MERCANTILE LAW REVIEW 1 CORPORATION LAW Sec. 1 – Title of the Code
This Code shall be known as "The Corporation Code of the Philippines." Sec. 2 – Corporatio de!ed Three 1. 2. 3.
for"# of $%#ie## Sole Sole Prop Proprie rieto tors rshi hip; p; Partn artner ersh ship ip;; and and Corporat ration
&e!itio A corpo corporat ratio ion n is an arti artic cia iall bein being g crea create ted d b operation of law! haing the right to s#ccession and powers! attrib#tes and properties e$pressl a#thori%ed b law or incident to its e$istence.
knowing that the cannot r#n after the stockholders! which is wh banks wo#ld #s#all #s#all re-#ire re-#ire principal principal stockholde stockholders rs to als also bind bind the the+se +sele les in the their personal capacit. 2. as tran ransferabilit ilit of shares +a allow co+petitors to beco+e stockholders; & 7#t see Gokongwei v. SEC where it was held held that that the b&laws b&laws +a dis-#a dis-#alif lif stockholders who are also stockholders of a co+pet petitor fro+ beco+ing directors. 3. The +ino +inorit rit is is s#bser s#bserie ient nt to the the +a*or +a*orit; it; & 9n larg large e corp corpor orat atio ions ns!! the oti oting ng righ rights ts hae hae beco beco+e +e larg largel el theo theore reti tica cal! l! beca#se of widespread ownership. 0. )o#b )o#ble le Ta$ Ta$at atio ion; n; & The corporation pas ta$es for receiing prots and the stockholders pa ta$es for receiing diidends.
Attri$%te# of a corporatio 1. Artic Articial ial bein being g create created d b opera operatio tion n of law; law; & 'hil 'h ile e pri priat ate e corp corpo orat rations ions ar are created by operation of law in accordance with t he Corporation Code! p#blic corporations are created by law . 2. (aing (aing the right right to to s#cc s#ccess ession; ion; and 3. Power owers! s! attr attrib# ib#te tes s and and prope propert rtie ies s e$pr e$pres essl sl a#thori%ed b law or incident to its e$istence.
Coce##io Theor) 9t is a princip principle le in the creat creation ion of corpo corporat ration ions! s! #nder #nder which which a corpo corporat ration ion is an artic articial ial creat creat#re #re with witho# o#tt an an e$is e$iste tenc nce e #nti #ntill it has has rece recei ied ed the the i+pr i+pri+ i+at at#r #r of the the Stat State e acti acting ng acco accord rding ing to law! law! thro#gh SC. The life of the Corporation is a concession +ade b the State.
Ad'ata(e# of a corporatio 1. )octri )octrine ne of Sepa Separat rate e Pers Persona onalit lit; ; & A corp corpor orat atio ion n can can e$is e$istt as a leg legal al #ni #nitt with a separa separate te *#ridica *#ridicall person personali alit t fro+ its stockholders or +e+bers; 2. Princ Princip iple le of ,i+i ,i+ite ted d ,iabil ,iabilit it;; & As a cons consee-#e #enc nce e of ha hain ing g a sepa separa rate te *#ridical personalit! the corporate debts or credit is not the debt or credit of the stockholder. 3. )octri )octrine ne of of Centr Centrali% ali%ed ed ana anage+ ge+ent; ent; & The The boar board d of dir directors tors/t /tr# r#st stee ees s is the the goerning bod of the corporation and all corporate powers are e$ercised b the+. 0. Contin Contin#it #it of $ist $istenc ence e ight ight to S#cces S#ccessio sion4; n4; & This +ea +eans tha that whe when one one! +or +ore or een een all all stoc stockh khol olde ders rs die! die! resi resign gns! s! beco+es insolent or ciill interdicted! the corporation will not be dissoled! #nlike in a partnership. 5. as as of transfe transferab rabilit ilit of shar shares; es; and and & 6s#a 6s#all ll does does not not re-#i e-#irre appr pproa oal of the 7oard of )irectors. 8. as to to acc#+#la acc#+#late te s#bstantia s#bstantiall capitali%at capitali%ation ion to start a b#siness
*rachi#e# of Corporatio 1. Pri"ar Pri"ar) ) or +eera +eerall *ra *rachi chi#e #e & 9t is is the the rig right ht to to e$i e$ist st as as a corp corpor orat atio ion n and is ested ested in the indiid# indiid#als als who co+pose the corporation and not in the corporation i tself. tself. & on&t n&tran ransferrab rable. 2. Secod Secodar) ar) or Speci Special al *ra *rach chi#e i#e & Cert Certai ain n right rights s and pri priil ileg eges es con confe ferrred red #pon e$isting corporations! s#ch as the right to #se the streets of a +#nic +#nicip ipal alit it to la la pipes pipes of trac tracks ks!! erect poles or string wires! or the right to enga engage ge in deli delier er ser seric ice. e. 9t is ested in the corporation itself. & 9t +a ordinaril be coneed or +ortgaged! +ortgaged! e$cept e$cept special special franchises franchises as are charged with a p#blic #se. & 9t is s#b*ect to le and sale on e$ec# e$ec#tio tion n togeth together er and incl#di incl#ding ng all the propert necessar for for the en*o+ent thereof. thereof.
&i#ad'ata(e# &i#ad'ata(e# of a corporatio 1. The li+it li+ited ed liabil liabilit it of stock stockhold holders ers also also seres seres as a li+itation to corporate credit; & 9n oth other er wor words ds!! bank banks s +a +a be rel rel#c #cta tant nt to e$te $tend loan loans s to corpo orpora rati tion ons s!
See also Sec. 1: of the Corporation Code.
Te#t# to deter"ie atioalit) of the corporatio
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&
ote ote that that as a r#l r#le! e! all all sto stock ckho holde lders rs in a corporation +a be foreigners! e$cept for nationali%ed and partl nationali%ed actiities.
The ?oreign 9nest+ent Act ?9A4 denes a Philippine national as= 1. A corpor corporati ation on organ organi%e i%ed d #nder #nder Philippi Philippine ne laws laws of which 8@ of the o#tstanding capital stock and and enti entitl tled ed to ote ote is owne owned d b ?ilip ilipin ino o citi%ens; 'here a &o%$le ,- R%le. corpo orpora rati tion on and and its its non& non&? ?ilip ilipin ino o stoc stockh khol olde ders rs own own stoc stocks ks in a SC& SC& registered enterprise! at least 8@ of the +e+bers of the 7oard of )irectors of each of both corporations +#st be citi%ens of the Philippines! in order that the corporation shall be considered a Philippine national. 2. A corpora corporatio tion n organi% organi%ed ed abroad abroad and and registe registered red doing doing b#sine b#siness ss in the Philipp Philippines ines #nder the Corporation Code of which 1@@ of the capital stocks entitled to ote belong to ?ilipinos. en if the 8@&0@ ?ilipino to foreign e-#it ratio is apparentl +et b the s#b*ect or inestee corporation b appl appli ing ng the the contr ntrol tes test4! t4! a resort sort to the the +radfather R%le is necessar if do#bt e$ists as to the loc#s of the Bbenecial ownership and Bcontrol (Narra Nickel Mining and Development Corporation v. Redmont Consolidated Mines Corporation !"#$% .
*%ll) *%ll) ad partl) atioali/ed acti'itie# (Sundiang & Aquino Reviewer)
1. 1@@ 1@@ ?ilip ?ilipino ino e-#it e-#it / @ fore foreign ign e-#it e-#it a. ass ass +edia +edia e$cep e$ceptt rec record ording ing;; b. etai etaill trad trade e ente enterp rpri rise ses s with with paid paid&# &#p p capital of less than 6SD2.5 +illion; c. Pria Priate te sec sec#r #rit it agen agenci cies es;; d. S+al S+all& l&sc scal ale e +inin +ining; g; e. Cockpi ts ts; f. an# an#fa fact ct#r #re! e! repai repair! r! stock stockpil pilin ing g and/ and/or or distrib#tion of n#clear weapons; g. an# an#fa fact ct#r #re e of recr recrac ack kers ers and and othe otherr protechnic deices 2. At least least E@ E@ ?ilip ?ilipino ino e-#it e-#it / #p to 2@ 2@ foreig foreign n e-#it a. Priat Priate e radio radio co++# co++#nic nicati ations ons networ network k 3. At least least F5 F5 ?ilip ?ilipino ino e-#it e-#it / #p to 25 25 foreig foreign n e-#it a. Pria riate te recr recr#i #it+ t+en ent! t! wh whet ethe herr loca locall or oerseas e+plo+ent; b. Constr#c r#ction and repair of locall f#nded works; c. Constr#ction of defense&related str#ct#res 0. At least least 8@ 8@ ?ilip ?ilipino ino e-#it e-#it / #p to 0@ 0@ foreig foreign n e-#it a. $ploration! deelop+ent and #tili%ation of nat#ral reso#rces; b. ealt co+panies and other corporations that own priate lands; c. Gper Gperat atio ion n and and +ana +anage ge+e +ent nt of p#bl p#blic ic #tilities;
d. C#lt#re C#lt#re!! prod#ct prod#ction ion!! +illing! +illing! proce processi ssing! ng! trading e$cept retail of rice and corn and b&prod#cts; e. Ad*# Ad*#st st+e +ent nt co+p co+pan anie ies; s; f. Sa#na and stea+ bath ho#ses! +assage clinics and si+ilar actiities; g. )o+est )o+estic ic +ark +arket et enter enterpris prises es with with paid& paid& in capital stock of less than D2@@!@@@. (oweer! the threshold paid&in capital is D1@@ D1@@!@ !@@@ @@ if ente enterp rpri rise se ino inol les es adanced technolog or the e+plo at least least 5@ direc directt e+plo e+ploees ees.. 9t can be 1@@ 1@@ own wne ed b for foreigne igners rs if the the corpo corpora rati tion on is enga engage ged d enti entire rel l in e$port 5. At least least 0@ 0@ ?ilip ?ilipino ino e-#i e-#it t / #p to 8@ 8@ forei foreign gn e-#it a. ?inan inanci cing ng co+ co+pa panie nies; s; and and b. 9ne 9nest st+e +ent nt ho#s ho#ses es Gamboa v. Teves
?or p#rp p#rpos oses es of dete deter+ r+ini ining ng co+p co+plia lianc nce e with with ?ilipin ilipino o e-#it e-#it str# str#ct ct#ra #rall re-# re-#ir ire+ e+en ents ts #nde #nderr the the Constit#tion and other laws! the ter+ Bcapital stock sho#ld refer onl to co++on shares o#tstanding and entitled to ote and not to the total o#tstanding capital stock stock which which incl#d incl#des es the co++on co++on and non& non&otin oting g preferred shares. Moral da"a(e# The award of +oral da+ages cannot be granted in fao faorr of a corp corpora orati tion on beca beca#s #se! e! bein being g an arti artic cia iall person and haing e$istence onl in legal conte conte+pla +platio tion! n! it has no feeling feelings! s! no e+otio e+otions! ns! no sens senses es.. 9t cann cannot ot!! ther theref efor ore! e! e$pe e$peri rien ence ce phs phsic ical al s#Hering and +ental ang#ish! which can be e$perienced onl b one haing a nero#s sste+. The state+ent in &eople v. Manero and Mamb'lao 'mber that a corpor corporati ation on +a recoer recoer +oral +oral Co. Co. v. &N) &N) that da+ages if it has a good rep#tation that is debased! res#lting in social h#+iliation is an obiter dict#+ (*)S+ C)N v. C* #,,,%. Co#tit%tioal Co#tit%tioal (%aratee# A corporation ion is entitled led to the foll follo owing constit#tional rights= 1. )#e )#e Proce rocess ss;; and and 2. ight ight 6nla 6nlawf# wf#ll Searc Search h and Sei% Sei%#r #re e (Stone-ill v. Diokno% . & 7#t the rig right to in inoke this is&I&is corporate corporate propert is the corporation corporation itse itself lf and and not not a stoc stockh khol olde derr in his his personal capacit.
(owee (oweer! r! a corpor corporati ation on cannot cannot inok inoke the right right agai agains nstt self self&i &inc ncri ri+i +ina nati tion on not not onl onl beca beca#s #se e a corporation cannot be i+prisoned b#t also beca#se of the the Conc Conces essi sion on Theo Theor! r! henc hence! e! the the stat state e has has the the contin#ing power to inestigate whether a corporation co+plies with the re-#ire+ents of law and whether it is cond#cting its b#siness lawf#ll. lawf#ll. &octrie of Pierci( the Veil of Corporate Etit) The eil of corporate ction +a be pierced if it is being #sedJ
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1. 2. 3.
To defeat p%$lic co'eiece as when the corporate ction is #sed as a ehicle for the easion of an e$isting obligation; To *# *#stif if a 0ro(! protect fra%d! or defend a cri"e; or 9n alter cases! where where a corpo corporat ration ion is alter e(o cases! +erel a farce since it is a +ere alter ego or b#si b#sine ness ss cond cond#i #itt of a pers person on or wh when en the the corporation is so organi%ed and controlled and its aHairs are cond#cted as to +ake it +erel an instr#+enta instr#+entalit! lit! agenc! agenc! cond#it cond#it or ad*#nct ad*#nct of another corporation. le+ents= a. Cotrol of +a*ori +a*orit/c t/co+p o+plete lete stock stock control! control! nances! nances! polic and b#siness b#siness prac practi tice ce of the the corpo corporat ratio ion. n. ere ere +a*o +a*ori rit t/c /co o+ple +plette stoc tock contr ontro ol ins#Kcient4 b. S#ch cotrol "%#t ha'e $ee %#ed $) the defedat# to co""it fra%d or 0ro(! to perpet#ate the iolation of a lega legall d#t d#t in cont contra rae ent ntio ion n of plaintiHLs legal rights; and c. The The afor afores esai aid d cont ontrol and and brea breac ch of d#t +#st be the proi"ate ca%#e of the in*#r or #n*#st loss co+plained of.
Tr%#t *%d &octrie The capital stock! propert and other assets of a corpor corporati ation on are regarde regarded d as e-#it e-#it in tr#st tr#st for the pa+ent of corporate creditors. Also Also!! cred credit itor ors s +a +a s#e s#e stoc stockh khol olde ders rs for for thei theirr #npa #npaid id s#bs s#bscr cript iptio ions ns p#rs p#rs#a #ant nt to the the tr#s tr#stt f#nd f#nd doctrine. 9t is an established doctrine that s#bscriptions to the capital of a corporation constit#te a f#nd to which creditors hae a right to look for satisfaction of their clai clai+s +s and and that that the the assi assign gnee ee in inso insol len enc c can can +aintain an action #pon an #npaid stock s#bscription in order to reali%e assets for the pa+ent of its debts. 7#t note note that that the Tr#st r#st ?#nd ?#nd )octrin )octrine e does does not +ean that the corporation cannot #se its legal capital! otherwise! it cannot do b#siness at all. 9t *#st +eans that the legal capital cannot be #sed or dissipated to the pre*#dice of the creditors. / Can Can yo' yo' re0' re0'es estt mana manage geme ment nt to red' red'ce ce yo'r yo'r s'bscription to correspond to w-at yo' -ave paid1 */ o. o. 9t iolat iolates es the tr#st tr#st f#nd f#nd doctrin doctrine! e! beca#s beca#se e
s#bscription paid and #npaid for+s part of the legal capital. Sec. – Cla##e# of corporatio# 3Stoc4 ad No5 Stoc46 Re7%i#ite# of a #toc4 corporatio8 1. 9ts capi capital tal stoc stock k diide diided d into shar shares; es; A) A) 2. 9t is a#thor a#thori%ed i%ed to dist distrib# rib#te te diide diidends. nds. & This This a#tho a#thorit rit nee need d not not be stat stated ed in the the articl articles es of incorp incorpora oratio tion n or b&law b&laws! s! bec beca#s a#se the the powe powerr to dist distri rib# b#te te diide iden nds is inherent in a stock corporation. 7oth ele+ents +#st be present. 9f one or +ore is absent! it is considered o5#toc4 .
7= Accord According ing to Dean Dimay'ga! stock is&I&is non&stock is a +isno+er! beca#se the real distinction is the a#thor a#thorit it to declar declare e diiden diidends. ds. ?or ?or instan instance! ce! a corpor corporati ation on which which re-#ir re-#ires es its +e+ber +e+bers s to b# its shar shares es of stoc stock k b#t b#t are are not not allo allowe wed d to decl declar are e diidends is a non&stock corporation. Stoc4 '#. No5Stoc4 Stock #. *'t-ority to declare dividends !. Distrib'tion of pro2ts
3. 4ow incorporator called 5. Governing body $. 4ow o6cers c-osen 7. &lace of meeting
8. )oard9s term of o6ce :. N'mber of board members ,. ;ransferability of s-ares
Non+Stock
Mes Mes
o
Mes Mes
o! b#t +a +a engage in b#siness if incidental to its p#rpose. e+bers
Stockholders 7oard 7oard of )ir )irect ectors ors lected b the 7oard of )irectors ?or stockholders! within the cit or +#nicipalit where the principal oKce is located 1 ear 5&15 Transfera Transferable ble as a r#le4 C#+#latie
7oard 7oard of Tr#ste r#stees es lected directl b the +e+bers ?or +e+bers! anwhere in the Philippines
3 ears +a be e$tended4 a e$ceed 15 on&transferable as a r#le4 Straight as a r#le4
Paret9 #%$#idiar) ad a:liate corporatio# 1. Paret Corporatio N a corporation that has contro controll oer oer anothe anotherr corpo corporat ration ion direct directl l or indirectl thro#gh one or +ore inter+ediaries. 9t is the corporation that owns all or s#bstantiall all or the controlling shares in the s#bsidiar. 2. S%$#idiar) N A corporation +ore than 5@ of the oting stock of which is owned or controlled direc directl tl or indir indirec ectl tl thro thro#g #gh h one one or +ore +ore inter+ediar inter+ediaries ies b another another corporation corporation!! which thereb beco+e a parent co+pan. A s#bsidiar +a other be wholl owned or partl owned b a parent co+pan. co+pan. 3. A:liate – A corp corpor orat atio ion n that that dire direct ctl l or indirectl! thro#gh one or +ore inter+ediaries! is contr control olle led d b or is #nde #nderr the the cont contro roll of another another corporation corporation!! which thereb thereb beco+es beco+es its parent co+pan. Pierci Pierci( ( the 'eil 'eil $et0ee $et0ee the #%$#id #%$#idiar iar) ) ad paret corporatio# +R8 A s#bsidiar co+pan +a be 1@@ owned b a parent co+pan and een share the sa+e directors and oKcers as the latter! and the )octrine of Separate Personalit wo#ld still stil l appl. ;PN8 'hen there is a conf#sion of aHairs between the parent and s#bsidiar! there is co&+ingling of f#nds!
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and and the the nan nance ces! s! b#si b#sine ness ss and and poli polici cies es of the the s#bsidiar s#bsidiar are controlle controlled d b the parent co+pan co+pan.. 9n s#ch case! the )octrine of Piercing +a be applied. Sec. < – Corporatio# created $) #pecial la0# or charter# Co(re## caot create a pri'ate corporatio $) #pecial la0. Priat Priate e corpo corporat ration ions s +a onl onl be for+ed for+ed #nder #nder gene genera rall law! law! wh whic ich h is the the Corpo Corpora rati tion on Code Code!! the the p#rpo p#rpose se of which which is to aoi aoid d fao faorit ritis is+. +. Cong Congre ress ss cannot faor priate interests. SEC =%ri#dictio The Sec#rities and $change Co++ission SC4 does does not hae hae *#risdi *#risdicti ction on oer oer p#blic p#blic corpora corporatio tions! ns! incl#ding – Cor Corporat orato or# ad ad #toc4holder# ad "e"$er#.
ic icorp orporat orato or#9 r#9
Co"poet# of a Corporatio 1. Ico Icorp rpor orat ator or & Stoc Stockh khol olde derr or +e+b +e+ber er +ent +entio ione ned d in the artic rticlles of incorporat ration ion as originall originall for+ing for+ing and co+posing co+posing the corpor corporati ation on and who are are signat signatori ories es thereof. & Gnce an incorporator alwas an inco incorp rpor orat ator or.. Th#s Th#s!! a corp corpor orat atio ion n cannot a+end its Articles of 9ncorporati 9ncorporation on to delete! add or change change an incorporator. incorporator. & <= <= Gnl Gnl nat nat#r #ral al per perso sons ns +a +a bec beco+ o+e e inco incorpo rpora rato tors rs!! beca beca#s #se e an arti artic cia iall person person cannot cannot be a signat signator or to the Articles of 9ncorporation. OP= OP= Coop Cooper erat ati ies es wh whic ich h +a +a be incorporators of r#ral banks. 2. Corp orporat orator or & Those who co+pose a corporation! whether as stockholders or as +e+b +e+ber ers. s. 'h 'hile ile incor incorpo pora rato tors rs will will foreer foreer be incorporato incorporators! rs! corporators corporators +a cease to be as s#ch. . Stoc Stoc4h 4hol olde der# r# Corporators of a stock corporation. 5 <. Me"$er# & Corp Corpor orat ator ors s of a non& non&st stoc ock k cor corpo pora ratio tion. n. >. &irect &irector# or#?T ?Tr%# r%#tee tee# # &
pro+oter pro+oter before before incorporatio incorporation n #nless the contract is ratied; b.Pro+oter is personall liable for contracts contracts or agree+ents agree+ents with thir third d pers person ons s cont contra ract cted ed in behalf of the f#t#re corporation if the the corp corpor orat atio ion n does does not not ratif ratif the sa+e sa+e or #nless #nless the agree+ent was e$pressl +ade s#b*e s#b*ect ct to s#ch s#ch appr appro oal al or ratication; c.Pro+ote c.Pro+oterr sho#ld sho#ld re+it re+it to the corp corpor orat atio ion n pro prots ts that that he deried deried that properl pertains to the corporation. Sec. , – Cla##i!catio of #hare# &e!itio of Ter"#8 1. Co"" Co""o o Shar Share# e# & epre eprese sent nt the the resi resid# d#al al own owner ersh ship ip inte intere rest st in the corporation. & 6s#a 6s#all ll iss#e iss#ed d witho witho#t #t e$t e$tra raor ordi dina nar r righ rights ts and priileges. & ntitles the shareholder to a pro rata diision of prots. & Ther There e shal shalll alwa alwas s be be a clas class s or ser serie ies s of shares which hae co+plete oting rights. 2. Pref Prefer erre red d Shar Share# e# & Shar Shares es tha thatt are are gie gien n pref prefer eren ence ce eith either er as as to either or both diidends or assets in case of dissol#tion4. & 6sed 6sed to to attr attrac actt ine inest stor ors. s. 6s# 6s#al all l depri deprie ed d of oting rights kasi pera lang kailangan sa kanila. & Pref Prefer erre red d shar shares es +a +a be iss# iss#ed ed onl onl with with a stated par al#e. & Tpes pes of Prefe referr rred ed Shar Shares es== a. C%"%lati'e & 9f a di diide idend is o+ o+itt itted in in an ear! it +#st be +ade #p in a later ear before an diidend +a be paid on the the co++o o++on n in the the later ear. $. No5C%"%lati'e & o ne n eed to t o +a + ake #p # p f or or #ndeclared diidends. & c.Participati( & ntit ntitle led d to pa partic rticip ipa ate wit with h the co++o o++on n sha shares in e$cess of distrib#tion. d. Co'erti$le Preferred Share# & Gne wh which co confers on on th the holders the option of e$cha e$changin nging g s#ch s#ch shares shares for another class of shares at a certain price within a certain period. & 9f not a#thori%ed b article articles s of incorp incorpora oratio tion! n! the corpo orpora rati tion on is not not
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allowed to conertible shares.
. Voti( Share# & Shares with oting rights. <. No5Voti( Share# & Shares witho#t oting rights. >. Par Val%e Share# & Those with $ed al#e stated in the articles of incorporation and the share certicate. ,. No Par Val%e Share# 5 Those witho#t a $ed al#e. & Conditions= a.Shall be dee+ed f#ll paid and non&assessable and the holder of s#ch shares shall not be liable to the corporation or to its creditors in respect thereto; b.The shares witho#t par al#e +a not be iss#ed for a consideration less than P5.@@ per share; c.The entire consideration receied b the corporation for its no par al#e shares shall be treated as capital and shall not be aailable for distrib#tion as diidends. (ence! s#pposing that the iss#ed al#e of a no par al#e share is P2@@ b#t it was sold for P25@. The pre+i#+ of P5@ is considered part of the capital and cannot be declared as diidends. ote= This restriction does not appl to par al#e shares where the pre+i#+ +a be treated as s#rpl#s prots that +a be declared as stock diidends. & The following cannot iss#e no par al#e shares= a.7anks b.Tr#st co+panies; c. 9ns#rance co+panies; d.P#blic #tilities; and e.7#ilding and loan associations & Adantages of no par al#e shares oer par al#e share= a.)oes not pretend to place a denite +one al#e on the shares &
9n par al#e! a prospectie b#er +a be deceied b the al#e appearing in the certicate.
b.?le$ibilit of price & e+e+ber!
leewa to lower its price for sale.
iss#e
the a+o#nt appearing in the par al#e share +a not be acc#rate depending on the nancial stat#s of the corporation. The bad thing is that a corporation cannot sell a par al#e share below its par al#e! otherwise it wo#ld be considered a watered stock. S#ch is not the case with a no par al#e share where the corporation has the
c.?ro+
the iewpoint of stockholders! there is no longer a personal liabilit for #npaid shares! beca#se the law re-#ires no par al#e shares to be paid in f#ll. d. 'atering of stock is lessened. @. E#cro0 Share# & es#lt b irt#e of a transaction to place shares in escrow #ntil the happening of an eent or f#lll+ent of a specied condition. . Trea#%r) Share# & Treas#r shares are shares of stock which hae been iss#ed and f#ll paid for! b#t s#bse-#entl reac-#ired b the iss#ing corporation b p#rchase! rede+ption! donation or thro#gh so+e other lawf#l +eans. B. Redee"a$le Share# & Shares of stocks iss#ed b a corporation which the latter can redee+ later on. & a either be a4 Gptional or b4 Co+p#lsor. The latter re-#ires the iss#ing corporation to redee+ its preferred shares at a $ed date or after the e$piration of a certain period at the option of the stockholder. 1-. *o%der# Share# & Shares that are gien to those who helped organi%e the corporation. 11. Stoc4 Split & #+ber of shares increase b#t al#e re+ains the sa+e. & The c onerse of t his i s Re'er#e Stoc4 Split wherein +#ltiple shares are +erged into one. 12. +%arateed Share# & Shares! the pa+ent of diidends of which is g#aranteed b the corporation. & A corporation cannot b itself g#arantee that it is paing a reg#lar earl diidends! beca#se diidends +a be paid onl o#t of #nrestricted retained earnings! b#t another corporation +a +ake s#ch g#arantee. &octrie of E7%alit) of Share# $cept as otherwise proided in the articles of incorporation and stated in the certicate of stock! each share shall be e-#al in all respects to eer other share. Ialiea$le Voti( Ri(ht#. Preferred and edee+able shares +a be depried of oting rights the right to ote and be oted for as directors and other corporate acts re-#iring stockholdersL ratication4. eertheless! the are still entitled to ote on the following +atters= 1. A+end+ent of the articles of incorporation; 2. Adoption and a+end+ent of b&laws; . Sale! lease! e$changed! +ortgage! pledge or other disposition of all or s#bstantiall all of the corporate propert;
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<. 9nc#rring! created or increasing bonded indebtedness; >. 9ncrease or decrease of capital stock; ,. erger or consolidation of the corporation with another corporation or other corporations; @. 9nest+ent of corporate f#nds in another corporation or b#siness in accordance with the Corporation Code; and . )issol#tion of the corporation. ationale= These E directl aHects their rights as stockholders! th#s! the are gien the right to oice o#t their concerned! een if the hae no oting r ights. Sec. @ – *o%der# #hare# What are *o%der# Share#D Shares that are gien to those who helped organi%e the corporation. 9t +a hae special rights and priileges not en*oed b others.
?o#ndersL shares are transferrable! #nless prohibited b the articles of incorporation or b&laws. ote= 9n fact! all tpes of shares of a stock corporation are generall transferrable! #nless prohibited b the articles of incorporation or b&laws. Re7%ire"et 0here fo%der# #hare# (rat ecl%#i'e ri(ht to 'ote ad $e 'oted for a# director#8 9t +#st be for a li+ited period not e$ceeding 5 ears s#b*ect to the approal of the SC. The 5&ear period co++ences fro+ the date of approal. Sec. – Redee"a$le #hare# No eed for %re#tricted retaied eari(# to redee" A corporation +a redee+ shares een witho#t #nrestricted retained earnings or s#rpl#s prots! beca#se a holder of redee+able shares is considered a creditor of a corporation! hence there is no iolation of the Tr#st ?#nd )octrine! which is precisel for the benet of the creditors. (oweer! a corporation cannot redee+ shares if it wo#ld res#lt into its insolenc or inabilit to carr o#t its b#siness. Co"p%l#or)?"adator) rede"ptio Co+p#lsor redee+able share is one that re-#ires the iss#ing corporation to redee+ or rep#rchase its preferred shares at a $ed date or at the option of the holder thereb giing the shareholder the right to the ret#rn of the inest+ent. (oweer! een if a stockholder is holding +andator redee+able shares! rede+ption is still s#b*ect to the re-#ire+ent that eno#gh assets are left to coer debts and liabilities. Si4i( f%d ?or the protection of the stockholders! the SC #les proide that a corporation that has iss#ed redee+able shares shall set #p and +aintain a sinking f#nd to be deposited with a tr#stee bank which shall not be inested in risk and spec#latie ent#res. A sinking f#nd refers to a f#nd set #p b a corporation
where cash is grad#all set aside in order to acc#+#late the a+o#nt necessar to +eet the rede+ption price of redee+able shares at specied dates in the f#t#re. Rede"ptio "%#t $e i (ood faith The rede+ption of shares +#st be +ade in good faith and witho#t pre*#dice to the rights of other creditors or shareholders. Gtherwise! the rede+ption +a not be #ndertaken or if it has alread taken place! the other creditors or shareholders +a hae a ca#se of action for the recoer of the assets of the corporation! which were #sed to redee+ its own shares. Retire"et +R8 Gnce redee+ed! the are considered retired and can no longer be reiss#ed res#lting in the ded#ction fro+ the legal capital. ;PN8 'hen the articles of incorporation allows reiss#ance of redee+ed shares (R'les Governing Redeemable and ;reas'ry S-ares% . Sec. B – Trea#%r) #hare# &e!itio Treas#r shares are shares of stock which hae been iss#ed and f#ll paid for! b#t s#bse-#entl reac-#ired b the iss#ing corporation b p#rchase! rede+ption! donation or thro#gh so+e other lawf#l +eans. S#ch shares +a again be disposed of for a reasonable price $ed b the board of directors.
Treas#r shares hae no oting rights and cannot participate in diidends. I#tace# 0here a #hare $eco"e# a trea#%r) #hare8 1. 'hen a corporation ac-#ires its own shares for the following p#rposes= a. To eli+inate fractional shares arising o#t of stock diidends; b. To collect or co+pro+ise an indebtedness to the corporation! arising o#t of #npaid s#bscription! in a delin-#enc sale! and to p#rchase delin-#ent shares sold d#ring said sale; c. To pa dissenting or withdrawing stockholders entitled to pa+ent for their shares #nder the proisions of this Corporation Code; and 2. 'hen a corporation redee+s its redee+able preferred shares; and 3. 'hen a corporation b#s its shares fro+ the open +arket! proided it has s#Kcient s#rpl#s prots. What "a) a corporatio do to trea#%r) #hare#D 1. eiss#e the+; 2. )eclare the+ as propert diidends; or 3. etire the+ & etire+ent of treas#r shares shall be eHected b decreasing the capital stock of the corporation in accordance with Sec. 3E of the Corporation Code
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for the p#rpose of eli+inating treas#r shares. This +eans that the articles of incorporation +#st be a+ended. Sec. 1- – N%"$er icorporator#
ad
7%ali!catio#
of
N%"$er ot less than 5 nor +ore than 15. %ali!catio# of icorporator#8 1. at#ral person; 2. ,egal age and hae capacit to contract; 3. ach +#st own or be a s#bscriber to at least 1 share of the capital stock of the corporation; 0. a*orit +#st be Philippine residents.
?ro+ the aforesaid -#alications! the following can be ded#ced= & Aliens +a be incorporators or coporators! s#b*ect to re-#ire+ents of special laws regarding nationali%ed or partl nationali%ed actiities. & on&residents +a also be incorporators. The Corporation Code onl re-#ires +a*orit +#st be residents. Sec. 11 – Corporate ter"
a$i+#+ of 5@ ears. a be shorted or e$tended! proided that no e$tension +a be +ade earlier than 5 ears prior to the e$pir date! #nless there are *#stiable reasons for an earlier e$tension as +a be deter+ined b the SC. Sec. 12 – Mii"%" capital #toc4 re7%ired of #toc4 corporatio#
There +a be no +ini+#+ a#thori%ed capital stock #nless otherwise proided b special laws4! b#t the +ini+#+ paid #p capital is P5!@@@! which is 25 of the s#bscribed capital stock! which in t#rn is 25 of the a#thori%ed capital stock. So! if we look at it that wa! technicall! the +ini+#+ a#thori%ed capital stock is P5!@@@. Sec. 1 – A"o%t of capital #toc4 to $e #%$#cri$ed ad paid for the p%rpo#e# of icorporatio &e!itio of Ter"# 1. A%thori/ed Capital Stoc4 & A+o#nt $ed in the articles of incorporation to be s#bscribed and paid b the stockholders of the corporation. & a$i+#+ a+o#nt that can be capitali%ed. 2. S%$#cri$ed Capital & That portion of the a#thori%ed capital stock that is coered b s#bscription agree+ents whether f#ll paid or not. . Paid5Fp Capital & The a+o#nt of o#tstanding capital stock and additional paid&in capital or
pre+i#+ paid oer the par al#e of the shares. <. O%t#tadi( Capital Stoc4 & The total shares of stock iss#ed whether or not f#ll or partiall paid e$cept treas#r shares so long as there is a binding s#bscription agree+ent. >. Capital & 9ncl#des properties and assets of the corporation that are #sed for its b#siness or operation. ,. Stated Capital & S#+ of the par al#e of all iss#ed par al#e shares! the entire a+o#nt receied for no&par al#e shares and an a+o#nt transferred b a stock diidend or other corporate action fro+ s#rpl#s to state capital. Iitial #%$#cri$ed ad paid5%p capital 1. ini+#+ S#bscribed Capital N 25 of the a#thori%ed capital stock; 2. ini+#+ Paid&#p Capital N 25 of S#bscribed Capital b#t +#st not be less than P5!@@@
Shortc#t= To deter+ine paid&#p capital! +#ltipl the a#thori%ed capital stock with @.@825. 9t is not necessar that 25 of each s#bscribed share +#st be paid. 9t is onl re-#ired that at least 25 of the s#bscribed capital +#st be paid. 9n other words! we consider the Btotal paid&#p a+o#nt. E=ample/
Corpo O has an ACS of P1 +illion diided into 1@@!@@@ shares. A! 7! C! ) and s#bscribed to 25 P25@!@@@ corresponding to 25!@@@ shares4 of the a#thori%ed capital stock. 9n s#ch case! A! 7! C! ) and wo#ld each be s#bscribers to P5@!@@@ for 5!@@@ shares of stocks. ow! 25 of P25@!@@@ is P82!5@@. 9t is not necessar that all of the+ +#st each pa P12!5@@ 82!@@@/54. 9t is eno#gh that the totalit of their pa+ents reach P82!5@@. So if A! 7 and C paid P5@!@@@! P12!@@@! P5@@! respectiel! while ) and paid nothing! the re-#ire+ents of the Corporation Code are satised. Proceeding fro+ the aboe pre+ise! it wo#ld appear that a person +a beco+e a stockholder witho#t paing anthing. 'o#ld that be #nfair to paing s#bscribers ot reall! beca#se corporations #s#all i+pose interests to those who do not pa in f#ll #pon s#bscription. Sec. 1< – icorporatio
Cotet#
of
the
article#
of
1. Na"e of the corporation; 2. Pri+ar p%rpo#e and secondar p#rposes; & See notes below 3. Place where the principal oKce is located; & The SC now re-#ires OACT address to be stated in the arti cles of incorporation! b#t for p#rposes of stockholders +eetings! etro anila is still considered a cit.
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0. Corporate ter"; 5. a+es! nationalities and residences of the icorporator#; 8. N%"$er of director#?tr%#tee#; F. a+es! nationalities and residences of persons who shall act as director# or tr%#tee# #ntil the rst reg#lar directors or tr#stees are d#l elected and -#alied. & This act#all refers to 9ncorporating )irectors whose p#rpose to facilitate the organi%ation of the corporation d#ring its initial stages! beca#se re+e+ber that there +#st be an election of the 7oard of )irectors for a corporation to for+all organi%e. E. 9n case of #toc4 corporation= & A+o#nt of a#thori%ed capital stock +#st be in Philippine c#rrenc4; & #+ber of shares into which it is diided; & 9n case of par al#e shares! the par al#e of each; & a+es! nationalities and residences of the original s#bscribers! and the a+o#nt s#bscribed and paid b each on his s#bscription; & 9f so+e or all of shares are witho#t par al#e! s#ch fact +#st be stated; :. 9n case of o5#toc4 corporation! the a+o#nt of its capital! the na+es! nationalities and residences of the contrib#tors and the a+o#nt contrib#ted b each; and 1@. S#ch other "atter# as are not inconsistent with law and which the incorporators +a dee+ necessar and conenient. 5 There are ite+s that +#st be stated in the articles of incorporation! otherwise! certain corporate acts wo#ld not be per+itted. P%rpo#e cla%#e A corporation +a be organi%ed for seeral p#rposes! b#t there +#st onl be one pri+ar p#rpose! while the others wo#ld +erel be secondar. elate this to Sec. 02 of the Corporation Code which re-#ires the approal of the stockholders representing 2/3 of the o#tstanding capital stock if the corporation wants to inest +one in a p#rpose other than its pri+ar p#rpose. The p#rpose cla#se is signicant in deter+ining whether or not an act is #ltra ires! beca#se take note that #nlike nat#ral persons! corporations +a onl e$ercise e$press! i+plied and incidental powers This will be disc#ssed later on in Sec. 384. There are also corporate acts that are gien diHerent treat+ents depending whether the were done in p#rs#it of a pri+ar or secondar p#rpose.
The following are the conditions for the alidit of p#rposes4= 1. ,awf#l; 2. Specic; 3. Stated; and 0. Capable of being lawf#ll co+bined.
/ S-o'ld a corporation9s secondary p'rpose(s% be in line or related wit- its primary p'rpose1 */ o. As a general r#le! the secondar p#rpose need
not be related to the pri+ar p#rpose as long as the are capable of being lawf#ll co+bined! OCPT for the following where their secondar p#rposes +#st be related to their pri+ar p#rposes= 1. 7anks; 2. 9ns#rance co+panies; 3. d#cational instit#tions; 0. P#blic #tilities; and 5. Gthers i+b#ed with p#blic interest Cotet# of Trea#%rer# A:da'it8 Sworn state+ent that at least 25 of the ACS has been s#bscribed! and at least 25 of the total s#bscription has been f#ll paid to hi+ in act#al cash and/or in propert the fair al#ation of which is e-#al to at least twent&e 254 percent of the said s#bscription! s#ch paid&#p capital being not less than e tho#sand P5!@@@.@@4 pesos. Ga#ic doc%"et# eeded to icorporate According to )ean Abella 84= 1. a+e Qerication Slip & To erif whether the proposed corporate na+e is still aailable. 2. Articles of 9ncorporation 3. Treas#rerLs AKdait 0. egistration )ata Sheet 5. 7&laws 8. od#s Gperandi & A brief write #p describing how the corporation plans to operate. According to )i+aa+pao R scalante eiewer 54= 1. Articles of incorporation; 2. Treas#rerLs AKdait; 3. 7ank certicate of deposit coering the paid&#p capital; 0. ,etter of a#thorit to allow SC to e$a+ine the bank deposit and other corporate books and records to deter+ine the e$istence of paid&#p capital; 5. Certicate of A#thorit fro+ proper goern+ent agenc when appropriate; and 8. ,etter #ndertaking to change the proposed na+e if alread adopted b another corporation! partnership or association. Whe to !le G)5la0# 1. 7&laws +a be led along with the articles of incorporation! in which case the +#st be signed b all the incorporators; or 2. 7&laws +a be led within 3@ das fro+ the iss#ance of the certicate of incorporation! in which case it +#st be ratied b +a*orit 1 of
1 GT= ?or breit! wheneer this reiewer #ses the word B+a*orit it is #nderstood to be referring either to stockholders representing +a*orit of the o#tstanding capital stock in case of a stock corporation4 or +a*orit of the +e+bers in case of a non&stock corporation4 as the case +a be. The sa+e applies wheneer B2/3 is #sed. Also! when the words Bboard resol#tion is #sed! it +eans +a*orit ote of the board of directors/tr#stees.
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the stockholders or +e+bers and singed b those oting for the sa+e. 7&laws are not condition precedent to the for+ing of a corporation; rather! the are condition s#bse-#ent. (oweer! fail#re to le the b&laws does not res#lt in an a#to+atic dissol#tion. Sec. 1> – *or"# of Article# of Icorporatio Self&e$planator. Sec. 1, – A"ed"et of Article# of Icorporatio Re7%i#ite# for a"ed"et8 1. 7oard esol#tion and 2/3 atication; 2. The original and a+ended articles together shall contain all proisions re-#ired b law to be set o#t in the articles of incorporation; 3. A+end+ent +#st #nderscore/highlight the changes +ade; 0. Certied #nder oath b the corporate secretar and a +a*orit of the directors or tr#stees stating the fact that said a+end+ent or a+end+ents hae been d#l approed b the re-#ired ote of the stockholders or +e+bers; 5. ?aorable endorse+ent of proper goern+ent agencies; 8. #st be approed b the SC.
A+end+ents shall take eHect #pon approal of the SC or fro+ the date of ling if not acted within 8 +onths fro+ the date of ling for a ca#se not attrib#table to the corporation. Take note that not all ite+s in the Articles of 9ncorporation +a be a+ended. There are ite+s which are considered acco+plished facts and part of the corporationLs histor i.e. na+e of incorporators and incorporating directors4! hence cannot be a+ended. Sec. 1@ – +ro%d# 0he article# of icorporatio or a"ed"et "a) $e re=ected or di#appro'ed 1. Articles of incorporation or an a+end+ent thereto not in accordance with the for+ prescribed; 2. P#rposes4 of the corporation are patentl #nconstit#tional! illegal! i++oral! or contrar to goern+ent r#les and reg#lations; 3. The treas#rerLs aKdait concerning the a+o#nt of capital stock s#bscribed and/or paid is false; 0. Percentage of ownership of the capital stock to be owned b citi%ens of the Philippines has not been co+plied with as re-#ired b e$isting laws or the Constit#tion; 5. o faorable reco++endation of the appropriate goern+ent agencies. Sec. 1 – Corporate a"e Appl 9P, trade+ark principles b analog. Sec. 1B – Co""ece"et of corporate ei#tece ,ike a nat#ral person! a corporation has a date of birth! and that is on the date where the SC iss#es a certi!cate of icorporatio #nder its oKcial seal.
Sec. 2- – &e facto corporatio# Cla##e# of corporatio# accordi( to le(al #tat%# 1. )e #re Corporation; 2. )e ?acto Corporation; and 3. Corporation b estoppel De >'re
De ?acto
A de *#re A corporation corporation is one where there e$ists organi%ed in strict a aw in its or s#bstantial incorporation. The co+pliance with re-#isites for its the law and whose e$istence are= right to e$ist as a 1. The e$istence corporation cannot of a alid law s#ccessf#ll be #nder which it attacked een in a +a be direct proceeding. incorporated; 2. An atte+pt in good faith to incorporate; and 3. 6se of corporate powers 'ith respect to Batte+pt in good faith to incorporate! the SC has interpreted that to +ean that at the er least! it +#st hae a certicate of incorporation iss#ed b the SC. oreoer! the corporation +#st act in good faith not onl in atte+pting to incorporate b#t also in doing their b#siness. e-#ires strict or e-#ires +erel s#bstantial colorable co+pliance with co+pliance with the law. the law. 9t can neither be attacked collaterall nor in a direct proceeding! beca#se there is absol#tel no gro#nd to attack its e$istence.
Corporation by Estoppel
Corporation b estoppel refers to a gro#p of persons who ass#+e to act as a corporation knowing it to be witho#t a#thorit to do so. The are estopped fro+ clai+ing lack of corporate life in order to aoid liabilit. The are also liable as general partners. e-#isites= 1. epresentatio n b a gro#p of persons that the are a corporation! when in tr#th and in fact the are not; 2. eliance on said representatio n b third persons; and )ealings with third persons
o co+pliance at all.
Cannot be 9t cannot be collaterall attacked attacked. 9t +#st collaterall since be b wa of a -#o both parties are warranto #nder estoppel. proceeding. The either can it be reason is for attacked directl! stabilit of beca#se there is transactions. nothing to attack. A de facto Those who ass#+e corporation has to act as a the sa+e powers! corporation rights! priileges knowing it to be
Page > :
and liabilities of a de *#re corporation #ntil its certicate of incorporation is reoked. 9t is akin to a oidable contract! which is alid #ntil ann#lled.
)oes not re-#ire corporate dealings and can assert its stat#s against the whole world.
witho#t a#thorit to do so shall be liable actie +e+bers4 as general partners! +eaning #p to their personal properties. Those who were not aware passie partners4 are liable onl #p to their inest+ent.
Sec. 21 – Corporatio $) e#toppel
See notes on Sec. 2@. Sec. 22 – EHect# o o5%#e of corporate charter ad coti%o%# ioperatio of a corporatio A. T0o 326 )ear# The corporation does not for+all organi%e and co++ence transaction within 2 ears fro+ the iss#ance of the certicate of incorporation. Conse-#ence is dissol#tion.
A corporation is dee+ed to hae for+all organi%ed when it has co+plied with the following re-#isites= 1. Adoption of 7&,aws; 2. lection of 7oard of )irectors; and 3. lection of Corporate GKcers. eertheless! s#bstantial co+pliance +a s#Kce. (ence! where the corporation has elected its 7oard of )irectors! its treas#rer and secretar b#t not has et to elect its president! it is dee+ed to hae for+all organi%ed (&ere@ v. )almaceda%. G. *i'e 3>6 )ear# The corporation co++enced operation b#t beco+es contin#o#sl inoperatie for a period of 5 ears. This shall be a gro#nd for the s#spension or reocation of its corporate franchise or certicate of incorporation. No a%to"atic di##ol%tio )espite the wording of this proision! there is no a#to+atic dissol#tion #nder this section. There +#st be notice and hearing.
1. $ercise all corporate powers; 2. Cond#cts all corporate b#siness; and 3. Controls and holds corporate propert Cla##i!catio of corporate po0er# $a#ed o 0ho eerci#e# the" 1. Acts that +a be perfor+ed b the 7oard of )irectors alone or act# of ordiar) "aa(e"et a. Appoint+ent of oKcers; b. ?i$ing of co+pensation! pension and retire+ent benets; c. )elegation to corporate oKcers of a#thorit for ad+inistratie actions! s#b*ect to certain li+itations; d. )eclaration of diidends e$cept stock diidends4; and e. S#perision of the whole b#siness of the corporation 2. Acts that +a not be perfor+ed b the 7oard of )irectors witho#t the conc#rrence of the stockholders or act# ot of ordiar) "aa(e"et a. Power to e$tend or shorten corporate ter+; b. Power to increase or decrease capital stock; c. Power to inc#r! crease or increase bonded indebtedness; d. Power to den pre&e+ptie right where shares are iss#ed in good faith in e$change for propert needed for corporate p#rposes or in pa+ent of a preio#sl contracted debt; e. Sale of all or s#bstantiall all corporate propert and assets; f. Power to inest corporate f#nds for a p#rpose other than the corporationLs pri+ar p#rpose; g. Power to declare stock diidends; and h. Power to enter into +anage+ent contracts 3. Acts that +a be perfor+ed b the stockholders alone a. lection of 7oard +e+bers; b. e+oal of 7oard +e+bers; c. )elegation of power to a+end the b& laws; d. ?i$ing of the co+pensation of the 7oard +e+bers; e. atication of #ltra ires acts; and f. ?i$ing the al#e of no par al#e shares What are act# of ordiar) "aa(e"etD 9f an act does not re-#ire conc#rrence of the stockholders or is not e$ercised e$cl#siel b stockholders! it is an act of ordinar +anage+ent.
Sec. 2 – The $oard of director# or tr%#tee# &octrie of Cetrali/ed Maa(e"et The board of directors/tr#stees is the goerning bod of the corporation and all corporate powers are e$ercised b the+. +eeral Po0er# of the Goard
&ele(atio of corporate po0er# Acts of ordinar +anage+ent +a be delegated! s#b*ect to certain restrictions= 1. The 7oard cannot delegate the entire power of s#perision and control. (ence! the 7oard does not abdicate its entire power of s#perision and control! een if it enters into
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a +anage+ent contract with another corporation. 2. The 7oard cannot delegate discretionar powers which b law! charter or b&laws are e$cl#siel ested with the 7oard. 3. The 7oard cannot delegate a#thorit speciall delegated to it. 0. The 7oard +a delegate to the $ec#tie Co++ittee the approal of loans not e$ceeding P2@ +illion! otherwise! the latter has no a#thorit to grant loans. Three5fold d%tie# of the Goard 1. )#t of Gbedience; & This d#t is iolated when a director or tr#stee willf#ll and knowingl ote for or assent to patentl #nlawf#l acts of the corporation. (Sec. 3#% 2. )#t of )iligence; and & This d#t is iolated when a director or tr#stee is g#ilt of gross negligence or bad faith in directing the aHairs of the corporation. (Sec. 3#% & A director +a be liable for gross negligence if he is a perennial absentee! and a patentl #nlawf#l act was adopted b the other board +e+bers d#ring his absence. 3. )#t of ,oalt & This d#t is iolated in the following cases= i. The director or tr#stee ac-#ires an personal or pec#niar interest in conict with his or her d#t as s#ch director or tr#stee (Sec. 3#%A ii. A director! tr#stee or oKcer atte+pts to ac-#ire or ac-#ires! in iolation of his d#t! an interest aderse to the corporation in respect of an +atter which has been reposed in hi+ in condence! as to which e-#it i+poses a disabilit #pon hi+ to deal in his own behalf (Sec. 3#%A and iii. A director! b irt#e of his oKce! ac-#ires for hi+self a b#siness opport#nit which sho#ld belong to the corporation! thereb obtaining prots to the pre*#dice of s#ch corporation (Sec. 35%. G%#ie## %d("et R%le Acts and contracts entered into b the 7oard are binding #pon the corporation beond the interference of the co#rts. The co#rts are barred fro+ intr#ding into b#siness *#dg+ents of corporations when the sa+e are +ade in good faith.
The 7oard and the oKcers +a not be held personall liable for acts or contracts done in the e$ercise of their b#siness *#dg+ent.
Eceptio# to G%#ie## %d("et R%le9 0he $oard "e"$er# per#oall) ad #olidaril) lia$le8 1. Assent to patentl #nlawf#l acts; 2.
The doctrine of apparent a#thorit does not appl if the principal did not co++it an acts or cond#ct which a third part knew and relied #pon in good faith as a res#lt of the e$ercise of reasonable pr#dence. oreoer! the agentLs acts or cond#ct +#st hae prod#ced a change of position to the third partLs detri+ent. Apparent a#thorit is deried not +erel fro+ practice. 9ts e$istence +a be ascertained thro#gh 14 the general +anner in which the corporation holds o#t an oKcer or agent as haing the power to act or! in other words the apparent a#thorit to act in general! with which it clothes hi+; or 24 the ac-#iescence in his acts of a partic#lar nat#re! with act#al or constr#ctie knowledge thereof! within or beond the scope of his ordinar powers. 9t re-#ires presentation of eidence of si+ilar acts4 e$ec#ted either in its faor or in faor of other parties. 9t is not the -#antit of si+ilar acts which establishes apparent a#thorit! b#t the esting of a corporate oKcer with the power to bind the corporation. %ali!catio# of a director?tr%#tee8 1. #st own at least 1 share of the capital stock of the corporation of which he is a director; 2. a*orit of the directors/tr#stees +#st be Philippine residents; 3. #st not hae been conicted b nal *#dg+ent of an oHense p#nishable b +ore than 8 ears of i+prison+ent; 0. #st not hae co++itted a iolation of the Corporation Code within 5 ears prior to the date of his election or appoint+ent; and 5. #st possess the -#alications and none of the dis-#alications in the b&laws. O0er#hip of #hare re7%ire"et As far as the law is concerned! a person alread owns a share when he has s#bscribed thereto! whether or not f#ll paid.
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'hen a share is leied! its stockholder +a be re+oed fro+ as president. 'hen a person is re+oed as president b reason of losing all the shares4! he cannot be president again +erel b b#ing new shares. (e +#st be elected again. %or%" 9n board +eetings! -#or#+ is deter+ined on the basis of the n#+ber of directors and not on their shareholdings #nlike stockholder +eeting4. Also! -#or#+ is deter+ined based on the presence of the directors at the start of the +eeting. So if an of the+ leaes! there will still be a -#or#+.
9n the absence of a special proision in the b&laws! -#or#+ sho#ld be #nderstood in its ordinar sense! which is U V1. Colle(ial God) R%le +R8 The 7oard +#st act as a collegial bod in a +eeting in +aking corporate decisions. Th#s! one director +a not *#st call the others b phone to cons#lt the+ for a decision. ;PN#8 1. 'hen the directors are the onl stockholders; 2. The transaction is carried o#t in the na+e of the corporation with approal of all the stockholders; 3. A single stockholder owns s#bstantiall all the shares; and 0. 9n the case of close corporations. Sec. 2< – Electio of director# or tr%#tee# T0o 'oti( "ethod#8 1. Strai(ht Voti( & Stockholder can cast one ote per share for each director. 2. C%"%lati'e Voti( & Stockholder can c#+#late all his otes and gie to one candidate all his otes or he +a diide the otes a+ong two or +ore candidates. & C#+#latie oting is deised to gie s#Kcient opport#nit to +inorit shareholders to sec#re representation in the board. & 9ndispensable and cannot be prohibited in stock corporations. 9t +a be allowed in non&stock corporations onl if the sa+e is proided for in the articles of incorporation. 7#t there are a#thorities that sa that c#+#latie oting cannot be done in non&stock corporations. Sec. 2> – Corporate o:cer#9 7%or%" Corporate O:cer# 1. Pre#idet; & #st also be a director; & Cannot act conc#rrentl as treas#rer and/or secretar 2. Trea#%rer;
& a or +a not be a director 3. Secretar); and & #st be a resident and a citi%en of the Philippines. 0. Other# A corporation #s#all has a chair+an 5 whose f#nction is to preside in +eetings. Ico"pati$le o:ce# prohi$ited. A person +a hold two or +ore positions for as long as the are co+patible. ?or e$a+ple! an acco#ntant cannot be an a#ditor at the sa+e ti+e. Pro) Pro$ +a refer to two things= 14 written a#thorit or 24 the person hi+self. Pro$ies shall be in writing! signed b the stockholder or +e+ber and led before the sched#led +eeting with the corporate secretar. 6nless otherwise proided in the pro$ contin#ing pro$4! it shall be alid onl for the +eeting for which it is intended. o pro$ shall be alid and eHectie for a period longer than e 54 ears at an one ti+e.
)irectors/tr#stees cannot attend or ote b pro$ at board +eetings! #nlike reg#lar stockholders. A pro$ +a be e$pressl or i+pliedl reoked! e$cept when it was iss#ed p#rs#ant to a contract. Sec. 2, – Report of electio of director#9 tr%#tee# ad o:cer# +eeral Ifor"atio Sheet to be led within 3@ das fro+ appoint+ent of oKcers. Appoint+ent of oKcers i++ediatel done once the 7oard is constit#ted. Sec. 2@ – &i#7%ali!catio of director#9 tr%#tee or o:cer#. See disc#ssion on Sec. 23. Sec. 2 – Re"o'al of director# or tr%#tee# Proced%re to re"o'e a director?tr%#tee 1. e+oal +a be done in a reg#lar or special +eeting. 9f special! a secretar or an stockholder/+e+ber +#st call for a +eeting. otice of ti+e/place of s#ch +eeting! as well as of the intention to propose s#ch re+oal! +#st be gien b p#blication or b written notice as prescribed in the Corporation Code; 2. 2/3 ote b the stockholders/+e+bers Re"o'al 0ith or 0itho%t ca%#e9 eceptio A director +a be re+oed with or witho#t case! e$cept in the case of a +inorit director who can onl be re+oed for a alid ca#se. Sec. 2B – Vacacie# i the o:ce of director or tr%#tee Po##i$le rea#o# for a 'acac) i the Goard8 1. e+oal;
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2. 3. 0. 5.
$piration of ter+; esignation; )eath; Gthers
A 'acac) i the $oard "%#t $e !lled. Who "a) !ll the 'acac)D A. 7 the re+aining board +e+bers= & 9f still constit#ting a -#or#+! at least a +a*orit of the +e+bers +a ll an acanc occ#rring in the board for reasons other than re+oal or e$piration of ter+. ?or e$a+ple! one board +e+ber resigns. The re+aining stockholders! if still constit#ting a -#or#+! +a choose a replace+ent. 7. 7 the stockholders/+e+bers= 1. 'hen the reason of acanc is b e$piration of ter+ or re+oal or gro#nds other than re+oal or e$piration of ter+ b#t the re+aining directors do not constit#te a -#or#+; 2. Qacanc +a be lled b the re+aining directors/tr#stees b#t the board refers the +atter to the stockholders/+e+bers; and 3. 9ncrease in the n#+ber of directors b a+ending the articles of incorporation res#lts in acanc. Re#i(atio of a director i a hold5o'er po#itio co#idered epiratio of ter" 'hen a director/tr#stee in a hold&oer position resigns! it is tanta+o#nt to e$piration of ter+ and not to resignation. (ence! the acanc shall be lled b the stockholders/+e+bers. Sec. - – Co"pe#atio of director# +R8 )irectors not entitled to an co+pensation as s#ch directors! e$cept for reasonable per die+s. & 'hat wo#ld be considered reasonable depends on the reso#rces of the corporation. ;PN#8 1. 7&laws proide for s#ch additional co+pensation; 2. a*orit ote of stockholders; and 3. 'hen the director renders other serices for the corporation. Gperatie phrase= Bas s#ch directors.4
forthwith le with corporate secretar his written ob*ection thereto; &irector#?tr%#tee# lia$le a# tr%#tee for pro!t# 0hich other0i#e 0o%ld ha'e accr%ed to the corporatio 0heJ The atte+pt to ac-#ire or ac-#ire! in iolation of his d#t! an interest aderse to the corporation in respect of an +atter which has been reposed in hi+ in condence! as to which e-#it i+poses a disabilit #pon hi+ to deal in his own behalf. Sec. 2 – &eali(# of director#9 tr%#tee# or o:cer# 0ith the corporatio 3Self5&eali( &irector6 Stat%# of a cotract of the corporatio 0ith a director?tr%#tee?o:cer i# 'oida$le9 %le## the follo0i( re7%ire"et# are co"plied 0ith8 1. Presence of director/tr#stee not necessar to constit#te a -#or#+; 2. Qote of director/tr#stee not necessar to constit#te a +a*orit ote; 3. Contract is fair and reasonable; and 0. 9n case of an oKcer! the contract has been preio#sl a#thori%ed b the 7oard.
'hen the rst two re-#isites are not co+plied with! the s#b*ect contract +a neertheless be ratied b a ote of 2/3. 9n all cases! the contract +#st be fair and reasonable. ote that when the 7oard $es the co+pensation of oKcers! and one or +ore director is act#all an oKcer! the are considered self&dealing directors! hence! the proced#re #nder Sec. 32 +#st be co+plied with. Sec. – Cotract# $et0ee corporatio# 0ith iterloc4i( director# Iterloc4i( &irector An interlocking director is a director in two or +ore corporations. A corporation has an interlocking director if one or so+e or all4 of its directors is also a director in another corporation.
9n no case shall the total earl co+pensation of directors! as s#ch directors! e$ceed 1@ of the net inco+e of the corporation 7?G inco+e ta$ d#ring the preceding ear.
+R8 A contract between two or +ore corporations haing interlocking directors is alid. ;PN#8 'hen there is fra#d or if the contract is not fair and not reasonable.
Sec. 1 – Lia$ilit) of director#9 tr%#tee# or o:cer#
9f the interest of the interlocking director in one corporation is s#bstantial stockholdings +ore than 2@ of the o#tstanding capital stock4 and his interest in the other corporation is +erel no+inal 2@ or less4! appl Sec. 32 with respect to the latter or the corporation in which he has no+inal shares.
&irector#?tr%#tee# "a) $e held #olidaril) lia$le for da"a(e# re#%lti( fro" the follo0i(8 1. 'illf#ll and knowingl ote for or assent to patentl #nlawf#l acts of the corporation; 2. <#ilt of gross negligence or bad faith; . Ac-#ired an personal or pec#niar interest in conict with their d#t as s#ch directors/tr#stees; and 0. Consents to the iss#ance of watered stocks or who! haing knowledge thereof! did not
Sec. < – &i#lo)alt) of a director &octrie of Corporate Opport%it) A director! tr#stee or oKcer! b irt#e of his oKce! is prohibited fro+ appropriating for hi+self a b#siness opport#nit which sho#ld belong to the corporation!
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thereb obtaining prots to the pre*#dice of s#ch corporation. Gtherwise! he +#st acco#nt to the latter for all s#ch prots b ref#nding the sa+e! #nless his act has been ratied b a ote of the stockholders owning or representing at least two&thirds 2/34 of the o#tstanding capital stock. This proision shall be applicable! notwithstanding the fact that the director risked his own f#nds in the ent#re. A director #hall ref%d to the corporatio all the pro!t# he reali/e# o a $%#ie## opport%it) 0hich8 1. The corporation is nanciall able to #ndertake; 2. ?ro+ its nat#re! is in line with the corporationLs b#siness and is of practical adantage to it; and 3. The corporation has an interest or a reasonable e$pectanc. Sec. > – Eec%ti'e Co""ittee P%rpo#e of a Eec%ti'e Co""ittee 9n practice! it is #nrealistic for all 7oard +e+bers to +eet often and reg#larl! +aking it diKc#lt to +#ster a -#or#+ at a ti+e when the corporation +#st act on a ital +atter. (ence! an $ec#tie Co++ittee +a be created to act swiftl in behalf of the 7oard. The are considered as agents of the 7oard. G)5la0# "%#t a%thori/e creatio of a Eec%ti'e Co""ittee The board! b itself! cannot create an $ec#tie Co++ittee if nothing is stated in the b&laws. M%#t $e co"po#ed of at lea#t Goard "e"$er# 7#t there +a also be additional +e+bers who are not directors. Matter# that caot $e acted %po $) a Eec%ti'e Co""ittee8 1. Approal of an action for which shareholdersL approal is also re-#ired; 2. The lling of acancies in the board; 3. The adoption! a+end+ent or repeal of b&laws; 0. The a+end+ent or repeal of an resol#tion of the board which b its e$press ter+s is not so a+endable or repealable; and 5. A distrib#tion of cash diidends to the shareholders.
?ro+ the en#+eration! it can be concl#ded that onl da&to&da b#siness operations +a be left to the sole discretion of the $ec#tie Co++ittee Appeal ot a'aila$le9 rati!catio The decision of the $ec#tie Co++ittee is not appealable to the board! b#t if it e$ceeds its a#thorit! the board +a choose to ratif its acts. Sec. , – Corporate po0er# ad capacit) Kid# of Po0er# of a Corporatio
1. $press N Those e$pressl a#thori%ed b the Corporation Code and other laws! and its Articles of 9ncorporation. 2. 9+plied N Those that can be inferred fro+ or necessar for the e$ercise of the e$press powers. Classications of 9+plied Powers= a. Acts in the #s#al co#rse of b#siness b. Acts to protect debts owing to the corporation c. Acts which inole e+barking in a diHerent b#siness d. Acts which are whole or in part intended to protect or aid e+ploees e. Acts to increase the b#siness <#idelines to deter+ine whether power is i+plied= a. 9s it essential to the p#rpose of the corporation b. )oes it fall #nder the e classications cited aboe 3. 9ncidental Powers N Those that are incidental to the e$istence of the corporation. +eeral Po0er# of the Corporatio 1. To s#e and be s#ed; 2. Gf s#ccession; 3. To adopt and #se a corporate seal; 0. To a+end its articles of incorporation; 5. To adopt its b&laws; 8. ?or stock corporations! to iss#e and sell stocks to s#bscribers and treas#r stocks; for non& stock corporations! to ad+it +e+bers; F. To p#rchase! sell or deal with real properties; & ote that a corporation cannot *#st ac-#ire an propert it wants. The propert +#st be essential or necessar to the acco+plish+ent of its corporate p#rpose. & Ac-#isition of propert does not re-#ire conc#rrence of the stockholders! proided that s#ch ac-#isition is in f#rtherance of or essential to the acco+plish+ent of its p#rpose. E. To enter into +erger or consolidation; :. To +ake reasonable donations for p#blic welfare! hospital! charitable! c#lt#ral! scientic! ciic or si+ilar p#rposes; 1@. To establish pension! retire+ent and other plans for the benet of its directors! tr#stees! oKcers and e+ploee; 11. To e$ercise other powers essential or necessar to carr o#t its p#rposes. Speci!c Po0er# of the Corporatio 1. 9ncrease or decrease corporate stock; 2. 9nc#r! create or increase bonded indebtedness; 3. )en pre&e+ptie right; 0. Sell! dispose! lease! enc#+ber all or s#bstantiall all of corporate assets; 5. P#rchase or ac-#ire shares; 8. 9nest corporate f#nds in another corporation or b#siness for other p#rposes other than its pri+ar p#rpose; F. )eclare diidends o#t of #nrestricted retained earnings;
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E. nter into +anage+ent contracts with other corporations; :. A+end articles of incorporation. Sec. @ – Po0er to eted of #horte corporate ter" +eeral proced%re 1. 7oard resol#tion! and 2. atication b 2/3 ote with prior written notice of the proposed action4 Ete#io fee 1/5 of 1 of the ACS Whe itet of #hortei( corporate ter" i# o$'io%#l) to di##ol'e the corporatio SC will not accept the application witho#t presenting a 79 clearance. Sec. – Po0er to icrea#e or decrea#e capital #toc4 ic%r9 create or icrea#e $oded ide$tede## +eeral proced%re 1. 7oard resol#tion! 2. atication b 2/3 ote with prior written notice of the proposed action4! and 3. SC approal
?#rther+ore! a &irector# Certi!cateJsigned b a +a*orit of the directors of the corporation and co#ntersigned b the chair+an and secretar of the stockholderLs +eetingJshall be s#b+itted to the SC. The contents of a )irectorLs Certicate are= 1. That the re-#ire+ents of this section hae been co+plied with; 2. The a+o#nt of the increase or di+in#tion of the capital stock; 3. 9f an increase of the capital stock! the a+o#nt of capital stock or n#+ber of shares of no&par stock thereof act#all s#bscribed! the na+es! nationalities and residences of the persons s#bscribing! the a+o#nt of capital stock or n#+ber of no&par stock s#bscribed b each! and the a+o#nt paid b each on his s#bscription in cash or propert! or the a+o#nt of capital stock or n#+ber of shares of no&par stock allotted to each stock&holder if s#ch increase is for the p#rpose of +aking eHectie stock diidend therefor a#thori%ed; 0. An bonded indebtedness to be inc#rred! created or increased; 5. The act#al indebtedness of the corporation on the da of the +eeting; 8. The a+o#nt of stock represented at the +eeting; and F. The ote a#thori%ing the increase or di+in#tion of the capital stock! or the inc#rring! creating or increasing of an bonded indebtedness. o decrease of the capital stock shall be approed b the SC if its eHect shall pre*#dice the right of corporate creditors.
9n case of increase of capital stock! another treas#rerLs aKdait is needed. The contents are si+ilar to the one led in case of incorporation. The diHerence is that this ti+e! the basis of the 25 is the increased a+o#nt. $a+ple= Corporation O has an ACS of P1 +illion. ,ater on! it decided to increase the ACS to P5 +illion! so now the treas#rerLs aKdait +#st state that 25 of the P0 +illion has been s#bscribed and 25 of the newl s#bscribed a+o#nt +#st be paid. &oc%"etar) re7%ire"et# for the appro'al of the icrea#e of the a%thori/ed capital #toc4 3SEC R%le# a# of %e 19 2-168 1. Certicate of 9ncrease of Capital Stock; 2. Treas#rerLs AKdait; 3. ,ist of stockholders as of the date of the +eeting approing the increase; 0. A+ended articles of incorporation; 5. otari%ed &irector# Certi!cate2 certifing= a. The a+end+ent of the articles of incorporation increasing the ACS; b. The otes of the directors and the stockholders; and c. The date and place of the stockholdersL +eeting! which shall be signed b a +a*orit of the directors and the corporate secretar; 8. ndorse+ent fro+ the appropriate goern+ent agencies; and F. SecretarLs Certicate stating that no action or proceeding has been led or is pending inoling an intra&corporate disp#te or clai+ b an person or gro#p against the directors! oKcers or stockholders of the corporation &oc%"etar) re7%ire"et# for the appro'al of the decrea#e of the a%thori/ed capital #toc4 1. Certicate of )ecrease of Capital Stock; 2. A#dited nancial state+ents as of last scal ear! sta+ped receied b the SC and the 79; 3. 9f it inoles a ret#rn of capital; ,ong for+ a#dit report and list of creditors with the a+o#nt d#e to each certied b the a#ditor or certied #nder oath b co+pan acco#ntant and written consent of each creditor; 0. ,ist of stockholders before and after the decrease! as certied b the corporate secretar; 5. A+ended articles of incorporation; 8. otari%ed )irectorLs Certicate; and F. P#blisherLs aKdait of the p#blication once onl4 of the decrease of capital in a newspaper of general circ#lation. Goded Ide$tede## A bond is a pro+issor note where the repa+ent period e$ceeds 5 ears.
2 The contents of the directorsL certicate here are diHerent fro+ those proided #nder Sec. 3E. Pero since +as +adali i+e+ori%e Wto! ito na lang ang tandaan.
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Sec. B – Po0er to de) pre5e"pti'e ri(ht Pre5e"pti'e ri(ht ight of shareholders to s#bscribe to all iss#es or disposition of shares of an class in proportion to their shareholdings.
The p#rpose is to +aintain the relatie and proportionate oting strength and control of e$isting shareholders. 9t is ai+ed to +aintain the e$isting ratio of the shareholderLs interest and oting power in the corporation. I##%e# or di#po#itio According to the SC! the pre&e+ptie right coers all iss#es and disposition. The preailing opinion is that it incl#des iss#ance of the #ns#bscribed shares that are part of the original capital stock and the increase of capital stock. 9t also coers selling of treas#r shares. The )enito v. SEC r#ling is no longer controlling! since the applicable law then was the Gld Corporation Code where pre&e+ptie right was not e$pressl granted. Whe pre5e"pti'e ri(ht i# %a'aila$le8 1. ight denied b articles of incorporation; 2. Shares are iss#ed in co+pliance with laws re-#iring stock oHerings or +ini+#+ stock ownership b the p#blic; 3. 'hen shares are iss#ed in good faith with the approal of the stockholders representing 2/3 of the o#tstanding capital stock! in e$change for propert needed for corporate p#rposes or in pa+ent of a preio#sl contracted debt; and 0. Shares are iss#ed p#rs#ant to stock option plans where e+ploees beco+e stockholders. Pre5e"pti'e ri(ht tra#ferra$le A pre&e+ptie right! being in the nat#re of a propert right! is transferrable. Sec. <- – Sale or other di#po#itio of a##et# +eeral proced%re for #ale or other di#po#itio# of all or #%$#tatiall) all corporate propert) ad a##et# 1. 7oard esol#tion! and 2. atication b 2/3 ote with prior written notice of the proposed action4 o0 do 0e 4o0 if the #ale or other di#po#itio i'ol'e# all or #%$#tatiall) all corporate propert) ad a##et#D 9f the corporation wo#ld be rendered incapable of contin#ing the b#siness or acco+plishing the p#rpose for which it was incorporated.
$a+ple= A paper factor is not dee+ed to hae sold all/s#bstantiall all its propert if it sold all its stocks of papers! beca#se it is p#rs#ant to the ordinar co#rse of its b#siness. 7#t if it sold all its +achiner and e-#ip+ent #sed to +ake paper! then it is dee+ed to hae sold all/s#bstantiall all its corporate propert.
en if a corporation sells or disposes of all or s#bstantiall all its corporate propert/assets! it is not considered to be as s#ch in the conte$t Sec. 0@ if the intent is to i++ediatel b# replace+ent. Conse-#entl! ratication of the stockholders/+e+bers is not necessar. Li"itatio# 1. The corporation +a not #se this power as a deise to free%e o#t the +inorit! s#ch as b selling all of corporate properties with the intent of for+ing a new corporation witho#t the +inorit stockholders. 2. The assets sho#ld be sold at a fair and reasonable al#e. 3. The sale +#st be done in good faith and for a legiti+ate p#rpose. +R8 The b#er does not ass#+e the responsibilities of the seller corporation. ;PN#8 1. 9f the b#er e$pressl or i+pliedl ass#+es liabilit; 2. 9f there is +erger and consolidation; 3. 9f there is fra#d; 0. 9f the b#er is onl a contin#ation of the seller corporation; and 5. 7#lk Sales ,aw Sec. <1 Po0er to ac7%ire o0 #hare# Re7%ire"et# for a corporatio to ac7%ire o0 #hare#8 1. #st be for a legiti+ate corporate p#rposes4; and 2. Corporation has s#Kcient s#rpl#s prots which wo#ld be #sed to ac-#ire its own shares. ote that b#ing back redee+able shares do not re-#ire s#rpl#s prots. Po##i$le rea#o# 0h) a corporatio 0o%ld ac7%ire it# o0 #hare#8 1. To eli+inate fractioal #hare# arising o#t of stock diidends; 2. To collect or co+pro+ise an indebtedness to the corporation! arising o#t of #npaid s#bscription! in a deli7%ec) #ale ! and to p#rchase delin-#ent shares sold d#ring said sale; and 3. To pa dissenting or withdrawing stockholders in the e$ercise of their entitled to pa+ent for their shares p#rs#ant to their apprai#al ri(ht. 7= The en#+eration aboe is not e$cl#sie! beca#se the law sas Bb#t not li+ited to the following cases. So for other instances! *#st appl the two&fold re-#isites= a4 legiti+ate p#rpose; and b4 s#Kcient s#rpl#s prots.
Re"ed) of a corporatio a$o%t to $e i#ol'et The corporation +a conince creditors to conert their credits into shares. 9n s#ch case! the debt wo#ld beco+e a capital contrib#tion.
Itet to replace #old propert) ad a##et#
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Sec. <2 – Po0er to i'e#t corporate f%d# i aother corporatio or $%#ie## or for a) other p%rpo#e +eeral proced%re 1. 7oard resol#tion! and 2. atication b 2/3 ote with prior written notice of the proposed action4
ote that Sec. 02 does not coer inest+ent of corporate f#nds if +ade p#rs#ant to the corporationLs pri+ar p#rpose. ?or e$a+ple! an inest+ent co+panLs pri+ar p#rpose is to inest in other co+panies. (ence! there is no need for ratication in s#ch case. R%le#8 1. 9f the inest+ent is for a pri+ar p#rpose! no need to be ratied b the stockholders. 2. 9f inest+ent is for a secondar p#rpose! rati cation is still needed! beca#se stockholders +ake inest+ents with the pri+ar p#rpose of the corporation in +ind. 3. 9f inest+ent is neither for a pri+ar nor secondar p#rpose! there +#st be an a+end+ent of the Articles of 9ncorporation! otherwise it is an #ltra ires act. Sec. < – Po0er to declare di'ided# &i'ided# )iidends are portions of corporate prot set aside! declared and ordered b the directors to be paid to stockholders on de+and or at a $ed ti+e in proportion to their shareholding. T)pe# of di'ided# 1. Ca#h N Gne in which diidends are paid in +one. 2. Propert) N )iidends that are paid in propert instead of cash where the s#rpl#s is in that for+ and it is practicable to so distrib#te the+ a+ong the shareholders. . Stoc4 N S#rpl#s prots are distrib#ted to the stockholders in the for+ of shares of stock. 9t inoles conersion of s#rpl#s into capital. 0. Script N 9t is a certicate iss#ed to a stockholder entitling hi+ to +one or other benets at a f#t#re ti+e. 9t is akin to a pro+issor note. 5. God N 7onds of the corporation which it iss#es as pa+ent of diidends. 8. Li7%idati( N )istrib#tion of assets of the corporation #pon its dissol#tion. Whe rati!catio i# re7%ired?ot re7%ired Gnl a board resol#tion is necessar to declare cash or propert diidends. 7#t if a corporation plans to declare stock diidends! the board resol#tion +#st also be ratied b the stockholders! beca#se it dil#tes the inest+ent of stockholders. &eclaratio di'ided#
of
trea#%r)
#hare#
a#
propert)
9n case of declaration of treas#r shares as propert diidends! the corporation can onl do so if the a+o#nt of the retained earnings preio#sl #sed to s#pport their ac-#isition has not been s#bse-#entl i+paired b losses.
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T)pe# of #%rpl%# 1. Eared #%rpl%#?#%rpl%# pro!t N 9ncl#des 14 et operating prots and 24 on&operating prots arising fro+ sale of $ed assets! inest+ent and other non&rec#rring prots transactions. 2. Paid i #%rpl%# N Arises fro+ the sale of par al#e shares at a pre+i#+ and the sale of no par al#e shares aboe its stated or iss#ed al#e. a. 7= Paid in s#rpl#s arising fro+ sale of par al#e shares at a pre+i#+ +a be declared as stock diidends b#t not paid in s#rpl#s arising fro+ sale of no par al#e shares aboe its iss#ed al#e. 3. Re'al%atio or apprai#al #%rpl%# N S#rpl#s arising fro+ the +arking #p of the al#e of the assets in the books of the corporation. a. a not be declared as diidends! beca#se prots are et to be reali%ed. 0. Red%ctio S%rpl%# N S#rpl#s arising fro+ the red#ction of the legal or stated capital. a. ?or e$a+ple! Corporation O has an a#thori%ed capital stock of P1 +illion! PF@@!@@@ of which alread paid. 9t then red#ced its a#thori%ed capital stock to P5@@!@@@. The P2@@!@@@ wo#ld be the red#ction s#rpl#s. Who are etitled to di'ided#D The stockholders of record at the ti+e the diidends were declared. 9t is i++aterial when the diidends were act#all paid. Sec. << – Po0er to eter ito "aa(e"et cotract +eeral proced%re 1. 7oard resol#tion! and 2. atication b +a*orit ote This proced#re is re-#ired fro+ both the +anaged and +anaging corporation. Whe rati!catio $) 2? 'ote of the "aa(ed corporatio eeded 1. 'here a stockholder or stockholders representing the sa+e interest of both the +anaging and the +anaged corporations own or control +ore than 1/3 of the total o#tstanding capital stock entitled to ote of the +anaging corporation; or 2. 'here a +a*orit of the +e+bers of the board of directors of the +anaging corporation also constit#te a +a*orit of the +e+bers of the board of directors of the +anaged corporation. Etet of the "aa(i( corporatio# po0er# The powers of the +anaging corporation are li+ited to those ad+inistratie in nat#re. ?#rther+ore! the 7oard of the +anaged corporation +a reerse or co#nter+and the acts of the +anaging corporation.
Other corporate po0er# ot "etioed i the Code Po0er to (%aratee de$t# +R8 The corporation +a not enter into contracts g#aranteeing debts of others. 9t is an #ltra ires act. ;PN#8 1. 'hen necessar for or in f#rtherance of the acco+plish+ent of a pri+ar p#rpose; or 2. 'hen it is the pri+ar p#rpose of the corporation! s#ch as a s#ret co+pan. Po0er to for" a parter#hip +R8 A corporation has no power to for+ a partnership. ;PN#8 1. $pressl a#thori%ed b the Articles of 9ncorporation; 2. Te+porar for the acco+plish+ent of so+e partic#lar p#rpose; and 3. The partnership agree+ent e$pressl proides that the +anage+ent of the b#siness is resered to the corporation. Sec. <> – Fltra 'ire# act# of corporatio# Fltra 'ire# act An act co++itted o#tside the p#rpose for which the corporation is created as dened b the law and its organi%ation! and therefore beond the powers conferred #pon it. ot illegal per se. Ma) $e rati!ed9 re7%i#ite#8 1. A,, stockholders +#st consent; 2. The rights of the state are not inoled; 3. The creditors are not pre*#diced; and 0. The act or contract +#st be wholl e$ec#ted. Le(al #tat%# of a %ltra 'ire# cotract 1. 9f wholl e$ec#tor +eaning the parties hae et to co+pl with their respectie obligations4! it is #nenforceable! and either part +a inoke #ltra ires. 2. 9f partl e$ec#tor +eaning one part has co+plied while the other has not4! the part who has co+plied with his obligation has a right of action against the other part who is not allowed to inoke #ltra ires. 3. 9f wholl e$ec#ted! the contract cannot be challenged an+ore. Who "a) 7%e#tio %ltra 'ire# act# of the corporatioD 1. The State; 2. Stockholders ia deriatie s#it4; and 3. Corporate creditors! b#t onl if= a. 6ltra ires act constit#tes fra#d#lent coneance of corporate assets; b. 'here the transaction will deplete the legal capital; c. 'hen there will be a iolation of the tr#st f#nd doctrine; d. 9n case of iolation of the 7#lk Sales ,aw; and e. 9n case of iolation of loan agree+ents.
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S%it# $) #toc4holder#?"e"$er# &eri'ati'e S%it# & Those bro#ght b one or +ore stockholders or +e+bers in the na+e and on behalf of the corporation to redress wrongs co++itted against it! or protect/indicate corporate rights wheneer the oKcials of the corporation ref#se to s#e! or the ones to be s#ed! or has control of the corporation. & e-#isites= 1. (e was a stockholder or +e+ber at the ti+e the acts or transactions s#b*ect of the action occ#rred and at the ti+e the action was led; 2. (e e$ha#sted all re+edies aailable #nder the articles of incorporation! b& laws! laws or r#les goerning the corporation or partnership to obtain the relief he desires; 9n one case! it was held that there is no +ore need for e$ha#stion of re+edies if the erring director controls the corporation! for s#ch e$ha#stion wo#ld be #seless. 3. o appraisal rights are aailable for the act or acts co+plained of; and 0. The s#it is not a n#isance or harass+ent s#it.
A. Pre5Icorporatio The b&laws +a be led along with the articles of incorporation and other pre&incorporation doc#+ents. 9n s#ch case! the b&laws shall be approed and signed b all the incorporators. G. Po#t5Icorporatio The b&laws +#st be led within 1 +onth after receipt of the certicate of incorporation. 9n s#ch case! the b&laws shall be approed b a +a*orit ote of the stockholders or +e+bers. 9t +#st be signed b the stockholders/+e+bers oting for the+. ote= According to Sir! so+eti+es itLs i+practical to conene all stockholders/+e+bers in that short span of ti+e! so the signat#re of all incorporators +a still s#Kce. 7#t appl the general r#le anwa.4 M%#t $e certi!ed9 co%ter#i(ed The cop of the b&laws to be led with the SC +#st be d#l certied to b a +a*orit of the directors or tr#stees and co#ntersigned b the corporate secretar. Additioal re7%ire"et for #pecial corporatio# Take note that there are special corporations which cannot directl le or a+end its b&laws witho#t a faorable endorse+ent of appropriate goern+ent agencies.
Idi'id%al Actio# & Those bro#ght b the shareholder in his own na+e against the corporation when a wrong is directl inicted against hi+.
No a%to"atic di##ol%tio %po fail%re to #%$"it $)5la0# The ling of b&laws is a condition s#bse-#ent! b#t fail#re in which is not a gro#nd for an a#to+atic dissol#tion of the corporation. There +#st still be a hearing.
Repre#etati'e Actio# & Those bro#ght b the stockholder in behalf of hi+self and all other stockholders si+ilarl sit#ated when a wrong is co++itted against a gro#p of stockholders.
Gidi( eHect The b&laws bind the corporation! stockholders! +e+bers and those haing direction! +anage+ent and control of its aHairs. 7#t it does not bind third persons who hae no act#al knowledge of its proisions.
Sec. <, – Adoptio of $)5la0# G)5la0# 7&laws are r#les of action adopted b a corporation for its internal goern+ent and for the reg#lation of cond#ct! and prescribe the rights and d#ties of its stockholders or +e+bers towards itself and a+ong the+seles in reference to the +anage+ent of its aHairs.
7&laws shall be eHectie onl #pon the iss#ance b the SC of a certication that the are not inconsistent with the Corporation Code. Sec. <@ – Cotet# of $)5la0# The en#+eration in Sec. 0F refers to the +ini+#+ and +andator proisions that +#st appear in the b& laws. Sec. < – A"ed"et# to $)5la0#
Re7%i#ite# for 'alidit) of $)5la0# 1. #st be consistent with the Corporation Code! law and other reg#lations; 2. #st be consistent with the articles of incorporation; 3. #st not be contrar to +orals or p#blic polic; and 0. 9t +#st not dist#rb ested rights! i+pair contract or propert rights of stockholders or +e+bers or create obligations not sanctioned b law. There are t0o 0a)# to !le the $)5la0#8
+eeral proced%re 1. 7oard esol#tion; 2. Approed b stockholders representing +a*orit of the o#tstanding capital stock; and 3. SC Approal &ele(atio to the Goard The sole a#thorit to a+end the b&laws +a be delegated to the 7oard b a 2/3 ote of the stockholders. The delegation +a be reoked b +a*orit ote.
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As can be gleaned fro+ this section! the law does not faor the delegation of the a#thorit to the 7oard! hence the stringent re-#ire+ent to delegate and the la$ re-#ire+ent to reoke the delegation. Certi!catio A cop of the a+end+ent or new b&laws to be led with the SC shall be attached to the original b& laws! and it +#st be d#l certied #nder oath b the corporate secretar and a +a*orit of the directors or tr#stees. Sec. - – Re(%lar ad #pecial "eeti(# of #toc4holder# or "e"$er# Sec. >1 – Place ad ti"e #toc4holder# or "e"$er#
of
"eeti(#
of
Sec. >2 – %or%" i "eeti(# Sec. > – Re(%lar ad #pecial "eeti(# of director# or tr%#tee# Sec. >< – Who #hall pre#ide at "eeti(# Re(%lar Meeti(# 1. (eld a%all) #s#all for the p#rpose of electing directors and disc#ssing earl nancial perfor+ance of the corporation; 2. Gn a date !ed i the $)5la0# ! or if not so $ed! on an date in April of eer ear as deter+ined b the 7oard; 3. 9n the cit) or "%icipalit) 0here the pricipal o:ce of the corporatio i# located! and if practicable in the principal oKce of the corporation. This applies whether the +eeting is reg#lar or special. ?or p#rposes of this r#le! etro anila shall be considered a cit; and 0. Writte otice shall be sent to all stockholders/+e+bers at least 2 weeks prior to the +eeting! #nless a diHerent period is re-#ired b the b&laws. otice re-#ire+ent +a be waied either e$pressl or i+pliedl. & The written notice shall contain the ti+e and place of the +eeting. 5. atters that are taken #p d#ring ann#al +eetings= a. anage+ent report; b. lection of the 7oard of )irectors; c. lection of oKcers; and d. Gther +atters & Acts which re-#ire special notice to stockholders i.e. sale of all/s#bstantiall all of properties! +erger/consolidation! etc.4 +a be taken #p in the reg#lar +eeting! proided it is part of the notice.
Special Meeti(# 1. (eld at a) ti"e dee+ed necessar or as proided in the b&laws; 2. 9n the cit) or "%icipalit) 0here the pricipal o:ce of the corporatio i# located! and if practicable in the principal oKce of the corporation. This applies whether the +eeting is reg#lar or special. ?or p#rposes of this r#le! etro anila shall be considered a cit; and 3. Writte otice shall be sent to all stockholders/+e+bers at least 1 week prior to the +eeting! #nless a diHerent period is re-#ired b the b&laws. otice re-#ire+ent +a be waied either e$pressl or i+pliedl. Goard Meeti(# 1. (eld "othl)! #nless the b&laws proide otherwise if reg#lar4 or at a) ti"e #pon the call of the president or as proided in the b& laws if special4; 2. a be held a)0here i the 0orld ; 3. Notice shall be sent to eer director/tr#stee at least 1 da prior to the +eeting! #nless otherwise proided b the b&laws. Who i# a%thori/ed to call a #toc4holder#?"e"$er# "eeti(D 1. As a r#le! s#ch person +#st be stated in the b&laws; 2. 9n the absence thereof! the 7oard; 3. Gtherwise! an stockholder/+e+ber +a le a petition with the SC asking for a#thorit to call a +eeting. Who #hall pre#ide at "eeti(#D As a r#le! the President whether it is a stockholders/+e+bers +eeting or a 7oard +eeting. Gtherwise! what the b&laws proide. What i# the eHect if there i# a defect i the holdi( or calli( of the "eeti( 3e.(. 0ro( place9 defecti'e otice9 etc.6D All proceedings had and an b#siness transacted shall not be inalidated! PGQ9)) all stockholders/+e+bers are present or d#l represented at the +eeting. What co#tit%te# a 7%or%"D A. Stock Corporation & Stockholders representing a +a*orit of the o#tstanding capital stock! #nless otherwise proided for in the Code or i n the b&laws. & 7= (ence! it is possible for a single person to constit#te a -#or#+. 7. on&Stock Corporation & a*orit of the +e+bers! #nless otherwise proided for in the Code or i n the b&laws. C. 7oard eetings & a*orit of the directors/tr#stees! #nless otherwise proided for in the b&laws. & 7= 9n election of oKcers! the ote of a +a*orit of the 7oard is re-#ired. Other ote# o 7%or%"
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1. B6nless otherwise proided for in this code N ote that there are +atters that cannot be acted #pon b a +ere +a*orit! s#ch as those which re-#ires 2/3 otes. 2. X#or#+ is deter+ined at the start of the +eeting. So if pag +a #+alis while the +eeting is ongoing! proble+a na nia W#n! and thereLs still a -#or#+. 3. A proision in the b&laws stating that anone present in the +eeting shall constit#te a -#or#+ is alid! e$cept those which specicall re-#ires +a*orit or 2/3. Sec. >> – Ri(ht to 'ote of pled(er#9 "ort(a(or# ad ad"ii#trator# +R8 Pledgors and +ortgagors of their shares of stock shall retain the right to attend and ote at +eetings. ;PN8 S#ch right is e$pressl gien to the pledgee or +ortgagee in writing and recorded on the corporate books.
$ec#tors! ad+inistrators! receiers and other legal representaties of a stockholder do not need pro$ies to attend +eetings and ote. Sec. >, – Voti( i ca#e of =oit o0er#hip of #toc4. Ste'e ad To) & 7oth Stee and Ton +#st attend and ote together! #nless the hae a pro$. ?#rther+ore! s#ch pro$ shall be signed b both Stee and Ton. Ste'e ad?or To) & ither Stee or Ton can attend and ote. And either one of the+ alone can e$ec#te a pro$. Sec. >@ – Voti( ri(ht for trea#%r) #hare# Treas#r shares hae no oting rights and cannot participate in diidends. Sec. > – Proie# Re7%i#ite# for a 'alid pro) 1. #st be in writing; 2. Signed b the stockholder/+e+ber; 3. #st be led before the sched#led +eeting with the corporate secretar in practice! itLs #s#all 5 das prior to the +eeting4; and 0. 6nless otherwise proided in the pro$! it shall be alid onl for the +eeting for which it is intended. o pro$ shall be alid and eHectie for a period longer than 5 ears at an one ti+e.
Pro$ies cannot be prohibited in stock corporations! b#t it +a be dispensed with i n non&stock corporations. Coti%i( Pro) Gne which is alid not onl for one +eeting b#t #ntil it is reoked! proided that its alidit and eHectiit shall not e$ceed 5 ears.
Re'ocatio of pro) eocation +a either be epre## or i"plied. 9t is i+plied when! for instance! a pro$ was e$ec#ted for a partic#lar +eeting! b#t the stockholder neertheless appeared in the sa+e +eeting. +R8 Pro$ +a be reoked at an ti+e. ;PN8 'hen it is co#pled with an interest. Sec. >B – Voti( tr%#t# Re7%i#ite# 1. 9t +#st be in writing and notari%ed; 2. 9t +#st specif the ter+s and conditions; 3. <= 9t +#st not e$ceed the period of 5 ears at an ti+e; & OP= 'hen oting tr#st specicall re-#ired as a condition in a loan agree+ent! it +a e$ceed 5 ears b#t shall a#to+aticall e$pire #pon f#ll pa+ent of the loan. Proced%ral re7%ire"et# 1. Eec%tio ad otari/atio of the oting tr#st agree+ent; 2. A certied cop of s#ch agree+ent shall be !led with the a4 corporation and b4 SC! otherwise the agree+ent is oid; 3. Certi!cate or certi!cate# of #toc4 #%rredered and cancelled; 0. A e0 certi!cate shall be iss#ed in the na+e of the tr#stee stating that the are iss#ed p#rs#ant to the oting tr#st agree+ent; 5. The transfer shall be oted i corporate $oo4#; 8. The tr#stee or tr#stees shall e$ec#te and delier to the transferors Voti( Tr%#t Certi!cate#! which shall be transferable in the sa+e +anner and with the sa+e eHect as certicates of stock. Po##i$le p%rpo#e# for eteri( ito a 'oti( tr%#t a(ree"et 1. Gne of the was to concentrate shareholder control in one or few persons; 2. 6sed in corporate reorgani%ation where it +a be #sed to gie control to for+er creditors red#ced to stockholder stat#s; 3. 9t +a also be #sed b fo#nders or incorporators to retain control; and 0. 9t +a be #sed to distrib#te oting power disproportionatel to share ownership. Who are etitled to di'ided#D 9n a oting tr#st agree+ent! the tr#stor is regarded as the benecial owner of the shares! while the tr#stee is regarded as the legal owner. (ence! the right to diidends still belongs to the tr#stor. Sec. ,- – S%$#criptio cotract o0 "a) a per#o $eco"e a #toc4holderD 1. S#bscription contract;
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&
A s#bscription contract is an contract for the ac-#isition of #niss#ed stock in an e$isting corporation or a corporation to be for+ed. & A s#bscriber beco+es a stockholder #pon perfection of the s#bscription contract. 2. P#rchase of treas#r shares fro+ the corporation; and 3. Transfer fro+ the stockholders & A transferee beco+es a stockholder #pon the recording of the transfer in the Stock and Transfer 7ook Cotet# of a #%$#criptio cotract 1. #+ber of shares to be s#bscribed; 2. Qal#e per share; and 3. Ter+s of pa+ent. M%#t $e i the #toc4 ad tra#fer $oo4 As a r#le! onl persons whose ownership are registered in the stock and transfer book are considered stockholders of record. ere incl#sion in the <9S is ins#Kcient. Tr%#t *%d &octrie i# 'iolated i the follo0i( i#tace#8 1. Corporation condones pa+ent of #npaid s#bscription; 2. Pa+ent of diidends sans s#rpl#s prots; 3. Properties transferred in fra#d of creditors; 0. Properties are disposed or #nd#e preference is gien to so+e creditors while the corporation is insolent; and 5. Capital stock is decreased! haing the eHect of relieing the stockholders of their obligation to pa their respectie s#bscription.
A stockholder has no right to de+and for the ret#rn of his inest+ent #ntil the li-#idation of the corporation. Sec. ,1 – Pre5icorporatio #%$#criptio We 4o0 that there ca ol) $e 1> icorporator# at "o#t. What if other# 0at to $e corporator#D & The wo#ld sign a pre&incorporation s#bscription agree+ent. Re'ocatio of pre5icorporatio #%$#criptio +R8 A pre&incorporation s#bscription agree+ent shall be irreocable for a period of 8 +onths fro+ the date of s#bscription. ;PN#8 1. All other s#bscribers consent to the reocation; and 2. ?ail#re of the corporation to +ateriali%e.
o pre&incorporation s#bscription +a be reoked after the articles of incorporation hae been s#b+itted to the SC. ?or e$a+ple! +ore than 8 +onths hae alread passed. 6nder s#ch circ#+stance! reocation is alread allowed een witho#t the consent of the others. 7#t if the articles of incorporation
hae alread been s#b+itted! reocation is no longer allowed. Sec. ,2 – Co#ideratio for #toc4# Ke) poit# to re"e"$er 1. The +ost co++on consideration for stocks is cash. 'here the consideration is other than act#al cash or consists of intangible propert! the al#ation thereof shall initiall be deter+ined b the incorporators/7oard! s#b*ect to SC approal. 2. Propert tangible or intangible4 is allowed to be #sed as a consideration! if the following re-#isites are present= a. Propert act#all receied b the corporation; b. Propert is necessar or conenient for its #se and lawf#l p#rposes; c. S#b*ect to fair al#ation; and d. Qal#ation initiall deter+ined b the incorporators/board of directors and approed b the SC. 3. Shares of stock shall not be iss#ed in e$change for pro+issor notes or f#t#re serices. 7#t labor perfor+ed or past serices are allowed. 0. Gne of the allowable considerations is BA+o#nts transferred fro+ #nrestricted retained earnings to stated capital. This refers to the iss#ance of stock diidends. o0 i##%ed price of o5par 'al%e #hare# !ed 1. Articles of 9ncorporation; 2. 7oard resol#tion p#rs#ant to a#thorit granted b the articles of incorporation or b&laws; or 3. Stockholders representing at least a +a*orit of the o#tstanding capital stock at a +eeting d#l called for the p#rpose will $ the iss#ed al#e.
'ith respect to par al#e shares! it sho#ld be noted that the iss#ed al#e +a be higher than its par al#e! beca#se a share is also a propert that +a appreciate in al#e. 7#t the iss#ed al#e cannot be lowered less than its par al#e! otherwise it wo#ld be considered a watered stock. Sec. , – Certi!cate of #toc4 ad tra#fer of #hare# o0 tra#fer i# "ade A. Whe #hare i# repre#eted $) a certi!cate 1. 9ndorse+ent; & (oweer! a deed of assign+ent +a be a s#bstit#te to indorse+ent. 2. )elier; and 3. The transfer +#st be recorded in the corporate books to be alid to the corporation and third parties. G. Whe #hare i# ot repre#eted $) a certi!cate 1. )eed of assign+ent; and 2. The transfer +#st be d#l recorded in the corporate books. 7= According to )ean Abella! the rst +ode is proper when the transfer is +ade thro#gh the stock e$change! while the second +ode is proper when the shares are not
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listed or altho#gh listed b#t not traded thro#gh the stock e$change.
Recordi( i the corporate $oo4# ol) eeded for a$#ol%te tra#fer# (ence! registration in the stock and transfer book is not necessar if the coneance is b wa of chattel +ortgage. (oweer! there +#st be d#e registration with the egister of )eeds. Re"edie# if corporate o:cer# %d%l) $ar the re(i#tratio of the tra#fer 1. anda+#s; 2. Specic perfor+ance; 3. )a+ages; and 0. escission. Sec. ,< – I##%ace of #toc4 certi!cate# Re7%i#ite# 1. The certicate +#st be signed b the president or ice president! co#ntersigned b the secretar or ice secretar; 2. The certicate +#st be sealed with the seal of the corporation; 3. The certicate +#st be deliered; 0. The par al#e! as to par al#e share or f#ll s#bscription as to no par al#e shares +#st rst be f#ll paid; and 5. The original certicate +#st be s#rrendered where the person re-#esting the iss#ance of a certicate is a transferee fro+ the stockholder. No f%ll pa)"etD No certi!cate of #toc4Q This is an absol#te r#le. 6nless the s#bscriber has paid the f#ll a+o#nt of his s#bscription together with interest and e$penses in case of delin-#ent shares4! he cannot be iss#ed a certicate of stock. 7#t prior to s#ch f#ll pa+ent! he is considered a stockholder en*oing all rights pertaining thereto! #nless his shares beco+e delin-#ent. &octrie of Idi'i#i$ilit) of S%$#criptio A s#bscription agree+ent is an indiisible contract! the conse-#ences of which are= 1. 9f a stockholder has paid a portion of his s#bscription! he cannot de+and to be iss#ed a certicate of stock representing the portion of shares he has paid. 2. en tho#gh a stockholder has paid a portion of his s#bscription! if he fails to pa in f#ll when re-#ired! A,, his shares will beco+e delin-#ent.
As a r#le! stockholders are free to transfer their shares! b#t if the hae #npaid s#bscriptions! the transfer wo#ld need the consent of the 7oard! beca#se an #npaid s#bscription creates a debtor&creditor relationship between the stockholder and the corporation. Sec. ,> – Lia$ilit) of director# for 0atered #toc4# Watered Stoc4#
'atered stocks are tgise that are iss#ed for a consideration less than the par or iss#ed price thereof. Not per #e ille(al 9ss#ance of watered stocks are not per se illegal. 7#t it has the conse-#ence of +aking an director or oKcer of a corporation consenting to the iss#ance of watered stocks! or who! haing knowledge thereof! does not forthwith e$press his ob*ection in writing and le the sa+e with the corporate secretar! shall be solidaril! liable with the stockholder concerned to the corporation and its creditors for the diHerence between the fair al#e receied at the ti+e of iss#ance of the stock and the par or iss#ed al#e of the sa+e.
(ence! for a director or oKcer to eade solidar liabilit! it is not eno#gh for hi+ to +aintain his silence. (e +#st le a written ob*ection with the corporate secretar. P%rcha#e of #toc4# The prohibition on watered stocks does not coer p#rchase of stocks fro+ another stockholder. Sec. ,, – Itere#t o %paid #%$#criptio# Whe are #%$#cri$er# lia$le to pa) itere#t o their %paid #%$#criptio# fro" the date of #%$#criptioD 'hen re-#ired b the b&laws. At 0hat itere#t rateD That which is $ed b the b&laws. 9f the b&laws did not $ the interest rate b#t re-#ires interest to be paid4! the rate shall be dee+ed to be the legal rate! which at present is pegged at 8. Sectio# ,@ to @2 – &eli7%ec) Whe #ho%ld pa)"et of %paid #%$#criptio 3pl%# itere#t if a)6 $e collectedD 1. Gn or before the date proided in the s#bscription agree+ent; 2. )ate stated in the call +ade b the 7oard if date not specied! within 3@ das fro+ the call4; and 3. 'hen the corporation beco+es insolent.
?ail#re to pa on s#ch dates or 3@ das after call where date of pa+ent not specied4 shall render the stocks coered b said s#bscription shall there#pon beco+e delin-#ent and shall be s#b*ect to delin-#enc sale! #nless the board of directors orders otherwise. EHect# of deli7%ec) 1. o oting rights right to ote and be oted for4; 2. ot incl#ded in -#or#+ as a conse-#ence of losing oting rights4; 3. o right of representation at an stockholderLs +eeting; 0. ,oses all proprietar and re+edial rights! OCPT the right to diidends which he shall en*o #ntil the eent#al sale of the stock.
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& &
'hile the right to diidends is not lost! the are applied to the stock holderLs debt. Stock diidends are withheld.
Re"edie# to eforce pa)"et of deli7%et #hare#8 1. )elin-#ent Sale; 2. #dicial action/collection s#it with the TC; 3. Collection fro+ cash diidends and withholding of stock/propert diidends. Proced%re for &eli7%ec) Sale 1. Goard Re#ol%tio ordering the sale of delin-#ent shares stating the a+o#nt d#e on each s#bscription pl#s all accr#ed interest! and the date! ti+e and place of the sale which shall not be less than 3@ das nor +ore than 8@ das fro+ the date the stocks beco+e delin-#ent; 2. Notice and a cop of the board resol#tion to be sent to eer delin-#ent stockholder either personall or b registered +ail; 3. P%$licatio. The notice shall be p#blished once a week for 2 consec#tie weeks in a newspaper of general circ#lation; 0. P%$lic a%ctio. )elin-#ent stock shall be sold to s#ch bidder who shall oHer to pa the f#ll a+o#nt of the balance of the s#bscription pl#s interest! costs of adertise+ent and e$penses of sale4 for the s+allest n#+ber of shares or fraction of a share. 'inning bidder shall be iss#ed a certicate of stock. e+aining shares! if an! shall be credited in faor of the delin-#ent stockholder who shall likewise be entitled to the iss#ance of a certicate of stock coering s#ch shares. 5. Trea#%r) Share#. o bidder Corporation b#s and the shares shall beco+e treas#r shares. Wii( $idder i# the oe 0illi( to pa) the f%ll a"o%t of the $alace of the #%$#criptio pl%# itere#t9 ad'erti#e"et co#t# ad epe#e# of #ale for the #"alle#t %"$er of #hare#. o0 i# thi# =%#ti!edD S#ppose that the balance to be paid is P1@@!@@@ and the n#+ber of shares is 1@@!@@@. 7idder A wants 1@@!@@@ shares; 7idder 7 wants E@!@@@ shares; and 7idder C wants 8@!@@@ shares. This wo#ld translate as follows= & 7idder A wo#ld pa P1.@@ P1@@k/1@@k4 per share; & 7idder 7 wo#ld pa P1.25 P1@@k/E@k4 per share; and & 7idder C wo#ld pa P1.8F P1@@k/8@k4 per share. (ence! the winning bidder is 7idder C! beca#se he is the one willing to pa the highest a+o#nt per share. O 0hat (ro%d# ca deli7%ec) #ale $e 7%e#tioedD 1. 9rreg#larit or defect in the notice of sale; and 2. 9rreg#larit or defect in the sale itself. A part seeking to -#estion the delin-#enc sale based on the two +entioned gro#nds +#st rst pa or
tender to the part holding the stock the s#+ pl#s interest fro+ the date of the sale at the legal rate4 for which the sa+e was sold! and he +#st do so within 8 +onths fro+ the date of sale! lest it be barred. Sec. @ – Lo#t or de#tro)ed certi!cate# Proced%re 1. A:da'it of Lo##; 2. Veri!catio . The corporation to erif the aKdait and other infor+ation and eidence with the corporate books; 3. P%$licatio once a week for three consec#tie weeks; 0. Oe5)ear 0aiti( period fro+ the date of last p#blication; a. 9f the stockholder does not wish to wait! he +a le a bond within the one& ear period. 5. Cote#t; and ,. Replace"et Sec. @< – Goo4# to $e 4ept #toc4 tra#fer a(et 1. 7ook of all b#siness transactions; 2. 7ook of +in#tes of all +eetings of stockholders or +e+bers; 3. 7ook of +in#tes of all +eetings of all directors or tr#stees; and 0. Stock and transfer book ST74 in case of stock corporations. Ge#t e'idece The books and records of a corporation are ordinaril the best eidence of corporate acts and proceedings. Re7%i#ite# for the ri(ht to i#pect corporate $oo4# ad record# 1. #st be e$ercised at reasonable ho#rs on b#siness das; 2. The stockholder has not i+properl #sed an infor+ation he sec#red thro#gh an preio#s e$a+inationY; and 3. )e+and is +ade in good faith and for a legiti+ate p#rpose.Y
YThe second and third ite+s are lawf#l defenses that +a be inoked b an oKcer to den a stockholder or +e+ber his right to inspection. This is i+portant! beca#se #nlawf#l denial of the right to inspection constit#tes a cri+e #nder Sec. 100 of the Corporation Code. Stoc4 tra#fer a(et "%#t $e re(i#tered 0ith SEC A stock transfer agent is one engaged principall in the b#siness of registering transfers of stocks in behalf of a corporation. o stock transfer agent shall be allowed to operate in the Philippines! #nless= 1. (e has a license fro+ the SC; and 2. Pas the fee prescribed b the SC. A# a r%le9 corporate #ecretar) #i(# the "i%te#
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The non&signing of the +in#tes b all the +e+bers of the board is not re-#ired! beca#se it is the signat#re of the corporate secretar which gies the +in#tes of the +eeting probable al#e and credibilit.
3.
Sec. @> – Ri(ht to !acial #tate"et# +R8 ?inancial state+ents +#st be d#l signed and certied b an independent CPA. ;PN8 9f paid&#p capital is less than P5@!@@@ in which case certication #nder oath b the treas#rer or an responsible oKcer of the corporation s#Kces. s S%$"i##io to SEC The following are re-#ired to s#b+it ann#al a#dited nancial state+ents= 1. Stock corporations with paid&#p capital stock of P5@!@@@ or +ore; 2. on&stock corporations with total assets each of P5@@!@@@ or +ore or with gross ann#al receipts of P1@@!@@@ or +ore.
A#dited nancial state+ents are led ann#all. The period within which to le the+ aries ranging fro+ April 1: to a 104 depending on the last n#+erical digit of the corporationLs SC registration or license n#+ber.
0.
5.
Sectio# @, to - – Mer(er ad Co#olidatio Mer(er Gne where a corporation absorbs another corporation and re+ains in e$istence while the other is dissoled. $a+ple= Piccolo Corp. V Za+i Corp. [ Piccolo Corp. Co#olidatio Gne where a new corporation is created! and the consolidating corporations are e$ting#ished. $a+ple=
8.
b4 An dissenting stockholder +a e$ercise his appraisal right. An a+end+ent to the plan or +erger or consolidation +a be +ade! proided it is approed b +a*orit ote of the respectie boards of all the constit#ent corporations and ratied b 2/3 ote of the stockholders or +e+bers of the constit#ent corporations. Article# of "er(er or co#olidatio shall be e$ec#ted b each of the constit#ent corporations! signed b the president/ice& president and certied b the secretar/assistant secretar of each corporation setting forth= a. The plan of the +erger or consolidation; b. As to stock corporations! the n#+ber of shares o#tstanding! or in the case of non&stock corporations! the n#+ber of +e+bers; and c. As to each corporation! the n#+ber of shares or +e+bers oting for and against s#ch plan! respectiel. S%$"it to SEC the articles of +erger or consolidation. & 9n case of $anks! $anking instit#tions! $#ilding and loan associations! tr#st co+panies! p#blic #tilities! ed#cational instit#tions and other #pecial corporations goerned b special laws! SC cannot act on their articles of +erger or consolidation witho#t the faorable endorse+ent of the appropriate goern+ent agenc. SEC to i##%e certi!cate of "er(er or co#olidatio if it is satised that the +erger or consolidation is not inconsistent with the Corporation Code or special laws. Gtherwise! it wo#ld set a hearing with a two&week prior notice.
Le(al eHect# of "er(er ad co#olidatio 1. Si(le The constit#ent corporatio. corporations shall beco+e a single corporation; 2. Ce##atio of #eparate ei#tece. The separate e$istence of the constit#ent corporations shall cease! e$cept that of the s#riing or the consolidated corporation; 3. A##%"ptio of ri(ht# . The s#riing or the consolidated corporation shall possess all the rights! priileges! i++#nities and powers and shall be s#b*ect to all the d#ties and liabilities of a corporation organi%ed #nder this Code; 0. Ac7%i#itio of propertie# . The s#riing or the consolidated corporation shall there#pon and thereafter possess all the rights! priileges! i++#nities and franchises of each of the constit#ent corporations; and all propert! real or personal! and all receiables d#e on whateer acco#nt! incl#ding s#bscriptions to shares and other choses in action! and all and eer other interest of! or belonging to! or d#e to each constit#ent corporation! shall be dee+ed transferred to and ested in s#ch s#riing or consolidated corporation witho#t f#rther act or deed; and
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5.
A##%"ptio of lia$ilitie#. The s#riing or consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constit#ent corporations in the sa+e +anner as if s#ch s#riing or consolidated corporation had itself inc#rred s#ch liabilities or obligations; and an pending clai+! action or proceeding bro#ght b or against an of s#ch constit#ent corporations +a be prosec#ted b or against the s#riing or consolidated corporation. The rights of creditors or liens #pon the propert of an of s#ch constit#ent corporations shall not be i+paired b s#ch +erger or consolidation.
+ro%d# for di#appro'al of the "er(er or co#olidatio 1. 9f the proced#re prescribed b law is not followed; 2. 9f the p#rpose for which the constit#ent corporations were created are inconsistent each other i.e. a bank and an ins#rance co+pan4; 3. 9f it is a deice to create +onopolies or restraint of trade; and 0. 9f it is not done in good faith. I"portat priciple# 1. The +erger or consolidation shall onl be eHectie #pon the iss#ance of a certicate of +erger or consolidation b the SC. 9t does not beco+e eHectie #pon the +ere agree+ent of the constit#ent corporations. 2. on&ass#+ption of liabilities & <= 'hen one corporation b#s all the shares! stocks or propert of another corporation! this will not operate to dissole the other corporation and as the two corporations still +aintain their separate corporate entities! one will not answer for the debts of the other. & OPs= ?CCP4 a4 9f the p#rchase as in f ra#d of creditors; b4 9f there is an e$press ass#+ption of liabilities; c49f there is a consolidation or +erger; d4 9f the p#rchaser is +erel a contin#ation of the seller; or e4 'hen it is proper to pierce the eil of corporate ction. 3. +ploees of the constit#ent corporations are not a#to+aticall absorbed b the s#riing corporation or the consolidated corporation! beca#se the are not considered as assets and properties. & According to )ean Abella! it is the s#perisor e+ploees that are nor+all aHected in case of +ergers or consolidations! beca#se there are +ore work aailable for rank&and&le e+ploees. Sectio# 1 to , – Apprai#al Ri(ht
Apprai#al Ri(ht The right of a stockholder to withdraw fro+ the corporation and de+and pa+ent of the fair al#e of his shares following his dissent on certain corporate acts. 7#t not all corporate acts can be the s#b*ect of appraisal right. I#tace# 0here apprai#al ri(ht "a) $e a'ailed of8 1. A+end+ent of articles of incorporation which has the eHect of changing/restricting the rights of an stockholder or class of shares or of a#thori%ing preferences in an respect s#perior to those of o#tstanding shares of an class; 2. $tension or shortening of corporate ter+; 3. Sale or other disposition of all/s#bstantiall all corporate propert and assets; 0. erger or consolidation; and 5. 9nest+ent in an enterprise/another corporation for an other p#rpose other than its pri+ar p#rpose. Proced%re 1. Writte &e"ad. )issenting stockholder +#st +ake a written de+and on the corporation within 3@ das fro+ the oting in which he dissented. ?ail#re to +ake a written de+and within 3@ das shall be dee+ed a waier of the appraisal right; 2. Notatio. 'ithin 1@ das after de+anding pa+ent for his shares! a dissenting stockholder shall s#b+it the certicates of stock representing his shares to the corporation for notation thereon that s#ch shares are dissenting shares. (is fail#re to do so shall! at the option of the corporation! ter+inate his appraisal right. 9f shares represented b the certicates bearing s#ch notation are transferred! and the certicates conse-#entl cancelled! the rights of the transferor as a dissenting stockholder shall cease and the transferee shall hae all the rights of a reg#lar stockholder; and all diidend distrib#tions which wo#ld hae accr#ed on s#ch shares shall be paid to the transferee; 3. Pa) %po #%rreder of certi!cate. 9f the proposed corporate action is i+ple+ented or eHected! the corporation shall pa to s#ch stockholder! #pon s#rrender of the certicate or certicates of stock representing his shares! the fair al#e thereof as of the da prior to the date on which the ote was taken! e$cl#ding an appreciation or depreciation in anticipation of s#ch corporate action. 0. *air 'al%atio of #hare# . 9f within a period of si$t 8@4 das fro+ the date the corporate action was approed b the stockholders! the withdrawing stockholder and the corporation cannot agree on the fair al#e of the shares! it shall be deter+ined and appraised b three 34 disinterested persons! one of who+ shall be na+ed b the stockholder! another b the corporation! and the third b the two th#s chosen. The ndings of the +a*orit of the
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appraisers shall be nal! and their award shall be paid b the corporation within thirt 3@4 das after s#ch award is +ade= Proided! That no pa+ent shall be +ade to an dissenting stockholder #nless the corporation has #nrestricted retained earnings in its books to coer s#ch pa+ent= and Proided! f#rther! That #pon pa+ent b the corporation of the agreed or awarded price! the stockholder shall forthwith transfer his shares to the corporation. What "a) $e the $a#i# of the fair 'al%e of #hare#D 9t +a either be the par 'al%e which re+ains constant4 or the $oo4 'al%e?"ar4et 'al%e which #ct#ates depending on the perfor+ance of the corporation4.
7ook al#e is arried at as follows= Total Assets N Total ,iabilities [ et 'orth et 'orth/#+ber of Shares [ 7ook Qal#e Whe ri(ht of apprai#al eti(%i#hed 1. Stockholder withdraws his de+and and the corporation consents thereto; & The corporation needs to consent! beca#se once the stockholder decides to +ake #se of his appraisal right! there is no going back. 2. The proposed corporate action is abandoned or rescinded b the corporation; 3. The SC disapproes or deter+ines that the stockholder is not entitled to the appraisal right; and 0. o s#rpl#s prots. Who $ear# the co#t# of apprai#alD +R8 Corporation ;PN8 ?air al#e ascertained b the appraisers is appro$i+atel the sa+e as the price which the corporation +a hae oHered to pa the stockholder! in which case costs shall be borne b the latter.
9n the case of an action to recoer s#ch fair al#e! all costs and e$penses shall be assessed against the corporation! #nless the ref#sal of the stockholder to receie pa+ent was #n*#stied. S%rpl%# pro!t# eeded ote that the +one that will be #sed to pa the dissenting stockholder +#st co+e fro+ the corporationLs s#rpl#s prots.
9f a stockholders led an action against the corporation to de+and pa+ent of the fair al#e of his shares is pre+at#re if at the ti+e of de+and for pa+ent! the corporation had no s#rpl#s prot. The fact that the corporation s#bse-#ent to the de+and for pa+ent and d#ring the pendenc of the collection case posted s#rpl#s prot did not c#re the pre+at#rit of the ca#se of action. (;'rner v. oren@o S-ipping Corporation !"#"ds%
Sectio# @ to B> – No5#toc4 corporatio#
No5#toc4 corporatio Gne where no part of its inco+e is distrib#table as diidends to its +e+bers! tr#stees! or oKcers. No5#toc4 corporatio# "a) $e for"ed or or(ai/ed for the follo0i( p%rpo#e#8 1. Charitable; 2. eligio#s; 3. d#cational; 0. Professional 5. C#lt#ral ; 8. ?raternal; F. ,iterar; E. Scientic; :. Social; or 1@. Ciic serice; 11. Si+ilar p#rposes s#ch as trade! ind#str! agric#lt#ral and like cha+bers! or an co+bination thereof. Ri(ht to 'ote i o5#toc4 corporatio# 1. Qoting rights +a be li+ited! broadened b the articles of incorporation or the b&laws. 2. ach +e+ber is entitled to 1 ote! #nless otherwise proided in the articles of incorporation. 3. As a r#le! oting is b straight oting! #nless c#+#latie is prescribed b the articles of incorporation or the b&laws. 7#t according to sir! thereLs no practical reason wh a non&stock corporation wo#ld resort to c#+#latie oting. 0. ight to ote b pro$ +a be denied. ote that in stock corporations! right to pro$ CAGT be denied.4 5. Qoting b +ail +a be a#thori%ed b the b& laws! proided it is with the approal and other the conditions prescribed b the SC. Me"$er#hip o5tra#ferra$le 6nless otherwise proided b the articles of incorporation or the b&laws. Ter"iatio of "e"$er#hip e+bership shall be ter+inated in the +anner and for the ca#ses proided in the articles of incorporation or the b&laws. Electio ad ter" of tr%#tee# 1. The 7oard of Tr#stees +a hae +ore than 15 +e+bers. 2. Ter+ of 3 ears on a staggered basis of 1/3 of the 7oard +e+bers. 3. o person shall be elected as tr#stee #nless he is a +e+ber of the corporation. 0. GKcers +a be directl elected b the +e+bers. ote that in stock corporations! oKcers are elected b the directors.4 Place of "eeti(# a be o#tside the place where the principal oKce of the corporation is located! as long as within the Philippines. R%le# of di#tri$%tio The assets shall be distrib#ted as follows= 1. ?irst! all ta$es and creditors +#st be paid;
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2. Assets held s#b*ect to ret#rn on dissol#tion shall be coneed back to the gier; 3. Assets receied for charitable! religio#s! beneolent! ed#cational or si+ilar p#rposes! witho#t a condition for ret#rn! shall be transferred to one or +ore corporations! societies or organi%ations engaged in si+ilar actiities; 0. Gther assets shall be distrib#ted in accordance with the articles of incorporation or the b& laws; and 5. 9n an other case! assets +a be distrib#ted to s#ch persons! societies! organi%ations or corporations! whether or not organi%ed for prot! as +a be specied in a plan of distrib#tion adopted. & Plan of distrib#tion is adopted ia 7oard esol#tion V atication b 2/3 ote of the +e+bers haing oting rights. *o%datio A fo#ndation is a non&stock! non&prot corporation established for the p#rpose of e$tending grants or endow+ents to s#pport its goals or raising f#nds to acco+plish charitable! religio#s! ed#cational! athletic! c#lt#ral! literar! scientic! social welfare or other si+ilar ob*ecties.
The +ost i+portant thing to re+e+ber is that a fo#ndation +#st hae a capital of at least P1 +ill ion. Ga#ic re7%ire"et# to icorporate a# a fo%datio 1. Qerication slip; 2. Articles of incorporation and b&laws; 3. AKdait #ndertaking to change corporate na+e; 0. ,ist of +e+bers certied b the corporate secretar; 5. ,ist of contrib#tors and a+o#nt contrib#ted certied b the treas#rer; 8. otari%ed Certication of 7ank )eposit of the a+o#nt of not less than Gne illion Pesos P1!@@@!@@@.@@4; and F. State+ent of willingness to allow the Co++ission to cond#ct and a#dit. E#cheat to (o'er"et )onated properties which were ta$&e$e+pt to a fo#ndation shall! #pon the fo#ndationLs dissol#tion! be escheated in faor of the goern+ent. Sectio# B, to 1-> – Clo#e corporatio# Clo#e corporatio A close corporation is one whose articles of incorporation proides that= 1. All the iss#ed stock of all classes! e$cl#sie of treas#r shares! shall be held of record b not +ore than 2@ persons; 2. The iss#ed stock of all classes shall be s#b*ect to one or +ore specied restrictions on transfer; and
3. 9t shall not list in an stock e$change or +ake an p#blic oHering of an of its stock of an class. en if the aboe en#+erated proisions are present! a corporation cannot be a close corporate if at least 2/3 of its oting stock or oting rights are owned or controlled b another corporation which is not a close corporation. The follo0i( caot $e clo#e corporatio#8 3MOSGIPEC6 1. ining co+panies; 2. Gil co+panies; 3. Stock e$changes; 0. 7anks; 5. 9ns#rance co+panies; 8. P#blic #tilities; F. d#cational instit#tions; and E. Corporations declared to be ested with p#blic interest. Re#trictio# o tra#fera$ilit) "%#t appear i doc%"et#8 1. Articles of incorporation; 2. 7&laws; and 3. Stock certicates
9f the restrictions do not appear in an of those doc#+ents! the will not pre*#dice the right of third persons who are not aware of the sa+e. The restrictions shall not be +ore onero#s than granting the e$isting stockholders or the stockholders the option to p#rchase the shares of the transferring stockholder with s#ch reasonable ter+s! conditions or period stated therein. 9f #pon the e$piration of said period! no pre&e+ptie right was e$ercised! the transferring stockholder +a sell his shares to an third person. Cocl%#i'e pre#%"ptio# i ca#e of tra#fer of #toc4 i $reach of 7%alif)i( coditio# 1. A transferee is concl#siel pres#+ed to hae notice of the fact of his ieli(i$ilit) to be a stockholder! 9?J a. A stock of a close corporation is iss#ed or transferred to an person who is not eligible to be a stockholder #nder the articles of incorporation; and b. The certicate of stock conspic#o#sl shows the -#alications of the persons entitled to be stockholders. 2. A transferee is concl#siel pres#+ed to hae notice of the fact that the tra#fer 0o%ld ca%#e the %"$er of #toc4holder# to eceed the li"it stated in the Articles of 9ncorporation or 2@! 9?J a. The articles of incorporation states s#ch n#+ber of persons not e$ceeding 2@4; and b. The certicate for s#ch stock conspic#o#sl states s#ch n#+bers. 3. A transferee is concl#siel pres#+ed to hae notice of the fact that he ha# ac7%ired #toc4 i 'iolatio of a re#trictio on transfer! 9?J
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a. The stock certicate shows s#ch restriction.
conspic#o#sl
EHect of tra#fer of #toc4 i $reach of 7%alif)i( coditio# The corporation +a ref#se to register the transfer of stock! 6,SSJ 1. All stockholders consent; 2. The close corporation has a+ended its articles of incorporation. A"ed"et of article# of icorporatio A+end+ent needs to be approed b the a:r"ati'e 'ote of at lea#t 2? ! 9? the a+end+ent has the following eHects= 1. )eletes or re+oes an proision re-#ired of close corporations to be contained in the articles of incorporation; or 2. ed#ces a -#or#+ or oting re-#ire+ent stated in the articles of incorporation. Whe $oard "eeti( i# %ece##ar) or i"properl) held 6nless the b&laws proide otherwise! an action b the directors of a close corporation witho#t a +eeting shall neertheless be dee+ed alid if= 1. 7efore or after s#ch action is taken! written consent thereto is signed b all the directors; or 2. All the stockholders hae act#al or i+plied knowledge of the action and +ake no pro+pt ob*ection thereto in writing; or 3. The directors are acc#sto+ed to take infor+al action with the e$press or i+plied ac-#iescence of all the stockholders; or 0. All the directors hae e$press or i+plied knowledge of the action in -#estion and none of the+ +akes pro+pt ob*ection thereto in writing.
9f a directorLs +eeting is held witho#t proper call or notice! an action taken therein within the corporate powers is dee+ed ratied b a director who failed to attend! #nless he pro+ptl les his written ob*ection with the secretar of the corporation after haing knowledge thereof. Wider co'era(e of pre5e"pti'e ri(ht Pre&e+ptie right e$tends to all stocks to be iss#ed! incl#ding reiss#ance of treas#r shares. Characteri#tic# of a clo#e corporatio 1. Stockholders can directl +anage the corporation and perfor+ the f#nctions of directors witho#t need of election. 2. Stockholders are liable as directors. 3. Pre&e+ptie right e$tends to all stocks. 0. )eadlocks are settled b the SC now the TC4 #pon a written petition b an stockholder. 5. Stockholder +a withdraw and aail of his right of appraisal for an reason! proided the corporation has s#Kcient assets in its books to coer its debts and liabilities e$cl#sie of capital stock.
Whe #toc4holder "a) petitio to co"pel di##ol%tio8 1. 'heneer an of acts of the directors! oKcers or those in control of the corporation isJ a. 9llegal; b. ?ra#d#lent; c. )ishonest; d. Gppressie; e. 6nfairl pre*#dicial to the corporation or an stockholder; or 2. 'heneer corporate assets are being +isapplied or wasted. What to do i ca#e of deadloc4 i a clo#e corporatio 1. The proper reco#rse is to rst e$ha#st re+edies aailable in the articles of incorporation or b&laws; 2. 9n the absence thereof or after e$ha#stion! le a petition with the TC which shall hae the power to arbitrate the disp#te. 9n the e$ercise of s#ch power! the TC shall hae the a#thorit to iss#e the following orders= a. Cancelling or altering an proision in the articles of incorporation! b&laws! or an stockholderLs agree+ent; b. Cancelling! altering or en*oining an resol#tion or act of the corporation or its board of directors! stockholders or oKcers; c. )irecting or prohibiting an act of the corporation or its board of directors! stockholders! oKcers! or other persons part to the action; d. e-#iring the p#rchase at fair al#e of shares of an stockholder! either b the corporation regardless of the aailabilit of s#rpl#s prots or b the other stockholders; e. Appointing a proisional director who +#st be an i+partial and disinterested person; f. )issoling the corporation or granting s#ch other relief as the circ#+stances +a warrant. Sectio# 1-, to 1- – Ed%catioal corporatio# Ke) poit# to re"e"$er 1. ?aorable reco++endation of )epd or C(d! as the case +a be! is a prere-#isite to incorporation. 2. d#cational corporations +a incorporate as either stock or non&stock A FF:E a+ending 7P 2324. 3. Tr#stees shall not be less than 5 nor +ore than 15! proided that the n#+ber of tr#stees shall be in +#ltiples of 5. 9n short! 5! 1@ or 15 lang pwede\ 0. Ter+ of tr#stees is for 5 ears on a staggered basis of 1/5 of its +e+bers. & This is witho#t pre*#dice to a diHerent ter+ proided in the articles of incorporation. (&etronilo v. *B& !"##%
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&
5.
7= The articles of incorporation +a proide for a diHerent ter+! b#t it is not s#re whether it can also proide for a diHerent n#+ber of tr#stees. ?or instit#tions organi%ed as stock corporations! the n#+ber and ter+ of directors shall be goerned b the proisions on stock corporations.
Sectio# 1-B to 11, – Reli(io%# corporatio# Ke) priciple# to re"e"$er 1. eligio#s corporations are classied into a4 and b4 corporatio# #ole reli(io%# #ocietie#. 2. 9f the internal r#les of a religio#s gro#p prohibit incorporation! it cannot incorporate as a corporation sole or religio#s societ. (ence! in the articles of incorporation to be led with the SC! there +#st be a state+ent that the incorporation is not prohibited b the r#les of the religio#s gro#p. 3. The general proisions on non&stock corporations appl in a s#ppletor +anner. 0. +R= ?or a corporation sole to sell or +ortgage a real propert! it +#st obtain an order for that p#rpose fro+ the TC of the proince where the propert is located b ling a eried petition. ;PN= The corporation soleLs own internal r#les reg#late the +ethod of ac-#iring! holding! selling and +ortgaging real and personal propert. 5. To ll a acanc in a corporation sole! the s#ccessor +#st le with the SC a notari%ed cop of his co++ission! certicate of election! or letters of appointed. 8. ?or a religio#s gro#p to incorporate as a religio#s societ! there +#st be a +eeting and at least 2/3 of the +e+bers +#st consent or gie an aKr+atie ote. Sectio# 11@ to 122 – &i##ol%tio o0 are corporatio# di##ol'edD 1. Qol#ntaril; 2. 9nol#ntaril; 3. 7 shortening corporate ter+; and 0. $piration of the ter+.
&i##ol%tio
3Creditor#
I'ol%tar) di##ol%tio i# eHected $) the SEC %po !li( of a 'eri!ed co"plait after otice ad heari( $a#ed o the follo0i( (ro%d#8 1. ?ail#re to organi%e and co++ence b#siness within 2 ears fro+ incorporation; 2. Contin#o#s inoperatation for 5 ears; 3. ?ail#re to le the b&laws within 3@ das fro+ iss#ance of certicate of incorporation; 0. ?ra#d in proc#ring the certicate of registration; 5. ?ail#re to co+pl with reportorial re-#ire+ents; a.
Vol%tar) &i##ol%tio 3No creditor# aHected6 proced%re 1. eeting with a 3@&da prior notice; 2. otice of the +eeting shall be p#blished for 3 consec#tie weeks; 3. esol#tion to be approed b +a*orit of the board +e+bers and ratied b 2/3 ote; 0. esol#tion +#st be certied b +a*orit of the board +e+bers! co#ntersigned b the corporate secretar; and 5. esol#tion to be led with the SC which will iss#e the certicate of dissol#tion. Vol%tar) proced%re
1. eeting where 2/3 +#st ote to dissole the corporation; 2. ?ile with the TC a petition to dissole! signed b +a*orit of the board or other oKcers haing the +anage+ent of its aHairs! and eried b the president or secretar or director! setting forth all clai+s and de+ands against it; 3. TC to $ b order a date on or before which ob*ections +a be led b an person! which date shall not be less than 3@ das nor +ore than 8@ das after the entr of the order; 0. Cop of the order to be p#blished once a week for 3 consec#tie weeks and posted in 3 p#blic places for 3 consec#tie weeks; 5. After e$piration of the ti+e to le ob*ections! the SC shall $ a date of hearing with a e& da prior notice; 8. TC shall render *#dg+ent dissoling the corporation and directing s#ch disposition of its assets as *#stice re-#ires! and +a appoint a receier to collect s#ch assets and pa the debts of the corporation.
aHected6
9f a corporation seeks to shorten its corporate ter+ and the +anifest intent is to ca#se its dissol#tion! the SC will not act on the application witho#t a 79 clearance. Li7%idatio The process b which the assets of the corporation are conerted in to li-#id assets or cash to facilitate the pa+ent of obligations to creditors! and the re+aining balance! if an! is to be distrib#ted to the stockholders. Corporate life doe# ot i""ediatel) cea#e %po di##ol%tio 5)ear period The three&ear period #pon dissol#tion is for the p#rpose of prosec#ting or defending s#its.
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Actions led beond the three&ear period are dee+ed to hae prescribed. ote that it does not +atter if the action contin#es beond the period as long as it is instit#ted within the period. Method# of li7%idatio 1. 7 the corporation itself thro#gh the board of directors or tr#stees; 2. Thro#gh coneance to a tr#stee within the three&ear period; 3. 7 +anage+ent co++ittee or rehabilitation receier; 0. 9f li-#idation is not co+pleted within the three& ear period! the 7oard is per+itted to co+plete li-#idation b contin#ing as tr#stee and for the p#rpose of settling and closing the aHairs of the corporation. Sectio# 12 to 1, – *orei( corporatio#
A forei( corporatio is one which is organi%ed #nder the laws of a foreign co#ntr which allows ?ilipinos and Philippine corporations to do b#siness therein. T0o ele"et# of a forei( corporatio 1. Grgani%ed #nder the laws of a foreign co#ntr; and 2. ight of reciprocit.
As a r#le! a foreign corporation +#st hae a license to do b#siness here in the Philippines. Philippie atioal 3%der the *orei( I'e#t"et# Act6 1. ?ilipino citi%en; 2. )o+estic corporation; 3. )o+estic corporation of which at least 8@ entitled to ote is owned and held b ?ilipino citi%ens; 0. ?oreign corporation doing b#siness in the Philippines of which 1@@ of the capital o#tstanding stock and entitled to ote is wholl owned b ?ilipinos; and 5. Tr#stee of f#nds! at least 8@ of which will accr#e to the benet of ?ilipinos.
?ro+ the en#+eration aboe! a foreign corporation +a be considered a Philippine national. o0 do forei( corporatio# do $%#ie## i the Philippie# 3Mode# of Etr)6D 1. 7ranch GKce; 2. esident agent; 3. S#bsidiar Corporation; & o need for a license! beca#se the s#bsidiar corporation will act#all be incorporating here in accordance with Philippine laws. 0. 7 inest+ent; & ere inest+ent in a do+estic corporation! regardless of a+o#nt does not +ean that the corporation is doing b#siness in the Philippines! #nless it is
actiel participating in the +anage+ent in the aHairs of the do+estic corporation! in which case it is considered doing b#siness and +#st sec#re a license. 5. oint Qent#re; and & 9f it +erel contrib#tes capital or technical Bknow&hows! it is not doing b#siness here. 8. Serice Contracts. What co#tit%te# doi( $%#ie## i the Philippie# 3T0i5Characteri/atio Te#t6 1. Coti%it) Te#t – )oing b#siness i+plies a contin#it of co++ercial dealings; and 2. S%$#tace Te#t N 'hen the corporation is contin#ing the bod or s#bstance of the enterprise of b#siness for which it is organi%ed (Ment-olat'm Co v. Mangaliman% . Fder the *orei( I'e#t"et Act 1. )oing 7#siness a. Soliciting orders! serice contracts! opening oKces; b. Appointing representaties! distrib#tors do+iciled in the Philippines or who sta for a period totaling 1E@ das or +ore; c. Participating in the +anage+ent! s#perision or control of an do+estic b#siness! r+! entit or corporation in the Philippines; and d. An act or acts that i+pl a contin#it of co++ercial dealings or arrange+ents and conte+plate to so+e e$tent the perfor+ance of so+e f#nctions nor+all incident to an in progressie prosec#tion of! the p#rpose and ob*ect of its organi%ation. & This is act#all the Twin& Characteri%ation Test adopted fro+ *#rispr#dence. 2. ot doing b#siness a. ere inest+ent as shareholder and e$ercise of rights as inestor; b. (aing a no+inee director or oKcer to represent its interest in the corporation; and c. Appointing a representatie or distrib#tor which transacts b#siness in its own na+e and for its own acco#nt. Re7%i#ite# for a forei( corporatio to e(a(e i $%#ie## i the Philippie# 1. egister with the SC as a foreign corporation b giing a certied tr#e cop of all incorporation doc#+ents in the co#ntr of origin. 9f not in nglish! the doc#+ents +#st be acco+panied b an oKcial translation in nglish; 2. 9nward re+ittance at the a+o#nt of prescribed capitali%ation; and 3. Appoint+ent of a resident agent. Priciple# (o'eri( ri(ht to #%e8
a
forei(
corporatio#
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1. 9f a foreign corporation is doing b#siness in the Philippines witho#t a license! it cannot s#e before Philippine co#rts; 2. 9f a foreign corporation is not doing b#siness in the Philippines! it needs no license to s#e before Philippine co#rts on an isolated transaction or on a ca#se of action entirel independent of an b#siness transaction; and 3. 9f a foreign corporation does b#siness in the Philippines with the re-#ired license! it can s#e before Philippine co#rt on an transaction.
to the Philippine
Cotract# $) forei( corporatio# #a# lice#e are ot 'oid Absence of license does not aHect the alidit or enforceabilit of a contract entered into b a foreign corporation doing b#siness witho#t a license. 9t +erel aHects the re+ed.
A forei( corporatio lice#ed to tra#act $%#ie## i the Philippie# caot $e allo0ed $) the SEC to 0ithdra0 fro" the co%tr)9 %le## all the follo0i( re7%ire"et# are "et8 1. All clai+s which hae accr#ed in the Philippines hae been paid! co+pro+ised or settled; 2. All ta$es! i+posts! assess+ents! and penalties! if an! lawf#ll d#e to the Philippine
E#toppel A part is estopped to challenge the personalit of a corporation after haing acknowledged the sa+e b entering into a contract with it. The principle will be applied to preent a person contracting with a foreign corporation fro+ later taking adantage of its nonco+pliance with the stat#tes! chie in cases where s#ch person has receied the benets of the contract. (Merril ync- ?'t'res v. C*%
Letter# of Credit I pari delicto r%le o re+ed can be aHorded to the parties where the hae pres#+ptie knowledge that the transaction was tainted with illegalit. (;op+eld Man'fact'ring nc. v. ECED S*%
What i# a Letter of CreditD
Protectio of itellect%al propert) ri(ht# 6nder Sec. 18@ of the 9ntellect#al Propert Code! an foreign national or *#ridical person not engaged in b#siness in the Philippines +a bring a ciil or ad+inistratie action for opposition! cancellation! infringe+ent! #nfair co+petition! or false designation of origin and false description! whether or not it is licensed to do b#siness in the Philippines.
Altho#gh #s#all #sed in sales transactions! it +a also be #sed in a non&sale setting s#ch as si+ple loan.
+ro%d# for re'ocatio of lice#e 1. ?ail#re to le its ann#al report or pa an fees as re-#ired b this Code; 2. ?ail#re to appoint and +aintain a resident agent in the Philippines as re-#ired b this Title; 3. ?ail#re! after change of its resident agent or of his address! to s#b+it to the Sec#rities and $change Co++ission a state+ent of s#ch change as re-#ired b this Title; 0. ?ail#re to s#b+it to the Sec#rities and $change Co++ission an a#thenticated cop of an a+end+ent to its articles of incorporation or b&laws or of an articles of +erger or consolidation within the ti+e prescribed b this Title; 5. A +isrepresentation of an +aterial +atter in an application! report! aKdait or other doc#+ent s#b+itted b s#ch corporation p#rs#ant to this Title; 8. ?ail#re to pa an and all ta$es! i+posts! assess+ents or penalties! if an! lawf#ll d#e
9t is an engage+ent b a bank +ade at the re-#est of its client that the bank will honor the draft or other de+and for pa+ent #pon co+pliance with the conditions stated in the credit.
I# a letter of credit a cotract of #%ret)#hip or (%arateeD
9t is neither a contract of s#retship nor a g#arantee inas+#ch as a letter of credit entails a pri+ar liabilit following defa#lt. Also! *#rispr#dence has laid down a clear distinction between a letter of credit and a g#arantee in that the settle+ent of a disp#te is not a prere-#isite for the release of f#nds #nder a letter of credit. 7oth a letter of credit and a s#ret ens#re against the debtorLs non&perfor+ance. 7#t the f#nction in a diHerent wa. 9n a letter of credit! the creditor reasonabl e$pects that he will receie cash in the eent of non&perfor+ance! that he will receie it pro+ptl! and that he will receie it before an litigation with the debtor oer the nat#re of the applicantLs perfor+ance takes place. 9n the s#ret contract setting! there is no d#t to inde+nif the beneciar #ntil the beneciar/creditor establishes the fact of the debtorLs non&perfor+ance. And that +a be proen in co#rt.
Page > 32
9n a letter of credit setting! the beneciar aoids the b#rden of litigation and receies his +one pro+ptl #pon presentation of the re-#ired doc#+ents. What i# the (o'eri( la0 o letter# of creditD
Since the proisions on letters of credits of the Code of Co++erce are alread rendered obsolete! what is being obsered at present is the 6nifor+ C#sto+s and Practice for )oc#+entar 6CP4 which was adopted b the 9nternational Cha+ber of Co++erce.
c4
The beneciar of a co++ercial credit +#st de+onstrated b doc#+ents that he has perfor+ed his contract. The beneciar of the standb credit +#st certif that his obligor has not perfor+ed the contract.
Who are the partie# i a letter# of credit#D
A. 6s#al and 9ndispensable Parties 1. G%)er?I"porter N one who proc#res the letter of credit and obliges hi+self to rei+b#rse the iss#ing bank #pon receipt of the doc#+ents of title; 2. I##%i( Ga4 – 6ndertakes to pa the seller #pon receipt of the draft and proper doc#+ents of titles and to s#rrender the doc#+ents to the b#er #pon rei+b#rse+ent; 3. Seller?Gee!ciar)?Eporter N 9n co+pliance with the contract of sale! he wo#ld ship the goods to the b#er and deliers the doc#+ents of title and draft to the iss#ing bank to recoer pa+ent.
The latest reision known as 6CP 8@@ took eHect on #l 1! 2@@F. ,egal *#stication of the #se of 6CP= o
Art. 2 of the Code of Co++erce Proides that in the absence of an partic#lar proision in the code! co++ercial transactions shall be goerned b #sages and c#sto+s generall obsered.
8 A letter of credit 0a# de'eloped a# a "ode to #ati#f) the #ee"i(l) irrecocila$le itere#t# of a #eller9 0ho ref%#e# to part 0ith hi# (ood# $efore he i# paid9 ad a $%)er 0ho 0at# to ha'e cotrol of the (ood# $efore pa)i(. Eplai thi# cocept.
7. Gther Parties These other banks are known as correspondent banks4 1. Ad'i#i( or Notif)i( Ga4 N This bank cones to the seller the e$istence of the credit. This bank inc#rs no liabilit at all; 2. Co!r"i( Ga4 N This bank will lend credence to the letter of credit iss#ed be a lesser known iss#ing bank. This bank is directl liable to the seller; 3. Pa)i( Ga4 N 6ndertakes to encash the drafts drawn b the e$porter; 0. Ne(otiati( Ga4 N 9nstead of going to the place of the iss#ing bank to clai+ pa+ent! the b#er +a approach another bank negotiating bank4 to hae the draft disco#nted.
S#ppose that Pedro! a ?ilipino b#siness+an! wants to b# co+p#ter #nits fro+ Apple! 6SA. Pedro wo#ld be hesitant to transfer +one to Apple! thinking there is no g#arantee that he wo#ld eer get the goods. ,ikewise! Apple wo#ld be hesitant to delier the goods! thinking there is no g#arantee that it wo#ld eer be paid. This i+passe is resoled b +aking #se of letters of credit! whereb a bank is +ade an inter+ediar between the b#er and seller to ens#re a fair transaction. What are the t0o t)pe# of letter# of credit 0ith re#pect to the tra#actio#D
1. Co""ercial Letter# of Credit N 'hen #sed in the trade of goods; 2. Stad$) Letter# of Credit N 'hen #sed to sec#re the perfor+ance of so+e serice or work. 'hat are the diHerences a4 Co++ercial credits inole the pa+ent of +one #nder a contract of sale. S#ch credits beco+e paable #pon the presentation b the seller/beneciar of doc#+ents that show he has taken aKr+atie steps to co+pl with the sales agree+ent. 9n the standb tpe! the credit is paable #pon certication of a partLs nonperfor+ance of the agree+ent; b4 The doc#+ents that acco+pan the beneciarLs draft tend to show that the applicant has not perfor+ed;
ote= 'hen dealing with proble+s concerning letters of credits! or een tr#st receipts! i++ediatel identif the parties and their roles in the transactions.
&i#c%## ho0 a letter of credit operate#.
A. 7#er&Seller preli+inar negotiations A contract of sale is perfected between the b#er and seller! and the agree that the +ethod of pa+ent is thro#gh a letter of credit. 7. 7#er&9ss#ing 7ank negotiations The b#er opens a letter of credit arrange+ent with the iss#ing bank. The iss#ing bank re-#ires partial or f#ll pa+ent depending on the credit tr#stworthiness and nancial standing of the b#er. 9t +a also re-#ire additional collaterals to ens#re pa+ent. The b#er signs an
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#ndertaking to ass#+e all costs relatie to the arrange+ent. C. Seller deliers the goods After the iss#ing bank and the b#er agree on the ter+s of the letter of credit! the iss#ing bank adises the sellerLs bank b tele$! cable or fa$! or s#ch other +eans of co++#nication! of the e$istence of the letter of credit.
-#alit! condition! packing! delier! al#e or e$istence of the goods represented b an doc#+ents! or for the good faith or acts and/or o+issions! solenc! perfor+ance or standing of the consignor! the carriers! or the ins#rers of the goods! or an other person who+soeer. 7anks deal onl with doc#+ents and not with goods! serices or obligations to which the relate. Two aspects of the 9ndependence Principle=
The seller bank or the notifing bank adises the e$porter/seller of the letter of credit iss#ed in his f aor. The seller deliers the goods to a shipping co+pan for ship+ent and then the iss#ing bank is na+es as the consignee in the bill of lading. The seller then presents the bi ll of lading and other doc#+ents of title to the notifing bank which +a adance the a+o#nt of the price! or to the seller bank so he co#ld receie pa+ent. 9f it is the notifing bank which adances the price! it shall send the bill of lading and other doc#+ents presented b the seller to the iss#ing bank so it co#ld clai+ rei+b#rse+ent. ). 7#er gets the goods 'hen the goods arrie at the place of destination! the shipping co+pan infor+s the consignee iss#ing bank of s#ch arrial. The iss#ing bank then infor+s the b#er of s#ch arrial. The b#er pas! #nless he has alread paid in f#ll! the iss#ing bank for the release of the goods. (e shall present the release paper to the shipping co+pan to clai+ his cargoes. (oweer! if the b#er cannot pa in cash! it +a appl for the opening of a tr#st receipt with the bank. *ro" ho0 a letter of credit# operate9 eplai the idepedet cotract# ari#i( fro" #%ch tra#actio.
1. 7#er&Seller; 2. 7#er&9ss#ing 7ank; and 3. The letter of credit itself What i# the idepedece priciple %der a letter of credit tra#actioD
The principle of independence ass#res the seller or the beneciar of pro+pt pa+ent independent of an breach of the +ain contract and precl#des the iss#ing bank fro+ deter+ining whether the +ain contract is act#all acco+plished or not. 6nder this principle! banks ass#+e no liabilit or responsibilit for the for+! s#Kcienc! acc#rac! gen#ineness! falsication or legal eHect of an doc#+ents! or for the general and/or partic#lar conditions stip#lated in the doc#+ents or s#peri+posed thereon! nor do the ass#+e an liabilit or responsibilit for the description! -#antit! weight!
1. 9ndependent in toto & the credit is independent fro+ the *#stication aspect and is a separate obligation fro+ the #nderling agree+ent; 2.
Gnl as to the *#stication aspect like in a co++ercial letter of credit or repa+ent standb! which is identical with the sa+e obligations #nder the #nderling agree+ent.
9n +ost cases! it is the iss#ing bank that inokes the independence principle! beca#se it is the one s#ed b the defendant in case so+ething went wrong with the transactions. 7#t the seller/beneciar +a also inoke the principle! beca#se it is the beneciar who has the right to ask the bank to honor the credit b allowing hi+ to draw thereon. ;rans2eld &-ilippines nc vs '@on 4ydro Corporation! 2@@@4 Eplai the *ra%d Eceptio Priciple.
'hen the beneciar! for the p#rpose of drawing on the credit! fra#d#lentl presents to the conr+ing bank! doc#+ents that contain! e$pressl or b i+plication! +aterial representations of fact that to his knowledge are #ntr#e or fra#d#lent! the bank +a be en*oined fro+ paing the draft. This is the e$ception to the 9ndependence Principle. To recap! a bank need onl rel on the doc#+ents s#b+itted b the seller/beneciar. 9f s#ch doc#+ents confor+ to the ter+s of the letter of credit! then the bank is #nder obligation to pa the seller/beneciar! s#b*ect to the fra#d e$ception principle. Eplai the Strict Co"pliace priciple.
This r#le pres#pposes that the doc#+ents tendered b the seller/beneciar +#st strictl confor+ to the ter+s of the letter of credit. P#rs#ant to this principle! the correspondent bank who accepts a fa#lt tender of the drafts b the seller/beneciar +a not later recoer fro+ the iss#ing bank or the b#er and th#s! acts on its own risk sho#ld it accept s#ch drafts. What are the 4id# of letter# of creditD
1.
Irre'oca$le Letter of Credit N A letter of credit wherein the ter+s and the #ndertakings of the iss#ing bank cannot be a+ended or altered or reoked witho#t the consent of the beneciar;
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2. Re'oca$le Letter of Credit N a be a+ended! +odied or reoked een witho#t the consent of the beneciar; 3. Stad$) Letter of Credit N A letter of credit in a non&sale setting. 0. Co""ercial Letter of Credit N 'here the principal transaction is a sale or i+portation. 5. Co!r"ed Letter of Credit N 'here the liabilit of a conr+ing bank is pri+ar. There is a conr+ed letter of credit wheneer the beneciar stip#lates that the obligation of the opening bank shall be +ade the obligation of a bank to hi+self.
Gther kinds of letters of credit a4 b4 c4 d4 e4 f4
eoling ,etter of Credit; 7ack&to&7ack ,etter of Credit;
ote= The Co#rt has been consistent in r#ling that the bank/entr#ster does not own the goods b#t +erel has sec#rit interest oer the sa+e. 7#t in D)& vs &r'dential )ank 2@@54! it was held that the entr#stee co#ld not +ortgage the properties coered b tr#st receipts! beca#se ownership was retained b the entr#ster&bank. 7#t it sho#ld be noted that in this case! the contract between the entr#ster and entr#stee specicall proided that the entr#ster retains ownership. So! it is s#b+itted that the general r#le is the entr#ster&bank does not retain ownership! e$cept when the entr#ster&bank e$pressl states its intention of retaining ownership in the tr#st receipts. And in s#ch case! it is also s#b+itted that p#rs#ant to the principle of res perit domino ! it wo#ld be the entr#ster&bank who will bear the goodLs loss.
Tr%#t Receipt# La0 3P& 11>6 8 What i# a tr%#t receipt tra#actioD
An transaction b and between a person referred to as the entr#stor bank4! and another person referred to as entr#stee borrower4 whereb the entr#stor! who owns or holds sec#rit interests oer certain specied goods! doc#+ents or instr#+ents! releases the sa+e to the possession of the entr#stee #pon the latterLs e$ec#tion and delier to the entr#stor of a signed doc#+ent called a tr#st receipt! whereinJ 1. The entr#stee binds hi+self to hold the goods in tr#st for the entr#stor; to
The entr#stee bears the loss after delier of the goods to hi+! beca#se the bank is not the owner of the goods. 9t +erel holds sec#rit title oer the+ as g#arantee for pa+ent of the adances it +ade in faor of the entr#stee. The bank in s#ch case is a preferred creditor.
2.
The entr#stee obliges hi+self otherwise dispose of the goods;
sell
or
3.
The entr#stee obliges to t#rn oer to the entr#stor the proceeds thereof! or to ret#rn the goods if the are #nsold or not otherwise disposed of.
8 &i#c%## tr%#t receipt 'i#55'i# letter of credit.
,etter of credit and tr#st receipt #s#all go hand in hand. e+e+ber! a letter of credit transaction is co+pleted once the b#er/i+porter rei+b#rses the iss#ing bank. 7#t so+eti+es the b#er/i+porter does not hae the +one to do so. 9nstead! the b#er and the bank +a agree that the +one adanced b the bank will be paid b the b#er o#t of the proceeds of the sale of the goods. 9n other words! the bank e$tends a loan coered b the letter of credit! with the tr#st receipt as sec#rit for the loan. 8 Where (ood# are #ec%red $) a tr%#t receipt9 0ho $ear# the lo##the $a4?etr%#tor or the $%)er?etr%#teeD
9n connection with the )7P case! it sho#ld also be noted that een witho#t stip#lating that the entr#ster& bank retains ownership! the +ortgage wo#ld still hae been oid! beca#se +ortgage re-#ires absol#te ownership. And absol#te ownership +eans that the owner +#st hae free disposal of it. 9f the bank! een witho#t retaining ownership! holds a sec#rit interest oer the propert! it follows that the owner does not hae free disposal thereof. 8 What happe# or 0hat i# the lia$ilit) of the etr%#tee if he fail# to t%r o'er the proceed# of the #ale9 or to ret%r %#old (ood#D
(e +a be held cri+inall liable for estafa #nder Art. 315 b4 of the eised Penal Code. The constit#tional proision that no one cannot be i+prisoned for non&pa+ent of debt is not applicable! beca#se what is being p#nished here is the act of dishonest and ab#se of condence in handling of +one or goods to the pre*#dice of another. Qiolation of the Tr#st eceipts ,aw is an act +al#+ prohibit#+! th#s! lack of cri+inal intent is not a alid defense. 8 Pedro $o%(ht 19--- %it# of iPad for p%rpo#e# of re#ale. &eli'er) 0a# "ade9 $%t Pedro had o "oe) to pa) Apple9 #o it applied 0ith GPI for a loa. GPI "ade Pedro eec%te a tr%#t receipt. Thereafter9 GPI defa%lted. Ca Apple #%e Pedro for e#tafa for 'iolatio of the Tr%#t Receipt# La0D
o. The transaction here is not coered b the Tr#st eceipts ,aw. 'here the debtor receied the goods before the tr#st receipt itself was entered into! the transaction in -#estion is dee+ed a si+ple loan. The Tr#st eceipts ,aw does not seek to enforce pa+ent of a loan! rather it p#nishes dishonest and
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ab#se of condence in handling of +one or goods to the pre*#dice of another regardless of whether the latter is the owner. ote= The foregoing leads to the concl#sion that to be coered b the Tr#st eceipts ,aw! the e$ec#tion of the tr#st receipt +#st precede the release of the goods to the possession of the b#er/entr#stor. 8 What are the ri(ht# of the etr%#tor?$a4 %der the Tr%#t Receipt# La0D
1. ight to the proceeds of the sale; 2. ight to the ret#rn of the #nsold goods; 3. ight to cancel the tr#st and take possession of the goods! doc#+ents or instr#+ents s#b*ect of the tr#st or of the proceeds reali%ed therefro+ at an ti+e #pon defa#lt or fail#re of the entr#stee to co+pl with an of the ter+s of the tr#st agree+ent. After taking possession of the goods! the entr#ster! within e das after notice to the b#er! +a sell the goods and appl the proceeds to= a4 the pa+ent of the e$penses thereof; b4 to the pa+ent of the e$penses of re&taking! keeping and storing the goods! doc#+ents or instr#+ents; c4 to the satisfaction of the entr#steeLs indebtedness to the entr#ster. The entr#stee is entitled to the s#rpl#s b#t is liable for an decienc; 0. ntr#ster is not responsible as principal or endor #nder an sale or contract to sell b the entr#stee. 8 After a failed 'et%re9 the etr%#tee ret%red the (ood# co'ered $) tr%#t receipt# to the etr%#ter5$a4. I# he a%to"aticall) a$#ol'ed fro" 'iolatio of the Tr%#t Receipt# La0D
o. The obligation of the entr#stee is not e$ting#ished #pon relin-#ishing possession of the goods! beca#se a tr#st receipt is a sec#rit agree+ent! p#rs#ant to which a bank ac-#ires a sec#rit interest in the goods. The tr#st receipt arrange+ent did not conert the entr#ster bank into an inentor; the latter re+ained a lender and creditor intola vs ns'lar )ank of *sia and *merica! 1:EF4 8 Ca a tr%#t receipt #ec%re cotract# to #ellD
o. The Tr#st eceipts ,aw does not sec#re contracts to sell or an other contract where the ownership of the good is retained b the seller. e+e+ber the essence of tr#st receipts. 9f the seller retains title oer the goods! then the bank cannot hae a sec#rit interest oer the+. 8 What if the p%rpo#e of the (ood# i# ot for #ale $%t 0ill $e %#ed a# ra0 "aterial#9 i# the etr%#tee a$#ol'ed fro" cri"ial lia$ilit)D
Mes. Cri+inal liabilit +a still e$ist! beca#se non& pa+ent of the a+o#nt coered b a tr#st receipt is an act iolatie of the entr#steeLs obligation to pa. *llied )anking Corp vs Frdone@ ! 1::@4 8 &i#c%## the pealtie# of e#tafa.
1st. The penalt of prision correccional in its +a$i+#+ period to prision +aor in its +ini+#+ period! if the a+o#nt of the fra#d is oer 12!@@@ pesos b#t does not e$ceed 22!@@@ pesos! and if s#ch a+o#nt e$ceeds the latter s#+! the penalt proided in this paragraph shall be i+posed in its +a$i+#+ period! adding one ear for each additional 1@!@@@ pesos; b#t the total penalt which +a be i+posed shall not e$ceed twent ears. 9n s#ch cases! and in connection with the accessor penalties which +a be i+posed #nder the proisions of this Code! the penalt shall be ter+ed prision +aor or recl#sion te+poral! as the case +a be. 2nd. The penalt of prision correccional in its +ini+#+ and +edi#+ periods! if the a+o#nt of the fra#d is oer 8!@@@ pesos b#t does not e$ceed 12!@@@ pesos; 3rd. The penalt of arresto mayor in its +a$i+#+ period to prision correccional in its +ini+#+ period if s#ch a+o#nt is oer 2@@ pesos b#t does not e$ceed 8!@@@ pesos; and 0th. 7 arresto mayor in its +a$i+#+ period! if s#ch a+o#nt does not e$ceed 2@@ pesos! proided that in the fo#r cases +entioned! the fra#d be co++itted b an of the following +eans]
8 Who are cri"iall) lia$le i ca#e a corporatio i# i'ol'edD
9f the iolation or oHense is co++itted b a corporation! partnership! association or other *#ridical entities! the penalt proided for in this )ecree shall be i+posed #pon the directors! oKcers! e+ploees or other oKcials or persons therein responsible for the oHense! witho#t pre*#dice to the ciil liabilities arising fro+ the cri+inal oHense. The law sas Bresponsible for the oHense. So it is not correct to sa that all board +e+bers are cri+inall liable b#t onl those who signed the tr#st receipts. 9n case an agent of the corporation was the one who was responsible! then he will be the one liable. *orei( I'e#t"et# Act – RA @-<2 P%rpo#e of the la08
To attract! pro+ote and welco+e prod#ctie inest+ents fro+ foreigners in actiities which signicantl contrib#te to national ind#striali%ation and socio&econo+ic deelop+ent to the e$tent that foreign inest+ent is allowed in s#ch actiit b the Constit#tion and releant laws. Who i# a Philippie NatioalD
Page > 38
1. A citi%en of the Philippines; 2. A do+estic partnership/association wholl owned b Philippine citi%ens; 3. Corporation organi%ed #nder Philippine laws of which at least 8@ of the capital stack o#tstanding and entitled to ote is owned and held b citi%ens of the Philippines; 0. Corporation organi%ed abroad and registered as doing b#siness in the Philippines of which 1@@ of the capital stock o#tstanding and entitled to ote is owned and held b citi%ens of the Philippines; or 5. A tr#stee of f#nds for pension or other retire+ent/separation benets! where the tr#stee is a Philippine national and at least 8@ of the f#nd will accr#e to the benet of Philippine nationals. &o%$le Ma=orit) R%le
'here a corporation and its non&?ilipino stockholders own stocks in a SC®istered enterprise! at least 8@ of the capital stock o#tstanding and entitled to ote of both corporations and at least 8@ of the +e+bers of the board of directors of both corporations +#st be ?ilipino citi%ens! in order that the corporation shall be considered as a Philippine national. What i# forei( i'e#t"etD
Re(i#tratio
A non&Philippine national who wishes to do b#siness in the Philippines +a do so #pon registration with the Sec#rities and $change Co++ission SC4 or with the 7#rea# of Trade eg#lation and Co++erce Protection 7TCP4 #nder the )T9 in the case of single proprietorship. on&Philippine national $port nterprises enterprises which e$port at least 8@ of their o#tp#ts4! in addition to registering with the SC or 7TCP! shall also register with the 7G9. The 7G9 shall adice the SC or 7TCP of an e$port enterprise that fails to +eet the e$port ration re-#ire+ent. The SC or 7TCP wo#ld then order the nonco+pling e$port enterprise to red#ce its sales to the do+estic +arket to not +ore than 0@ of its total prod#ction. ?ail#re to co+pl with s#ch order witho#t *#stiable reason shall s#b*ect the enterprise to cancellation of SC or 7TCP registration! and/or to other penalties proided for #nder the law. *%ll) ad partl) atioali/ed acti'itie#
ote that the ?oreign 9nest+ents Act laid down the general r#le that there are no restrictions on the e$tent of foreign ownership of b#siness in the Philippines! e$cept in areas incl#ded in the negatie list.
9t +eans an e-#it inest+ent +ade b non& Philippine national in the for+ of foreign e$change and/r other assets act#all transferred to the Philippines and d#l registered with the Central 7ank.
See G 1E0! 2@15 for the latest ?oreign 9nest+ent egatie list attached to this reiewer.
&oi( G%#ie## ad Not &oi( G%#ie## i the Philippie#
S+all and +edi#+&si%ed do+estic +arket enterprises with paid&in e-#it capital less D2@@!@@@ are resered to Philippine nationals. (oweer! if the a4 inole adanced technolog as deter+ined b the )GST or b4 the e+plo at least 5@ direct e+ploees! then a +ini+#+ paid&in capital of D1@@!@@@ shall be allowed to non&Philippine nationals.
1. )oing 7#siness a. Soliciting orders! serice contracts! opening oKces; b. Appointing representaties! distrib#tors do+iciled in the Philippines or who sta for a period totaling 1E@ das or +ore; c. Participating in the +anage+ent! s#perision or control of an do+estic b#siness! r+! entit or corporation in the Philippines; and d. An act or acts that i+pl a contin#it of co++ercial dealings or arrange+ents and conte+plate to so+e e$tent the perfor+ance of so+e f#nctions nor+all incident to an in progressie prosec#tion of! the p#rpose and ob*ect of its organi%ation. 2.
S"all ad eterpri#e#
do"e#tic
"ar4et
Ati5&%"") La0 – CA 1- P%i#ha$le Act#
1. 'hen a ?ilipino citi%en allows his na+e to be #sed b a foreigner to eade an constit#tional or legal proisions re-#iring Philippine or an other specic citi%enship as a re-#isite for the e$ercise or en*o+ent of a right! franchise or priilege. &
ot doing b#siness a. ere inest+ent as shareholder and e$ercise of rights as inestor; b. (aing a no+inee director or oKcer to represent its interest in the corporation; and c. Appointing a representatie or distrib#tor which transacts b#siness in its own na+e and for its own acco#nt.
"edi%"5#i/ed
Penalt= a. 9+prison+ent of not less than 5 nor +ore than 15 ears; and b. A ne not less than the al#e of the right! franchise or priilege inoled
2. ?alse si+#lation of +ini+#+ capital stock to co+pl with an constit#tional or legal proisions re-#iring a certain per cent#+ of its capital stock to be owned b citi%ens of the Philippines or of an other specic co#ntr &
Penalt to be i+posed on presidents/+anagers/directors/tr#stees4 is the sa+e as the i++ediatel preceding ite+.
Page > 3F
3. 'hen a person! haing in its na+e or #nder its control a right! franchise! priilege propert or b#siness! the e$ercise/en*o+ent of which is e$pressl resered b the Constit#tion or the laws to citi%ens of the Philippines! -#alied ?ilipino corporations! or of an other specic co#ntr! allows an person! not possessing the necessar -#alications to ac-#ire! #se! e$ploit or en*o i.e. by lease or any ot-er form of transfer or conveyance 4 s#ch right! franchise! priilege! propert or b#siness! to interene in the +anage+ent! operation! ad+inistration or control thereof! whether as an oKcer! e+ploee or laborer therein with or witho#t re+#neration. OP= Technical personnel whose e+plo+ent +a be specicall a#thori%ed b the Secretar of #stice. &
Penalt to be i+posed on the president/+anager/persons in charge4= a. 9+prison+ent of not less than 5 nor +ore than 15 ears; b. A ne not less than the al#e of the right! franchise or right inoled; and c. ?orfeit#re of the right! franchise! priilege! propert or b#siness inoled.
E'idece of Violatio of the Ati5&%"") La0
1. 'ith respect to false si+#lation of +ini+#+ capital stock4 The fact that the citi%en of the Philippines! at the ti+e of the ac-#isition of his holdings in the corporations or associations! no real or personal propert! credit or other assets the al#e of which shall at least be e-#ialent to said holdings! shall be eidence of a iolation of the law. 2. The e$ercise! possession or control b a ?ilipino citi%en haing a co++on&law relationship with an alien of a right! priilege! propert or b#siness! the e$ercise or en*o+ent of which is e$pressl resered b the Constit#tion or the laws to ?ilipinos! shall constit#te a pri+a facie eidence of a iolation of Section 2&A 6nlawf#l #se! e$ploitation or en*o+ent4.
An infor+er is entitled to a reward of 25 of the ne i+posed in case of coniction. 9f the for+er is a d#++! he is also entitled to i++#nit. ote that the Anti&)#++ law applies not onl to wholl nationali%ed actiities b#t also to partl& nationali%ed actiities ('@on Stevedoring Corp. v. *nti+ D'mmy )oard #,8!% . Retail Trade Li$erali/atio Act of 2--- – RA @,2 P%rpo#e of the la0
To pro+ote cons#+er welfare in attracting! pro+iting and welco+ing prod#ctie inest+ents that will= 1. 2. 3. 0. 5. 8.
7ring down prices for the ?ilipino cons#+er; Create +ore *obs; Pro+ote to#ris+; Assist s+all +an#fact#rers; Sti+#late econo+ic growth; and nable Philippines goods and serices to beco+e globall co+petitie thro#gh the liberali%ation of the retail trade sector.
What i# retail tradeD
An act! occ#pation or calling of habit#all selling direct to the general p#blic +erchandise! co++odities or goods for cons#+ption as opposed to wholesale4. Ee"ptio# fro" the co'era(e of RA @,2
1. 'here the capital does not e$ceed P1@@!@@@; 2. Sales b a far+er or agric#lt#rist selling the prod#cts of his far+; 3. Sales in resta#rant operations b a hotel owner or inn&keeper irrespectie of the a+o#nt of capital! proided that the resta#rant is incidental to the hotel b#siness; and 0. Sales which are li+ited onl to prod#cts +an#fact#red! processed or asse+bled b a +an#fact#rer thro#gh a single o#tlet! irrespectie of capitali%ation. Re(i#tratio
ntities seeking to engage in the retail b#siness +#st be registered with the SC and )T9.
Other i"portat "atter#
*orei( E7%it) Participatio
The election of aliens as +e+bers of the board of directors engaging in partl nationali%ed actiities shall be allowed in proportion to their allowable participation or share in the capital of s#ch entities. 7#t! p#rs#ant to a )G Gpinion (No. 38 s. #,87%! s#ch aliens +a not hold an other position i.e. president! ice&president or treas#rer4. eertheless! donLt be conf#sed; the general r#le is still that #nder the Corporation Code! aliens are not prohibited fro+ being elected as directors and holding other positions! as long as the are not engaged in nationali%ed or partl&nationali%ed actiities.
Categor A Paid&#p Capital less than D2.5 +illion4
An corporation or association iolating the Anti& )#++ ,aw shall be dissoled #pon proper co#rt proceedings.
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esered e$cl#siel for ?ilipinos.
Categor 7 Paid #p capital at least D2.5 +illion b#t not +ore than DF.5 +illion4 &
a be wholl owned b foreigners.
Categor C Paid #p capital at least DF.5 +illion4 & &
a be wholl owned b foreigners. 9n no case shall the inest+ents for establishing a store in Categories 7 and C be less than the e-#ialent in P(P of DE3@!@@@.
Categor ) Speciali%ing in high&end/l#$#r prod#cts with paid&#p capital of D25@!@@@4 &
a be wholl owned b foreigners.
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ote than -#alied foreign retailers shall not be allowed to engaged in retailing actiities o#tside their accredited stores thro#gh the #se of +obile or rolling stores or carts! the #se of sales representatie! etc. P%$lic OHeri( of Share# of Stoc4
All retail enterprises #nder Categories 7 and C in which foreign ownership e$ceeds E@ of e-#it shall oHer at least 3@ of their e-#it to the p#blic within E ears fro+ the start of their operations. G%l4 Sale# La0 – Act B>2 P%rpo#e of the la0
To preent the defra#ding of creditors b the secret sale or disposal in b#lk of all or s#bstantiall all of a +erchantLs stock of goods. Whe i# a #ale co#idered a #ale i $%l4D
1. Sale! transfer! assign+ent or +ortgage STA4 other than in the ordinar co#rse of trade and the ordinar co#rse of b#siness; or 2. Sale is of all or s#bstantiall all of the b#siness or trade; or 3. 'hen the sale is of all or s#bstantiall all of the $t#res and e-#ip+ent #sed in the b#siness. *or"alitie# re7%ired $) the G%l4 Sale# La0
1. The sale +#st be acco+panied b a sworn state+ent of the seller listing the na+es and addresses of! and a+o#nts owing to! creditors; 2. The sworn state+ent shall be f#rnished to the b#er; 3. The seller is re-#ired to prepare an inentor of stock to be sold; and 0. otice to creditors at least 1@ das before the sale EHect# of 'iolatio of the G%l4 Sale# La0
1. Sale is oid as to creditors; 2. 7#er holds propert in tr#st for the seller; and 3. 7#er is liable to sellerLs creditors for properties for+ing part of b#lk! and alread disposed b hi+. Ee"ptio# fro" the re7%ire"et# of the G%l4 Sale# La0
1.
Sale is +ade in the ordinar co#rse of b#siness; 2. 'aier fro+ all the creditors and +#st be written; 3. Sale is b irt#e of a *#dicial order; and 0. Those sold b assignee in insolenc or those beond the right of creditors. Mi#c.
9t shall also be #nlawf#l for an person! as owner of an stocks of goods in b#lk! to transfer title to the sa+e witho#t consideration or for a no+inal consideration onl. Penalties for iolation incl#de i+prison+ent of not less than 8 +onths to e ears and/or ne not e$ceeding P5!@@@. Wareho%#e Receipt# La0 – Act 21@
8 &i#c%## the at%re 0areho%#e receipt.
ad
f%ctio#
of
a
9t is a species of doc#+ents of title and has a two& fold f#nction= 1. Proof of the possession or control of the goods described therein; and 2. A#thori%ing or p#rporting to a#thori%e the possession of the wareho#se receipt to transfer or receie! either b endorse+ent or b delier! of the goods represented b s#ch receipt. 8 Who "a) i##%e a 0areho%#e receiptD
Gnl a wareho#se +an +a iss#e a wareho#se receipt. A wareho#se +an is a person lawf#ll engaged in the b#siness of storing goods for prot. The fact that the deposits were +ade free does not detract fro+ the applicabilit of the ', Gon@ales vs Go ;iong and '@on S'rety Co ! 1:5E4. The operatie words are Bengaged in the b#siness. 9f a person is engaged in the b#siness of storing goods for prot! een isolated transactions done grat#itio#sl will be goerned b the ',. 8 What la0 0ill (o'er if the 0areho%#e"a i##%e# a ordiar) receiptD
Still! the 'areho#se eceipts ,aw. An deposit +ade with hi+ as a wareho#se+an +#st necessaril be goerned b the proisions of the ,aw. The kind or nat#re of the receipts iss#ed b hi+ for the deposits is not er +aterial! +#ch less decisie. Gon@ales vs Go ;iong and '@on S'rety Co #,$: 4 8 What i# the for" pre#cri$ed for a 0areho%#e receiptD
o partic#lar for+ b#t +#st e+bod within its written or printed ter+s the following= 1. The location of the wareho#se where the goods are stored; 2. The date of the iss#e of the receipt; 3. The consec#tie n#+ber of the receipt; 0. A state+ent whether the goods receied will be deliered to the bearer! to a specied person or to a specied person or his order; 5. The rate of storage charges; 8. A description of the goods or of the packages containing the+; F. The signat#re of the wareho#se+an which +a be +ade b his a#thori%ed agent; E. 9f the receipt is iss#ed for goods of which the wareho#se+an is owner! either solel or *ointl or in co++on with others! the fact of s#ch ownership; and :. A state+ent of the a+o#nt of adances +ade and of liabilities inc#rred for which the
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wareho#se+an clai+s a lien. 9f the precise a+o#nt of s#ch adances +ade or of s#ch liabilities inc#rred is! at the ti+e of the iss#e of! #nknown to the wareho#se+an or to his agent who iss#es it! a state+ent of the fact that adances hae been +ade or liabilities inc#rred and the p#rpose thereof is s#Kcient. 8 What 0ill happe if oe or "ore of the re7%ired ter"# are ot pre#et i the 0areho%#e receiptD
9t will not aHect the alidit or negotiabilit of the wareho#se receipt! b#t the wareho#se+an shall be liable to an person in*#red for all da+ages ca#sed b the o+ission.
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8 What are the ter"# that caot $e icl%ded i the 0areho%#e receiptD
1. Those contrar to an proision of the law; 2. 9n an wise i+pair the wareho#se+anLs obligation to e$ercise that degree of care in the safekeeping of the goods entr#sted to hi+ which a reasonabl caref#l +an wo#ld e$ercise with regard to si+ilar goods of his own 8 &i#ti(%i#h a e(otia$le 0areho%#e receipt fro" a o5e(otia$le 0areho%#e receipt.
1. egotiable eceipts & & & &
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eceipt in which it is stated that the goods receied will be deliered to the bearer or to the order of an person na+ed in s#ch receipt. o proision shall be inserted in a negotiable receipt that it is non&negotiable. S#ch proision if inserted shall be oid. egotiation of the doc#+ent has the eHect of +an#al delier so as to constit#te the transferee the owner of the goods. The person to who+ the instr#+ent is negotiated ac-#ires the following rights= a. S#ch title to the goods as the person negotiating the receipt to hi+ had or had the abilit to cone to a p#rchaser in good faith for al#e! and also s#ch title to the goods as the depositor or person to whose order the goods were to be deliered b the ter+s of the receipt had or had abilit to cone to a p#rchaser in good faith for al#e; and b. )irect obligation of the wareho#se+an to hold possession of the goods for hi+ according to the ter+s of the receipt as f#ll as if the wareho#se+an had contracted with hi+. The following +a negotiate a wareho#se receipt= a. 7 the owner thereof; or b. 7 an person to who+ the possession or c#stod of the receipt has been entr#sted b the owner! if! b the ter+s of the receipt! the wareho#se+an #ndertakes to delier
the goods to the order of the person to who+ the possession or c#stod of the receipt has been entr#sted! or if! at the ti+e of s#ch entr#sting! the receipt is in s#ch for+ that it +a be negotiated b delier. (ence! een a thief of the wareho#se receipt can negotiate the receipt b#t it sho#ld be in s#ch a for+ that he need not forge an signat#re. 9n other words! a thief +a negotiate a bearer wareho#se receipt. 'arranties of the Transferor= a. That the receipt is gen#ine; b. That he has a legal right to negotiate or transfer it; c. That he has knowledge of no fact which wo#ld i+pair the alidit or worth of the receipt; and d. That he has a right to transfer the title to the goods and that the goods are +erchantable or t for a partic#lar p#rpose wheneer s#ch warranties wo#ld hae been i+plied! if the contract of the parties had been to transfer witho#t a receipt of the goods represented thereb. e. ote! howeer! that the transferor does not g#arantee the perfor+ance of the obligation of the wareho#se+an.
2. on&egotiable eceipts & &
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eceipt in which it is stated that the goods receied will be deliered to the depositor or to an specied person. A non&negotiable receipt shall hae plainl placed #pon its face b the wareho#se+an iss#ing it Bnon&negotiable. Gtherwise! a holder +a treat s#ch instr#+ent as negotiable! i+posing #pon the wareho#se+an the sa+e liabilities he wo#ld inc#rred had the receipt had been negotiable. ights of transferee of non&negotiable receipt= a. Title of the goods s#b*ect to the ter+s of an agree+ent with the transferor; b. ight to notif the wareho#se+an of the transfer to hi+ of s#ch receipt and thereb to ac-#ire the direct obligation of the wareho#se+an to hold possession of the goods for hi+ according to the ter+s of the receipt. ote that this is the +ost i+portant distinction between a negotiable and non& negotiable receipt. 9n a non& negotiable receipt! prior to the notication of the wareho#se+an of the transfer! the title of the transferee to the goods and the right to ac-#ire the obligation of the wareho#se+an +a be defeated b the le of attach+ent or e$ec#tion #pon
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