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It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have control
of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also
belong to the same family group.
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was
to invest their properties and change the nature of their ownership from unincorporated to incorporated
form by organizing Delpher Trades Corporation to take control of their properties and at the same time
save on inheritance taxes.
The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be
considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a
third party. The Pacheco family merely changed their ownership from one form to another. The
ownership remained in the same hands. Hence, the private respondent has no basis for its claim of a
light of first refusal under the lease contract.
May 1, 1942
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purchase price to be paid 5% upon the execution of the contract and the remainder in installments of 5%,
payable within the 1st month of each and every quarter startingJuly 1, 1935, w/ interest on deferred
payments at 6%/annum until paid
They also agreed to forfeit in favor of seller in case of default w/o court proceedings.
Nielson must still be paid his 10% fee using as the basis for computation the
cash value of the stock dividends declared.
Moreover, from the above-quoted provision of Section 16 of the Corporation
Law, the consideration for which shares of stock may be issued are cash,
property; and undistributed profits. Shares of stock are given the special
name, stock dividends, only if they are issued in lieu of undistributed
profits. If shares of stocks are issued in exchange of cash or property then
those shares do not fall under the category of stock dividends. A
corporation may legally issue shares of stock in consideration of services
rendered to it by a person not a stockholder, or in payment of its
indebtedness. But a share of stock issued to pay for services rendered is
equivalent to a stock issued in exchange of property, because services is
equivalent to property. Likewise a share of stock issued in payment of
indebtedness is equivalent to issuing a stock in exchange for cash. But a
share of stock thus issued should be part of the original capital stock of the
corporation upon its organization, or part of the stocks issued when the
increase of the capitalization of a corporation is properly authorized. In other
words, it is the shares of stock that are originally issued by the corporation
and forming part of the capital that can be exchanged for cash or services
rendered, or property; that is, if the corporation has original shares of stock
unsold or unsubscribed, either coming from the original capitalization or from
the increased capitalization. Those shares of stock may be issued to a person
who is not a stockholder, or to a person already a stockholder in exchange
for services rendered or for cash or property. But a share of stock coming
from stock dividends declared cannot be issued to one who is not a
stockholder of a corporation.
A stock dividend is any dividend payable in shares of stock of the
corporation declaring or authorizing such dividend.
So, a stock dividend is actually two things. - a dividend and the enforced use
of the dividend money to purchase additional shares of stock at par. When a
corporation issues stock dividends, it shows that the corporation
accumulated profits have been capitalized instead of distributed to the
stockholders or retained as surplus available for distribution, in money or
kind, should opportunity offer. Far from being a realization of profits for the
stockholder, it tends rather to postpone said realization, in that the fund
represented by the new stock has been transferred from surplus to assets
and no longer available for actual distribution. Thus, it is apparent that stock
dividends are issued only to stockholders. This is so because only
stockholders are entitled to dividends. They are the only ones who have a
right to a proportional share in that part of the surplus which is declared as
dividends. % stock dividend really adds nothing to the interest of the
stockholder; the proportional interest of each stockholder remains the same.
If a stockholder is deprived of his stock dividends - and this happens if the
shares of stock forming part of the stock dividends are issued to a nonstockholder - then the proportion of the stockholders interest changes
radically. Stock dividends are civil fruits of the original investment, and to the
owners of the shares belong the civil fruits.
LINCOLN PHIL LIFE VS. CA
G.R. No. 118043 July 23, 1998
By: Karen P. Lustica
FACTS: Petitioner, now the Jardine-CMG Life Insurance Company, Inc., is a
domestic corporation engaged in the life insurance business. In 1984, it
issued 50,000 shares of stock as stock dividends, with a par value of P 100 or
a total of P 5 million. Petitioner paid documentary stamp taxes on each
certificate on the basis of its par value.
Respondent took the view that the book value of the shares, amounting to
P19,307,500.00, should be used as basis for determining the amount of the
documentary stamp tax. Respondent issued a deficiency documentary stamp
tax assessment in the amount of P 78,991.25 in excess of the par value of
the stock dividends.
Petitioner argued that in determining the amount to be paid as documentary
stamp tax, it is the par value of the certificates of stock or the book value of
the shares which should be considered.
ISSUE: WON the amount to be paid as documentary stamp tax is the par
value of the certificates of stock or the book value of the shares
HELD: It should be the par value of the certificates of stock.
RATIO: Apparently, the Court of Appeals treats stock dividends as distinct
from ordinary shares of stock for purposes of the then 224 of the National
Internal Revenue Code. There is, however, no basis for considering stock
dividends as a distinct class from ordinary shares of stock since under this
provision only certificates of stock are required to be distinguished (into
either one with par value or one without) rather than the classes of shares
themselves.
SEC. 224 of the NIRC provides that,
Stamp tax on original issues of certificates of stock. -- On every
original issue, whether on organization, reorganization or for any lawful
purpose, of certificates of stock by any association, company or
corporation, there shall be collected a documentary stamp tax of one
peso and ten centavos on each two hundred pesos, or fractional part
thereof, of the par value of such certificates
A stock certificate is merely evidence of a share of stock and not the share
itself. This distinction is clear in the Corporation Code, to wit:
SEC. 63. Certificate of stock and transfer of shares. - The capital stock
of stock corporations shall be divided into shares for which certificates
signed by the president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the by-laws. Shares of
stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner or his
attorney-in-fact or other person legally authorized to make the transfer.
No transfer, however, shall be valid, except as between the parties,
until the transfer is recorded in the books of the corporation so as to
show the names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the number of
shares transferred.
Moreover, the documentary stamp tax here is not levied upon the specific
transaction which gives rise to such original issuance but on the privilege of
issuing certificates of stock. As held in several cases:
A documentary stamp tax is in the nature of an excise tax. It is not
imposed upon the business transacted but is an excise upon the
privilege, opportunity or facility offered at exchanges for the
transaction of the business. It is an excise upon the facilities used in
the transaction of the business separate and apart from the business
itself.
DISPOSITION: The decision of the Court of Appeals is REVERSED insofar as
the deficiency tax assessment on stock dividends is concerned.
REPUBLIC VS MENZI
FACTS: In the hope-filled but problem-laden aftermath of the EDSA Revolution, President Corazon
C. Aquino issued Executive Order (EO) No. 1, creating the Presidential Commission on Good
Government (PCGG) tasked with, among others, the recovery of all ill-gotten wealth accumulated by
former President Ferdinand Marcos, his immediate family, relatives, subordinates and close
associates. This was followed by EO Nos. 2 and 14, respectively freezing all assets and properties in
the Philippines in which the former President, his wife, their close relatives, subordinates, business
associates, dummies, agents or nominees have any interest or participation, and defining the
jurisdiction over cases involving the ill-gotten wealth. Pursuant to the executive orders, several writs
of sequestration were issued by the PCGG in pursuit of the reputedly vast Marcos fortune.
The Republic then instituted before the Sandiganbayan on July 29, 1987, a complaint for
reconveyance, reversion, accounting, restitution and damages entitled "Republic of the Philippines v.
Emilio T. Yap, Manuel G. Montecillo, Eduardo M. Cojuangco, Jr., Cesar C. Zalamea, Ferdinand E.
Marcos and Imelda R. Marcos" and docketed as Civil Case No. 0022. The complaint substantially
averred that Yap knowingly and willingly acted as the dummy, nominee or agent of the Marcos
spouses in appropriating shares of stock in domestic corporations such as the Bulletin, and for the
purpose of preventing disclosure and recovery of illegally obtained assets. It also averred that Cesar
Zalamea (Zalamea) acted, together with Cojuangco, as dummies, nominees and/or agents of the
Marcos spouses in acquiring substantial shares in Bulletin in order to prevent disclosure and
recovery of illegally obtained assets, and that Zalamea established, together with third persons,
HMHMI which acquired Bulletin.
The complaint was amended joining Cojuangco as Zalameas co-actor instead of mere collaborator.
The complaint was amended for the second time on October 17, 1990. The amendment consisted of
dropping Zalamea as defendant in view of the Deed of Assignment dated October 15, 1987 which he
executed, assigning, transferring and ceding to the Government the 121,178 Bulletin shares
registered in his name.The Second Amended Complaint also included the Estate of Hans M. Menzi
(Estate of Menzi), through its executor, Atty. Manuel G. Montecillo (Atty. Montecillo), as one of the
defendants.
ISSUE: WON The delivery of a duly indorsed stock certificate is sufficient to transfer ownership of
shares of stock in stock corporations.
HELD: YES.
PARAS, J.:
FACTS: Respondent corporation was registered on October 1, 1979. As incorporator, petitioner had
four hundred (400) shares of the capital stock standing in his name at the par value of P100.00 per
share, evidenced by Certificate of Stock No. 2. He was elected as President and subsequently
reelected, holding the position as such until 1982 but remained in the Board of Directors until April
19, 1983 as director.
while petitioner was still the president of the respondent corporation, two other incorporators,
namely, Antonia Y. Young and Teresita Y. Ong, assigned to the corporation their shares, represented
by certificate of stock No. 4 and 5 after which, they were paid the corresponding 40% corporate
stock-in-trade.
Petitioner's certificate of stock No. 2 was cancelled by the corporate secretary and respondent
Patricia Aguilar by virtue of Resolution No. 1981 (b), which was passed and approved while
petitioner was still a member of the Board of Directors of the respondent corporation.
Due to the withdrawal of the aforesaid incorporators and in order to complete the membership of the
five (5) directors of the board, petitioner sold fifty (50) shares out of his 400 shares of capital stock to
his brother Angel S. Tan. Another incorporator, Alfredo B. Uy, also sold fifty (50) of his 400 shares of
capital stock to Teodora S. Tan and both new stockholders attended the special meeting, Angel Tan
was elected director and on March 27, 1981, the minutes of said meeting was filed with the SEC.
These facts stand unchallenged.
Accordingly, as a result of the sale by petitioner of his fifty (50) shares of stock to Angel S. Tan on
April 16, 1981, Certificate of Stock No. 2 was cancelled and the corresponding Certificates Nos. 6
and 8 were issued, signed by the newly elected fifth member of the Board, Angel S. Tan as Vicepresident, upon instruction of Alfonso S. Tan who was then the president of the Corporation.
During the annual meeting of the corporation, respondent Tan Su Ching was elected as President
while petitioner was elected as Vice-president. He, however, did not sign the minutes of said meeting
which was submitted to the SEC.
When petitioner was dislodged from his position as president, he withdrew from the corporation. on
condition that he be paid with stocks-in-trade equivalent to 33.3% in lieu of the stock value of his
shares in the amount of P35,000.00.
ISSUE: WON A certificate of stock is not necessary to render one a stockholder in corporation.
HELD: YES.
There is a necessity to delineate the function of the stock itself from the actual delivery or
endorsement of the certificate of stock itself as is the question in the instant case. A certificate of
stock is not necessary to render one a stockholder in corporation.
a certificate of stock is the paper representative or tangible evidence of the stock itself and of the
various interests therein. The certificate is not stock in the corporation but is merely evidence of the
holder's interest and status in the corporation, his ownership of the share represented thereby, but is
not in law the equivalent of such ownership. It expresses the contract between the corporation and
the stockholder, but is not essential to the existence of a share in stock or the nation of the relation of
shareholder to the corporation.
Under the instant case, the fact of the matter is, the new holder, Angel S. Tan has already exercised
his rights and prerogatives as stockholder and was even elected as member of the board of directors
in the respondent corporation with the full knowledge and acquiescence of petitioner. Due to the
transfer of fifty (50) shares, Angel S. Tan was clothed with rights and responsibilities in the board of
the respondent corporation when he was elected as officer thereof.
Besides, in Philippine jurisprudence, a certificate of stock is not a negotiable instrument. "Although it
is sometime regarded as quasi-negotiable, in the sense that it may be transferred by endorsement,
coupled with delivery, it is well-settled that it is non-negotiable, because the holder thereof takes it
without prejudice to such rights or defenses as the registered owner/s or transferror's creditor may
have under the law, except insofar as such rights or defenses are subject to the limitations imposed
by the principles governing estoppel."
Moreover, it is safe to infer from the facts deduced in the instant case that, there was already
delivery of the unendorsed Stock Certificate No. 2, which is essential to the issuance of Stock
Certificate Nos. 6 and 8 to angel S. Tan and petitioner Alfonso S. Tan, respectively. What led to the
problem was the return of the cancelled certificate (No. 2) to Alfonso S. Tan for his endorsement and
his deliberate non-endorsement.
ISSUE:
WON the board resolution constitutes a lawful restriction on the right conferred by statute regarding
inspection of documents?
RULING:
The general right given by the statute may not be lawfully abridged to the extent attempted in this
resolution. It may be admitted that the officials in charge of a corporation may deny inspection when sought at
unusual hours or under other improper conditions; but neither the executive officers nor the board of directors have
the power to deprive a stockholder of the right altogether. A by-law unduly restricting the right of inspection is
undoubtedly invalid. Authorities to this effect are too numerous and direct to require extended comment.
It will be noted that our statute declares that the right of inspection can be exercised "at reasonable hours."
This means at reasonable hours on business days throughout the year, and not merely during some arbitrary period
of a few days chosen by the directors.
In addition to relying upon the by-law, to which reference is above made, the answer of the respondents calls in
question the motive which is supposed to prompt the petitioner to make inspection; and in this connection it is
alleged that the information which the petitioner seeks is desired for ulterior purposes in connection with a
competitive firm with which the petitioner is alleged to be connected. It is also insisted that one of the purposes of
the petitioner is to obtain evidence preparatory to the institution of an action which he means to bring against the
corporation by reason of a contract of employment which once existed between the corporation and himself. These
suggestions are entirely apart from the issue, as, generally speaking, the motive of the shareholder exercising the
right is immaterial.
right to examine the records of a corporation under the Corporation Code was violative of the PNBs
charter. The petition was dismissed.
POLIANDS VA NDC
FACTS:
Poliand is an assignee of the of the rights of Asian Hardwood over the outstanding obligation of
National Development Corporation (NDC), the latter being the owner of Galleon which previously
secured credit accommodations from Asian Hardwood for its expenses on provisions, oil, repair,
among others.
Galleon also obtained loans from Japanese lenders to finance acquisition of vessels which was
guaranteed by DBP in consideration of a promise by Galleon to secure a first mortgage on the
vessels. DBP later transferred ownership of the vessel to NDC.
A collection suit was filed after repeated demands of Poliand for the satisfaction of the obligation
from Galleon, NDC and DBP went unheeded.
ISSUE: Whether NDC or DBP or both are liable to POLIAND on the loan accommodations and credit
advances incurred by GALLEON.
HELD:
NDC, not liable under the Corporation Code
The Court cannot accept POLIANDs theory that with the effectivity of LOI No. 1155, NDC ipso facto
acquired the interests in GALLEON without disregarding applicable statutory requirements governing
the acquisition of a corporation. Ordinarily, in the merger of two or more existing corporations, one of
the combining corporations survives and continues the combined business, while the rest are
dissolved and all their rights, properties and liabilities are acquired by the surviving corporation.[35]
The merger, however, does not become effective upon the mere agreement of the constituent
corporations.[36]
As specifically provided under Section 79[37] of said Code, the merger shall only be effective upon
the issuance of a certificate of merger by the Securities and Exchange Commission (SEC), subject
to its prior determination that the merger is not inconsistent with the Code or existing laws. Where a
party to the merger is a special corporation governed by its own charter, the Code particularly
mandates that a favorable recommendation of the appropriate government agency should first be
obtained. The issuance of the certificate of merger is crucial because not only does it bear out SECs
approval but also marks the moment whereupon the consequences of a merger take place. By
operation of law, upon the effectivity of the merger, the absorbed corporation ceases to exist but its
rights, and properties as well as liabilities shall be taken and deemed transferred to and vested in the
surviving corporation.[38]
The records do not show SEC approval of the merger. POLIAND cannot assert that no conditions
were required prior to the assumption by NDC of ownership of GALLEON and its subsisting loans.
Compliance with the statutory requirements is a condition precedent to the effective transfer of the
shareholdings in GALLEON to NDC. In directing NDC to acquire the shareholdings in GALLEON, the
President could not have intended that the parties disregard the requirements of law. In the absence
of SEC approval, there was no effective transfer of the shareholdings in GALLEON to NDC. Hence,
NDC did not acquire the rights or interests of GALLEON, including its liabilities.
DBP, not liable under LOI No. 1155
POLIAND argues that paragraph 3 of LOI No. 1155 unequivocally obliged DBP to advance the
obligations of GALLEON.[39] DBP argues that POLIAND has no cause of action against it under LOI
No. 1155 which is void and unconstitutional.[40]
The Court affirms the appellate courts ruling that POLIAND does not have any cause of action
against DBP under LOI No. 1155. Being a mere administrative issuance, LOI No. 1155 cannot be a
valid source of obligation because it did not create any privity of contract between DBP and
POLIAND or its predecessors-in-interest. At best, the directive in LOI No. 1155 was in the nature of a
grant of authority by the President on DBP to enter into certain transactions for the satisfaction of
GALLEONs obligations. There is, however, nothing from the records of the case to indicate that DBP
had acted as surety or guarantor, or had otherwise accommodated GALLEONs obligations to
POLIAND or its predecessors-in-interest.
RULING: YES. Ordinarily, in the merger of two or more existing corporations, one of the combining
corporations survives and continues the combined business, while the rest are dissolved and all
their
rights, properties and liabilities are acquired by the surviving corporation. Although there is a
dissolution
of the absorbed corporations, there is no winding up of their affairs or liquidation of their assets,
because the surviving corporation automatically acquires all their rights, privileges and powers, as
well
as their liabilities.
The merger, however, does not become effective upon the mere agreement of the constituent
corporations. The procedure to be followed is prescribed under the Corporation Code. Section 79 of
said
Code requires the approval by the Securities and Exchange Commission (SEC) of the articles of
merger
which, in turn, must have been duly approved by a majority of the respective stockholders of the
constituent corporations. The same provision further states that the merger shall be effective only
upon
the issuance by the SEC of a certificate of merger. The effectivity date of the merger is crucial for
determining when the merged or absorbed corporation ceases to exist; and when its rights,
privileges,
properties as well as liabilities pass on to the surviving corporation.