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majority of the BOD in the managing corporation is also majority of the managing
corporation.
Atty: So there's no prohibition on how many times you can renew. But for each term it
should only be 5 years.
This initial emergency fund released by BSP in favor of UM was again followed by another
loan by BSP in favor of the bank and another real estate mortgage accordingly in behalf
of UM in favor of BSP. So now there were problems between First Iligan and Davao
Savings Bank and so with Land Bank they undertook a rehabilitation program wherein
Land Bank suggested that they will just merge the two banks. Upon the merger of the two
banks, it resulted to Mindanao Savings Bank (MSB). However MSB was not able to get
back its losses so it incurred losses.
So now Guillermo the President, died; and BSP decided that they will foreclose the real
estate mortgage over these lots owned by UM in favor of BSP. However, because the
president Guillermo Torres died, UM contended that they did not executed the real estate
mortgage because first it was an ultra vires act. However it was the contention of BSP
that the Torres spouses were stockholders of both the banks and the UM so it has the
right to foreclose the bank. So here the SC said first, it was an ultra vires act because if
you look at the corporate powers of UM, SC said their main function is the formation of
human capital through formal institution meaning educational institution. There is no
connection whatsoever between the rendering of educational services as to the execution
of a real estate mortgage. Therefore, by that very fact alone it is an ultra vires act for the
UM to execute a real estate mortgage in favor of the bank.
Second, they presented sales of certificate from the secretary apparently favoring that
said requisite of mortgage. However this certificate from the secretary was not attached
or no board resolution was attached, so therefore the SC said that even though granting
for example that they ratified because of silence, that is not the case because there is no
board resolution. The BSP as an entity imbued with public interest should have known
that whenever a corporation executes a real estate mortgage, they should look into the
corporate powers and they should check if there is a board resolution.
Third, the mere fact that the spouses were stockholders in both corporations does not
mean that it gave this UM new powers by virtue alone by the fact that the spouses were
engaged in both corporations. So membership or stock holdings of one corporation does
not give this other corporation new invested powers.
Atty's discussion: Remember in the Acoje Mining case, we said that a benefit to the
corporation would render the transaction as not ultra vires. Remember Acoje mining, the
post office? So it was not under the express power of the corporation but it was found
that that post office benefited the operations of the corporation so the SC said it's not ultra
vires because it benefited the corporation. In this case of UM v BSP, it is clear that the
loan did not benefit the UM, it benefited a stockholder.
What's the effect of that ultra vires act? What happens to the transaction? What is
the type of contract it creates?
The transaction is unenforceable contract; it is valid but however it cannot be enforced
because it was beyond the corporate powers
Atty's discussion: So same with if your agent acts beyond its powers di ba it's an
unenforceable contract. In the same way, if a corporation enters into a transaction that is
beyond its powers, it is unenforceable. It is not void.
What's the difference between an ultra vires act and an illegal act?
Ultra vires act are acts committed that are beyond the power of the corporation; whereas
an illegal act are acts that are contrary to laws, moral, public policy.
In terms of consequence what's the difference between an ultra vires act and an
illegal act?
Ultra vires acts, the effect is that they are unenforceable but they can be ratified. As to
illegal acts, they are void.
Atty's discussion: Ultra vires acts may be considered as unenforceable but they are
subject to ratification. So they can have effect, where as illegal acts are void from the very
beginning. There can be no consequence to an illegal act.
Question: In the cases man gud Atty of San Miguel as well as Bernas, reference made to
ultra vires may be voidable, so if it comes out in the exam, do we argue that the 2016
case of UM which already refers to the ultra vires act merely unenforceable like do we
make that as an authority?
Atty: The difference is that voidable act is valid unless it is annulled meaning it can take
effect unless it is annulled. The consensus when it comes to ultra vires act is it's not valid
at all. Meaning it can have no effect but it can be ratified. That is the nature of an
unenforceable contract. So if the question is what is the effect of an ultra vires act, then
for me the answer would be it is unenforceable because that would mean that it can have
no effect at all unless it is ratified. So it's a distinction between a voidable and an
unenforceable contract. What best fits an ultra vires or effects of an ultra vires. When you
say voidable man gud, it's valid unless you annul it so it can take effect ba. Whereas an
unenforceable act, if it's still executory it cannot be executed at all, di ba? It has no effect
but if it is ratified including a partial execution then it can take effect. That is in the nature
of an unenforceable contract.
Topic: Meetings
Atty: Regular meetings of stockholders only happens once a year. Another term for the
regular meeting of the stockholders is what we call the annual stockholders meeting. So
it happens once a year.
What about for an annual stockholders meeting, what's the required notice period?
For the annual regular meeting, it is required that the stockholders shall be notified either
personally or if allowed by the by-laws by electronic mailing at least 21 days prior to the
scheduled meeting.
(a) Minutes of the most recent regular meeting which shall include, among others:
(1) A description of the voting and vote tabulation procedures used in the previous
meeting;
(2) A description of the opportunity given to stockholders or members to ask questions
and a record of the questions asked and answers given;
(3) The matters discussed and resolutions reached;
(4) A record of the voting results for each agenda item;
(5) A list of the directors or trustees, officers and stockholders or members who attended
the meeting; and
(6) Such other items that the Commission may require in the interest of good corporate
governance and the protection of minority stockholders;
Atty's discussion: So basically everything taken up from the last meeting of the
stockholder's meeting.
What else?
(b) A members' list for non-stock corporations and, for stock corporations, material
information on the current stockholders, and their voting rights;
(d) A financial report for the preceding year, which shall include financial statements duly
signed and certified in accordance with this Code and the rules the Commission may
prescribe, a statement on the adequacy of the corporation's internal controls or risk
management systems, and a statement of all external audit and non-audit fees;
Atty's discussion: These two class (C&D) they are normally known as the President's
report. During the annual stockholders meeting, the president of the corporation will report
to the stockholders the results of previous operations. So financial statements and all
other substantive financial changes in the operations of the corporation.
(e) An explanation of the dividend policy and the fact of payment of dividends or the
reasons for nonpayment thereof;
(f) Director or trustee profiles which shall include, among others, their qualifications and
relevant experience, length of service in the corporation, trainings and continuing
education attended, and their board representations in other corporations;
(g) A director or trustee attendance report, indicating the attendance of each director or
trustee at each of the meetings of the board and its committees and in regular or special
stockholder meetings;
(h) Appraisals and performance reports for the board and the criteria and procedure for
assessment;
(i) A director or trustee compensation report prepared in accordance with this Code and
the rules the Commission may prescribe;
Atty's discussion: There are a lot of things that the new code now expressly requires
the management to report to the stockholders. Before, it was not this comprehensive. But
if you consider it class, the stockholders will only meet once a year so that is their only
chance to be appraised of the operations of the corporation. So for me it is only justified
that these items should be discussed by the management to the stockholders.
What if it cannot be held in the principal office for example it's a listed corporation
so there a lot of **?
The corporation code now allows meeting through remote communication?
Atty's discussion: This is now new. This has always been the rule, the meeting of the
stockholders should be held in the principal office of the corporation as stated in AOI or
in the city or municipality where the principal office is located.
Atty's discussion: As a general rule when the meeting is improperly held or called, the
meeting is not valid and considered illegal and any matters taken up in that meeting is
not valid. So a stockholders meeting that is improperly held or called is not a valid
meeting. Exception is if ALL the stockholders or members are present or represented
during the meeting. So the requirement is not majority, it is all. So even if isa lang ang
absent, that would make your meeting invalid if it was improperly held or called.
So the only exception where an improperly held or improperly called meeting is valid is if
all the stockholders are present because that makes the invalid call moot because they
were there anyway so they were not deprived of their right to participate the meeting. But
it must be all, not majority.
Exception to this is even if all are present, the meeting will still be invalid if one was
there to object by reason of the improperly held meeting. That means that not all are
present. Because the people who show up to object are not counted.
Summary:
GR - when a meeting of a stockholder is improperly held or improperly called, the meeting
is invalid
Exception to the exception - if any of those stockholders present are present because
they just want to register their objection to the invalid calling or holding of the meeting, in
which case we go back to the the general rule the meeting is still invalid
If the meeting is validly held or validly called, how do you determine that a meeting
is sufficient to validly approve a transaction?
The corporation code provides for a quorum requirement. There must be stockholders
holding majority of the outstanding shares. It is only then that they may vote for a
corporate act.
Atty's discussion: The ruling in the Tan v Sycip case class emphasizes, although this is
sort of an obiter because this was not really the issue of the case, it emphasizes the
principle that a stock corporation has a right of succession in such a way that the passing
of any of the stockholder will not affect even the quorum requirement for the meeting of
the stockholders because you always count it by outstanding capital stock. Even if the
original stockholder is already dead, the estate of that stockholder will still have the right
to vote on the shares. It still considered as part of the outstanding capital stock, it will not
be retired.
On the other hand if the corporation is non-stock, you base the quorum on the number of
actual surviving members especially if the membership is non-transferable.
Atty's discussion: The proxy holder should still attend the meeting in behalf of the
stockholder. So the voting can be attended in person, or you can give or assign somebody
as proxy to attend the meeting and vote in your behalf.
Atty's discussion: These two are new under the amendment. Now, the stockholders are
allowed to participate in the meeting by remote communication or in absentia meaning
they do not have to be present, they do not have to sent a person to vote for them. Voting
by remote communication or in absentia is already allowed.
But when are votes counted? Only when it is received before tallying.
Previously we have talked about separating the beneficial from the legal ownership
of the shares, what happens for example, a person mortgages or pledges his
shares?
Who has the right to vote then?
What is the rule if the shares are used as a security for a loan? Who has the right
to vote then?
Still the stockholder except if there is express authority in writing and the right to vote
given to the security holder should be recorded in the books of the corporation (stock and
transfer book) any right to vote granted which is not in the stock and transfer book is not
a valid transfer of the right except if we are talking about the proxy, a proxy is a specific
form of voting.
What about shares which are jointly owned? Who votes the shares?
All of them must vote.
Except:
when one of them is given the right to vote then that person granted the right can vote
without the others.
When the co ownership is on an and/or capacity. Any of the co owners may vote on the
shares, it does not need the vote of all.
How are voting trusts agreement done? Once there is a voting trust agreement,
what is needed to be done?
In writing
Notarized
Filed with SEC
There is a need to cancel the stock certificate of the trustor and issuance of a new
certificate in favor of the trustee so that the stocks under the stock and transfer book will
now be in the name of the voting trust.
Answer to student's Q: Independent directors are still directors, they still need to own
shares in the corporation. Bu they have to own the shares not as a nominee but under
their own name.
Example: If Corp A is a stockholder of Corp B, Corp A cannot act as a director in B,
because natural persons lang man ang directors, so Corp A will nominate maybe an
officer to be its nominee director in Corp B. The officer nominated, lets say X, cannot be
an independent director because X represents the interest of A the parent company.
But lets say the corporation is vested with public interest and required to have
independent directors so they nominated D,E,F as independent directors. DEF are still
required to own shares but they have to own shares in their own right, they have to
purchase their own shares, pay for them with their own money. So dili sya pwedi nga
tagaan lang sya ni Corp A ug shares because in that case they will now be representing
A. Unlike si X nga gtagaan lang ni A because X is just a nominee of A.
How do you determine quorum? Majority of the board of directors as stated in the AOI
Why do you think proxy is not allowed? Why does he not act thru somebody else?
The directors are voted on by the stockholders based on their qualifications, experience,
familiarity with the operations of the corporation because youre trusted by the
stockholders based on the qualifications that you presented you cannot assign somebody
else to attend the meeting on your behalf. That would be a breach of your duty to the
stockholders who voted you because of your qualifications.
If they send somebody else that person may not have the same capacity as the director
so it is not fair to the stockholder that they voted for you but youre sending somebody
else maybe of lesser qualification to vote on your behalf and that person may not vote
correctly, or vote in the same way that you may have voted.
So these are the corporate books which are required to be kept by the corporation.
What other documents are required to be kept by the corporation in its principal
office?
sec 73 ra guysh, g enumerate ra sa nagrecits ang sec 73 :)
What are the rights of a stockholder when it comes to corporate books and
records?
Student: Stockholders are entitled to inspect and reproduce these records provided that
they go to the principal place of business of the corporation during reasonable hours and
any reproduction thereof shall be at their own expense.
Can the corporation deny the stockholder the right to inspect the books and
records?
Student: Generally, no. the corporation cannot deny the stockholder their right to inspect
the books unless they can prove that the stockholder who previously inspected the books
did something detrimental to the corporation.
What happens when the corporation denies inspection of the books and records
without proper justification?
Student: The person requesting can demand from the corporation that he may be
allowed access but if the corp continues to deny under the revised corpo the requesting
party can now petition to the SEC to order the corp to give him access.
Terelay Case: Even if the stockholder only owns 0.001% share in the corporation it still
has the right to inspect the corporate books and records. The law itself does not
distinguish, it says a stockholder has the right to inspect the books of the corporation. It
does not say that you have to be a majority stockholder or that you have to own more
than one share. So even if it is one among 100 million outstanding shares, that
stockholder has the right to inspect the book and records of the corporation.
Does the stockholder need to have a reason why it needs or wants to inspect the
books? No.
Can a stockholder demand to inspect the books even if there is no showing that
there was mismanagement or fraud committed by any officers? No.
In the case of Terelay, the corporation said that you cannot inspect the books because
you are an insubstantial stockholder and you did not allege that there was
mismanagement or fraud. Is that sufficient ground to deny? The SC said no, even if it is
0.001% youre allowed to inspect because the law does not distinguish on the number of
shares that you own and the right is inherent in a stockholder there needs to be no
justification. But if you use the information in bad faith such as you disclose it to the
competition that is the time that the corp can deny.
Yujuico Case: this was the criminal case filed because of refusal to inspect. In view of
the amendment in the corp code, it is no longer relevant. For one, the refusal to allow
inspection is now penalized under section 161 and it is no longer penal offense before it
used to be a criminal offense.
The ruling in the Yujuico case is no longer applicable. The SC said that yes there is a
criminal offense but in the same the SC also dismissed the case because it is not anyone
who can be criminally liable, the law is specific, it could only apply to officers and directors
who denied. Unfortunately in this case, it was not an officer or director who denied
inspection of the books, so case was dismissed. But again, no longer relevant because
the law is no longer criminal in nature.