransorred back’ them, not enyimore the coreern Lijte tustes nose oftes hed terminated ‘answer A voting trust agreement is a contract entered inio by g Ms ni Group of stocknelsere and a trustee wherein ihe stockholders, aa 3 Soecfied peried not exceeding five years, vansfer their stocks ie trusiee and vost in fim voting and other specified rights, in. robin tho iscus by the trustee of voting trust centioatas t0 the Invok stookholders. , «roa intestate ts! cement 3 < ‘must be in WTtINg, nutericeal and fied with the corporetion ang: | wrth the SEC; one | 2) It shall be for a period not exceeding five years; and 3) Rearolie ened nee purpose oferenrer re \ ‘on monopates,ilegel combinations in restraint of trade, or us the purpose of frau. ord Pir fast 's execuled forthe purpose of controling voting 4 i oe ei melo have. aserance representation ip the boare. i: This legal non crected forthe fellowing purposes: (1) t0 essen competion. (2) to control two or more mining or agricul Somoratons, (3) to place in one comoration the functions of the corporations which cannot be joined. ar Question: Is there any limitation as to the fength of the period Pete a voting bust can be legal binding? Is it revocable for any pence jain the time screed upon? State reason bref. (1951 Ee) Bar Question: A distressed company executed a voting trust ‘egreement for a period of three(3) years over. sixty (60%) per cent of. \ {ig ovlstanding paid-up shares In favur ule bank to whom it wos | indebted with the benk named as trustee. Addionally, the company. it mortgaged alll its properties to tne bank. i ‘Because of the insoivency of the Company, the Bank foreclosed: the mortgaged properties, and as the highest bidder, acquired said ‘answer: There ise limitation as fo the duration a voting tnst can be binging - 6 years. 1g oly. 2 votiny irustia wrovocable, However. ifthe aareenrent je sanjedt (0 conditions wnich are voleted by the trustee, hen the _Ggroement may be revoked by the stockholders be. "Tre voting trust also automatcaly expires when the loan for properties and assets of the Company. E hich the trust was created Is fully paid {S2c. 59, N.C.C). "Pet oe year porod prescribed in the Voting Trust Agreement having expired. the Company demended the tum-over and transfor ‘and operation of the Company, claiming that under the Voting Trust 3 ‘Agreement, the Bank was constituted as trustee of the menagement a ‘and operations of the Company. ‘Does the demand of the Company telly with the concep! of @ Voting Trust Agreament? Explain briefly. (1992 Bar) ‘par Question: A, as owner of a certain number of shares of stocks Ber eeoration, entered into @ voting trust agreement wih B, Or tes vcoke oF the voting trust agreement, B announced his desir fo ine for a saat in the Board of Directors of X Corporation. C; another ‘Gocknoider, ebjecied and questioned the eligibility of 8 fo bo 2 dirsctor cf X Corporation. 7s G's caniention correct? Why? (1977 Ben. ‘Answer The demand of the company does not tally with the ‘concep! of voting trust agroement. ‘inde’ a voting trust agreemeni, a peisui is Uesignated ao @ caatrustee to. whom legal. titles to: sfonksis. transferred. by siochowders Teed wart to afterints the agreement When the agreement expires (under the lav, ft cannot be for more than five years), the ‘Answer. Tne contention of Cis not correct. Under the Coreeration ai trjsloo uncer a voting tust agreement, becomes ragistorec ag 8 slocknolaer in (is vrporate books. Ba esrtnereibr he voting trist-agreement prohibiis hin from becoming a eanaidale for crector, he is entitled 'o voting ahs ard ths inaludes the right to vole and be voted upon.“he is dedared delinquent in his subscription payments to the 8 COMMER: aw (Nova: Under the N.C.C., the trustee may des eure 1 the Wustee may designate a proxy io A stockholder who tranofers stocks wy Bose stocks Io a mstee under 2 {wat agreement ceases to be holier ofa legal ite of sak oct md therefore becomes cisqusliied lo be a drecior ares Serperation because his namie does not oppeer anymore 2a stockholder in the siock and transfer eettekee io nsfer Look of the corporation (Lee vg Subsoquient elections ere done during the annual stockholders’ ealings on the date stated in the by-laws, and in its absence, on y éate in April as set by the Board, with proper notice and at the bun of city of the principal place of business of the corporation {fated in the articles of incorporation in stock corporations (Sec. 51, FLCC.) and any piace in the Philippines as provided by the by-laws, Ey non-stock corporations (Sea. G3, N.C.C.) 4) Voting or Pooling Agreement This en aorement amor steeoldos ove Tams exarsadle not ony n lve comoratons mi abo lnonigs : on Santon, 15 Se ey Aa) ‘gar Question: Explain cumulative voting. (1951 Ber) : : Uoswar A sock, boing etitod io tot ub cf ote nat ‘his number of shares mutiplied by the number of directors to be |plected wil bring, may give all said votes to one candidate orhe may Baistributs them among as many candidates as tre sees i. This is Snuletve ving. umutew volig Isa mater o iat stock carporasons. In jorsteckcoporatons tcanno{beuilzed ries orprossy saned hy the bydaws or by the articles of incomoration. 1 Shares Entitled to be Voted Upon ‘The right to vote is acquired ‘only when the Y when the shates are reaiteed Stee ae Any unrecistered transferee oa (Labrador ve, CA, 180 SCRA 266) See nearer be ‘The PCGG, as conservator, cannot perio acts of own weak Chen Ronn as ent" Semon 6 pi) § Bar Question: “A” was one of the airectors of “x” comporaiion. “B” P. obtained a judgment against "A" and had all of ‘A’s" shares of siock © in" comoration attached and sald at public auction. ‘B” hought ail F ihe shares al ihe public auction sale. Subsequently, e meeting of ihe board of directors of "X" corporation was held and both “A” and “B" picac sna win celeb pirate © continue as director untif tne stockhaltiers could elect his successor. Ber Question: X subscribed to 700 sher : ree of stock subscription to a corporation bu aid oly for 400 shares fr ey fe assed ity pad corteates for 400 shar re entitled to vote the peid up shares notwithstancir that he has n¢ it nee a aa 1ot paid the remaining 300 shares? Explain (1990, 1977 Answer Yes, X's erttled to vole far a of ; af all his subserbed sh including rot cry the 400 shares which terh 2306 shares he has note paid aie ‘person becomes @ slockitolder and ented to exerci gubsorbas i stocks of te comporaton irespecine cfuhetherorrot man of said subscription kad boon wal! DY Mm to te. BI Forporstion..£9.eneys vaticg.ciahts to those Sob8aribed'shares, nll” Answer: Neither A nor B Is entitled (0 a seal as diractor in he corporation. ‘A ceases (0 be director eulomatically from ihe time that ne ‘igsased fa hold at leestione share of stock i iio ties’ 5 #f B cannot be @ director, because to be one, he must be voied upon as such by te slookholders, or if allowed by ihe by-lews, selected by Ihe remaining directars to the position.ORPORATION CODE 69 653 coMmenci wed, considering that under the Corporation Code, a director ne reirored fom offes wih ar without cause) By the vol of er costboiders holding. or reprasening xt least 20 of the pistancing capital sioox? (1321, 1909 Ba, ‘A slockholder supoesedlyaiscuaified to become candela ge | Sector under the bye of ihe comoraton on the owe alleged substantia interet in 9 comating corporation, can cont to nun ao cuoh cardidete unt and afer shal have heen per process and hearing by said beard as to the matter of squalification (Gokongwei vs. SEC, 89 SCRA 338). $ itself, White Te assurance \8 the Corporation Code ise foveal ot a director, with or without cause, is 2 power exercisable ‘stockholders holding at least 2/3 of the outstanding capital os Corporation, 20 @ gonoral uo, tna camo power sarna ined ipouste director representing the minority, unless there is & (causa for removing that minorty dsctor Der Question: To prevent ie entry of Mano Enriqioz, Considered @s one antagonistic to its interests, into its Board Directors, Bayan Comoration amended its articles of incorporat and bylaws to add certain qualifications of siockhokiers to elected as members of its Board of Directors. When presented. approval st 9 mesting offs stockholders duly cefled ior he purposs, the amendments were overwhelmingly ratified. Marlo Enr brought suits against Bayen Corporation to question “i amendments Would the action prasper? Why? (2003 Ber) sestion; In 1999, Corporation ‘A” passed a board resolution era tare fylews of "A" corporation provides thal tha oficers aro esident, vice-president, treasurer and secretary. Upon complain! ed with the SEC, it held that a menager could be removed Hy mere fesolution of the board of cirectors. Cn motion tor reconsizeration, F 12x eloged that ne could enly be romoved by the sfmatve vote of “Tige stockholders representing 2/3 ofthe outstanding capital stock. Is "x's" contention legally tenable, Why? (2001 Bar) Answer: No, the action would not prosper. A corporation mey prescribe in its by-laws the qualifications, duties and comoensation of directors, officers end employees pravided these ara reasonable, (Gokongwei vs. SEC, 89 SCRA 236) ic oval of the : wr; X's contention is not tenable. The app fteccar ib nocesary one eva of deo (S80 28 PS nC0). ti tine wemoval of a manager, like Xin the eaae ot bar, only the | fpprova ofthe board of draco ences 2. Right to Remove Directors q Corollary to the stockhokier's right to elect with his vote the directors who wil manage the corporation’ ce a body is. the stockholder’s right to remove with his vote any of the electe directors, 4 ¢. Propriotary Rights of Stockholders : i roptietary rights ofa stockholder ae varied and many. ost “inporat of oae & is fant cvGerce Beas hs Nahr propictay righ are: (1) eppralsal it, (2)iseue of stock cartfcate {rfl oaid rats, (8) propotontepaspaton ne cistovton of esses i Kuan, (8) terse of soot, (3) preenpie ah ©) fgrt © inspect ocoke and records, (7) ash © “nance! fietersents, end (@) fight to recover stocks unlewiuly sold fo deincuent payment of eubscriptons. Removal may be had in any stockholders’ meeting whether. Teguler o* special, provided, special notice of said proposed removal is given tothe stocknclders anead of the mesting, The removal may be effected by vote of stockholders holding at least two thirds of the outstanding capital stock of the corporation generally for any cause, Where, nawaver, the subject of the removal Is a director representing the minority, there must be 2 good cause 4, Right to Dividends forthe removal (See. 23, N.C.C) ees Defies Bar question: it the minority stockholders. ip. @ stook corporation Ss oetsmumnilate “ibic: voles so!thal they could Be assured OF being ‘presented in tho Board of Directors, what assurances GO they nave thet the director or sirectors representing them would not be Dividend is defined as unrestricted retained eamings set apart ‘rom the general mase of the funds of the corporation and distributed60 COMMERCIAL LAW ‘among the stockholders in proportion te The Corporation Code provides that tha board of dir stock corporation may deciare dividends only out of unrestiste Tetaines earings. "Unrestretedretainec earings ‘Surplus prof i arising from its business.” Thus the declaratinn nf cividonay dependent upon the availabilty of surplus profit or unrestisted | tatained eamings, 2s the case may be [Republic vs. Agana, 26 _ SCRA 1). On the iscue of dividends, both Section 16 of the Corporation Law. issuance of any stock dividend without the approval of stockholders, Fepresenting not less than two-thirds (2/3) of ihe outstanding eapits) Stock at 2 regular or special meeting duly celled for the purpose! stockholder is not a matter of right but a matter of consensus, Furthermore, “interest bearing stocks,” on which the carporeten agrees absolutely to pay interest before dividends are pald 10 common stockholders, is legal only when construed as requiring payment of inferest 2s dividends from net esmings or surplus only (ibid. Payment by a corporation of dividends to @ wrong party will not absolve the corporation om paying the party adjudged by the court {0 be lawtul owner af the stocks (Aranas ve. Tutaan, 127 SCRA 828), If @ company received dividends as a stockholder of enother corporation, the money thus received is income of the corporation ‘which can be reached by its creditors. If on the other hand, said * company distributes dividends to its stockholders, such dividends Would be the absolute property ofits stockholders end are ui of ne ‘each by creditors of the corporation (Madrigal vs. Zamora, 154 SCRA 355) Ber Question: For the past three years of its commercial operation, ‘X', an oil company, hes been earning tremendously in excess of 100% of the corporation's paid in capital All of the stockholders have been claiming that they share in.the op the-gamerationss, vais yy rarraonow nul Oe Bouse oF DIGbed tied Ee rs 4) fs Corporation "x" guilty of voleting a law? If in the affirmative, slate the basis. ‘and Section 43 of the present Corcoration Code prohibit the ‘These provisions underscore the fact that payment of dividends tog. CORPORATION CODE oat F 9) are there instances when a corporation sn! not be Heid liebe for vfot declaring clvidends? (2091 Bar) Ejrewor: 9 Ye, 2 guy of ling Scion 49 of te NCO Ere mnrras errors ee gah 2 100% iro al ito bing ale are: (W when justified by eras or eicnen ne ‘corporation is rent with any financial piobibiteduaderanyleaaagrascien © institution or cafe Tocal or foreign, from declaring is consent, andi such consent hes not yet [ dvcends minout ts phn consort, ane! such consent fas not ye [eon secured! or (2Aanen can be dary sown te! such retention s oreton such as when there iS need for special reserve for = probable contingencies. 'b. Distinguished from Profits gar Question: Distinguish dividend from profit. (1957 Bar) A Mee eof eterreraton end donot belong he stocKotders individaally- ¢, Declaring Authority Bar Question: W/ho may authors payments of such dividends. (1953 Ba) Guistanding capital stock is necessary, end in all cases only i varesiticted retained earings exist Bar Question: "X;, "Y" and '2" are stockhokiars in Santos Company, Tine: For the past vee years, no dives, 2s of stock re fer cavisred by the comoration scanning ts ba net ay tcl fa te eopolion as aed val et profs. May they bring suit to compel the Doerd of directors cadlare dividends from said net profit? Why? (1967 Bar)i | 2 COMMERSIAL Lave SORPORATION CODE 403 Answar: Authority to dectare dlvidands is in the boerd of directors of 4 comporation. (n ine absence of bad faith, abuse of discretion o dishonosty, caus wil not question tha discrstion oft bce, Fasc Js nothing in the problem which would indicate that the failure of ‘board to declare dividends is due to ad fait, abuse of discretion, oy dishonesty. The existence of vast nat profis does not automaticayy just the deter of etdonds because My Mey bo aang ‘nly tinrastrio'ed retained eamings exist. Boaides, the stockul have not yet exhausted intra-corporate remedies to entife them fo bring a.sust in court Hence, 1 submit Cet an ection wl not i 0 e ; declare dividends, ee! a bee Dividends, whether cash or slack, can he gat only fmm iprestricted retained eamings. This fund is the belance of nat proilts, and gains oF 2 corporation irom the det= of inccrporation sr deducting losses and contributions of stockholders and nsfers to capital stook accounts when made out of such surplus, Question: Under the Comoration Law nothing but surplus Biulits mey be distributed a0 dividende, Ife dividend was mado from other source, what ald it constitute? Is that fanful or not by the tive provision of the Corporation Law? State the provision fully or Us subsiance, (1957 5a) "answer: ifthe dividend was made from a source other than surplus ns, f would constitute a violation ofthe tus! Fund doctrine, and cud be & feud againgt creditors. The ect 5 no! lel under tho provisions of Soo. 16 of the poration Law, wnich In pant sletes thet ap_comoation shal! from profs eamad hy 7 Bar Question: During the annual stockhclders meeting, Riza, a stockholder, proposed to the body that a part of the comoration’s unreserved eamed surplus be captalized and stock dividends te disirbuted fo the stockholders, erguing that 28 owners of the Company the stocknolders, by majorly vot, oan do anyth : : ing. As cheirman of the meeting, how would you rufe on the declare stock diviciends? (1991 Bar} - ee Answer: The prerogative of dividend declaration pertains exckisively to the board of directors of the corporation, This power or prerogative cannot be exercised by the stookholdore incapective of the nuniber oF percentage of votes of the stockholders in favor cf dividend declaration, All corporations having surplus profit in excess of requirements shall declare same as dividends, Tha deciaration is compulscry ifthe ‘surplus is equal to or more than the paid up capital, except in the following instances: (1) when justified by epproved exparsion projects, (2) vihen prohibited to deciare dividends by crediters, and (3) when retention ie necessary under existing special ciscumsiences (Sec. 43, NCC) . Funds Available for Dividends. Bar Question: When and trom what funds may a corporation pay (a) cash dividends, (b) siock dividends? (1953 Bar) Answers oor the board end can have stock aividends when declared by the board ‘and approved by stockholders owning 2/2 of the capital stook ‘outstanding, ion ei pay case MIRRUS VinSH oebiareR by i tedlare divi “ref yet disinbuted to its stockhoiders. ie Under the the provisish violated would be Sec. 43.) Bar Question: A company was incorporated in 1947 with an ‘authorized and paxd-up capital in cash of P1,090,000.00, It hes not Ervayed i business up to new and ito oaeh of P1,000,000.00 ie ‘intact at the Philicpine National Bank. May the Doard of directors ‘declare a dividend of P50,000.00 from that cash? (1948 Bar). Answer: No, tne board may not declare dividend ram its pekt-up ‘epitel. The only fund available for dividends is the eemed surplus proft of tne corporation. The corporation in the problem, not having engaged in business yet, cannoi possibly havo an caring, much loss, @ profit from the said business (Note: Ansner sil valid under N.C.C., but the ‘uno availacie for dividends ie now caliad unrestricted retsined earnings fs assets. On.the basis of tn ihe Board of Directors © also declared cash dividends for all stockholders. On Decernber 16, 4985, Matalag Cororation amassed substantial profs in a highly Lucraive liaisevlion. Some rinerty sioektelacrs, however. dit not ‘wanitt0 compiieate iieir incomie'iax piobiens for 1965 end feitised | to accep! the cash dividends. They also filed sui to compel the other = siocknoldors to rotum to Maistag Corporation the money recaivad asos COMMERCIAL LAW Sc dividends. Nol one of the stockholdars win 1 2 ars who formed the Joined in the suit sinca they are hapoy mith the money they racengt 3) gile actin prosper? Explan. oY 5) scone its defanses in court the Board of O Bs tthe Board of rectors busingss judgment fue" What isthe busmess srdpment rue does ithe thi hes have any relovance to tis cese? Explain (1809, 1967 tag answer: A cash diviend is differentiated from stock divitiend as ows: ‘Cash dividends withdrew assets trom tho corcoration,, stock ends do not "in cash dividend, money is received by the stockholder, in stock jend, st00% instead of money is recaived ‘Gach dividend is taxable Income; stock dividend i not Gash dividend may be declared by the board alone; a stock Bavidend is declared by the board, and the dectaration is approved by Hocknolders holding af least 2/3 of capital stock outstanding and tiled to vote. The decieration of stock dividends may be revoked for any of the blloning reasons: (1) tne unissued stocks cannot absorb the slock dena, and the corporation is rot willing to inerease the capital Answer: a) The action i ‘aise to deciare the cash dividend invelid Dividends can only te declared from unrest saminga. Tho arnse nassts cso fvahston& tan nee Of the corporation, and therefore, cannot become the avis fers dividend declaration. The elvidend dectaraton fom rvatuaton asoets 6 in effec. a declaration of Gopal al of cone ae dive! This snot slowed bythe on : es The “business judgment nile” is a principio ur : Indgmonts and sotons ‘of te copsaton mcs os management body, the board of dreciars, should rot be inforeied wi, oven by courts unless such acts’ are 0 oppressive ant # uncensconae aso amount a wantan casachon eon J “Business Judgment mie" hes no relvanes tothe pobiem above, Dividend declarations aie yoweried by Geman Us proved ior by few Complance of these rules, mandatory’ cn the corporation, anc gives no room at ail for the exercise By the corporation ofa ‘business judgrnont fo official notice hes as yet been sent to the stockholders of aforesaid stock alvidend declaration. ‘har Question: The estate of deceased “B", owner of 108,000 shares © of stock of a mining company, received from the latter 54,000 shares Fepresanting 50% stock dividend on the 108,000 shares. The widow, irs. "3", as usufructuary or life tenant of the estete, petitioned tne F getaie's administrator to indorse and deliver to her the corresponding F cenificate to stock, claiming thst the said dividend was iruit or income. The legal heirs of °B’ oppcsed, alleging that the said ‘dividend was part of the capital and, therefore, belonged to the remaindorman. Decide the case with reasons. (1958 Bar) A jucicial order to decrease capil stock wi s ach cv an a tad te mt rule" which states that contracts intra vies ente‘ed into by ine board of airectors are bincing upon the corporation and courte will not interfere unless such contracts are $0. unconsoionele and oppressive as to amount fo wanton deatriction 19 the rights of the mnorty, 26 win, members oF He board have corcliced 8 ransaction among themeehes a wil sult iy setious i Stoctholeers (Ong vs. Thi 401 SOSA" sing Ganbos ve Vistoriano, 60 SCRA 4c), hae Answer: Dividends, whether cash or stock are profits earned by the comoration and distributed to ihe siocknolders Between the usuiructuary and the naked owner (remainderman), the former (usutructuary) is entitled because divicends are fruts. The widow of Bis entiied to the siock dividend. Bar Question: “A”, stockhokier of %X Corperation’, assigns his shares of stock to 'B” for a valuable consideration. The certiicaie of stock was tharai man delivered t0"8". A few days later, “A” diec, The -aMirs bf "BM intia”-Doad of. Bxtve-jutislal Rarition,. adiudicsted:-his ‘shares of stocks fo his son “C" in the meantime, "X Corporation” declared cash dividends and sent the comesponding notice to “A's” address, “A” being the Dy aces ie Bar Question: Distinguish between cash dividend and stock dividend. When may the declarations of thes diene Wey tions of these diviciends be revoked?si COMMERGIAL LAW registered owner of the shares of stocks in the BOOKS of tng « corceration “C" recelved the notice and by virtue of the aforesaid deog ep carton oleimed payment of the dividend. "8" likewise cama ta payment asserting awnership of the shams by virtue of assignment made by 'A* Who has the better right? Explain kriedy. (1981 Bar) Answer: For purposes of the corporation, there being no change. ‘ownership of the questioned shares in ts stock and transier bao {he rightiul onner of the dividends would bo the astate of the. ceceased A " There is no statement in the problem that C, the son of presented the Deed of Extrajudicial Perttion to the corporation neither does the problem state that B, the assignee, prosonted the Guly indorsed stock certificate ta X corporation for cancellation, and = issue to him (B) of anew certificate. * The corporation is bound, in so far a3 ownership of iis shares is concerned, by jis stock and transfer book, and as far as the. questioned shares are concemed, their omner 1S stil A, and it is therefore lo his estate that the dividends should be peid. Neitner 8 nor C under the circumstances mentioned in the problem would be entitled to the dividends. 4) Nature and Coneopt of Stock Diviciend Stock dividend is any dividend payable in shares of stock of the corporation declaring or authorizing such dividend. It is a distribution Of the shares of stock of the corporation emong the stockholders as dividends. & stock dividend of a corporation is a dividend paid it shares of slock instead of cash, and is propery aayable only cut of surplus profits (See. 16, Corporation Lan). So, a stock cividend is actually two things: (1) a dividend, and (2) the enforced use cf the dividend money to purchase additional shares of stock ai par (Words and Phrases, p 270), When a corporation issues stack cividencs, shows that the corporation's accumulated profits have deen capitalized instead of disributed to the stackholdars or retained a sutplus available for distribution in money or kind, should opcortuntty offer. Far from being a realization of profits for the stockholder, it {ends rather to postoore seid realization. in that the ‘und reprasenied by the new stock has heen transferred irom toasse . forigaivavailable’for'actual uietnbution (Fisher vs: Trinidad, 49 Phit 973). Thus, It is apparent that stock dividends are issued only 0 stockhelders. This is so because only stockholders are entitied to CORPORATION cont ig E> . idands. They are the only ones who have a right te 2 prosortior set dividend really adds nthing fe the interest of tha stockholders, {fe proportional interest cf each stockholder remains the same te ne vs, Fisher, 62 L. Ed. 372), IF stockholder ie deprived of his pict ao aie aes a Toe the shares belong the civil fruits (Art. 44, Civil Code). | The term dividend both in the technical sense and its ordinary ante ig that part or portion of the profits of the enterprise ich the corporation, oy its governing agents, sets apart for ratable ‘dvision among the holders of the capital stock. it means that the fund has actually been set askle, and declared by the directors of the corporation as dividend, and duly ordered by the directors, or by the Telockholders, at 2 corporate meeting to be divided or distriouted I mong the stockholders according to their respective interests (7 Thompson on Corporation, 134; Nielson vs. Lepanto, 26 SCRA 540). Fs stock dividend, being one payable in capital stock, cannot be tained declared out of outstanding capital stock, but only from re! \farnings (Gummissioner ve Morning, 86 SCPA 14) E: tion: ASC Management, ine. presented to DEF Mining oer ie gah of fs. proposec Management Contact, As, an i i at ABC incentive, ABC included in the terms of compensation th: = jnould be eniitled to tan percent (10%) of any stock dividend which DEF may declare during the lifetime of the Management Contract Would you approve of such a provision? IF not, what would you suggest as en alternative? (1997 Bar) Answer: | will nat recommend approval of the proposal, Stock dividends belong £0 the stockholders: oniy who got sheres in proportion to their registered slockholdings Other pevscns, not Stockholders, cannot in any manner particioate in stock avidencs. To however achieve the same objective, | wil suggest this proposal: The siocks to be used a1 urissued siiares, approved by Ine board end lkenise approved by olocknalders halding atleast 2/3 pf the oustanding eaalia/istock-of the ‘corperation -The.rule..09. preamptive rights with its exception: stocks Issued to pay @ previously contracted debt, isthe provision of lew imvoksc.ATION CODE 58 COMMERCIAL LAW can declare a siock dividend. itean do of P150,000 or 15.000 shares. sorbed by “answer: Yas, he corporat up ic tine ful axtoat of fs surelus eason: the only mits thatthe slock dvitiend can be te unissued shares of the corporation. se nly 30,000 oF the 60,000 authorized number of shares were fad by the corporation, leaving balance unissued of 20,000 wares. 18,000 shores only are nesced f0 absorb he 150,000 dividend. 2) Taxability of Stock Dividends Stock sivicencs, strict speaking, represent capital and oorutcts nome’ recon, Seiha ine mee Beuece aga Sot yel sleet © lresme tx at thay ae lng et a enrichment through increase in value of capi : Saplilthe stose dividends postpone the vealzaton of prone Levee te fad epresenios bye ew stock na been tans surplus to capital and no Ionger availacle for actual distribution, Income in tax law is an amount of money coming 1 @ person wthin spectied tme, whether as payment for setvzes, inferect, or pref ftom investment. Itmeans cash ots equvalent” It's gain dervad ‘and severed from capital, from labor to from both combined -- sa that to tx stock dividend would be fo tax a capital morease rather than the income. In a loose sense, stock dividend isoued by the corporation, ere considered unidalzao. gan, and’ camel ba.” subjected to income tax unil that gain hae keen realized. Bafore the tealzalion, stock dividends are nothing but a representation of an interest in he corporate properties, As capital, tis not yol subjectia income tax. lishould be noted thal capital and income are diferent Czpital is wealth or fund; whereas income ie profit or gain or the flow of wealth, The determining factor forthe impos tion on income taxis whether any gain of profit was derived from a. transact (Commissioner vs. GA, 301 SORA 182) a Question: Palmera Corporation has on authorized capital stock Hof P500,000.00, all subscribed and outstanding as of December 31, #081. The corporation also hes an unrestictad retained eamings in ifs books amounting te P375,000 00. Since the corporation needed fhe cesh surplus 10 cary out ds expansion projects, the board of Grectore, in ts rmoeting held on January 5, 7982, approved @ Pasolutin declaiing and ordering the ieeuanco of 50% stock {ividends in lieu of cash dividends. 4}. Wes the resolution declaring the issuance of stock dividends valid? Explain your answer. 5) ‘What step or sieps needed should be tsken in order that the ocision of tho Board could be implemented? State tne required vote. (1982, 1955 Bar) a a © answer: (a) No, the resolution of the boerd declaring @ 50% stock | ividend is invalid for the following reasons 4) There is no unissued stock to ‘absorb the stock dividend; 2) Stock dividend declarations -nead further approval of stockholders E holding at least 2/3 of the outstanding capital stock of the © comoration {@) In ordor that the stock dividend dectaration may be implemented, the following steps sirould be teken: | 1) The aioies should be amended io increase tne capital stock by least P250,000. This needs aporovel by a majority of the board, ‘and approval by stockholders holding at leest 2/3 of the outstancing capital stock of the corporation fied with SEC. 2) The declaration of 50% stock dividend already approved by the board, should be approved by stockholders hotding atleast 2/9 ofthe outstanding capital stock of Lhe corporation. | 9) Notice to stockholders 4) Issuance to stockholders of stock certificates ‘corresponding to 2 thostogk dividends. Beats y eigiteianlbeh 1. Procedure for Dividend Deciaration 1) Gash Dividend Dectaration a) Existence of unrestricted retained eamings; b) Cash dividend declaration by board: ¢} Notice of deciaration to stockholders 2) Stock Dividend Declaration Bar Question: “X" corgoration has an auihorized ca 7 auihorized capital si value of Ten Pesos (P10,00), 30,090 shares of which hava been; subsenibed. The iotel paymant on those shares is P200,000 only. As aoe ‘30, ae tne comporaiion had @ surpius of P150,009. Bay the conicralion daclare a'Stetk dividend ™IF so, or Mero Bey lividend IF so, to What extent? 2. Appraisal Rightte Se Invest on COMMERGIAL Laval core ORATION CODE 71 Bar Question: Under what cireumstances may a sioekhaider compas ; Be eta of uhion he 9 sioniTloer 10 Duy Nis Share eh ‘sicck? (1990 B21) : gala or disposition of ail or substantialy all of the corporate 07's Fe aoa. 43, NCC, a staat ay ae 2m ce. in the following cases, emeng olhers; (1) to eliminate Aejoral. shares, (2) 10 compromise an indebtedness ofthe poration arising oUt of unpaid subscription, (8) 10 purchase rpouent shares, (4) exercise by stockholders of the appraisal “Answer; There are five instances in the Corporation Law where Sicekholder, ot agreeable fo certain corporate: actuations protest and compel the corporation to buy i's shares, These ars: i). When the ertcteo of incergeration are emendad In extend. duration of existence of the corporation, 2), Whon the articles of incorporation are amended to change i rights of stockholders, autharize preferences superior to those txisting stockholders, oF resrict the rights of any stockholder 3) When the stockholders authorize the board to invest th corporate funds in encther corporation; 4) When the slockno/ders autnorize the board to engege in purpose other than the mein purposo(s) stated inthe articles 5) When the Sorporation decides to sefl or dispose of all ‘substantially el oF the assets ofthe corporation (Note: The right to withdraw under the old law is now called | appraisal Right’ by the N.C.C. and ie available in four instances in favor of a stockholder who dissents to: (1) amendments of the: ariles to change, restrict existing nights or to authonze n praterences of stockhoicers; (2) sale or other dispositions of all SubslaWally cli of tho corporale ascols, (2) mergers ar, consolidations [Sec. 81, N.C.C.] end (4) investment of corporation 4 {ue an epson for a different purpose [Sec. 82) + Question: X subscribed and peid for P10,000.00 worth of ‘ot stock cf Rainbow Mines, Inc. as an incorporator anc! inal subscriber he was empkyed as the mine superintendent eres sucn, made the dosign of certain equipment used in its fines. Due to some technical error in the design, ihe corporation Altered a Joss of Pi M. The Board accused X of Infidelity and E jeash of trast and confiscated his shares. Js the aotion ofthe Boye Fecal? Reasons. (1969 Bar) lanswer: The action of tho Boards not legal. The rights of X 25 & veokholder, and his obligation as @ mine superintendent are two nt matters. the Code provides for the manner by which the corporation may Specome owner of the stocks of @ stockholder (ike where the aatholder 's declared delinquent, his stocks sold at auction, ard Fees no person interested in the bidding, as a consequence uf B ynich the corporation becomes awner of the stocks). nis beng remss as an employeo in his obligations 1s not @ E ground for the corporation to coniiscate nis shares Ber Question: Under what conditions and cireumsianoes may 8 © camoration acquire, by purchese or otherwise, its own stocks? Ist Siewed by our Coporation Law? Explain your answer. (1956 62) er Question: Authorized by a resolution of stockriolders owning [ wohirds of the stock ented to vote, the boerd of directors of & torporatign Invests the corporate funds in @ business other then the tnain business for which the corporation was orgenized. Ifyou were 2 stockholder who did not vate fo authorize ine action of the board of directors, what remedy would you heve and how is oh remedy obtained? What is the reason behind that remedy’? (1359 Bar) Answer: A corporetion may acquira its own stocks in the fllewing instances: 7) Purenase at auction in a sale of delinquent shares where there are no other bidders: 2) Whena stockholder, in any of the following instences, withdraws from the corporation: a) “Amersinen of ees fo axiond coparte ite; }) Aineininscn of the arlisiee te ohango er modify the rhis at stockholders, “Answer; If | were the stockholder who did not vote to authorize the pation by the Beard, | will compel the corporation to buy my stocks. a ah TO ave. 'a) Winn 40 days efter thet action was taken by tre compovalion, | ‘Should object in wnting and demand payment of my sheres. fei oF ands afolher eoiperaion, Use of funds for a purpose not the principal pursase(s) stated in the articles; anc f this cerredy, 1 will have to.ca. the SOfOM A ios6 COMMERCIAL LAW. CORPORATION CODE 73 5) It and the comoration agree with the price, oF in case gf t dicegreement, where the committee oF appraisers fixes the py omporatian pays me the prise vithin 30 days after such Fiing, @) Upon payment, | wil indorse my certifcale of stock and delve the seme to the corporation ee (Note: This right is nove calls the appraisal right by the N.c.¢. 7 period to claim is reduced to 20 days ‘rom the date of corpo action; if there is disagreement as to the orice, wthin 80 daye.: three man committee of disinterested persons is crested. Payment the dissenting stockholders is made wlihn 30 days trom agreeme, or ftom the award, in case of disagreement ac to the price [Sec, & NGC) vided for in Section 81 of the Comoralion Code, The ground of ‘slockhaldsr 9 the case at Dar is nol 2mong them, . obligation of 2 corporation to pay 2 witharaving stockholder Se Sieg of no aperta nht dovendarton the jelence of unrestricted retzined earings, otheruise the preference Brrecitors 10 corporate assets is violated (Boman ve, CA, 167 SRA 540). Question: In what instances may the nght of appraisal be ilad of unger the Corporation Code? (2009 Bar) answer: The appraisal righ may be evaied of by a slockholdor in Fine following instances: bin case any emenciment lo the alles of incorporation has the sfect of chenging or restricting the righis of any stockholders or Gass of sneres, oF of authorfzing preferences in any respect superior those of outstanding shares of any class, or of extending or E shortening the term of corporate existence; Fer ne au oe, exsrangs raster, matoage, leds or ‘ther disposition of all or Substantially all of the corporsie property “and assets es provided in this Code; and . 3. In case of merger or consolidations (See. 67, NCO) Bar Question: Tha board of directors of a corporation approves a’ resolution to sell substantially all of its property and assets. Discusg. the remedy or remedies available to @ stockholder who doeg not bnform to the resoluion. (1957 Sar) Answer: A stockholder who does act conor to sald resclution © Sthould objact to the resolution within 40 days aftr it was epproves: and deraand payment ofthe velue of his shores. He may compel th corporation to pay him the price voluntenly agreed, or if no agreement is reached as io the price, thon the prieo ae fod by a Commitee of anoraisers. inion case, sald amount wil have fhe. paid by the cororation to tho withdrawing stockholder within 90 days itor the tme tne price was fxed by the commits. (Gee Note to immediately preceding Bar Question) 3. Issuance of Stock Gerlificate A stockholder is entitled to the Issuance of 2 carificete of stock to himatterhis compliance of the concitions forits issuance, usually full payment of the sudseription Bar Question: ABC Comporation has an authorized captel siock of One Milion (P1,000,000.00) Pesos divided into 60,000 conmon Shares ard 80,000 preferred shares. Ai its inception, the Corporation offered for subscription all the ‘common shares. However. only 40,000 shares were subscribed Recently, tho doctors thought of raising adkticnal cepital and decided io ofier to the public all the authorized shares of the Corporation a teir market value Assuming a stockholder disagrees with the issuance of new shares anc the pricing for the shares, mey the stacknolder invoke his appraisal rights and demand payment for his shareholdings? Explain youranswers. (1999 Bac) Ber Question: An employee of Juan Gutierrez sola in ihe Manila Stok Exchange 100 shares of the Benguet Mining Company belonging to his employer, without the knowledge of ihe latier. Jose Lorenzo Boughtthe said sheres thru anotier broker of the exchange. The Benguet Mining Compeny issued 100 shares in the name of Jose Lorenzo, in eu of the 100 snares of Juen Guterrez (winose ‘Signature at the beck of the cenifcate wes Forgad by the employe) (i) Who has tna better night fo sait! shares, Juan Gutter2z or Jose Lorenzo? (2) What are the Nebilties of the two brokers and the Bongue! Mining Compeny? (1949 Bar) Aitsiver? (1)"Sharas oF stock, unlile negotiable instuimenis "a not ‘reale the s0-callad holder in due course. Transiesees of shares, alinough the mettiod of transfer to them is by indarsement followed iseleitaswashanlejihaimey not The grounds whereby @ bookie? may exercise his appraisal rights are restricted to three instances onty a3ors COMMERCE Law CORPORATION coi teste OAV face nOPts WED Tok Carafes had owes ee ame i ar bnal of cher ats isisered Aste faye hed bn sored rong, uarn nage Sonor cause soot a hian Gulez sit has a Betlardght othe sharea, RS agg tev @ Coron NSS SS (2) The brokers were negligent in ine performance oftheir honce, they become Fadlo to the prajudiced party, dose Lore whout prejudies to these brokers running afer the forgar. Benguet Mining Company becomes fable to Juan Gutierer F does not cancel the certiicate of stock i issued io Jose Lorerac oy the basis ofthe forged signature of Juan Gulioree, Benguet Min Soa meget meres sume cmos wee be goninenees of the sigue of one of fs reg jt by a stockholder in his own “holders similery situated, and corporation. a. Defined | dervative suit 1s @ sult orcught by a slixdholder, for and in ie ac ene ee ae ymedies, by requesting the! ‘board to act, and the board does not act ‘A corporation against whom stocks are claimed by two a ancien een tbe he cna ie claimants to fil it ie coe le @ Suit against it (Dy vs. Enage, © A detvative sult is an agtion brought by minority shareholders in the nama of the corporation to redress wrongs committed against i fpr which the directors refuse to sue. It is @ remedy designed by “7M equity and has been the piincipal defense of the minority parchoiders ageinet abuses by the msjorty (Westen vs, Salas, 78 SCRA 216) D. Stockholder's Suits and Remedies ‘There are three classes of suits which a stockholder may bring in sone eee ‘Among the basic requitements for a derivative suit to prosper is thet the minority shareheldar who is suing for anc on behatt of the Sbrporation must allege in nis complaint befuie tc proper forum trot he's suing on a derivalive cause of action on behalf of the F erporation and all other shareholders smitty situated who wish to b jin Ibid; Tan vs. Makasiar, 350 SCRA 475) 1. Individual Suit An individual suit is one brought to assert a right by @ a pect torimset Suts rough oy a steknalde tr re esuancets him of a stock cortificsto, paymont of his dividend, payment to him of ‘the book value of his stocks, in those instances where the law allows him the right of appraisal, ere individual suits, E_Asearly 2s 1911, the Supreme Court has recognized the right of ‘a single stockholder to file derivative suits. Where corporate F directors have committed a breach of trust either by their frauds, ultra | (ites acts, or negligence, and the corzoration is unable or unviting ‘to insituto suit to remedy tne wrong, 2 single stockholder mey institute that sult, suing on behalf of himself and other stockholders ‘and for the benefit of the corporation, to bring about a racress of the jwrong done directly to the corporation and indirectly to the stockholders (Gochan vs. Young, supra). It Ts elementary that a void contract produces 1 0 effect eit against or in favor of anyone; i cannot areata modly or etinguoh the juridical relation to which it refers. Thus, Cecilia remains a stockholder of the corporation in view of the nullity of the Contract of Sale, ltough she was no longer registered asa siockhcider the porate records a3 of the filing of the cese before th: Scinfted alegators tthe Compan. mado het sil s bere fae stockholder of the corporat r cc Stole as oe rporaton as betwosn sel parte (Goctan va ‘A dervative suit may be instituted by a stockholder in behalf of ‘oration wherein Ne holds, stock In crcer te wukect or ‘Getiicale corporate rights, wherieves the” bficiels‘oF the corporation E. fefuse to sue of are the ones to be sued, oF hold control of the = corporation (Gambee vs. Vieiotiano, #0 SCRA 40), 2. Representative SuitAL LAW Eye ownership by a slockholder of 2 stock in his own right at the feof the transaction complained of which invests him with standing asit.t@ 2 dettvative action for the benelt of the corporation (APT ‘GA, 300 SCRA 579), Allegations in the answer cannot detest the pattion a5 the cause of action and jurisdiction depend on the allegations the conpise) (Conran vs. SEC, 198 SCRA 73), E Question: Reliably informed thet ihe procertios of the ration are being wasted and fraudulently disposed cf dy te faracement, the minority stockholders met end decided to seck fredy in court efther through an action in their own name or fougi an action in behaif of themselves and other stockholders for enofit of tha corporation. were counsel for the minonty stockholders, which of these There are three requisites before a derivative suit can be fed! Bere wed Verrier iat nu scuallepe aid prove? Expjeig a stockholder, These are (1) cause of action in favor of corporation, (2) refusal cf the corporation to sue, and (3) party fling! the sultis 2 slocknolder (SMC vs, Kahn 175 SCRA 44?) ‘SEC has jurisdiction over derivative suits, they being in corporate disputes,,per Section 5 (b) of P.D. No. 902-4, (West vs. Salas. supra) (Note: Under R& 8799, jurisdiction is now with the RTC.) b, Requisites Bnswer: If! were counsel for the minority stockholders, | wilfile an ton in benef of my clients and other stockholders for the benefit of corporation. This is celled aa the stockholders’ derivative suit To succeed in this action, I wil have fo prove the following (1) the sting away and freudulont disposition by the management of fo assets; (2) refusal of the board to sue, aller the matter was Bough to the attention of the board: (3) injury to the corporation; (4) jhaustion of intra-comporate remedies: and (6) that they ere suing ' derivative cause of action on behalf of the corporation and all her stocknolders similedy situated. ‘The fact that no other stockholder has made common cause with 4 the plaintiffs irrelevant since the smaliness of plaintiff's holding is no be for denying him retiet (Republic vs. Cuaderno, 18 SCRA. Asstockholder has a cause of action to annul certain actions of the board of directors of @ bank, which actions wara considered anomalous and a breach of trust prejudicial fo the bank (Ibid). In the present case, the Complaint alleges all the componentsota r Question: 4 group of minority stockholders of @ corporation derivative suit. The alegctions of injury to the Spouses Uy can | eexist with those pertaining to the corporation. The personal injuyy suffered by the spouses cannat disqualify them from fling a: derivative suit on behalf of the corporation. It merely gives rise to an |? additional cause of action for damages egainst the erring direciors. ‘This cause of action Is aiso included in the Complaint fled before the SEC (Gochan vs, Young, supe. lator as president and manager memanaged it effars and its sets, and cemanding that ne pay 10 them the value of their F espective pertcjpation in the corporete assets on the basis oftheir F spective holdings. Did the minonty stockholders have the nahi to Boing ti's action for their own benef? Reeson cut your anewer [answer: No, he minority stockholders did not have a right to bring fihis action in their own betiaives. What should have been brought by whem is the stockholder’s dorwvative suit, where the action is fied for and in tehalf of the corporation. But then other conditions must be Uesen! besides the cause of action here. The stockholders should ava exhausted inira-corporale remedies by informing tne 098/010 Jake the proper remadlag, sates * A derivative suit will be dismissed if the petitioners fell to snow thet they have 2 laqal basis for representing theit co-members end have nol shown what acts of the board ere detrimental to the interests of the corporation and its members (PPSTA \vs. Quisumbing, GR, 72193, Nov. 17, 1880. Minute resoltion} ache “basi of 6. stockholders’ ‘suite ahvays Gre inmequily. However, it canno: prosper witout fist compiyng with the legal requisites for its institution. The most important of these is the bona| #08 COMMERCIA LAW. Bar Question: A became @ stockholder of Frime : by another stockholder fo quality him as a disclor 4 waa reelected director in the wily 1, (392 annuel meeling byt 4h contrued tobe 2 registered shereholde of PREC ae 1en he was still a director, A discovered that on Januany¢ 1994, PREC issued tres of cnarge 10,000 shares to, a lawn assisted in a court case involviiig PREC. i 2) on ee ‘bring an action in the name of the corporaticn question the issuance of the shaves : nee to X without receiving b) Can X question the sight of A to sue him in behalt a eee ‘on the ground that A has only one share in his te 6) Can not the shares issued 0X be cons a 9 at sidered as watered stoaka drawer:ja) No; Ahuitie icone to Hie & dariedis uit eh must be a slocktolder of tne comporation et the tine of the act transaction complained of Since tha act being questioned by happened on danuary 5, 1981, or months berore ine became gt sioekhcldar, he cannot file the denvative suit. He may do 50 if eu action is a continuing practice uni such time that A was alreaay a) siceknolder, assuming ail other requisites are complied with : ) No, X cannot do so. tis immeteria! Ul 1 No, x ial thal A has only one share, derivative suit must hoid a substantial block of stock, finds na ™ Support in the Jaw. The bona fide ownership by stockholder a slockh He ovn roht ufc o vest in wat Stancing fo PEN derivative action for the benefit ofthe comporaiion. The numberof his Shares is immaterial singe he is not suing in his ovin bea, or fort protaction or vindication of his own particular right, or the redross a wrong committed ageist hun, incivitually, but in betrelf and for the bonefit of the corporation (See San Miguel vs. Kiar 447) @) No. Watered stock refers to stock issued for @ consideration fess than its par oF issued vaive. In the shares issued to X must be compered fo the valve off io shores issued ue of his. services in Bar Question: A corporation has Joss Santos and his s : s J : on as its si /chaprasidants and.-managar «respectively V4 9477" th ee rporation ‘suffered losses. The minonty directors in the organization mesting of the board in March 1248 exposed the incompetence and the 578 SCRA FF answer: The motion to dismiss should be denied. A derivative suit | has been the principal defense of the minority shareholder against ‘2 a! bar the value of the’ abuses by the msjonty. Il 's @ remedy designed by aquiy for those Situations where the management, through fraud, neglect of duty, or mpolence of fie manager and president. Not The businas: a c.ors including EY corporation again suiforod losses due to t CORPORATION CODE 679. noe of the management and moved that 4 new president and Ty manager be anpoinied, The motion was disapproved. In 1948, negligence anc ing sould be seid yar ageinst their honesty. in the organization meeting of the tin Manila, the minosity directors again moved for agpoinirrent Tew president and @ new manager Motion was again tumed .s operations of 1947 impaired 10% of the capital corporation, 2nd tose uf 1949 impaired 409% oF tha capital. tn jay 1949, the corporation was in need of cash, and al! the the minority directors loaned to the corporation "900.00 each, payable on demand. Aiter the organization meeting G 7949, the minorty directors demanded the payment of thelr eetive loans, but the corporation refused io pay. What can the Rony directors do fo protect their intrest? (1949 Bsr) inswer: The mnnori directors may bring a derivative suit, for and in Babel! of corporation fo make the emng management officals Becount for thelr erred, intereifa, 1orawy the sui. | oiner cause, dec! to have committed breaches of corporation would be to emascuiaia the right of minority ‘management. They may also include as a Fs vsionel remedy the creation of a receivership over the assets of Bar Question: AA, @ minority stockholder, fled @ suit against BB, Go. DD and EE, the holders of majority shares of MOP Corporation, alleged msepproprialton uf vorparete funde. Tho complaint thet MOP Corporation is the corporation in winose half and for whose Denefft the derivative suit is brought. In their Sapaciy as members of tho Boerd of Directors the majoriiy roiders adopisd a resolution authorizing MOP Corperetion to Pursuant fo eaid resolution, the comporaie counsel a Motion to Dismiss in fhe name of the MOP Corporation. ‘Should the motion be granted or denied? Reason briefly (2004 Bar jines: to fake the proper and necessary steps to assert tno corporation's nghis. To grant to MOP the fight of windraning oF cistuissiny the suit, at the inolanee of majority doskliciiers and diractors vino :themselves axs.the parsons alleged trust ageinst the imerest of theWON COD: 531 coma CORPOR: Law F dervalive suit and render the right to inslitute the action iMusory Stocigiolcers 10 seek redress for tne corporation (Commer. immart vs. SEC, supra) Secunties, 198 SCRA 73), Bar Question: Cine Sevila, « minorty slockh Coporaton, fat fat varus ivesimons of the companys om nore ula vires if not, indeed, made in vidation of law. Se he Corivai sll seeking to nul he qvestenod ivostmont (i er action prosper? Why? (2003 Bar) Jp stockholder may su2 for mismanagement, maste or dissipation | yarporate assets because of a special injury to him for which he is erise without redress, In effect, the suit isan action for specific Pyyformance of an obligation owed by the corporation te the Peoxholders to ascist its rights of action when the corporation has Fecen put in default by Ine wrongiul velusal vf the directors’ or {agement to make suitable measures for its protection (APT vs ‘Answer: Yes, the action would prosver. Regardless of the fact 5 the a f 18 fe Ghra Sova Is @ rinortyslockholcor, 9 dorvative cut mey si brought inte name of ie operation recess rons com a insti, for which directors refuse t ve. 2 sera to sua (Western v3. Sales, Gina must be certain though that sho has comoh lod with following basic requirements in order or @ dertvative Suit fo pros that she ha’ exhausted intre-corporate ramadios, by requesting board to act, anc the board does not act at ail, and must allece in complaint before the proper forum that she is suing on 0 deriat cause of action on behalf of the corporation and all other 1) When Exhaustion of Intra-corporate Remedios: Dispensed With finer the corporaio directors are guily of breach of trust, not of fe error of jucamert or abuse of discretion, end intra-corpotate dy is futile or uscloss, 2 stockholder may institute @ sult in if of nimsetf and of other stockholders and for the benefit of the “taporation, to bring about 2 redress of the wrong inficted directly pen the corporation and. Indirectly upon the siocknolders (Ibid 360 SCRA 475). Ipgeles vs. Santos, 64 Phil 697; Reyes vs. Tan, 3 SCRA 198), . Nature of a Derivative Sult ‘Such @ auit need not be authorized by the corporation where I's Fcbjactive is to nutty tne accion taken by is ienager and the beers ffdrectors, in which case any demand for intra-camporate remedy stockhelderis permited to inetiute 2 derivative sult on behalf ofthe ge would be futle (Republec vs. Cuadero, supra). corporation wherein he holds stock in order to protect or vindicat corporate rights, whenever the offcias of the corporation refuse Ig sue, or ere the ones to be sued orhoid the control ofthe corporation In Such actions, the suing stockholder Is regarded as a nominal patty, with the corporation as the real party in intoreet (Gamboa ve, Vieiotiano, $0 SCRA 40; First Philippine vs. CA, 252 SGRA 258) J Republic vs. Cuademo, 19 SCRA 671; Lim va, Lim-Yu, 382 SORA“ 216; APT v3. GA, 300 SCRA 672), ‘i Bor Question: A small slockholder of @ bank fied a su praying for ‘an inpunction 19 prevent tne eoproval of the appointments of two persons whom he claimed: were being appointed fo tneir postions only ‘for the cumposs of shielding from criminel prosecution ‘the tontroling stockholder, alleged fo be commiting fraud in tne tank afais. Defendants wore the Board of Directors of the bank, the two parsons whose aopoiniments wore being questioned, and the ontroling stockholder of the bank. Thase defendants moved to amiss the sutton the ground thai a mere stockholder is rot allowed to quzation the appointments becatise they were Corporate acts. Shouid tre case be dismissed? (1875 Bar} A cetivetive suit is the remedy designed by equity for those | situations where the management, trough fraud, neglect of duty, or other cause, declines to lake the proper and necessary steps to assert the corporation's right. Indeed, to grant the corporation, | {hvough its maiority stockholders and the cirectars who themselves sabeiiunnaa scaresthe parsons:allegad to-have Somnitteth breaches 8 trast wold be to emasculate the right of minority stockholders to Seok redress for the corporation anc would defeat the very nature and function of | Answer, Yes, tne'case stiould Ue uisiissed. Cencrally it io the boast which datarmibes whetkeror rottnescarparation sitobdsidiie ex: cose in court. ne situation, however, where the possible defendants ‘are members of the board itself, the law allows the fling by &a2 CORPORATION CODE OMMERCISL LAW Siookaaldr ofa dorvative alt for andr behal of he coatay the stockholder appsaring in the case as 2 nominal arty. Inthe ats ai be:, honever, the case is fled nol as denlvative sult Cut a5 en ‘dials fhe planet stockholder "The sul ll neers Sa : fon of Comor ‘A. Dissolution Defined 4 Discolution is the extinguishment ofthe franchise of a corporation d. When a Suit is Not Considered @ Derivative Suit jifeend the termination of its corporets existence, The sult of respondent cannot be charactenzed 2s derivative because she wes complsining only of the vilation of her preempt fight under Section 39 of the Corporation Code. She was me praying that she be sllowed to subscribe to the additional issuanoae | Of stocks in proportion to ner shareholdings to enable her to preserve. | her percentage of ovnershio in the corporation. She was therefors_| ‘not acting for the benefit of the corporation. uuite the contrary, s was suing on her own behalf, out of desire to protect and oresanve. her preemptive richts (Lim vs. Lim-Yu, supra), fd |B. Modes of Dissolution 4. Voluntary dissolution ‘a, Where no creditors are affected (Sec. 118, N.C.C.) b, Where craditors are affected (Sec. 119; NCC) ¢. By shortening corporate term 2. Involuntary dissolution — Under Section 36 of the Corporation Code, read in relation to | a. Grounds: (sec. 4 Section 23, itis clear that where a corporation is an injured party, is | 4. Violation of the New Corporation Code (Sec. 144, power to sue is Io¢ged with its Doard cf directors or trustees. Note NGG) 2. Failure to organize and commence business within two et pottiner fied fe show ony poo! that he was sulhoreas wer reckre years from incorporation (Ses. 22, N.C.C.) deputized or granted specific powers oy Concord's board of director te uo Victor Ang Siong fer and on ochaif of the fim. Clealy, petitioner as 8 minority stockholder and member of the board of directors had no such power or authority to sue on Concord's behal Nor ean we uphold his act 2s a derivative suit. For a derivative suit | to prosper, it is required thet the minority stockholder suing for and on bahalf of the corporation must allege in his complaint that h suing ona derivative cause of action on behalf of the corporation and ail other stockholders similarly situated who may wish to join him in the suit, There is no showing that petitioner has complied with the foregoing requisites (Tam vs. Makasiar, supra; APT vs, CA, supra), fF corporation may be dissolved by the SEC upon the filing of a “yerfied complaint and after oroper notice and hearing on grounds provided by exsting laws, rules and regulations (Sec. 121, N.0.C.) Bar Question: Name three (3) methods by which a stock ‘corporation mey be voluntarily dissolved. Explain each mothod (5%) P answer: Voluntary dissolution of @ stock corporation may be done through the following matheds: i 7 Where no crediors are alfevisd (Sec. 118, NOG) — By majarty vole ofthe boerd of directors and by a resolution duly adopted by the affirmative vote of the stockholders of at least two-thirds (26) oF (re culsianding capital stock at @ meeting to be hald on the call of the Glectors ater notice by publication. A copy ofthe resolution mus: be Certfed By tne Boa of directors, hereeieraven to SEC, who sh "on igouo tho eerifioato of dissnb an ine) Where exedliors ere effocted (Soo. 119, NCC) - & petition for {Sblnion oF a oarboralion sel Le fled vik tie" SEOs aipnentbye | majority of its board of directors, ventied by ts presicent or one of ts Girectors and shall cot forth all claims and cemands against it, and Vil. Liabilities of Stockholders ‘A. To the corporation for unpaid subscription plus interest B. To creditors for unpaid subscriptions A stockholder may be sued directly by oreditors to the extent of theit_unpsid subscription to the corporation (Keller vs. COB sai METERBO TED BERALED). 25 shee ntact ee ©, To the corporation for watored stock (See. 66, N.C.C.)634 coms CIAL LAVA thet ite dissolution was resolved by the affirmative voto oF the sonsne ectnesaer epresanng at oss ois (29) < fi Site ek ska necting of fo sooknaar oled for hep 5. Shortening corporate ferrn (See. 120. NC ro mm (Se C)~ cing te efoht ctieopaion witrcay copy oft anemied am Hosrporaton chal be Submited fo the SEC. Upo? aporoval iReEa amended articles of incorporation or the i Bes Sirona ed he ire eee war iaay proceedings, subject io the provisions of liquidation “ A petit for liquidation of an irsohe , insahent corporation sh ceesfied 2. spoedl proceeding. end not an ordinary scton iguldaton proseccng resembes the proceeding for te seller of estate of deceased persons under Rules 73 to 94 of the Rules of, Court (Pacific vs. CA, 242 SCRA 493). from issue ofits certificate of Incorporation does not automatically dissolve the corporation, but may be @ ground for dissolution (Chung vs. IAC, 163 SCRA $34), 3. Procedure for Voluntary Dissolution 2. Where no craditars are affected 1) Affirmative vote of majority of Board; 2) Call for meeting of stockholders or members: and. publeaton of noice of the ocean ‘seme once 2 week for 3) atirmatve vote o 2/3 of members 5 ste Poldng a lest 2 of teconel sock using, 4) Certified copy of resolution signed by majority of the | directors and countersigned by the se ee NCE b, Where creditors are affected: 1) Call for meeting of stockholders or members for the sy Repel, ances of casa iain sere ratey ) Affirmative vote of majority of members in non-stock corporations end of stockholders holding at least 2/3 ae cutee call Hoh tek corpora ‘tition filec with SEC signed by majority of th paeantaig tecby naverenc ee se tBo iyror” yr be . CORPORATION CODE $35 4) Order seting a dete offing objections, rot ess Yen '30 not mara than 0 days, after entry of the order +5) Publication of the order in a newspape’ once 2 Nees jor three wooks, and posting of tre order in 3 public places in the toyn or city where the principal Corporate office is located, for tree weeks, 16) Heating of Petition by the SEC; 7) Jucament (See. 119 NCC.) «e. By shortening corporate term © A voluntary alsolution may be done by amending he amis 2 novunlayy te fe, and submiting a Copy to the SEC of sald Fee setipent wien the shortened term expires, the corporation I= ers dlssoWved without further proceedings (Sze, 120, N.6.°) E \idre fing of the Articles of Dissolution with the Securities and | cateige Commission, without more, s act enough to supeon he eeron that actual cissdluion of an ently in fast took plane E nion vs. NLRC, 246 SCRA 723). | the Problem: Some’ businosamon with an avaliable Sfartng cacital Treling only 100,000.00 ask you 10 help organiza a busines firm. Seer fn regal imitations, they havo foture plans io Inte alse Fieictors who are agreeable fo rendering Traine! assistance By Woy. bof airect investments andforioans. Your professions! assistance Is + steted on the following verious questions that may ese. ‘Rar Question: The management of your frm embarks on 8 long Far erolan fo ether discontinue or expand the business, dependrd rane eonanding economic condons, Yeur legal acvice& soul | onthe following matters. HT eur fi pettions for ingolvency, doss that automaticaly terminate its egal existence? Why? (1973 8a!) ‘answer: The fing of a patton for isowvancy by my fm wil not Answer: Ti gscene ie the axsience of nslvent may Be 2 good ground for dissolving my firm, the mere fing of ihe petition G02 gre Ke. After the insovency proceedings ave over, 2 does net ce apie eormee in, eso mare reason to continua foetet set i fA comporation, whose period of existence has exored, 23805 12 be a body corporate, but is given by the law three years to effect586 ve ae LAW iquidation of Its assets and labilies if done through its board gp directors, There is n9 need to institute que warrants nidceednge because that is done only (though the Solicitor Genera} involuniany cissolutions. Corisequenily, where the option to rena. i lease accrues when ihe corperstion is already dieaolved, said opt ft can no longer be exercised (PNE vs, CFI, 209 SCRA 294) fitute a proceeding for quo wanrente (3 There is no need to inst se Ee MPe pxisience Is provided in ihe Articles. i ase aa ee {ecause tne corcoraton failed to extend is Ite (Prllpine vs eS i } th case of dissolution of a corporation, tha perind of preecripi | should be reckoned from the date of fing of the reium requinad i | Section 78 of the Tax Code (Bank vs. Commissioner, 363 SCR © ¢.Winding-up of Liquidation i 840) ‘ 4. Dofined ‘Any corporation contemplating dissolution must submit tx retum: fon the income eamed by It from the beginning of the year up fo the dale of Is dasolon or colremont ans pay he concesenae ee uo upon demane oy ihe Commissionar fintemal Revenue sa _ fatcaton ees te weet edo and debe ad hi Bar Question: XYZ Corporation eniered into 2 contract ofl with ABC, Inc. over a pisce of real estate for a term of 20 years, rereneble for another 20 years, provided that X¥Z's corporate temp is extended in accordance with !aw, Four years after the term of Lugs va! Renato | | Oy Oapbeebitnpier ne ax tine Rete ones a | ¥ jinding up or settling Socata ae ice nang pele emponien © ‘ ‘that assets are distributed to those entitied to receive them. Itis < : process of reducing assets to ‘cash, discharging liabilities anc lease contract for the extension of the lease period, XYZ Cory, old ABC, Inc. tat ts exerasng tne onto tn eet the loa, Ine. objectad to the oroposed extension, arguing that since the. Oe i Comorate ite of XYZ Corp. had expired, could no longer pt fo on the opp and ofthe spent sein wish ‘connotes a reopening or reorganization. Rehabil fe fe and activities in an effort 10 restore tinuance of corporate life a ne reste | aerate the eorporation 10 Hs former postion of succoestu operation and sclvency renew the lease. X¥Z Corp. countered thet withstanding the lapse of ‘ts comorate term it sil! has the right to renew the lease because no quo warranto proceedings for involuntary dissolution of XYZ Comp has been instituted by the Office of tho Solicitor General 's the contention of XYZ Com. meniorious? Explain briefly. yn is diametrically vat that the conospt of liquidation is posed cotary fo be conep ehanton, such ha Eo nat undertaken at the same time, To allow the liquidation earn eg contra would eorlxsl hinder the renabiteton of Hele hank tehiopin vs. Vega, 280 SCRA 22) ‘Answer: The contention of XYZ Corp. is not meritorious. Upon the ‘sxpiration of the period fixed in the Article of Incorporation in the absence of compliance with the requisites for extension of the period the corporation ceases to exist and is cissolved ipso facto, Upon expiration, the cemporation esases lo be @ body corporate for the purpose of continuing the business for which organized, but it shall be continued as a body corporate for 3 years after te time when it would have been dissolved. to proseauta andi dafard suits by 07 against it end to enable i gredvaly to set. anct cloge ts. afc, atest dispose ‘and bonvaypropenty arid didde ds Bssets"~ = 2, Methods of Winding Up C which a ceopted in this jurediction are three methods by camporaton mento uP ie adja (0 under action 8, Rue 104 the Rules of Court (ed Sipe ea oe ee . 2) se 3), wher on voluntary cissol poration, a eercagh dsponton offs asses as justice rere, 270 ay688 COMMERCIAL LAW appsint a receiver to collect euch cosets and pay the debts of hg - ‘corporation, (2) unde: Section 77 of the Corporation Law, whee corporation Whose comorate sxistence is terminated, aha the time then it would have been so dissolved, forthe purpose a prosecuting and defending suits by or against it end of enabing’y gradually to settle and ciose is affars, 10 dispose of and convay i Property and to. divide ite copital clock, but not for the pur continuing the business for which it was estabished, (3) under Section 78 of the Corporation Law, by virtue of ‘which ing corporation, within the three-year period just mentioned, ig. authorized and empowered to convey all of its property to a trustee. for the benefit of members, stockholders, creditors, and others interested (Board vs. Kalaw, 20 SCRA 987) (Note: These three methods of dissolution are maintzined by See 1QNCC) 4 : Comoration continues to be a body corporate for three (3) years after its dissolution for purposes of prosecuting and defending suits by and against it anc for enabling it to settle and close its affairs, ‘culminating in the dispositon and distribution of its remaining assets The corporetion may, during the three-year term, appoint a imistee ora receiver who may act beyond that peril. Te {eimination of the life of a juridical entty does not by itsalf cause the extinction or diminution of the rights and liabilties of such entity nor those of its owners anc creditors (Clemente vs, CA, 242 SCRA 717) If the three-year extanded life has expired without a trustee or feceiver having been expressly desianated by the corporation within that period, the board cf diractors (or trustee) itself, mey be permitted 'o so continue as wrustees by legal implication to complete the Corporate liquidation, Stil in the absence of a board of difectors or trustess, those having any pecuniary interest in the assets, including not only the shareholders but likewise the creditors of the corporation, acting for and in its behalf , might make proper representations with the Secures and Exchange Commission, which has primary and sufficiently brosd jurisdiction in matters of this nature, for working out a final settement of the corgorate concerns hid, sing alana ve. CA, 103 SCRA 00) arc Exchange Commission aoproved the amendment of the érticies of incorporation of GHQ Corporation shortening its corporate life to only 26 years in accordance with throo years atte: § CORPORATION COD! a9 rier Code. As shold, tha corparaton ret he buanaos sperglons un May’ 30, 1997. eal dey of L .er3 ‘istence. Prior to said dets, there were 2 number of ool Satons otvenying nature but mesty money dams tee Sedtors, nave of vinion was expected 10 be compleled or han ve yoo rom My 3, 1097, si sors ned sought yr poesia aie ime abut Heer or not ned cases could be puroucd Beyond May 2, 1997, ihat would havo been your achira? (2000, 1973. 1968. 1963 Bar) F section 120 of the Ce Jnswer: The casas can sfil be pursued even deyond May 20, Ser Afra comporaton is dssaved lhe epored of 3 years f igadatan or winding vp, fo sotle and oose Ks ars ard ‘isribute its remaining assets. Prosecution of the casos withi Gear period of lquidalton i allowed a. By Corporation itself ‘ ‘ negotiate and transfer | Tho corporation during the winging-up may 7 Fe assets of the dissoNed corporston, provided the stockholder | gue their consent (Chung vs. |AC, 183 SCRA 524) a don Wwostion: The corporate: ite of “AY company expte bar aeeet Je Gn Jenn) 16196), tho carosny fled 2 ee eecinet "3" fo reccver a sum of money. The action is stil just 12, 1962). Seen eee een io chvmss ont gourd tht lenit ro longer hes legal cape to sue be granted? (Answer Yoo of No, E inon gia reasona). (1962 Bar) ia! cour shoud gtant defendants moton to Aster nthe ground that lami capareton no ger has legal care speration afer dsslion dcioes fo wind up taug as our head & sould tarminete al es of winding up wn ice en atordecuion fhe case tbr a pening atons shout Tove been tanated on ef botow December 31, 7951, Th tava fos, no wunoa! personally 10 conus vith 2n/ sorporte actuation afr tat period i (Riko. See nowever doctine in Gelone vo. CA, Inia) Ein spav@ussion: A arque ofstocktokler.of Sesame, Copprglion fled, Board of Directors to make ‘a court suit against the members of tho 80 {geod fo the stockholders, in proportion to their shareholdings, theMERCIAL LAW losses incuned by the corporation because of ine defen of Directors’ manegernent. : While the case wee ponding, the corcoraiio the corporation was ds fume te nae-ser 7 fom ts schon the Bone Brat deeded icon te comaratoty an antcrinen ar ration. Ci f ae poration. Can the Board of Directors co 30? (1996. Answer: The Doard of Dreuivrs vin urs vomit pas a resolution to Cones ator th corporation nos dasohe, fr ho ong @. After a corporation is dissolved, corporate life : is no more life to extend; zs ne ee » ifthe Board is given a thres year grace € period after is dssclu to wind up and liquidate, that grace period can be utllzed fornothing 4 more than for the liquidation of the corporation. The board tae 5 pass a resolution nol germane tothe leudaiion phocess, ' © Even fhe extension nas cone by the board before is clselutin, the extension end filing of an amendment to the Articles of Incomoration need the approval of stockholders holding at least 29 of the outstanding cacial stock of tne corvoraton Bar Question: ‘" Corporation shortoned ts co7 amending ts aces of newporston, has ne dodts aut ovns a frre propa loco! nGatear Oly. Hr at re Soe aoe fe" igicatad ‘mong the ive slockhlGor of sans corcrsion? Discuss two methods of fiquidation. (2001 Bar) Answer: The property of “x” Comoration can be li liguidat fhe fue eloknoldors by sating the propery fo tind porsor ond dividing the proceeds, or sailing the property fo one or more of the stockholders end paying the non-buying stockholders, both in Proportion to the sharshoidings of each stookhoiden prosecute in its name, casas filed by it in cour, after which periog, it Geases 10 exist and can no longer sue or De sued, Hwever, the corporation can convey its properties to trustees or have a receiver appointed by SEC who can continue suits beyond said three year _.Benafietstie three year: period) and. said: peredvie"hacesearly- 6 Prolonged until final determination of the litigation, otherwise comorations in liquidation would lose what justly bolongs to them, or Wart Sea | E Wis provided only (Corp. Law PORATION. CODE tions through 2 mere No vs, CA, 501 Ee exempt from the peyment of just obli “ecinicality (Gelsno vs, CA, 163 SCRA £0 ‘The lawyer who handled the cese in the tiel court mey be sonsidered es trustee for the cissolved corporation, with resect to E fhe matter in litigation only, although no apccintment as such was scended to him (Ibic.) | The board of directors may be permitted to complete the corporate liquidation by continuing as tustees by legal implication. 1 = gto be noted thatthe tme during which the corperation,throuch is | Gum officers, may conduct tne liguication ofits assets and sue and | fe sued as a corporetion i limited to three years from the fime the E period of cissolution commences; but there is no time limit within fc the iuslees must sample lgutcion lace in their hands. 7 {now Sec 422] that the | conveyance to the trustaes must be made within the three-year | period. It may be found impossible to complete the work of " fquidaiion within the three-year pariod or fo recuce disputed claims {e judgment. The authorities are to the effect thal suits by or against a corporalicn abate when it ceased to be an entily capable of suing | or being sued, but trustees to whom the corporate assets have been © Gonveyed pursuant to the authority of Sec 78 [row sec. 122] may Sue and be sued as Such in all matters conrtevied wil the iquication iknecth vs. United, 384 SCRA 45; Reburiano vs.CA, supra, citing Clemente vs. CA, 242 SCRA 717 and Sumera vs. Valencia, 67 Phil 721). b. ByRecelvership ‘A trial court has jurisdiction to order 2 receiver of a corporation under receivership to do any act so as to protect and preserve its properties, end to that end it mey order tbe secretary of the Comporation to do an act within the internal affairs of the corporation Simod at protecting the interesis of tne stockholders (Hodges vs. Lezama, 8 SCRA 717}. “The appointment of a receiver operates to suspend the authority of arorporation and of is citectors and officers over its property and eflects, such authority peng repose) Use reseiver (Yam vo. CA, 303 SCRA 1 ‘citing Vilenueva'vs. CA, 244 9CRASSS)“uaremaining:‘agsets” Sng: ther | properi 502 COWMERCI: Rehabilitation contemolates a centinuan activities in an affort to restore ard reinstate the corporation former position of successful aperation and solvency. When distressed company is placed under rehabilitation, the apccintmen- of a management committee follows to svoid collision batween tng previous management and creditors it might favor, to the prej.cica 4 the other creditors. All asseis of 2 corporation under rehebilta ‘ecevership ere held in trust for the equal benefit of all creditors ty preclude one from obtaining an advantage or preference over. another by the expeciency of altechment, execution or othenvse, As between the creditors, the key phrace is equality in equity. Onge {he corporation threatened by bankruptey is teken over by receiver all the creditors ought to stand on equal footing, Not any cre of them should be paid ahead of the others. This is precisely the ‘eason for suspending all pending claims sgainet the corporation under receivership (Ruby vs. GA, 284 SCRA 445) IIs thus adequately clear that suspension of claims against a corporation under rehbiltation is counted or figured up only upon the appointment of a management commitiee or a renatblltation receiver, The holding that suspension of actions for cizims against 3 corporation under tehablialion takes effect as soon as the application ora petiton for renabiitaton is fled with the SEC — may, to some, be more locical end wise but unfortunately, such 6 incongruent with the clear language of the law, To insist on such ruling, no matter how practical end noble, would be to encraach upon legislative prerogative to define the wisdom of the lew—plainly Judicial legisiation (RBC vs. IAC, 320 SCRA 279), We note that at the time this petition had been fled on May 4, 1994, petitioner had been placed under rehabilitation receivership. Jurisprudence has established that a stay of oxscution may be warranted by the fact that a petitoner corporation has been piced ‘under rehabilitation receivership, However, it is undisputed that on ‘March 5, 1997, the Sacurtties and Exchange Commission issued an ‘order approving the proposed rehabilitation plan of pelitioner and placing if under liquidation pursuant to Presidential Decree 902-A. Subject to the control of the SEC, the liquidator was ordered to wind up the affairs of the corporation, continue to manage the corporetion for purposes of liquidation in order to protect the interest of its creditors and avoid dissipation, loss, wastage, or dest-uction of the accordance wilh applicable laws (Alemar’s vs. NERC, 322 SCRA 306). of corporate life ang oi joa oF the” Corporatien in” cous eaten oer 3 mtn famine of arene Heer eo morgager wat slat underravebatn, 7s le F wil enable ihe management commitice or rehabilitation receer to Beatiectvely exercise hishts powers free from any judicial or Fexitejudicial interference that might unduly hinder the rescue of the eee gay (SFI Wa. GN 220 SCRA 229) Alema’s vs oes ©. By Trustees [At any time during the said three years (for winding up), said E ccrcoration fs authorized and empowered to convey al of its properties to the trustee for the benefitof stockholders, creditors and < ippr Interested persons, The trustee holds legal tite to these assets, = but beneficial interest remains with the stockholders and crediioi$. The dissolution of the corporation iself, or the expiration ofits E -rree-yeat liquidation perod, should not be a bar tothe enforcement fits nghts 28 a corporation, One of these rights includes the right to E Seek trom the court the execution of @ valid and final dgment — through its tustesfiquidetor ~ for the benefit of its stockroiders, ‘creditors and any other perscn who may have legal aims against it E To hold othenves woud be ta aliow one to unjusty enricn nimselt et F the expense of the corporation, This renders nugetory all the offorts = and expenses of the corporation in its quest te secure justice, not 10 mention the undue delay in disposing of this case prejudiciel to the adininistration of justice (Kneeth vs. United, supra). Bar Question: On February 15, 1970, "Acme Corporation’ filed a complaint for collection against “D’. While the case was pending © keme Corporation” amended its Articles of Incerporetion to shorten lis term of existance up to December 3, 1970. The Securilies and Exchange Commission approved the amendment i The Trial Cour, however, was no! notifed thereof, so that proceedings cantinued unti May 5, 1874, wien '" leeming of the Gissolution, questioned the personality of the corporation to continue prosecuting the cese. °D’ alleged that since the corporation had Plready been dissolved but had not taken steps fo wind uo its affsrs tnd transfer its assets fo @ trustee oF assignee win tne nree-year ‘poiibd as provided: bilder’ See. 77'and 78 of the Corporebon-Law (row Sec. 122 of the Corporation Code), it had coased fo exist for all purposes.694 OMMERCIAL LADY i Decide te ce se, with reasons. ( 237 Bar) Answer: Tis case can continue untl itis decided by the court Whore the case for collection wes fied before the clssolution op tne corporation, t may continue even after the three year period eg winding up done ty its corporale board, and said Ceriod| necessarily prolonged until final detemination of the litgaton otherwise, oarpuretinss ly fquldatton Would i0se Wnet ust Delonge to them, or be exernrt from payment through a more technicaliy, Besides, the lawyer nho handled the case, may be considered. @ tustee for the dissolved corporation, and as such inustee cay centiaue with the prosecution of the cese until flnal datermnation thereot Bar Question: The corporation, once dissolved. thereaitoy continues lo be a body corporate for three years for curposes of prosecuting And defending suits by and againett and ef onebing to seitfe and olose its affa's, culminating in the final clsposttion and distribution of its remaining assets. If the three-year extonded ite expires without a trustee or receiver being designated by the corporation within that period and by that time (expiry of the three: yeer extended term), the corporate iquldstion Is not yet over. hon, ata cana final seiilement of the corporato alfaire be made? (1997 Ben) Answer: the tiree-year extended life has expired without 2 trustee or receiver having been expressly designated by the corporation within thet period. the board of directors (or trustee) itself, may bo permitted to s0 continue as trustees by legal implication to complete the corporate liquidation. Sill in the absence of @ board of directors or trustees, those faving any pecuniary interest in the assets, including not only tho shareholders but itewise the creditars of the corporation, acting Jor and in its behalf, might make proper representations with the Securities and Exchange Cornmission, for working out a tinal seitiement of the corporate coneems. (Clemente vs. CA 242 SCRA 717). 3. How Assets Distributed The assets are Uisiibuled inthe following order: ns, to crediters starting with the prefested, and continuing with at common if the assets" 65 fay EIN secona.- retuncOt tie” par Vaile’ cF-stooxs Proformad stockholders; third, refund of the par value 10 common CORFORATION GODS 695 gels sll feinah, then they a Jers; fourth, Mi assets. tl rina, then thoy ar eo nately tatrbuled 1 of soctrolers, common or prefered assets to stockholders without frst 16r2 can be no distribution of assets to stock yng the ersdtors (Boman vs. CA, 157 SCRA 540) | assets distributable to any creditor, stockholder ar member who is ikrown of Who cannot be luvele shall ke eachseted to tha ely or Fruncipality where such assets are located (Sec. 122, N.C.C.), win a previously buyer at foractosure of assets of a corporation rove application for clearance fo terminate is employeoe, buys 2th acsots subject to the preferential right of laborers to be paid fhait unpaid wages and salaries [PCIB vs. National, 118 SCRA 873), ae deseo scat eae ese on feapedt'o solgatione of ihe dissolved corporation (Gonzales vs. scien ae A. Foreign Corporations 4, Dofined : Phitppines, nd stg unoes ay law otter than those ofthe Philipines, and SRRSTE ic alow ciipinocizens and corporations todo ousiness i || foreign compotion is corporation former, organized. of ; «its qwn country or state, 2. License te Engage in Business in the Philippines a. Meaning of Engaging in Business ta eit ee latia sre 4a of he Ormibusinvatmeris Code of 188 se ahaa 7 defines the phrese doing business to include soliciting orders, purchases,998 com ERCIAL LAW. CORPORATION CODE 307 service contracts, opening officgs, whether called 2 in , whether called t Branches sopoining represoriates or detbues woe ice nthe Phliggines or wno in any calencar year sin Bhipptee os parodorartads lating one urate ook (AS ar fly eee in the management supervision a ri mestic business frm, eniity or Philppies, ane any other act or acts tha imply & condnay conmersai deaings or arangenerisandconterpateharerat senmnaar’ day sericea Se at ions normally incident to, and in progressin , ing fo MMe gan oF of he pposs ano abc! of he bushes Grganizaton. Ae long ao it can beshown that a foreign corpo ues) Bids domestecorptaon arsed into a ses of aoarera in the successive sales of the foreign corporation's cs " 1 ie ln camper shal be ered 5 dong Blahece In fd iliozines its the performance by a foreign corporation of fre axe n ion of Wotuiih twas etc, epic a wou olsuendes ha Jc fer oF not it needs a liosnse n Bhioanes. (Stenger Wicronave, fee SCRA EDI Eke ve GA 287 SCRA 667, MR Holdings va Bear, 360 SORA 617, Aci grated, 427 SCRA 593) oe 12 same, taining domestie workers to operate iippines, servicin tel services =f and similar incide Eby and large, to constitute “doing busine: ivy to be Jpletaken in the Philippines Is one that is for proficmeking (Agilent se tecrate, supra) E the principles regarding the right ofa foreign corporation to bring Hatin Philippine courts may be condensed In four stateureis, 2) F Peforeian corporation does business in the Philippines without a fgense, t oannot sue before the Philopine courts, b) if @ foreign serporation is not doing business in the Philippines, it needs no sanee to sus before Philippine cours cn an Isolated iransaction or Ta cause of action entirely independent of any business Efonsaction: c} it @ foreign corporation does business in the ESerippines withcut a icense, 2 Philippine clizen or ently whicn has Tntracted with said corporation may be estopbed from challenging {pe foreign corporation's corporate perconally in 9 sut brought fotore Philippine courts, and d) if @ foreign corporation ‘does Tishess in the Philppines with the required lense, it can sue “fefore Philippine cour's on any transaction (Ibic.). mee eee ipa Buss and Regulations of the: a amended oydes ane along sta nlbe cotmed ‘dong burnaces re Investment 2s a shareholder by a fc : corporations diy registers to co busines, andlor he cesrlee tights as such investor, 5 ee 2° Having a nominee director oF o Ses or officer to represent ite interest in pointing 2 representative or distributor Priippnes whi ‘tensacts business rhe representative’. o eee name end account; crs publication of 2 general ach eee media, atts Maintaining a stock of goods in th 3 's in the Philippines solely for purpose of having a purpose of having the same processed by another ey inthe 8, Corsienment by a foreign ently of exuprent wih a fos company used in the processing of produ 1; 5 [heir nera geass a °° a8: Rerfomingsensices*autiiaty‘to an-exict Scores ef iyito an-exieting: isolated ont ippines machinery it has manufectured or exported to. the It ig not the ebsence of the prescribed license but the ‘doing (of) tusinass” in the Philippines without euch license which debars the reign corporation fram acness to OUr OUTS, The question whether erat a foreign corporation is doing business is dependent srrreloely upon the facts and circumstances of each particular case, considered in the light ofthe purposes and language of the pertinent Gaiute or statutes involved and of the general princivies governirg = the jurisdictional authority ofthe state over such corporations Iki, MR Holdings vs. Bejar, supra} Generally, a foreign corporation has no legal existence within the state in wnich itis foreign, and this proceeds from the principle thet jircical existence of a corporation is confined within he terior of ip state under whose laws itwas incorporated anc orgenized, ard it has ro legal status beyond such territory (Gemmunicaton vs. CA, 260 SCRA 67, SBMA ys. Universal, 340 SCRA 359) ugh any print or etore a forelgn corporation ean transact business in this country, _ tus fist oblain a icense.to Yansact ousiress i lve Philipps, Sera certficale fromthe: appropriate-government-agency. ih transects business in the Philippines without such a license, it shall rot be permitted 10 maintain or intervene in eny action, suit, oF