Corporation Law
Mrs. Pirovano, would have a voting power
October 4, 2022 Cases
Ultra Vires
Pirovano vs. De La Rama Steamship Co.
Facts:
Dela Rama Steamship insured the life of
Enrico Pirovano, president of the company,
managed the company until it became a
multinational corporation; Pirovano was
executed by the Japanese.
The company then received the total of the
sum of the insurance,
BOD issued a resolution out of the proceeds;
the sum of 400k division equal to 4 minor
children convertible into shares of stock of
Dela Rama; at par for that purpose the present
stockholders be requested to waive their pre-
emptive rights to 4k shares of unissued stocks
in order enable each 4 minor heirs to obtain 1k
shares at par;
If the Pirovano children would given shares of
stock; the voting strength of the 5 daughters of
Don Esteban would be adversely affected….
twice that of her sisters;
Lourdes De La Rama wrote to the secretary of
the corporation, Atty. Luchuaco; asking him to
cancel the waiver she supposedly gave her pre-
emptive rights.
The company then, amended the resolution
turning into a loan with 5% interest payable
when the obligation can be met;
The company also revoked its donation of the
life premium proceeds since it is not in
compliance with the SEC.
Thus, the minor children of the Late Enrico
Pirovano, represented by their mother and
judicial guardian demanded the payment of the
credit due them
RTC held contract of donation in corporation
is not ultra vires;
Issue:
Whether or not, corporation donation of the
proceeds of insurance policies is an ultra vires
act?
Held:
No, Valid and Binding.
The donation has reached the stage of
perfection which is valid and binding upon the
corporation and as such cannot be rescinded
unless there is exist legal grounds to do;
In the opinion of SEC said donation is ultra
vires,
If the articles of incorporation contain;
To invest and deal with the moneys of
the company and immediately required, in
such manner as from time to time may be
determined.
To aid in any other manner any
persons, associations or corporation or which
any interest is held by this corporation or in the
affairs or prosperity of which the corporation
has lawful interest;
By ratification the infirmity of the corporate
act has been obliterated thereby making it
perfectly valid and enforceable, this is
specially so if the donation is not merely
executory but executed and consummated and
no creditor are prejudice.

If there are creditors affected, the latter has

expressly given their conformity;
Luneta Motors Company vs. AD Santos Inc.
Summary / Facts:
Double mortgage of a CPC owned by
Concepcion; to secure separate loans he
obtained from Luneta Motors and RFC. Both
mortgagees were able to obtain foreclosure in
their favor.
The second mortgagee (The RFC) was the first
one to obtain a favorable court decision.
Upon auction sale, the CPC was acquired by
Santos, who was able to register the sale to
Public Service Commission, before the death
of Santos, he transferred his rights in CPC to
A.D Santos Inc.
The first mortgagee (Luneta Motors)
subsequently won its own foreclosure case and
acquired the CPC through public auction.
When it attempted to register the sale with
Public Service Comission,
AD Santos, opposed, claiming inter alia that
Luneta had no authority under its AOI to hold
CPC and use it to operate a taxicab services.
Public Service Commission and the Supreme
Court agreed with A.D Santos.
Held:
That the authority vested by Luneta’s AOI to
deal in automobiles and auto parts and to
engage in the transportation of persons by
water, does not necessarily vest it with the
power to operate vest it with the power to
operate a taxicab service - which is different
line of business.
Doctrine: (Additional Info)
A corporation created under the Corporation
Law may purchase, hold etc and otherwise deal
in such real and personal property as the
purpose for which the corporation was formed
may permit and the transaction of its lawful
business may reasonably and necessary
required.
Note that the test applied by the Court, whether
the purpose for which was organized and the
transaction of its lawful business reasonably
and necessarily require the purchase and
holding by it of a CPC… Such acquisition
would be without purpose and would have no
necessary connection with the legitimate
business of the corporation.
Republic vs. Acoje Mining Co.
Facts:
Acoje Mining wrote the director of post
requesting the opening of post, telegraph and
money order offices and its mining camp at
Sta. Cruz, Zambales to serve its employee and
their families that were said living in the camp.
Acting on the request, Director of Posts replied
that if aside from the free quarters, the
company would provide for all essential
equipment and assign responsible employee to
perform a postmaster duties.
It also indicated that the company shall assure
direct responsibility for whatever pecuniary
loss the Bureau of Post may suffer, the post
office branch was opened at the camp with one
Hilario Sandrez as postmaster.
The postmaster went on 3 days leave but never
returned. The company however immediately
informed the Manila Post Office of Sanchez’s
disappearance when the accounts were
checked a shortage was found.
Several demands made upon the company for
the payment of shortage in line with the
liability it has assumed having failed, hence
this case;
estoppel, or on equitable grounds.
Issue:
In the present case the validity of the
resolution of BOD of the corporation
Whether or not, an act outside the scope of accepting full responsibility-in-
powers expressly conferred may be connection with funds to be received
performed? by its postmaster, should be upheld on
the grounds of estoppel.
Held:
While as a rule “an ultra vires act.” Is one
committed outside the object for which the
corporation is created as defined by the law of
its organization and therefore beyond the
powers conferred by upon it by law, --- there
are however certain corporate acts may be
performed outside the scope of the powers of
the expressly conferred if they are necessary to
promote the interest and welfare on the
corporation.
For example, the establishment, in the case at
the bar; of a local post office in a mining camp
which is far removed from the postal facilities
or means of communication accorded to people
living in a city or municipality.
- An illegal act is void and cannot be
validated, while an ultra vires is
merely voidable and can be enforced
by the performance, ratification or
Republic PH vs. Acoje Mining Company; ultra vires; the least can be said is that it cannot
Another POV; now go back on its plighted

The claim that the resolution adopted by the

Issue: BOD of appellant company is an ultra vires act
cannot be entertained it appearing that the
Whether or not, the resolution adopted was same covers a subject which concerns the
ultra vires act? benefits, convenience and welfare of its
employees and their families.
Held:
\
No, It should be noted that the opening of a
post office branch at the mining camp of
appellant corporation was undertaken because
of the request submitted by it to promote the
convenience and benefit of emplyoees.

The idea did not come from the government

and the Director of Post was prevailed upon to
agree to the request only after studying the
necessity for its establishment and after
imposing upon the company certain
requirement.

IMPORTANT PART OF HELD;

On the basis of the foregoing facts; it is evident

that the company cannot now be heard to
complain that is not liable for the irregularities
committed by it employee upon the technical
plea that the resolution approved by its BOD is
Crisologo-Jose vs. CA
Facts:
Ricardo S. Santos was the VP of the Mover
Enterprises Inc and in-charge of marketing and
sales. Atty. Oscar Benares was the President of
the said Corporation.
In accommodation of his client, the spouses
Jaime and Clarita Ong issued check against
Trade Royal Bank; payable to defendant
Ernestina Crisologo-Jose.
Since the check was under the account of
Mover Enterprises Inc., in the same was to be
signed by its president, Atty. Oscar Benares
and the treasurer of the said corporation,
however that time the treasurer was not
available;
As substitute Santos was signed to the check,
the check was issued to defendant Ernestina
Crisologo-Jose in consideration of the waiver
or quitclaim by said defendant over a certain
property which (GSIS); agreed to sell to the
spouses Jaime and Clarita Ong was executed a
compromise agreement.
The check will encashed accordingly, since the
compromise agreement was not approved
within the expected period of time; the check
was replaced by Benares. This check was also
signed by the P and VP;
When defendant deposited the replacement
check, it was dishonored for insufficiency of
funds.
The petitioner filed an action against the
corporation for the accommodation party.
Issue:
Whether or not, the corporation can be held
liable as accommodation party?
Held:
No, the accommodation party liable on the
instrument to a holder for value, although such
holder at the time of taking the instrument
knew to him to be the only an accommodation
party, does not include nor apply to
corporation which are accommodation parties.
This is because the issue or indorsement of
negotiable paper by a corporation without
consideration and for the accommodation of
another is ultra vires.
Hence, one who has taken the instrument with
knowledge of the accommodation nature
thereof cannot recover against a corporation
where it is only an accommodation party.
If the form of instrument or the nature
of the transaction, is such as to charge the
indorsee with knowledge that the issue or
indorsement of the instrument by the
corporation thereon.
Hence, the president and vice-president, have
no power to execute for mere accommodation
a negotiable instrument of the corporation for
their individual debts or transactions arising
from or in relation to matters in which the
corporation has no legitimate concern.
Since such accommodation paper cannot thus
be enforced against the corporation, especially
since it is not involved in any aspect of the
corporate business or operations, the
inescapable conclusion in law and in logic is
that the signatories thereof shall be personally
liable therefor, as well as the consequences
arising from their acts in connection therewith.
RATIFICATION OF ULTRA VIRES ACT;
Carlos vs. Mindoro Sugar
Facts:
This case is an action to recover from the
defendants the value of 4 bonds with due and
unpaid interest theron; issued by Mindoro
Sugar Company and placed in trust with the
Philippine Trust Company.
According to the AOI of Mindoro Sugar Co, 1
of the principal purposes was to acquire and
exercise the franchise granted by the Act 2720
to George H. Fairchild; to substitute the
organized corporation.
Philippine Trust Company, its principal
purpose then, as its name indicates, to engage
in the trust business.
BOD of the PTC, adopted the resolution
authorizing its president, among other things,
to purchase bonds in the Mindoro Sugar
Company that was about to issue and to re-sell
them, with or without the guarantee of said
trust corporation, at a price not less than par,
and to guarantee to the PNB the payment of
the indebtedness to said bank by the Mindoro
Sugar Company,
Pursuance of this resolution, the Mindoro
Sugar Company executed in favor of the PTC
the deed of transferring all of its property to in
consideration of the bonds it had issued;
PTC sold 13 bonds to Ramon Diaz, PTC paid
the appellant, upon presentation of the
coupons, the stipulated interest from the date
of their maturity then it stopped payments;
henceforth it alleged that it did not deem itself
bound to pay such interest or to redeem the
obligation because the guarantee given for
the bonds was illegal and void.
Issue:
Whether or not, has the power to guarantee and
does this act constitute an ultra vires?
Held:
No, It is not ultra vires for a corporation to
enter into contracts of guaranty or suretyship
where it does so in the legitimate furtherance
of its purpose and business, and it is well
settled that there corporation acquires
commercial paper or bonds in the legitimate
transaction of its business it may sell them, in
furtherance of such a sale it may, in
order to make them the more readily
marketable, indorse or guarantee their
payment.
Whenever a corporation has the power to take
and dispose of the securities of another
corporation, of so whatever kind; it may for the
purpose of giving them a marketable quality,
guarantee their payment, even though the
amount involved in the guaranty may subject
the corporation to liabilities in excess of the
limit of indebtness which authorized to incur.
A corporation which has power by its charter
to issue its own bonds has power to guarantee
the bonds of another corporation, which has
been taken in payment of a debt due to it, and
which it sells or transfers in payment of its
own debt, the guaranty being given to enable it
to dispose of the bond to better advantage. And
so guaranties of payment of bonds taken by a
loan and trust company in the ordinary
course of its business, made in connection
with their sale, are not ultra vires, and are
binding.
When a contract is not on its face necessarily
beyond the scope of the power of the
corporation by which it was made, it will, in
the absence of proof to the contrary, be
presumed to be valid.
LIABILITY FOR TORTS OR CRIMES;
TORTS;
PNB VS. CA, PHILAM GEN, RITA
GUECO, CECILIO GUECO
Facts:
Plaintiff, PHILAMGEN as surety, issued a
bond in favor Tapnio, to secure latter’s
obligation to PNB 2.3k.
PHILAMGEN paid the said amount to PNB
and seek indemnity from Tapnio, Tapnio
refused to pay alleging that he was not liable to
the bank because due to negligence of the latter
the contract of lease with Tuazon was
rescinded which amount 2800.
Tuazon ask for reconsideration to the board,
which was not acted by the board; so the lease
was not consummated resulting the loss of 2.8k
which could have been earned by Tapnio.
Issue:
Whether or not, the PNB is liable to Tapnio?
Held:
Yes, PNB is liable to Tapnio. PNB argue that it
has a right under its own Charter and under the
Corporation Law, to approve or disapprove the
said lease of sugar quota and in the exercise of
that authority.
“Any person who willfully causes loss
and injury to another in a manner that is
contrary to morals, good customs, or public
policy shall compensate the latter for the
damage.”
This grants adequate legal remedy for the
untold number of moral wrongs which is
impossible for human foresight to specially
provide in the statutes.
Hence, the means to pay her obligations to the
bank, there was no reasonable basis for the
board of directors of petitioner to have rejected
the lease agreement.

Tapnio mortgage his standing crops and sugar
quota to PNB. Tapnio agreed to leased the
sugar quota, in excess of his need to Tuazon
which was approved by the branch and VP of
the PNB of 2 pesos per picul.
However, the bank’s BOD disapproved the
lease, stating that the amount should be 3 pesos
per picul, its market value.
The petitioner had the ultimate authority of
approving or disapproving the proposed lease
since the quota was mortgaged to the Bank, the
latter certainly cannot escape its responsibility
of observing, for the protection of the interest
of private respondent.
Under the Article 21 of the Civil Code
CRIMINAL LIABILITY:
People of the PH vs. Tan Boo Kong;
Facts:
On 1924, in Municipality of Iloilo, province of
Iloilo, the defendant. As manager of Visayan
General Supply co and engaged in the
purchase and sale of sugar, “Bayon.” And
“Coprax” and other native products.
As such subject to the payment of taxes upon
its sales and declared in 1924 for the purposes
of taxation only sum of 2M, when in fact and
accused knew the total gross sales of said
corporation.
And he failed declared that and voluntarily not
paying the percentage taxes.
Issue:
Whether or not, the defendant as manager of
the corporation, is criminally liable for the
violation of the tax law for the benefit of said
corporation?
Held:
A corporation can act only through its officers
and agents and where the business itself
involves a violation of the law, all who
participate in it are liable.
In the present case, the information alleges that
the defendant was the manager of a
corporation which was engaged in business as
a merchant, and as such manager, he made a
false return, for the purpose of taxation of the
total amount sales made by the corporation.
As filing of such false return constitutes a
violation of the law, the accused as the author
of the illegal act, must necessarily answer for
its consequences provided that the allegation
are proven.
Sia vs. People (1983)
Facts:
Jose Sia was the general manager of Metal
Manufacturer Company of the PH (MMC)
engaged in the manufacturing of steel office
equipment;
On 1963, because his company was in need of
raw materials to be imported from abroad, he
applied for a letter of credit to import steel
sheets from Mitsui Bussan Kaisha Ltd. –
Tokyo, Japan.
The application being directed to the
Continental Bank, herein complainant and his
application having been approved.
The goods was arrived according to Sia, now
from here on there is some debate of the
evidence; according to Bank, there was
permitted delivery of the steel sheets only upon
execution of a trust receipt;
While according to Sia, at the time of the
delivery, he executed the trust receipt.
That the bill of exchange issued for the
purpose of collecting the unpaid account
thereon having fallen due neither accused nor
his company have payment theron
nothwithstanding demands, liability as created by the law would be
illusory.
The accounts having reached the sum 46k after
deducting his deposit money. In the present case, a distinction to be found
with Tan Boon Kong case in that the act
alleged to be crime is not in the performance of
Issue: an act directly ordained by the law to be
performed by the corporation.
Whether or not, Sia is to be held liable? This distinction adverted to between the Tan
Boon Kong case and the case at bar should be
clear, in the absence of express provision of
Held: the law making the petitioner liable for the
criminal offense committed by the corporation
of which he is a president as in fact there is no
No, The bank is transacting with Metal provision in the RPC under which the
Manufacturing and not with him. petitioner is being prosecuted.
SC cited the case of PP vs. Tan Boon Kong; The existence of criminal liability on his part
may however not be squarely applicable to the may not be said to be beyond any doubt.
instant case in that, the corporation was
directly required by law to do an act in given
manner and the same law makes the person
who fails to perform the act prescribed manner
expressly liable criminally.
The performance of the act is an obligation
directly imposed by the law on the corporation.
Since it is responsible officers or officers of the
corporation who actually perform the act of the
corporation, they must of necessity be the ones
to assume the criminally liability; otherwise his
MORAL DAMAGES
ABS CBN vs. CA
- In 1990 ABS and VIVA executed an
agreement, where ABS can get
exclusive rights of the VIVA Films
- In 1991, VIVA through Vicente Del
Rosario, offered ABS CBN through
Charo Santos, 3 films packages which
ABS exercise the first refusal.
- Charo rejected the list presented. Del
Rosario approached Santos with
another 52 orig titles and re-runs
proposing to sell to ABS airing rights
for 60M.
Del Rosario and Eugenio Lopez III as
General Manager of ABS met in
restaurant to discuss the package
proposal but no to avail.
- 4 days later, Del Rosario and Gozon as
Senior VP of Finance of RBS
discussed the package proposal.
Charo, sent a draft of the contract
between ABS and Viva, which a
counter-proposal covering 53 films for
35M.Viva BOD rejected it.
- After the rejection, ABS closed a deal
with RBS including 14 films
previously ticked off by ABS.
- ABS filed a complaint for specific
performance with prayer and TRO
against RBS and VIVA and Del
Rosario.
- RTC enjoined the latter from airing the
subject films.
- RTC and CA dismissed the complaint
holding that there was no meeting of
the minds between ABS and VIVA,
hence there was no basis of the
demand of ABS.
- According the right of first refusal was
exercise. ABS argued that the
agreement was made during the
meeting of Mr. Lopez and Del Rosario
and it had yet to fully exercise its
rights of first refusal since only 10
titles were chosen.
- As to actual, moral, and exemplary
damages, there was no clear basis in
awarding the same.
Issue:
Whether or not, moral damages may be
awarded to a corporation?
Held:
No,
The court finds for ABS-CBN on the issue of
damages,
Moral damages are in the category of an award
designed to compensate the claimant for actual
injury suffered and not to impose a penalty on
the wrong doer;
The award of moral damages cannot be
granted in favor of a corporation because,
being an artificial person / being having
existence only in legal contemplation.
It has no feeling, no emotion, no senses. It
cannot, therefore experience physical suffering
and mental anguish, which can be experience
only by one having a nervous system.
Filipinas Boardcasting vs. AMEC-BCCM
Facts:
Expos is a radio documentary program by
Carmelo Mel Rima (Rima) and Hermogenes
Jun Alegre (Alegre).
Expos is aired every morning over DZRC-AM
which is owned by Filipinas Broadcasting
Network (FBNI). Expos is heard over Legazpi
City, Albay municipalities and the other Bicol
Areas
In the morning of 14 and 15 of December,
Rima and Alegre exposed various alleged
complaints from student, teachers and parents
Ago Medical and Educational Center – Bicol
Christian Medicine (AMEC) and its
administrators.
Claiming that the broadcasts were defamatory,
AMEC and Angelita Ago, as Dean of AMECs’
College of Medicine filed a complaint for
damages against FBNI, Rima and Alegre.
Issue:
Whether or not, FBNI or a corporation entitled
to moral damages?
Held:
Moreover, where the broadcast is libelous per
Yes, FBNI contends that AMEC is not entitled se, hence the corporation or AMEC are entitled
to moral damages because it is corporation. to moral damages.
A juridical person is generally not entitled to
moral damages because, unlike a natural
person. It cannot experience physical suffering
or such sentiments as wounded feelings,
serious anxiety or mental anguish or moral
shock.
CA cites the case Mambulao Lumber Co and
PNB; to justify the award of moral damages,
however the courts statement in Mambulao
that a corporation may have good reputation
which is bersmich, may also be a ground for
the award of moral damage is an obiter dictum.
Nevertheless, AMEC claim’s moral damages
falls under item 7 of Article 2210 of CC, this
provision expressly authorizes the recovery of
moral damages in cases of libel, slander or any
other form of defamation. The article does not
qualify whether the plaintiff is a natural or
juridical person.
Therefore a juridical person as such as a
corporation can validly complain for libel any
other form of defamation and may claim that
moral damages.

II. Financial Structure
Lirag Textile Mills Inc. vs. SSS
Facts:
SSS is the respondent, and Lirag Textile Mills
entered into a purchase agreement under which
SSS agreed to purchase from Lirag Textile
preferred shares of stock worth 1M subject to
following conditions:
(1) For the repurchase by LT of the shares
of stock at regular intervals of 1 year
and payment of dividends.
(2) Failure to redeem and pay the
dividends, the entire obligation shall
become immediately due and
demandable and LT shall be liable to
SSS in amount equivalent to 12% of
the amount the outstanding liquidated
damages.
Under such agreement, Basilio Lirag, as
President of LT signed the agreement as a
surety to guarantee the redemption of the
stocks; payments of dividends – pursuant to
the agreement, SSS paid LT on 2 occasion and
the latter issued 5k preferred of stocks with a
par value of 100 pesos.
SSS sending letter of demand to LT, it still has
not made any redemption nor made dividends
payment, since LT failed to comply, SSS filed
an action for specific performance and
damages.
LT contends that there no obligations on their
part to redeem since SSS is still a preferred
stockholders of the corporation and such
redemption is dependent upon the financial
ability of the corporation.
As for Mr. Lirag, he contends that his liability
arises only if the company is liable and does
not perform its obligations under the
agreement.
RTC ruled in favour of SSS and held the PA
was debt instrument;
Issue:
1.) WON PA is debt instrument?
Held:
Yes, The Purchase Agreement is a debt
instrument.
Its term and conditions shows that parties
intended to repurchase of the preferred shares
on the scheduled dates to be an absolute
obligation which does not depend upon the
financial ability of LT.
This absolute obligation is made and manifest
by the fact that surety was required. Also, the
undertaking of LT to redeem preferred shares
at the specified dates constitutes a debt which
is defined as an obligation to pay money at
some fixed future time, or at a time which
becomes definite and fixed by acts or either
party and which they expressly and
impliedly, agree to perform in the contract.
Moreover, the PA provided that failure on the
part of petitioner to repurchase the preferred
shares on the scheduled due dates renders the
entire obligation due and demandable with
petitioner. In such eventuality liable to pay
12% of the taken collectively, clearly show the
intent of the parties to be bound therein as
debtor and creditor and not as corporation and
stockholder.
Thus, it follows that Mr. Lirag cannot deny
liability for LT’s default. As surety, he is
bound immediately to pay SSS the amount of
the outstanding.
Tirso Garcia, in his capacity as receiver of
the Merchantile Bank of China vs. Lim Chu
Sing
Facts:
On June 1930, Lim Chu Sing executed and
delivered a promissory note for the sum of 19k
to MBC payable monthly.
1 of the conditions in the said promissory note
that in case Lim Chu Sing default in the
payment of the monthly instalment as become
due, the entire amount together with the
interest of 6% shall become due and
demandable.
After making several partial payments and he
leave 9k as his unpaid balance.
He defaulted in payment where the 9k are due
and demandable.
The debt which is the subject matter of the
complaint was not really an indebtedness of
the defendant but of Lim Cua Sy, who had
an account to MBC as form of Trust Receipt,
guaranteed by Lim Chu Sing as surety and
with chattel mortgage securities.
MBC, without the knowledge of Lim Chu
Sing, foreclose the chattel mortgage and
privately sold the property.
A share of stock or the certificate thereof is not
LCS had been paying the instalments until the indebtedness to the owner nor evidence of
debt was reduced to 9k and also LCS is the indebtedness and therefore, it is not a credit.
owner of the shares of stock in MBC
amounting 10k. Stockholder, as such are not creditors of the
corporation.
MBC is under liquidation.
According to the prevailing doctrine in
On December 1932, LCS filed a motion American Courts that;
praying for the inclusion of the principal
debtor Lim Cuan Sy as party defendant so that Capital Stocks of corporation is a trust
he could avail himself of the benefit of the fund to be used more particularly for the
exhaustion of the property of said Lim Cua Sy. security of the creditors of the corporation,
who presumably deal with on the credit of its
The motion was denied so the proceed of the capital stock.
sale of the mortgaged chattels together with
other payments made were applied to the Therefore, Lim Chu Sing, is not being a
amount of the promissory note in question. creditor of MBC, although the latter is a
creditor of the former and there is no sufficient
Leaving the balance which the plaintiff now ground to justify the compensation.
seeks to collect;
Issue:
Whether or not Lim Chu Sing is entitled for
compensation to his indebtedness of 9k despite
the fact that he is a stockholder in MBC?
Held:
No, according to the weight of authority.
Jose Roy III VS. Teresita Herbosa and SEC
and PLDT;
Facts:
The Supreme Court issued the Gamboa
Decision ruling the term “capital” Section 11,
Article XII of the 1987 Constitution refers only
to shares of stocks entitled to vote in the
election of directors, and thus only to common
shares and not to the total outstanding capital
stock (common and non-voting preferred
shares.
On October 2012, the Gamboa decision
attained finality.
Pursuant to the court’s directive in the
Gamboa’s Decision, The SEC issued SEC-MC
No. Entitled “Guidelines on compliance with
Filipino-Foreign Ownership Requirements
Prescribed in the Constitution and Existing
Law by Corporation Engaged in
Nationalized and Partly Nationalized
Activities.
The Section 2:
All covered corporation shall, at all times,
observed constitutional or statutory ownership
requirement. For the purposes of determining
compliance therewith, the required percentage
of Filipino Ownership shall be applied both:
(a) the total number of outstanding shares of
stock entitled to vote in the election of
directors;
(b) the total number of outstanding shares of
stock, whether or not entitled to vote in the
election of directors.
Corporations covered by special law which
provide specific citizenship requirements shall
comply with the provisions of said law.
So Roy, the petitioner as a lawyer and as a
taxpayer, filed a petition, assailing the validity
of SEC MC-8.
He seeks to apply the 60-40 Filipino
Ownership requirement separately to each
class of shares of a public utility corporation,
whether common, preferred non-voting,
preferred voting or any other class of shares.
Issue:
Whether or not, the term capital in Sec 11 in
Art 12 of the Constitution refers only to the
common shares?
Or to the total outstanding capital stock
(combined total of common and nonvoting of
preferred shares)
Held:
The court rules that SEC-MC 8 is not contrary
to the court’s definition and interpretation of
the term capital.
According to the case of Gamboa Decision;
Considering that common shares have
voting rights translate to control as opposed to
preferred shares which usually have no voting
rights, the term capital refers only to common
shares; However, if the preferred shares also
have the rights to vote in the election of
directors, the capital shall include such
preferred shares because the right to participate
in the control management of the corporation
is exercised through the right to vote in the
election of directors.
In short, the term capital in Sec 11 of Article
XII of the Constitution refers only to a shares
of stock that can vote in the election of
director;
The evident purpose of the citizenship
requirement is to prevent aliens from assuming
control public utilities; which may be inimical
to the national interest.
The court noted that the foregoing
interpretation is consistent with the intent of
the framers of the Constitution to place in the
hand of Filipino citizens the control and
management of public utilities and as revealed
in the deliberations of the Constitutional
Commission, “capital” refers to the voting
stock or controlling interest of a corporation.
However, mere legal title is insufficient to
meet the 60% Filipino-owned “capital”
required in the Constitution. Full beneficial
ownership of 60% percent of outstanding
capital stock, coupled with 60% voting rights
is required.
The legal and beneficial ownership of 60%
percent of the outstanding capital stock must
rest in the hands of Filipino nationals in
accordance to the constitutional mandates.
--- Both the Voting Control Test;
And Beneficial Ownership Test;
Must be applied to determine whether a
corporation is a Philippine National and that a
Philippine National is Filipino citizen or a
“Domestic Corporation at least 60% of the
capital stock outstanding and entitled to vote is
owned by Filipino Citizen.
The right to vote in the election of directors,
coupled with full beneficial ownership of
stocks, translates to effective control of a
corporation.
that specific stock is considered or counted as
part of the 60% Filipino Ownership of the
corporation;
If the voting right of a share held in the name
of a Filipino citizen, or national is assigned or
transferred to an alien, the share is not to be
counted in the determination of the required
Filipino Equity.
In the same vein, if the dividends and other
fruits and accessions of the share do not accrue
Filipino citizen or national, then that share is
also to be excluded or not counted.
NoteS---- additional lang lodz.
The Full Beneficial Test; - the full ownership
up to 60% of a public utility encompasses,
both control and economic rights, both of
which must stay in Filipino hands, who owns
60% of the controlling interest, must also to be
excluded or not counted.
If the Filipino has the “specific stocks.” Voting
Power (he can vote the stock or direct another
to vote for him) or the Filipino has the
investment power over the specific stock; (he
can dispose of the stock another to dispose it
for him) or he has both (he can vote and
dispose of the specific stock) or direct another
vote or dispose, then such Filipino is the
beneficial owner of the specific stock – and