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1. Who has authority to declare b.

Approval by the
dividends? stockholders holding or
a. The power or authority to representing a MAJORITY
declare dividends is vested of the outstanding capital
in the board of directors. stock or MAJORITY of the
2. What is the extent of their members in case of non-
powers? stock corporation both for
a. It is absolute as long as the managing and
they act honestly and managed corporation
impartially. i. 2/3 is required if:
3. Except? 1. The
a. When they act in bad faith stockholders
b. Or for a dishonest purpose representing
c. Or act fraudulently, the same
oppressively, interest in
unreasonably, unjustly or the
abuse of discretion can be managing or
shown as to impair the managed
rights of complaining corporation
stockholders to their just own and
proportion of corporate control more
profits. than 1/3 of
4. When may dividend right vest? the
a. As soon as they have managing
been lawfully and finally corp
declared by the Board of 2. Where
Directors majority of
5. Exceptions the directors
a. If it has not been officially of the
communicated or managed
b. Form of stock dividends corp are
which are revocable at any majority of
time prior to distribution the
1. What are the requirements for the corp
issuance of a valid management 3. Where the
contract? contract
a. Resolution of the board of would
directors constitute
management i. They may file
or operation derivate or
of all or individual suit
substantially c. For the immediate parties
all the i. If contract is fully
business of executed, the
the other contract is effective
corp ii. If the contract is
c. The approval of the executor, neither
stockholders must be party can maintain
made at a meeting called an action for its
for the purpose non-performance
d. The contracts shall not be iii. Where contract is
for a period longer than executory on one
five (5) years for any one side but fully
term performed on the
i. Except those which other, a party who
relate to benefits from
exploration, performance is
development and estopped to set up
utilization of natural that the contract is
resources (period ultravires
provided by 3. What is the doctrine in Privanovs
pertinent laws and De La Rama
regulations) a. Facts: Board insured on
the life of Enrico Privano
1. What are ultra vires acts? and agreed to donate
a. Those made which are not some proceeds of such
within the express, insurance to his heirs
inherent or implied powers b. Is it ultravires?
of the corporation as c. Yes. The corporation is
defined by its charter or given power in its AOI to
articles of incorporation deal with the money of the
2. What are the consequences of company not immediately
ultravires acts? required, in such manner
a. For corporation as from time to time may
i. Their franchise may be determined. Thus the
be suspended or donation in question is
revoked within the broad scope of
b. For the stockholders the power. Also assuming
that such act is ultravires, 5. What is the doctrine in Japanese
the Court ruled that mere War Notes Claimants vs. SEC
ultravires act are merely a. Facts: Japanese War
voidable and may become Notes Claimants have
binding and enforceable been making
when ratified by the representation to the
stockholders. public to register and
4. What is the doctrine in Carlos vs. deposit War Notes. The
Mindoro? SEC conducted
a. Facts: Philippine Trust investigation and found
Company guaranteed that they were authorized
bonds to Mindoro Sugar. It to work for the redemption
did not pay. It contests that of its members alone and it
it cannot guarantee bonds cannot offer its services to
because it is ultravires the public for a valuable
b. Whether PTC shall be held consideration
liable to pay their b. Issue: Whether the corp
guarantee? acted ultravires
c. Yes. It is because they are c. Held: Yes. They have no
liable to pay for the bonds authority to engage in the
as the guarantee is not business in such because
ultravires. In this case, the they were not authorized
court found that PTC is to do so.
authorized to acquire 6. What is the doctrine in Crisologo-
bonds by the AOI and By- Jose vs CA (NEGO TOO)
Law. The Court ruled that a. Atty Benares and VP for
from this authority to Marketing and Sales
acquire bonds it is likewise Santos issued checks on
implied that they have the account of Mover
power to guarantee them Enterprise
for their advantage. b. Ruling: One who has taken
Moreover, the court the instrument with
likewise held that the knowledge of the
defence of ultravires when accommodation nature
invoked for or against a thereof cannot recover
corporation should not be against a corporation
allowed to prevail where it where it merely is an
would defeat the ends of accommodation party.
justice of work a legal
1. N
Stockholders Right to Vote and Manner on-voting
of Voting shares
Stock Non-stock MIDAS
Allowed Proxy voting May broaden SLEMP
voting rights O
voting trust May deny 2. Tr
agreement, proxy voting easury
exec tutor, because of shares
administrator, Section 89 3. D
receiver, or elinquent
legal shares
representative 4. U
(if appointed by nregister
the court, no ed
need for written transfers
proxy) of shares

Mortagors/pled Heir of a
gors and deceased
administrators stockholder
provided the appointed by
right is the BOD
recorded in
corporate Co-owners not
books agreeing on the
(agree on vote, Restrict right to
with written proxy-voting
proxy, co- Amendment in a in the Articles
ownership are or in the By-laws
on and/or
General right to vote Requisites of proxy voting:
Not Right to vote May limit, deny
allowed restricted by voting rights 1. In writing
law 2. Signed by the stock holder,
Right to vote member or duly authorized
restricted in representative
articles of 3. Filed before the scheduled
Right to vote meeting with the corporate
restricted in by- secretary
General vs Limited proxy i. Except voting trusts
as condition in a
General General discretionary power of loan agreement
attorney to vote for directors b. Must be in writing
and all matters except c. Must be notarized
fundamental matters in d. A certified copy must be
corporate charter or unusual filed with the corp and the
transactions SEC
e. Shall be subject to
Limited Specified matters only examination by any
- Period may be fixed by its own f. Both transferor and
terms but shall not exceed 5 years trustees may exercise right
and subject to extension for not of inspection of all
more than 5 years for each corporate books and
renewal records
- Revocable unless coupled with g. Trustees shall issue voting
interest trust certificates which to
- Revocation may be expressed to the transferor which shall
a. Proxy holder be transferable in the
b. Election committee same manner and effect
c. Subsequent proxy to as stock certificates
another h. Three criteria or test to
d. Sale of shares distinguish a VTA
i. Separated from
other attributes of
Voting Trust Agreement ownership
ii. Irrevocable for a
a. Definition definite period of
a. An agreement in writing time
whereby one or more iii. Purpose is to
stockholders transfer their acquire voting
shares to a trustee or control
trustees, the right to vote i. Effect of VTA to the
or other right pertaining to transferor: He ceases to
shares for a period not i. Be the shareholder
exceeding 5 years at any of record
one time ii. Deprived of right to
b. Rules vote and be voted
a. A period may not exceed 5
period at any one time
iii. Deprived right of NIDC vs Aquino
notice of information
iv. Or any voice in Facts:
making fundamental Because Badjak was about to get
changes bankrupt, it entered into a financial
agreement with PNB on October 5, 1965
Voting Trust Proxy
1. Beneficial 1. Beneficial where one of the stipulation was that a
owner owner voting trust agreement was made in
ceases to retains legal favour of NIDC over 60% of the
be title outstanding paid up and subscribed
stockholder 2. Proxy votes shares
of record as an agent
2. Trustee 3. In proxy, On September 23, 1970, Batjak wrote to
votes as owner may NIDC asking for a complete accounting
owner of be voted as of the assets, properties, management,
shares director
3. Beneficial 4. Purpose of and operation of Batjak, preparatory to
owner is proxy is to their turn-over and transfer back to
dqed to be secure Batjak.
director voting and
4. Purpose of quorum req NIDC said they would not comply.
voting trust or merely to Hence, Batjak filed for a petition for
is to acquire represent Mandamus to which the lower court
control 5. Proxy voting denied.
5. VTA is is revocable
irrevocable 6. Proxy may Issue: Whether Batjak may compel
6. Trustee may vote only at transfer of asset, properties,
vote at any a particular management from NIDC
meeting meeting
during the 7. Proxy must Held: No. NIDC was constituted as a
duration of vote in trustee only of the voting rights over
the VTA person
60% of the OCS of Batjack. What was to
7. Trustee may 8. May not
vote in exceed 5 be returned only was the Certificate of
person or by years at any Stock belonging to Batjaks stockholders
a proxy one time not the properties or assets for they
8. VTA may 9. Unless were not delivered in the first place.
exceed five required by
years the by-laws,
9. Must be need not be
notarized notarized or
and filed at filed with the
CERTIFICATE OF STOCK AND THEIR as the principles governing
TRANSFER estoppels may apply.
7. Stocks may be transferred by
1. Share of stock is a profit sharing delivery of the certificate,
contract, a series of units of indorsed by the owner or his
interest and participation in a attorney-in-fact.
corporation in consideration of a 8. To be valid as to the corporation
proportionate right to participate and third persons, transfer must
in dividend and other distributions be recorded in the books of the
2. Certificate of stock is a piece of corporation. The transferee will
paper or document which not be recognized as stockholder
evidences ownership of shares and could not exercise his right
and a convenient instrument for as stockholder until the transfer
the transfer of title has been recorded in the stock
3. The requisites for issuance of a and transfer book
certificate of stock are: 9. The two-fold purpose of
a. It must be signed by the registration are: (IE)
President or the Vice- a. To inform the corporation
President and in any change in shares of
b. Countersigned by the ownership so that it can
Secretary or Assistant ascertain the persons
Secretary entitled to the rights and
c. It must be sealed with the subject to the liabilities of a
corporate seal stockholder
d. The entire value thereof b. To enable the transferee to
should have been paid exercise his right as a
4. Holders of subscribed shares not stockholder
fully paid which are not 10. Registration is necessary for the
delinquent have the rights of a following reasons (RE: KFC)
shareholder a. To afford the corporation
5. The only other instance when a an opportunity to object or
stockholder may not be able to REFUSE registration of
exercise his rights is when his the transfer in case
shares are delinquent or when he allowed by law
exercises his appraisal right. b. To enable the transferee to
6. A certificate of stock is not EXERCISE his right as a
regarded as negotiable in that the stockholder
transferee takes it without c. To enable the corporation
prejudice to all the rights and to KNOW who its
defences which the true and legal stockholders are
owner may have except insofar
d. To avoid fictitious and or to enable it to know who its
FRAUDULENT transfers stockholders are
e. To protect CREDITORS 17. As a matter of policy, the SEC
who have the right to look allows the grant of preferential
upon stockholders, in case rights to existing stockholders
of non-payment or watered and/or the corporation, giving
shares for the purpose of them the first option to purchase
satisfaction of their claims the shares of a selling
11. Stock endorsed in blank stockholder within a reasonable
constitutes what is called street period not exceeding thirty days
certificate provided the same is contained in
12. In one case, the Court ruled that the articles of incorporation and in
an endorsement in blank of the all of the stock certificates to be
stock certificate coupled with issued by the corporation
delivery entitles the holders 18. In one case, the Court ruled that
thereof to demand the transfer of restrictions must be made in the
said stock certificate in his name articles and should be subject to
from the issuing corporation. reasonable terms, conditions, or
13. The exception to this rule is when period.
the transferees title to said 19. Other restrictions on the right to
shares has no prima facie validity transfer shares would include
or is uncertain (PARCUN):
14. TWO MODES OF a. Restrictions imposed by
TRANSFERRING SHARES special law such as the
Public Service Act
Shares of stock Shares of stock b. Those covered by
has not been has been issued
reasonable AGREEMENT
Duly notarized Endorsement of of the parties
deed the stock c. Transfer is not valid,
certificate except as between the
coupled with parties until RECORDED
delivery thereof in the books of the
15. The right to transfer shares may d. Restrictions to be indicated
not be unreasonably restricted or in the articles of
prohibited. incorporation, bylaws, and
16. The right to transfer shares may stock certificates of a
be regulated to give the CLOSE corporation
corporation protection against e. Stocks which the
colourable or fraudulent transfer corporation holds any
UNPAID claim shall not be c. No the mortgage for the
transferable to the books usufruct need not be
of the corporation entered in order to be valid
f. Sale to aliens in violation in favour of Matute. The
of maximum ownership of Court ruled in this case
shares under the that by interpretation of Act
NATIONALIZATION Laws. 35, the said law does not
20. Transfer refers to absolute and require entry except of
unconditional transfer to warrant transfers of shares of
registration in the books of the stocks in order that such
corporation in order to bind the transfers may be valid
latter and other third persons. against third persons. The
21. MONSERRAT v CERON Court ruled that the chattel
a. In consideration of the mortgage is not the
interest shown and the transfer referred into
financial aid extended in section 35 because said
the organization of Manila law only contemplates
Yellow Taxi Cab Corp, absolute and unconditional
Monserrat assigned to conveyance of the title and
Ceron usufruct of 600 ownership of the share of
common shares of stock. stock. The registration of
Sometime later to secure the said chattel mortgage
his credit with a certain in the office of the
Matute, Ceron mortaged corporation was not
some of the stock to him. necessary and had no
Ceron failed to pay and legal effect.
thus the shares were 22. Chua Guan vs Samahang
foreclosed. In an action Magsasaka
against this, the lower a. Co Toco owner of 5895
court ruled that Monserrat shares of Samahang
owned the shares of stock Magsasaka mortagaged
declaring the mortgage on his shares to Chua Chiu to
the ownership null and guarantee payment of debt
void but not so with the of 20,000. Chua Chiu
mortgage on the usufruct assigned the mortgage to
enjoyed by the Ceron. Chua Guan
b. Whether it is necessary to i. Chua Guan
enter the mortage in order registered chattel
for it to be valid against mortgage in Manila
on July 23 1931(his good faith and indeed as
residence) to all person interested
ii. Attachments were except the parties to such
served on August 5 transfer.
1931 24. PADGETT vs. BABCOCK
iii. Registered notified a. Padget an employee of
of mortgage on Babcock became owner of
September 30, 44 shares of the corp. The
1931 certificates indicate the
b. Attaching creditors are word non-transferable. He
entitled to priority over the proposed to sell to the
defectively registered president his shares. The
mortgage of the appellant corporation bought similar
and the judgment appeal shares but the offer was at
must be affirmed P80 5 peso less than the
23. USON V DIOSOMITO par value
a. Diosomito, the defendant b. Whether the restriction is
in this case, sold his valid and whether the
shares of stock to corporation is compelled to
Barcelon (Feb 1931) who buy the shares
subsequently sold to the c. The restriction is invalid.
Joylle before the shares of The Court ruled that the
stock were attached on his only restriction for transfer
shares. However, facts of of shares is found in
the case shows that Section 35 (Sec 63) which
Barcelon (Sep 1932) only is that transfer of shares
registered the transfer nine shall not be valid except as
months after the between the parties to the
attachment was levied on corporation until the
his shares (Jan 1932) due transfer is entered and
to a order of judgment in noted upon the books of
favour of the petitioner. the corporation. Any
b. In favour of USON restriction the court has
because transfer of shares held in the transfer of
not so entered are invalid shares in the by-laws is
as to attaching or ultra-vires and violative of
execution creditors of the the property rights of the
assignors as well as to the shareholder in restraint of
corporation and to trade. As to the sale of
subsequent purchaser in shares, there is no law or
authority in the claim that EBE indorsed all his
the defendant are shares of stock to AGA but
obligated to buy at par did not deliver.
value. As such there is no Subsequently, AGA failed
contract between them. to deliver his end of the
25. LAMBERT VS. FOX agreement.
a. Upon incorporation of John b. Who has better right over
Edgar and Co inc, the the shares and control of
plaintiff and defendant, the corporate affairs
two biggest stock holders c. It is EBE because transfer
agreed not to sell, transfer, of shares occurs through
or otherwise dispose any indorsement couple with
part of their stocks till one delivery. In this case, there
year after the agreement. was no delivery yet
But the defendant Fox sold because the
his shares to Ec considerations were not
McCullough a competitor yet met. Hence, the
nonetheless transfer of ownership has
b. Is the restriction valid not yet been effected.
c. Yes. The stipulation to 27. Razon vs IAC
suspend power to sell is a. Razon the petitioner
not illegal. The Court ruled incorporated an arrastre
in this case that the service business together
suspension of the power to with several others. Years
sell has a beneficial later he was trying to
purpose results in the register shares of stock
protection of the registered in the name of
coprporation and the Juan Chuidian. It was
individual parties and is found that said stocks
reasonable. were delivered to Razon.
26. Embassy Farms vs CA However, there was no
a. Eduardo B. Evangelista indorsement.
entered in to an agreement b. Whether Razon acquired
with Alexander Asuncion ownership of shares
wherein he will transfer c. No because there was no
properties in bulacan, indorsement. Indorsement
stocks and equipment of of certificate of stock is a
Embassy Farm in mandatory requirement of
exchange of 8,630,999 law for an effective transfer
and some other stipulation. of stock. Here, the there
was no indorsement. The duty on the part of the
court also took note of the secretary of the
fact that there was corporation. So despite
consideration with regard any question of ownership,
to the stock as Juan the Rural Bank may be
Chuidian was former legal compelled to effect the
counsel of the corp. transfer of shares in
28. RURAL BANK OF SALINAS VS accordance with section
CA 63 of the CC.
a. Clemente Guerrero 29. TAY vs. CA
executed a SPA to a. Respondent Guiok and Sy
Melenia Guerrero granting Lim pledged their shares in
the latter full power and Go Fay and Company to
authority to sell or Appelant Tay. They failed
otherwise dispose of to pay. Thus Tay sought to
and/or mortage 474 shares register the shares of stock
of stock of rural bank of in his name. The
Salinas. She distributed corporation refused. This
them to Andico, Rosales, in turn led to the petition
Guerrero Jr., and Guerrero for mandamus
Sr. Subsequently she b. Whether the Mandamus
rquested the bank to may lie?
register the transfer to c. No because in issuing
which the bank denied. writs of mandamus it is
She then filed a petition for essential that the petitioner
mandamus. Then a motion has a clear legal right of
for intervention arose the thing demanded and
stating that there was a that it is the imperative
petition for administration duty of the respondent of
of estate 2 weeks before the act required. In this
the petition for mandamus. case, there is no legal
The SEC granted the right. Under the law,
mandamus and the CA satisfaction of a thing
affirmed it credit secured by a pledge
b. Whether the court erred in may be satisfied only by
sustaining the SEC when it undergoing foreclose
compelled the bank to process. In this case, Tay
register the transfer did not even undergone
c. No. The transferring of the foreclosure process.
stock is purely a ministerial Therefore, he has no right
to have the shares to transfer. Moreover,
registered in his name for there was no delivery. The
he has no clear right over Court ruled that title may
it having failed to be vested in the transferee
undergone the proper only by delivery of the duly
procedure to acquire the indorsed certificate of
shares pledged. stock.
30. NAVA vs. PEERS marketing 32. TAN vs. SEC
a. PO-PEERS to NAVA 20 a. Tan owner of 400 shares
SHARES NO sold 50 of his shares to
REGISTRATION subsequently Stock
31. Rural Bank of LIPA vs. CA Certificate 6 and 8 were
a. Reynaldo Villanueva Sr., issued by newly elected
stockholder of Rural Bank board with Angel Tan as
of Lipa executed a Deed of vice president upon the
assignment in favour of the instruction of petitioner
stockholders of the bank. It who was then the
appears that later on they President. Stock certificate
would acquire debpt with 6 was issued for Angel
the bank and would fail to Tan consisting of 50
pay. The BOD of the bank shares and 8 for petitioner
registered the transfer and Alfonso Tan for his
subsequently held an remaining 350 shares.
election without notice to Angel Tan however
them. requested that the
b. Whether the stock was cancelled SS 2 be
transferred via deed of endorsed to him but
assignment Alfonso did not do so.
c. No. While it may be true Subsequently he lost his
that there was an shares from the corp and 5
assignment if shares, said years and 9 months later
assignment was not his brother is questioning
sufficient to effect the the transfer of shares
transfer of shares since contending that such was
there was no endorsement not endorsed contrary to
of the certificates of stock section 63 of the corp code
by the owners, their b. Whether cancellation and
attorneys-in-fact or other transfer was valid
person legally authorized
c. Yes. The court citing a c. Yes. The Court has held
previous case held that that it would not follow that
delivery is not essential the right to have the
where it appears that the transfer registered be
person sought to be held exercised immediately or
as stockholders are within a definite period.
officers of the corporation There is no fixed period for
and have the custody of registering an assignment.
the stock book. Moreover, Moreover the court
the court ruled that such clarified that the complaint
transfer are still subject to may neither be barred by
the rule on estoppels. the statute of limitation
Here, the petitioner is a because it was filed merely
former President of the days or months after the
corporation when stock demand for registration
certificate 6 was issued. and denial by the
Moreover, Angel S. Tan defendant. The right was
exercised his right as only violated in 1955 and
member of the board to the plaintiff could not have
the full knowledge and have asserted any cause
acquisence of the of action against the
petitioner. defendant before that.
33. WON vs. WACK WACK 34. De los Santos vs Republic
a. On April 26, 1955, a. The subject of the
Petitioner won acquired by controversy was the
assignment shares of shares of stock issued in
stock from MT Reyes. In favour of Madrigal in
1955, petitioner, after the Lepanto Consolidated
war, sought to have his Mining Co. It will be noted
shares registered but the that most of the stock
defendant denied to certificates are endorsed in
recognize him claiming blank. Two sides are
defense by prescription in contending for ownership
it being that the complaint and registration: One is De
was filed beyond the 5- Los Santos who alleges
year fixed in Article 1149 that he bought said shares
of the civil code in 1942 from Carl Hess
b. Whether or not wack wack and Juan Campos. His
should register the transfer evidence for the sale, his
testimony of such for Carl
are both dead. On the TRANSFERS
other is the Attorney
General of the US, for the 1. Forged vis Unauthorized transfer
Philippine Alien Property Forged Unauthorized
Administrator. He claims Transfer
that said shares were not What is forged Act if corporation
sold but were held only by or unauthorized in issuing the
Madrigal on behalf of is the transfer certificate either
Mitsui Bussan. And during certificate from fraudulently or by
the true and mistake
the liberation, such
lawful owner to
certificates were stolen. another person
b. Whether the stock should 1. Will not 1. May
be registered in De los acquire rightfully
Santos favour any title acquire title
c. No. The petitioner did not against thereto
present any proof of the the lawful because
owner the
sale to Carl Hess or Juan
2. No right corporation
Campos. By examining the or will be
evidence presented, it was remedy stopped to
proven by the other side against deny the
that Madrigan was a mere the validity
trustee of the Mitsuis and corporati thereof
on 2. Either
the same was proven that
3. May be recognize
it was never sold alienated required him as
nor disposed. If the owner to return stockholder
of the certificate has the same or provide
endorsed it in blank, and it for him
is stolen, no title is cancellati reimbursem
acquired by an innocent on ent
purchaser per value. This
certificates.Moreover, no
such entry was effected in 1. Subscriptions to shares of stock
the name of Juan Campos are indivisible
and Carl Hess nor the 2. A subscriber to such shares will
petitioner. not be entitled to the issuance of
a stock certificate until he has
paid the full amount of his
3. Once a subscriber has paid his he becomes entitled to
subscription in full, he becomes issuance of five hundred
entitled to be issued a stock shares in his favour.
certificate and in the event that
the corporation refuses to do so, WATERED STOCK
the stockholder may institute a 1. Watered stock is one which is
case for mandamus issued by the corporation as fully-
4. FUA CUN vs Summers paid up shares when in fact the
a. Chua Soco subscribed 500 whole amount of the value
shares of stock he paid for thereof has not been paid.
250. He mortgage the 2. Section 62 of the Corporation
shares to Fua Cun. Code imposes solidary liability
However, Chua Soco is upon all consenting directors and
also indebted to the officers of the water in the
banking corporation for stocks issued.
dishonoured acceptances 3. The law applies to all creditors
of commercial paper. Thus whether prior or subsequent to
his shares were attached the issuance of the watered stock
and were levied to the 4. Stockholder to whom no-par
corp. Fua Cun brought an value shares are issue will not be
action claiming that liable solidarily with the directors
because Chua Soco paid or officers because no par value
one half he owns the one shares when issued are deemed
half shares and thus have fully paid non-assessable
priority over the claim 5. Examples of issuance of watered
b. Whether Fua Cun owns stocks
one half of the shares a. Money consideration less
c. No. While indeed he has than its par or issued value
prioprity over the shares b. For consideration in
because a corporation has property, valued in excess
no lien upon the shares of of its fair market value
stockholders for any c. Gratuitiously or under an
indebtedness to the agreement that nothing
corporation. It is wrong to shall be paid at all
state that he owns two d. In the guise of stock
hunder fifty shares. Here dividends when there are
the court held that the no surplus profits of the
plaintiffs rights consist in corporation
an equity in five hundred 6. Effects of stock watering:
shares upon full payment
a. The corporation is As to Effect
deprived of its capital Corporation Guilty of ultravires or
thereby hurting its illegal acts and the
business prospects, state may institute a
financial capability and
proceeding to forfeit
responsibility its charter for misuse
b. Stockholders who paid in or abuse of franchise
full or promised to pay the Between Subscription is void
same are injured and corporation
prejudiced by the reduction and
of their proportionate subscriber
As to Estopped from raising
interest in the corporation
consenting objections thereto
c. Present and future stockholders
creditors are deprived of As to They may compel the
the corporate assets for dissenting payment of the water
the protection of their stockholders solidary between the
interests consenting
7. Theories serving as basis for directors,officers and
subscriber of the
liability of stockholders and
watered stock
consenting director and officers As to Enforce payment of
for watered stocks creditors the difference in price,
a. Trust Fund Doctrine or the water in the
b. Fraud/Misrepresentation stock
Theory As against His right is the same
8. Trust Fund Doctrine where in the transferees as that of the
of watered transferor
capital stock of the corporation
constitutes a trust fund in which
creditors have a right to look up
to for satisfaction of their claims 11. If a certificate of stock has been
9. Fraud or misrepresentation issued or duly endorsed to a
theory places liability on the bona fide purchaser without
premise that there is false knowledge, the later cannot be
representation made by the held liable, at least against the
corporation and the stockholders corporation, since he took the
concerned to the creditors the the shares on reliance of the
true par value or issued price of misrepresentation made by the
the shares has been paid or corporation that the certificate of
promised to be paid in full stock is valid and subsisting
10. Effect of stock watering to diff
SUBSCRIPTIONS (READ SECTION stockholder liable for
66-70) interest
d. Payment not made within
1. Unpaid subscription together with 30 days from the required
interest if required by the by-laws date will make all stock
or contract of subscription must covered by the
be paid on subscription be delinquent
a. Date fixed in the contract and subject to delinquency
of subscription sale
b. Date specified by the e. Board makes an
board pursuant to a call order/resolution to sell the
declaring unpaid portion delinquent stocks
thereof to be so payable f. Sale shall be made not
2. Remedies to enforce payment less than 30 days nor
a. Board action (Section 67- more than 60 days from
69) date the sake becomes
b. Collection case (Section delinquent
70) g. Notice of sale with copy of
3. Failure or refusal of the board resolution are sent
corporation, thru its board of to every delinquent stock
directors to enforce payment of holder personally or by
unpaid subscription will not registered mail
prevent the creditors or the h. Publication of notice of
receiver of the corporation to sale once a week for 2
institute a court action to collect consecutive weeks shall
the unpaid portion thereof be made at the
4. Board action procedure city/province where the
a. A call by the board through principal office is located
a formal resolution i. Sale
declaring the whole or a j. Registration and issuance
portion of the unpaid of stock certificate
subscriptions be payable k. If there be remaining
on a specified date shares, the same shall be
b. Stockholders concerned credited in favour of the
are notified by personally delinquent stockholder
or by registered mail who shall be entitled to
c. Payment shall be made on issuance of certificate of
the date specified. Failure stock certificate covering
to pay will render the entire said shares
balance due and payable
5. If the contract of subscription unpaid subscription. The
provides the date or dates when action was brought at the
the payment is due, no call or Court of First Instance
declaration by the board is Ruling A subscription for shares
of stock does not require
a promise to pay on the
6. Publication of the notice of call is amount subscribed
not necessary unless the by-laws because the law implies
so provide such promise. As such
7. Notice is not necessary if the the subscriber is bound
contract of subscription stipulates to pay his subscription.
a specified date when the unpaid
There are two ways to
portion is due and payable collect one is by board
8. The highest bidder is the one who action leading to
offer to pay the full amount of the delinquency sale or the
balance of subscription together other is by proper court
with accrued interest, cost of to collect the amount due
advertisement and expenses of on the unpaid
subscription together
with the unpaid interest,
9. If there is any irregularity in the costs, and expenses
notice of sale or the sale itself, no 12. DE SILVA v ABOITIZ
recovery of the stock sold may be Facts Plaintiff De Silva
had unless subscribed 650 shares of
a. The party seeking the stocks in Aboitiz of which
action pays or tenders to only paid a value equal
the party holding the sum to 200 shares. The
corporation does through
for which the same was
a board resolution
sold, with interest from notified him of its
date of sale at the legal demand to pay with a
rate warning that should he
b. File a complaint within 6 fail to do so they will
months from date of sale subject his shares to a
10. Pursuant to the Civil Code, a call delinquency sale.
Challenging such notice
is a condition precedent before
De Silva filed a
right of action accrues complaint stating that the
11. Velasco vs Poizat proposed sale is an act
Facts The plaintiff, an assignee in exes of the executive
in insolvency of power of the corporation
corporation Philippine citing a provision in its
Chemical Product Co by-laws which prescribed
filed a suit to recover another method of
from the defendant paying in which 70% of
the profit shall be publication of the call.
distributed in equal parts While the plaintiff cites
to the payment of shares Poizat v Velasco wherein
subscribed to and fully there is no call, the court
paid ruled that such can only
Ruling The method to satisfy be applied in that case
the unpaid subscription for the Corporation in
provided in the by-laws that case is already
is discretionary on the insolvent. In this case,
board of directors. The the Court ruled that
stockholders does not notice of call for payment
have any right in the of unpaid subscribed
connection with the stock must be published.
determination of whether 14. APOCADA vs NLRC
there should be Facts Apocada an employee of
deducted from the 70 Intraw Phils Inc is also a
percent of the profit to subscribed of shares of
pay the unpaid stocks. It appears that he
subscriptions. The has not paid around
corporation excercising 95,439 of his
one of the two modes in subscription. The
the enforcement of corporation and Apocada
payment, which in this later on figured in a labor
case is via a board dispute wherein the
resolution delinquency corporate admitted a
sale, did not act in liability for unpaid wages
excess of its executive and other emoluments.
authority. The corporation however
13. LINGAYEN GULF vs. BALTAZAR setoff the amount due
Facts Baltazar subscribed them to the unpaid
shares of stock with subscription of Apocada.
Lingayen Gulf Electrict The labor arbiter
Company. She had an disallowed the setoff but
unpaid subscription of the NLRC reversed this
18,500. The corporation decision.
issued a board resolution Ruling The ruling has to be
to collect the shares of overturned. Firstly, the
stock. The legal counsel NLRC does not have
likewise wrote to jurisdiction over
Baltazar demanding the intracorporate dispute
payment of the unpaid between the stockholder
balance to which the and the person.
defendant ignored Moreover, the setoff is
Ruling Baltazar is not yet liable neither correct because
to pay the unpaid postion the liability on the
because of the lack of subscription is not yet
due and payable upon any unpaid stock
because it has yet to subscription in order to
make a call to demand realize assets for its
for the payment of such. payments of debt. Here
15. LUMANLAN VS CURA the court found that the
Facts Lumanlan is a subscriber corporation still has other
of shares of stock of creditors and as such
Dizon and Co for up to can still claim for the
15,000 worth of value. unpaid subscription. But
Likewise he is a debtor notwithstanding, the
of the corporation. Dizon payment made by
and Co went into Lumanlan cannot be
receiver ship and sued disregarded. He paid
Lumanlan for unpaid 11,840 and another 2000
shares of stock and for the cost of bringing
other liability totalling to the suit. Such total of
P15,109. The lower court 13840 should be
granted in favour of the credited against the
receivership to which 15109 due.
Lumanlan appealed. 16. PNB VS BITULOK SAWMILL
During the course of the Facts The Philippine Lumber
appeal, there was an Distributing Agency was
agreement that organized on the
Lumanlan would just initiative and insistence
have to pay the credit of of then President Roxas
the corporation assigned together with other
to a certain Valenzuela. lumber producers in
The credit amounts to order to enable war
P8000 plus interest to sufferers to rehabilitate
which Lumanlan paid a their homes with steady
total of P11,840. With supply of lumber at
the liability paid, the reasonable prices. Since
corporation however did the risk for putting up
not release Lumanlan for such organization was
his liability and sought to too risky, President
attach his properties for Roxas induced its
recovery subscribers that the
Ruling Subscription to the government would invest
capital of a corporation 9 for every peso the
constitute a fund to members would invest.
which the creditors have The government was not
a right to look for able to invest. There was
satisfaction of their no appropriation for the
claims and that the same. Moreover, the
assignee in insolvency PLDA was indebted to
can maintain an action PNB for 350,000 to
which the receiver is COB was not able to pay
demanding for the its liabilities with Edward
payment of unpaid Keller
subscriptions. The lower Ruling Edward Keller may
court dismissed the collect the unpaid
claim stating that it is subscription of stocks. A
unfair and unjust for the stockholder is personally
bank to compel the liable to the financial
payment of unpaid obligations of a
subscription corporation to the extent
Ruling The subscribers must of his unpaid
pay. subscription
Capital of a corporation 18. GARCIA V SUAREZ
constitute a trust fund to Facts On October 4, 1924
which creditors have a Garcia subscribed from
right to look for Compania Hispano
satisfaction for their Filipina 16 shares of
claims. In Velasco v. stocks to which she only
Poizat, the court ruled paid 400 out of the 1600.
that an assignee in On June 5, 1931 Suarez
insolvency can maintain was appointed receiver
an action upon any of the said company. He
unpaid stock. A then brought an action
corporation has no against Garcia on June
power to release an 18,1931. At first it was
original subscriber to its dismissed for lack of
obligation to pay the prosecution. On the
unpaid subscription second complaint filed
without a valuable on October 10,1935, the
consideration for such defendant claims
release; and as against prescription which was
creditors a reduction of denied by the court
the capital stock can Ruling The cause of action has
take place only in not prescribed.The date
manner and conditions when to pay arises in a
prescribe by law or the subscription contract
charter. upon call or in the
17. Edward Keller vs COB Group contract or in cases
Facts Edward Keller entered when the corporation
an exclusive distributor becomes insolvent when
agreement with COB the appointed receiver
Group for distribution of makes the demand to
its products in Panay pay. Here Suarez only
and Negros. Edward initiated the demand to
Keller sold to COB on pay on June 18,1931.
credit. It appears that
19. When the shares are declared unlawfully wayer in
delinquent, the holder thereof sold for his
immediately loses the reight to delinquency stocks
vote and be voted upon or 10. Inspect 5. To be
books liable as
represented in any stockholders 11. Be general
meeting as well as all the rights furnished partners
pertaining to a stockholder recent in ccase
a. Except the right to receive financial of
dividends statements estoppel
20. Subscribers of shares of stocks 12. Be issued
who have not yet fully paid are
certificate of
not entitled to be issued a stock in lieu
certificate of stock of it being
lost or
1. Rights vs Liabilities dissolved
14. Participate
Rights Liabilities in the
1. Vote or 1. Pay the distribution
voted upon balance of assets
2. Enter into a of his
VTA subscipti
3. Receive on
dividends 2. Pay
4. Transfer interest
shares of on his
stock unpaid
5. Be issued subscript
stock ion if
certificate require
for fully by the
paid-up by-laws
shares or the
6. Pre-emptive contract
rights 3. Answer
7. Appraisal creditors
rights for
8. File a unpaid
derivative portion of
suit subscript
9. Recover ion
shares of 4. Answer
stock the
RECORDS action
4. Contents of a stock and transfer
a. Names of stockholder
1. Access granted to stockholders,
b. Amount paid or unpaid on
members, directors, trustees
all stocks for which
a. Records of all business
subscription has been
b. Minutes of all meetings
c. Statement of every
c. Stock and transferbook
alienation, sale, or transfer
2. Business transactions of the
of stock made, if any the
date thereof and by whom
a. Journals
and to whom made
b. Ledgers
5. Are subject to inspection by any
c. Contracts
of the directors, trustees,
d. Vouchers and receipts
stockholders or members at
e. Financial Statements
reasonable hours on business
f. Other books of accounts
days and a copy of excerpts of
g. ITR
said records may be demanded.
h. VTA
6. Within ten days from receipt of a
3. Contents of minutes of the
written request of any stockholder
or member, the corporation shall
Mandatory Upon demand furnish him its most recent
1. Time 1. Time financial statement, which shall
2. Place when any include:
3. How director, a. A balance sheet as of the
authorized trustee, end of the taxable year
4. Notice stockhold
5. Regular or er, b. Profit and loss statement
special (if entered for the said taxable year
special its and left 7. At a regular meeting of
object) the stockholders or members, the
6. Attendance meeting board shall present a financial
7. Acts done or 2. Yeas and report of the operation of the
ordered done nays on
corporation for the preceding
motion or year.
propositio a. It shall include financial
n statements duly signed
3. Protest on and certified by an
any action independent certified
or public accountant
i. Except when the e. Proporal of mergers or tie-
paid up capital is ups
less than P50,000 13. The corporation or its responsible
8. The basis of the right of a directors or trustee cannot unduly
stockholder to inspect books and restrict the right to inspection
records is to protect his interest 14. Remedies
as a stockholder a. Mandamus cor sec is a
9. The right of stockholder to party respondent
examine corporate books extends b. Damages against the
to a wholly owned subsidiary corporation or the officer
which is completely under the c. Criminal complaint in
CONTROL AND MANAGEMENT violation of Section 74
of the parent company where he punishable by rule 144
is a stockholder 15. Proof needed to defend
a. Except when the two a. The person demanding
entities are being operated has improperly used any
as separate and distinct information
entities b. Not acting in good faith or
10. The right maybe excercised for a legitimate purpose in
through an agent or meeting his demand
representative The right is limited or
11. The right of a director or trustee restricted by special law or
to examine corporate books and law of its creation.
records is absolute and 16. Philpotts vs Phil Manufacturing
unqualified and without regard to Co
motive Facts A stockholder in
12. While stockholders and members Philpotts is proceeding to
are entitled to inspect and obtain a writ of
examine the book of records mandamus to compel
the corporation to permit
provided in section 74 and 75 the plaintiff by its
they may not gain access to attorney to inspect and
highly sensitive and confidential examine the records of
information the company. The
a. Marketing strategies and respondents interposed
pricing structure a demurrer
Ruling The right of inspection
b. Budget for expansion and
given to a stockholder
diversification can be exercised either
c. R&D by himself or by any
d. Sources of funding, proper representative or
availability of personel attorney-in-fact, and
either with or without
attendance of the 19. VEGARUTH vs. ISABELA
stockholder. Though the SUGAR
right in a sense is Facts Eugenio Vegaruth, a
personal, it may be director and stockholder
made by another of Isabela Sugar Co is
otherwise it would be seeking for the
unavailing in many production of the
instances. The minues, documents, and
possession of the right in books of the corporation
question would be futile for his inspection as a
if the possessor through director and stockholder.
lack of knowledge Specifically he is asking
necessary to exercise it for a board resolution
were debarred the right concerning the payment
of procuring in behalf of of attorneys fees in the
services who could case against Isabela
exercise it Sugar. The corporate
17. PARDO vs HERCULES secretary denied
Facts Pardo, a stockholder of providing said resolution
Hercules, is seeking to for the minutes in
be permitted to examine question are not yet
the records and business signed by the directors
of the company. The present.
defense of the Ruling The Court ruled that a
corporation lies in its by- director has no right to
laws where it is provided secure certified copies of
that the right to inspect minutes of the
are allowed on the days corporation until the
which the BOD have minutes have been
fixed written up and approved
Ruling The general right given by the director.
by the statute may not
be lawfully abridged to Here, since the minutes
the extent attempted in where not yet approved,
thi by-laws. A by-law the Corporate Secretary
unduly restricting the cannot be compelled by
right of inspection is mandamus to produce
undoubtedly invalid. such documents.
18. Doctrine of limited capacity No 20. Gokongwei vs. SEC
corporation under the code shall Facts San Miguel acquired a
possess or exercise any power beer brewery in Hong
except those conferred to it by Kong. Gokongwei Jr., is
law, its articles of incorporation, questioning the
investment for being not
those necessarily implied to the
in accord to its purpose.
exercise of powers so conferred. One of the issues is
whether Gokongwei Jr., records of the bank
has the right to inspect because first, inspection
the corporate books of of books of the bank is
the newly acquired limited only to the
foreign subsidiary. President of the
Ruling Yes he may inspect. The Philippines, the SoF, the
right of the stockholders Board of Directors, the
to examine corporate Central Bank, or upon
books extends to a order of a Court with
wholly owned subsidiary Competent Jurisdiction.
which is completely This is provided in
under the control and Section 15 and 16 of its
management of the charter. Section 4 of the
parent company where Corporation Code
he is such a stockholder. provides that
In this case, the court Corporations created by
held that the foreign special charter shall be
subsidiary is wholly governed by their own
owned and controlled by charters with the
the San Miguel Corporation Code
Corporation. Thus, providing suppletorily
Gokongwei Jr., has the only insofar as they are
right to inspect the books applicable. Since he is
and records of the not the SOF, the
wholly-owned subsidiary. President, or the Central
Bank, he should not be
SMI Bermuda, allowed to inspect.
Hongkong Brewery and Second, the contention
Distillery that the petitioner has no
21. GONZALES vs. PNB justifiable motive for
Facts Gonzales owns one such inspection was
share of stock of the upheld. In corporation
PNB. He is seeking to code, one of the defense
inspect the corporate of the corporation in
books of the bank in denying inspection is
order to satisfy himself of when the stockholder so
the truth that the bank requestion is not acting
has guaranteed in good faith or for a
obligation of South legitimate purpose.Here,
Negros Development the court took note that
Corp in the purchase of Gonzales own just one
a sugar mill and the share, was petitioner to
construction of a bridge various suits against the
in Mactan. The bank bank, and has not been
denied the request. able to provide justifiable
Ruling He cannot inspect the motives for such
inspection. d. Investment of funds in a
4. In a close corporation, a
stockholder has an unbridled right
to compel a corporation for ANY
REASON to purchase his shares
1. Appraisal right is the method of at their fair value which shall not
paying a shareholder for the be less than the par or issued
taking of his property. value, when the corporation has
2. The purpose of the right of sufficient assets to cover its debt
appraisal is to protect the and liabilities, exclusive of capital
property rights of dissenting stock.
stockholders from actions by the 5. The procedure and requirements
majority shareholders which alter for the valid exercise of appraisal
the nature and character of their right are:
investment a. The stockholder must have
3. Appraisal right is a statutory right voted against the
allowed in cases proposed corporate action
a. In case of merger and in any of the instances
consolidation allowed by law for the
b. In case any amendment in exercise of the right of
the articles of incorporation appraisal
has the effect of changing b. The written demand must
or restricting the rights of be made by the dissenting
any stockholder or class of stockholder within 30 days
shares, or of authorizing from the date on which the
preferences in any respect vote was taken thereon.
superior to those of the i. Failure to make the
outstanding shares of any demand shall be
class, or of shortening or deemed a waiver on
extending corporate the part of the
existence stockholder to
c. In case of sale, lease, exercise his
exchange, transfer, appraisal right
mortgage, pledge, or other c. After written demand, he
disposition of all or must surrender the
substantially all corporate certificate of stock within
property or assets as the 10 days for notation in
provided in the corporation the corporate books and
code payment by the
corporation of the fair b. When the proposed action
market value of the shares is abandoned or rescinded
which shall be as of the by the corporation
day prior to the date the c. When the proposed action
vote was taken. is disapproved by the SEC
i. The payment may where such approval is
only be made if the necessary
corporation has d. When the SEC determines
unrestricted that the stockholder is not
retained earnings in entitled to exercise his
its books to cover appraisal right
such payment. e. When the stockholder fails
d. Upon payment of the to submit his stock
shares by the corporation, certificate within 10 days
the dissenting holder shall from demand to
transfer his shares to the corporation for notation
corporation. that his shares are
6. From the time of demand of dissenting shares
payment until the abandonment f. If the shares are
of the corporate action involved transferred and the
or purchase of shares by the certificate is cancelled
corporation, all rights accruing to 8. Who bears the cost of appraisal
such shares, including voting and
dividend rights shall be Corporation Stockholder
1. When the 1. When the
suspended except the right to
price it payment
receive payment for fair market offered is offered is
value. lower than approxima
a. If the dissenting the fair tely the
stockholder is not paid the value of same as
value of his shares within shares of the fair
30 days after the award, the value
dissenting ascertaine
his voting and dividend
stockhold d by the
rights shall be immediately er as appraisers
restored. determine 2. Where the
7. Instances when right to be paid d by the action filed
ceases appraisers by the
a. When he withdraws his 2. Where an dissenting
action is stockholde
demand for payment and
filed by a r and his
the corporation consents dissenting refusal to
thereto stockhold accept
er to payment is run counter to its very nature as a
recover not non-profit activity
such fair justified a. Except that insofar as it
value and may be allowed and
the refusal
of the specified in the articles of
stockhold incorporation as incidental
er to to the purposes indicated
receive therein.
payment 3. Non-stock corporations may be
IS formed or organized for
charitable, religious, educational,
9. The dissenting stockholder is professional, cultural, fraternal,
required by law to submit his literary, social, civic service, or
certificate of stock for notation other similar puposes like trade,
that such are dissenting shares industry and like chambers or any
within 10 days from demand. comination thereof
a. His failure to do so shall a. This list is non-exclusive
terminate his rights of 4. MEMBERSHIP AND VOTING
appraisal RIGHTS
b. The law does not prohibit a. NON STOCK VOTING
the dissenting stockholder i. Voting may be
to sell, transfer or assign limited, broadened,
his shares. denied in the
i. The transferee will articles of
acquire all the rights incorporation or the
of a regular by-laws
stockholder ii. Unless limited,
inclusive of all broadened or
dividends which denied each
would have accrued member shall be
on such shares. entitled to one vote
iii. Cumulative voting is
1. A non-stock corporation is one iv. Proxy voting MAY
where no part of its income is BE DENIED
distributable to its members, v. Voting by mail may
trustees, or officers, subject to the be authorized and
2. A non-stock corporation cannot allowed by the by-
generally engage in any business laws
undertaking or activity as it would
b. NON-STOCK be terminated
MEMBERSHIP absent provision in
i. Membership may the by-law
be acquired by 1. Those
complying with the indictable by
provisions of its common law
rules prescribed in so much that
the by-laws when an
ii. Non-stock offense is
corporations are committed,
free to fix though it has
qualifications for no relation to
membership and to a members
provide for duty, it
termination of should
membership render him
iii. These qualifications unfit for
are in the by-laws society of
iv. In the absence of a honest men
provision to the 2. When the
contrary, this power offense is a
is lodged in the violation of a
board of trustees members
v. A non-profit or non- duty to the
stock corporation corporation
has the right to 3. When the
approve or violation is
disapprove an mixed
appreciation for 5. CHINESE YOUNGMENS VS
proprietary CHING
membership except Facts Ching, a director of
that it must not be Chinese YMCA, and rival
exercised arbitrarily. of Petitioners, Golancho,
vi. There are instances president of YMCA filed
an action in the lower
wherein transfer of court for mandamus.
membership are Said court removed
governed by special membership granted
laws based on their
vii. Instances where membership campaign in
membership may September 27, 1965-
November 26, 1965.
Out of the 249 submitted
174 were approved. The
contention of Ching was
that membership should
be stripped for failing to
meet the deadline set
that no application would
be counted after Nov 25
at 5pm
Ruling The court was wrong to
strip membership. A
court cannot strip a
member of a non-stock
corporation of his
membership without
cause. From the facts,
the Supreme Court ruled
that their is no proof that
the application was filed
and paid later than the
deadline. While the
petitioner presented
checks, the respondent
only questioned the
probability of such.
Moreover, the members
stripped were not even
impleded or heard.
Lastly, the board of
directors incharge of
screening the members
have authorized the
admission of such
members and thus it
constitutes a waiver on it
part of the technicality or