Outline 4 Corporation Code Romero
Outline 4 Corporation Code Romero
Outline 4 Corporation Code Romero
Outline 4
BUS. ORG2 OUTLINE 4 (2016)
Prof. M.I.P. Romero
2013400036
5) Paid-in Capital
The Lower Court held the defendant was still liable for the unpaid balance of his
subscription.
Issue:
6) Outstanding Capital Stock Sec. 137
Held:
The Court held:
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reduction of the capital stock can take place only in the manner an seeking confirmation of their rescission of the Pre-Subscription Agreement. After
under the conditions prescribed by the statute or the charter or the hearing, the SEC, through then Hearing Officer Rolando G. Andaya, Jr., issued
articles of incorporation
a decision on 19 May 1997 confirming the rescission sought by the Tius. On
motion of both parties, the above decision was partially reconsidered but only
insofar as the Ongs' P70 million was declared not as a premium on capital stock
Ong Yong v. Tiu G.R. 144476; 4/8/2003
but an advance (loan) by the Ongs to FLADC and that the imposition of interest
on it was correct. Both parties appealed to the SEC en banc which rendered a
G. R. No. 144478 /8 April 2003 / Trust Fund Doctrine
Facts: In 1994, the construction of the Masagana Citimall in Pasay City was decision on 11 September 1998, affirming the 19 May 1997 decision of the
threatened with stoppage and incompletion when its owner, the First Landlink Hearing Officer. The SEC en banc confirmed the rescission of the PreAsia Development Corporation (FLADC), which was owned by David S. Tiu, Cely Subscription Agreement but reverted to classifying the P70 million paid by the
Y. Tiu, Moly Yu Gow, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Ongs as premium on capital and not as a loan or advance to FLADC, hence, not
Tiu (the Tius), encountered dire financial difficulties. It was heavily indebted to the entitled to Commercial Law - Corporation Law, 2005 ( 76 ) Narratives (Berne
Philippine National Bank (PNB) for P190 million. To stave off foreclosure of the Guerrero) earn interest. On appeal, the Court of Appeals (CA) rendered a
mortgage on the two lots where the mall was being built, the Tius invited Ong decision on 5 October 1999, modifying the SEC order of 11 September 1998.
Yong, Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julia Their motions for reconsideration having been denied, both parties filed
Ong Alonzo (the Ongs), to invest in FLADC. Under the Pre-Subscription separate petitions for review before the Supreme Court. On 1 February 2002,
Agreement they entered into, the Ongs and the Tius agreed to maintain equal the Supreme Court promulgated its Decision, affirming the assailed decision of
shareholdings in FLADC: the Ongs were to subscribe to 1,000,000 shares at a the Court of Appeals but with the modifications that the P20 million loan
par value of P100.00 each while the Tius were to subscribe to an additional extended by the Ongs to the Tius shall earn interest at 12% per annum to be
549,800 shares at P100.00 each in addition to their already existing subscription computed from the time of judicial demand which is from 23 April 1996; that the
of 450,200 shares. Furthermore, they agreed that the Tius were entitled to P70 million advanced by the Ongs to the FLADC shall earn interest at 10% per
nominate the Vice-President and the Treasurer plus 5 directors while the Ongs annum to be computed from the date of the FLADC Board Resolution which is
were entitled to nominate the President, the Secretary and 6 directors (including 19 June 1996; and that the Tius shall be credited with 49,800 shares in FLADC
the chairman) to the board of directors of FLADC. Moreover, the Ongs were for their property contribution, specifically, the 151 sq. m. parcel of land. The
given the right to manage and operate the mall. Accordingly, the Ongs paid P100 Court affirmed the fact that both the Ongs and the Tius violated their respective
million in cash for their subscription to 1,000,000 shares of stock while the Tius obligations under the Pre-Subscription Agreement. On 15 March 2002, the Tius
committed to contribute to FLADC a four-storey building and two parcels of land filed before the Court a Motion for Issuance of a Writ of Execution. Aside from
respectively valued at P20 million (for 200,000 shares), P30 million (for 300,000 their opposition to the Tius' Motion for Issuance of Writ of Execution, the Ongs
shares) and P49.8 million (for 49,800 shares) to cover their additional 549,800 filed their own "Motion for Reconsideration; Alternatively, Motion for Modification
stock subscription therein. The Ongs paid in another P70 million 3 to FLADC and (of the February 1, 2002 Decision)" on 15 March 2002. Willie Ong filed a
P20 million to the Tius over and above their P100 million investment, the total separate "Motion for Partial Reconsideration" dated 8 March 2002, pointing out
sum of which (P190 million) was used to settle the P190 million mortgage that there was no violation of the Pre-Subscription Agreement on the part of the
indebtedness of FLADC to PNB. The business harmony between the Ongs and Ongs, among others. On 29 January 2003, the Special Second Division of this
the Tius in FLADC, however, was shortlived because the Tius, on 23 February Court held oral arguments on the respective positions of the parties. On 27
1996, rescinded the Pre-Subscription Agreement. The Tius accused the Ongs of February 2003, Dr. Willie Ong and the rest of the movants Ong filed their
(1) refusing to credit to them the FLADC shares covering their real property respective memoranda. On 28 February 2003, the Tius submitted their
contributions; (2) preventing David S. Tiu and Cely Y. Tiu from assuming the memorandum
positions of and performing their duties as Vice-President and Treasurer,
respectively, and (3) refusing to give them the office spaces agreed upon. The ISSUE: WON RECISSION IS THE PROPER REMEDY
controversy finally came to a head when the case was commenced by the Tius HELD:No. first of all, a subscription contract as defined under Section 60, Title
on 27 February 1996 at the Securities and Exchange Commission (SEC), VII of the Corporation Code:
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All this notwithstanding, granting but not conceding that the Tius possess the
legal standing to sue for rescission based on breach of contract, said action will
nevertheless still not prosper since rescission will violate the Trust Fund
Doctrine and the procedures for the valid distribution of assets and property
under the Corporation Code.
The Trust Fund Doctrine, first enunciated by this Court in the 1923 case
of Philippine Trust Co. vs. Rivera, provides that subscriptions to the capital stock
of a corporation constitute a fund to which the creditors have a right to look for
the satisfaction of their claims. This doctrine is the underlying principle in the
procedure for the distribution of capital assets, embodied in the Corporation
Code, which allows the distribution of corporate capital only in three
instances: (1) amendment of the Articles of Incorporation to reduce the
authorized capital stock, (2) purchase of redeemable shares by the corporation,
regardless of the existence of unrestricted retained earnings, and (3) dissolution
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to its capital stock from the obligation of paying for his shares, in whole or in
part, without valuable consideration, or fraudulently, to the prejudice of the
creditors.
The creditor is allowed to maintain an action upon any unpaid
subscriptions and thereby steps into the shoes of the corporation for the
satisfaction of its debt.
conclusion is that Class "B" shares fall under neither category and thus, under
the law, are allowed to exercise voting rights.
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Only holders of Class A shares have the right to vote and the right to be elected
as directors or as corporate officers. 3 (Emphasis supplied)
The foregoing amendment was approved by the SEC on June 7, 1983. While
the amendment granted the right to vote and to be elected as directors or
FACTS: Petitioners and the respondents are stockholders of MCPI, with the corporate officers only to holders of Class "A" shares, holders of Class "B"
former holding Class "B" shares and the latter owning Class "A" shares.
stocks were granted the same rights and privileges as holders of Class "A"
stocks with respect to the payment of dividends.
MCPI is a domestic corporation with offices at Dr. A. Santos Avenue, Sucat,
Paraaque City. It was organized sometime in September 1977. At the time of its On September 9, 1992, Article VII was again amended to provide as follows:
incorporation, Act No. 1459, the old Corporation Law was still in force and effect.
Article VII of MCPI's original Articles of Incorporation, as approved by the
SEVENTH: That the authorized capital stock of the
Securities and Exchange Commission (SEC) on October 26, 1977, reads as
corporation is THIRTY TWO MILLION PESOS
follows:
(P32,000,000.00) divided as follows:
SEVENTH. That the authorized capital stock of the
corporation is TWO MILLION (P2,000,000.00) PESOS,
Philippine Currency, divided into TWO THOUSAND
(2,000) SHARES at a par value of P100 each share,
whereby the ONE THOUSAND SHARES issued to, and
subscribed by, the incorporating stockholders shall be
classified as Class A shares while the other ONE
THOUSAND unissued shares shall be considered as
Class B shares. Only holders of Class A shares can
have the right to vote and the right to be elected as
directors or as corporate officers. 2 (Emphasis supplied)
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RTC: On March 22, 2001, after their protest was given short shrift, herein Petitioners assert that Article VII of the Articles of Incorporation of MCPI, which
petitioners filed a Complaint for Injunction, Accounting and Damages. Said denied them voting rights, is null and void for being contrary to Section 6 of the
complaint was founded on two (2) principal causes of action, namely:
Corporation Code. They point out that Section 6 prohibits the deprivation of
voting rights except as to preferred and redeemable shares only. Hence, under
the present law on corporations, all shareholders, regardless of classification,
a. Annulment of the declaration of directors of the MCPI
other than holders of preferred or redeemable shares, are entitled to vote and to
made during the February 9, 2001 Annual Stockholders'
be elected as corporate directors or officers. Since the Class "B" shareholders
Meeting, and for the conduct of an election whereat all
are not classified as holders of either preferred or redeemable shares, then it
stockholders, irrespective of the classification of the
necessarily follows that they are entitled to vote and to be voted for as directors
shares they hold, should be afforded their right to vote
or officers. CHEIcS
and be voted for; and
The respondents, in turn, maintain that the grant of exclusive voting rights to
Class "A" shares is clearly provided in the Articles of Incorporation and is in
accord with Section 5 9 of the Corporation Law (Act No. 1459), which was the
prevailing law when MCPI was incorporated in 1977. They likewise submit that
as the Articles of Incorporation of MCPI is in the nature of a contract between
Subsequently, the complaint was amended to implead MCPI as party-plaintiff for
the corporation and its shareholders and Section 6 of the Corporation Code
purposes only of the second cause of action.
could not retroactively apply to it without violating the non-impairment clause 10
of the Constitution.
RTC rendered the Partial Judgment. In finding for the respondents, the trial court
ruled that corporations had the power to classify their shares of stocks, such as
HELD: We find merit in the petition.
"voting and non-voting" shares, conformably with Section 6 7 of the Corporation
Code of the Philippines. It pointed out that Article VII of both the original and
amended Articles of Incorporation clearly provided that only Class "A" When Article VII of the Articles of Incorporation of MCPI was amended in
shareholders could vote and be voted for to the exclusion of Class "B" 1992, the phrase "except when otherwise provided by law " was inserted in
shareholders, the exception being in instances provided by law, such as those the provision governing the grant of voting powers to Class "A"
enumerated in Section 6, paragraph 6 of the Corporation Code.The RTC found shareholders. This particular amendment is relevant for it speaks of a law
merit in the respondents' theory that the Articles of Incorporation, which defines providing for exceptions to the exclusive grant of voting rights to Class
the rights and limitations of all its shareholders, is a contract between MCPI and "A" stockholders. Which law was the amendment referring to? The
its shareholders. It is thus the law between the parties and should be strictly determination of which law to apply is necessary. There are two laws being cited
enforced as to them. It brushed aside the petitioners' claim that the Class "A" and relied upon by the parties in this case. In this instance, the law in force at
shareholders were in estoppel, as the election of Class "B" shareholders to the the time of the 1992 amendment was the Corporation Code (B.P. Blg. 68), not
corporate board may be deemed as a mere act of benevolence on the part of the the Corporation Law (Act No. 1459), which had been repealed by then.
officers. Finally, the court brushed aside the "founder's shares" theory of the
petitioners for lack of factual basis.
We find and so hold that the law referred to in the amendment to Article VII
refers to the Corporation Code and no other law. At the time of the incorporation
ISSUE: Whether or not holders of Class "B" shares of the MCPI may be deprived of MCPI in 1977, the right of a corporation to classify its shares of stock was
sanctioned by Section 5 of Act No. 1459. The law repealing Act No. 1459, B.P.
of the right to vote and be voted for as directors in MCPI. (NO)
Blg. 68, retained the same grant of right of classification of stock shares to
corporations, but with a significant change. Under Section 6 of B.P. Blg. 68, the
ARGUMENTS:
requirements and restrictions on voting rights were explicitly provided for, such
that "no share may be deprived of voting rights except those classified and
b. Stockholders' derivative suit challenging the validity of
a contract entered into by the Board of Directors of MCPI
for the operation of the ultrasound unit. 5
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DELPHER TRADES CORPORATION, and DELPHIN
PACHECO
vs.
INTERMEDIATE APPELLATE COURT
G.R. No. L-69259. January 26, 1988
FACTS:
Delfin Pacheco and his sister, Pelagia Pacheco, were
the owners of real estate property. The said co-owners
leased to Construction Components International Inc. the
same property and providing that during the existence or
after the term of this lease the lessor should he decide to
sell the property leased shall first offer the same to the
lessee and the letter has the priority to buy under similar
conditions. Subsequently, lessee assigned its rights and
obligations under the contract of lease in favor of Hydro
Pipes Philippines, Inc.
A deed of exchange was executed between Delfin and
Pelagia Pacheco and defendant Delpher Trades Corporation
whereby the former conveyed to the latter the leased
property for 2,500 shares of stock of defendant corporation
with a total value of P1,500,000.00. On the ground that it
was not given the first option to buy the leased property
pursuant to the proviso in the lease agreement, respondent
Hydro Pipes Philippines, Inc., filed an amended complaint
for reconveyance of the property in its favor under
conditions similar to those whereby Delpher Trades
Corporation acquired the property from Pelagia Pacheco and
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Delphin Pacheco.
group.
Respondents on the other hand stated that there was
In effect, the Delpher Trades Corporation is a
no transfer of ownership over the properties.
business conduit of the Pachecos. What they really did was
to invest their properties and change the nature of their
ownership from unincorporated to incorporated form by
ISSUE:
organizing Delpher Trades Corporation to take control of
Whether or not there was an effective transfer of their properties and at the same time save on inheritance
taxes.
property in this case.
RULING:
NO.
After incorporation, one becomes a stockholder of a
corporation by subscription or by purchasing stock directly
from the corporation or from individual owners thereof. In
the case at bar, in exchange for their properties, the
Pachecos acquired 2,500 original unissued no par value
shares of stocks of the Delpher Trades Corporation.
Consequently, the Pachecos became stockholders of the
corporation by subscription "The essence of the stock
subscription is an agreement to take and pay for original
unissued shares of a corporation, formed or to be formed. It
is significant that the Pachecos took no par value shares in
exchange for their properties.
It is to be stressed that by their ownership of the 2,500
no par shares of stock, the Pachecos have control of the
corporation. Their equity capital is 55% as against 45% of
the other stockholders, who also belong to the same family
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Doctrine:
Issue:
Held:
1) While the stock certificate does allow redemption, the option to do so
was clearly vested in the bank. The redemption therefore is clearly the
type known as "optional". Thus, except as otherwise provided in the
stock certificate, the redemption rests entirely with the corporation and
the stockholder is without right to either compel or refuse the redemption
of its stock. Furthermore, the terms and conditions set forth therein use
the word "may". It is a settled doctrine in statutory construction that the
word "may" denotes discretion, and cannot be construed as having a
mandatory effect. The redemption of said shares cannot be allowed. The
Central Bank made a finding that the Bank has been suffering from
chronic reserve deficiency, and that such finding resulted in a directive,
issued on 31 January 1973 by then Gov. G. S. Licaros of the Central
Bank, to the President and Acting Chairman of the Board of the bank
prohibiting the latter from redeeming any preferred share, on the ground
that said redemption would reduce the assets of the Bank to the
prejudice of its depositors and creditors. Redemption of preferred shares
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was prohibited for a just and valid reason. The directive issued by the
Central Bank Governor was obviously meant to preserve the status quo,
and to prevent the financial ruin of a banking institution that would have
resulted in adverse repercussions, not only to its depositors and
creditors, but also to the banking industry as a whole. The directive, in
limiting the exercise of a right granted by law to a corporate entity, may
thus be considered as an exercise of police power.
2) Both Section 16 of the Corporation Law and Section 43 of the
present Corporation Code prohibit the issuance of any stock
dividend without the approval of stockholders, representing not
less than two-thirds (2/3) of the outstanding capital stock at a
regular or special meeting duly called for the purpose. These
provisions underscore the fact that payment of dividends to a
stockholder is not a matter of right but a matter of consensus.
Furthermore, "interest bearing stocks", on which the corporation
agrees absolutely to pay interest before dividends are paid to
common stockholders, is legal only when construed as requiring
payment of interest as dividends from net earnings or surplus only.
In compelling the bank to redeem the shares and to pay the
corresponding dividends, the Trial committed grave abuse of
discretion amounting to lack or excess of jurisdiction in ignoring
both the terms and conditions specified in the stock certificate, as
well as the clear mandate of the law.
COCOFED v. RP (GR Nos. 177857-58; 178193; 180705 promulgated Sept.
17, 2009) re conversion of shares
F. STOCKS & STOCKHOLDERS
Sec. 60 -73, 137, 90
1) Consideration for shares ----Garcia v. Lim Chu Sing 59 Phil. 562 (1934)
FACTS: Lim Cuan Sy had an account with the Mercantile Bank o f C h i n a
( p l a i n t i f f b a n k ) i n t h e f o r m o f " t r u s t r e c e i p t s guaranteed by
Lim Chu Sing (respondent) as surety & with chattel mortgage
securities. Lim Cuan Sy failed to comply with his obligations. The
plaintiff bank required Lim Chu Sing, as surety, to deliver a
promissory note. The plaintiff bank, without the knowledge & consent
of the d
efendant, f o r e c l o s e d t h e c h a t t e l m o r t g a g e a n d p r i v a t e l y s o l d
t h e property covered thereby. The defendant is an owner of shares
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the unpaid subscription and that, accordingly, the alleged obligation is not
enforceable.
Labor arbiter sustained the claim of petitioner for P17,060.07 on the ground that
the employer has no right to withhold payment of wages already earned under
Article 103 of the Labor Code. NLRC reversed the decision of the labor arbiter
and held that a stockholder who fails to pay his unpaid subscription on call
becomes a debtor of the corporation and that the set-off of said obligation
against the wages and others due to petitioner is not contrary to law, morals and
public policy.
ISSUES:
(1) Does NLRC have jurisdiction to resolve a claim for non-payment of stock
subscriptions to a corporation? (2) Can an obligation arising therefrom be offset
against a money claim of an employee against the employer?
HELD: Petition granted. (1) No, NLRC has no jurisdiction to determine such
intra-corporate dispute between the stockholder and the corporation as in the
matter of unpaid subscriptions. This controversy is within the exclusive
jurisdiction of the Securities and Exchange Commission.
(2) No, the unpaid subscriptions are not due and payable until a call is made by
Consideration for shares unpaid subscriptions are not due and payable until a the corporation for payment. Private respondents have not presented a
call is made by the corporation for payment, subject to Art. 113 of the Labor resolution of the board of directors of respondent corporation calling for the
Code.
payment of the unpaid subscriptions. It does not even appear that a notice of
such call has been sent to petitioner by the respondent corporation. What the
FACTS:
records show is that the respondent corporation deducted the amount due to
Petitioner Apocada was employed in respondent corporation. On August 28, petitioner from the amount receivable from him for the unpaid subscriptions. Set1985, respondent Jose M. Mirasol persuaded petitioner to subscribe to 1,500 off was without lawful basis, if not premature. But, assuming that there was a
shares of respondent corporation at P100.00 per share or a total of P150,000.00. call for payment, the answer is still in the negative. The NLRC cannot set it off
He made an initial payment of P37,500.00. On September 1, 1975, petitioner against the wages and other benefits due petitioner. Article 113 of the Labor
was appointed President and General Manager of the respondent corporation. Code allows such a deduction only in instances, to wit:
However, on January 2, 1986, he resigned. On December 19, 1986, petitioner
instituted with the NLRC a complaint against private respondents (Apocada and ART. 113. Wage Deduction. No employer, in his own behalf or in behalf of
Intrans Phils., Inc.) for the payment of his unpaid wages, his cost of living any person, shall make any deduction from the wages of his employees, except:
allowance, the balance of his gasoline and representation expenses and his (a) In cases where the worker is insured with his consent by the employer, and
bonus compensation for 1986. Petitioner and private respondents submitted their the deduction is to recompense the employer for the amount paid by him as
position papers to the labor arbiter. Private respondents admitted that there is premium on the insurance;
due to petitioner the amount of P17,060.07 but this was applied to the unpaid (b) For union dues, in cases where the right of the worker or his union to
balance of Apocadas subscription in the amount of P95,439.93. Petitioner checkoff has been recognized by the employer or authorized in writing by the
questioned the set-off alleging that there was no call or notice for the payment of
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individual worker concerned; and (c) In cases where the employer is authorized
by law or regulations issued by the Secretary of Labor.
RULING:
National Exchange vs Dexter 51 Phil. 601 (1928)
This action was instituted in the Court of First Instance of Manila by the National
Exchange Co., Inc., as assignee (through the Philippine National Bank) of C. S.
Salmon & Co., for the purpose of recovering from I. B. Dexter a balance of
P15,000, the par value of one hundred fifty shares of the capital stock of C. S.
Salmon & co., with interest and costs. Upon hearing the cause the trial judge
gave judgment for the plaintiff to recover the amount claimed, with lawful interest
from January 1, 1920, and with costs. From this judgment the defendant
A provision in the Corporation states: ". . . no corporation shall issue stock or
appealed.
bonds except in exchange for actual cash paid to the corporation or for property
actually received by it at a fair valuation equal to the par value of the stock or
FACTS:
bonds so issued."
1.
It appears that on August 10, 1919, the defendant, I. B. Dexter, signed a
Now, if it is unlawful to issue stock otherwise than as stated it is self-evident that
written subscription to the corporate stock of C. S. Salmon & Co. in the following
a stipulation such as that now under consideration, in a stock subcription, is
form:
illegal, for this stipulation obligates the subscriber to pay nothing for the shares
except as dividends may accrue upon the stock. In the contingency that
I hereby subscribe for three hundred (300) shares of the capital stock of
dividends are not paid, there is no liability at all. This is a discrimination in favor
C.
S. Salmon and Company, payable from the first dividends declared on
of the particular subscriber, and hence the stipulation is unlawful.
any
and all shares of said company owned by me at the time dividends are
declared, until the full amount of this subscription has been paid.
Corpus Juris:
Nor has a corporation the power to receive a subscription upon such terms as
2.
Upon this subscription the sum of P15,000 was paid in January, 1920,
will operate as a fraud upon the other subscribers or stockholders by subjecting
from a dividend declared at about that time by the company, supplemented by
the particular subcriber to lighter burdens, or by giving him greater rights and
money supplied personally by the subscriber.
privileges, or as a fraud upon creditors of the corporation by withdrawing or
decreasing the capital.
3.
Beyond this nothing has been paid on the shares and no further dividend
has been declared by the corporation.
as a general rule, an agreement between the corporation and a particular
subscriber that the subscription is not to be payable, or is to be payable in part
4.
There is therefore a balance of P15,000 still paid upon the subscription.
only is illegal and void as it constitutes fraud to other stockholders or creditors,
whether it is for the purpose of making the stock seem greater than it is, or for
5. The trial court held, in effect, that the stipulation mentioned is invalid.
the purpose of preventing the predominance of certain stockholders, or for any
other purpose thus, the agreement cannot be enforced by the subscriber or
interpose it as a defense in an action on the subscription.
ISSUE:
whether the stipulation contained in the subscription to the effect that the
"Conditions attached to subscriptions, which, lessen the capital of the company,
subscription is payable from the first dividends declared on the shares has the
are a fraud upon the grantor of the franchise, and upon those who may become
effect of relieving the subscriber from personal liability in an action to recover the
creditors of the corporation, and upon unconditional stockholders."
value of the shares.
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13
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Upon July 13, 1914, a meeting of the board of
directors of the company was held at which a majority of the
stock was presented. Upon this occasion two resolutions,
important to be here noted, were adopted. The first was a
proposal that the directors, or shareholders, of the company
should make good by new subscriptions, in proportion to
their respective holdings, 15 shares which had been
surrendered by Infante.
ISSUE:
Whether or not Poizat is liable for his unpaid
subscription.
RULING:
YES.
A stock subscription is a contract between the
corporation on one side, and the subscriber on the other,
and courts will enforce it for or against either. It is a rule,
accepted by the Supreme Court of the United States that a
subscription for shares of stock does not require an express
promise to pay the amount subscribed, as the law implies a
promise to pay on the part of the subscriber. Section 36 of
the Corporation Law clearly recognizes that a stock
subscription is subsisting liability from the time the
subscription is made, since it requires the subscriber to pay
interest quarterly from that date unless he is relieved from
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subscribed capital stock as of July 23, 1946, the first 50 per cent payable within
60 days beginnning August 1, 1946, and the remaining 50 per cent payable
within 60 days beginning October 1, 1946. The resolution also provided, that all
unpaid subscription after the due dates of both calls would be subject to 12 per
cent interest per annum. Lastly, the resolution provided, that after the expiration
of 60 days' grace which would be on December 1, 1946, for the first call, and on
February 1, 1947, for the second call, all subscribed stocks remaining unpaid
would revert to the corporation. (See Exhibit F and Exhibit I).
Lingayen Gulf Electric vs Baltazar93 Phil. 404 (1953) G.R. No. L-4824 G.R.
No. L-6244 June 30, 1953
LINGAYEN GULF ELECTRIC POWER COMPANY, INC vs. IRINEO
BALTAZAR,
It was admitted by the defendant that he received notice from the Secretary-,
demanding. It was agreed by the parties that the call of the Board of Directors
was not published in a newspaper of general circulation as required by section
40 of the Corporation Law.
FACTS: Defendant, Irineo Baltazar appears to have subscribed for 600 shares
on account of which he had paid upon the organization of the corporation
Lingayen Gulf the sum of P15,000. After incorporation, the defendant made
further payments on account of his subscription, leaving a balance of P18,500
unpaid for, which amount, the plaintiff now claims in this action.
On September 28, 1949, the legal counsel wrote a letter to the defendant,
demanding the payment of the unpaid balance of his subscription amounting to
P18,500. The defendant ignored the said demand. Hence this action.
On July 23, 1946, a majority of the stockholdersamong them the herein ISSUES:
defendant, held a meeting and adopted stockholders' resolution No. 17. It was
agreed upon by the stockholders present to call the balance of all unpaid 1. That the plaintiffs' action is premature because there was no valid call; and
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2. That granting that there was a valid call, he was released from the obligation of made and accepted, there can be no cancellation or release from the
the balance of his subscription by stockholders' resolution No. 17 and No. 4.
obligation without the consent of the corporation and all the stockholders;
. . . . (2 Thompson on Corporation, p. 186).
By way of counterclaim, the defendant also claims from the plaintiff a reasonable
compensation at the rate of P700 per month as president of the company.
He states the reason for the rule as follows:
HELD: We agree with the lower court that the law requires that notice of
any call for the payment of unpaid subscription should be made not only
personally but also by publication. This is clear from the provisions of
section 40 of the Corporation Law, Act No. 1459, as amended
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Whether or not the call on the unpaid subscriptions were validly made.
allotted to stockholders.
HELD:
No. The cited case on which the plaintiff corporation heavily relies on to justify its
contention, finds incorrect application in this case. In the case of Velasco v.
Poizat, the corporation therein was insolvent, thus the unpaid subscriptions are
payable on demand and are immediately recoverable in an action instituted by
the assignee. Plaintiff corporation in this case is not insolvent, and the prevailing
Corporation Code at the time mandatorily requires that publication, and not mere
personal demand, before it can be said that any call on the payment of unpaid
subscriptions could be validly made. The reason for the mandatory provision is
not only to assure notice to all subscribers, but also to assure equality and
uniformity
in
the
assessment
on
stockholders.
ISSUE:
Settled is the rule that nothing in this act shall prevent the
directors from collecting, by action in any court of proper
jurisdiction, the amount due on any unpaid subscription, together
with accrued interest and costs and expenses incurred.
FACTS:
De Silva subscribed to 650 shares and paid for 200. The
company notified him that his shares will be declared delinquent
and sold in a public auction if he does not pay the balance. De
Silva did not pay. The company advertised a notice of delinquency
sale. De Silva sought an injunction because the by-laws allegedly
provide that unpaid subscriptions will be paid from the dividends
17
8. As Bonifacio Lumanlan had only paid P1,500 of the P15,000, par value
of the stock for which he subscribed, the receiver on August 30, 1930,
filed a suit against him in the Court of First Instance of Manila, civil case
No. 37492, for the collection of P15,109 --- P13,500 of which was the
amount he owed for unpaid stock and P1,609 for loans and advances by
the corporation to Lumanlan.
9. In that case Lumanlan was sentenced to pay the corporation the abovementioned sum of P15,109 with legal interest thereon from August 30,
1930, and costs.
12. Lumanlan was designated to pay the debt of the corporation to Julio
Valenzuela, one of the petitioners in case No. 37007.
2013400036
13. At that time the corporation owed Valenzuela the sum of P8,000 plus
interest thereon at the rate of 12 per cent per annum from March 17,
1928.
14. Lumanlan agreed to assume this obligation.
15. And in turn the corporation agreed that if Lumanlan would dismiss his
appeal in case No. 37492 the corporation would collect only 50 per cent
of the amount subscribed by him for stock, provided that in case the 50
percent was insufficient to pay Valenzuela he should pay an additional
amount which should not exceed the amount of the judgment against
him in that case.
16. In view of this agreement Lumanlan withdrew his appeal and paid
Valenzuela the sum of P11,840 including interest and thereby was
subrogated in place of Valenzuela.
17. The petitioning creditors having been paid the amounts owed to them by
the corporation asked that the receiver be dismissed and the court
granted this.
18. Disregarding this agreement and notwithstanding the payment made by
Lumanlan to Valenzuela, the corporation on May 5, 1932, asked for the
execution of the sentence in case No. 37492 and by virtue of an order of
execution the provincial sheriff levied upon two parcels of land
belonging to Lumanlan described in certificate of title No. 901 of the
Province of Tarlac.
19. Lumanlan brought this case to collect from Dizon & Co., Inc., and to
prevent the sheriff from selling the two parcels of land. Pending the
result of this case the sheriff was enjoined from proceeding with the
sale.1vvphi1.ne+
20. In the promissory note given by the corporation to Valenzuela the former
obligated itself to pay Valenzuela the sum of P8,000 with interest at 12
per cent per annum and, upon failure to pay said sum and interest when
due, 25 per cent of the principal as expenses of collection and judicial
costs in case of litigation.
21. By virtue of these facts Lumanlan is entitled to a credit against the
judgment in case No. 37492 for P11,840 and an additional sum of
P2,000, which is 25 per cent on the principal debt, as he had to file this
18
22.
2013400036
suit to collect, or receive credit for the sum which he had paid Valenzuela The judgment of the trial court was modified in accordance with the above and
for and in place of the corporation, or a total of P13,840.
27. Dizon & Co., Inc., is ordered to credit Bonifacio Lumanlan with the sum
This leaves a balance due Dizon & co., Inc., of P1,269 on that judgment
of P13,840 against the judgment for P15,109, in case No. 37492 of the
with interest thereon at 6 per cent per annum from August 30, 1930.
Court of First Instance of Manila;
28. To issue to Bonifacio Lumanlan 300 shares of its capital stock upon
payment by him of the sum of P1,269 with interest thereon at 6 per cent
per annum from August 30, 1930.
29. The preliminary injunction issued in this case is hereby dissolved for the
purpose of enabling Dizon & Co., Inc., to ask for a new order of
execution in case No. 37492, Court of First Instance of Manila, for the
sum of P1,269 with interest thereon as stated above.
China Banking Corp. v. CA GR 117604 (Mar. 26, 1997)
CHINA BANK VS CA and VALLEY GOLF
24. That bank was appointed assignee in case No. 43065 of the Court of
First Instance of the City of Manila on November 28, 1932.
25. It is therefore evident that there are still other creditors of Dizon & Co.,
Inc.
Facts:
In 1974 Calapatia, a stockholder Valley Golf & Country Club, Inc. pledged his
26. This being the case that corporation has a right to collect all unpaid stock Stock Certificate to China Bank and was noted in its corporate books per
request of China Bank. Due to Calapatias failure to pay his obligation,the bank
subscriptions and any other amounts which may be due it.
filed a petition for extrajudicial foreclosure and to conduct a public auction.The
It is established doctrine that subscriptions to the capital of a corporation petitioner informed VG of the foreclosure proceedings and requested that the
pledged stock be transferred to the banks name but was rejected due to
constitute a fund to which the creditors have a right to look for
Calapatias unsettled accounts with the club. Despite the foregoing, public
satisfaction of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to realize auction was held and petitioner emerged as the highest bidder. In 1986, VG
auctioned the stock wherein VG is the new owner and informed Calapatia of the
assets for the payment of its debts. (Philippine Trust Co. vs. Rivera, 44
termination of his membership VGCCI assails the validity of the pledge
Phil., 469, 470.)
agreement executed by Calapatia in petitioners favor. It contends that the same
. . . the Corporation Law clearly recognizes that a stock subscription is a was null and void for lack of consideration because the pledge agreement was
subsisting liability from the time the subscription is made, since it
entered into on 21 August 1974 but the loan or promissory note which it secured
requires the subscriber to pay interest quarterly from that date unless he was obtained by Calapatia much later or only on 3 August 1983.
is relieved from such liability by the by-laws of the corporation. The
subscriber is as much bound to pay the amount of the share subscribed Issue:
by him as he would be to pay any other debt, and the right of the
company to demand payment is no less incontestable. (Velasco vs.
Whether the stock is non transferrable due the unpaid claim
Poizat, 37 Phil., 802, 805.)
In view of the above conclusions it is not necessary to discuss the other
questions raised by the parties in this case.
Held:
19
2013400036
Baltazar v. Lingayen Gulf 14 SCRA 522(1965)
FACTS:
The Lingayen Gulf Electric Power Co., Inc., hereinafter
referred to as Corporation, was doing business in the
Philippines, with principal offices at Lingayen, Pangasinan,
and with an authorized capital stock of P300.000.00 divided
into 3,000 shares of voting stock at P100.00 par value, per
share. Plaintiffs Baltazar and Rose were among the
incorporators, having subscribed to 600 and 400 shares of
the capital stock, or a total par value of P60,000.00 and
P40.000.00, respectively. It is alleged that it has always been
the practice and procedure of the Corporation to issue
certificates of stock to its individual subscribers for unpaid
shares of stock. Of the 600 shares of capital stock
subscribed by Baltazar, he had fully paid 535 shares of
stock, and the Corporation issued to him several fully paid
up and non-assessable certificates of stock, corresponding
to the 535 shares. After having made transfers to third
persons and acquired new ones, Baltazar had to his credit,
on the filing of the complaint 341 shares fully paid and nonassessable.
The respondents Ungson, Estrada, Fernandez and
Yuson were small stockholders of the Corporation, all
holding a total number of fully paid-up shares of stock, of
not more than 100 shares, with a par value of P10,000.00
and the defendant Acena, was likewise an incorporator and
stockholder, holding 600 shares of stock, for which
certificate of stock were issued to him and as such, was the
largest individual stockholder thereof. Defendants Ungson,
20
2013400036
though no agreement existed, the ruling in said case does
not now reflect the correct view on the matter, for better
than an agreement or practice, there is the law, which
renders the said case of Fua Cun-Summers, obsolescent.
In the cases at bar, the defendant-corporation had chosen to
apply payments by its stockholders to definite shares of the capital
stock of the corporation and had fully paid capital stock shares
certificates for said payments; its call for payment of unpaid
subscription and its declaration of delinquency for non-payment of
said call affecting only the remaining number of shares of its
capital stock for which no fully paid capital stock shares
certificates have been issued, "and only these have been legally
shorn of their voting rights by said declaration of delinquency"
(amended decision).
Nava v. Peers Mktg. Corp.76 SCRA 65(1976)
21
2013400036
22
HELD:
A certificate of stock is the paper representative or tangible
evidence of the stock itself and of the various interests therein. The
certificate is not stock in the corporation but is merely evidence of
the holder's interest and status in the corporation, his ownership of
the share represented thereby, but is not in law the equivalent of
such ownership. It expresses the contract between the corporation
and the stockholder, but is not essential to the existence of a share
in stock or the nation of the relation of shareholder to the
corporation.
A certificate of stock is not a negotiable instrument.
"Although it is sometime regarded as quasi-negotiable, in the sense
that it may be transferred by endorsement, coupled with delivery, it
is well-settled that it is non-negotiable, because the holder thereof
takes it without prejudice to such rights or defenses as the
registered owner/s or transferors creditor may have under the law,
except insofar as such rights or defenses are subject to the
limitations imposed by the principles governing estoppel."
In the case at bar, a by-law which prohibits a transfer of
stock without the consent or approval of all the stockholders or of
the President or Board of Directors is illegal as constituting undue
2013400036
limitation on the right of ownership and in restraint of trade.
While Sec. 47 (9) of the Corporation Code grants to
stock corporations the authority to determine in the bylaws the "manner of issuing certificates" of shares of stock,
however, the power to regulate is not the power to
prohibit, or to impose unreasonable restrictions of the
right of stockholders to transfer their shares. To uphold
the cancellation of a stock certification as null and void for
lack of delivery of the cancelled "mother" certificate whose
endorsement was deliberately withheld by petitioner, is to
prescribe certain restrictions on the transfer of stock in
violation of the Corporation Code as the only law governing
transfer of stocks.
5) Proof of Ownership of Shares ---Nautica Canning Corp. Yumul GR 164588 (Oct. 19, 2005)
23
HELD:
YES. Indeed, it is possible for a business to be wholly owned
by one individual. The validity of its incorporation is not affected
when such individual gives nominal ownership of only one share of
stock to each of the other four incorporators. This is not necessarily
illegal. But, this is valid only between or among the incorporators
privy to the agreement. It does bind the corporation which, at the
time the agreement is made, was non-existent. Thus, incorporators
continue to be stockholders of a corporation unless, subsequent to
the incorporation, they have validly transferred their subscriptions
to the real parties in interest.
A transfer of shares of stock not recorded in the stock and
transfer book of the corporation is non-existent as far as the
corporation is concerned. As between the corporation on one hand,
and its shareholders and third persons on the other, the corporation
looks only to its books for the purpose of determining who its
shareholders are. It is only when the transfer has been recorded in
the stock and transfer book that a corporation may rightfully regard
the transferee as one of its stockholders. From this time, the
consequent obligation on the part of the corporation to recognize
such rights as it is mandated by law to recognize arises.
Lao v. Lao GR 170585 (Oct 6, 2008)
G.R. No. 170585; October 6, 2008
2013400036
Lao acquired his shares from his father and Jose Lao from
respondent himself. Respondent denied petitioners' claim. He also
claimed that petitioners did not acquire any shares in PFSC by any
of the modes recognized by law, namely subscription, purchase, or
transfer.
Meanwhile, R.A. 8799, otherwise known as the Securities
Regulation Code, was enacted, transferring jurisdiction over all
intra-corporate disputes from the SEC to the RTC. RTC denied their
petition on the ground that they have no stock certificates in their
names.
ISSUE:
FACTS:
6) Restrictions on Transfer of Shares --Fleischer v. BoticaNolasco (1925) 47 Phil. 583
Petitioners David and Jose Lao filed a petition with the SEC
against respondent Dionisio Lao, president of Pacific Foundry Shop
G.R. No. L-23241. March 14, 1925
Corporation (PFSC). Petitioners prayed for a declaration as
stockholders and directors of PFSC, issuance of certificates of
shares in their name and to be allowed to examine the corporate FACTS:
books of PFSC.
Petitioners claimed that they are stockholders of PFSC based
On November 15, 1923, the plaintiff filed an amended
on the General Information Sheet filed with the SEC, in which they
are named as stockholders and directors of the corporation. David complaint against the Botica Nolasco, Inc., alleging that he
24
2013400036
RULING:
ISSUE:
YES.
The holder of shares, as owner of personal property, is
at liberty, under said section, to dispose of them in favor of
whomsoever he pleases, without any other limitation in this
respect, than the general provisions of law.
Therefore, a stock corporation in adopting a by-law
governing transfer of shares of stock should take into
consideration the specific provisions of section 35 of Act No.
1459, and said by-law should be made to harmonize with
said provisions. It should not be inconsistent therewith.
The by-law now in question was adopted under the
power conferred upon the corporation by section 13,
paragraph 7, above quoted; but in adopting said by-law the
corporation has transcended the limits fixed by law in the
same section, and has not taken into consideration the
provisions of section 35 of Act No. 1459.
As a general rule, the by-laws of a corporation are
valid if they are reasonable and calculated to carry into
effect the objects of the corporation, and are not
contradictory to the general policy of the laws of the land
25
2013400036
FACTS:
A. Lewis Burridge, retired as AmCham's President
while petitioner was still working with private respondent,
his superior,. Before Burridge decided to return to his home
country, he wanted to transfer his proprietary share in the
Manila Polo Club (MPC) to petitioner. However, through the
intercession of Burridge, private respondent paid for the
share but had it listed in petitioner's name. This was made
clear in an employment advice dated January 13, 1986,
wherein petitioner was informed by private respondent.
Burridge transferred said proprietary share to
petitioner, as confirmed in a letter of notification to the
Manila Polo Club. Upon his admission as a new member of
the MPC, petitioner paid the transfer fee of P40,000.00 from
his own funds; but private respondent subsequently
reimbursed this amount.
MPC issued Proprietary Membership Certificate
Number 3398 in favor of petitioner. But petitioner, however,
2013400036
27
2013400036
remaining one (1) share of stock in favor of private
respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero
presented to petitioner Rural Bank of Salinas the two (2)
Deeds of Assignment for registration with a request for the
transfer in the Bank's stock and transfer book of the 473
shares of stock so assigned, the cancellation of stock
certificates in the name of Clemente G. Guerrero, and the
issuance of new stock certificates covering the transferred
shares of stocks in the name of the new owners thereof.
However, petitioner Bank denied the request of respondent
Melania Guerrero.
ISSUE:
Whether or not a Mandamus lie against the Rural
Bank of Salinas to register in its stock and transfer book the
transfer of 473 shares of stock to private respondents.
RULING:
YES.
Section 5 (b) of P.D. No. 902-A grants to the SEC the
original and exclusive jurisdiction to hear and decide cases
involving intracorporate controversies. An intra-corporate
controversy has been defined as one which arises between a
stockholder and the corporation. There is neither
distinction, qualification, nor any exception whatsoever. The
28
2013400036
RULING:
29
NO.
2013400036
the name of the late Juan Chuidian was never indorsed to
the petitioner, the inevitable conclusion is that the
questioned shares of stock belong to Chuidian. The
petitioner's asseveration that he did not require an
indorsement of the certificate of stock in view of his intimate
friendship with the late Juan Chuidian can not overcome
the failure to follow the procedure required by law or the
proper conduct of business even among friends. To reiterate,
indorsement of the certificate of stock is a mandatory.
2013400036
RULING:
NO.
The shortage of 972 shares would not be valid ground
for respondent Torres to unilaterally revoke the deeds of
assignment he had executed on July 13, 1984 and July 24,
1984 wherein he voluntarily assigned to TORMIL real
properties covered by TCT No. 374079 (Makati) and TCT No.
41527, 41528 and 41529 (Pasay) respectively. A comparison
of the number of shares that respondent Torres received
from TORMIL by virtue of the "deeds of assignment" and the
stock certificates issued by the latter to the former readily
shows that TORMIL had substantially performed what was
expected of it. In fact, the first two issuances were in
satisfaction to the properties being revoked by respondent
Torres. Hence, the shortage of 972 shares would never be a
valid ground for the revocation of the deeds covering Pasay
and Quezon City properties.
Moreover, we agree with the contention of the Solicitor
General that the shortage of shares should not have affected the
assignment of the Makati and Pasay City properties which were
executed in 13 and 24 July 1984 and the consideration for which
have been duly paid or fulfilled but should have been applied
logically to the last assignment of property Judge Torres' Ayala
Fund shares which was executed on 29 August 1984.
Rural Bank of LipaGR 124535 (Sept. 28, 2001)
31
2013400036
A petition for review was thus filed before the Court of Appeals. CA dismissed
the petition for review for lack of merit. Petitioners' motion for reconsideration
was likewise denied.
ISSUE: WoN there was a valid transfer of stock pursuant to the Deed of
Assignment
HELD: NO! Under Sec. 63 of Corporation Code, for a valid transfer of stocks,
there must be strict compliance with the mode of transfer prescribed by law. The
requirements are: (a) There must be delivery of the stock certificate; (b) The
certificate must be endorsed by the owner or his attorney-in-fact or other
persons legally authorized to make the transfer; and (c) To be valid against third
parties, the transfer must be recorded in the books of the corporation.
While it may be true that there was an assignment of private respondents'
shares to the petitioners, said assignment was not sufficient to effect the transfer
of shares since there was no endorsement of the certificates of stock by the
owners, their attorneys-in-fact or any other person legally authorized to make
the transfer. Moreover, petitioners admit that the assignment of shares was not
coupled with delivery, the absence of which is a fatal defect. The rule is that the
delivery of the stock certificate duly endorsed by the owner is the operative act
of transfer of shares from the lawful owner to the transferee. Title may be vested
in the transferee only by delivery of the duly indorsed certificate of stock.
It may be argued that despite non-compliance with the requisite endorsement
and delivery, the assignment was valid between the parties, meaning the private
respondents as assignors and the petitioners as assignees. While the
assignment may be valid and binding on the petitioners and private
respondents, it does not necessarily make the transfer effective. Consequently,
the petitioners, as mere assignees, cannot enjoy the status of a stockholder,
cannot vote nor be voted for, and will not be entitled to dividends, insofar as the
assigned shares are concerned. Parenthetically, the private respondents cannot,
as yet, be deprived of their rights as stockholders, until and unless the issue of
ownership and transfer of the shares in question is resolved with finality.
Rivera v. Florendo144 SCRA 647(1986)
32
2013400036
RULING:
YES.
It has already been settled that an intracorporate
controversy would call for the jurisdiction of the Securities
and Exchange Commission. On the other hand, an intracorporate controversy has been defined as "one which arises
between a stockholder and the corporate. There is no
distinction, qualification, nor any exemption whatsoever."
This Court has also ruled that cases of private respondents
who are not shareholders of the corporation, cannot be a
"controversy arising out of intracorporate or partnership relations
between and among stockholders, members or associates; between
any or all of them and the corporation, partnership or association,
of which they are stockholders, members or associates,
respectively."
Lim Tay v. CA GR 126891 (Aug. 5, 1998)
2013400036
ISSUE:
Whether or not there is there dacion en pago.
RULING:
NO.
At the outset, it must be underscored that petitioner
did not acquire ownership of the shares by virtue of the
contracts of pledge. Article 2112 of the Civil Code states:
The creditor to whom the credit has not been satisfied in
due time, may proceed before a Notary Public to the sale of
the thing pledged. This sale shall be made at a public
auction and with notification to the debtor and the owner of
the thing pledged in a proper case, stating the amount for
which the public sale is to be held. If at the first auction the
thing is not sold, a second one with the same formalities
shall be held; and if at the second auction there is no sale
either, the creditor may appropriate the thing pledged. In
this case he shall be obliged to give an acquaintance for his
entire claim.
There is no showing that petitioner made any attempt
to foreclose or sell the shares through public or private
auction, as stipulated in the contracts of pledge and as
required by Article 2112 of the Civil Code. Therefore,
ownership of the shares could not have passed to him. The
pledgor remains the owner during the pendency of the
pledge and prior to foreclosure and sale, as explicitly
34
2013400036
Held:
No. Under Sec. 63 of the Corporation Code, no transfer of shares of stock shall
be valid, except as between the parties, until the same is recorded in the books
of the corporation so as to show the names of the parties to the transaction, the
date of the transfer, the number of the certificate or certificates, and the number
of shares transferred. A transfer of shares of stock not recorded in the stock and
transfer book of the corporation is non-existent as far as the corporation is
concerned. The stock and transfer book is the basis for ascertaining the persons
entitled to the rights and subject to the liabilities of a stockholder.
35
2013400036
remaining one (1) share of stock in favor of private
respondent Francisco Guerrero, Sr.
Subsequently, private respondent Melania Guerrero
presented to petitioner Rural Bank of Salinas the two (2)
Deeds of Assignment for registration with a request for the
transfer in the Bank's stock and transfer book of the 473
shares of stock so assigned, the cancellation of stock
certificates in the name of Clemente G. Guerrero, and the
issuance of new stock certificates covering the transferred
shares of stocks in the name of the new owners thereof.
However, petitioner Bank denied the request of respondent
Melania Guerrero.
ISSUE:
Whether or not a Mandamus lie against the Rural
Bank of Salinas to register in its stock and transfer book the
transfer of 473 shares of stock to private respondents.
RULING:
YES.
Section 5 (b) of P.D. No. 902-A grants to the SEC the
original and exclusive jurisdiction to hear and decide cases
involving intracorporate controversies. An intra-corporate
controversy has been defined as one which arises between a
stockholder and the corporation. There is neither
distinction, qualification, nor any exception whatsoever. The
36
2013400036
registered owner of the stock which he seeks to have transferred.
His only claim as owner is based on his averment that such were
indorsed to him on February 5 by the Bryan-Landon Company, in
whose name it is registered on the books of the Visayan Electric
Company. There was no allegation that the petitioner holds any
power of attorney from the Bryan-Landon Company authorizing
him to make demand on the secretary of the Visayan Electric
Company to make the transfer which petitioner seeks to have
made through the medium of the mandamus of this court.
ISSUE:
WON a writ of mandamus will lie under the circumstances of
the case to allow the transfer of shares as being requested by the
petitioner.
HELD:
The Supreme Court denied the writ. Petitioner did not have
the right to demand the transfer since he was not the stockholder
of record. This was proven by the fact that the said shares were
still registered under the name of Bryan-Landon Company.
Furthermore, even the latter did not demand from the company
the transfer of said shares. Neither did it give by way of a special
power of attorney to petitioner the authority to effect such a
transfer. Hence, there is no clear and legal obligation upon the
respondent that will justify the issuance of a writ to compel the
latter to perform a transfer.
As a general rule, as between the corporation on the one
hand, and its shareholders and third persons on the other, the
corporation looks only to its books for the purpose of determining
who its shareholders are, so that a mere indorsee of a stock
certificate, claiming to be the owner, will not necessarily be
recognized as such by the corporation and its officers, in the
absence of express instructions of the registered owner to make
such transfer to the indorsee, or a power of attorney authorizing
such transfer.
FACTS:
Petitioner filed an original action to secure a writ of
mandamus against the respondent, to compel him, as secretary of
the Visayan Electric Company, to transfer upon the books of the
company certain shares of stock. He based the urgency of his
action on a supposed agreement to sell the said shares to a Mr.
Levering. Furthermore, he also stated that the issuing company
Bitong v. CA 292 SCRA 503
holds no unpaid claims against the shares of stock. However, on
Ownership of Corporate Shares/ Stock Certificates: Valid Issuance
the books of the company, it turns out that petitioner is not the
37
2013400036
is estopped to question its validity since an estoppel cannot operate to
create stock which under the law cannot have existence.
Abejo v. De la Cruz 149 SCRA 654 (1987)
GR No. L-63558
FACTS:
These two cases, jointly heard, are jointly herein decided. They involve the
question of who, between the RTC and the SEC, has original and exclusive
jurisdiction over the dispute between the principal stockholders of the
corporation Pocket Bell Philippines, Inc. (Pocket Bell), namely, the spouses
Abejos and the purchaser, Telectronic Systems, Inc. of their 133,000 minority
shareholdings (for P5 million) and of 63,000 shares registered in the name of
Virginia Braga and covered by 5 stock certificates endorsed in blank by her (for
P1,674,450.00), and the Bragas, erstwhile majority stockholders. With the said
purchases, Telectronics would become the majority stockholder, holding 56% of
the outstanding stock and voting power of the corporation Pocket Bell.
With the said purchases in 1982, Telectronics requested the corporate secretary
of the corporation, Norberto Braga, to register and transfer to its name, and
those of its nominees the total 196,000 Pocket Bell shares in the corporation's
transfer book, cancel the surrendered certificates of stock and issue the
corresponding new certificates of stock in its name and those of its nominees.
Norberto Braga, refused to register the aforesaid transfer of shares in the
corporate books, asserting that the Bragas claim pre-emptive rights over the
133,000 Abejo shares and that Virginia Braga never transferred her 63,000
shares to Telectronics but had lost the five stock certificates representing those
shares.
This triggered off the series of intertwined actions between the protagonists, all
centered on the question of jurisdiction over the dispute, which were to
culminate in the filing of the two cases at bar.
ISSUE: WON the corporate secretary may refuse to register the transfer of
shares in the corporate books.
HELD:
NO. As pointed out by the Abejos, Pocket Bell is not a close corporation, and no
restriction over the free transferability of the shares appears in the Articles of
Incorporation, as well as in the bylaws and the certificates of stock themselves,
38
2013400036
D. is the receipt of the certificate in question signed by one
Mr. Cosculluela, Manager of the R.J. Campos & Co., Inc.
According to certificate Exh. E, R. J. Campos & Co., Inc.
bought for Mrs. Josefa Santamaria 10,000 shares of the
Crown Mines, Inc. at .225 a share, or the total amount of
P2,250. Two days later, on March 11, Mrs. Santamaria went
to R.J. Campos & Co., Inc. to pay for her order of 10,000
Crown Mines shares and to get back Certificate No. 517.
Cosculluela then informed her that R.J. Campos & Co., Inc.
was no longer allowed to transact business due to a
prohibition
order
from
Securities
and
Exchange
Commission. She was also inform that her Stock certificate
was in the possession of the Hongkong and Shanghai
Banking Corporation.
ISSUE:
Whether or not the obligation of the defendant Bank
to have inquired into the ownership of the certificate when it
received it from R.J. Campos & Co., Inc. and not conclude
that the Bank was negligent for not having done so,
contrary to the claim of the plaintiff that defendant Bank
acted negligently, if not in bad faith, in accepting delivery of
said certificate from RJ. Campos & Co., Inc.
RULING:
YES.
39
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40
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ISSUE:
Whether or not the plaintiffs had the owners of the
shares of stock in question.
RULING:
NO.
In the case at bar, neither madrigal nor the Mitsuis
had alienated shares of stock in question. It is not even
claimed that either had, through negligence, given
occasion for an improper or irregular disposition of the
corresponding
stock
certificates.
Plaintiffs
merely argue without any evidence whatsoever thereon
that Kitajimamight have, or must have, assigned the
certificates on or before December 1942, although, as above
stated, this is, not only, improbable, under the conditions,
then obtaining, but, also., impossible, considering that,
in April 1943, Kitajima delivered the instruments to Miwa,
who kept them in its possession until 1945. At any rate,
such assignment by Miwa granting for the sake of
argument the accuracy of the surmise of plaintiffs herein
was unauthorized by the mitsuis, who, in the light of the
precedents cited above, are not chargeable with negligence.
In other words, assuming that Kitajima had been guilty of
embezzlement, by negotiating the stock certificates in
question for his personal benefit, as claimed by the
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Barcelon's name.
ISSUE:
Is a bona fide transfer of the shares of corp., not registered
or noted on the books of the corp., valid as against a subsequent
lawful attachment of said shares, regardless of whether the
attaching creditor had actual notice of said transfer or not?
HELD:
NO, it is not valid. The transfer of the 75 shares in the North
Electric Co., Inc made by the defendant Diosomito as to the
defendant Barcelon was not valid as to the plaintiff. Toribia Uson,
on 18 Jan. 1932, the date on which she obtained her attachment
lien on said shares of stock will still stood in the name of Diosomito
on the books of the corp. Sec. 35 provides that No transfer,
however, is valid, except as between the parties, until the transfer
is entered and noted upon the books of the corporation so as to
show the names of the parties to the transaction, the date of the
transfer, the number of the certificate, and the number of shares
transferred.
All transfers of shares not so entered are invalid as to
attaching or execution creditors of the assignors, as well as to the
corporation and to subsequent purchasers in good faith, and
indeed, as to all persons interested, except the parties to such
transfers.
Chua Guan vs. SamahangMagsasaka62 Phil. 473 (1935)
62 PHIL 473
1935
Butte, J. (ponente)
FACTS:
On June 18, 1931, Gonzalo H. Co Toco, the owner of 5,894 shares of the capital
stock of Samahang Magsasaka Inc. represented by 9 certificates having a par
value of P5 per share, mortgaged said shares to Chua Chiu to guarantee the
payment of a debt of P20,000 due on or before 19 June 1932. The said
certificates of stock were delivered with the mortgage to the mortgagee, Chua
Chiu. The said mortgage was duly registered in the office of the register of
deeds of Manila on 23 June 1931, and in the office of the said corporation on 30
September 1931. On 28 November 1931, Chua Chiu assigned all his right and
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third persons. Furthermore, any share still standing in the name of the
debtor on the books of the corporation will be liable to seizure by
However, Co Toco defaulted in the payment of said debt at maturity and Chua attachment or levy on execution at the instance of other creditors. Thus,
Guan foreclosed said mortgage and delivered the certificates of stock and copies the game here is to have the highest or most preferred priority over any
of the mortgage and assignment to the sheriff of the City of Manila in order to sell pledged or mortgaged shares.
the said shares at public auction. The sheriff auctioned said shares on 22
December 1932, and the plaintiff having been the highest bidder for the sum of
Chemphil Export & Import v. CA (Dec. 12, 1995)
P14,390, the sheriff executed in his favor a certificate of sale of said shares. The Chemphil Export & Import vs. CA
plaintiff tendered the certificates of stock standing in the name of Co Toco to the G.R. Nos. 112438-39; December 12, 1995
proper officers of the corporation for cancellation and demanded that they issue
new certificates in the name of Chua Guan. The officers (the individual FACTS:
defendants) refused and still refuse to issue said new shares in the name of
This case involved a consortium of banks which obtained a
Chua Guan.
writ of preliminary attachment in a civil case ("consortium case")
An action for writ of mandamus was filed with the CFI Nueva Ecija, praying that
Chemical Industries of the Philippines ("Chemphil"). The
the defendants transfer the said 5,894 shares of stock to the plaintiff by
attachment, which was served on the secretary to the President of
cancelling the old certificates and issuing new ones in their stead.
The parties entered into a stipulation in which the defendants admitted all of the
allegations of the complaint while the plaintiff admitted all of the special defenses
in the answer of the defendants, and on this stipulation they submitted the case
for decision. As special defense, the defendants refused to cancel said
certificates (Co Tocos) and to issue new ones in the name of Chua Guan
because prior to the date of the latters demand (4 February 1933), 9
attachments had been issued, served and noted on the books of the corporation
against Co Tocos shares. Chua Guan objected to having these attachments
noted on the new certificates which he demanded.
The Supreme Court affirmed the judgment appealed from, holding that the
attaching creditors are entitled to priority over the defectively registered mortgage
of the appellant.
ISSUE: Whether or not the said mortgage takes priority over the already noted
writs of attachment.
ISSUE:
HELD:
Who has priority to the shares of stock an attaching
The Supreme Court ruled that the attaching creditors are entitled to priority
over the defectively registered mortgage of the appellant. The court argues creditor or the subsequent buyer?
that the registration in the register of deeds must be done both at the place
where the owner is domiciled and at the place where the principal office of HELD:
the corporation is located. The purpose of this is to give sufficient
The Supreme Court ruled that the attachment lien acquired
constructive of any claim or encumbrance over the recorded shares to
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Sometime in November 1995, McFoods expressed interest in acquiring a
share of Makati Sports Club, and one was acquired with the payment to the
plaintiff by McFoods of P1,800,000 through Urban Bank. On December 15,
1995, the Deed of Absolute Sale was executed by the plaintiff and McFoods;
Stock Certificate No. A 2243 was issued to McFoods on January 5, 1996.
On December 27, 1995, McFoods sent a letter to the plaintiff giving
advice of its offer to resell the share.
It appears that while the sale between the plaintiff and McFoods was still
under negotiations, there were negotiations between McFoods and
Hodreal for the purchase by the latter of a share of the plaintiff.
On November 24, 1995, Hodreal paid McFoods P1,400,000. Another payment
of P1,400,000 was made by Hodreal to McFoods on December 27, 1995, to
complete the purchase price of P2,800,000.
On February 7, 1996, plaintiff was advised of the sale by McFoods to Hodreal
of the share evidenced by Certificate No. 2243 for P2.8 Million. Upon request, a
new certificate was issued.
In 1997, an investigation was conducted and the committee held that there
is prima facie evidence to show that defendant Cheng profited from the
transaction because of her knowledge.
xxx xxx xxx
Plaintiff's evidence of fraud are [a] letter of Hodreal dated July 7, 1995
where he expressed interest in buying one (1) share from the plaintiff with the
request that he be included in the waiting list of buyers; [b] declaration of Lolita
Hodreal in her Affidavit that in October 1995, she talked to Cheng who assured
her that there was one (1) available share at the price of P2,800,000. The
purchase to be validated by paying 50% immediately and the balance after thirty
(30) days; [c] Marian Punzalan, Head, Membership Section of the plaintiff
declared that she informed Cheng of the intention of Hodreal to purchase one
(1) share and she gave to Cheng the contact telephone number of Hodreal; and
[d] the authorization from Sabarre to claim the stock certificate.
MSCI asserts that Mc Foods never intended to become a legitimate holder of
its purchased Class "A" share but did so only for the purpose of realizing a profit
in the amount of P1,000,000.00 at the expense of the former. MSCI further
claims that Cheng confabulated with Mc Foods by providing it with an insider's
information as to the status of the shares of stock of MSCI and even, allegedly
with unusual interest, facilitated the transfer of ownership of the subject share of
stock from Mc Foods to Hodreal, instead of an original, unissued share of stock.
It is also MSCI's stance that Mc Foods violated Section 30 (e) of MSCI's
Amended By-Laws on its pre-emptive rights, which provides
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2013400036
corporation, his ownership of the share represented thereby. It is not in law the
equivalent of such ownership. It expresses the contract between the corporation
and the stockholder, but is not essential to the existence of a share of stock or
the nature of the relation of shareholder to the corporation.
Therefore, Mc Foods properly complied with the requirement of Section
30 (e) of the Amended By-Laws on MSCI's pre-emptive rights. Without
doubt, MSCI failed to repurchase Mc Foods' Class "A" share within the
thirty (30) day pre-emptive period as provided by the Amended By-Laws.
It was only on January 29, 1996, or 32 days after December 28, 1995, when
MSCI received Mc Foods' letter of offer to sell the share, that Mc Foods and
Hodreal executed the Deed of Absolute Sale over the said share of stock. While
Hodreal had the right to demand the immediate execution of the Deed of
Absolute Sale after his full payment of Mc Foods' Class "A" share, he did not do
so. Perhaps, he wanted to wait for Mc Foods to first comply with the pre-emptive
requirement as set forth in the Amended By-Laws.
Neither can MSCI argue that Mc Foods was not yet a registered owner of the
share of stock when the latter offered it for resale, in order to void the transfer
from Mc Foods to Hodreal. The corporation's obligation to register is ministerial
upon the buyer's acquisition of ownership of the share of stock. The corporation,
either by its board, its by-laws, or the act of its officers, cannot create restrictions
in stock transfers.
Moreover, MSCI's ardent position that Cheng was in cahoots with Mc
Foods in depriving it of selling an original, unissued Class "A" share of
stock for P2,800,000.00 is not supported by the evidence on record. The
mere fact that she performed acts upon authority of Mc
Foods, i.e., receiving the payments of Hodreal in her office and claiming
the stock certificate on behalf of Mc Foods, do not by themselves,
individually or taken together, show badges of fraud, since Mc Foods did
acts well within its rights and there is no proof that Cheng personally
profited from the assailed transaction. Even the statement of MSCI that
Cheng doctored the books to give a semblance of regularity to the
transfers involving the share of stock covered by Certificate A 2243
remains merely a plain statement not buttressed by convincing proof.
X. APPRAISAL RIGHT Secs. 81- 86; relate to Sec. 42 and 105
Marcus v. RH Macy 74 N.E. 2D 228 (1947)
Facts: Hazel Marcus is the owner of 50 common shares of stocks in R.H, Macy
Co., Inc., which are stocks with voting rights. On September 28, 1945, the
corporation gave a formal notice to its stockholders, including Marcus, that in its
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upcoming annual meeting, there will be a vote on a proposal to vest voting rights
to holders of preferred stocks. A day before the annual meeting, Marcus sent by
registered mail to the corporation its written notice of objection to the proposal
and demanded to exercise her appraisal right. In the meeting, Marcus voted
against the proposal, however, the proposal was approved.
Marcus, thereafter, instituted a proceeding to determine the value of her stocks
and be paid therefor. However, her application for the appointment of appraisers
was denied on the ground that the vesting of voting rights to shares of stock
previously without such right does not divest nor limit her right as a common
stockholder, citing the Kenny case, and in considering that she only owns 50
shares out of 1.6 million shares of common stock. The Appellate Division
affirmed the said decision.
P2,298,760.00.
Turner v. Lorenzo Shipping GR 157479 Nov. 24, 2010 (G.R. No. 157479
November 24, 2010)
In its letter to the petitioners dated January 2, 2001,[4] the respondent refused
the petitioners demand, explaining that pursuant to the Corporation Code, the
dissenting stockholders exercising their appraisal rights could be paid only when
the corporation had unrestricted retained earnings to cover the fair value of the
shares, but that it had no retained earnings at the time of the petitioners
demand, as borne out by its Financial Statements for Fiscal Year 1999 showing
a deficit of P72,973,114.00 as of December 31, 1999.
The respondent found the fair value of the shares demanded by the petitioners
unacceptable. It insisted that the market value on the date before the action to
remove the pre-emptive right was taken should be the value, or P0.41/share (or
a total of P414,100.00), considering that its shares were listed in the Philippine
Stock Exchange, and that the payment could be made only if the respondent
had unrestricted retained earnings in its books to cover the value of the shares,
which was not the case.
The disagreement on the valuation of the shares led the parties to constitute an
appraisal committee pursuant to Section 82 of the Corporation Code, each of
them nominating a representative, who together then nominated the third
Issue: Whether or not Marcus may exercise her right of appraisal.
member who would be chairman of the appraisal committee. Thus, the appraisal
committee came to be made up of Reynaldo Yatco, the petitioners nominee;
Held: Marcus may exercise her right of appraisal. The Kenny case is inapplicable Atty. Antonio Acyatan, the respondents nominee; and Leo Anoche of the Asian
in this case as in that case, voting rights were given to newly issued stocks while Appraisal Company, Inc., the third member/chairman.
in this case, voting rights were given to existing stocks and previously without
voting rights. Vesting voting rights to the preferred shares, in the case of R.H. On October 27, 2000, the appraisal committee reported its valuation of
Macy, resulted to the increase in aggregate number of shares with voting rights P2.54/share, for an aggregate value of P2,565,400.00 for the petitioners.
which in effect diminished the potential worth of the common shares as a factor in
the management of the corporation's affairs. As to Marcus owning only 50 Subsequently, the petitioners demanded payment based on the valuation of the
shares, the law does not provide for a minimum percentage or value of stock appraisal committee, plus 2%/month penalty from the date of their original
which must be owned by a non-consenting stockholder to qualify to invoke her demand for payment, as well as the reimbursement of the amounts advanced as
appraisal right.
professional fees to the appraisers.
Upon the respondents refusal to pay, the petitioners sued the respondent for
collection and damages in the RTC in Makati City on January 22, 2001. The
case, docketed as Civil Case No. 01-086, was initially assigned to Branch 132.
On June 26, 2002, the petitioners filed their motion for partial summary
judgment.
The respondent opposed the motion for partial summary judgment, stating that
the determination of the unrestricted retained earnings should be made at the
end of the fiscal year of the respondent, and that the petitioners did not have a
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among the stockholders without first paying corporate debts. Thus, any
disposition of corporate funds and assets to the prejudice of creditors is
During the pendency of the motion for partial summary judgment, however, the null and void
Presiding Judge of Branch 133 transmitted the records to the Clerk of Court for
re-raffling to any of the RTCs special commercial courts in Makati City due to the
case being an intra-corporate dispute. Hence, Civil Case No. 01-086 was reraffled to Branch 142.
On November 12, 2002, the respondent filed a motion for reconsideration.
Subsequently, on November 28, 2002, the RTC issued a writ of execution.
Aggrieved, the respondent commenced a special civil action for certiorari in the
CA to challenge the two aforecited orders of Judge Tipon. On the respondents
petition for certiorari, however, the Court of Appeals (CA) corrected the RTC and
dismissed the petitioners suit on the ground that their cause of action for
collection had not yet accrued due to the lack of unrestricted retained earnings in
the books of the respondent. Thus, the petitioners are now before the Court to
challenge the CAs decision.
Issue: WON Petitioners should have given the chance to exercise their
Appraisal Right.
Held:
Clearly, the right of appraisal may be exercised when there is a
fundamental change in the charter or articles of incorporation substantially
prejudicing the rights of the stockholders. It does not vest unless
objectionable corporate action is taken. It serves the purpose of enabling
the dissenting stockholder to have his interests purchased and to retire
from the corporation. No payment shall be made to any dissenting
stockholder unless the corporation has unrestricted retained earnings in its
books to cover the payment. In case the corporation has no available
unrestricted retained earnings in its books, Section 83 of the Corporation
Code provides that if the dissenting stockholder is not paid the value of his
shares within 30 days after the award, his voting and dividend rights shall
immediately be restored. The trust fund doctrine backstops the
requirement of unrestricted retained earnings to fund the payment of the
shares of stocks of the withdrawing stockholders. Under the doctrine, the
capital stock, property, and other assets of a corporation are regarded as
equity in trust for the payment of corporate creditors, who are preferred in
the distribution of corporate assets. The creditors of a corporation have the
right to assume that the board of directors will not use the assets of the
corporation to purchase its own stock for as long as the corporation has
outstanding debts and liabilities. There can be no distribution of assets
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