Corpsec notes 6

9. Appraisal Right (sec. 80-85) (old sections 81-86) – a statutory

right given to a stockholder in case they vote on a dissent or refused
to acknowledge a seemingly ill-timed practice of the corporation
that may seen to lessen the value of their share, thus, they have to
invoke their appraisal right.
Right to ‘bolt out’ of the corporation. To compel the company

a. When Right of Appraisal May Be Exercised (Secs.11; 15; 39;

41; 76) (old Secs.11; 16; 40; 42; 77) – when the stockholders
dissents on the following;
- extending or shortening the corporate term
- restriction of rights or privileges of shares through the amendment
of the AOI
- sale of all or substantially all corporate assets
- equity investment in non-primary purpose business enterprise
- merger or consolidation

b. Outline on Exercise of Appraisal Right –

1. DISSENTING STOCKHOLDER submits written demand on the
corporation for payment of the fair market value of his shares
within 30days from the date his vote was taken (loses all the rights
including voting and dividend rights from the day he submit
demand)>
2. 10days from the demand, the dissenting stockholder submit his
certificates of stocks for notation that such certificates represent
dissenting shares (if the proposed corporate action is implemented,
fair value of the stock to be paid to the dissenting stockholder shall
be based on the day before the vote was taken excluding
appreciation or depreciation) >
3. within 60days from the date of stockholders approval of
corporate action, the corporation and the dissenting stockholder
shall agree as to the fair value of the dissenting shares>
4. if after 60days, no agreement, form 3 disinterested persons, 1
from dissenting stockholder, 1 from corporation and 1 chosen by
the 2 thus chosen>
5. within 30days payment of the corporation shall be made from the
amount determined by the appraisers>
6. after 30days and no amount is paid, the right of the dissenting
stockholder shall be restored.

c. Summary of Instances When Right of Appraisal is Lost –

(1) Failure to make written demand within 30 days after the vote
was taken on the corporate act;
(2) Failure to surrender certificate of stock within 10 days from
demand for notation;
(3) Non-existence of unrestricted retained earnings or profit to cover
payment of the fair value of dissenting shares within 30 days from
date of award;
(4) Subsequent transfer of the shares which have been annotated
when new certificates of stock are issued;
(5) When the corporation consents a demanding stockholder to
withdraw the exercise of appraisal right;
(6) Abandonment of corporate action;
(7) Disapproval of action by SEC.

d. Who Shoulders Cost of Appraisal –

(a) By the corporation, where the value as determined by the
appraisers is higher than what was offered by the corporation to the
dissenting stockholder.
(b) By dissenting stockholder, if the value determined by appraisers
is approximately the same as the price offered by the corporation.
(c) By corporation, if action is filed to recover the fair value of the
shares and the stockholder's refusal to receive payment is justified.
(d) By dissenting stockholder, where an action to recover is filed and
the refusal of such stockholder to receive payment is unjustified.
• Turner vs. Lorenzo Shipping Corp. (636 SCRA 13 [2010])

10. Right to Receive Proportionately the Net Assets of the

Corporation After Dissolution
a. Stockholders and Stock Corporations (Sec.139) (old Sec. 122) -
Except by decrease of capital stock and as otherwise allowed by the
Corporation Code, no corporation shall distribute any of its assets
or property to its stockholders except upon lawful dissolution and
after payment of all its liabilities
• President of PDIC vs. Reyes (460 SCRA 473 [2005])
• Ong Yong vs. Tiu (401 SCRA 1 [2003]) (discussed in Business
Judgment Rule; read again but not subject of recitation here)

Credit Transactions – by hierarchy of creditors, by order of liens,

they are paid according to comply with the trust fund doctrine.
Must be approved by the liquidation court.
Section 39

b. Members and Foundations (Secs.93; 94) (old Secs.94; 95) - Upon

dissolution of a non-stock corporation, all liabilities and obligations
must first be paid, and assets received and held subject to
limitations permitting their use for specified eleemosynary purposes
shall be properly transferred or returned, then the net assets
remaining, if any, shall be distributed to the members, or any class
or classes of members, to the extent that the articles of
incorporation or by-laws provide for a plan of distribution – as
adopted by the majority of the board and by at least 2/3 of voting
rights.

VII. SUBSCRIPTION AGREEMENTS, SHARES OF STOCK &

STOCK CERTIFICATES (Sections 59-72) (old Sections 60-73) –
covers the basic right of the stockholders to the property they hold –
the shares- the right to dispose, encumber or deal with them as
owners thereof and their right to receive a covering certificate of
stock.
Shares of stock – are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner or his
attorney-in-fact or other persons legally authorized to make the
transfer.
Subscription Agreement – any contract for acquisition of unissued
stock in an existing corporation or a corporation still to be formed
shall be deemed a subscription. SUBSCRIBING TO AN
INVESTMENT TO A COMPANY
a. Not Governed by Ordinary Sales Contract Doctrine (Sec.59)
(old Sec. 60) – prohibits the distinction between the sale of unissued
stock or subscription of such stock; all contracts for the
subscription or sale of unissued stock shall be governed solely by
the rules pertaining to subscription agreement.
(1) Unlike in an ordinary sale, any condition or clause which
effectively renders unenforceable the obligation of the subscriber to
pay his subscription would be considered void;
(2) Mutual withdrawal allowed in sale is not allowed for a
subscription agreement, such that any action by the corporation
absolving the subscriber from the payment of his shares, would be
void;
(3) Upon insolvency of the corporation, which under ordinary sale
would allow the buyer of shares to rescind the contract, but in a
subscription agreement, the insolvency makes all the subscription
receivables due and demandable even when the stipulated date of
payment has not arrived.
HOWEVER: (a) Transfer for consideration of treasury shares is a
sale by the corporation.
(b) A transfer of fully paid shares by a stockholder to a third person
is a sale.

b. Contractual Nature of a Subscription Agreement -

subscription agreement is nevertheless a species of the genus sale
in that it involves the transfer of ownership to a property right
(share) for valuable consideration (Art. 1458, Civil Code), as
therefore has the same essential characteristics of sale, i.e.,
consensual, onerous, commutative, with bilateral/reciprocal
obligations.
EXCEPT: (i) Any feature or doctrine pertaining to sales that would
undermine the ability of the corporation to enforce payment of the
subscription would not apply to subscription agreements; and:
(ii) Although a subscription agreement is perfected and becomes
binding upon perfection (i.e., meeting on the minds on the shares
and the Page 130 of 208 subscription amount to be paid, and does
not require payment of the subscription for the tranfer of
ownership), nevertheless it is perfection of subscription agreement
that subscriber assumes all the rights of ownership to the shares
subscribed.

c. Pre-Incorporation Subscription (Sec. 60) (old Sec. 61) -

subscription for shares of stock of a corporation still to be formed
shall be irrevocable for a period of at least 6 months from the date
of subscription.
UNLESS: (a) All of the other subscribers consent to the revocation;
or (b) Incorporation of said corporation fails to materialize within
said period or within a longer period as may be stipulated in the
contract of subscription:
PROVIDED: No pre-incorporation subscription may be revoked after
the submission of articles of incorporation to SEC.

d. Consideration for Subscription of Shares (Sec.61) (old Sec. 62) –

(a) Actual cash paid to the corporation;
(b) Property, tangible or intangible, actually received by the
corporation and necessary or convenient for its use and lawful
purposes at a fair valuation equal to the par or issued value of the
stock issued;
(c) Labor performed for or services actually rendered to the
corporation;
(d) Previously incurred indebtedness by the corporation;
(e) Amounts transferred from unrestricted retained earnings to
stated capital; and
(f) Outstanding shares exchanged for stocks in the event of
reclassification or conversion.

e. Issued Price or Par Value (Sec.61) (old Sec. 62) - Stocks shall not
be issued for a consideration less than the par or issued price
thereof. The issued price of no-par value shares may be fixed:
(a) In the articles of incorporation;
(b) By the Board of Directors pursuant to authority conferred upon
it by the articles of incorporation or the by-laws; or
(c) In the absence thereof by the stockholders at a meeting duly
called for the purpose representing at least a majority of the
outstanding capital stock.

f. Liability of Directors for Watered Stocks (Sec. 64) (old Sec. 65)
– a director is PERSONALLY liable if;
(a) he consents to the issuance of stocks for a consideration less
than the par or issued value;
(b) consents to the issuance of stocks for a consideration other than
cash, calued in excess of the stocks fair value; or
(c) having known of insufficient funding from a stockholder, failed
to file a written objection with the corporate secretary, shall be
solidarily liable with the stockholder for the difference of value
received at the time of issuance of stock and the par issued value of
the same
BUT they can escape liability by invoking ‘business judgement’ rule

g. Liability for Unpaid Subscription (Secs.65; 66) (old Secs. 66;

67) – subscribers for stocks shall be liable for the stock’s value
interests for all unpaid subscriptions from the date of subscription
or as required by the rate of interest.
Subject to the provisions of the subscription contract,, the board
may, declare due and payable to the corporation unpaid
subscription and may collect the same with accrued interest if
necessary. Payment of unpaid subscription or any percentage
thereof with any accrued interest shall be made on the date
specified in the subscription contract or on a date stated in a call by
the board.

2. Shares of Stock (Sec. 6) – a personal property and may be

transferred by delivery of the certificate indorsed by the owner or
his attorney-in-fact or other person legally authorized to make the
transfer;
No share may be deprived of voting rights except those qualified as
PREFERRED or REDEEMABLE shares; in which they can still
exercise voting rights on;
- amendment of AOI
- adoption and amendment of bylaws
- sale, lease, mortgage, pleadge or any disposition for corporation
assets and properties
- incurring, creating or increasing bonded indebtedness
- increase or decrease of capital stock
- merger or consolidation of the corporation business in accordance
to this code
- investment in another corporation or business venture
- dissolution of the corporation
• Forest Hills Golf & Country Club vs. Vertex Sales & Trading (692
SCRA 706 [2013])
a. General Rule on Classification of Shares (Sec. 6) 10 –
(i) Founder’s Share – exclusive right to vote and be voted in
the election of directors; comprise only 10% of the
outstanding stock usually only issued to the ones who bring
the business to where it is now. Voting rights 1 Founder
vote is equivalent to 10 votes (SEC-OGC Opinion no. 10-02)
(ii) Redeemable Shares – regardless the existence of
unrestricted retained earnings, shares issued by the
corporation which can be bought back upon expiration of
the term. No voting rights.
(iii) Treasury Shares – shares of stock which have been issued
by the corporation and fully paid for, but subsequently
reacquired by the issuing corporation by purchase,
 redemption, donation or some other lawful means. Such
shares may again be disposed. No voting rights.
(iv) Common Shares – represent the residual ownership
interest in the corporation. It is a basic class of stock
ordinarily and usually issued without extraordinary rights
or privileges and entitles the shareholder to a pro rate
division of profits. With voting rights.

Doctrine of equality of shares says that a common share

usually carries with it the exclusive right to vote.
(v) Preferred Shares – given preference in distribution of
dividends and in distribution of corporate assets during
liquidation and after payment of obligations to creditors. No
voting rights
(vi) Par Value Shares – shares with fixed value as stated in the
AOI or in the certificate of stock. (banks, trust companies,
insurance companies, public utilities, building and loan
associations)
(vii) No-Par Value Shares (Sec.61) (old Sec.62) – a share without
value stated in money but it has issued value of no less
than 5pesos.

Reclassification, Conversion or Exchange of Shares -

3. Certificate of Stock (Sec.62) (old Sec. 63) – duly issued by the

corporation, upon payment of full amount of subscribed shares, a
certificate is issued. THE BEST EVIDENCE OF STOCK
OWNERSHIP, shares of stock however is the unit of shares in a
corporation.
capital stock shall be divided into shares for which certificates
signed by the President or VP countersigned by the secretary and
sealed with a seal of the corporation in accordance with by-laws.
a. Rule on Issuance of Certificate of Stock (Sec.63) (old Sec. 64) – no
certificate of stock shall be issued to a subscriber until the full
amount of his subscription together with the interest and expenses
has been paid.
Mandamus is the proper remedy if the corporation refuses to issue
certificate of stock.
b. Nature of Certificate of Stock
• Makati Sports Club, Inc. vs. Cheng (621 SCRA 103 [2010])
c. Limits of Binding Value of Certificate of Stock on Determining
Who Are SHs
d. Quasi-Negotiable Character of Stock Certificates -
(a) there must be an actual delivery of stock certificate;
(b) the certificate must be endorsed by the owner or his attorney-in-
fact or other persons legally authorized to make transfer; and
(c) to be valid against third parties, the transfer must be recorded in
the books of the corporation
• Bitong vs. CA (292 SCRA 503 [1998])

e. penalties for Delinquent Shares (Sec.70) (old Sec. 71) – no

delinquent stocks shall be voted for, be entitled to vote or be
represented at any stockholders meeting nor shall the holder
thereof be entitled to any of the rights of a stockholder except the
right to dividends, until and unless payment is made by the holder
of such delinquent stock for the amount due on the subscription
with interest.
- right to vote and be represented in the meetings
- pre-emptive rights
- right to examine books
Delinquent shares- non-payment of subscription with accrued
interests or non-payment of balance of subscription
EFFECT: the board may order by resolution the sale of delinquent
stock and shall specifically state the amount due on each
subscription plus all accrued interest and the date time and place
of the sale shall be set not less than 30days nor more thatn 60days
from the date the stocks become delinquent.

f. Lost or Destroyed Certificates (Sec. 72) (old Sec. 73) – other proofs
are STB. Corporation code has mechanism by which lost certificate
of stock is replaced.

(a) the registered owner of the certificates of stock or his legal

representative shall file with the corporation an affidavit setting
forth, if possible:
(i) the circumstances as to how the certificate were lost, stolen
or destroyed
(ii) the number of shares represented by each certificate, the
serial numbers of the certificate
(iii) the name of the corporation which issued the same
(iv) submit other information and evidence which may deem
necessary
(b) corporation shall publish the notice in a newspaper of general
circulation once a week for 3 consecutive weeks at the expense of
the registered owner
(c) instead of waiting for 1 year, the registered owner may file a
bond or other security running for a period of 1 year for a sum and
in such from and with such sureties as may be satisfactory to the
board in which case a new certificate may be issue before the
expiration of 1 year
(d) provided that if there is a pending contest regarding the
ownership of said certificates of stock, the issuance of new
certificates of stock in lieu shall be suspended until the final
decision of the court.
Except In case of fraud, bad faith or negligence on the part of the
corporation who may issue new certificates of stock, in lieu of the
lost, stolen or destroyed stocks certificates.

4. Stock and Transfer Book (STB) (Sec. 73) (old Sec. 74) – 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.
only the transfers of stock certificates can be recorded. The sale of
subscription agreements cannot be recorded in the stock and
transfer books. Corporate secretary is the only person responsible
for the entry. SEC is responsible for the registration and monitoring
of STBs, cognizant of the STB registration procedures.
NO NEED FOR THE RECORDING TO THE STB FOR THE VALID
TRANSFER. But signed by corp secretary
• Batangas Laguna Tayabas Bus Co. vs. Bitanga (362 SCRA 635
[2001])

5. Transfers and Other Dealings of Shares (Sec.62) (old Sec. 63) –

not valid unless recorded in the books of the corporation. Until the
transfer is registered, the transferee is not a stockholder but an
outsider.
- Duly indorsed by the transferor
- have the sale recorded in the STB, have his name cancelled in the
STB
NO NEED FOR AMENDMENTS OF AOI if there is a sale of shares.
a. Section 62 Covers Only Transfers & Disposition of Shares, Not
Encumbrances Thereof
b. When Shares Transferred Covered by Stock Certificates
• Andaya vs. Rural Bank of Cabadbaran, Inc. (799 SCRA 325
[2016]) 11

b. When Shares Transferred Not Covered by Stock Certificates

New stockholders are recorded in the succeeding GIS of the
corporation submitted to the SEC
d. Assignment of Stock Certificate by Way of Security Equitable
Mortgage
e. Shares Held in Trust - Even when it is shown that the registered
owner of shares of stock holds the share in trust for the benefit of
the principal, it is necessary nevertheless that the trustee must still
endorse the stock certificate to validate the cancellation of her share
and to have the transfer recorded in the books of the corporation in
favor of the principal or another trustee.

VIII. ACQUISITIONS, MERGERS & CONSOLIDATIONS (Sections

75-79) (old Sections 76-80) -

Acquisitions and Transfers - a corporation that purchases the

assets of another corporation will not be liable for the debts of the
selling corporation, provided the former acted in good faith and paid
adequate consideration for such assets, except when any of the
following circumstances is present:
Nell Doctrine which states;
Generally, where one corporation sells or otherwise transfers all of
its assets to another corporation, the latter is not liable for the
debts and liabilities of the transferor, except:

1. Where the purchaser expressly or impliedly agrees to

assume such debts;

2. Where the transaction amounts to a consolidation or

merger of the corporations;

3. Where the purchasing corporation is merely a

continuation of the selling corporation; and

4. Where the transaction is entered into fraudulently in

order to escape liability for such debts.

The Nell Doctrine states the general rule that the transfer of all the
assets of a corporation to another shall not render the latter liable
to the liabilities of the transferor. If any of the above-cited
exceptions are present, then the transferee corporation shall
assume the liabilities of the transferor.

the business-enterprise transfer doctrine, the transferee is liable

for the debts and liabilities of his transferor arising from the
business enterprise conveyed. Many of the application of the
business-enterprise transfer have been related by the Court to the
application of the piercing doctrine.
The court affirmed the decision of the court of appeals that says,
when technically all of the assets of a corporation in doing business
and practice its enterprise have been passed on or transferred,
there is no other way for the creditors of the transferor to redeem all
the necessary debt owed to him except ran after the transferee.
Thus the application of business-enterprise transfer doctrine.
The court says, a sale or other disposition shall be deemed to cover
substantially all the corporate property and assets, thereby
rendering the corporation incapable of continuing the business or
accomplishing the purpose for which it was incorporated.
In other words, the transferee purchases not only the assets of the
transferor, but also its business. As a result of the sale, the
transferor is merely left with its juridical existence, devoid of its
industry and earning capacity.

Mergers and consolidations to doctrine of estoppel on foreign

corporations (global business v. sure comp)