Nestle Philippines Inc. v. Court of Appeals G.R. No. 86738, November 13, 1991

Nestle Philippines Inc. v. Court of Appeals

G.R. No. 86738, November 13, 1991

Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)

(Topic: Consideration for Stocks and Transfer)

FACTS:

Sometime in February 1983, the authorized capital stock of petitioner Nestle Philippines Inc. ("Nestle") was increased from P300 million divided into 3 million shares with a par value of P100.00 per share, to P600 million divided into 6 million shares with a par value of P100.00 per share. Nestle underwent the necessary procedures involving Board and stockholders approvals and effected the necessary filings to secure the approval of the increase of authorized capital stock by respondent Securities and Exchange Commission ("SEC"), which approval was in fact granted.

Nestle has only two (2) principal stockholders: San Miguel Corporation and Nestle S.A

On 16 December 1983, the Board of Directors and stockholders of Nestle approved resolutions authorizing the issuance of 344,500 shares out of the previously authorized but unissued capital stock of Nestle, exclusively to San Miguel Corporation and to Nestle S.A. San Miguel Corporation subscribed to and completely paid up 168,800 shares, while Nestle S.A. subscribed to and paid up the balance of 175,700 shares of stock.

On 28 March 1985, petitioner Nestle filed a letter signed by its Corporate Secretary, M.L. Antonio, with the SEC seeking exemption of its proposed issuance of additional shares to its existing principal shareholders, from the registration requirement of Section 4 of the Revised Securities Act and from payment of the fee referred to in Section 6(c) of the same Act.

The Commission then advised petitioner to file the appropriate request for exemption and to pay the fee required under Section 6 (c) of the statute, which provides:

(c) A fee equivalent to one-tenth of one per centum of the maximum aggregate price or issued value of the securities shall be collected by the Commission for granting a general or particular exemption from the registration requirements of this Act.

ISSUE:

Whether or not that there is a need to file a petition for exemption under Section 6(b) of the Revised Securities Act with respect to the issuance of the said 344,600 additional shares to their existing stockholders out of their unissued capital stock?

RULING:

Yes.

The reading by the SEC of the scope of application of Section 6(a) (4) permits greater opportunity for the SEC to implement the statutory objective of protecting the investing public by requiring proposed issuers of capital stock to inform such public of the true financial conditions and prospects of the corporation.

When capital stock is issued in the course of and in compliance with the requirements of increasing its authorized capital stock under Section 38 of the Corporation Code, the SEC as a matter of course examines the financial condition of the corporation, and hence there is no real need for exercise of SEC authority under the Revised Securities Act.

In contrast, under the ruling issued by the SEC, an issuance of previously authorized but still unissued capital stock may, in a particular instance, be held to be an exempt transaction by the SEC under Section 6(b) so long as the SEC finds that the requirements of registration under the Revised Securities Act are "not necessary in the public interest and for the protection of the investors" by reason, inter alia, of the small amount of stock that is proposed to be issued or because the potential buyers are very limited in number and are in a position to protect themselves

The principle that the contemporaneous construction of a statute by the executive officers of the government, whose duty is to execute it, is entitled to great respect, and should ordinarily control the construction of the statute by the courts, is so firmly embedded in our jurisdiction that no authorities need be cited to support it.

RURAL BANK OF SALINAS, INC. v. COURT OF APPEALS G.R. No. 96674, June 26, 1992

RURAL BANK OF SALINAS, INC. v. COURT OF APPEALS

G.R. No. 96674, June 26, 1992

Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)

(Topic: Consideration for Stocks and Transfer)

FACTS:

On June 10, 1979, Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special Power of Attorney in favor of his wife, private respondent Melania Guerrero, giving and granting the latter full power and authority to sell or otherwise dispose of and/or mortgage 473 shares of stock of the Bank registered in his name (represented by the Bank's stock certificates nos. 26, 49 and 65), to execute the proper documents therefor, and to receive and sign receipts for the dispositions.

On February 27, 1980, and pursuant to said Special Power of Attorney, private respondent Melania Guerrero, as Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of the 473 shares, in favor of private respondents Luz Andico (457 shares), Wilhelmina Rosales (10 shares) and Francisco Guerrero, Jr. (5 shares).

Almost four months later, or two (2) days before the death of Clemente Guerrero on June 24, 1980, private respondent Melania Guerrero, pursuant to the same Special Power of Attorney, executed a Deed of Assignment for the remaining one (1) share of stock in favor of private respondent Francisco Guerrero, Sr.

Subsequently, private respondent Melania Guerrero presented to petitioner Rural Bank of Salinas the two (2) Deeds of Assignment for registration with a request for the transfer in the Bank's stock and transfer book of the 473 shares of stock so assigned, the cancellation of stock certificates in the name of Clemente G. Guerrero, and the issuance of new stock certificates covering the transferred shares of stocks in the name of the new owners thereof. However, petitioner Bank denied the request of respondent Melania Guerrero.

ISSUE:

Whether or not respondent court erred in sustaining the Securities and Exchange Commission when it compelled by Mandamus the Rural Bank of Salinas to register in its stock and transfer book the transfer of 473 shares of stock to private respondents?

RULING:

YES.

Section 5 (b) of P.D. No. 902-A grants to the SEC the original and exclusive jurisdiction to hear and decide cases involving intracorporate controversies. An intracorporate controversy has been defined as one which arises between a stockholder and the corporation. There is no distinction, qualification, nor any exception whatsoever (Rivera vs. Florendo, 144 SCRA 643 [1986]). The case at bar involves shares of stock, their registration, cancellation and issuances thereof by petitioner Rural Bank of Salinas. It is therefore within the power of respondent SEC to adjudicate.

A corporation, either by its board, its by-laws, or the act of its officers, cannot create restrictions in stock transfers, because:

. . . Restrictions in the traffic of stock must have their source in legislative enactment, as the corporation itself cannot create such impediment. By-laws are intended merely for the protection of the corporation, and prescribe regulation, not restriction; they are always subject to the charter of the corporation. The corporation, in the absence of such power, cannot ordinarily inquire into or pass upon the legality of the transactions by which its stock passes from one person to another, nor can it question the consideration upon which a sale is based. . . .

Whenever a corporation refuses to transfer and register stock in cases like the present, mandamus will lie to compel the officers of the corporation to transfer said stock in the books of the corporation".

TAN v. SECURITIES AND EXCHANGE COMMISSION G.R. No. 95696, March 3, 1992

TAN v. SECURITIES AND EXCHANGE COMMISSION

G.R. No. 95696, March 3, 1992

Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)

(Topic: Consideration for Stocks and Transfer)

FACTS:

Respondent corporation was registered on October 1, 1979. As incorporator, petitioner had four hundred (400) shares of the capital stock standing in his name at the par value of P100.00 per share, evidenced by Certificate of Stock No. 2. He was elected as President and subsequently reelected, holding the position as such until 1982 but remained in the Board of Directors until April 19, 1983 as director.

On January 31, 1981, while petitioner was still the president of the respondent corporation, two other incorporators, namely, Antonia Y. Young and Teresita Y. Ong, assigned to the corporation their shares, represented by certificate of stock No. 4 and 5 after which, they were paid the corresponding 40% corporate stock-in-trade.

Petitioner's certificate of stock No. 2 was cancelled by the corporate secretary and respondent Patricia Aguilar by virtue of Resolution No. 1981 (b), which was passed and approved while petitioner was still a member of the Board of Directors of the respondent corporation.

Due to the withdrawal of the aforesaid incorporators and in order to complete the membership of the five (5) directors of the board, petitioner sold fifty (50) shares out of his 400 shares of capital stock to his brother Angel S. Tan. Another incorporator, Alfredo B. Uy, also sold fifty (50) of his 400 shares of capital stock to Teodora S. Tan and both new stockholders attended the special meeting, Angel Tan was elected director and on March 27, 1981, the minutes of said meeting was filed with the SEC. These facts stand unchallenged.

ISSUE:

Whether or not the cancellation and transfer of petitioner's shares and Certificate of Stock No. 2 as well as the issuance and cancellation of Certificate of Stock No. 8 was patently and palpably unlawful, null and void, invalid and fraudulent?

RULING:

YES.

Under the instant case, the fact of the matter is, the new holder, Angel S. Tan has already exercised his rights and prerogatives as stockholder and was even elected as member of the board of directors in the respondent corporation with the full knowledge and acquiescence of petitioner. Due to the transfer of fifty (50) shares, Angel S. Tan was clothed with rights and responsibilities in the board of the respondent corporation when he was elected as officer thereof.

Besides, in Philippine jurisprudence, a certificate of stock is not a negotiable instrument. "Although it is sometime regarded as quasi-negotiable, in the sense that it may be transferred by endorsement, coupled with delivery, it is well-settled that it is non-negotiable, because the holder thereof takes it without prejudice to such rights or defenses as the registered owner/s or transferror's creditor may have under the law, except insofar as such rights or defenses are subject to the limitations imposed by the principles governing estoppel."

To follow the argument put up by petitioner which was upheld by the Cebu SEC Extension Office Hearing Officer, Felix Chan, that the cancellation of Stock Certificate Nos. 2 and 8 was null and void for lack of delivery of the cancelled "mother" Certificate No. 2 whose endorsement was deliberately withheld by petitioner, is to prescribe certain restrictions on the transfer of stock in violation of the corporation law itself as the only law governing transfer of stocks. While Section 47(s) grants a stock corporations the authority to determine in the by-laws "the manner of issuing certificates" of shares of stock, however, the power to regulate is not the power to prohibit, or to impose unreasonable restrictions of the right of stockholders to transfer their shares.

PHILIPPINE NATIONAL BANK v. BITULOK SAWMILL INC. G.R. Nos. L-24177-85, June 29, 1968

PHILIPPINE NATIONAL BANK v. BITULOK SAWMILL INC.

G.R. Nos. L-24177-85, June 29, 1968

Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)

(Topic: Trust Fund Doctrine)

FACTS:

The Philippine Lumber Distributing Agency, Inc., according to the lower court, "was organized sometime in the early part of 1947 upon the initiative and insistence of the late President Manuel Roxas of the Republic of the Philippines who for the purpose, had called several conferences between him and the subscribers and organizers of the Philippine Lumber Distributing Agency, Inc." 5 The purpose was praiseworthy, to insure a steady supply of lumber, which could be sold at reasonable prices to enable the war sufferers to rehabilitate their devastated homes. The decision continues: "He convinced the lumber producers to form a lumber cooperative and to pool their sources together in order to wrest, particularly, the retail trade from aliens who were acting as middlemen in the distribution of lumber. At the beginning, the lumber producers were reluctant to organize the cooperative agency as they believed that it would not be easy to eliminate from the retail trade the alien middlemen who had been in this business from time immemorial, but because the late President Roxas made it clear that such a cooperative agency would not be successful without a substantial working capital which the lumber producers could not entirely shoulder, and as an inducement he promised and agreed to finance the agency by making the Government invest P9.00 by way of counterpart for every peso that the members would invest therein,...."

Accordingly, "the late President Roxas instructed the Hon. Emilio Abello, then Executive Secretary and Chairman of the Board of Directors of the Philippine National Bank, for the latter to grant said agency an overdraft in the original sum of P250,000.00 which was later increased to P350,000.00, which was approved by said Board of Directors of the Philippine National Bank on July 28, 1947, payable on or before April 30, 1958, with interest at the rate of 6% per annum, and secured by the chattel mortgages on the stock of lumber of said agency." 7 The Philippine Government did not invest the P9.00 for every peso coming from defendant lumber producers. The loan extended to the Philippine Lumber Distributing Agency by the Philippine National Bank was not paid. Hence, these suits.

ISSUE:

Whether or not the non-compliance with a plain statutory command, considering the persuasiveness of the plea that defendants-appellees would "not have subscribed to [the] capital stock" of the Philippine Lumber Distributing Agency "were it not for the assurance of the [then] President of the Republic of the Philippines that the Government would back [it] up by investing P9.00 for every peso" 4 subscribed, a condition which was not fulfilled, such commitment not having been complied with, be justified?

RULING:

NO.

It would be unwarranted to ascribe to the late President Roxas the view that the payment of the stock subscriptions, as thus required by law, could be condoned in the event that the counterpart fund to be invested by the Government would not be available. Even if such were the case, however, and such a promise were in fact made, to further the laudable purpose to which the proposed corporation would be devoted and the possibility that the lumber producers would lose money in the process, still the plain and specific wording of the applicable legal provision as interpreted by this Court must be controlling. It is a well-settled principle that with all the vast powers lodged in the Executive, he is still devoid of the prerogative of suspending the operation of any statute or any of its terms.

NATIONAL EXCHANGE CO., INC., v. I.B. DEXTER G.R. No. L-27872, February 25, 1928

NATIONAL EXCHANGE CO., INC., v. I.B. DEXTER

G.R. No. L-27872, February 25, 1928

Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)

(Topic: Subscription Contract)

FACTS:

This action was instituted in the Court of First Instance of Manila by the National Exchange Co., Inc., as assignee (through the Philippine National Bank) of C. S. Salmon & Co., for the purpose of recovering from I. B. Dexter a balance of P15,000, the par value of one hundred fifty shares of the capital stock of C. S. Salmon & co., with interest and costs. Upon hearing the cause the trial judge gave judgment for the plaintiff to recover the amount claimed, with lawful interest from January 1, 1920, and with costs. From this judgment the defendant appealed.

It appears that on August 10, 1919, the defendant, I. B. Dexter, signed a written subscription to the corporate stock of C. S. Salmon & Co. in the following form:

I hereby subscribe for three hundred (300) shares of the capital stock of C. S. Salmon and Company, payable from the first dividends declared on any and all shares of said company owned by me at the time dividends are declared, until the full amount of this subscription has been paid.

Upon this subscription the sum of P15,000 was paid in January, 1920, from a dividend declared at about that time by the company, supplemented by money supplied personally by the subscriber. Beyond this nothing has been paid on the shares and no further dividend has been declared by the corporation. There is therefore a balance of P15,000 still paid upon the subscription.

ISSUE:

Whether or not the stipulation contained in the subscription to the effect that the subscription is payable from the first dividends declared on the shares has the effect of relieving the subscriber from personal liability in an action to recover the value of the shares?

RULING:

NO.

In discussing this problem we accept as sound law the proposition propounded by the appellant's attorneys and taken from Fletcher's Cyclopedia as follows:

In the absence of restrictions in its character, a corporation, under its general power to contract, has the power to accept subscriptions upon any special terms not prohibited by positive law or contrary to public policy, provided they are not such as to require the performance of acts which are beyond the powers conferred upon the corporation by its character, and provided they do not constitute a fraud upon other subscribers or stockholders, or upon persons who are or may become creditors of the corporation.

Pursuant to this provision we find that the Philippine Commission inserted in the Corporation Law, enacted March 1, 1906, the following provision: ". . . no corporation shall issue stock or bonds except in exchange for actual cash paid to the corporation or for property actually received by it at a fair valuation equal to the par value of the stock or bonds so issued."

The prohibition against the issuance of shares by corporations except for actual cash to the par value of the stock to its full equivalent in property is thus enshrined in both the organic and statutory law of the Philippine; Islands; and it would seem that our lawmakers could scarely have chosen language more directly suited to secure absolute equality stockholders with respect to their liability upon stock subscriptions. Now, if it is unlawful to issue stock otherwise than as stated it is self-evident that a stipulation such as that now under consideration, in a stock subcription, is illegal, for this stipulation obligates the subcriber to pay nothing for the shares except as dividends may accrue upon the stock. In the contingency that dividends are not paid, there is no liability at all. This is a discrimination in favor of the particular subcriber, and hence the stipulation is unlawful.