Finals Coverage (Derivative Suits onwards) Flashcards
(109 cards)
1
Q
Derivative suit
A
In cases of mismanagement where the wrongful acts are committed by the directors or trustees themselves, a stockholder has the right to sue on behalf of the corporation. This is done to protect or vindicate corporate rights whenever officials of the corp. refuse to sue or are the ones to be sued or hold the control of the corporation.
2
Q
Requisites for derivative suit (based on GPL) (SMC v. Kahn)
A
- Must have exhausted remedies (Must have demanded the directors to sue. Except when majority of them are guilty of the act complained of).
- You must’ve been a stockhholder at the time of the complained act
- Any benefit recovered must be accounted for the corporation.
- If successful, the plaintiff is entitled to reimbursement for litigation
- Must be filed with SEC (unless there are 3rd persons– iwc, regular courts)
3
Q
Evangelista v. Santos (1950)
A
Generally, if the injury complained of is primarily to the corporation, the suit for damages should be claimed only by the corporation.
The stockholders may not directly claim those damages for themselves, as that would result in the appropriation by, and the distribution of part of the corporate assets before dissolution and liquidation. (Old CC says you can’t declare stock from your profits until dissolution)
4
Q
Liken v. Shaffer (1946)
A
Where loss has been caused to a corporation by the wrongful acts of those managing it, the right of action belongs to the corporation. There are situations where a-stockholder may bring a direct action in connection with corporate matters.
- officers were in a conspiracy to depreciate the stock value
- minority stockholder was injured bec of the machinations of majority stockholders
- those responsible destroyed the corporate entity of the corp
5
Q
Keenan v. Eshleman (1938)
A
Since this is a derivative suit, we treat the complainant as the corporation itself. If we were to limit the recovery to just be distributed to those complaining stockholders, this would encourage fraud. The effect would be to transform a derivative action into one for the benefit of the individual.
6
Q
Otis v. Pennsylvania Railroad (1944)
A
The Court allows or disallows Answers by a defendant corporation depending on the nature of the case. For example, in a case where fraud is the complaint, the corporation has an interest to determine the charges and recovering funds it was deprived of. It has no right to make affirmative defenses for the director. When the cause of action endangers corporate interests, an answer setting forth defenses is proper.
7
Q
Reyes v. Tan (1961)
A
The failure of the Board of Directors to take action against those directly responsible for the misuse of dollar allocations constitute fraud, or consent on the part of the directors.
8
Q
Chase v. CFI (1966)
A
In such case, however, the appointment of a receiver is a matter addressed to the sound discretion of the court, and it has been frequently held that such discretion to appoint a receiver who would take over the administration of the corporate business should be exercised with great caution and only when the necessity therefor is clear.
9
Q
Holmes v. Camp
A
In a representative action (i.e. derivative suit), the plaintiff is allowed to maintain the action, notwithstanding his lack of direct interest, solely to set the machinery of justice in motion and to prevent a complete failure of justice. This action is an invention of equity. The stockholder is merely an instigator. The cause of action is that of the corporation, and recovery is in favor of the corporation. A stockholder of a holding company may maintain a derivative suit for the benefit of the subsidiary company because it is indirectly for the advantage of the holding company. His stock interest in the holding company is sufficient for him not to be a “mere officious and impertinent intermeddler”
10
Q
Villamor Jr. v. Umale (2014)
A
There are 5 requisites for filing derivative suits (4 are enumerated in Rule 8, Sec. 1 of the Interim Rules of Procedure for Intra Corporate Controversies, while the fifth one is implied in the first paragraph of Rule 8, Sec. 1 of the Interim rules, and already settled in jurisprudence):
1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed;
2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;
3) No appraisal rights are available for the act or acts complained of;
4) The suit is not a nuisance or harassment suit; and
5) Action must be brought in the name of the corporation. It is also important that the corporation be made a party to the case.
11
Q
Ang v. Ang (2013)
A
Since damage to the corporation was not sufficiently proven by Juanito, the Complaint cannot be considered a bona fide derivative suit. A derivative suit is one that seeks redress for injury to the corporation, and not the stockholder. No such injury was proven in this case.
12
Q
Florete Sr. v. Florete Jr. (2016)
A
The test of classification between derivative and individual/class suits is: WON the cause of action accrues to the corporation itself or to the whole body of its stockholders; OR WON the causes of action pleaded accrue to a single shareholder or a class of shareholders OR to the corporation itself
In a DS, one must implead the corporation; for mere failure to do so, this case DISMISSED.
13
Q
BSP v. Campa Jr (2016)
A
First, the complaint is not for the benefit of the corporation, but for the benefit of Alino and other third-party mortgagors. Second, the complaint does not meet the requirements of a derivative suit.
14
Q
Metrobank v. Salazar (2022)
A
As per the 2001 IRPIC, derivative suits, wc is defined as an action brought by a stockholder or member in the name of a corporation or association, are under the jurisdiction of SCCs. However, as per the Gonzales guidelines, when filed with the RTC in its general jurisdiction, the case can be shuffled to the SCC. Thus, a dismissal is not proper on that ground. Nonetheless, the petition of the SARC should still be dismissed on the ground that it does not comply with the requisites for a derivative suit under Rule 8, Sec. 1 of the 2001 IRPIC.
If appraisal rights are available, such fact must be alleged and the non-availment thereof must be properly explained, more so since a derivative suit must particularly allege that the stockholder exerted all reasonable efforts to exhaust all remedies available. This, they failed to do.
Stockholders who resort to the equitable remedy of a derivative suit must categorically declare under oath that the remedy is being sought for just and legitimate purposes and not as a form of nuisance or harassment.
15
Q
Ago Realty v. Ago (2019)
A
In cases of derivative suits, the rule is different from the general rule that the board may authorize a representative of the corporation to perform all necessary physical acts, such as the signing of documents through a board resolution, since the board is guilty of breaching the trust reposed in it by the stockholders, it is but logical to dispense with the requirement of obtaining from it authority to institute the case and to sign the certification against forum shopping.
16
Q
Pascual v. Orozco (1911)
A
A stockholder in a corporation who was not such at the time when alleged objectionable transactions took place, or whose shares of stock have not since devolved upon him by operation of law, can not maintain suits of this character, unless such transactions continue and are injurious to such stockholder or affect him especially or specifically in some other way.
17
Q
Sources of Financing
A
(a) the contributions of its stockholders (i.e. equity of stockholders or equity investment),
(b) loans or advances by creditors, and
(c) the profits which the corporation may earn.
18
Q
Capital structure
A
Aggregate of the securities issued– may be shares of stock or debt securities
19
Q
Capital structure
A
Aggregate of the securities issued– may be shares of stock or debt securities
20
Q
Authorized capital stock
A
Amount fixed (usually by charter) to be subscribed and paid in or secured to be paid in by the shareholders of a corp. either in money, property, labor or services, at the organization of the corporation or afterwards, and upon which it is to conduct its operations
21
Q
Outstanding/Subscribed capital stock
A
Amount subscribed which may be less than the authorized capital stock
22
Q
Stated capital
A
Aggregate par/issued value of the subscribed capital stock which sets the minimum limit of corporate assets that should be retained by the corporation as protection to creditors.
This may not be withdrawn or distributed to shareholders.
23
Q
Matters that nonvoting shareholders may still. vote on (Sec. 6)
A
- Amendment of AoI
- Adoption and amendment of bylaws
- Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all corporate property
- Incurring, creating/increasing bonded indebtedness
- Increase/decrease ACS
- Merger/consolidation
- Investment of corporate funds in another corp. or business
- Dissolution
23
Q
Common stock
A
Entitles the owner to an equal pro rata division of profits (if there are any).
24
Preferred stock
Entitled to some preference either in dividends or in the distribution of assets upon liquidation
- Must be issued with a stated par value
- Preferences must be in the AoI and in stock certificate.
25
Participating preferred stock
After getting their fixed dividend preference, they share with the common stock the rest of the dividends.
- Must be expressly provided
26
Cumulative preferred stock
If in any given year/s there are no dividends to be declared, the arrears for such year/s have to be made up in subsequent years before any dividend can be paid to common stock
- Is general rule
27
Par shares
- Fixed in AOI as the min. issued price
- Must be stated in the stock cert which cannot be issued unless paid in full by subscriber
- Cannot be issued at less than par. Result would be a "watered stock". Consequence is the stockholder will still pay the difference
- May be issued or sold at higher than par
- May be as low as one centavo
- May only be changed by amending AOI
- Must pay its full consideration
28
No-par shares
- Not stated in stock cert but is fixed in the AOI or in a resolution by the board (as long as authorized) or by by-laws or by shareholders
- Not considered issued.
- No stock cert is issued until fully paid
- Must not have an issued price less than P5
- Advantage is it can be changed time to time
- Must pay its full consideration
29
Waiver of the preemptive right
- Prior waivers/denials should appear in the AOI (unless it was through unanimous agreement by the existing stockholders through a private agreement)
- If through amendment of AoI, needs 2/3 vote of the outstanding capital stock
- Must be given reasonable time to exercise their preemptive right
30
Remedy for violation of preemptive right
- Injunction against an issue
- Mandamus
- SEC may order cancellation of the shars
31
Voting reqs
- Increase/decrease capital stock (majority of Board and 2/3 of outstanding capital stock at a stockholders' meeting duly called for that purpose with written notice of the details sent at their place of residence and served personally or through electronic means
- Issuance of stock dividend (2/3 approval of outstanding capital stock at a regular/special meeting duly called for the purpose) (Sec. 42)
- Amendment of AoI (Majority of board and vote or assent of 2/3 outstanding capital stock)
- Extend/shorten corporate term (Majority of board, ratified at a meeting by at least 2/3 outstanding capital stock)
- Voluntary dissolution (Majority of board and resolution with affirmative vote of majority of OCS/members of a meeting held upon call of directors).
- Voluntary dissolution with creditors (diff: 2/3 of OCS/members)
- Sale or other disposition of assets (At least 2/3 of OCS/members in a meeting duly called for the purpose)
32
Underwriting
Act or process of guaranteeing the distribution and sale of securities of any kind issued by another corporation
33
Kinds of underwriting
- Strict; where you agree for a fee to sell the securities to the public and take up whatever portion of the issue not sold within a specified period. Often protected by with agreements with sub-underwriters
- Firm commitment; Assures the issuer of a specified amount of money at a certain time and the risk is shifted to investment houses. The issuer sells the entire issue outright to a group of securities firms who sell it at a price differential to a larger selling group of dealers --> to the public
- Best efforts; Distribute securities through firms which merely undertake to use their best efforts to sell
34
Hay v. Hay (1951)
the object to be achieved in the issuance of preferred stock is ordinarily twofold. First, the investor is to be assured of a continued or periodical return, or dividend or dividends from the profits of the corporation without the uncertainty attendant upon the ownership of common stock; and second, the investor is to be assured, as an additional inducement to invest, that in the event of dissolution and distribution of the assets of the corporation between the two classes of stockholders, if the anticipated profits have proved insufficient to produce such a dividend or return upon its capital stock, then he shall receive it upon such distribution of the capital assets in preference to any distribution to the holders of the common stock.
35
Garcia v. Lim Chu Sing (1934)
The shares of a banking corporation do not constitute an indebtedness of the corporation to the stockholder and, therefore, the stockholder is not a creditor of the bank for such shares. The indebtedness of a shareholder to a banking corporation cannot be compensated with the amount of his shares, there being no relation of creditor and debtor with respect to such shares
36
Utah Hotel v. Madsen (2009)
As a general rule…whoever subscribes to an unconditional agreement to take a given number of shares becomes thereby a shareholder in the corporation in respect to that number, subject to any valid conditions named in the subscription paper and to those imposed by the general law. The act of subscribing for a stated number of shares fixes the liability of the subscriber to creditors of the corporation as a shareholder, although he has not paid into the treasury of the corporation any part of his subscription, or done any act whatever in his character as a shareholder.”
37
Wallace v. Eclipse Company (1919)
As a general rule, promoters of a corporation not yet organized, especially when their contracts are made for and on behalf of the corporation, are regarded as the agents of the corporation, and such contracts become binding upon them as well as upon the corporation after organization and acceptance thereof by it.
38
Datu Benito v. SEC
The general rule is that pre-emptive right is recognized only with respect to new issue of shares, and not with respect to additional issues of originally authorized shares. This is on the
theory that when a corporation at its inception offers its first shares, it is presumed to have offered all of those which it is authorized to issue. An original subscn'ber is deemed to have taken his shares knowing that they form a definite proportionate part of the whole number of authorized shares. When the shares left unsubscribed are later reoffered, he cannot therefore claim a dilution of interest.
39
Stokes v. Continental (1906)
While the corporation could not compel stokes to take new shares at any price, since they were issued for money and not for property, it could not lawfully dispose of those shares without giving him a chance to get his proportion at the same price that outsiders got theirs.
He had an inchoate right to one share of the new stock for each share owned by him of the old stock, provided he was ready to pay the price fixed by the stockholders.
If so situated that he could not take it himself, he was entitled to sell the right to one who could.
40
Thom v. Baltimore Trust (1930)
in transactions involving the acquisition of property by corporations in exchange for shares of their stock, the determining consideration to the owners of the property may be the advantage of sharing as stockholders in the profits of the corporation with which they are contracting. Thus, the preemptive right may not be exercised where the stocks are issued not for cash but for property owned by another corporation in a merger agreement.
41
Fuller v. Krogh (1962)
GR: The pre-emptive right should not be denied. EXN: On the grounds of practical necessity, the pre-emptive right can be denied or limited, such as when the corporation has great need for a particular property and the issuance of the stock is the only practical and feasible method by which the corporation can acquire it for the best interest of all the stockholders.
In the cases of stock issued in payment of a pre-existing debt, we do not see any reason why pre-emptive rights should be denied. A debt calls for payment in money which the recognition and exercise of the preemptive rights would furnish.
42
Dunlay v. V Avenue (1963)
The general rule is: directors may not authorize the issue of unissued stock to themselves for the primary purpose of converting them from minority to majority stockholders. Such conduct, as indicated, is inequitable in the highest degree because it involves a breach of the duty of the directors as fiduciaries representing all the stockholders, irrespective of any doctrine of pre-emptive right.
The exception is: if the issue of the unissued original shares, whenever authorized, is reasonably necessary to raise money to be used in the business of the corporation, the original shareholders have no right to count on obtaining and keeping their proportionate part of the original stock
43
Ross Transport v. Crothers (1946)
GR: Existing stockholders are the owners of the business, and are entitled to have that ownership continued in the same proportion. Therefore, when additional stock is issued, those already having shares, are held to have the first right to buy the new stock in proportion to their holdings.
EXN: Pre-emptive rights do not exist where the stock about to be issued is part of the original issue. This exception is based upon the fact that the original subscribers took their stock on the implied understanding that the incorporators could complete the sale of the remaining stock to obtain the capital thought necessary to start the business.
EXN to EXN: Where conditions have changed since the original issue, pre-emptive rights are made available.
44
Merritt-Chapman v. New York Trust (1950)
Stock dividends do not change the proportional interest of each shareholder in the corporation, but only “water down” the evidence thereof.
45
Kelley v. Commissioner (1946)
The Talbot Mills contract for the issue of notes contained: [1] fluctuating payments at 2% minimum annually and [2] the limitation that notes may only be issued to stockholders in exchange only for stock. These distinguish Talbot Mills notes from Kelley debentures; THUS, Talbot Mills’s notes are dividends to stockholders.
46
Jordan v. Allen (1949)
One of the most important considerations is whether the right to share in the assets of the corporation in case of dissolution is subject to the rights of creditors. If subject to such right, there is a strong presumption that the interest in question is that of a stockholder.
The existence of a fixed maturity date for the principal sum, together with a right to enforce payment of said sum as a debt in case of default, is the most significant, if not the essential feature of a debtor and creditor as opposed to a stockholder relationship.
47
Aladdin Hotel v. Bloom (1953)
The plaintiff cannot sue on behalf of herself and other minority bondholders for alleged unlawful modifications to the bond issue without the consent of all bondholders. First, the rights of the bondholders are to be determined by their contract and courts will not make or remake a contract merely because one of the parties thereto may become dissatisfied with its provisions, but if legal will interpret and enforce it.
48
Watered stock
Issued as fully paid up in consideration of property at an overvaluation
49
Options for enforcement of subscription contracts
- Delinquency sale; where winner is the highest bidder for the least amount of shares; cannot be used to satisfy other forms of indebtedness of the stockholder to the corp.
- Court action (specific performance)
49
Options for enforcement of subscription contracts
- Delinquency sale; where winner is the highest bidder for the least amount of shares; cannot be used to satisfy other forms of indebtedness of the stockholder to the corp.
- Court action (specific performance)
50
Triplex Shoe v. Rice (1930)
Services to be rendered in the future are not a lawful consideration for the issuance of stock.
51
Mccarty v. Langdeau (1960)
The Constitution of Texas states that it only prohibits issuance of stock, BUT “if it is understood that the stock will not be “issued” to the subscriber until the note is paid, the contract is valid and not illegal.
52
Rhode v. Dock-Hop (1920)
The innocent purchaser of watered stocks is thus treated like the holder in good faith of a negotiable instrument, based on the policy of encouraging the free transferability of shares as a means of enhancing the growth of commerce and industry. The remedy of the defrauded creditor would be against the original owner of the watered stocks.
53
Bing Crosby Minute Made v. Eaton (1956)
Holders of watered stock are held liable to the corporation's creditors for the difference between the par value of the stock and the amount paid in. The liability of watered stock is based on two theories -
The misrepresentation theory: The courts view the issue of watered stock as a misrepresentation of the corporation's capital. Creditors who rely on this misrepresentation are entitled to recover the "water" from the holders of the watered shares.
The statutory obligation theory: Statutes expressly prohibiting watered stock are commonplace today thus the holder of watered stock is held responsible to creditors whether or not they have relied on an overvaluation of corporate capital.
54
Velasco v. Poizat (1918)
When insolvency supervenes upon a corporation and the court assumes jurisdiction to wind it up, unpaid stock subscriptions become payable on demand, and are at once recoverable in an action instituted by the assignee in insolvency.
A corporation has no legal capacity to release a subscriber to its capital stock from the obligation to pay for his shares; and any agreement to this effect is invalid.
55
Ong v. Tiu (2003)
From the viewpoint of the law, the Pre-Subscription Agreement was a Subscription Contract between the Subscriber and Corporation, not between the Subscriber Ongs and the shareholders Tiu. Restated, the Tius did not contract in their personal capacities with the Ongs since they were not selling any of their own shares to them. It was the Corporation that did.
56
Lingayen Electric Power v. Baltazar (1953)
The general rule is that a valid and binding subscription for stock of a corporation cannot be cancelled so as to release the subscriber from liability without the consent of all the stockholders or subscribers. Furthermore, a subscription cannot be cancelled by the company, even under a secret or collateral agreement for cancellation made with the subscriber at the time of the subscription, as against persons who subsequently subscribed or purchased without notice of such agreement. The exception is where it is given pursuant to a bona fide compromise, or to set off a debt due from the corporation, a release, supported by consideration, will be effectual as against dissenting stockholders and subsequent and existing creditors.
57
Miranda v. Tarlac Rice Mill (1932)
When a subscription is payable on a specified day, or on or before a specified day, or when it is payable in instalments at specified times, it is the duty of the subscriber to pay the subscription or instalment thereof as soon as it is due, without any call or demand, and, if he fails to do so, an action may be brought at any time.
58
De Silva v. Aboitiz
The defendant corporation being an artificial entity created by virtue of the Corporation Law, Act No. 1459, and the plaintiff having failed to pay a part of his subscription, the board of directors not only made use of its discretionary power granted by Sec. 2 of said Act in declaring his subscription due and his shares delinquent, and ordering the sale thereof, as their value was not paid by him, but far from violating the provision of Sec. 46 of the by-laws of the corporation in not applying a part of the profits obtained by the corporation upon the payment of said subscription, it complied with said provision, which expressly prohibits the payment of dividends to a shareholder whose subscription was not fully paid up
59
National Exchange v. Dexter (1928)
No corporation shall issue stock or 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 bonds so issued.
If it is unlawful to issue stock otherwise than as stated, it is self-evident that a stipulation such as that now under consideration, in a stock subscription, is illegal; for this stipulation obligates the subscriber to pay nothing for the shares except as dividends may accrue upon the stock.
60
Lumanlan v. Cura (1934)
Subscriptions to the capital of a corporation constitute a fund to which creditors have a right to look for satisfaction of their claims. The subscriber is as much bound to pay the amount of the share subscribed by him as he would be to pay any other debt, and the right of the company to demand payment is no less incontestable.
61
Can a corporation have a lien upon the shares of stockholders for any indebtedness to the corporation?
NO. Section 120 of the Corporation Act provides that "no bank organized under this Act shall make any loan or discount on the security of the shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchase shall be necessary to prevent loss upon a debt previously contracted in good faith, and stock so purchased or acquired shall, within six months from the time of its purchase, be sold or disposed of at public or private sale, or, in default thereof, a receiver may be appointed to close up the business of the bank in accordance with law
62
Baltazar v. Lingayen Gulf Electric (1965)
A corporation may choose, in the absence of provisions in their by-laws to the contrary, to apply payment made by subscribers-stockholders, either as:
(a) full payment for the corresponding number of shares of stock, the par value of each of which is covered by such payment; or
(b) as payment pro-rata to each and all the entire number of shares subscribed for.
63
Nava v. Peers Marketing Corp. (1976)
Without the stock certificate, which is the evidence of ownership of corporate stock, the assignment is effective only between the parties to the transaction. The delivery of the stock certificate, which represents the shares to be alienated, is essential for the protection of both the corporation and its stockholders. Under the facts of this case, the corporation was no clear legal duty to register the 20 shares in Nava’s name.
As to Nava’s contention that a certificate of stock may be issued for the shares which have already been paid although the entire subscription has not yet been fully paid, the said argument is not supported by law or jurisprudence.
64
Rights of a stockholder
(a) his rights to vote, (b) his right to a proportional share of the corporate assets upon liquidation, and (c) his right to share in the corporate profits, often referred to as his dividend right.
65
Dividend
Portion of corporate profits which is set aside for distribution to the stockholders in proportion to their subscription
66
Unrestricted retained earnings (Lich)
The clear pecuniary gain remaining after deducting from the gross earnings of the business the expenses incurred in its conduct, the losses sustained in its prosecution, and the capital invested.
67
Voting reqs for close corps
- Amending AoI (Affirmative vote of at least 2/3 of OCS)
68
Marcus v. RH Macy (1947)
If the amendment abolishes any voting right of the holders of shares of any class or limits their voting rights, any holder of any such shares not in favor of such action may at any time prior to the vote authorized such action, object to such action and demand payment for his stock, and thereupon have the right, to have such stock appraised and paid for.
Sir’s note: Remember that the only reason appraisal right was granted in this case was because the change was to already issued stock. It would not be the same if it changed the rights of unissued stock.
69
Philippine Trust Co. v. Rivera
A corporation has no power to release an original subscriber to its capital stock from the obligation of paying for his shares, without a valuable consideration. for such release; and as against creditors a reduction of the capital stock can take place only in the manner and under the conditions prescribed by law.
70
Uson v. Diosomoto
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.
71
Rivera v. Florendo (1986)
Private respondents are not yet stockholders; they are only seeking to be registered as stockholders because of an alleged sale of shares of stock to them. Therefore, as the petition is filed by outsiders not yet members of the corporation, jurisdiction properly belongs to the regular courts.
72
Nautica Canning v. Yumul (2005)
Mere nominal ownership of share/s may be given to an incorporator, but the same is only valid and binding between or among the incorporators privy to the agreement. It does bind the corporation which, at the time the agreement was made, was non-existent.
73
Rural Bank v. CA (1992)
The only limitation imposed by Sec. 63 of the Corporation Code is when the corporation holds any unpaid claim against the shares intended to be transferred. The right of a transferee/assignee to have stocks transferred to his name is an inherent right flowing from his ownership of the stocks.
74
BLTB v. Bitanga (2001)
Until the transfer is registered, the transferee is not a stockholder but an outsider.
Until challenged in a proper proceeding, a stockholder of record has a right to participate in any meeting; his vote can be properly counted to determine whether a stockholders’ resolution was approved, despite the claim of the alleged transferee.
On the other hand, a person who has purchased stock, and who desires to be recognized as a stockholder for the purpose of voting, must secure such a standing by having the transfer recorded on the corporate books.
75
Santamaria v. HSBC (1951)
Her negligence was the proximate cause of the damage she suffered. In making the deposit, plaintiff failed to take any precaution to protect herself against the possible misuse of the shares represented by the stock certificate. She could have asked the corporation that had issued the certificate to cancel it and issue another in lieu thereof in her name to apprise the holder that she was the owner of the said certificate. Instead, plaintiff delivered the said certificate to RJ Campos & Co., thereby clothing the latter with apparent title to the shares represented by the said certificate including apparent authority to negotiate it
76
Chua Gan v. Samahang Magsasaka (1935)
Section 35 of the Corporation Law (Act No. 1459) enacts that shares of stock "may be transferred by delivery of the certificate endorsed by the owner or his attorney in fact or other person legally authorized to make the transfer." The use of the verb "may" does not exclude the possibility that a transfer may be made in a different manner, thus leaving the creditor in an insecure position even though he has the certificate in his possession. The shares still standing in the name of the debtor on the books of the corporation will be liable to seizure by attachment or levy on execution at the instance of other creditors
77
Torres v. CA (1997)
The clear mandate of Sec. 74 of the Corporation Code that stock and transfer book shall be kept in the principal office of the corporation but would likewise open the flood gates of confusion in the corporation as to who has the proper custody of the stock and transfer book and who are the real stockholders of records of a certain corporation as any holder of the stock and transfer book, though not the corporate secretary, at pleasure would make entries therein.
78
Insigne v. Abra Valley Colleges (2015)
A stock and transfer book is necessary as a measure of precaution, expediency and convenience since it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the ownership of stock and like matters.
However, a stock and transfer book, like other corporate books and records, is not in any sense a public record, and thus is not exclusive evidence of the matters and things which ordinarily are or should be written therein.
79
Tee Ling Kiat v. Ayala (2018)
Section 63 of the Corporation Code requires that transfers must be recorded in the books of the corporation otherwise they will not be valid except as between the parties. Here, the records show that the purported transaction between Tee Ling Kiat and Dewey Dee has never been recorded in VIP's corporate books. Thus, the transfer is not valid or binding as to the corporation or as to third persons.
80
Ways to dissolve
- Term expiration (11)
- Voluntary surrender extrajudicially of their charter or by SEC petition
- Failure to organize and commence business within 2 years from incorporation
- Revocation of registration or certificate of incorporation
81
Effect of dissolution
- Loss of juridical personality
- No release from executory contracts
- Liquidation
- Distribution of liquidating dividends
82
Methods of liquidation
- by the corporation itself
- by conveyance of all corporate assets to a trustee
- by the receiver
83
Voting reqs for non-stock corps
- Distribution of assets (Majority of trustees, 2/3 of members having voting rights)
- Sale of all/substantially all (Vote of majority of trustees)
84
Pepsi-Cola v. CA (2004)
If the 3-year extended life has expired without a trustee or receiver having been expressly designated by the corporation, within that period, the board of directors itself may be permitted to so continue as “trustees” by legal implication to complete the corporate liquidation.
85
George o'Farrell v. China Banking (1933)
Claims against a corporation in the hands of a receiver should not be approved and paid without some formal and regular proceeding whereby their justice and correctness may be inquired into after a reasonable opportunity has been given to all the parties in interest to present objections and submit evidence in support of such objections.
85
Republic v. Marsman (1972)
While section 77 of the Corporation Law provides for a three year period for the continuation of the corporate existence of the corporation for purposes of liquidation, there is nothing in said provision which bars an action for the recovery of the debts of the corporation against the liquidator thereof, after the lapse of the said three-year period.
86
Tan Tiong Bio v. CIR (1962)
The creditor of a dissolved corporation may follow its assets once they passed into the hands of the stockholder. An indebtedness of a corporation to the government for income and excess profit taxes is not extinguished by the dissolution of the corporation
87
Reyes v. Bancom (2018)
Since its directors are considered trustees by legal implication, the fact that Bancom did not convey its assets to a receiver or assignee was of no consequence.
88
Rich v. Paloma III (2018)
The agreement is void as MTLC could not have been a corporate party to the same. A real estate mortgage is not part of the liquidation powers that could have been extended to MTLC.
89
Assumption of liabilities in a sale of substantially/all of the assets
GEN: Purchasing company not liable for debts if they acted in good faith and paid adequate consideration
EXC:
- Agreed to assume debts (Expressly/impliedly)
- Amounts to a merger/consolidation
- Purchaser is merely a continuation of the selling corp
- Transaction was entered into fraudulently to escape liability
90
Reyes v. Blouse (1952)
a corporation may sell, exchange, lease or otherwise dispose of all its property and assets, including its good will, upon such terms and conditions as its BOD may deem expedient when authorized by the affirmative vote of the shareholders holding at least 2/3 of the voting power.
91
Y-I Leisure v. Yu (2015)
The business-enterprise transfer rule applies when two requisites concur:
- the transferor corporation sells all or substantially all of its assets to another entity; and
- the transferee corporation continues the business of the transferor corporation.
In a business-enterprise transfer, the transferee is liable for the debts and liabilities of his transferor arising from the business enterprise conveyed, notwithstanding the absence of any agreement on the assumption of obligations.
92
PH Geothermal v. Unocal (2016)
The merger of a corporation with another does not operate to dismiss the employees of the corporation absorbed by the surviving corporation. This is in keeping with the nature and effects of a merger as provided under law and the constitutional policy protecting the rights of labor.
93
Philippine National
- Filipino citizen/corp organized under PH law; and
- at least 60% of its OCS and those entitled to vote is owned by Filipinos. At least 60% of its board are FIL citizens.
94
Effect of FC's not doing business in the PH
May sue before PH courts on:
- isolated transactions
- trademark and unfair competition
- causes of action entirely independent of any business transaction
May be sued only if they submit to jurisdiction
95
Doing business
Continuity of transactions which are in pursuance of the normal business of the corporation
96
General Garments (1971)
Citing jurisprudence, the Court explained that a foreign corporation which has never done business in the Philippine Islands and which is unlicensed and unregistered to do business here, but is widely and favorably known in the Islands through the use therein of its products bearing its corporate and trade name has a legal right to maintain an action in the Islands.
97
Lacoste (1984)
This is because a foreign corporation not doing business in the Philippines needs no license to sue before Philippine courts for infringement of trademark and unfair competition. Moreover, it was part of the Philippines’ rights and obligations under the Paris Convention for Protection of Industrial Property to afford Lacoste the right to bring an action for unfair competition. It’s part of the Philippines’ compliance in good faith with the treaty which is part of the laws of the land.
98
Litton Mills (1996)
Thus, the allegation in the complaint that Empire, for and in behalf of Gelhaar, ordered 7,770 dozens of soccer jerseys from Litton and for this purpose Gelhaar caused the opening of an irrevocable letter of credit in favor of Litton is a sufficient allegation that Gelhaar was doing business in the Philippines.
99
Merrill Lynch (1992)
A party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract with it.
100
Top Weld (1985)
The parties in this case being equally guilty of violating R.A. No. 5455, they are in pari delicto, in which case it follows as a consequence that petitioner is not entitled to the relief prayed for in this case
101
European Resources (2004)
The SC ruled that petitioners are not estopped from assailing the capacity of the respondents, a foreign corporation doing business in the Philippines without a license, as petitioners have clearly not received any benefit from its transactions with the German Consortium for it to be held in estoppel.
102
Antam v. CA (1986)
Despite the fact that 3 contracts were entered into, it did not mean that there was a continuity of commercial dealings and arrangements. The only reason why the respondent entered into the second and third transactions with the petitioners was because it wanted to recover the loss it sustained from petitioner’s failure to deliver coconut oil under the first transaction
103
Cargill (2010)
Activities within Philippine jurisdiction that do not create earnings or profits to the foreign corporation do not constitute doing business in the Philippines.
A foreign company that merely imports goods from a Philippine exporter, without opening an office or appointing an agent in the Philippines, is not doing business in the Philippines.
104
Barlin v. Ramirez (1906)
In an action brought by the Roman Catholic Church to recover a church building, against a priest whom it has put in possession thereof to administer the same, the latter is estopped from alleging ownership at the time he took possession either in himself or in a third person.
105
Torres v. De Leon (2016)
The PNRC is sui generis in character. It is neither a GOCC nor a private corporation. The PNRC can neither "be classified as an instrumentality of the State, so as not to lose its character of neutrality" as well as its independence, nor strictly as a private corporation since it is regulated by international humanitarian law and is treated as an auxiliary of the State.
106
United Coconut Planters Bank v. SOJ (2021)
ny violation of Section 31 was not considered as a violation of any provision of such Code not otherwise specifically penalized therein pursuant to Section 144. In other words, Section 144 did not apply to or include in its coverage Section 31.
