BUS.

ORG2 OUTLINE 5 (2018)

Vlll. CAPITAL STRUCTURE OF CORPORATIONS

A. Concepts:
1) Capital vis-à-vis Capital Stock
2) Shares of Stock vis-à-vis Stock Certificate
3) Authorized Capital Stock
4) Subscribed Capital Stock
5) Paid-in Capital
6) Outstanding Capital Stock – Sec. 137
7) Watered stock - Sec. 65

B. Trust Fund Doctrine - vis-à-vis corporate assets

- vis-à-vis subscribed capital stock

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

It is established doctrine that subscriptions to the capital of a corporation constitute a fund to
which creditors have a right to look for satisfaction of their claims and that the assignee in insolvency can
maintain an action upon any unpaid stock subscription in order to realized assets for the payment of its
debts.
A corporation has no power to release an original subscriber to its capital stock from the
obligation of paying for his shares, without a valuable consideration for such release; and as against
creditors a reduction of the capital stock can take place only in the manner and under the conditions
prescribed by the statute or the charter or the articles of incorporation.

Central Textile Mills v. NWPC (Aug. 7, 1996)

As a trust fund, this money is still withdrawable by any of the subscribers at any time before the
issuance of the corresponding shares of stock, unless there is a presubscription agreement to the contrary,
which apparently is not present in the instant case. Consequently, if a certi�cate of increase has not yet
been issued by the SEC, the subscribers to the unauthorized issuance are not to be deemed as stockholders
possessed of such legal rights as the rights to vote and dividends.

Ong Yong v. Tiu G.R. 144476; 4/8/2003

The Trust Fund Doctrine, first enunciated by this Court in the 1923 case of Philippine Trust Co.
vs. Rivera , provides that subscriptions to the capital stock of a corporation constitute a fund to which the
creditors have a right to look for the satisfaction of their claims. This doctrine is the underlying principle in
the procedure for the distribution of capital assets, embodied in the Corporation Code, which allows the
distribution of corporate capital only in three instances: (1) amendment of the Articles of Incorporation to
reduce the authorized capital stock, (2) purchase of redeemable shares by the corporation, regardless of the
existence of unrestricted retained earnings, and (3) dissolution and eventual liquidation of the corporation.

Halley v. Printwell, Inc. G.R. 157549; May 30, 2011

It is notable, too, that the petitioner and her co-stockholders did not support their allegation of
complete payment of their respective subscriptions with the stock and transfer book of BMPI. Indeed,
 books and records of a corporation (including the stock and transfer book) are admissible in evidence in
favor of or against the corporation and its members to prove the corporate acts, its financial status and other
matters (like the status of the stockholders), and are ordinarily the best evidence of corporate acts and
proceedings. Specifically, a stock and transfer book is necessary as a measure of precaution, expediency,
and convenience because it provides the only certain and accurate method of establishing the various
corporate acts and transactions and of showing the ownership of stock and like matters. That she tendered
no explanation why the stock and transfer book was not presented warrants the inference that the book did
not reflect the actual payment of her subscription. Nor did the petitioner present any certificate of stock
issued by BMPI to her. Such a certificate covering her subscription might have been a reliable evidence of
full payment of the subscriptions, considering that under Section 65 of the Corporation C o d e a certificate
of stock issues only to a subscriber who has fully paid his subscription. The lack of any explanation for the
absence of a stock certificate in her favor likewise warrants an unfavorable inference on the issue of
payment.

C. Doctrine of Equality of Shares – Sec. 6, par.5

Castillo v. Balinghasay Oct. 18, 2004
Section 6 of the Corporation Code being deemed written into Article VII of the Articles of
Incorporation of MCPI, it necessarily follows that unless Class "B" shares of MCPI stocks
are clearly categorized to be "preferred" or "redeemable" shares, the holders of said Class
"B" shares may not be deprived of their voting rights. Note that there is nothing in the
Articles of Incorporation nor an iota of evidence on record to show that Class "B" shares
were categorized as either "preferred" or "redeemable" shares. The only possible
conclusion is that Class "B" shares fall under neither category and thus, under the law, are
allowed to exercise voting rights.

D. Classification of Shares – Rationale

- Sec. 6, 7, 8, 9
a) Par value shares
b) No par value shares – Sec. 62;
Delpher Trades Corp. v. IAC (1988) 157 SCRA 349
"A no-par value share does not purport to represent any stated proportionate interest in
the capital stock measured by value, but only an aliquot part of the whole number of such shares of the issuing
corporation. The holder of no-par shares may see from the certificate itself that he is only an aliquot sharer
in the assets of the corporation. But this character of proportionate interest is not hidden beneath a false
appearance of a given sum in money, as in the case of par value shares.

- issued price
- ―deemed fully paid and non-assessable‖
c) Common shares
d) Preferred shares – types
e) Redeemable shares
f) Founders’ shares
g) Treasury shares
e) Voting shares
f) Non-voting shares

E. OTHER CASES ---

 Republic Planters Bank v. Agana ( GR 51765; Mar. 3, 1997)
Preferences granted to preferred stockholders, moreover, do not give them a lien upon the property
of the corporation nor make them creditors of the corporation, the right of the former being always
subordinate to the latter. Dividends are thus payable only when there are profits earned by the corporation
and as a general rule, even if there are existing profits, the board of directors has the discretion to determine
whether or not dividends are to be declared.
WHILE THE STOCK CERTIFICATE IN CASE AT BAR DOES NOT ALLOW
REDEMPTION, THE OPTION TO DO SO WAS CLEARLY VESTED IN
THE PETITIONER BANK

COCOFED v. RP. (GR Nos. 177857-58; 178193; 180705

promulgated Sept. 17, 2009) re conversion of shares
Thus, the loss of four (4) board seats would not in reality prejudice the rights and interests of the
holders of the preferred shares. And such loss is compensated by the tremendous financial gains and
benefits and enormous protection from loss or deterioration of the value of the CIIF SMC shares. The
advantages accorded to the preferred shares are undeniable, namely: the significant premium in the price
being offered; the preference enjoyed in the dividends as well as in the liquidation of assets; and the voting
rights still retained by preferred shares in major corporate actions. All things considered, conversion to
preferred shares would best serve the interests and rights of the government or the eventual owner of the
CIIF SMC shares.

F. STOCKS & STOCKHOLDERS

Sec. 60 -73, 137, 90
1) Consideration for shares -----
Garcia v. Lim Chu Sing 59 Phil. 562 (1934)
A stockholder's indebtedness to banking corporation cannot be compensated with the amount of
his shares in the same institution, there being no relation of creditor and debtor with regard to such shares.

Apodaca v. NLRC 172 SCRA 442

The unpaid subscriptions are not due and payable until a call is made by the corporation for
payment. Private respondents have not presented a resolution of the board of directors of respondent
corporation calling for the payment of the unpaid subscriptions. It does not even appear that a notice of
such call has been sent to petitioner by the respondent corporation.

National Exchange vs Dexter 51 Phil. 601 (1928)

Under the provisions above cited, a stipulation in a stock subscription to the effect that the
subscription shall be payable from the first dividends to be paid on the shares is unlawful in so far as it
purports to relieve the subscriber from liability to be sued; and the subscriber is liable for the par value of
the stock to the same extent as if such stipulation had not been inserted in the contract.

2) Unpaid subscriptions -----

Velasco vs Poizat 37 Phil. 802 (1918)
When insolvency supervenes upon a corporation and the court assumes jurisdiction to wind it up,
all unpaid stock subscriptions become payable on demand, and are at once recoverable in an action
instituted by the assignee or receiver appointed by the court.
Lingayen Gulf Electric vs Baltazar 93 Phil. 404 (1953)
In order to effect the release of a stockholder from his stock subscription, there must be unanimous
consent of the stockholders of the corporation. From this rule, however, there are exceptions: "Where it is
given pursuant to a bona fide compromise, or to set off a debt due from the corporation, a release,
supported by consideration, will be effectual as against dissenting stockholders and subsequent and existing
creditors. A release which might originally have been held invalid may be sustained after a considerable
lapse of time."

Da Silva vs Aboitiz 44 Phil. 755 (1923)

The defendant corporation being an artificial entity created by virtue of the Corporation Law, Act
No. 1459, and the plaintiff having failed to pay a part of his subscription, the board of directors not only
made use of its discretionary power granted by section 2 of said Act in declaring his subscription due and
his shares delinquent, and ordering the sale thereof, as their value was not paid by him, but far from
violating the provisions of section 46 of the by-laws of the corporation in not applying a part of the profits
obtained by the corporation upon the payment of said subscription, it complied with said provision, which
expressly prohibits the payment of dividends to a shareholder whose subscription was not fully paid up.

Lumanlan vs Cura 59 Phil. 746 (1934)

The Corporation Law clearly recognizes that a stock subscription is a subsisting liability from the
time the subscription is made, since it requires the subscriber to pay interest quarterly from that date unless
he is relieved from such liability by the by- laws of the corporation. The subscribed by him as he would be
to pay any other debt, and the right of the company to demand payment is no less incontestable.

China Banking Corp. v. CA GR 117604 (Mar. 26, 1997)

Sec. 63 of the Corporation Code which provides that "no shares of stock against which the
corporation holds any unpaid claim shall be transferable in the books of the corporation" cannot be utilized
by VGCCI. The term "unpaid claim" refers to "any unpaid claim arising from unpaid subscription, and not
to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other
transaction." In the case at bar, the subscription for the share in question has been fully paid as evidenced
by the issuance of Membership Certi�cate No. 1219. What Calapatia owed the corporation were merely
the monthly dues. Hence, the aforequoted provision does not apply.

3) Rights of Unpaid Shares ---- Indivisibility of Subscription

Fua Cun v. Summers, et al. 44 Phil. 704 (1923)
In the absence of special agreement to the contrary, a subscriber for a certain number of shares of
stock does not, upon payment of one-half of the subscription price, become entitled to the issuance of
certificates for one-half the number of shares subscribed for; the subscriber's right consists only in an equity
entitling him to a certificate for the total number of shares subscribed for by him upon payment of the
remaining portion of the subscription price.

Baltazar v. Lingayen Gulf 14 SCRA 522 (1965)

If a stockholder, in a stock corporation, subscribes to a certain number of shares of stock, and
makes partial payments for which he is issued certificates of stock, he is entitled to vote the latter,
notwithstanding the fact that he has not paid the balance of his subscription, which has been called for
payment or declared delinquent.

Nava v. Peers Mktg. Corp. 76 SCRA 65 (1976)

We hold that the transfer made by Po to Nava is not the "alienation, sale, or transfer of stock" that
is supposed to be recorded in the stock and transfer book, as contemplated in section 52 of the Corporation
Law. As a rule, the shares which may be alienated are those which are covered by certificates of stock, as
shown in the following provisions of the Corporation Law and as intimated in Hager vs. Bryan.
 As already stressed, in this case no stock certificate was issued to Po. Without the stock certificate,
which is the evidence of ownership of corporate stock, the assignment of corporate shares is effective only
between the parties to the transaction
Fua Cun doctrine prevails. Baltazar abandoned.

4) Nature/Function of Stock Certificates ----

Tan v. SEC (206 SCRA 740)
A by-law which prohibits a transfer of stock without the consent or approval of all the
stockholders or of the president or board of directors is illegal as constituting undue limitation on the right
of ownership and in restraint of trade.
Following the doctrine enunciated in the case of Tuazon v. La Provisora Filipina, where this Court
held, that: "But delivery is not essential where it appears that the persons sought to be held as stockholders
are of�cers of the corporation, and have the custody of the stock book . . ."

5) Proof of Ownership of Shares ----

Nautica Canning Corp. Yumul GR 164588 (Oct. 19, 2005)
In the case at bar, the SEC and the Court of Appeals correctly found Yumul to be a
stockholder of Nautica, of one share of stock recorded in Yumul's name, although allegedly
held in trust for Dee. Nautica's Articles of Incorporation and By-laws, as well as the General Information Sheet �led with
the SEC indicated that Yumul was an incorporator and subscriber of one share. 16 Even granting that there
was an agreement between Yumul and Dee whereby the former is holding the share in trust for Dee, the
same is binding only as between them. From the corporation's vantage point, Yumul is its stockholder with
one share, considering that there is no showing that Yumul transferred his subscription to Dee, the alleged
real owner of the share, after Nautica's incorporation.

Lao v. Lao GR 170585 (Oct 6, 2008)

The mere inclusion as shareholder of petitioners in the General Information Sheet of PFSC is
insuf�cient proof that they are shareholders of the company.
Petitioners bank heavily on the General Information Sheet submitted by PFSC to the SEC in
which they were named as shareholders of PFSC. They claim that respondent is now estopped from
contesting the General Information Sheet.
While it may be true that petitioners were named as shareholders in the General Information Sheet
submitted to the SEC, that document alone does not conclusively prove that they are shareholders of PFSC.

Borgona v. Abra Valley GR 204089 (July 29, 2015)

A stock certificate is prima facie evidence that the holder is a shareholder of the corporation, 28
but the possession of the certificate is not the sole determining factor of one's stock ownership. A certificate
of stock is merely: —
. . . 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.
To establish their stock ownership, the petitioners actually turned over to the trial court through
their Compliance and Manifestation submitted on April 7, 2010 the various documents showing their
ownership of Abra Valley's shares
6) Restrictions on Transfer of Shares ---
Fleischer v. Botica Nolasco (1925) 47 Phil. 583
A by-law of a corporation cannot take away or abridge the substantial rights of stockholders.
Courts will carefully scrutinize any attempt in the on a part of a corporation to impose restrictions or
limitations upon the right of stockholders to sell and assign their stock. Restrictions cannot be imposed
upon a stockholder by a by-law without statutory or charter authority. The owner of a corporate stock has
the same uncontrollable right to sell or alienate, which attaches to the ownership of any other species of
property.

Thomson v. CA (298 SCRA 280)

Private respondent does not insist nor intend to transfer the club membership in its name but rather
to its designated nominee. The Manila Polo Club does not necessarily prohibit the transfer of proprietary
shares by its members. The Club only restricts membership to deserving applicants in accordance with its
rules, when the amended Articles of Incorporation states that: "No transfer shall be valid except between
the parties, and shall be registered in the Membership Book unless made in accordance with these Articles
and the By-Laws." Thus, as between parties herein, there is no question that a transfer is feasible.
Moreover, authority granted to a corporation to regulate the transfer of its stock does not empower it to
restrict the right of a stockholder to transfer his shares, but merely authorizes the adoption of regulations as
to the formalities and procedure to be followed in effecting transfer. In this case, the petitioner was the
nominee of the private respondent to hold the share and enjoy the privileges of the club. But upon the
expiration of petitioner's employment as of�cer and consultant of AmCham, the incentives that go with the
position, including use of the MPC share, also ceased to exist.

Rural Bank of Salinas, Inc. v. CA (210 SCRA 510)

The right of a transferee/assignee to have stocks transferred to his name is an inherent right
�owing from his ownership of the stocks. Thus: "Whenever a corporation refuses to transfer and register
stock in cases like the present, mandamus will be to compel the of�cers of the corporation to transfer said
stock in the books of the corporation

7) Validity of Transfers / Registration of Shares

Razon v. IAC GR 74306 (March 16, 1992)
The law is clear that in order for a transfer of stock certi�cate to be effective, the certi�cate must
be properly indorsed and that title to such certi�cate of stock is vested in the transferee by the delivery of
the duly indorsed certi�cate of stock. (Section 35, Corporation Code) Since the certi�cate of stock
covering the questioned 1,5000 shares of stock registered in the name of the late Juan Chuidian was never
indorsed to the petitioner, the inevitable conclusion is that the questioned shares of stock belong to
Chuidian. The petitioner's asseveration that he did not require an indorsement of the certificate of stock in
view of his intimate friendship with the late Juan Chuidian can not overcome the failure to follow the
procedure required by law or the proper conduct of business even among friends. To reiterate, indorsement
of the certi�cate of stock is a mandatory requirement of law for an effective transfer of a certificate of
stock.

Torres v. CA (278 SCRA 793)

It is precisel the brewing family discord between Judge Torres and private respondents — his
nephew and nieces that should have placed Judge Torres on his guard. He should have been more careful in
ensuring that his actions (particularly the assignment of qualifying shares to his nominees) comply with the
requirements of the law. Petitioners cannot use the �imsy excuse that it would have been a vain attempt to
force the incumbent corporate secretary to register the aforestated assignments in the stock and transfer
book because the latter belonged to the opposite faction. It is the corporate secretary's duty and obligation
to register valid transfers of stocks and if said corporate of�cer refuses to comply, the transferor-
 stockholder may rightfully bring suit to compel performance. In other words, there are remedies within the
law that petitioners could have availed of, instead of taking the law in their own hands, as the cliche goes.

Rural Bank of Lipa GR 124535 (Sept. 28, 2001)

We have uniformly held that for a valid transfer of stocks, there must be strict compliance with the
mode of transfer prescribed by law. The requirements are: (a) There must be delivery of the stock
certificate; (b) The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally
authorized to make the transfer; and (c) To be valid against third parties, the transfer must be recorded in
the books of the corporation.
While it may be true that there was an assignment of private respondents' shares to the petitioners,
said assignment was not sufficient to effect the transfer of shares since there was no endorsement of the
certificates of stock by the owners, their attorneys-in-fact or any other person legally authorized to make
the transfer. Moreover, petitioners admit that the assignment of shares was not coupled with delivery, the
absence of which is a fatal defect. The rule is that the delivery of the stock certificate duly endorsed by the
owner is the operative act of transfer of shares from the lawful owner to the transferee. Title may be vested
in the transferee only by delivery of the duly indorsed certificate of stock. . . . Consequently, the petitioners,
as mere assignees, cannot enjoy the status of a stockholder, cannot vote nor be voted for, and will not be
entitled to dividends, insofar as the assigned shares are concerned. Parenthetically, the private respondents
cannot, as yet, be deprived of their rights as stockholders, until and unless the issue of ownership and
transfer of the shares in question is resolved with finality.

Rivera v. Florendo 144 SCRA 647 (1986)

CANNOT BE THE SUBJECT OF MANDAMUS ON THE STRENGTH OF MERE
INDORSEMENT. — It is evident that mandamus will not lie in the instant case where the shares of stock
in question are not even indorsed by the registered owner Rivera who is specifically resisting the
registration thereof in the books of the corporation. Under the above ruling, even the shares of stock which
were purchased by private respondents from the other incorporators cannot also be the subject of
mandamus on the strength of mere indorsement of the supposed owners of said shares in the absence of
express instructions from them. The rights of the parties will have to be threshed out in an ordinary action.
Lim Tay v. CA GR 126891 (Aug. 5, 1998)
There is no showing that petitioner made any attempt to foreclose or sell the shares through public
or private auction, as stipulated in the contracts of pledge and as required by Article 2112 of the Civil Code.
Therefore, ownership of the shares could not have passed to him. The pledger remains the owner during the
pendency of the pledge and prior to foreclosure and sale, as explicitly provided by Article 2103 of the same
Code: "Unless the thing pledged is expropriated, the debtor continues to be the owner thereof.
Nevertheless, the creditor may bring the actions which pertain to the owner of the thing pledged in order to
recover it from, or defend it against a third person."

Ponce v. Alsons Cement GR 139802 ( Dec. 10, 2002)

— Pursuant to Sec. 63 of the Corporation Code, a transfer of shares of stock not recorded in the
stock and transfer book of the corporation is non-existent as far as the corporation is concerned. As
between the corporation on the one hand, and its shareholders and third persons on the other, the
corporation looks only to its books for the purpose of determining who its shareholders are. It is only when
the transfer has been recorded in the stock and transfer book that a corporation may rightfully regard the
transferee as one of its stockholders. From this time, the consequent obligation on the part of the
corporation to recognize such rights as it is mandated by law to recognize arises. Hence, without such
recording, the transferee may not be regarded by the corporation as one among its stockholders and the
corporation may legally refuse the issuance of stock certi�cates in the name of the transferee even when
there has been compliance with the requirements of Section 64 of the Corporation Code.
Rural Bank of Salinas, Inc. v. CA (210 SCRA 510)
(Supra)

Hager v. Bryan 19 PHIL 138 (1911)

As a general rule, and especially under the above-cited statute, as between the corporation on the
one hand and its shareholders on the other, the corporation looks only to its books for the purpose of
determining who its shareholders are, so that a mere indorsee of a, certificate of stock, claiming to be the
owner, will not necessarily be recognized as such by the corporation and its of�cers, in the absence of
express instructions of the registered owner to make such transfer to the indorsee, or a power of attorney
authorizing such transfer.

Bitong v. CA 292 SCRA 503

FORMAL CERTIFICATE OF STOCK COULD NOT BE CONSIDERED ISSUED IN
CONTEMPLATION OF LAW UNLESS SIGNED BY THE PRESIDENT AND COUNTERSIGNED BY
THE SECRETARY OR ASSISTANT SECRETARY; CASE AT BAR.
— Based on the admission of petitioner, there is no truth to the statement written in Certificate of
Stock No. 008 that the same was issued and signed on 95 July 1983 by its duly authorized officers
specifically the President and Corporate Secretary because the actual date of signing thereof was 17 March
1989. The rule is that the endorsement of the certificate of stock by the owner or his attorney-in-fact or any
other person legally authorized to make the transfer shall be sufficient to effect the transfer of shares only if
the same is coupled with delivery. The delivery of the stock certificate duly endorsed by the owner is the
operative act of transfer of shares from the lawful owner to the new transferee. Thus, for a valid transfer of
stocks, the requirements are as follows: (a) There must be delivery of the stock certificate; (b) The
certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to
make the transfer; and, (c) to be valid against third parties, the transfer must be recorded in the books of the
corporation. At most, in the instant case, petitioner has satisfied only the third requirement. Compliance
with the first two requisites has not been clearly and sufficiently shown.

Abejo v. De la Cruz 149 SCRA 654 (1987)

The dispute therefore clearly falls within the general classi�cation of cases within the SEC's
original and exclusive jurisdiction to hear and decide, under the aforequoted governing section 5 of the law.
Insofar as the Bragas and their corporate secretary's refusal on behalf of the corporation Pocket Bell to
record the transfer of the 56% majority shares to Telectronics may be deemed a device or scheme
amounting to fraud and misrepresentation employed by them to keep themselves in control of the
corporation to the detriment of Telectronics (as buyer and substantial investor in the corporate stock) and
the Abejos (as substantial stockholders-sellers), the case falls under paragraph (a). The dispute is likewise
an intra-corporate controversy between and among the majority and minority stockholders as to the transfer
and disposition of the controlling shares of the corporation, falling under paragraph (b).

Lee v. Trocino, et al. GR 164648 (June 19, 2009)

What petitioner appears to do is to attempt to evade the effects of the sale of his shares of stock to
the buyers at the execution sale, which sale immediately transferred title thereto to the buyers. It should be
restated that since there is no right to redeem personal property, the rights of ownership are vested to the
purchaser at the foreclosure (or execution) sale and are not entangled in any suspensive condition that is
implicit in a redemptive period. 9 Besides, the Resolution of the First Division of the Court dated
November 13, 2002 refers to or affects only real and personal property, speci�cally, the Makati Sports
Club, Inc. shares of stock belonging to Urban Bank; it cannot extend to the property or shares of stock
subject of the present petition, which are nowhere mentioned in the said Resolution.
8) Unauthorized Transfers ----
Santamaria vs. Hongkong 89 Phil. 780 (1951)
There is no question that, in this case, plaintiff made the negotiation of the certi�cate of stock to
other parties possible and the con�dence she placed in R. J. Campos & Co., Inc. made the wrong done
possible. This was the proximate cause of the damage suffered by her. She is, therefore, estopped from
claiming further title to or interest therein as against a bona fide pledgee or transferee thereof, for it is a
well-known rule that a bona �de pledgee or transferree of a stock from the apparent owner is not
chargeable with knowledge of the limitations placed on it by the real owner, or of any secret agreement
relating to the use which might be made of the stock by the holder

De los Santos vs. McGrath 96 Phil. 577(1955)

RIGHTS OF REGISTERED STOCKHOLDERS SUPERIOR TO THAT OF PURCHASER ON
NOTICE OF FACTS INDICATING NEED OF INQUIRING INTO REGULARLY OF SALES. — Where
the plaintiffs were, at the time of the alleged sales in their favor of the shares stock in question, aware of
sufficient facts to put them on notice of the need of inquiring into the regularity of the transactions and the
title of the opposed vendors, they can not validly claim, against the registered stockholder, the statue of
purchasers in good faith.

Guy v. Guy GR 189486 (Sept. 5, 2012)

the stock certi�cates which Gilbert endorsed in blank were in the undisturbed possession of his
parents who were the bene�cial owners thereof and who themselves as such owners caused the transfer in
their names. Indeed, even if Gilbert's parents were not the bene�cial owners, an endorsement in blank of
the stock certi�cates coupled with its delivery, entitles the holder thereof to demand the transfer of said
stock certi�cates in his name from the issuing corporation.

9) Collateral Transfers ---

Uson v. Diosomito (61 Phil. 535; 1935)
The right of the owner of the shares of stock of a Philippine corporation to transfer the name by
delivery of the certificate, whether it be regarded as statutory or common law right, is limited and restricted
by the express provision that "no transfer, however, shall be valid, except as between the parties, until the
transfer is entered and noted upon the books of the corporation." Therefore, an attachment lien prevails
over a prior unregistered bona fide stock transfer.

Chua Guan vs. Samahang Magsasaka 62 Phil. 473 (1935)

The registration of the chattel mortgage in the of�ce of the corporation was not necessary and had
no legal effect. (Monserrat vs. Ceron, 58 Phil., 469) The long mooted question as to whether or not shares
of a corporation could be hypothecated by placing a chattel mortgage on the certi�cate representing such
shares we now regard as settled by the case above cited of Monserrat vs. Ceron.

Chemphil Export & Import v. CA (Dec. 12, 1995)

The attachment lien acquired by the consortium is valid and effective. Both the Revised Rules of
Court and the Corporation Code do not require annotation in the corporation's stock and transfer books for
the attachment of shares of stock to be valid and binding on the corporation and third-party. Section 74 of
the Corporation Code enumerates the instances where registration in the stock and transfer books of a
corporation is proper. Are attachments of shares of stock included in the term "transfer" as provided in Sec.
63 of the Corporation Code? We rule in the negative. As succinctly declared in the case of Monserrat v.
Ceron , "chattel mortgage over shares of stock need not be registered in the corporation's stock and transfer
book inasmuch as chattel mortgage over shares of stock does not involve a "transfer of shares," and that
only absolute transfers of shares of stock are required to be recorded in the corporation's stock and transfer
book in order to have "force and effect as against third persons."
lX. PRE-EMPTIVE RIGHT – Sec. 39 and 102
Purpose; when given; waiver
Distinguish from Right of First Refusal.
Distinguish from pre-emptive rt in a close corp
Makati Sports Club, Inc. v. Cheng GR 178523 (June 16, 2010)
Therefore, Mc Foods properly complied with the requirement of Section 30 (e) of the Amended
By-Laws on MSCI's pre-emptive rights. Without doubt, MSCI failed to repurchase Mc Foods' Class "A"
share within the thirty (30) day pre-emptive period as provided by the Amended By-Laws. It was only on
January 29, 1996, or 32 days afterDecember 28, 1995, when MSCI received Mc Foods' letter of offer to sell
the share, that Mc Foods and Hodreal executed the Deed of Absolute Sale over the said share of stock.
While Hodreal had the right to demand the immediate execution of the Deed of Absolute Sale after his full
payment of Mc Foods' Class "A" share, he did not do so. Perhaps, he wanted to wait for Mc Foods to �rst
comply with the pre-emptive requirement as set forth in the Amended By-Laws. Neither can MSCI argue
that Mc Foods was not yet a registered owner of the share of stock when the latter offered it for resale, in
order to void the transfer from Mc Foods to Hodreal.

X. APPRAISAL RIGHT – Secs. 81- 86; relate to Sec. 42 and 105

Marcus vs. Macy
In the case at bar, as we have seen, the appellant as the owner of respondent's common stock
objects to corporate action which granted to previously authorized preferred stock the right to vote upon
matters as to which the common stock, prior to such action, had the exclusive right to vote. Our conclusion
is that, by thus limiting the voting power of the appellant's common shares to a proportionate extent
measured at a given time by the number of preferred shares then issued and outstanding, the corporate
action to which the appellant has objected was of such a character as to afford her a legal basis to invoke
the procedure prescribed by paragraph (d) of subdivision 9 of section 38, as a means to accomplish the
appraisal of her stock and payment therefor.

Turner v. Lorenzo Shipping GR 157479 Nov. 24, 2010

Notwithstanding the foregoing, no payment shall be made to any dissenting stockholder unless the
corporation has unrestricted retained earnings in its books to cover the payment. In case the corporation has
no available unrestricted retained earnings in its books, Section 83 of the Corporation Code provides that if
the dissenting stockholder is not paid the value of his shares within 30 days after the award, his voting and
dividend rights shall immediately be restored
 BUSORG2 OUTLINE 6 (2018)

Xl. CORPORATE POWERS

1) Express, Implied, Inherent - Sections 36 to 45

Y-1 Leisure v, Yu GR 207161; Sept. 8, 2015

Bearing in mind that fraud is not required to apply the business-enterprise transfer, the
next issue to be resolved is whether the petitioners indeed became a continuation of MADCI's
business. Synthesizing Section 40 and the previous rulings of this Court, it is apparent that the
business-enterprise transfer rule applies when two requisites concur: (a) the transferor
corporation sells all or substantially all of its assets to another entity; and (b) the transferee
corporation continues the business of the transferor corporation. Both requisites are present in
this case.

2) Ultra Vires Doctrine --- Sec. 45; Legal Consequences

RP v. Acoje Mining (1963) 7 SCRA 631

While as a rule an ultra vires act is one committed outside the object for which a
corporation is created as de�ned by law of its organization and therefore beyond the powers
conferred upon it by law (19 C.J.S., Section 965, p. 419), there are however certain corporate
acts that may be performed outside of the scope of the powers expressly conferred if they are
necessary to promote the interest or welfare of the corporation, such as the establishment, in the
case at bar of a local post of�ce in a mining camp which is far removed from the postal facilities
or means of communication accorded to people living in a city or municipality.

National Power Corp. v. Vera (1989) 170 SCRA 721

In determining whether or not an NPC act falls within the purview of the above provision,
the Court must decide whether or not a logical and necessary relation exists between the act
questioned and the corporate purpose expressed in the NPC charter. For if that act is one which
is lawful in itself and not otherwise prohibited, and is done for the purpose of serving corporate
ends, and reasonably contributes to the promotion of those ends in a substantial and not in a
remote and fanciful sense, it may be fairly considered within the corporation's charter powers.
The Court holds that NPC is empowered under its Charter to undertake such services, it being
reasonably necessary to the operation and maintenance of the power plant.

Govt. of the P.I. v. El Hogar Filipino 50 Phil. 399

The circumstance that the building so erected by the association has o�ce
accommodations in excess of its own needs and that such o�ces are rented to the public by the
association for its bene�t and pro�t does not make the ownership and holding of such o�ce
building an ultra vires act. Having acquired the property under lawful authority, the corporation is
entitled to the full beneficial use thereof.
The administration of property in the manner described is more befitting to the business
of a real estate agent or trust company than to the business of a building and loan association.
The practice to which this criticism is directed relates of course solely to the management and
administration of properties which are not mortgaged to the association. The circumstance that
the owner of the property may have been required to subscribe to one or more shares of the
association with a view to qualifying him to receive this service is of no signi�cance. It is a
general rule of law that corporations possess only such express powers as are actually conferred
and such implied powers as are reasonably necessary to the exercise of the express powers. The
management and administration of the property of the shareholders of the corporation is not
 expressly authorized by law, and we are unable to see that, upon any fair construction of the law,
these activities are necessary to the exercise of any of the granted powers. The corporation, upon
the point now under criticism, has clearly extended itself beyond the legitimate range of its
powers. But it does not result that the dissolution of the corporation is in order, and it will merely
be enjoined from further activities of this sort.

Pirovano, et al v. De la Rama (1954) 96 Phil. 335

Where the corporation was given broad and almost unlimited powers to carry out the
purposes for which it was organized among them, to aid in any other manner any person in the
affairs and prosperity of whom it has a lawful interest, a donation made to the heirs of its late
president in recognition of the valuable services rendered by the latter which had immensely
contributed to its growth, comes within this broad grant of power and can not be considered an
ultra vires act.

Harden, et al v. Benguet (1933) 58 Phil. 141

Inasmuch as the Corporation Law contains, in section 190 (A), provisions fully penalizing
the violation of subsection 5 of section 13 of Act No. 1459, — which prohibits the acquisition by
one mining corporation of any interest in another, — and inasmuch as these provisions have
been enacted in the exercise of the general police powers of the Government, it results that,
where one mining corporation, the shareholders of the latter cannot maintain an action to annul
the contract by which such interest was acquired. The remedy must be sought in a criminal
proceeding or quo warranto action, under section 190 (A), instituted by the Government. Until
thus assailed in a direct proceeding the contract by which the interest was acquired will be treated
as valid, as between the parties.

Bissel v. Michigan Southern 22 NY 258; 1860

Doctrine of theoretical perfection - Every violation of their charter of assumption of
unauthorized power on the part of their officers, although with the full approbation of their
directors, is to be considered the act of the officers, and is not to prejudice the corporation itself.
There would be no possibility of ever convicting a corporation of exceeding its powers.
The contract of the defendants to transport the plaintiffs from Chicago to Toledo was
illegal and void, they having, as we have seen, no power under their charters to enter into the
engagement for running their cars on joint account between those two places. It does not follow,
however, that they are not liable to the plaintiff in this action. The plaintiff's claim, rests not upon
his contract, but upon the right which every man has to be protected from injury through the
carelessness of others, whether artificial or natural person.

Gokongwei Jr. v. SEC, et al. 89 SCRA 336 (1979)

As stated by respondent corporation, the purchase of beer manufacturing facilities by
SMC was an investment in the same business stated as its main purpose in its Articles of
Incorporation, which is to manufacture and market beer.
Assuming arguendo that the Board of Directors of SMC had no authority to make the
assailed investment, there is no question that a corporation, like an individual, may ratify and
thereby render binding upon it the originally unauthorized acts of its officers or other
agents.

XlI. CONTROL & MANAGEMENT

1) Board of Directors/Trustees

a) Sections 23, 27 (qualifications/disqualifications)

Ramirez v. Orientalist Co. & Fernandez 38 Phil 634

Where a corporate contract has been effected with the approval of the board of directors,
a resolution adopted at a meeting of stockholders refusing to recognize the contract or
repudiating it is without effect.
In the light of all the circumstances of the case, we are of the opinion that the contracts in
question were thus inferentially approved by the company's board of directors and that the
company is bound unless the subsequent failure of the stockholders to approve said contracts
had the effect of abrogating the liability thus created.
Both upon principle and authority it is clear that the action of the stockholders, whatever
its character, must be ignore. The functions of the stockholders of a corporation are, it must be
remembered, of a limited nature The theory of a corporation is that the stockholders may have all
the pro�ts but shall turn over the complete management of the enterprise to their representatives
and agents, called directors.

Expert Travel & Tours, Inc v. CA 459 SCRA 147

As gleaned from the aforequoted certi�cation, there was no allegation that Atty.
Aguinaldo had been authorized to execute the certi�cate of non-forum shopping by the
respondent's Board of Directors; moreover, no such board resolution was appended thereto or
incorporated therein.
While Atty. Aguinaldo is the resident agent of the respondent in the Philippines, this does
not mean that he is authorized to execute the requisite certi�cation against forum shopping.
Under Section 127, in relation to Section 128 of the Corporation Code, the authority of the
resident agent of a foreign corporation with license to do business in the Philippines is to receive,
for and in behalf of the foreign corporation, services and other legal processes in all actions and
other legal proceedings against such corporation,
But then, in the same af�davit, Suk Kyoo Kim declared that the respondent "do[es] not
keep a written copy of the aforesaid Resolution" because no records of board resolutions
approved during teleconferences were kept. This belied the respondent's earlier allegation in its
February 10, 2000 motion for extension of time to submit the questioned resolution that it was in
the custody of its main of�ce in Korea.
-- RA 8792 and SEC MEMO Circ. 15 (Nov. 30, 2001)

Citibank NA v. Chua 220 SCRA 75

In the corporate hierarchy, there are three levels of control: (1) the board of directors,
which is responsible for corporate policies and the general management of the business affairs of
the corporation; (2) the of�cers, who in theory execute the policies laid down by the board, but in
practice often have wide latitude in determining the course of business operations; and (3) the
stockholders who have the residual power over fundamental corporate changes, like
amendments of the articles of incorporation. However, just as a natural person may authorize
another to do certain acts in his behalf, so may the board of directors of a corporation validly
delegate some of its functions to individual of�cers or agents appointed by it.
It is also error on the part of the Court of Appeals to state that the power of attorney given
to the four (4) Citibank employees is not a special power of attorney as required in paragraph 3,
Article 1878 of the Civil Code and Section 1 (a), Rule 20 of the Rules of Court. In the case of
Tropical Homes, Inc. vs. Villaluz , the special power of attorney executed by petitioner bank
therein contained the following pertinent terms — "to appear for and in its behalf in the above-
entitled case in all circumstances where its appearance is required and to bind it in all said
instances". The court ruled that: "Although the power of attorney in question does not specifically
mention the authority of petitioner's counsel to appear and bind the petitioner at the pre-trial
conference, the terms of said power of attorney are comprehensive enough as to include the
authority to appear for the petitioner at the pre-trial conference

Boyer-Roxas v. CA 211 SCRA 470

We find nothing irregular in the adoption of the Resolution by the Board of Directors. The
petitioners' stay within the questioned properties was merely by tolerance of the respondent
corporation in deference to the wishes of Eufrocino Roxas, who during his lifetime, controlled and
managed the corporation. Eufrocino Roxas' actions could not have bound the corporation forever.
The petitioners have not cited any provision of the corporation by-laws or any resolution or act of
the Board of Directors which authorized Eufrocino Roxas to allow them to stay within the
company premises forever. We rule that in the absence of any existing contract between the
petitioners and the respondent corporation, the corporation may elect to eject the petitioners at
any time it wishes for the benefit and interest of the respondent corporation.

Govt. of P. I. v. El Hogar Filipino 50 Phil. 399 (1927)

The directors of a building and loan association may lawfully �ll vacancies occurring in
the board of directors in conformity with a by-law to this effect. Such o�cials, as well as the
original directors, hold until quali�cation of their successors.

Gokongwei v. SEC 89 SCRA 336 (1979)

DOCTRINE OF "CORPORATE OPPORTUNITY". — Corporate officers are not permitted
to the use their position of trust and confidence to further their interests. The doctrine of
"corporate opportunity" is precisely a recognition by the courts that the fiduciary standards could
not be upheld where the fiduciary was for two entities with competing interests. This doctrine
rests fundamentally of the unfairness, in particular circumstances, of an officer or director taking
advantage of an opportunity for his own personal profit when the interest of the corporation justly
calls for protection.

b) Non-stock corp. – Sec. 92

c) Close corp. - Secs. 97 (par.1, no.2), 97 (par.2), Sec.104

d) Special corporations – Educational --- Sec. 108

Religious – Sec. 110-113, Sec. 116 (6)

e) Meetings – Sec. 25, 49, 53, 54

Close corp. – Sec. 97(3), 101

f) Elections of DIR/TEES - Sec. 24, 26, 27

Stock and non-stock corp – manner of voting

Removal – Sec. 28
Vacancy – Sec. 29; 111(4) and 114 on corp. sole

Rev. Ao-as v. CA June 20, 2006

 Refusal to allow stockholders (or members of a non-stock corporation) to examine books
of the company is not a ground for appointing a receiver (or creating a management committee)
since there are other adequate remedies, such as a writ of mandamus. 24 Misconduct of
corporate directors or other o�cers is not a ground for the appointment ofa receiver where there
are one or more adequate legal action against the o�cers, where they are solvent, or other
remedies.
In any case, the stipulation in the By-Laws is not contrary to the Corporation Code.
Section 89 of the Corporation Code pertaining to non-stock corporations provides that "(t)he right
of the members of any class or classes (of a non-stock corporation) to vote may be limited,
broadened or denied to the extent speci�ed in the articles of incorporation or the by-laws." 31
This is an exception to Section 6 of the same code where it is provided that "no share may be
deprived of voting rights except those classi�ed and issued as 'preferred' or 'redeemable' shares,
unless otherwise provided in this Code." 32 The stipulation in the By-Laws providing for the
election of the Board of Directors by districts is a form of limitation on the voting rights of the
members of a non-stock corporation as recognized under the aforesaid Section 89. Section 24,
which requires the presence of a majority of the members entitled to vote in the election of the
board of directors, applies only when the directors are elected by the members at large, such as
is always the case in stock corporations by virtue of Section 6.

Tan v. Sycip G.R. 153468 (Aug.17, 2006)

Applying Section 91 to the present case, we hold that dead members who are dropped
from the membership roster in the manner and for the cause provided for in the By-Laws of
GCHS are not to be counted in determining the requisite vote in corporate matters or the requisite
quorum for the annual members' meeting. With 11 remaining members, the quorum in the
present case should be 6. Therefore, there being a quorum, the annual members' meeting,
conducted with six 47 members present, was valid.
While a majority of the remaining corporate members were present, however, the
"election" of the four trustees cannot be legally upheld for the obvious reason that it was held in
an annual meeting of the members, not of the board of trustees. We are not unmindful of the fact
that the members of GCHS themselves also constitute the trustees, but we cannot ignore the
GCHS bylaw provision, which specifically prescribes that vacancies in the board must be filled up
by the remaining trustees. In other words, these remaining member-trustees must sit as a board
in order to validly elect the new ones.

Valle Verde v. Africa Sept. 4, 2009

This theory of delegated power of the board of directors similarly explains why, under
Section 29 of the Corporation Code, in cases where the vacancy in the corporation's board of
directors is caused not by the expiration of a member's term, the successor "so elected to fill in a
vacancy shall be elected only for the unexpired term of the his predecessor in office". The law
has authorized the remaining members of the board to fill in a vacancy only in specified
instances, so as not to retard or impair the corporation's operations; yet, in recognition of the
stockholders' right to elect the members of the board, it limited the period during which the
successor shall serve only to the "unexpired term of his predecessor in office".
While the Court in El Hogar approved of the practice of the directors to fill vacancies in
the directorate, we point out that this ruling was made before the present Corporation Code was
enacted 14 and before its Section 29 limited the instances when the remaining directors can fill in
vacancies in the board, i.e., when the remaining directors still constitute a quorum and when the
vacancy is caused for reasons other than by removal by the stockholders or by expiration of the
term.
It also bears noting that the vacancy referred to in Section 29 contemplates a vacancy
occurring within the director's term of office. When a vacancy is created by the expiration of a
term, logically, there is no more unexpired term to speak of. Hence, Section 29 declares that it
shall be the corporation's stockholders who shall possess the authority to fill in a vacancy caused
by the expiration of a member's term.
2) Officers – Sec. 25, 92 (par. 3), 97 (last par.), 26, 27, 31, 32

Yu Chuck v. Kong Li Po 46 Phil 608

Upon the facts of the present case, the business manager of the defendant corporation
had no implied authority to employ printers for the corporation's newspaper for the term
of three years and upon conditions other wise so onerous to the corporation that the
possibility of it thereby being thrown into insolvency was expressly contemplated in the
contract of employment.

Woodchild Holdings v. Roxas Electric 436 SCRA 235

Evidently, Roxas was not specifically authorized under the said resolution to grant a right
of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to sell to the
petitioner a portion thereof. The authority of Roxas, under the resolution, to sell Lot No. 491-A-3-
B-2 covered by TCT No. 78086 did not include the authority to sell a portion of the adjacent lot,
Lot No. 491-A-3-B-1, or to create or convey real rights thereon. Neither may such authority be
implied from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner ―on such
terms and conditions which he deems most reasonable and advantageous.‖ Under paragraph 12,
Article 1878 of the New Civil Code, a special power of attorney is required to convey real rights
over immovable property.

Bd. Of Liquidators v. Heirs of Kalaw 20 SCRA 987

Where similar acts have been approved by the directors as a matter of general practice,
custom, and policy, the general manager may bind the company without formal authorization of
the board of directors (Harris vs. H.C. Talton Wholesale Grocery Co., 123 So. 480). In varying
language, existence of such authority is established, by proof of the course of business, the
usages and practices of the company and by the knowledge which the board of directors has, or
must be presumed to have, of acts and doings of its subordinates in and about the affairs of the
corporation (Van Denburgh vs. Tungsten Reef Mines Co., 67 P. 2d. 360, citing First National Fin.
Corp. vs. Five-O Drilling Co., 289 P. 844). In the case at bar, the practice of the corporation has
been to allow its general manager to negotiate and execute contracts in its copra trading activities
for and in NACOCO's behalf without prior board approval

Inter-Asia Investment v. CA June 10, 2003

VERBAL ASSURANCE OF RENEWAL OF LEASE, INADMISSIBLE. — In the case of
Fernandez v. CA, this Court held that "an alleged verbal assurance of renewal of a lease is
inadmissible to qualify the terms of the written lease agreement under the parole evidence rule
and unenforceable under the Statute of Frauds.

Zamboanga Transpo. V. Bachrach Motors . 52 Phil 244

When the president of a corporation, who is one of the principal stockholders and at the
same time its general manager, auditor, attorney or legal adviser, is empowered by its by-laws to
enter into chattel mortgage contracts, subject to the approval of the board of directors, and enters
into such contracts with the tacit approval of two members of the board of directors, one of whom
is a principal shareholder, both of whom, together with the president, form a majority, and said
corporation takes advantage of the benefits afforded by said contract, such acts are equivalent to
an implied ratification of said contract by the board of directors and binds the corporation even if
not formally approved by said board of directors as required by the by-laws of the aforesaid
corporation.

Marc ll v. Joson Dec. 12, 2011

In view thereof, this Court holds that unless and until petitioner corporation's by-laws is
amended for the inclusion of General Manager in the list of its corporate officers, such position
 cannot be considered as a corporate office within the realm of Section 25 of the Corporation
Code.

E.B. Villarosa v. Benito 312 SCRA 65 (1999)

The rule now states "general manager" instead of only "manager"; "corporate secretary"
instead of "secretary"; and "treasurer" instead of "cashier." The phrase "agent, or any of its
directors" is conspicuously deleted in the new rule, . . . It should be noted that even prior to the
effectivity of the 1997 Rules of Civil Procedure, strict compliance with the rules has been
enjoined. (

Cagayan Valley Drug v. CIR Feb. 13, 2008

In the case at bar, we so hold that petitioner substantially complied with Secs. 4 and 5,
Rule 7 of the 1997 Revised Rules on Civil Procedure. First, the requisite board resolution has
been submitted albeit belatedly by petitioner. Second, we apply our ruling in Lepanto with the
rationale that the President of petitioner is in a position to verify the truthfulness and correctness
of the allegations in the petition. Third, the President of petitioner has signed the complaint before
the CTA at the inception of this judicial claim for refund or tax credit

3) Board Committees versus Executive Committee - Sec. 35

Hayes v. Canada Atlantic & Plant S.S. Co., Ltd. (1910)

US Circuit CA, First Circuit 181 F. 289
Especially in this case the distinction is a particularly suitable one. Having due regard to
the proposition that neither the directors nor a fraction of the directors should be permitted by
snap proceedings to adjust their own compensation in their own way, as illustrated by the fact
that, in the present case, the action of Hayes and Gale looked entirely to their own pecuniary
interest, and so, according to the best legal authorities, was prohibited, the necessity of regular
proceedings by virtue of proper by-laws is irresistibly evident; and the presumption that Perry
would waive any guards which a regular course of proceedings would give him is quite incredible.

Filipinas Port Services, Inc. v. Go 518 SCRA 453 (2007)

As well, it may not be amiss to point out that, as testified to and admitted by petitioner
Cruz himself, it was during his incumbency as Filport president that the executive committee in
question was created, and that he was even the one who moved for the creation of the positions
of the AVPs for Operations, Finance and Administration. By his acquiescence and/or ratification
of the creation of the aforesaid offices, Cruz is virtually precluded from suing to declare such acts
of the board as invalid or illegal. And it makes no difference that he sues in behalf of himself and
of the other stockholders. Indeed, as his voice was not heard in protest when he was still Filport's
president, raising a hue and cry only now leads to the inevitable conclusion that he did so out of
spite and resentment for his non-reelection as president of the corporation.

4) Stockholders –

a) Sec. 23 and other provisions requiring SHs’ action

b) Meetings – Sec. 49, 50, 51, 52, 54, 55, 56, 57, 93
Tan v. Sycip G.R. 153468 (Aug.17, 2006)
 c) Deadlocks in close corps – Sec. 104; provisional director

5) Members – Sec. 89
SEC Memo Circ. No. 4, series of 2004.
Distinguish from Sec. 24 (election of trustees)

PADCOM Condominium v. Ortigas May 9, 2002

Evidently, the provision on automatic membership was annotated in the Certificate of
Title and made a condition in the Deed of Transfer in favor of PADCOM. Consequently, it
is bound by and must comply with the covenant. Moreover, Article 1311 of the Civil Code
provides that contracts take effect between the parties, their assigns and heirs. Since
PADCOM is the successor-in-interest of TDC, it follows that the stipulation on automatic
membership with the Association is also binding on the former.

Sta. Clara Homeowners v. Gaston Jan 23, 2002

MEMBERSHIP IN HOMEOWNERS ASSOCIATION MUST BE VOLUNTARY AND
CANNOT BE UNILATERALLY FORCED BY A PROVISION IN THE ASSOCIATION'S
ARTICLES OF INCORPORATION OR BY-LAWS; CASE AT BAR. — Private
respondents cannot be compelled to become members of the SCHA by the simple
expedient of including them in its Articles of Incorporation and Bylaws without their
express or implied consent. True, it may be to the mutual advantage of lot owners in a
subdivision to band themselves together to promote their common welfare. But that is
possible only if the owners voluntarily agree, directly or indirectly, to become members of
the association. True also, memberships in homeowners' associations may be acquired
in various ways — often through deeds of sale, Torrens certificates or other forms of
evidence of property ownership. In the present case, however, other than the said
Articles of Incorporation and By-laws, there is no showing that private respondents have
agreed to be SCHA members.