School Year 2010-2011, Second Semester Corporation Law: Professor Jose B.

Quimson Prepared by: Mars de Torres , Starr Weigand and Ricca Sulit

Section 41. Power to acquire own shares. 1) Allowed for legitimate corporate purposes including but not limited to a) To eliminate fractional shares arising out of stock dividend declaration b) To purchase delinquent shares arising from delinquency of shares proceedings, for example, to collect or compromise indebtedness because of unpaid deliquent subscriptions c) To pay dissenting stockholders under right of appraisal i) Section 81, instances of appraisal rights (1)In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence (2)In case of sale, lease, exchange, transfer, mortgage, pledge, or other disposition of all or substantially all of the corporate property and assets as provided in this Code (3)In case of merger or consolidation

2) Provided corporation has unrestricted earning to cover stocks purchased or acquired 3) The Corporation Code does not specify what are illegitimate corporate purposes a) But the Securities and Regulation Code has provisions on insider trading, a prohibited act, for example, a corporation buys its own shares on info unknown to the public, that prices will go up Steinberg vs. Velasco, 52 Phil. 953 (1929) Section 42. Power to invest corporate funds in another corporation or business or for any other purposes other than the corporations primary purpose. 1) Needs vote of a) Majority of Board, in a meeting b) 2/3 of outstanding stock or members, in a meeting i) Stockholders/members approval not needed if investment in stock of other corporations is reasonably necessary to accomplish primary purpose, for example, a holding company investing shares of its subsidiaries ii) However, the meeting for this purpose needs written notice of (1)Proposed investment (2)Time and place of meeting 2) Dissenting stockholders have appraisal rights a) Section 81 on appraisal rights

i) In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence ii) In case of sale, lease, exchange, transfer, mortgage, pledge, or other disposition of all or substantially all of the corporate property and assets as provided in this Code iii) In case of merger or consolidation Dela Rama vs. Ma-Ao Sugar Central, 27 SCRA 247 (1969) Facts: A derivative suit was filed in the CFI by 4 minority stockholders against Ma-Ao Sugar Central and 4 of its directors, including J. Araneta, for the dissolution of Ma-Ao Sugar Central and for receivership. The complaint stated 5 causes of action all of which are based on illegal and ultra vires acts of the corporation consisting of selfdealing, irregular loans and unauthorized investments, resulting in mismanagement. It was stated that J. Araneta and the other directors took out the funds of Ma-Ao, without the approval of its Board of Directors, and delivered them to the various affiliate companies as loans and investments therein. The lower

court also found that there were untrue entries made in the books of the Central, which could not have been innocent errors. Thus, the CFI ordered J. Araneta to pay the Sugar Central P46,270.00 with 8% interest, but dismissed the complaint for dissolution. It ordered the Sugar Central to refrain from making investments to a mining company, a printing company and other companies whose purpose is not connected with the Sugar Centrals business. The directors were made to pay the costs of the suit. The petitioners filed the present appeal, as to the judgment of the CFI regarding an investment of the Centrals funds in Philippine Fiber. The CFI held as regards to that investment that it was perfectly legitimate for the Central to invest in said company as it was engaged in the manufacture of sugar bags, logically connected with the sugar milling business. The only requirement necessary to make the said investment valid was that it be ratified by the Board of Directors in a Resolution, which requirement was complied with in the present case. Issue: W/N the lower court erred in holding that the investment of the corporate funds of the Sugar Central in Philippine Fiber was not a violation of the Corporation Code. Held: No. According to Sulpicio S. Guevarra, UP Professor, A private corporation, in order to accomplish its purpose as stated in its articles of incorporation, and subject to the limitations imposed by the Corporation Law, has the power to acquire, hold, mortgage, pledge or dispose of shares,

School Year 2010-2011, Second Semester Corporation Law: Professor Jose B. Quimson Prepared by: Mars de Torres , Starr Weigand and Ricca Sulit

bonds, securities, and other evidences of indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval of the stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation, the vote of approval of the stockholders is necessary. When the investment is necessary to accomplish its purpose or purposes as stated in it articles of incorporation, the approval of the stockholders is not necessary. Since in this case the investment was made in a company making bags for sugar, it was necessary for the Sugar Central to make the said investment. However, the lower courts order for the Sugar Central "to refrain from making investments in any other company whose purpose is not connected with the sugar central business." This portion of the decision should be reversed because, Sec. 17- of the Corporation Law allows a corporation to "invest its fund in any other corporation or business, or for any purpose other than the main purpose for which it was organized," provided that its board of directors has been so authorized by the affirmative vote of stockholders holding shares entitling them to exercise at least two-thirds of the voting power. Gokongwei vs. SEC, 89 SCRA 336 (1979) Facts: Petitioner, stockholder of San Miguel Corp. filed a petition

with the SEC for the declaration of nullity of the by-laws etc. against the majority members of the BOD and San Miguel. It is stated in the by-laws that the amendment or modification of the by-laws may only be delegated to the BODs upon an affirmative vote of stockholders representing not less than 2/3 of the subscribed and paid uo capital stock of the corporation, which 2/3 could have been computed on the basis of the capitalization at the time of the amendment. Petitioner contends that the amendment was based on the 1961 authorization, the Board acted without authority and in usurpation of the power f the stockholders n amending the bylaws in 1976. He also contends that the 1961 authorization was already used in 1962 and 1963. He also contends that the amendment deprived him of his right to vote and be voted upon as a stockholder (because it disqualified competitors from nomination and election in the BOD of SMC), thus the amended by-laws were null and void. While this was pending, the corporation called for a stockholders meeting for the ratification of the amendment to the by-laws. This prompted petitioner to seek for summary judgment. This was denied by the SEC. In another case filed by petitioner, he alleged that the corporation had been using corporate funds in other corps and businesses outside the primary purpose clause of the corporation in violation of the Corporation Code. Issue: Are amendments valid?

Held: The validity and reasonableness of a by-law is purely a question of law. Whether the by-law is in conflict with the law of the land, or with thw charter of the corporation or is in legal sense unreasonable and therefore unlawful is a question of law. However, this is limited where the reasonableness of a by-law is a mere matter of judgement, and uone upon which reasonable minds must necessarily differ, a court would not be warranted in substituting its judgment instead of the judgment of those who are authorized to make by-laws and who have exercised authority. The Court held that a corporation has authority prescribed by law to prescribe the qualifications of directors. It has the inherent power to adopt by-laws for its internal government, and to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs. A corporation, under the Corporation law, may prescribe in its by-laws the qualifications, duties and compensation of directors, officers, and employees. Any person who buys stock in a corporation does so with the knowledge that its affairs are dominated by a majority of the stockholders and he impliedly contracts that the will of the majority shall govern in all matters within the limits of the acts of incorporation and lawfully enacted by-laws and not forbidden by law. Any corporation may amend its by-laws by the owners of the majority of the subscribed stock. It cannot thus

be said that petitioners has the vested right, as a stock holder, to be elected director, in the face of the fact that the law at the time such stockholder h=right was acquired contained the prescription that the corporate charter and the by-laws shall be subject to amendment, alteration and modification. A Director stands in a fiduciary relation to the corporation and its shareholders, which is characterized as a trust relationship. An amendment to the corporate by-laws which renders a stockholder ineligible to be director, if he be also director in a corporation whose business is in competition with that of the other corporation, has been sustained as valid. This is based upon the principle that where the director is employed in the service of a rival company, he cannot serve both, but must betray one or the other. The amendment in this case serves to advance the benefit of the corporation and is good. Corporate officers are also not permitted to use their position of trust and confidence to further their private needs, and the act done in furtherance of private needs is deemed to be for the benefit of the corporation. This is called the doctrine of corporate opportunity.

Gokongwei vs. SEC, 97 SCRA 78 (1980) Facts: this involves a petition for review to nullify the resolution en banc of the SEC sustaining the

School Year 2010-2011, Second Semester Corporation Law: Professor Jose B. Quimson Prepared by: Mars de Torres , Starr Weigand and Ricca Sulit

findings of the SMC s BODs that the petitioner is engaged in a business competitive with or antagonistic to that of the SMC, and therefore, is inelligible for election as director under its amended by-laws (see previous case). Issue: Should granted? the MR be

Held: It is well-settled that findings of fact of administrative bodies will not be interfered with by the courts in the absence of grave abuse of discretion on the part of said agencies, or unless the afore-mentioned findings are not supported by substantial evidence. The validity of the amended by-laws was already litigated by the Court in the previous case. Section 43. Power to declare dividends in cash, property or stock. 1) Only Board action needed a) Except stock dividends where stockholder action is needed b) Cash dividends due delinquent stock should first be applied to unpaid balance plus cost and expenses c) Stock dividends shall be withheld from delinquent stockholders until unpaid subscription is fully paid 2) Stock dividends need 2/3 vote of outstanding stock 3) Dividends payable out of unrestricted retained earnings 4) Stock corporations cannot retain surplus profits more than 100% of paid-in capital

stock unless a) Needed for corporate expansion projects by the Board b) Or prohibited by loan agreement which prohibits declaration of dividends without financial institutions consent c) Or needed under special circumstances, like a special reserve for contingencies Nielson and Co. vs. Lepanto Consolidated, 26 SCRA 540 (1968) Facts: A management contract was entered into between Nielson and Lepanto, whereby Lepanto will pay Nielson P2,500.00 per month and 10% of the net profits from the operation of the business, for operating and managing the mining business of Lepanto. The said contract was the basis of the SC ruling in a previous case between the parties, declaring that Nielson would receive 10% of any dividends declared and paid by Lepanto, when and as paid, Nielson should be paid 10% of the stock dividends declared by Lepanto during the period of extension of the contract. Lepanto filed a motion for reconsideration of the said decision, contending that the court erred in such order because it is a violation of the Corporation Law, Section 16, and that it was not, and it could not be, the intention of Lepanto and Nielson as contracting parties that the services of Nielson should be paid in shares of stock taken out of stock dividends declared by Lepanto.

Issue: W/N a corporation may issue to a non-stockholder stock dividends in payment for services rendered by the latter. Held: No. Nielson is not entitled to a share in the stock dividends since he is not a stockholder. However, it must still be paid his 10% fee using as the basis for computation the cash value of the stock dividends declared. As stated in the Corporation Code, the consideration for which shares of stock may be issued are: (1) cash; (2) property; and (3) undistributed profits. Shares of stock are given the special name "stock dividends" only if they are issued in lieu of undistributed profits. If shares of stocks are issued in exchange of cash or property then those shares do not fall under the category of "stock dividends". A corporation may legally issue shares of stock in consideration of services rendered to it by a person not a stockholder, or in payment of its indebtedness. A share of stock issued to pay for services rendered is equivalent to a stock issued in exchange of property, because services is equivalent to property. Likewise a share of stock issued in payment of indebtedness is equivalent to issuing a stock in exchange for cash. But a share of stock thus issued should be part of the original capital stock of the corporation upon its organization, or part of the stocks issued when the increase of the capitalization of a corporation is properly authorized. In other words, it is the shares of stock that are originally issued by the corporation and forming part of the capital that can be

exchanged for cash or services rendered, or property; that is, if the corporation has original shares of stock unsold or unsubscribed, either coming from the original capitalization or from the increased capitalization. Those shares of stock may be issued to a person who is not a stockholder, or to a person already a stockholder in exchange for services rendered or for cash or property. But a share of stock coming from stock dividends declared cannot be issued to one who is not a stockholder of a corporation. If a stockholder is deprived of his stock dividends - and this happens if the shares of stock forming part of the stock dividends are issued to a nonstockholder then the proportion of the stockholder's interest changes radically. Stock dividends are civil fruits of the original investment, and to the owners of the shares belong the civil fruits. Section 44. Power to enter into management contract. 1) Management contract where one corporation undertakes to manage all or substantially all of the business of another corporation, whether the contract is called service contracts or operating agreements or otherwise 2) Contracts may not exceed 5 years per term a) Except those relating to exploration, development, exploitation or utilization of natural resources where

School Year 2010-2011, Second Semester Corporation Law: Professor Jose B. Quimson Prepared by: Mars de Torres , Starr Weigand and Ricca Sulit

pertinent laws or regulations will govern. 3) This needs approval of a) Board of Directors of both managing and managed corporations b) Majority of outstanding shares or members of both managing and managed corporations c) But 2/3 vote of outstanding stock/members of managed corporation necessary in the following cases i) Where stockholders of both managing and managed corporation, the common stockholders own or control more than 1/3 of outstanding stock of managing corporation, or ii) Where majority of directors sin both corporations are the same Section 45. Ultra vires acts of corporations. 1) Ultra vires acts acts that a corporation cannot perform because they are outside its express, implied or incidental powers a) As conferred by the Corporation Code b) Or as stated in Articles 2) Ultra vires acts are merely voidable they can be enforced a) By performance b) By ratification by stockholders c) By estoppel on equitable grounds

Pirovano vs. dela Rama, 96 Phil 335 (1954) Short Facts: Plaintiffs herein are the minor children of the late Enrico Pirovano represented by their mother and judicial guardian Estefania R. Pirovano. They seek to enforce certain resolutions adopted by the Board of Directors and stockholders of the defendant company giving to said minor children of the proceeds of the insurance policies taken on the life of their deceased father Enrico Pirovano with the company as beneficiary. Defendant's main defense is: that said resolutions and the contract executed pursuant thereto are ultra vires, and, if valid, the obligation to pay the amount given is not yet due and demandable.es virtual law library FACTS: Defendant is a corporation duly organized in accordance with law. Enrico Pirovano became the president of the defendant company and under his management the company grew and progressed until it became a multi-million corporation by the time Pirovano was executed by the Japanese during the occupation. Under Pirovano's management, the assets of the company grew and increased from an original paid up capital of around P240,000 to P15.5M. In the meantime, Don Esteban de la Rama, who practically owned and controlled the stock of the defendant corporation, distributed his shareholding among his five daughters. A resolution granting

to the Pirovano children the proceeds of the insurance policies taken on his life by the defendant company was adopted by the Board of Directors. It appears that, although Don Esteban and the Members of his family were agreeable to giving to the Pirovano children the amount of P400,000 out of the proceeds of the insurance policies taken on the life of Enrico Pirovano, they did not realize that when they provided in the above referred two resolutions that said Amount should be paid in the form of shares of stock, they would be actually giving to the Pirovano children more than what they intended to give. Board of Directors of the De la Rama Company adopted a resolution changing the form of the donation to the Pirovano children from a donation of 4,000 shares of stock as originally planned into a renunciation in favor of the children of all the company's "right, title, and interest as beneficiary in and to the proceeds of the abovementioned life insurance policies", subject to the express condition that said proceeds should be retained by the company as a loan drawing interest at the rate of 5 per cent per annum and payable to the Pirovano children after the company "shall have first settled in full the balance of its present remaining bonded indebtedness The above resolution was carried out by the company and Mrs. Estefania R. Pirovano, the latter acting as guardian of her children, by executing a Memorandum Agreement respectively, stating therein that the De la Rama

Steamship Co., Inc., shall enter in its books as a loan the proceeds of the life insurance policies taken on the life of Pirovano totalling S321,500, which loan would earn interest at the rate of 5 per cent per annum. Mrs. Pirovano, in executing the agreement, acted with the express authority granted to her by the court. Board of Directors approved a resolution providing therein that instead of the interest on the loan being payable, together with the principal, only after the company shall have first settled in full its bonded indebtedness, said interest may be paid to the Pirovano children "whenever the company is in a position to met said obligation" and, Mrs. Pirovano executed a public document in which she formally accepted the donation. Two years and 3 months after the donation had been approved in the various resolutions herein above mentioned, the stockholders of the De la Rama company formally ratified the donation, with certain clarifying modifications, including the resolution approving the transfer of the Demwood property to the Pirovano children. President of the corporation, Sergio Osmea, Jr., addressed an inquiry to the Securities and Exchange Commission asking for opinion regarding the validity of the donation of the proceeds of the insurance policies to the Pirovano children. That office rendered its opinion that the donation was void because the corporation could not dispose of its assets by gift and therefore the corporation acted beyond the scope of its corporate powers.

School Year 2010-2011, Second Semester Corporation Law: Professor Jose B. Quimson Prepared by: Mars de Torres , Starr Weigand and Ricca Sulit

The board, at a stockholders' meeting convened the majority of the stockholders' voted to revoke the resolution approving the donation to the Pirovano children. In view of the resolution declaring that the corporation failed to comply with the condition set for the effectivity of the donation and revoking at the same time the approval given to it by the corporation, and considering that the corporation can no longer set aside said donation because it had no longer set aside said donation because it had long been perfected and consummated, the minor children of the late Enrico Pirovano, represented by their mother and guardian, Estefania R. de Pirovano, demanded the payment of the credit due them as of December 31, 1951, amounting to P564K, and this payment having been refused, they instituted the present action in the Court of First Instance. ISSUE: WON defendant corporation can give by way of donation the proceeds of said insurance policies to the minor children of the late Enrico Pirovano under the law or its articles of corporation, or is that donation an ultra vires act? HELD: The corporation was given broad and almost unlimited powers to carry out the purposes for which it was organized among them, (1) "To invest and deal with the moneys of the company not immediately required, in such manner as from time to time may be determined" and, (2) "to aid in any other manner any person, association, or corporation of

which any obligation or in which any interest is held by this corporation or in the affairs or prosperity of which this corporation has a lawful interest." The world deal is broad enough to include any manner of disposition, and refers to moneys not immediately required by the corporation, and such disposition may be made in such manner as from time to time may be determined by the corporations. Granting arguendo that the donation given by Pirovano children is outside the scope of the powers of the defendant corporation, or the scope of the powers that it may exercise under the law, or it is an ultra vires act, still it may said that the same can not be invalidated, or declared legally ineffective for the reason alone, it appearing that the donation represents not only the act of the Board of Directors but of the stockholders themselves as shown by the fact that the same has been expressly ratified in a resolution duly approved by the latter. By this ratification, the infirmity of the corporate act, it may has been obliterated thereby making the cat perfectly valid and enforceable. This is specially so if the donation is not merely executory but executed and consummated and no creditors are prejudice, or if there are creditors affected, the latter has expressly given their confirmity.cs virtual law library A little digression needs be made on this matter to show the different legal effect that may result consequent upon the performance of a particular ultra vires act on the part of the

corporation. may authorities may be cited interpreting or defining, extent, and scope of an ultra vires act, but all of them are uniform and unanimous that the same may be either an act performed merely outside the scope of the powers granted to it by it articles of incorporation, or one which is contrary to law or violative of any principle which will void any contract whether done individually or collectively. In other words, a distinction should be made between corporate acts or contracts which are illegal and those which are merely ultra vires. The former contemplates the doing of an act which is contrary to law, morals, or public policy or public duty, and are, like similar transactions between the individuals void. They cannot serve as basis of a court action, nor require validity ultra vires acts on the other hand, or those which are not illegal and void ab initio, but are merely within are not illegal and void ab initio, but are not merely within the scope of the articles of incorporation, are merely voidable and may become binding and enforceable when ratified by the stockholders. Since it is not contended that the donation under consideration is illegal, or contrary to any of the express provision of the articles of incorporation, nor prejudicial to the creditors of the defendant corporation, we cannot but logically conclude, on the strength of the authorities we have quoted above, that said donation, even if ultra vires in the supposition we have adverted to, is not void, and if voidable its

infirmity has been cured by ratification and subsequent acts of the defendant corporation. The defendant corporation, therefore, is now prevented or estopped from contesting the validity of the donation. This is specially so in this case when the very directors who conceived the idea of granting said donation are practically the stockholders themselves, with few nominal exception. This applies to the new stockholder Jose Cojuangco who acquired his interest after the donation has been made because of the rule that a "purchaser of shares of stock cannot avoid ultra vires acts of the corporation authorized by its vendor, except those done after the purchase" Indeed, how can the stockholders now pretend to revoke the donation which has been partly consummated? How can the corporation now set at naught the transfer made to Mrs. Pirovano of the property in New York, U.S.A., the price of which was paid by her but of the proceeds of the insurance policies given as donation. To allow the corporation to undo what it has done would only be most unfair but would contravene the well-settled doctrine that the defense of ultra vires cannot be set up or availed of in completed transactions

Republic vs. Acoje Mining, 7 SCRA 362 (1963) FACTS: Acoje Mining Company, Inc. wrote the Director of Posts requesting the opening of a post, telegraph and money order

School Year 2010-2011, Second Semester Corporation Law: Professor Jose B. Quimson Prepared by: Mars de Torres , Starr Weigand and Ricca Sulit

offices at its mining camp at Sta. Cruz, Zambales, to service its employees and their families that were living in said camp. Director of Posts replied that if aside from free quarters the company would provide for all essential equipment and assign a responsible employee to perform the duties of a postmaster without compensation from his office until such time as funds therefor may be available he would agree to put up the offices requested. The company signified its willingness to comply with all the requirements. Director of Posts again wrote a letter to the company stating that "In cases where a post office will be opened under circumstances similar to the present, it is the policy of this office to have the company assume direct responsibility for whatever pecuniary loss may be suffered by the Bureau of Posts by reason of any act of dishonesty, carelessness or negligence on the part of the employee of the company who is assigned to take charge of the post office," thereby suggesting that a resolution be adopted by the board of directors of the company expressing conformity to the above condition relative to the responsibility to be assumed buy it in the event a post office branch is opened as requested. A resolution was passed stating that the requirement of the Bureau of Posts that the Company should accept full responsibility for all cash received by the Postmaster be complied with. The post office branch was opened at the camp with Sanchez as postmaster. He is an employee of the company. He went on a three-day leave but never returned. The company

provincial auditor of Zambales of Sanchez' disappearance with the result that the accounts of the postmaster were checked and a shortage was found in the amount of P13,867.24. The several demands made upon the company for the payment of the shortage in line with the liability it has assumed having failed, the government commenced the present action seeking to recover the amount of Pl3,867.24. The company in its answer denied liability for said amount contending that the resolution of the board of directors wherein it assumed responsibility for the act of the postmaster is ultra vires, and in any event its liability under said resolution is only that of a guarantor who answers only after the exhaustion of the properties of the principal, aside from the fact that the loss claimed by the plaintiff is not supported by the office record.

ISSUE: WON the resolution adopted by the company is ultra vires in the sense that it has no authority to act on a matter which may render the company liable as a guarantor has no factual or legal basis? NO.

HELD: The claim that the resolution adopted by the board of directors of appellant company is an ultra vires act cannot also be entertained it appearing that the same covers a subject which concerns the benefit, convenience and welfare of its employees and their families. While as a rule an

ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the powers conferred upon it by law, 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. Thus, it has been held that "although not expressly authorized to do so a corporation may become a surety where the particular transaction is reasonably necessary or proper to the conduct of its business,"1 and here it is undisputed that the establishment of the local post office is a reasonable and proper adjunct to the conduct of the business of appellant company. Indeed, such post office is a vital improvement in the living condition of its employees and laborers who came to settle in its mining camp which is far removed from the postal facilities or means of communication accorded to people living in a city or municipality. Even assuming arguendo that the resolution in question constitutes an ultra vires act, the same however is not void for it was approved not in contravention of law, customs, public order or public policy. The term ultra vires should be distinguished from an illegal act for the former is merely voidable which may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be validated.2 It being merely voidable, an ultra vires act can be enforced or validated if there are equitable grounds for

taking such action. Here it is fair that the resolution be upheld at least on the ground of estoppel. Japanese War Notes vs. SEC, 101 Phil 540 (1957) FACTS: Securities and Exchange Commissioner issued an order requiring petitioner and its President, Mr. Alfredo Abcede, to show cause why it should not be proceeded against for making misrepresentations to the public about the need of registering and depositing Japanese war notes, with a view to their probable redemption as contemplated in Senate Bill No. 163 and in Senate Concurrent Resolution No. 14, for otherwise they would be valueless. Petitioner tried to show that there were no misrepresentations made by them in their publications and that the mistake made by them (that President Magsaysay would soon make representations to the United States Government to have the war notes redeemed) was made in good faith as it was later retracted and rectified. They also stated that they longed and hoped that the war notes would be redeemed; that they are sincere and honest in their activities; and that they are entitled to their beliefs. The Commissioner found that according to its articles the petitioner has the privilege to work for the redemption of the war notes of its members alone, but that it can not offer its services to the public for a valuable consideration, because there is nothing definite and tangible about the redemption of

School Year 2010-2011, Second Semester Corporation Law: Professor Jose B. Quimson Prepared by: Mars de Torres , Starr Weigand and Ricca Sulit

the war notes and its success is speculative; that any authority given to offer services can easily degenerate into a racket; that under its articles of incorporation the petitioner is a civic and nonstock corporation and should not engage in business for profit; that it has received war notes for deposit, upon payment of fees, without authority in its articles to do so; that it had previously been ordered to desist from collecting fees for those registering the war notes, but notwithstanding this prohibition it has, done so in the guise of service fees.

investigation.

The registration of war notes and the collection of fees therefor is not prohibited by the corporation law and the authority of the petitioner to engage therein is implied from its articles of incorporation, the purposes of which are:

ISSUES: WON petitioner should stop the registration of Japanese war notes, receiving same for deposit and charging fees? YES. WON petitioner should desist from accepting and collecting fees for reparation claims for civilian casualties and injuries? YES

(1) To consecrate and sanctify in a strong and militant organization in the furtherance of the financial conditions of its members, toward the attainment of their claims; (2) To take a position which is only secondary and complimentary to that of our constituted government in campaigning for the welfare of our people, especially when it is to demand redemption of currency from foreign country; (3) To work for, and to make due representations with the United States and Japanese Governments, for the redemption and, or, for the future payments of the Japanese War Notes (mickey mouse money); (4) To instill the ties of comradeship through this and noble gesture of goodwill between our people and country with the people and countries of the

HELD: While it may be true that the issue which started the investigation has been the misrepresentations made to the public by the petitioner herein, the order is based on the findings of fact made in the course of the investigation and the prohibition stated in the order aims at the eradication of the source of the evil of misrepresentation that was the subject of the investigation. It can not be said that the resultant order is not germane or related to the subject-matter of the

United States and Japan; (5) To do any and all acts and things which are naturally incidental on arising out of the purpose or any others.

The articles authorize collection of fees from members; but they do not authorize the corporation to engage in the business of registering and accepting war notes for deposit and collecting fees from such services. The association has no authority to accept and collect fees for reparation claims for civilian casualties and other injuries. This is beyond any of the powers of the association as embodied in its articles and have absolutely no relation to the avowed purpose of the association to work for the redemption of war notes.