Corp Law Digests Sec. 10-19
Corporation Code Selected cases for sec 10-19...
Corp Digest Sec 10-19
1. Alhambra Cigar v. SEC (QN) G.R. No. L-23606 July 29, 1968 Sanchez, J.
(The other arguments of Alhambra Cigar used principles of StatCon which is not relevant to our class.) The Court also ruled that the beneficial-effects argument (i.e. that extending Alhambra’s life is beneficial to the economy) is off the mark. There was already a new corporation – Alhambra Industries, Inc. – which was formed by most of the stockholders. Its purpose was to carry on the business of Alhambra Cigar.
Petitioner: Alhambra Cigar & Cigarette Manufacturing Company, Inc. Respondent: Securities and Exchange Commission Facts:
2. Lanuza vs. CA (KL) Alhambra Cigar was incorporated in January 15, 1912. According to the Corporation Law which was in effect at that time, it will exist for 50 years or until January 15, 1962. On January 15, 1962, Alhambra cigar ceased transacting business and entered into a state of liquidation. Angel S. Gamboa was named as trustee by the stockholders. On June 20, 1963, R.A. 3531 was enacted. It amended Sec. 18 of the Corporation Law, thus empowering domestic private corporations to extend its corporate life for another 50-year period by amending its articles of incorporation, subject to SEC approval. Previously, the 50-year period was non-extendible. On July 15, 1963, the board of directors resolved to amend the articles of incorporation by extending the corporate life for an additional 50 years. The amendment was approved by the stockholders representing more than 2/3 of the outstanding capital stock on Aug. 26, 1963. The amended articles of incorporation were filed with the SEC on Oct. 26, 1963. It was denied by the SEC on Nov. 18, 1963, saying that R.A. 3531 did not have retroactive effect and was thus unavailable for Alhambra Cigar. A Motion for Reconsideration was denied on Sept. 8, 1964, hence this petition.
G.R. No. 131394. March 28, 2005 Facts:
Issue: WON a corporation may extend its corporate life by amending its articles of incorporation within the 3-year statutory liquidation period. Held: NO When a corporation’s term has ended, it is dissolved. It only continues as a body corporate for 3 more years for the purpose of final closure of its affairs, and no other. (Sec. 77, Corporation Law) o It is similar to how a dead person’s estate is settled. R.A. 3531 amended Sec. 18 of the Corporation Law. Sec. 18 deals with a corporation’s power to amend its articles of incorporation. It can only amend them if the corporation is still “alive.” Therefore, Alhambra Cigar could not anymore amend its articles of incorporation at that time because it is already “dead.” Alhambra uses a case decided by the Alabama Supreme Court where it allowed a corporation to renew its corporate existence even after the expiration of its corporate life. Though having persuasive effect, this it not applicable in our jurisdiction because “renewal” of corporate life is different from “extension.” In the Philippines, only extension is allowed. There is no such thing as renewal of corporate life.
The petitioners seek to nullify the CA decision affirming the SEC’s order and decision. In 1952, the Philippine Merchant Marine School, Inc. (PMMSI) was incorporated, with seven hundred (700) founders’ shares and seventy-six (76) common shares as its initial capital stock subscription reflected in the articles of incorporation. However, private respondents and their predecessors who were in control of PMMSI registered the company’s stock and transfer book for the first time in 1978, recording thirty-three (33) common shares as the only issued and outstanding shares of PMMSI. Sometime in 1979, a special stockholders’ meeting was called and held on the basis of what was considered as a quorum of twenty-seven (27) common shares, representing more than two-thirds (2/3) of the common shares issued and outstanding. On 06 May 1992, a special stockholders’ meeting was held to elect a new set of directors. Private respondents thereafter filed a petition with the SEC questioning the validity of the 06 May 1992 stockholders’ meeting, alleging that the quorum for the said meeting should not be based on the 165 issued and outstanding shares as per the stock and transfer book, but on the initial subscribed capital stock of seven hundred seventy-six (776) shares, as reflected in the 1952 Articles of Incorporation. This petition was first dismissed then granted by the SEC en banc. The SEC directed the parties to call for a stockholders meeting on the basis of the stockholdings reflected in the articles of incorporation for the purpose of electing a new set of officers for the corporation. The petitioners appealed this decision by the SEC to the CA but were denied, thus, this petition.
What should be the basis of quorum for a stockholders’ meeting—the outstanding capital stock as indicated in the articles of incorporation or that contained in the company’s stock and transfer book? Held: It is the 1952 articles of incorporation that determines the quorum for a stockholders’ meeting. Petition DENIED. Ratio:
Corp Digest Sec 10-19
A stock and transfer book is the book which records the names and addresses of all stockholders arranged alphabetically, the installments paid and unpaid on all stock for which subscription has been made, and the date of payment thereof; a statement of every alienation, sale or transfer of stock made, the date thereof and by and to whom made; and such other entries as may be prescribed by law. A stock and transfer book is necessary as a measure of precaution, expediency and convenience since 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. However, a stock and transfer book, like other corporate books and records, is not in any sense a public record, and thus is not exclusive evidence of the matters and things which ordinarily are or should be written therein. In fact, it is generally held that the records and minutes of a corporation are not conclusive even against the corporation but are prima facie evidence only, and may be impeached or even contradicted by other competent evidence. The Corporation Law: Sec. 52. Quorum in meetings.- Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist of the stockholders representing a majority of the outstanding capital stock or majority of the members in the case of non-stock corporation.
Outstanding capital stock, on the other hand, is defined by the Code as: Sec. 137. Outstanding capital stock defined.— The term “outstanding capital stock” as used in this code, means the total shares of stock issued to subscribers or stockholders whether or not fully or partially paid (as long as there is binding subscription agreement) except treasury shares.
Thus, quorum is based on the totality of the shares which have been subscribed and issued, whether it be founders’ shares or common shares. To base the computation of quorum solely on the obviously deficient, if not inaccurate stock and transfer book, and completely disregarding the issued and outstanding shares as indicated in the articles of incorporation would work injustice to the owners and/or successors in interest of the said shares. This case is one instance where resort to documents other than the stock and transfer books is necessary. The stock and transfer book of PMMSI cannot be used as the sole basis for determining the quorum as it does not reflect the totality of shares which have been subscribed, more so when the articles of incorporation show a significantly larger amount of shares issued and outstanding as compared to that listed in the stock and transfer book.
FACTS: Plaintiff was originally organized as an insurance corporation under the name of 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' On May 26, 1961 the articles of incorporation were amended changing the name of the corporation to 'Philippine First Insurance Co., Inc.(PFIC) The complaint alleges that the plaintiff PFIC doing business under the name of 'The Yek Tong Lin Fire and Marine Insurance Co., Lt.' signed as co-maker together with defendant Maria Carmen Hartigan, CGH, a promissory note for P5,000.00 in favor of the China Banking Corporation (CBC) payable within 30 days after the date of the promissory note the plaintiff agreed to act as co-maker upon the application of the defendant Maria Carmen Hartigan, CGH, who together with Antonio F. Chua and Chang Ka Fu, signed an indemnity agreement in favor of the plaintiff, to pay the plaintiff damages, which the plaintiff may sustain as a result of the execution by the plaintiff and co-maker of Maria Carmen Hartigan, Hartigan failed to pay in full, so the same was renewed PFIC filed a complaint for judgment against the defendants, jointly and severally, for the sum of P4,559.50 with interest at the rate of 12% per annum from November 23, 1961 plus P911.90 by way of attorney's fees and costs. In their answer the defendants deny the allegation that the plaintiff formerly conducted business under the name and style of 'The Yek Tong Lin Fire and Marine Insurance Co., Ltd.' Defendants admitted: o the execution of the indemnity agreement in favor of the Yek Tong Lin Fire and Marine Insurance Co., Ltd.' and not in favor of PFIC. o that they failed to pay the promissory note when it fell due They also allege that since their obligation with CBC still subsists, the surety who co-signed the promissory note is not entitled to collect the value thereof from the defendants otherwise they will be liable for double amount of their obligation, there being no allegation that the surety has paid the obligation to the creditor. defendants also claim that there is no privity of contract between the plaintiff and the defendants o PFIC has no cause of action against them, considering that the complaint does not allege that the plaintiff and the 'Yek Tong Lin Fire and Marine Insurance Co., Ltd.' are one and the same or that the plaintiff has acquired the rights of the latter. CFI of Manila dismissed the action with costs against the plaintiff ISSUE: May a Philippine corporation change its name and still retain its original personality and individuality as such? YES
3. Philippine First Insurance Company, Inc v. Hartigan (IE) PLAINTIFF-APPELLANT: PHILIPPINE FIRST INSURANCE COMPANY, INC. DEFENDANTS-APPELLEES: MARIA CARMEN HARTIGAN, CGH, and O. ENGKEE G.R. No. L-26370 July 31, 1970
Section 18 explicitly permits the articles of incorporation to be amended thus: (Act. No. 1459)
Corp Digest Sec 10-19 o
Sec. 18. — Any corporation may for legitimate corporate purpose or purposes, amend its articles of incorporation by a majority vote of its board of directors or trustees and the vote of 2/3 of its members or stockholders A copy of the articles of incorporation as amended, duly certified to be correct by the president and the secretary of the corporation and a majority of the board of directors or trustees, shall be filed with the Securities and Exchange Commissioner, who shall attach the same to the original articles of incorporation, on file in his office. this section does not only authorize corporations to amend their charter; it also lays down the procedure for such amendment The general rule as to corporations is that each corporation shall have a name by which it is to sue and be sued and do all legal acts. a corporation may change its name by merely amending its charter in the manner prescribed by law o A general power to alter or amend the charter of a corporation necessarily includes the power to alter the name of the corporation An authorized change in the name of a corporation has no more effect upon its identity as a corporation than a change of name of a natural person has upon his identity. It does not affect the rights of the corporation or lessen or add to its obligations. After a corporation has effected a change in its name it should sue and be sued in its new name .... (13 Am. Jur. 276-277, citing cases.) Actions brought by a corporation after it has changed its name should be brought under the new name although for the enforcement of rights existing at the time the change was made. the approval by the stockholders of the amendment of its articles of incorporation changing the name "The Yek Tong Lin Fire & Marine Insurance Co., Ltd." to "Philippine First Insurance Co., Inc." on March 8, 1961, did not automatically change the name of said corporation on that date. To be effective, Section 18 of the Corporation Law, requires that "a copy of the articles of incorporation as amended, duly certified to be correct by the president and the secretary of the corporation and a majority of the board of directors or trustees, shall be filed with the Securities & Exchange Commissioner", and it is only from the time of such filing, that "the corporation shall have the same powers and it and the members and stockholders thereof shall thereafter be subject to the same liabilities as if such amendment had been embraced in the original articles of incorporation. WHEREFORE, judgment of the lower court is reversed, and this case is remanded to the trial court for further proceedings consistent herewith With costs against appellees.
4. P.C. Javier & Sons, Inc. v CA (PR) G.R. No. 129552 June 29, 2005 Petitioners: P. C. Javier & Sons, Inc., Spouses Pablo C. Javier, Sr. and Rosalina F. Javier Respondents: Honorable Court of Appeals, PAIC Savings and Mortgage Bank, Inc., Sheriffs Grace Belvis, Sofrono Villarin, Pio Martinez and Nicanor Blanco
Chico- Nazario, J.: BACKGROUND: This case is an appeal by certiorari under Rule 45 RoC which seeks to annul: o the decision of the CA which affirmed in toto the decision of the Makati RTC dismissing the complaint for Annulment of Mortgage and Foreclosure with Preliminary Injunction, Prohibition and Damages filed by petitioners, o and its Resolution denying petitioners' motion for reconsideration. FACTS: A complaint for Annulment and Foreclosure with Preliminary Injunction, Prohibition and Damages was filed by P.C. Javier & Sons, Inc. (Javier), etc. against PAIC Savings & Mortgage Bank (PAIC), etc. before the Makati RTC Branch 62. The following facts are found out by the RTC and adopted by the CA: On Feb. 1981, Javier applied with FIRST SUMMA SAVINGS AND MOTGAGE BANK, later on renamed as PAIC Savings and Mortgage Bank, for a loan accommodation under the Industrial Guarantee Loan Fund (IGLF) for 1.5M Php. Javier, through Pablo Javier was later on advised that its loan application was approved and that the same shall be forwarded to the Central Bank (CB) for processing and release. CB released the loan to PAIC in 2 tranches of 750K each. 1st tranche was released on May '81 in the amount of 750K Php - 2nd tranche released on November '81, 750K--> but from this amount, 250K Php was deducted and deposited under Javier under a time deposit. Plaintiffs' claim Loan releases were delayed 250K deducted from the IGLF loan and placed under time deposit, and that they were not allowed to withdraw the same because the Bank intended this as automatic payments on the accrued principal and interest due on the loan. Defendant Bank's claim: Only the final proceeds of the 750K loan was delayed but this was because of the shortfall in the collateral over Javier's loan 2nd tranche was released after Javier's firm commitment to cover the loan through the opening said time deposit plus additional security by executing a chattel mortgage (over some machineries) in favor of the Bank. Javier defaulted in payment so PAIC sent 2 separate demand letters, the second one informing Javier that they will foreclose the CM. Still plaintiff failed to pay so the Bank said they were initiating extrajudicial foreclosure of the real estate mortgage. Scheduled extrajudicial foreclosure was restrained by RTC. In the RTC: The issues were:
Corp Digest Sec 10-19
W/N First Summa Savings and Mortgage Bank and PAIC Savings and Mortgage Bank, Inc. are one and the same entity. YES!! W/N their obligation is already due and demandable at the time the Bank commenced to extrajudicially foreclose petitioners' properties in '84. RTC says YES. First Summa and PAIC are one and the same entity and Javier is liable to respondent bank for the unpaid balance of the IGLF loan. It also said that the Bank was justified in foreclosing the CM as the obligation was already due and demandable when it commenced foreclosure proceedings. Petitioners filed MR but was denied. Hence, this appeal by certiorari.
which Javier is indebted. A change in corporation name does not make a new corporation, whether effected by a special act or under a general law. It has no effect on the identity of the corporation, or on its property, rights, or liabilities. The corporation, upon such change in name, is in no sense a new corporation, nor the successor of the original corporation. It is the same corporation with a different name, and its character is in no respect changed. B.
ISSUES: (Main/ Impt.) W/N CA gravely erred when it sustained the dismissal of petitioners' complaint and in affirming the PAIC's right to collect the IGLF loans in lieu of First Summa Savings and Mortgage Bank, which originally granted said loans. NO!!! P's contention: they are not legally justified to withhold their amortized payments to PAIC until they would have been properly notified of the change in the corporate name of First Summa Savings and Mortgage Bank. They also claimed that they never received any formal notice of the alleged change in name of the bank, and only knew about it later on. (Not really impt)W/N CA gravely erred when it sustained the collection of the entire proceeds of the IGLF loan worth 1.5M Php despite the fact that 250K Php of this loan was withheld by the First Summa Savings Bank to become part of the collateral of the 1.5M loan. NO!!
(Not impt) W/N CA gravely erred when it sustained the damages awarded to respondents despite the absence of bad faith or malice on the part of Javier in the filing of this case against PAIC. NO!! And there was bad faith.
The court did not err when it sustained the collection of the entire proceeds of the IGLF loans amounting to 1.5M Php despite withholding 250K Php to become part of the collateral to the said loan. The time deposit requirement was precisely because the collateral that Javier had put up was insufficient to cover the IGLF loans it received. Javier even admitted to this when it executed a CM in favor of the bank. Had it been sufficient, there would have been no need to execute another CM. This finding made by the lower court was not disputed in the appeal before it. So, the same cannot now be raised before this court; since this is a factual question, it is beyond the province of the SC in a Petition for Review. This is not a case of unjust enrichment because (requirement of 250K time deposit as collateral) because the requirement to give additional collateral was warranted since the collateral was not enough. They also failed to question it at an earlier time. Unjust enrichment: the transfer of value without cause or consideration. o Elements: (a) enrichment on the part of defendant; (b) impoverishment on the part of the plaintiff; (c) lack of cause. Basically, they failed to question the reasonableness of the additional security at the earliest possible instance. PNs given and the amortization schedule also show that Javier had clearly already defaulted on its loan when foreclosure proceedings were commenced by PAIC (PN also said that "failure to pay an installment when due shall entitle the bank or its assign to declare all the obligations as immediately due and payable.").
C. HELD: A. Javier's argument does not hold water. After going over the Corporation Code and Banking Laws, as well as the regulations of both the SEC and the BSP, the Court finds that there is no requirement under a law or regulation ordering a bank that changes its corporate name to formally notify all its debtors. Thus, the court cannot impose on a bank that changes its corporate name to notify a debtor of such change. To do so would be judicial legislation. The formal notification is, therefore, discretionary on the bank. Unless there is a law, regulation or circular from the SEC or BSP requiring the formal notification of all debtors of banks of any change in corporate name, such notification remains to be a mere internal policy that the banks may or may not adopt. In this case, although there was no formal notification given to Javier, pieces of evidence proving their knowledge of such change. (letter signed by Accountant of Javier authorizing him to execute CM in favor of PAIC, etc). First Summa Savings and Mortgage Bank and PAIC are one and the same bank to
As stated previously, Javier knew of the change in the name of the corporation as evidenced by the documents it executed. Despite such knowledge, it pretended otherwise. It used this purported ignorance as an excuse to renege on its obligation to pay its loans after they became due and after demands for payment were made, claiming that it never obtained the loans from PAIC. If they were in GF in complying with its loans since it believed that PAIC had no right to the payment, it should have made a valid consignation in court. It did not do so. If they were at a loss as to who should receive the payment, they could have inquired from the SEC. BSP or from the bank itself. Thus, the award of actual and compensatory damages, as well as attorney's fees, is justified in this case. (reasons: PAIC was prevented to foreclose the mortgages at least 4 times, so it's only proper that they be reimbursed proper expenses; the filing of this suit is clearly unfounded and baseless and bank had to defend itself) WHEREFORE, premises considered, the Court of Appeals decision dated 31 January 1997 and its resolution dated 20 June 1997 are hereby AFFIRMED in toto. Costs against petitioners.
Corp Digest Sec 10-19
5. Cagayan Development v. Sandiko FACTS
Manuel Tabora is the registered owner of four parcels of land in Cagayan Several mortgages were executed on the four parcels of land, in favor of PNB and Buzon. o First mortgage: To PNB as security for P8000 loan o Second mortgage: To PNB as security for P7000 loan o Third mortgage: To Buzon for Tabora’s indebtedness of P2900 Tabora executed a public document where the four parcels of land owned by him was sold to Cagayan Development which was then still under process of incorporation o o
Consideration of one peso (P1) subject to the mortgages in favor of the PNB and Buzon Condition that the certificate of title to said lands shall not be transferred to the name of the plaintiff company until the latter has fully and completely paid Tabora's indebtedness to PNB.
Company filed its article incorporation with the Bureau of Commerce and Industry on October 22, 1930 A year later, on October 28, 1931, the board of directors of said company adopted a resolution authorizing its president, Jose Ventura, to sell the four parcels of lands in question to Teodoro Sandiko for P42,000. A deed of sale was executed before a notary public by the terms of which the plaintiff sold ceded and transferred to Sandiko all its right, titles, and interest in and to the four parcels of land who in turn obligated himself to shoulder the three mortgages hereinbefore referred to. o There was a promisory note for P25,300 drawn by Sandiko. The four parcels of land were also made security for the promissory note. Upon failure to pay the amount of the promissory note, complaint was filed against Sandiko. Complaint was dismissed because the deed of sale executed was invalid because of vice of consent and repugnancy to law
6. Pilipinas Loan Company, Inc. v. SEC (QN) G.R. No. 104720 April 4, 2001 Gonzaga-Reyes, J. Petitioner: Pilipinas Loan Company, Inc. Respondents: SEC; Filipinas Pawnshop, Inc. Facts:
ISSUE: WHETHER THE CONTRACT ENTERED INTO BY THE CAGAYAN DEVELOPMENT BEFORE ITS INCORPORATION IS VALID FACTS
The transfer made by Tabora to the Cagayan Development was affected on May 31, 1930 and the actual incorporation of said company was affected later on October 22, 1930. In other words, the transfer was made almost five months before the incorporation of the company.
The contract itself referred to the plaintiff as "una sociedad en vias de incorporacion." It was not even a de facto corporation at the time. Not being in legal existence then, it did not possess juridical capacity to enter into the contract. Boiled down to its naked reality, the contract was entered into not between Manuel Tabora and a non-existent corporation but between the Manuel Tabora as owner of the four parcels of lands on the one hand and the same Manuel Tabora, his wife and others, as mere promoters of a corporations on the other hand. It should be observed that, Manuel Tabora was the registered owner of the four parcels of land which he succeeded in mortgaging to the Philippine National Bank so that he might have the necessary funds with which to convert and develop them into fishery. He formed a corporation composed of himself, his wife, and a few others. Sandiko always regarded Tabora as the owner of the lands. He dealt with Tabora directly. Jose Ventura, president of the Cagayan Development, intervened only to sign the contract. Even the Philippine National Bank, mortgagee of the four parcels of land, always treated Tabora as the owner of the same. If Cagayan Development could not and did not acquire the four parcels of land involved, it follows that it did not possess any resultant right to dispose of them by sale to the defendant, Teodoro Sandiko.
Filipinas Pawnshop is a pawnshop and financing company located in Paco, Manila. Pilipinas Loan is a lending corporation also located in Paco, Manila and Sta. Ana, Manila. Private respondent, Filipinas Pawnshop, filed a complaint with the Prosecution and Enforcement Department (PED) of the SEC against Pilipinas Loan. They alleged that petitioner, Pilipinas Loan, had been operating as a pawnshop in the same neighborhood contrary to its primary purpose and without the permission of the Central Bank. It also alleged that the name Pilipinas Loan creates confusion with Filipinas Pawnshop. Pilipinas Loan filed its Comment/Answer, saying that the SEC did not have jurisdiction. It said that the Central Bank and the regular courts had proper jurisdiction on the first and second allegations, respectively. It also denied that petitioner was engaged in the pawnshop business. Filipinas Pawnshop then filed its Reply. On April 8, 1991, the PED issued an order directing Pilipinas Loan to amend its articles of incorporation to change its name, and to cease and desist from engaging in the
Corp Digest Sec 10-19
pawnshop business. The SEC en banc affirmed with modification this order on Aug. 13, 1991. The CA affirmed with modification the SEC decision to the effect that Pilipinas Loan was not anymore required to change its name and to delete the word “pledge” from its articles of incorporation. Motion for Reconsideration filed by Pilipinas Loan was denied. Hence this petition for review on certiorari.
The SC concluded that the petitioner contravened its articles of incorporation when it held itself out to the public as a pawnshop. Petition DENIED. Costs against the petitioner.
Issue: WON the SEC had jurisdiction over the case. Held: YES Petitioner claims that since Sec. 17 of PD 114 (Pawnshop Regulation Act) only mentions the Central Bank as the government agency empowered to implement PD 114, the SEC is not empowered to rule as to whether or not petitioner is engaging in the pawnshop business. This argument is without merit. It is the allegations in the complaint that vests jurisdiction. In the case at bar, the complaint alleged that Pilipinas Loan is doing acts which are contrary to its declared purpose in its articles of incorporation. A violation by a corporation of its franchise is properly within the jurisdiction of the SEC. Petitioner is categorically prohibited in its articles of incorporation from “engaging in pawnbroking as defined under PD 114.” The determination by the SEC of whether petitioner violated PD 114 was merely incidental to the regulatory powers of the SEC. SEC must determine whether or not a corporation goes beyond the powers granted to it by its articles of incorporation. Therefore, the determination by the Central Bank is not a condition precedent before the SEC can take cognizance of the complaint against the petitioner. The allegations in the complaint amount to fraud which is detrimental to the relationship of the corporation to its stockholders and the public. The SEC has exclusive jurisdiction over this category of relationship. The CA correctly ruled that the jurisdiction of the Central Bank in implementing PD 114 is limited only to corporations registered to it as pawnshops. Pilipinas Loan is registered with the SEC as a lending corporation. Petitioner also claims that it was not accorded due process and that the evidence presented by the private respondent consisted only of photographs showing that Pilipinas Loan had a sign which said “sanglaan.” o SC rejected this argument. o If Pilipinas Loan was not given a copy of the private respondent’s pleadings and position papers, petitioner should have requested the SEC and the PED for these. No such request exists in the records. o There were other pieces of evidence on which the ruling was based on. There were customer affidavits and a supposed “promissory note” issued by petitioner which the SEC and CA ruled were more of a pawn ticket than a promissory note. o The factual findings of the SEC need not be disturbed.