corpo outline 4 case digests compilation

8/18/2019 CORPO Outline 4 CASE Digests Compilation

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OUTLINE 4 - BUSINESS ORGANIZATION 2 Prof. M.I.P. Romero (2015 – 2016

1. Phil. Trust Co. v. Rivera 44 Phil. 469

FACTS:

In 1918 Cooperativa Naval Filipina was duly

incorporated under the laws of the Philippine Islands,with a capital of P100,000, dividend into one thousandshares of a par value of P100 each. Aon! theincorporators of this copany was the defendant"arciano #ivera, who su$scri$ed for %&0 sharesrepresentin! a value of P%&,000, the reainder of thestoc' $ein! ta'en $y other persons. (he article of incorporation were duly re!istered in the )ureau of Coerce and Industry on *cto$er +0 of the saeyear.

In the course of tie the copany $ecae insolventand went into the hands of the Philippine (rustCopany, as assi!nee in $an'ruptcy and this actionwas instituted to recover one-half of the stoc'su$scription of the defendant, which adittedly hasnever $een paid.

(he reason !iven for the failure of the defendant topay the entire su$scription is, that not lon! after theCooperativa Naval Filipina had $een incorporated, aeetin! of its stoc'holders occurred, at which aresolution was adopted to the eect that the capitalshould $e reduced $y &0 per centu and thesu$scri$ers released fro the o$li!ation to pay anyunpaid $alance of their su$scription in e/cess of &0 percentu of the sae. As a result of this resolution itsees to have $een supposed that the su$scription of various shareholder had $een cancelled to the e/tentstated and fully paid certicates were issued to eachshareholder for one-half of his su$scription. It does not

appear that the foralities prescri$ed in section 1 of the Corporation 2aw 3Act No. 1%&94, as aended,relative to the reduction of capital stoc' in corporationswere o$served, and in particular it does not appearthat any certicate was at any tie led in the )ureau

of Coerce and Industry, showin! such reduction. (he CFI of "anila ruled in favor of petitioner, thereforeheld that the resolution relied upon $y the defendantwas without eect and the defendant was still lia$le forthe unpaid $alance of his su$scription.

ISSUE:5*N the reduction of the corporate capital $yreleasin! the su$scri$ers fro payent of their

su$scription is valid and proper6 3N*4

HELD:

It is esta$lished doctrine that su$scriptions to thecapital of a corporation constitute a fund to whichcreditors have a ri!ht to loo' for satisfaction of theirclais and that the assi!nee in insolvency canaintain an action upon any unpaid stoc' su$scriptionin order to reali7ed assets for the payent of its de$ts.

A corporation has no power to release an ori!inalsu$scri$er to its capital stoc' fro the o$li!ation of payin! for his shares, without a valua$le considerationfor such release and as a!ainst creditors a reductionof the capital stoc' can ta'e place only in the annerand under the conditions prescri$ed $y the statute orthe charter or the articles of incorporation. "oreover,strict copliance with the statutory re!ulations isnecessary.


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In the case $efore us the resolution releasin! theshareholder fro their o$li!ation to pay &0 per centuof their respective su$scriptions was an atteptedwithdrawal of so uch capital fro the fund upon

which the copanys creditors were entitled ultiatelyto rely and, havin! $een eected without copliancewith the statutory reuireents, was whollyineectual.


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. !"# $o"# v. Tiu %.R. 1444&6' 4()(**+

FACTS:

In 199%, the construction of the "asa!anaCitiall in

Pasay City was threatened with stoppa!e andincopletion when its owner, the First 2andlin' Asia:evelopent Corporation 3F2A:C4, which was owned$y :avid ;. (iu, Cely


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;EC en $anc conred the rescission of the Pre-;u$scription A!reeent $ut reverted to classifyin! theP0 illion paid $y the *n!s as preiu on capitaland not as a loan or advance to F2A:C, hence, notentitled to earn interest.

*n appeal, the Court of Appeals 3CA4 rendered adecision on & *cto$er 1999, odifyin! the ;EC orderof 11 ;epte$er 1998. (heir otions forreconsideration havin! $een denied, $oth parties ledseparate petitions for review $efore the ;upreeCourt.

*n 1 Fe$ruary B00B, the ;upree Court proul!atedits :ecision, a?rin! the assailed decision of the

Court of Appeals $ut with the odications that thePB0 illion loan e/tended $y the *n!s to the (ius shallearn interest at 1BG per annu to $e coputed frothe tie of Hudicial deand which is fro B+ April199D that the P0 illion advanced $y the *n!s tothe F2A:C shall earn interest at 10G per annu to $ecoputed fro the date of the F2A:C )oard #esolutionwhich is 19 >une 199D and that the (ius shall $ecredited with %9,800 shares in F2A:C for their propertycontri$ution, specically, the 1&1 s. . parcel of land.

(he Court a?red the fact that $oth the *n!s and the (ius violated their respective o$li!ations under the Pre-;u$scription A!reeent. *n 1& "arch B00B, the (iusled $efore the Court a "otion for Issuance of a 5rit of E/ecution. Aside fro their opposition to the (ius"otion for Issuance of 5rit of E/ecution, the *n!s ledtheir own "otion for #econsideration Alternatively,"otion for "odication 3of the Fe$ruary 1, B00B:ecision4 on 1& "arch B00B. 5illie *n! led aseparate "otion for Partial #econsideration dated 8

"arch B00B, pointin! out that there was no violation of the Pre-;u$scription A!reeent on the part of the*n!s, aon! others. *n B9 >anuary B00+, the ;pecial;econd :ivision of this Court held oral ar!uents onthe respective positions of the parties. *n B Fe$ruary

B00+, :r. 5illie *n! and the rest of the ovants *n!led their respective eoranda. *n B8 Fe$ruaryB00+, the (ius su$itted their eorandu

ISSUE5*N recission is the proper reedy6

HELD

No. rst of all, a su$scription contract as dened under;ection D0, (itle II of the Corporation Code

Any contract for the acuisition of unissued stock inan existing corporation or a corporation still to $efored shall $e deeed a su$scription within theeanin! of this (itle, notwithstandin! the fact thatthe parties refer to it as a purchase or some other contract.

A su$scription contract necessarily involves thecorporation as one of the contractin! parties since thesu$Hect atter of the transaction is property owned $y


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the corporation its shares of stoc'. (hus, thesu$scription contract 3denoinated $y the parties as aPre-;u$scription A!reeent4 where$y the *n!sinvested P100 illion for 1,000,000 shares of stoc'was, fro the viewpoint of the law, one $etween the

*n!s and F2A:C, not $etween the *n!s and the (ius. *therwise stated, the (ius did not contract intheir personal capacities with the *n!s since they werenot sellin! any of their own shares to the. It wasF2A:C that did.

Considerin! therefore that the real contractin! partiesto the su$scription a!reeent were F2A:C and the

*n!s alone, a civil case for rescission on the !round of $reach of contract led $y the (ius in their personalcapacities will not prosper. Assuin! it had validreasons to do so, only F2A:C 3and certainly not the

(ius4 had the le!al personality to le suit rescindin!the su$scription a!reeent with the *n!s inasuch asit was the real party in interest therein. Article 1+11 of the Civil Code provides that contracts ta'e eect only$etween the parties, their assi!ns and heirs (herefore,a party who has not ta'en part in the transaction

cannot sue or $e sued for perforance or forcancellation thereof, unless he shows that he has areal interest aected there$y.

All this notwithstandin!, !rantin! $ut notconcedin! that the (ius possess the le!al standin! tosue for rescission $ased on $reach of contract, saidaction will nevertheless still not prosper sincerescission will violate the Trust Fu", Do-tri"e and

the procedures for the valid distri$ution of assets andproperty under the Corporation Code.

(he (rust Fund :octrine, rst enunciated $y this Courtin the 19B+ case of Philippine Trust Co. vs.Rivera, provides that su$scriptions to the capital stoc'of a corporation constitute a fund to which thecreditors have a ri!ht to loo' for the satisfaction of their clais. (his doctrine is the underlyin! principle inthe procedure for the distri$ution of capital assets,e$odied in the Corporation Code, which allows thedistri$ution of corporate capital only in threeinstances 314 aendent of the Articles of

Incorporation to reduce the authori7ed capitalstoc', 3B4 purchase of redeea$le shares $y thecorporation, re!ardless of the e/istence of unrestrictedretained earnin!s, and 3+4 dissolution and eventualliuidation of the corporation. Furtherore, thedoctrine is articulated in ;ection %1 on the power of acorporation to acuire its own sharesand in ;ection1BB on the prohi$ition a!ainst the distri$ution of corporate assets and property unless the strin!entreuireents therefor are coplied with.

(he distri$ution of corporate assets and propertycannot $e ade to depend on the whis and capricesof the stoc'holders, o?cers or directors of thecorporation, or even, for that atter, on the earnestdesire of the court a quo to prevent further sua$$lesand future liti!ations unless the indispensa$leconditions and procedures for the protection of corporate creditors are followed. *therwise, the


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corporate peace lauda$ly hoped for $y the court willreain nothin! $ut a drea $ecause this tie, it will$e the creditors turn to en!a!e in sua$$les andliti!ations should the court order an unlawfuldistri$ution in $latant disre!ard of the (rust Fund

:octrine.

In the instant case, the rescission of the Pre-;u$scription A!reeent will eectively result in theunauthori7ed distri$ution of the capital assets andproperty of the corporation, there$y violatin! the (rustFund :octrine and the Corporation Code, sincerescission of a su$scription a!reeent is not one of the

instances when distri$ution of capital assets andproperty of the corporation is allowed.


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+. Halle v. Pri"t/ell0 I"-. %.R. 1&49' 2a+*0 *11

FACTS:

• )"PI 3)usiness "edia Philippines Inc.4 is acorporation under the control of itsstoc'holders,includin! :onnina alley.

• In the course of its $usiness, )"PI coissionedP#IN(5E22 to print Philippines, Inc. 3a a!a7inepu$lished and distri$uted $y )"PI4

• P#IN(5E22 e/tended +0-day creditaccoodation in favor of )"PI and in aperiodof 9 os. )"PI placed several orders aountin!

to +1D,000.• owever, only B&,000 was paid hence a $alance

of B91,000• P#IN(5E22 sued )"PI for collection of the

unpaid $alance and later on ipleaded )"PIJsori!inal stoc'holders and incorporators torecover on their unpaid su$scriptions.

• It appears that )"PI has an authori7ed capitalstoc' of +" divided into +00,000shares with P10par value.

• *nly &,000 shares worth P&0,000 wereori!inally su$scri$ed of whichP18,&00 were paidup capital.

• alley su$scri$ed to +&,000 shares worthP+&0,000 $ut only paid P8,&00.

alley contends that1. (hey all had already paid their su$scriptions in

fullB. )"PI had a separate and distinct personality

+. )*: and ; had resolved to dissolve )"PI#(Cand CA

• :efendant erely used the corporate ction as acloa'Kcover to create aninHustice 3a!ainst

P#IN(5E224• #eHected alle!ations of full payent in view of

irre!ularity in the issuance of *#s 3Payentade on a later date was covered $y an *# witha lower serialnu$er than payent ade on anearlier date.

ISSUE:5*N a stoc'holder who was in active ana!eent of the $usiness of thecorporation and still has unpaidsu$scriptions should $e ade lia$le for the de$tsof thecorporation $y piercin! the veil of corporate ction.

HELD:


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cannot now clai the doctrine of corporate ctionotherwise 3to denycreditors to collect fro ;4 it wouldcreate an inHustice $ecause creditors would $e at aloss3li$o4 a!ainst who it would assert the ri!ht tocollect.

*n piercin! the veilAlthou!h the corporation has a personality separateand distinct fro its ;, suchpersonality is erely ale!al ction 3for the convenience and to proote theends of Hustice4 which ay $e disre!arded $y thecourts if it is used as a cloa' or cover forfraud,Hustication of a wron!, or an alter e!o for thesole $enet of the ;.

As to the (rust Fund :octrine (he #(C and CA correctly applied the (rust Fund:octrine. @nder which corporate de$tors i!ht loo' tothe unpaid su$scriptions for thesatisfaction of unpaidcorporate de$ts. ;u$scriptions to the capital of acorporation constitutes a trust fund for thepayent of the creditors 3$y ere analo!y4 In reality, corporationis a siple de$tor. "oreover, the corporation has nole!al capacity to release an ori!inalsu$scri$er to itscapital stoc' fro the o$li!ation of payin! for his

shares, inwhole or in part, without valua$leconsideration, or fraudulently, to the preHudice of thecreditors. (he creditor is allowed to aintain an actionupon any unpaid su$scriptionsand there$y steps intothe shoes of the corporation for the satisfaction of itsde$t.


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4. Castillo v. 3ali"#hasa !-t. 1)0 **4

D!CTRIE:

*ne of the ri!hts of a stoc'holder is the ri!ht toparticipate in the control and ana!eent of thecorporation that is e/ercised throu!h his vote. (heri!ht to vote is a ri!ht inherent in and incidental to theownership of corporate stoc', and as such is aproperty ri!ht. (he stoc'holder cannot $e deprived of the ri!ht to vote his stoc' nor ay the ri!ht $eessentially ipaired, either $y the le!islature or $ythe corporation, without his consent, throu!haendin! the charter, or the $y-laws.

;ection D of the Corporation Code $ein! deeedwritten into Article II of the Articles of Incorporationof "CPI, it necessarily follows that unless Class )shares of "CPI stoc's are clearly cate!ori7ed to $epreferred or redeea$le shares, the holders of said Class ) shares ay not $e deprived of theirvotin! ri!hts. Note that there is nothin! in the Articlesof Incorporation nor an iota of evidence on record toshow that Class ) shares were cate!ori7ed as eitherpreferred or redeea$le shares. (he only possi$leconclusion is that Class ) shares fall under neithercate!ory and thus, under the law, are allowed toe/ercise votin! ri!hts.

FACTS:

Petitioners and the respondents are stoc'holders of "CPI, with the forer holdin! Class ) shares and thelatter ownin! Class A shares.

"CPI is a doestic corporation with o?ces at :r. A.;antos Avenue, ;ucat, ParaMaue City. It was or!ani7edsoetie in ;epte$er 19. At the tie of itsincorporation, Act No. 1%&9, the old Corporation 2awwas still in force and eect. Article II of "CPIs ori!inal

Articles of Incorporation, as approved $y the ;ecuritiesand E/chan!e Coission 3;EC4 on *cto$er BD, 19,reads as follows

;EEN(. (hat the authori7ed capitalstoc' of the corporation is (5*"I22I*N 3PB,000,000.004 PE;*;,Philippine Currency, divided into

(5* (*@;AN: 3B,0004 ;A#E; ata par value of P100 each share,

where$y the *NE (*@;AN:;A#E; issued to, and su$scri$ed$y, the incorporatin! stoc'holdersshall $e classied as Class A shareswhile the other *NE (*@;AN:unissued shares shall $e consideredas Class ) shares. Only holders of Class A shares can have the right tovote and the right to e elected asdirectors or as corporate o!cers.

*n >uly +1, 1981, Article II of the Articles of Incorporation of "CPI was aended, to read thus

"#$#%T&. (hat the authori7ed capitalstoc' of the corporation is FIE"I22I*N 3P&,000,000.004 PE;*;,divided as follows

C2A;; N*. *F ;A#E; PA# A2@E A 1,000 P1,000.00 ) %,000 P1,000.00

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Only holders of Class A shares have the right to voteand the right to e elected as directors or as corporateo!cers.

(he fore!oin! aendent was approved $y the ;ECon >une , 198+. 5hile the aendent !ranted theri!ht to vote and to $e elected as directors orcorporate o?cers only to holders of Class A shares,holders of Class ) stoc's were !ranted the saeri!hts and privile!es as holders of Class A stoc's withrespect to the payent of dividends.

*n ;epte$er 9, 199B, Article II was a!ain aendedto provide as follows

;EEN( (hat the authori7ed capitalstoc' of the corporation is (I#(<

(5* "I22I*N PE;*;3P+B,000,000.004 divided as follows

C2A;; N*. *F ;A#E; PA# A2@E A 1,000 P1,000.00 ) +1,000 1,000.00

Except when otherwise provided by law, only holders of Class 'A' shares have the right to vote and

the right to e elected as directors or as corporateo!cers.

(he ;EC approved the fore!oin! aendent on;epte$er BB, 199+.

*n Fe$ruary 9, B001, the shareholders of "CPI heldtheir annual stoc'holders eetin! and election fordirectors. :urin! the course of the proceedin!s,respondent #ustico >iene7, citin! Article II, as

aended, and notwithstandin! "CPIs history,

declared over the o$Hections of herein petitioners, thatno Class ) shareholder was ualied to run or $evoted upon as a director. In the past, "CPI had seenholders of Class ) shares voted for and serve ase$ers of the corporate $oard and soe Class )

share owners were in fact noinated for election as$oard e$ers. Nonetheless, >iene7 went on toannounce that the candidates holdin! Class A shareswere the winners of all seats in the corporate $oard.

(he petitioners protested, claiin! that Article II wasnull and void for deprivin! the, as Class )shareholders, of their ri!ht to vote and to $e votedupon, in violation of the Corporation Code 3)atasPa$ansa )l!. D84, as aended.

#(C *n "arch BB, B001, after their protest was !ivenshort shrift, herein petitioners led a Coplaint forInHunction, Accountin! and :aa!es. ;aid coplaintwas founded on two 3B4 principal causes of action,naely

a. Annulent of the declaration of directors of the "CPI ade durin!the Fe$ruary 9, B001 Annual;toc'holders "eetin!, and for the

conduct of an election whereat allstoc'holders, irrespective of theclassication of the shares theyhold, should $e aorded theirri!ht to vote and $e voted for and

$. ;toc'holders derivative suitchallen!in! the validity of acontract entered into $y the )oardof :irectors of "CPI for theoperation of the ultrasound unit.

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;u$seuently, the coplaint was aended to iplead"CPI as party-plainti for purposes only of the secondcause of action.

#(C rendered the Partial >ud!ent. In ndin! for the

respondents, the trial court ruled that corporations hadthe power to classify their shares of stoc's, such asvotin! and non-votin! shares, confora$ly with;ection D of the Corporation Code of the Philippines.It pointed out that Article II of $oth the ori!inal andaended Articles of Incorporation clearly provided thatonly Class A shareholders could vote and $e votedfor to the e/clusion of Class ) shareholders, thee/ception $ein! in instances provided $y law, such asthose enuerated in ;ection D, para!raph D of the

Corporation Code.(he #(C found erit in therespondents theory that the Articles of Incorporation,which denes the ri!hts and liitations of all itsshareholders, is a contract $etween "CPI and itsshareholders. It is thus the law $etween the partiesand should $e strictly enforced as to the. It $rushedaside the petitioners clai that the Class Ashareholders were in estoppel, as the election of Class) shareholders to the corporate $oard ay $edeeed as a ere act of $enevolence on the part of

the o?cers. Finally, the court $rushed aside thefounders shares theory of the petitioners for lac' of factual $asis.

ISSUE:5hether or not holders of Class ) shares of the "CPIay $e deprived of the ri!ht to vote and $e voted foras directors in "CPI. 5!4

AR%U2ETS:Petitioners assert that Article II of the Articles of Incorporation of "CPI, which denied the votin!ri!hts, is null and void for $ein! contrary to ;ection Dof the Corporation Code. (hey point out that ;ection D

prohi$its the deprivation of votin! ri!hts e/cept as topreferred and redeea$le shares only. ence, underthe present law on corporations, all shareholders,re!ardless of classication, other than holders of preferred or redeea$le shares, are entitled to voteand to $e elected as corporate directors or o?cers.;ince the Class ) shareholders are not classied asholders of either preferred or redeea$le shares, thenit necessarily follows that they are entitled to vote andto $e voted for as directors or o?cers.

(he respondents, in turn, aintain that the !rant of e/clusive votin! ri!hts to Class A shares is clearlyprovided in the Articles of Incorporation and is inaccord with ;ection & 9 of the Corporation 2aw 3Act No.1%&94, which was the prevailin! law when "CPI wasincorporated in 19. (hey li'ewise su$it that as theArticles of Incorporation of "CPI is in the nature of acontract $etween the corporation and its shareholdersand ;ection D of the Corporation Code could not

retroactively apply to it without violatin! the non-ipairent clause 10 of the Constitution.

HELD:

5e nd erit in the petition.

he" Arti-le 7II o8 the Arti-les o8 I"-ororatio"o8 2CPI /as ae",e, i" 1990 the hrase

;except when otherwise provided by law; /as

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i"serte, i" the rovisio" #over"i"# the #ra"t o8 voti"# o/ers to Class ;A; sharehol,ers. Thisarti-ular ae",e"t is releva"t 8or it seale; shares0 thehol,ers o8 sai, Class ;3; shares a "ot >e

,erive, o8 their voti"# ri#hts. ote that there

is "othi"# i" the Arti-les o8 I"-ororatio" "or a"iota o8 evi,e"-e o" re-or, to sho/ that Class ;3;shares /ere -ate#ori?e, as either ;re8erre,; or;re,eea>le; shares. The o"l ossi>le-o"-lusio" is that Class ;3; shares 8all u",er

"either -ate#or a", thus0 u",er the la/0 areallo/e, to e=er-ise voti"# ri#hts.

*ne of the ri!hts of a stoc'holder is the ri!ht toparticipate in the control and ana!eent of thecorporation that is e/ercised throu!h his vote. (heri!ht to vote is a ri!ht inherent in and incidental to theownership of corporate stoc', and as such is a propertyri!ht. (he stoc'holder cannot $e deprived of the ri!htto vote his stoc' nor ay the ri!ht $e essentially

ipaired, either $y the le!islature or $y thecorporation, without his consent, throu!h aendin!the charter, or the $y-laws.

5hen Article II of the Articles of Incorporation of "CPIwere aended in 199B, the $oard of directors andstoc'holders ust have $een aware of ;ection D of theCorporation Code and intended that Article II $econstrued in harony with the Code, which was thenalready in force and eect. ;ince ;ection D of the

Corporation Code e/pressly prohi$its the deprivation of votin! ri!hts, e/cept as to preferred andredeea$le shares, then Article II of the Articles of Incorporation cannot $e construed as !rantin!e/clusive votin! ri!hts to Class A shareholders, to thepreHudice of Class ) shareholders, without runnin!afoul of the letter and spirit of the Corporation Code.

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. Delher Tra,es Cor. v. IAC 519))@ 1&SCRA +49

3rie8 Fa-ts: :elf and Pela!ia Pacheco leased the lotthey co-owned to CCII to which the si$lin!s !ranted a

ri!ht of rst refusal. CCII assi!ned its ri!hts to ydroPipes. A deed of e/chan!e was e/ecuted $etween thePachecos and :elpher (rades Corp. wherein thePachecos conveyed the leased lot to :elpher ine/chan!e for B&00 shares of stoc'. ydro Pipes led acoplaint for reconveyance for alle!ed violation of itsri!ht of rst refusal.

FACTS:1. :eln Pacheco and his sister Pela!ia Pacheco were

the co-owners of a real estate in Polo 3nowalen7uela4.

B. (hey leased the property to ConstructionCoponents International Inc. 3CCII4, providin! thatdurin! the e/istence or after the ter of this leasethe lessor, should he decide to sell the propertyleased shall rst oer the sae to the lessee andthe latter has the priority to $uy under siilarconditions.

+. CCII assi!ned its ri!hts and o$li!ations under the

contract of lease in favour of ydro PipesPhilippines, Inc. with the si!ned confority andconsent of the Pachecos. (he contract andassi!nent of lease were annotated at the $ac' of the title.

%. A deed of e/chan!e was e/ecuted $etween thePachecos and defendant :elpher (rades Corporationwhere$y the forer conveyed to the latter theleased property to!ether with another parcel of landalso in alen7uela for B&00 shares of stoc' of

:elpher 3total value of P1.&"4

&. *n the !round that it was not !iven the rst optionto $uy the leased property pursuant to the provisoin the lease a!reeent, ydro Pipes led anaended coplaint for reconveyance of the lot inits favour under conditions siilar to those where$y

:elpher acuired the property fro the Pachecos.D. (he CFI ruled in favour of ydro Pipes. (his was

a?red on appeal $y the IAC.. Petitioners led a petition for certiorari which was

initially denied $y the ;C $ut upon "#, the ;C !aveit due course.

8. Eduardo Neria, CPA and son-in-law of Pela!iatestied that

a. :elpher is a faily corporation, or!ani7ed $ythe children of Pela!ia Pacheco and )enHain

ernande7, and ;ps. :eln and Pilar Pacheco,who owned in coon the parcel of landleased to ydro Pipes in order to perpetuatetheir control over the property throu!h thecorporation and to avoid ta/es

$. (o accoplish this, two pieces of real estate,includin! the land leased to ydro Pipes, weretransferred to the corporation

c. (he leased property was transferred to thecorporation $y virtue of a deed of e/chan!e of

property in e/chan!e for these properties,Pela!ia and :eln acuired B&00 unissued nopar value shares of stoc' which are euivalentto a &&G aHority in the corporation $ecausethe other owners only owned B000 shares

d. At the tie of incorporation, he 'new alla$out the contract of lease to ydro Pipes. Inthe petitionersJ "#, they refer to this scheeas estate plannin!O

9. Petitioners contend that there was actually no

transfer of ownership of the su$Hect parcel of land


14/85


since the Pachecos reained in control of theproperty. (he transfer of ownership, if anythin!, waserely in for, $ut not in su$stance.

a. Petitioner corporation is a ere alter e!o orconduit of the Pacheco co-owners hence the

corporation and the co-owners should $edeeed to $e the sae, there $ein! identityof interest.

$. (he Pachecos did not sell the property. (herewas no sale and they e/chan!ed the land forshares of stoc's in their own corporation.

10. #espondents ar!ue that :elpher is a corporateentity separate and distinct fro the Pachecos. Itcannot $e said that :elpher is the PachecoJs altere!o or conduit.

a. (hat :eln, havin! treated :elpher as such aseparate and distinct corporate entity, is not aparty who ay alle!e that this separatecorporate e/istence should $e disre!arded.

$. (here was actual transfer of ownershipinterest over the leased property when thesae was transferred to :elpher in e/chan!efor the latterJs shares of stoc'.

ISSUE:5*N the :eed of E/chan!e e/ecuted $y the Pachecosand :elpher was eant to $e a contract of sale, whichpreHudiced respondentJs ri!ht of rst refusal. 3N*4

HELD:

(he :elpher (rades Corporation is a $usiness conduitof the Pachecos. 5hat they really did was to invest

their properties and chan!e the nature of their

ownership fro unincorporated to incorporated for$y or!ani7in! :elpher (rades Corporation to ta'econtrol of their properties and at the sae tie saveon inheritance ta/es.

• (he :eed of E/chan!e of property cannot $e aconsidered a contract of sale since there was notransfer of actual ownership interests $y thePachecos to a third party. (he Pacheco failyerely chan!ed their ownership fro one for toanother.

• (here is nothin! wron! or o$Hectiona$le a$out theestate plannin! schee resorted to $y thePachecos. (he le!al ri!ht of a ta/payer to decreasethe aount of what otherwise could $e his ta/es oralto!ether avoid the, $y eans which the lawperits, cannot $e dou$ted.O

• After incorporation, one $ecoes a stoc'holder of acorporation $y su$scription or $y purchasin! stoc'directly fro the corporation or fro individualowners thereof.

o In e/chan!e of their properties, the Pachecosacuired B&00 ori!inal unissued no par valueshares of stoc's of the :elpher (rades

Corporation. Conseuently, the Pachecos$ecae stoc'holders of the corporation $ysu$scription.

• A no-par value share does not purport to representany stated proportionate interest in the capitalstoc' easured $y value, $ut only an aliuot part of the whole nu$er of such share issuin! corporation.

(he holder of no-par shares ay see fro thecerticate itself that he is an aliuot sharer in theassets of the corporation. )ut this character of

proportionate interest is not hidden $eneath a false


15/85


appearance of a !iven su in oney, as in the caseof par value shares. (he capital stoc' of acorporation issuin! only no-par value shares is notset forth $y a stated aount of oney, $ut insteadis e/pressed to $e divided into a stated nu$er of

shares, such as 1000 shares. (his indicates that ashareholder of 100 such shares is an aliuot sharerin the assets of the corporation, no atter whatvalue they ay have to the e/tent of 100K1000, or1K10. (hus, $y reovin! the par value of shares, theattention of persons interested in the nancialcondition of a corporation is focused upon the valueof assets and the aount of its de$ts.

• (here was no attept to state the true or currentar'et value of the real estate. 2and valued at

P+00.00 per suare eter was turned over to thefailyJs corporation for only P1%.00 a suare eter.

DISP!SITI7E: Petition !ranted.


16/85


6. %a>oa v. Teves0 et al 5*11@

FACTS:

(his is a petition to nullify the sale of shares of stoc' of

Philippine (elecounications Investent Corporation3P(IC4 $y the !overnent of the #epu$lic of thePhilippines, actin! throu!h the Inter-A!encyPrivati7ation Council 3IPC4, to "etro Pacic Assetsoldin!s, Inc. 3"PA4, an a?liate of First PacicCopany 2iited 3First Pacic4, a on! on!-$asedinvestent ana!eent and holdin! copany and ashareholder of the Philippine 2on! :istance (elephoneCopany 3P2:(4. (he petitioner uestioned the sale onthe !round that it also involved an indirect sale of 1B

illion shares 3or a$out D.+ percent of the outstandin!coon shares4 of P2:( owned $y P(IC to FirstPacic. 5ith the this sale, First PacicJs coonshareholdin!s in P2:( increased fro +0. percent to+ percent, there$y increasin! the total coonshareholdin!s of forei!ners in P2:( to a$out81.%G. (his, accordin! to the petitioner, violates;ection 11, Article QII of the 198 PhilippineConstitution which liits forei!n ownership of thecapital of a pu$lic utility to not ore than %0G.

ISSUE:5hether or not the ter capitalO in ;ection 11, ArticleQII of the Constitution refer to the total coon sharesonly, or to the total outstandin! capital stoc'3co$ined total of coon and non-votin! preferredshares4 of P2:(, a pu$lic utility.

HELD:

!. (he Court partly !ranted the petition and heldthat the ter capitalO in ;ection 11, Article QII of theConstitution refers only to shares of stoc' entitled tovote in the election of directors of a pu$lic utility, i.e.,to the total coon shares in P2:(.

It ust $e stressed, and respondents do not dispute,that forei!ners hold a aHority of the coon sharesof P2:(. In fact, $ased on P2:(Js B010 =eneralInforation ;heet 3=I;4, which is a docuent reuiredto $e su$itted annually to the ;ecurities andE/chan!e Coission, forei!ners hold 1B0,0%D,D90coon shares of P2:( whereas Filipinos hold onlyDD,&0,DBB coon shares. In other words, forei!nershold D%.BG of the total nu$er of P2:(Js coonshares, while Filipinos hold only +&.+G. ;ince holdin!

a aHority of the coon shares euates to control, itis clear that forei!ners e/ercise control over P2:(.;uch aount of control unista'a$ly e/ceeds theallowa$le %0 percent liit on forei!n ownership of pu$lic utilities e/pressly andated in ;ection 11,Article QII of the Constitution.

As shown in P2:(Js B010 =I;, as su$itted to the ;EC,the par value of P2:( coon shares is P&.00 pershare, whereas the par value of preferred shares

is P10.00 per share. In other words, preferred shareshave twice the par value of coon shares $ut cannotelect directors and have only 1K0 of the dividends of coon shares. "oreover, 99.%%G of the preferredshares are owned $y Filipinos while forei!ners own onlya inuscule 0.&DG of the preferred shares. 5orse,preferred shares constitute .8&G of the authori7edcapital stoc' of P2:( while coon shares constituteonly BB.1&G. (his undenia$ly shows that $enecialinterest in P2:( is not with the non-votin! preferred

shares $ut with the coon shares, $latantly violatin!


17/85


the constitutional reuireent of D0 percent Filipinocontrol and Filipino $enecial ownership in a pu$licutility.


18/85


%a>oa v. Teves0 et al 5*1@

FACTS:

(he *?ce of the ;olicitor =eneral 3*;=4 initially led a

otion for reconsideration on $ehalfofthe;EC, assailin! the B8 >une B011 :ecision. owever, itsu$seuently led a Consolidated Coent on $ehalf of the ;tate, declarin! e/pressly that it a!rees with theCourts denition of the ter capital in ;ection 11,Article QII of the Constitution. :urin! the *ralAr!uents on BD >une B01B, the *;= reiterated itsposition consistent with the Courts B8 >une B011:ecision.

ISSUE:5hether or not the ter capital in ;ection 11, ArticleQII of the Constitution has lon! $een settled anddened to refer to the total outstandin! shares of stoc', whether votin! or non-votin!.

HELD:

!. ;ince a specic class of shares ay have ri!htsand privile!es or restrictions dierent fro the rest of the shares in a corporation, the D0-%0 ownershipreuireent in favor of Filipino citi7ens in ;ection 11,Article QII of the Constitution ust apply not only toshares with votin! ri!hts $ut also to shares withoutvotin! ri!hts. Preferred shares, denied the ri!ht to votein the election of directors, are anyway still entitled tovote on the ei!ht specic corporate atters entioneda$ove. (hus, if a corporation, en!a!ed in a partially

nationali7ed industry, issues a i/ture of coon and

preferred non-votin! shares, at least D0 percent of thecoon shares and at least D0 percent of thepreferred non-votin! shares ust $e owned $yFilipinos. *f course, if a corporation issues only a sin!leclass of shares, at least D0 percent of such shares ust

necessarily $e owned $y Filipinos. In short, the D0-%0ownership reuireent in favor of Filipino citi7ens ustapply separately to each class of shares, whethercoon, preferred non-votin!, preferred votin! or anyother class of shares. (his unifor application of theD0-%0 ownership reuireent in favor of Filipinociti7ens clearly $reathes life to the constitutionalcoand that the ownership and operation of pu$licutilities shall $e reserved e/clusively to corporations atleast D0 percent of whose capital is Filipino-owned.

Applyin! uniforly the D0-%0 ownership reuireent infavor of Filipino citi7ens to each class of shares,re!ardless of dierences in votin! ri!hts, privile!esand restrictions, !uarantees eective Filipino control of pu$lic utilities, as andated $y the Constitution.


19/85


&. Reu>li- Pla"ters 3a"< v. A#a"a 5 %R1&6' 2ar. +0 199&@

FACTS:

Private respondent #o$es Francisco #ealty R:evelopent Corp. secured a loan fro petitioner. Aspart of the proceeds of the loan, preferred shares of stoc's were issued to private respondent corporation.In other words, instead of !ivin! the le!al tendertotallin! to the full aount of the loan, petitioner lentsuch aount partially in the for of oney and of stoc' certicates. ;aid stoc' certicates were in thenae of private respondent Adalia #o$es and Carlos#o$es, later on, su$seuently endorsed his shares in

favor of Adalia #o$es.

;aid certicates of stoc' $ear the followin! ters andconditions 314 the ri!ht to receive a uarterly dividendof 1G, cuulative and participatin! 3B4 that suchpreferred shares ay $e redeeed, $y the syste of drawin! lots, at any tie after B years fro the date of issue at the option of the corporation.

Private respondents proceeded a!ainst petitioner and

led a coplaint anchored on private respondentsJalle!ed ri!hts to collect dividends under the preferredshares in uestion and to have petitioner redee thesae under the ters and conditions of the stoc'certicates. (he trial court ordered the petitioner topay private respondents the face value of the stoc'certicates as redeption price, plus 1G uarterlyinterest. ence this petition.

ISSUE:

5*N the $an' can $e copelled to redee thepreferred shares issued to #F#:C and #o$es.

HELD:

N*. 5hile the stoc' certicate does allow redeption,the option to do so was clearly vested in the $an'. (heredeption therefore is clearly the type 'nown asoptional. (hus, e/cept as otherwise provided in thestoc' certicate, the redeption rests entirely with thecorporation and the stoc'holder is without ri!ht toeither copel or refuse the redeption of its stoc'.

Furtherore, the ters and conditions set forth thereinuse the word ay. It is a settled doctrine in statutoryconstruction that the word ay denotes discretion,and cannot $e construed as havin! a andatory eect.

(he redeption of said shares cannot $e allowed. (heCentral )an' ade a ndin! that the )an' has $eensuerin! fro chronic reserve deciency, and thatsuch ndin! resulted in a directive to the President andActin! Chairan of the )oard of the $an' prohi$itin!the latter fro redeein! any preferred share, on the

!round that said redeption would reduce the assetsof the )an' to the preHudice of its depositors andcreditors. #edeption of preferred shares wasprohi$ited for a Hust and valid reason. (he directiveissued $y the Central )an' =overnor was o$viouslyeant to preserve the status uo, and to prevent thenancial ruin of a $an'in! institution that would haveresulted in adverse repercussions, not only to itsdepositors and creditors, $ut also to the $an'in!industry as a whole. (he directive, in liitin! the


20/85


e/ercise of a ri!ht !ranted $y law to a corporate entity,ay thus $e considered as an e/ercise of police power.

!TE: (his case !ave a coprehensive overview of the nature of preferred shares and redeea$le shares.

Preferred share of stoc', on one hand, is one whichentitles the holder thereof to certain preferences overthe holders of coon stoc'. (he preferences aredesi!ned to induce persons to su$scri$e for shares of acorporation. Preferred shares ta'e a ultiplicity of fors. (he ost coon fors ay $e classied intotwo 314 preferred shares as to assets and 3B4preferred shares as to dividends. (he forer is a sharewhich !ives the holder thereof preference in the

distri$ution of the assets of the corporation in case of liuidation the latter is a share the holder of which isentitled to receive dividends on said share to thee/tent a!reed upon $efore any dividends at all arepaid to the holders of coon stoc'. (here is no!uaranty, however, that the share will receive anydividends. (he declaration of dividends is dependentupon the availa$ility of surplus prot or unrestrictedretained earnin!s, as the case ay $e. Preferences!ranted to preferred stoc'holders, oreover, do not

!ive the a lien upon the property of the corporationnor a'e the creditors of the corporation, the ri!htof the forer $ein! always su$ordinate to the latter.:ividends are thus paya$le only when there are protsearned $y the corporation and as a !eneral rule, evenif there are e/istin! prots, the $oard of directors hasthe discretion to deterine whether or not dividendsare to $e declared.

#edeea$le shares, on the other hand, are shares

usually preferred, which $y their ters are redeea$le

at a /ed date, or at the option of either issuin!corporation, or the stoc'holder, or $oth at a certainredeption price. #edeption $y the corporation of itsstoc' is, in a sense, a repurchase of it for cancellation.

(he present Code allows redeption of shares even if

there are no unrestricted retained earnin!s on the$oo's of the corporation. (his is a new provision whichin eect ualies the !eneral rule that the corporationcannot purchase its own shares e/cept out of currentretained earnin!s. owever, while redeea$le sharesay $e redeeed re!ardless of the e/istence of unrestricted retained earnin!s, this is su$Hect to thecondition that the corporation has, after suchredeption, assets in its $oo's to cover de$ts andlia$ilities inclusive of capital stoc'. #edeption,

therefore, ay not $e ade where the corporation isinsolvent or if such redeption will cause insolvency orina$ility of the corporation to eet its de$ts as theyature.


21/85


). C!C!FED v. RP 5%R os. 1&&)&)'1&)19+' 1)*&*@

FACTS:

C*C*FE: see's the CourtJs approval of the conversionof Class AO and Class )O coon shares of ;an"i!uel Corporation 3;"C4 re!istered in the naes of Coconut Industry Investent Fund and the so-called1% oldin! CopaniesO 3collectively 'nown as CIIFcopaniesO4 into ;"C ;eries 1 Preferred ;hares.

C*C*FE: proposes to constitute a trust fund to $e'nown as the Coconut Industry (rust Fund 3CI(F4 forthe )enet of the Coconut Farers,O with respondent

#epu$lic, actin! throu!h the Philippine CoconutAuthority 3PCA4, as trustee. #espondent #epu$lic ledits Coent uestionin! C*C*FE:Js personality tosee' the CourtJs approval of the desired conversion.#espondent #epu$lic also disputes C*C*FE:Js ri!ht toipose and prescri$e ters and conditions on theproposed conversion, aintainin! that the CIIF ;"Ccoon shares are seuestered assets and are incustodia legis under PC==Js adinistration. Itpostulates that, owin! to the seuestrated status of

the said coon shares, only PC== has the authorityto approve the proposed conversion and see' thenecessary Court approval.

ISSUE:Conversion of ;hares.

HELD:

(he court resolved to approve the conversion, ta'in!into account certain circustances and hard econoicrealities as discussed $elowNo dou$t shares of stoc' are not the safest of investents, oored as they are on the ever chan!in!

worldwide and local nancial conditions. (he proposedconversion would provide $etter protection either tothe !overnent or to the eventually declared realstoc' owners, dependin! on the nal rulin! on theownership issue. In the event ;"C suers seriousnancial reverses in the short or lon! ter and see'sinsolvency protection, the owners of the preferredshares, $ein! considered creditors, shall have, vis-S-viscoon stoc' shareholders, preference in thecorporate assets of the insolvent or dissolved

corporation. In the case of the ;"C ;eries 1 Preferred;hares, these preferential features are ade availa$leto $uyers of said shares and are aply protected in theinvestent.

(he redeption value of the preferred shares dependsupon and is actually tied up with the issue price plus allthe cuulated and unpaid dividends. (his redeptionfeature is envisa!ed to eectively eliinate the ar'etvolatility ris's on the side of the share owners.

@ndou$tedly, these are clear advanta!es and $enetsthat inure to the share owners who, on one hand,prefer a sta$le dividend yield on their investents and,on the other hand, want security fro the uncertaintyof ar'et forces over which they do not have control.

(he proposed conversion will address the concerns andallay the fears of well eanin! sectors, and insulateand protect the seuestered CIIF ;"C shares fropotential daa!e or loss. "oreover, the conversion

ay $e viewed as a sound $usiness strate!y to


22/85


preserve and conserve the value of the !overnentJsinterests in CIIF ;"C shares. Preservation is attained$y /in! the value today at a si!nicant preiu overthe ar'et price and ensurin! that such value is not!oin! to decline despite ne!ative ar'et conditions.

Conservation is reali7ed thru an iproveent in theearnin!s value via the 8G per annu dividends versusthe uncertain and ost li'ely lower dividends oncoon shares.

!TE: (his case discussed the classication of shares,its votin! and non-votin! ri!hts and instances of appraisal ri!ht. (reasury stoc's was ephasi7ed -

(he coon shares after conversion and release fro

seuestration $ecoe treasury stoc's or shares. (reasury shares are shares of stoc' which have $eenissued and fully paid for, $ut su$seuently reacuired$y the issuin! corporation $y purchase, redeption,donation or throu!h soe other lawful eans. ;uchshares ay a!ain $e disposed of for a reasona$le price/ed $y the $oard of directors.O

A treasury share or stoc', which ay $e coon orpreferred, ay $e used for a variety of corporate

purposes, such as for a stoc' $onus plan forana!eent and eployees or for acuirin! anothercopany. It ay $e held indenitely, resold or retired.5hile held in the copanyJs treasury, the stoc' earnsno dividends and has no vote in copany aairs.


23/85


9. %ar-ia v. Li Chu Si"# 9 Phil. 6 519+4@

FACTS:

2i Cuan ;y had an account with the "ercantile )an'of China 3plainti $an'4 in the for of trust receipts!uaranteed $y 2i Chu ;in! 3respondent4 as surety Rwith chattel ort!a!e securities. 2i Cuan ;y failed tocoply with his o$li!ations. (he plainti $an' reuired2i Chu ;in!, as surety, to deliver a proissory note.

(he plainti $an', without the 'nowled!e R consent of the defendant, foreclosed the chattel ort!a!e and

privately sold the property covered there$y. (hedefendant is an owner of shares of stoc' in the plainti $an'.

"eanwhile, plainti $an' was su$seuently placedunder liuidation. (he defendant led a otion for theinclusion of the principal de$tor 2i Cuan ;y as partydefendant with the CFI-"anila so that he could availhiself of the $enet of the e/haustion of the propertyof said 2i Cuan ;y. (he otion was denied. (he

proceeds of the sale of the ort!a!ed chattelsto!ether with other payents ade were applied tothe aount of the proissory note in uestion, leavin!the $alance which the plainti now see's to collect.

ISSUE:5*N it is proper to C*"PEN;A(E the respondentsinde$tedness to the value of his shares of stoc' withthe "ercantile )an' of China.

HELD:

N*. A share of stoc' or the certicate thereof is not

inde$tedness to the owner nor evidence of inde$tedness and therefore, it is not a credit.;toc'holders as such are not creditors of thecorporation.

(he capital stoc' of a corporation is a trust fund to $eused ore particularly for the security of the creditorsof the corporation who presua$ly deal with it on thecredit of its capital.


24/85


1*. Ao,a-a v. LRC 1& SCRA 44

FACTS:

Petitioner Apocada was eployed in respondentcorporation. *n Au!ust B8, 198&, respondent >ose "."irasol persuaded petitioner to su$scri$e to 1,&00shares of respondent corporation at P100.00 per shareor a total of P1&0,000.00. e ade an initial payentof P+,&00.00. *n ;epte$er 1, 19&, petitioner wasappointed President and =eneral "ana!er of therespondent corporation. owever, on >anuary B, 198D,

he resi!ned.

*n :ece$er 19, 198D, petitioner instituted with theN2#C a coplaint a!ainst private respondents3Apocada and Intrans Phils., Inc.4 for the payent of his unpaid wa!es, his cost of livin! allowance, the$alance of his !asoline and representation e/pensesand his $onus copensation for 198D. Petitioner andprivate respondents su$itted their position papers tothe la$or ar$iter. Private respondents aditted that

there is due to petitioner the aount of P1,0D0.0 $utthis was applied to the unpaid $alance of ApocadaJssu$scription in the aount of P9&,%+9.9+. Petitioneruestioned the set-o alle!in! that there was no call ornotice for the payent of the unpaid su$scription andthat, accordin!ly, the alle!ed o$li!ation is notenforcea$le.

2a$or ar$iter sustained the clai of petitioner forP1,0D0.0 on the !round that the eployer has no

ri!ht to withhold payent of wa!es already earnedunder Article 10+ of the 2a$or Code.

N2#C reversed the decision of the la$or ar$iter and

held that a stoc'holder who fails to pay his unpaidsu$scription on call $ecoes a de$tor of thecorporation and that the set-o of said o$li!ationa!ainst the wa!es and others due to petitioner is notcontrary to law, orals and pu$lic policy.

ence, the instant petition, which was treated as aspecial civil action for certiorari.

ISSUE:5hether or not an o$li!ation arisin! fro non-payentof stoc' su$scriptions to a corporation can $e oseta!ainst a oney clai of an eployee a!ainst theeployer.

HELD:

N2#C has no Hurisdiction to deterine such intra-corporate dispute $etween the stoc'holder and the

corporation as in the atter of unpaid su$scriptions. (his controversy is within the e/clusive Hurisdiction of the ;ecurities and E/chan!e Coission 3now #(C4.

No. (he unpaid su$scriptions are not due and paya$leuntil a call is ade $y the corporation for payent.Private respondents have not presented a resolution of the $oard of directors of respondent corporation callin!for the payent of the unpaid su$scriptions. It doesnot even appear that a notice of such call has $een

sent to petitioner $y the respondent corporation. As


25/85


there was no notice or call for the payent of unpaidsu$scriptions, the sae is not yet due and paya$le.

Even if there was a call for payent, an o$li!ationarisin! fro non-payent of stoc' su$scriptions to a

corporation cannot $e oset a!ainst a oney clai of an eployee a!ainst the eployer. Article 11+ of the2a$or Code allows such a deduction fro the wa!es of the eployees $y the eployer, only in threeinstances, to wit

A#(. 11+. 5a!e :eduction. T No eployer, in his own$ehalf or in $ehalf of any person, shall a'e anydeduction fro the wa!es of his eployees, e/cept

3a4In cases where the wor'er is insured with his

consent $y the eployer, and the deduction is torecopense the eployer for the aount paid$y hi as preiu on the insurance

3$4For union dues, in cases where the ri!ht of thewor'er or his union to chec'o has $eenreco!ni7ed $y the eployer or authori7ed inwritin! $y the individual wor'er concerned and

3c4 In cases where the eployer is authori7ed $y lawor re!ulations issued $y the ;ecretary of 2a$or.


26/85


11. atio"al E=-ha"#e v. De=ter 1 Phil.6*1 519)@

FACTS:

(his action was instituted in the Court of First Instanceof "anila $y the National E/chan!e Co., Inc., asassi!nee 3throu!h the Philippine National )an'4 of C. ;.;alon R Co., for the purpose of recoverin! fro I. ).:e/ter a $alance of P1&,000, the par value of onehundred fty shares of the capital stoc' of C. ;. ;alon

R co., with interest and costs. @pon hearin! the causethe trial Hud!e !ave Hud!ent for the plainti torecover the aount claied, with lawful interest fro

>anuary 1, 19B0, and with costs. Fro this Hud!entthe defendant appealed.

It appears that on Au!ust 10, 1919, the defendant, I. ).:e/ter, si!ned a written su$scription to the corporatestoc' of C. ;. ;alon R Co. in the followin! for

I here$y su$scri$e for three hundred 3+004shares of the capital stoc' of C. ;.;alon and Copany, paya$le fro the rstdividends declared on any and all shares of said copany owned $y e at the tiedividends are declared, until the fullaount of this su$scription has $een paid.

@pon this su$scription the su of P1&,000 was paid in >anuary, 19B0, fro a dividend declared at a$out that

tie $y the copany, suppleented $y oney

supplied personally $y the su$scri$er. )eyond thisnothin! has $een paid on the shares and no furtherdividend has $een declared $y the corporation.

ISSUE:5hether the stipulation contained in the su$scriptionto the eect that the su$scription is paya$le fro therst dividends declared on the shares has the eect of relievin! the su$scri$er fro personal lia$ility in anaction to recover the value of the shares. 3N*4

HELD:

In the a$sence of restrictions in its character, acorporation, under its !eneral power to contract, hasthe power to accept su$scriptions upon any specialters not prohi$ited $y positive law or contrary topu$lic policy, provided they are not such as to reuirethe perforance of acts which are $eyond the powersconferred upon the corporation $y its character, andprovided they do not constitute a fraud upon othersu$scri$ers or stoc'holders, or upon persons who are

or ay $ecoe creditors of the corporation.

A provision in the Corporation states . . . nocorporation shall issue stoc' or $onds e/cept ine/chan!e for actual cash paid to the corporation or forproperty actually received $y it at a fair valuationeual to the par value of the stoc' or $onds so issued.

Now, if it is unlawful to issue stoc' otherwise than asstated it is self-evident that a stipulation such as that

now under consideration, in a stoc' su$cription, is


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ille!al, for this stipulation o$li!ates the su$scri$er topay nothin! for the shares e/cept as dividends ayaccrue upon the stoc'. In the contin!ency thatdividends are not paid, there is no lia$ility at all. (his isa discriination in favor of the particular su$scri$er,

and hence the stipulation is unlawful.

Corus Buris:Nor has a corporation the power to receive asu$scription upon such ters as will operate as a fraudupon the other su$scri$ers or stoc'holders $ysu$Hectin! the particular su$cri$er to li!hter $urdens,or $y !ivin! hi !reater ri!hts and privile!es, or as afraud upon creditors of the corporation $y withdrawin!or decreasin! the capital.

As a !eneral rule, an a!reeent $etween thecorporation and a particular su$scri$er that thesu$scription is not to $e paya$le, or is to $e paya$le inpart only is ille!al and void as it constitutes fraudtoother stoc'holders or creditors,whether it is for thepurpose of a'in! the stoc' see !reater than it is, orfor the purpose of preventin! the predoinance of certain stoc'holders, or for any other purpose thus, thea!reeent cannot $e enforced $y the su$scri$er or

interpose it as a defense in an action on thesu$scription.

Conditions attached to su$scriptions, which, lessenthe capital of the copany, are a fraud upon the!rantor of the franchise, and upon those who ay$ecoe creditors of the corporation, and uponunconditional stoc'holders.


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1. 7elas-o v. Poi?at +& Phil. )* 5191)@

FACTS:

(he Philippine Cheical Product Co. su$itted aresolution in a $oard eetin!, in which they releasedInfante, a stoc'holder, fro his o$li!ation of payin! hisunpaid su$scription in the aount of P1,&00 and it isconditioned upon his surrenderin! hiscerticates of shares of stoc'. In the sae resolution,Poi7at was o$li!ated to shell out the aount of hissu$scription valued at P1,&00, and if he should refuse

to a'e payent, Hudicial proceedin!s a!ainst hiay $e underta'en $y the corporation throu!h itsana!eent.

(hereafter, the copany underwent voluntaryinsolvency proceedin!s. (he assi!nee of the copany,elasco, sou!ht to recover the aount owed $y Poi7at.Nevertheless, the latterdenied any accounta$ility to pay the aount. Poi7atasserted the invalidity of a'in! the call, and he

asserted that he was !iven the sae ri!hts as that!iven to Infante. (he CFI disissed the coplaint led$y elasco a!ainst Poi7at. (hus, elasco appealed tothe ;C.

ISSUE:5hether or not Poi7at is lia$le for his unpaidsu$scription.

HELD:

$ES. A stoc' su$scription is a contract $etween thecorporation and the su$scri$er, and the courts willenforce it either for or a!ainst the other.

(he law reco!ni7es that a stoc' su$scription is asu$sistin! lia$ility fro the tie the su$scription isade, since it reuires the su$scri$er to pay interestuarterly fro the date of the su$scription, unless heis relieved fro such lia$ility in the $y-laws of thecorporation.

(he su$scri$er is as uch $ound to pay for hissu$scription as he would any other de$t. (he law also

provides B reedies to enforce stoc' su$scriptions. (he rst consists in perittin! the corporation to putup the unpaid stoc' for sale and dispose of it for theaccount of the delinuent su$scri$er. (he otherreedy is for the directors to le an action in court. Anassi!nee of an insolvent corporation, $y steppin! intothe shoes of the sae, succeeds to all the corporateri!hts of action vested in the corporation prior to itsinsolvency, and the assi!nee therefore has the saefreedo with respect to suin! upon a stoc'

su$scription as the directors theselves would have.Also, when insolvency supervenes upon a corporationand the court assues Hurisdiction to wind it up, allunpaid stoc' su$scriptions $ecoepaya$le on deand and are at once recovera$le in anaction instituted $y the assi!nee or receiver appointed$y the court. A su$scri$er cannot $e peritted toescape his lawful o$li!ation $y reason of the failure of the o?cers of the corporation to perfor their duty ina'in! a call and when the ori!inal ode of a'in!


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the call $ecoes ipractica$le, the o$li!ation ust $edeeed as $ein! due upon deand.

(he Hud!ent of the lower court is therefore reversed,and Hud!ent will $e rendered in favor of the plainti

and a!ainst the defendant for the su of one thousandve hundred pesos 3P1,&004, with interest fro >uly 1+,101%, and costs of $oth instances. ;o ordered.


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1+. Li"#ae" %ul8 Ele-tri- v. 3alta?ar 9+Phil. 4*4 519+@

FACTS:

(he plainti, 2in!ayen =ulf Electric Power Copany isa doestic corporation with an authori7ed capitalstoc' of P+00,000 divided into +,000 shares with a parvalue of P100 pershare. (he defendant, Irineo )alta7ar appears to havesu$scri$ed for D00 shares on account of which he hadpaid upon the or!ani7ation of the corporation the su

of P1&,000. After incorporation, the defendant adefurther payents on account of his su$scription,leavin! a $alance of P18,&00 unpaid for, whichaount, the plainti now clais in this action.

*n >uly B+, 19%D, a aHority of the stoc'holders of thecorporation, aon! the the herein defendant, held aeetin! and adopted stoc'holders resolution No. 1.)y said resolution, it was a!reed upon $y thestoc'holders present to call the $alance of all unpaid

su$scri$ed capital stoc' as of >uly B+, 19%D, the rst &0per cent paya$le within D0 days $e!innin! Au!ust 1,19%D, and the reainin! &0 per cent paya$le within D0days $e!innin! *cto$er 1, 19%D. (he resolution alsoprovided, that all unpaid su$scription after the duedates of $oth calls would $e su$Hect to 1B per centinterest per annu. 2astly, the resolution provided,thatafter the e/piration of D0 days !race which would$e on :ece$er 1, 19%D, for the rst call, and onFe$ruary 1, 19%, for the second call, all su$scri$ed

stoc's reainin! unpaid would revert to thecorporation.

*n ;epte$er BB, 19%D, the plainti corporation wrote

a letter to the defendant reindin! hi that the rst&0 per cent of his unpaid su$scription would $e due on*cto$er 1, 19%D. (he plainti reuested the defendantto 'indly advise the copany thru the undersi!nedyour decision re!ardin! this atter. (he defendantanswered on ;epte$er B&, 19%D, as'in! thecorporation that he $e allowed to pay his unpaidsu$scription $y Fe$ruary 1, 19%.

In his answer, the defendant also a!reed that if he

could not pay the $alance of his su$scription $yFe$ruary 1, 19%, his unpaid su$scription would $ereverted to the corporation.

*n :ece$er 19, 19%, the defendant wrote anotherletter to the e$ers of the )oard of :irectors of theplainti corporation, oerin! to withdraw copletelyfro the corporation $y sellin! out to the corporationall his shares of stoc' in the total aount of PB+,000.

Apparently this oer of the defendant was left unactedupon $y the plainti.

*n April 1, 19%8, the )oard of :irectors of the plainti corporation held a eetin!, and in the course of thesaid eetin! they adopted #esolution No. 1. (hisresolution in eect set aside the stoc'holdersresolution approved on >une B+, 19%D, on the !roundthat said stoc'holders resolution was null and void,and $ecause the plainti corporation was not in a

nancial position to a$sor$ the unpaid $alance of the


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su$scri$ed capital stoc'. At the said eetin! thedirectors also decided to call &0 per cent of the unpaidsu$scription within +0 days fro April 1, 19%8, thecall paya$le within D0 days fro receipt of notice frothe ;ecretary-(reasurer. (his resolution also authori7ed

le!al counsel of the copany to ta'e all the necessaryle!al steps for the collection of the payent of the call.

*n >une 10, 19%9, the stoc'holders of the corporationheld another eetin! in which the stoc'holders wereall present, either in person or $y pro/y. At sucheetin!, the stoc'holdersadopted resolution No. %, where$y it was a!reed torevalue the stoc's and assets of the copany so as toattract outside investors to put in oney for the

reha$ilitation of the copany. (he president wasauthori7ed to a'e all arran!eent for such appraisaland the ;ecretary to call a eetin! upon copletion of the reassessent.

It was aditted $y the defendant that he receivednotice fro the ;ecretary-(reasurer of the copany,deandin! payent of the unpaid $alance of hissu$scription. It was a!reed $y the parties that the callof the )oard of :irectors was not pu$lished in a

newspaper of !eneral circulation as reuired $y section%0 of the Corporation 2aw.

*n ;epte$er B8, 19%9, the le!al counsel of theplainti corporation wrote a letter to the defendant,deandin! the payent of the unpaid $alance of hissu$scription aountin! toP18,&00. Copy of this letter was sent $y re!istered ailto the defendant on ;epte$er B9,19%9. (hedefendant i!nored the said deand.

ISSUES:1. 5hether or not the call was validB. 5hether or not the defendant was released fro

the o$li!ation of the unpaid $alance of his

su$scription $y virtue of stoc'holders resolutionNos. 1 and %

HELD:

1. No. (he law reuires that notice of any call for thepayent of unpaid su$scription should $e ade notonly personally $ut also $y pu$lication. (his is clearfro the provisions of ;ection %0 of the Corporation2aw, Act No. 1%&9, as aended, which reads as

follows

;EC. %0. Notice of call for unpaid su$scriptions ust$e either personally served upon each stoc'holderor deposited in the post o?ce, posta!e prepaid,addressed to hi at his place of residence, if 'nown, and if not 'nown, addressed to the placewhere the principal o?ce of the corporation issituated. (he notice ust also $e pu$lished once awee' for four successive wee's in soe newspaper

of !eneral circulation devoted to the pu$lication of !eneral news pu$lished at the place where theprincipal o?ce of the corporation is esta$lished orlocated, and posted in soe proinent place at thewor's of the corporation if any such there $e. If there $e no newspaper pu$lished at the placewhere the principal o?ce of the corporation isesta$lished or located, then such notice ay $epu$lished in any newspaper of !eneral news in thePhilippines.


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It will $e noted that section %0 is andatory asre!ards pu$lication, usin! the word ust. Ascorrectly stated $y the trial court, the reason for theandatory provision is not only to assure notice toall su$scri$ers, $ut also to assure euality and

unifority in the assessent on stoc'holders.

B. No. (he authorities are !enerally a!reed that inorder to eect the release, there ust $eunanious consent of the stoc'holders of thecorporation. 5e uote soe authorities

;u$Hect to certain e/ceptions, considered insu$division 3+4 of this section, the !eneral rule isthat a valid and $indin! su$scription for stoc' of a

corporation cannot $e cancelled so as torelease thesu$scri$er fro lia$ility thereon without the consentof all the stoc'holders or su$scri$ers. Furtherore,a su$scription cannot $e cancelled $y the copany,even under a secret or collateral a!reeent forcancellation ade with the su$scri$er at the tie of the su$scription, as a!ainst persons whosu$seuently su$scri$ed or purchased withoutnotice of such a!reeent.

E=-etio"s: In particular circustances, as whereit is !iven pursuant to a $ona de coproise, or toset o a de$t due fro the corporation, a release,supported $y consideration, will $e eectual asa!ainst dissentin! stoc'holders and su$seuent ande/istin! creditors. A release which i!ht ori!inallyhave $een held invalid ay $e sustained after aconsidera$le lapse of tie.O

In the present case, the release claied $y

defendant and appellant does not fall under the

e/ception a$ove referred to, $ecause it was not!iven pursuant to a $ona de coproise, or to seto a de$t due fro the corporation, and there wasno consideration for it.


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14. Da Silva v. A>oiti? 44 Phil. & 519+@

FACTS:

:e ;ilva su$scri$ed to D&0 shares and paid for B00. (he copany notied hi that his shares will $edeclared delinuent and sold in a pu$lic auction if hedoes not pay the $alance. :e ;ilva did not pay. (hecopany advertised a notice of delinuency sale. :e;ilva sou!ht an inHunction $ecause the $y-lawsalle!edly provide that unpaid su$scriptions will $e paidfro the dividends allotted to stoc'holders.

ISSUE:5*N :e ;ilva is lia$le despite the provision in the $y-laws re!ardin! dividends as payent for unpaidsu$scriptions.

HELD:

ulio alen7uela, Pedro ;antos andFrancisco Escoto, creditors of this corporation, led suita!ainst it in the Court of First Instance of "anila, caseNo. +00, prayin! that a receiver $e appointed, as it

appeared that the corporation at that tie had noassets e/cept credits a!ainst those who hadsu$scri$ed for shares of stoc'. (he court naed (aya!as receiver for the purpose of collectin!, saidsu$scriptions. As )onifacio 2uanlan had only paidP1,&00 of the P1&,000, par value of the stoc' for whichhe su$scri$ed, the receiver on Au!ust +0, 19+0, led asuit a!ainst hi in the Court of First Instance of "anila,civil case No. +%9B, for the collection of P1&,109,P1+,&00 of which was the aount he owed for unpaid

stoc' and P1,D09 for loans and advances $y the


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corporation to 2uanlan. In that case 2uanlan wassentenced to pay the corporation the a$ove-entionedsu of P1&,109 with le!al interest thereon fro Au!ust+0, 19+0, and costs. 2uanlan appealed fro thisdecision.

ISSUE:5hether or not )onifacio 2uanlan is entitled to acredit a!ainst the Hud!ent in case No. +%9B forP11,8%0 and an additional su of PB,000, which is B&per cent on the principal de$t, as he had to le thissuit to collect, or receive credit for the su which hehad paid alen7uela for and in place of the corporation,or a total of P1+,8%0.

HELD:

$ES. It appears fro the record that durin! the trial of the case now under consideration, the )an' of thePhilippine Islands appeared in this case as assi!nee inthe Involuntary Insolvency of :i7on R Co., Inc. (hat$an' was appointed assi!nee in case No. %+0D& of theCourt of First Instance of the City of "anila on

Nove$er B8, 19+B. It is therefore evident that thereare still other creditors of :i7on R Co., Inc. (his $ein!the case that corporation has a ri!ht to collect allunpaid stoc' su$scriptions and any other aountswhich ay $e due it.

It is esta$lished doctrine that su$scriptions to thecapital of a corporation constitute a fund to which thecreditors have a ri!ht to loo' for satisfaction of theirclais and that the assi!nee in insolvency can

aintain an action upon any unpaid stoc' su$scription

in order to reali7e assets for the payent of its de$ts. (he Corporation 2aw clearly reco!ni7es that a stoc'su$scription is a su$sistin! lia$ility fro the tie thesu$scription is ade, since it reuires the su$scri$er topay interest uarterly fro that date unless he is

relieved fro such lia$ility $y the $y-laws of thecorporation. (he su$scri$er is as uch $ound to paythe aount of the share su$scri$ed $y hi as hewould $e to pay any other de$t, and the ri!ht of thecopany to deand payent is no less incontesta$le.


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16. Chi"a 3a"


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1&. Fua Cu" v. Suers0 et al.44 Phil.&*4 519+@

FACTS:

It appears fro the evidence that on Au!ust BD, 19B0,one Chua ;oco su$scri$ed for ve hundred shares of stoc' of the defendant )an'in! Corporation at a parvalue of P100 per share, payin! the su of PB&,000,one-half of the su$scription price, in cash, for which areceipt was issued.

*n "ay 18, 19B1, Chua ;oco e/ecuted a proissorynote in favor of the plainti Fua Cun for the su of PB&,000 paya$le in ninety days and drawin! interest atthe rate of 1 per cent per onth, securin! the notewith a chattel ort!a!e on the shares of stoc'su$scri$ed for $y Chua ;oco, who also endorsed thereceipt a$ove entioned and delivered it to theort!a!ee. (he plainti thereupon too' the receipt tothe ana!er of the defendant )an' and infored hiof the transaction with Chua ;oco, $ut was told to

await action upon the atter $y the )oard of :irectors.

In the eantie Chua ;oco appears to have $ecoeinde$ted to the China )an'in! Corporation in the suof P+,+1.D8 for dishonored acceptances of coercial paper and in an action $rou!ht a!ainsthi to recover this aount, Chua ;ocos interest in theve hundred shares su$scri$ed for was attached andthe receipt sei7ed $y the sheri. (he attachent waslevied after the defendant $an' had received notice of

the facts that the receipt had $een endorsed over to

the plainti. Fua Cun thereupon $rou!ht the presentaction aintainin! that $y virtue of the payent of theone-half of the su$scription price of ve hundredshares Chua ;oco in eect $ecae the owner of two

hundred and fty shares and prayin! that his, theplaintis, lien on said shares, $y virtue of the chattelort!a!e, $e declared to hold priority over the claiof the defendant )an'in! Corporation that thedefendants $e ordered to deliver the receipt inuestion to hi and that he $e awarded the su of P&,000 in daa!es for wron!ful attachent.

ISSUE:

5*N petitioner is entitled to issuance of stoc'certicate.

HELD:

N*. A su$scri$er does not $ecoe the owner of aparticular nu$er of shares correspondin! to theaount he already paid $ut erely holds a ri!ht of euity in the total nu$er of shares su$scri$ed.

Coplete ownership over the total nu$er of sharessu$scri$ed will only vest with the stoc'holder uponpayent of the whole su$scription price.

In the a$sence of special a!reeent to the contrary, asu$scri$er for a certain nu$er of shares of stoc' doesnot, upon payent of one-half of the su$scription price$ecoe entitled to the issuance of certicates for one-half of the nu$er of shares su$scri$ed for thesu$scri$ers ri!ht consists only in euity entitlin! hi

to a certicate for the total nu$er of shares


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su$scri$ed for $y hi upon payent of the reainin!portion of the su$scription price.


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1). 3alta?ar v. Li"#ae" %ul8 14 SCRA 5196@

FACTS:

(he 2in!ayen =ulf Electric Power Co., Inc., hereinafterreferred to as Corporation, was doin! $usiness in thePhilippines, with principal o?ces at 2in!ayen,Pan!asinan, and with an authori7ed capital stoc' of P+00.000.00 divided into +,000 shares of votin! stoc'at P100.00 par value, per share. Plaintis )alta7ar and#ose were aon! the incorporators, havin! su$scri$ed

to D00 and %00 shares of the capital stoc', or a totalpar value of PD0,000.00 and P%0.000.00, respectively.It is alle!ed that it has always $een the practice andprocedure of the Corporation to issue certicates of stoc' to its individual su$scri$ers for unpaid shares of stoc'. *f the D00 shares of capital stoc' su$scri$ed $y)alta7ar, he had fully paid &+& shares of stoc', and theCorporation issued to hi several fully paid up andnon-assessa$le certicates of stoc', correspondin! tothe &+& shares. After havin! ade transfers to third

persons and acuired new ones, )alta7ar had to hiscredit, on the lin! of the coplaint +%1 shares fullypaid and non-assessa$le.

(he respondents @n!son, Estrada, Fernande7 and


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rata to each su$scri$ed share. (he corporation chosethe rst option, and, havin! done so, it cannotunilaterally nullify the certicates issued.


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19. ava v. Peers 2


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*. Ta" v. SEC 5*6 SCRA &4*@

FACTS:

#espondent corporation was re!istered on *cto$er 1,199. As incorporator, petitioner had four hundred3%004 shares of the capital stoc' standin! in his naeat the par value of P100.00 per share, evidenced $yCerticate of ;toc' No. B. e was elected as Presidentand su$seuently reelected, holdin! the position assuch until 198B $ut reained in the )oard of :irectorsuntil April 19, 198+ as director.

*n >anuary +1, 1981, while petitioner was still thepresident of the respondent corporation, two otherincorporators, naely, Antonia


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corporation $ut is erely evidence of the holdersinterest and status in the corporation, his ownership of the share represented there$y, $ut is not in law theeuivalent of such ownership. It e/presses the contract$etween the corporation and the stoc'holder, $ut is

not essential to the e/istence of a share in stoc' or thenation of the relation of shareholder to the corporation.

A certicate of stoc' is not a ne!otia$le instruent.Althou!h it is soetie re!arded as uasi-ne!otia$le,in the sense that it ay $e transferred $yendorseent, coupled with delivery, it is well-settledthat it is non-ne!otia$le, $ecause the holder thereof ta'es it without preHudice to such ri!hts or defenses asthe re!istered ownerKs or transferorJs creditor ay

have under the law, e/cept insofar as such ri!hts ordefenses are su$Hect to the liitations iposed $y theprinciples !overnin! estoppel.

In the case at $ar, a $y-law which prohi$its a transferof stoc' without the consent or approval of all thestoc'holders or of the President or )oard of :irectors isille!al as constitutin! undue liitation on the ri!ht of ownership and in restraint of trade.

5hile ;ec. % 394 of the Corporation Code !rants tostoc' corporations the authority to deterine in the$y-laws the anner of issuin! certicates of sharesof stoc', however, the power to re!ulate is not thepower to prohi$it, or to ipose unreasona$lerestrictions of the ri!ht of stoc'holders to transfer theirshares. (o uphold the cancellation of a stoc'certication as null and void for lac' of delivery of thecancelled other certicate whose endorseent wasdeli$erately withheld $y petitioner, is to prescri$e

certain restrictions on the transfer of stoc' in violation

of the Corporation Code as the only law !overnin!transfer of stoc's.


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1. auti-a Ca""i"# Cor. $uul %R164)) 5!-t. 190 **@

FACTS:


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such ri!hts as it is andated $y law to reco!ni7earises.


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. Lao v. Lao %R 1&*) 5!-t 60 **)@

FACTS:

Petitioners :avid and >ose 2ao led a petition with the;EC a!ainst respondent :ionisio 2ao, president of Pacic Foundry ;hop Corporation 3PF;C4. Petitionersprayed for a declaration as stoc'holders and directorsof PF;C, issuance of certicates of shares in their naeand to $e allowed to e/aine the corporate $oo's of PF;C.

Petitioners claied that they are stoc'holders of PF;C$ased on the =eneral Inforation ;heet led with the;EC, in which they are naed as stoc'holders anddirectors of the corporation. :avid 2ao acuired hisshares fro his father and >ose 2ao fro respondenthiself. #espondent denied petitioners clai. e alsoclaied that petitioners did not acuire any shares inPF;C $y any of the odes reco!ni7ed $y law, naelysu$scription, purchase, or transfer.

"eanwhile, #.A. 899, otherwise 'nown as the;ecurities #e!ulation Code, was enacted, transferrin!

Hurisdiction over all intra-corporate disputes fro the;EC to the #(C. #(C denied their petition on the !roundthat they have no stoc' certicates in their naes.

ISSUE:Is the ere inclusion as shareholder in the =eneralInforation ;heet of a corporation su?cient proof that

one is a shareholder in such corporation6

HELD:

N*. (he ere inclusion as shareholder of petitioners inthe =eneral Inforation ;heet of PF;C is insu?cientproof that they are shareholders of the copany. (heinforation in the docuent will still have to $ecorrelated with the corporate $oo's of PF;C.

A certicate of stoc' is the evidence of a holders

interest and status in a corporation. It is a writteninstruent si!ned $y the proper o?cer of acorporation statin! or ac'nowled!in! that the personnaed in the docuent is the owner of a desi!natednu$er of shares of its stoc'. It is prima facie evidencethat the holder is a shareholder of a corporation.


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+. Fleis-her v. 3oti-a olas-o 519@ 4&Phil. )+

FACTS:

"anuel =on7ales ade a written stateent to therespondent, reuestin! that & shares of stoc' sold $yhi to enry Fleischer $e noted transferred toFleischers nae. e also ac'nowled!ed in said writtenstateent the preferential ri!ht of the corporation to$uy said ve shares $ut later withdrew and cancelledhis written stateent. owever, the respondent

replied that his letter was of no eect, and that theshares in uestion had $een re!istered in the nae of the )otica Nolasco, Inc.

Fleischer led an aended coplaint a!ainst therespondent, alle!in! that he $ecae the owner of &shares of fully paid stoc' purchase $y hi fro theori!inal owner, "anuel =on7ale7. :espite repeateddeands, respondent refused to re!ister said shares inhis nae in the $oo's of the corporation. #espondentJs

defense is that it has preferential ri!ht to $uy theshares at the par value $ased on their Art. 1B of the$y-laws. (rial court favored petitioner and ordered theshares $e re!istered. ence, this appeal.

ISSUE:Is a $y-law restrictin! a transfer of shares valid6

HELD:

As a !eneral rule, the $y-laws of a corporation are validif they are reasona$le and calculated to carry intoeect the o$Hective of the corporation and are not

contradictory to the !eneral policy of the laws of theland. @nder a statute authori7in! $y-laws for thetransfer of stoc', a corporation can do no ore thanprescri$e a !eneral ode of transfer on thecorporation $oo's and cannot Hustify an restrictionupon the ri!ht of sale.

"oreover, a $y-law which prohi$its a transfer of stoc'without the consent or approval of all the stoc'holdersor of the President or )oard of :irectors is ille!al as

constitutin! undue liitation on the ri!ht of ownershipand in restraint of trade.

(he only restraint iposed $y the Corporation 2awupon transfer of shares is found in ;ection +& of ActNo. 1%&9 3now ;ection D+4 No transfer, however,shall $e valid, e/cept as $etween the parties, until thetransfer is entered and noted upon the $oo's of thecorporation so as to show the naes of the parties tothe transaction, the date of the transfer, the nu$er of

the certicate, and the nu$er of shares transferred. (his restriction is necessary in order that the o?cers of the corporation ay 'now who are the stoc'holders,which is essential in conductin! elections of o?cers, incallin! eetin! of stoc'holders, and for otherpurposes. $ut any restriction of the nature of thatiposed in the $y-law now in uestion, is ultra vires,violative of the property ri!hts of shareholders, and inrestraint of trade.


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OUTLINE 4 - BUSINESS ORGANIZATION 2 Prof. M.I.P. Ro

corpo outline 4 case digests compilation

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