answer the discussion questions that follow. In preparing your case brief,
please be guided on the case briefing notes as discussed below.
Submit your case brief on or before September 26, 2015. Email your case
analysis to
CASE ANALYSIS V
Facts:
Issue:
Ruling:
No. SC held that the said resolution is without effect for being:
1. An attempted withdrawal of so much capital from the fund which
the companys creditors were entitled ultimately to rely, and
Thus, stockholder is still liable for the unpaid balance of his subscription.
Ratio:
Discussion Questions:
(1) What is a subscription contract? Give the rule of what shall be deemed
a subscription.
(2) Form - The law does not require that the subscription contract
be in writing although it is usual and convenient for it to be in writing.
Corporations trade upon the credit of the fund created by the issue
of their shares and the accretions to that fund.
(2) In consonance with the trust fund doctrine (see Sec. 41.), stock
subscriptions are in the nature of a trust fund in the sense that they are
to be maintained unimpaired for the protection of corporate creditors.
Subscribers who have not paid in full, unless they have been validly
released from their undertaking, are the debtors of the corporation for
the balance, and if the corporation does not enforce the liability, its
creditors may do so. (see Edward A. Keller & Co., Ltd. vs. COB Group
Marketing, Inc., 141 SCRA 86 [1986]; Vda. de Salvatierra vs. Garlitos,
103 Phil. 757[1958]; 18 C.J.S. 1311-1312.) But to have a cause of
action against a stockholder for his unpaid subscription, a corporate
creditor must first exhaust his legal remedies against the corporation
except where the corporation is insolvent for in such case recourse
against the corporation would be useless and a waste of time.
(3) In what instances are subscriber released from liability for unpaid
subscription?
An unpaid subscription is an asset to which corporate creditors may
look for payment and, as a rule, they are entitled to insist that it be
collected (7 R.C.L. Corp., par. 337.) since the unpaid shares are as
much a part of the capital stock as the sums which have already been
paid. (SEC Opinion, Sept. 1, 1971.)
A contrary rule will allow just any stockholder, for just about any real
or imagined offense, to demand rescission of his subscription and call
for the distribution of some part of the corporate assets to him without
complying with the requirements of the Code. (Ong Yong vs. Tiu, 401
SCRA 1 [2003].)
(4) Can the corporation release the subscriber from the obligation of
paying his shares? Why? Explain.
FACTS:
ISSUE:
Whether or not the denial for the request of petitioner for inspection
valid.
RULING:
YES.
We also find merit in the contention of the respondent bank that the
inspection sought to be exercised by the petitioner would be violative of
the provisions of its charter. The Superintendent of Banks and the Auditor
General, or other officers designated by law to inspect or investigate the
condition of the National Bank, shall not reveal to any person other than
the President of the Philippines, the Secretary of Finance, and the Board
of Directors the details of the inspection or investigation, nor shall they
give any information relative to the funds in its custody, its current
accounts or deposits belonging to private individuals, corporations, or any
other entity, except by order of a Court of competent jurisdiction. Any
director, officer, employee, or agent of the Bank, who violates or permits
the violation of any of the provisions of this Act, or any person aiding or
abetting the violations of any of the provisions of this Act, shall be
punished by a fine not to exceed ten thousand pesos or by imprisonment
of not more than five years, or both such fine and imprisonment.
Discussion Questions:
(1) Discuss the purpose of the stockholders right to inspect and examine
the books and records of a corporation.
(2) What are the limitations in the exercise of the stockholders right of
inspection?
The right should be denied on the ground that "the person
demanding to examine or copy excerpts from the corporation's records
and minutes has improperly used information secured through any prior
examination of the records or minutes of such corporation or of any other
corporation, or was not acting in good faith or for a legitimate purpose in
making his demand" (Sec. 74, par.3.), or has an ulterior purpose or
improper ends prejudicial to the corporation (Acuna vs. Parlatone, [C.A.]
O.G. Suppl., Oct. 17, 1941, p. 28.), such as where the purpose is merely
to gratify his curiosity or for a speculative use. (Gutherie vs. Harkness,
199 U.S. 148.)
(3) Cite example when such right is denied based on the case.
The presumption is that the purpose of the stockholder or member
is legitimate or proper (i.e., related to his being a stockholder). Once
the stockholder alleges a proper purpose, the burden of proving
otherwise rests on the corporation, (see Republic vs. Sandiganbayan,
199 SCRA 39 [1991].) He may, therefore, demand an examination of
the corporate books and records without disclosing his reasons.6 (7
R.C.L. 326.)
FACTS:
Toribia Uson filed a civil action for debt against Vicente Diosomito.
Upon institution of said action, an attachment was duly issued and
respondents property was levied upon, including 75 shares of the North
Electric Co., which stood in his name on the books of the company when
the attachment was levied. The sheriff sold said shares at a public auction
with Uson being the highest bidder. Jollye claims to be the owner of said
certificate of stock issued to him by the North Electric Co.
ISSUE:
The transfer of the 75 shares in the North Electric Co., Inc made by
the defendant Diosomito as to the defendant Barcelon was not valid as to
the plaintiff. Toribia Uson, on 18 Jan. 1932, the date on which she
obtained her attachment lien on said shares of stock will still stood in the
name of Diosomito on the books of the corp. Sec. 35 provides that No
transfer, however, is valid, except as between the parties, until the transfer
is entered and noted upon the books of the corporation so as to show the
names of the parties to the transaction, the date of the transfer, the
number of the certificate, and the number of shares transferred.
Discussion Questions:
(1) Is a bona fide transfer of the shares of a corporation, not registered or
noted on the books of the corporation valid as against a subsequent
lawful attachment of said shares, regardless of whether the attaching
creditor had actual notice of said transfer or not? Why?
The transfer of the 75 shares in the North Electric Co., Inc made by
the defendant Diosomito as to the defendant Barcelon was not valid as
to the plaintiff. Toribia Uson, on 18 Jan. 1932, the date on which she
obtained her attachment lien on said shares of stock will still stood in
the name of Diosomito on the books of the corp. Sec. 35 provides that
No transfer, however, is valid, except as between the parties, until the
transfer is entered and noted upon the books of the corporation so as
to show the names of the parties to the transaction, the date of the
transfer, the number of the certificate, and the number of shares
transferred.
(1) To enable the corporation to know at all times who its actual
stockholders are because mutual rights and obligations exist between
the corporation and its stockholders;
It has also been said that such a requirement is intended for the
benefit and protection of persons who may deal with the corporation
and become its creditors so that they may know who are its
stockholders, and as such liable to them. (12 Fletcher, p.
307.)
(3) What are the requirements for the transfer of shares of stock?
(3) The transferee must present the indorsed stock certificate to the
secretary of the corporation who shall effect the transfer in the
corporate books, issue a new stock certificate in favor of the transferee,
and cancel the former certificate. A corporation has no authority to
cancel a certificate which is not in its possession or to which it has no
right. It will be liable to a bona fide holder of the old certificate if, without
demanding of said certificate, it issues a new one.
(4) While transfer of shares ordinarily does not require prior approval
of the Commission, the issuer corporation is required to have its entire
authorized capital stock registered pursuant to Section 8 of the
Securities Regulation Code (Appendix "A.") where the outstanding
shares are to be sold to the public, that is, a number of persons
indiscriminately (SEC Opinion, Dec. 14, 1994.) unless it can be shown
that the transaction is expressly exempt under Section 10 of the Code.
ISSUE:
RULING:
NO. The transfer was made almost five months before the
incorporation of the company. Although, a duly organized corporation has
the power to purchase and hold such real property as the purposes for
which such corporation was formed may permit and for this purpose may
enter into such contracts as may be necessary. However before a
corporation may be said to be lawfully organized, many things have to be
done. Among other things, the law requires the filing of articles of
incorporation.
Discussion Questions:
Corporations are creatures of the law, and can only come into
existence in the manner prescribed by law. It should have a full and
complete organization and existence as an entity before it can enter
into any kind of a contract or transact any business.
FACTS:
De Silva subscribed to 650 shares and paid for 200. The company
notified him that his shares will be declared delinquent and sold in a public
auction if he does not pay the balance. De Silva did not pay. The
company advertised a notice of delinquency sale. De Silva sought an
injunction because the by-laws allegedly provide that unpaid subscriptions
will be paid from the dividends allotted to stockholders.
ISSUE:
RULING:
Discussion Questions:
(1) Extra-judicial sale at public auction. This is the first and most
special remedy and it consists in permitting the corporation to put
up unpaid stock for sale and dispose of it for the account of the
delinquent subscribers. In this case, the provisions of Sections
67 to 69, inclusive, are applicable and must be followed, (see
Velasco vs. Poizat, 37 Phil. 302 [1917].)
A stock becomes delinquent and shall be subject to extra-
judicial sale at public auction, unless the board of directors orders
otherwise, upon failure of the stockholder to pay the unpaid
subscription or balance thereof within the grace period of 30 days
from the date specified in the contract of subscription (without need
of prior call or board action demanding payment) or in the absence
of a date fixed in the contract of subscription, from the date stated
in the call made by the board of directors. The delinquency takes
place automatically after such failure (Sec. 67, par. 2.); and
(2) Under the present law, can the corporation withhold the payment of
dividends on delinquent stocks? Explain.