CORPORATION LAW (2019) MIDTERM REVIEWER ATTY.

GAVIOLA-CLIMACO

BOARD OF DIRECTORS/TRUSTEES AND OFFICERS B. Violation of the RCC regardless of the penalty
QUALIFICATION AND TERM involved;
SEC. 22. The Board of Directors or Trustees of a C. Violation of the R.A. No. 8799 (Security Regulations
Corporation; Qualification and Term.- Unless otherwise Code) - newly inserted but already practiced
provided in this Code, the board of directors or 2. Found guilty in an administrative proceedings
trustees shall exercise the corporate powers, conduct 3. Found guilty by foreign courts or equivalent foreign
all business, and control all properties of the regulatory authority for analogous cases
corporation.
Note: These are not perpetual disqualifications as it is
Directors shall be elected for a term of one (1) year qualified by the phrase “within five (5) years prior to the
from among the holders of stocks registered in the election or appointment as such.” After the lapse thereof,
corporation’s books, while trustees shall be elected for one may qualify as a nominee in the Board.
a term not exceeding three (3) years from among the
members of the corporation. Each director and trustee
ELECTION OF BOD
shall hold office until the successor is elected and
Title III Sec. 23 of the Revised Corporation Code (RCC).
qualified. A director who ceases to own at least one
(1) share of stock or a trustee who ceases to be a Election of Directors or Trustees. – Except when the
member of the corporation shall cease to be such. exclusive right is reserved for holders of founders’
XXXXXXXXXXXXXXX shares under Section 7 of this Code, each stockholder
or member shall have the right to nominate any
director or trustee who possesses all of the
Qualifications for a Director:
qualifications and none of the disqualifications set
1. Must own at least 1 share of stock forth in this Code.
- by ownership, what is required is legal
ownership which is determined through the stocks and At all elections of directors or trustees, there must be
transfer book reflecting one’s name as the owner /holder present, either in person or through a representative
thereof. Beneficial ownership not necessary. authorized to act by written proxy, the owners of
2. Must not possess of any of the disqualifications majority of the outstanding capital stock, or if there be
no capital stock, a majority of the members entitled to
DISQUALIFICATION vote. When so authorized in the bylaws or by a
SEC. 26. Disqualification of Directors, Trustees or majority of the board of directors, the stockholders or
Officers. – A person shall be disqualified from being a members may also vote through remote
director, trustee or officer of any corporation if, within communication or in absentia: Provided, That the
five (5) years prior to the election or appointment as right to vote through such modes may be exercised in
such, the person was: corporations vested with public interest,
notwithstanding the absence of a provision in the
Convicted by final judgment: bylaws of such corporations.
(1) Of an offense punishable by imprisonment for
a period exceeding six (6) years; A stockholder or member who participates through
(2) For violating this Code; and remote communication or in absentia, shall be
(3) For violating Republic Act No. 8799, otherwise deemed present for purposes of quorum.
known as “The Securities Regulation Code”; The election must be by ballot if requested by any
(b) Found administratively liable for any offense voting stockholder or member.
involving fraudulent acts; and In stock corporations, stockholders entitled to vote
(c) By a foreign court or equivalent foreign regulatory shall have the right to vote the number of shares of
authority for acts, violations or misconduct similar to stock standing in their own names in the stock books
those enumerated in paragraphs (a) and (b) above. of the corporation at the time fixed in by-laws or
where the by-laws are silent, at the time of the
The foregoing is without prejudice to qualifications or election. The said stockholder may: (a) vote such
other disqualifications, which the Commission, the number of shares for as many persons as there are
primary regulatory agency, or the Philippine directors to be elected; (b) cumulate said shares and
Competition Commission may impose in its give one (1) candidate as many votes as the number of
promotion of good corporate governance or as a directors to be elected multiplied by the number of
sanction in its administrative proceedings. the shares owned; or (c) distribute them on the same
principle among as many candidates as may be seen
Disqualification fit: Provided, That the total number of votes cast shall
1. Conviction by final judgment - not exceed the number of shares owned by the
A. Offense punishable by imprisonment exceeding 6 stockholders as shown in the books of the corporation
multiplied by the whole number of directors to be
years;
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elected: Provided, however, That no delinquent stock Eg. A owns 100 shares, if there are 5 directors to be
shall be voted. Unless otherwise provided in the elected, A is entitled to 500 votes multiplying 100 by
articles of incorporation or in the by-laws, members of 5. He may give to the 5 candidates 100 votes each.
non-stock corporations may cast as many votes as
there are trustees to be elected but may not cast more  Cumulative voting for one candidate - cumulate said
than one (1) vote for one (1) candidate. Nominees for shares and give one (1) candidate as many votes as
directors or trustees receiving the highest number of the number of directors to be elected multiplied by
votes shall be declared elected. the number of the shares owned.
If no election is held, or the owners of majority of the a. The privilege of cumulative voting is permitted
outstanding capital stock or majority of the members for the purpose of giving minority stockholders
entitled to vote are not present in person, by proxy, or representation in the BOD. Stockholders shall
through remote communication or not voting in have the right to vote the number of shares of
absentia at the meeting, such meeting may be stock standing in their own names.
adjourned and the corporation shall proceed in
b. A director elected because of the vote of
accordance with Section 25 of this Code.
minority stockholders who united in cumulative
voting cannot be removed without cause.
The directors or trustees elected shall perform their
duties as prescribed by law, rules of good corporate (Sec.27, 1st par, last sentence)
governance, and bylaws of the corporation.
 Cumulative voting by distribution - distribute them on
Election of Directors: the same principle among as many candidates as may
be seen fit.
1. Done at any meeting called for the election of BOD and
Note: Comparison with non-stock corporations: Members
voted for by the stockholders. At all elections, owners of
may cast as many votes as there are trustees to be elected
the majority of the outstanding capital stocks must be
but may not cast more than one (1) vote for one (1)
present either:
candidate unless otherwise provided in the articles of
 In person;
incorporation or in the by-laws. They cannot cumulate.
 Through a representative authorized to act by
written proxy (in absentia) eg. proxy or trust; or
4. No delinquent stock shall be voted.
 If allowed by the by-laws or majority of the BOD,
through remote communication eg. Telephone
5. Nominees for directors or trustees receiving the highest
conference or video conference.
number of votes shall be declared elected.
Note: Such modes of attending the meeting and voting
may be utilized by corporations vested with public interest
6. If no election is held, or the owners of majority of the
although not provided in their by-laws.
outstanding capital stock or majority of the members
entitled to vote are not present in person, by proxy, or
2. The election must be by ballot if requested by any
through remote communication or not voting in absentia
voting stockholder. Hence, voting by viva voces or roll call
at the meeting, such meeting may be adjourned and the
(raising hands) is valid except when there is a request that
corporation shall follow Section 25.
it be by ballot.

3. Stockholders shall have the right to vote the number of

shares of stock standing in their own names
(1share=1vote) as long as the total number of votes cast
shall not exceed the number of shares owned by the
INDEPENDENT DIRECTORS
stockholders as shown in the books of the corporation
Sec. 22, last 6 paragraphs. Xxx The board of the
multiplied by the whole number of directors to be elected.
following corporations vested with public interest
shall have independent directors constituting at least
Formula:
twenty percent (20%) of such board:
No. of votes = No. of shares x No. of vacancy
Corporations covered by Section 17.2 of Republic Act
Methods of Voting: No. 8799, otherwise known as “The Securities
 Straight voting - vote such number of shares for as Regulation Code”, namely those whose securities are
many persons as there are directors to be elected. registered with the Commission, corporations listed
with an exchange or with assets of at least Fifty
million pesos (P50,000,000.00) and having two
hundred (200) or more holders of shares, each
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holding at least one hundred (100) shares of a class of of the corporation, shall submit to the
its equity shares; Commission, the names, nationalities, shareholdings,
and residence addresses of the directors, trustees
(b) Banks and quasi-banks, nonstock savings and loan and officers elected.
associations, pawnshops, corporations engaged in
money service business, preneed, trust and insurance The non-holding of elections and the reasons
companies, and other financial intermediaries; and therefor shall be reported to the Commission
within thirty (30) days from the date of the
(c) Other corporations engaged in businesses vested scheduled election. The report shall specify a new
with public interest similar to the above, as may be date for the election, which shall not be later than
determined by the Commission, after taking into sixty (60) days from the scheduled date.
account relevant factors which are germane to the
objective and purpose of requiring the election of an If no new date has been designated, or if the
independent director, such as the extent of minority rescheduled election is likewise not held, the
ownership, type of financial products or securities Commission may, upon the application of a
issued or offered to investors, public interest involved stockholder, member, director or trustee, and after
in the nature of business operations, and other verification of the unjustified non-holding of the
analogous factors. election, summarily order that an election be held.
The Commission shall have the power to issue
An independent director is a person who, apart from such orders as may be appropriate, including
shareholdings and fees received from the corporation, orders directing the issuance of a notice stating
is independent of management and free from any the time and place of the election, designated
business or other relationship which could, or could presiding officer, and the record date or dates for
reasonably be perceived to materially interfere with the determination of stockholders or members
the exercise of independent judgment in carrying out entitled to vote.
the responsibilities as a director.
Notwithstanding any provision of the articles of
Independent directors must be elected by the incorporation or bylaws to the contrary, the shares
shareholders present or entitled to vote in absentia of stock or membership represented at such
during the election of directors. Independent directors meeting and entitled to vote shall constitute a
shall be subject to rules and regulations governing quorum for purposes of conducting an election
their qualifications, disqualifications, voting under this section.
requirements, duration of term and term limit,
maximum number of board memberships and other
requirements that the Commission will prescribe to Should a director, trustee or officer die, resign or
strengthen their independence and align with in any manner cease to hold officer, the secretary,
international best practices. or the director, trustee or officer of the
corporation, shall, within seven (7) days from
Note: Independent directors are required in corporations knowledge thereof, report in writing such fact to
vested with public interest which include: the Commission.
 regulated corporations such as bank, quasi-banks,
etc.,
 corporations covered by Sec. 17.2 of the SRC: No election held
- corporations whose securities are registered in  the reasons therefor shall be reported to the
the SEC Commission 30 days from the date of the
- listed corporations scheduled election. The report shall specify a new
- corporations with assets of at least 50M and date for the election which shall not be later than
have 200 or more shareholders each holding at 60 days from the scheduled date
least 100 shares of a class of its equity shares.  the commission has authority to motu proprio
These are known as “public corporations” under issue an order for the conduct of another
the SRC. election of the BOD

ELECTION REPORT Now, it is expressly provided under the corporation Code

Section 25. Report of Election of Directors, Trustees that if the elections of the BOD are not held at all the SEC
and Officers, Non Holding of Election and Cessation may order the conduct of the election so this is a new
from Office– Within thirty (30) days after the power granted by Corporation Code to SEC but this power
election of the directors, trustees and officers of is already reflected in the Securities Regulation Code.
the corporation, the secretary, or any other officer

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CREATION OF COMMITTEES remuneration of P13,050.00 each, and the election

Section 34. Executive, Management, and Other Special thereto of certain members of the board. In his
Committees– If the bylaws so provide, the board aforesaid letter, Cruz requested the board to take
may create an executive committee composed of at necessary action/s to recover from those elected the
least three (3) directors. Said committee may act, salaries they have received. However, it was not shown
by majority vote of all its members, on such on the records that action was taken. On 14 June 1993,
specific matters within the competence of the Cruz, purportedly in representation of Filport and its
board, as may be delegated to it in the bylaws or stockholders, among which is herein co-petitioner
by majority vote of the board, except with respect Mindanao Terminal and Brokerage Services, Inc., filed
to the: (a) approval of any action for which with the SEC a petition which he describes as a
shareholders' approval is also required; (b) filling derivative suit against the herein respondents who
of vacancies in the board; (c) amendment or repeal were then the incumbent members of Filport’s Board
of bylaws or the adoption of new bylaws; (d) of Directors, for alleged acts of mismanagement
amendment or repeal of any resolution of the detrimental to the interest of the corporation and its
board which by its express terms is not amendable shareholders at large. With the enactment of R.A. No.
or repealable; and (e) distribution of cash 8799, the case was first turned over to the RTC of
dividends to the shareholders. Manila, Branch 14, sitting as a corporate court.
Thereafter, on respondents’ motion, it was eventually
The board of directors may create special transferred to the RTC of Davao City. On 10 December
committees of temporary or permanent nature and 2001, RTC-Davao City rendered its decision in the
determine the members' term, composition, case. Even as it found that (1) Filport’s Board of
compensation, powers, and responsibilities. Directors has the power to create positions not
provided for in the by-laws of the corporation since
the board is the governing body; and (2) the increases
Does the BOD have the power to delegate their in the salaries of the board chairman, vice-president,
authorities? treasurer and
assistant general manager are reasonable, the trial
The board has the power to create special or executive court nonetheless rendered judgment against the
committee respondents by ordering the directors holding the
positions of Assistant Vice President for Corporate
Planning, Special Assistant to the President and
Executive Committee Special Assistant to the Board Chairman to refund to
the corporation the salaries they have received as such
- committee which exercise power within the competence
officers "considering that Filipinas Port Services is not
of the board that requires the authority under the by-
a big corporation requiring multiple executive
laws. The board cannot just create their own executive positions" and that said positions "were just created
committee if that executive committee will be exercising for accommodation." On appeal, the CA taking
powers of the board exceptions to the findings of the trial court that the
creation of the positions of Assistant Vice President
Special Committee for Corporate Planning, Special Assistant to the
- can be created by the board even without the authority President and Special Assistant to the Board Chairman
under the by-laws was merely for accommodation purposes, granted the
respondents’ appeal, reversed and set aside the
appealed decision of the trial court and accordingly
FILIPINAS PORT SERVICES, INC VS. GO dismissed the so-called derivative suit filed by Cruz, et
G.R. NO. 161886, MARCH 16, 2007 al. Hence this petition for review on certiorari.
FACTS:
FilPort is a domestic corporation engaged in ISSUE:
stevedoring services with principal office in Davao Whether or not Filport’s Board of Directors has the
City. On 4 September 1992, petitioner Eliodoro Cruz, power to create positions not provided for in the by-
Filport’s president from 1968 until he lost his bid for laws of the corporation.
re-election as Filport’s president during the general
stockholders’ meeting in 1991, wrote a letter to the RULING:
corporation’s Board of Directors questioning the The governing body of a corporation is its board of
board’s creation of the positions of Assistant Vice- directors. Section 23 of the Corporation
Presidents for Corporate Planning, Operations, Code explicitly provides that unless otherwise
Finance and Administration, and the creation of the provided therein, the corporate powers of all
additional positions of Special Assistants to the corporations formed under the Code shall be
President and the Board Chairman with a monthly exercised, all business conducted and all property of
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the corporation shall be controlled and held by a In other words, the committees created are only
board of directors. Thus, with the exception only of required to be in the by laws if they act as the board if
some powers expressly granted by law to they don’t act as the board then the board may create
stockholders (or members, in case of non-stock these committees even without authority under the by
corporations), the board of directors (or trustees, in laws.
case of non-stock corporations) has the sole authority
to determine policies, enter into contracts, and Executive committee vis-a-vis Special Committee
conduct the ordinary business of the corporation
within the scope of its charter, i.e., its articles of  Executive Committee: Requires an authority in
incorporation, by-laws and relevant provisions of law. the by-laws. One exercising powers that is within
Verily, the authority of the board of directors is the power of the board of director. They are as
restricted to the management of the regular business powerful as the board of directors and in effect
affairs of the corporation, unless more extensive
acting for the board itself.
power is expressly conferred.
 Special Committee: No authority required in the
The raison d’etre behind the conferment of corporate
powers on the board of directors is not lost on the by-laws and is within the competency of the
Court. Indeed, the concentration in the board of the board to create. Any other committee exercising a
powers of control of corporate business and of mere recommendatory power whose actions
appointment of corporate officers and managers is require ratification and confirmation by the
necessary for efficiency in any large organization. board. It cannot approve resolutions on its own.
Stockholders are too numerous, scattered and Reason here is that the board is the corporation's
unfamiliar with the business of a corporation to governing body, clearly upholding the power of its
conduct its business directly. And so the plan of board to exercise its prerogatives in managing the
corporate organization is for the stockholders to business affairs of the corporation.
choose the directors who shall control and supervise
the conduct of corporate business. LIABILITY
In the present case, the board’s creation of the Section 30. Liability of Directors, Trustees or Officers.
positions of Assistant Vice Presidents for Corporate — Directors or trustees who willfully and knowingly
Planning, Operations, Finance and Administration, vote for or assent to patently unlawful acts of the
and those of the Special Assistants to the President corporation or who are guilty of gross negligence or
and the Board Chairman, was in accordance with the bad faith in directing the affairs of the corporation or
regular business operations of Filport as it is acquire any personal or pecuniary interest in conflict
authorized to do so by the corporation’s by-laws, with their duty as such directors or trustees shall be
pursuant to the Corporation Code. liable jointly and severally for all damages resulting
Amended Bylaws of Filport provides the following: therefrom suffered by the corporation, its
Officers of the corporation, as provided for by the by- stockholders or members and other persons.
laws, shall be elected by the board of directors at their
first meeting after the election of Directors. xxx A director, trustee or officer shall not attempt to
The officers of the corporation shall be a Chairman of acquire, or acquire any interest adverse to the
the Board, President, a Vice-President, a Secretary, a corporation in respect of any matter which has been
Treasurer, a General Manager and such other officers reposed in them in confidence, and upon which,
as the Board of Directors may from time to time equity imposes a disability upon themselves to deal in
provide, and these officers shall be elected to hold office their own behalf; otherwise, the said director, trustee
until their successors are elected and qualified. or officer shall be liable as a trustee for the
corporation and must account for the pro�fits which
Atty: Here the Supreme Court upheld the validity of otherwise would have accrued to the corporation.
the executive committee even if the same was not
authorized under the by-laws, the by-laws was silent Best Judgement Rule
which should not be because under the law executive
committee can only be authorized under the by-laws.  General Rule: The will of the majority of the
The reason is as long as the power of a committee is Board Members controls in corporate affairs, and
within the power of the board that requires authority
contracts intra vires entered into by the board of
under the by-laws but if it is any other committee with
directors are binding on the corporation and
only recommendatory authority meaning it cannot act
courts will not interfere. There is no liability for
on its own (ex. it cannot approves resolutions on its
any damages caused by their decisions.
own) in that case a committee maybe created without
any express authority under the by-laws
 Exceptions:

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1. Assent to patently unlawful acts of the Credit Corporation are solidarity liable to the
corporation financial liability of said corporation.
2. Gross negligence or bad faith in directing the RULING:
affairs of the corporation The Supreme Court affirmed the ruling of the
3. Acquiring personal or pecuniary interest in Court of Appeals. The general rule is that
conflict with their duty obligations incurred by the corporation, acting
through its directors, officers and employees, are
o Liability if it falls within the exceptions: The its sole liabilities, and vice versa. However, there
director shall be solidarity liable to the are exceptional circumstances warranting the
corporation, creditors, stockholders, and to any disregard of a separate personality and held such
other persons. officer’s and director’s solidarily liable with the
corporation:
MAGALING V ONG 1) When directors /trustees and officers of a
corporation:
FACTS:
Spouses Reynaldo Magaling and Lucia Magaling is 1 Vote or assent to patently unlawful acts of
the controlling stock holders/owner of Thermo the corporation;
Loans and Credit Corporation. On December 1994, 2 Act in bad faith or with gross negligence in
defendant Reynaldo Magaling induce the Peter directing corporate affairs;
Ong at the latter’s store in Lipa City to lend him 3 Are guilty of conflict of interest to the
and/or his company Thermo Loans and Credit prejudice of the corporation, stock holders or
Corporation money amounting to P350,000.00 at members, and other persons;
the interest rate of 2 1⁄2% per month. The plaintiff, 4. When a director or officer consented to the
herein defendant extended the loan to the insurance of watered down stocks or who,
defendant, herein petitioner based on the having knowledge, did not forthwith file
assurance of Reynaldo Magaling. Sometime in with the corporate secretary his written
September 1997, or three years thereafter the objection thereto; or
defendants issued and tendered to plaintiff series 5. When a director, trustee or officer is made
of postdated checks for the payment of interest by specific provision of law, personally
and principal of the loan. liable for his corporate action.

Upon failure of Thermo Loans and Credit In the instant case, Reynaldo Magaling’s very own
Corporation to pay its outstanding loan despite testimony convincingly displayed his gross
demand from Mr. Ong, the latter filed a complaint negligence in the conduct of the affairs of Thermo
with the RTC for the collection of the loan with Loans without due regard to the plight of its
interest, attorney’s fees and cost of suit, with investor. He resigned as President of Thermo
prayer for issuance of a writ of preliminary Loans in 1998 when the company already became
attachment against the spouses Reynaldo insolvent. He also admitted that no one or nobody
Magaling and Lucia Magaling and Thermo Loans took over as president of the corporation, when he
and Credit Corporation. resigned. Neither was the investor in-formed
about the bankruptcy thereof, nor was any
The RTC dismissed the complaint of Peter Ong on bankruptcy or involvers proceeding instituted to
the ground that the subject obligation is the protect the assets of the corporation and the
obligation of the defendant corporation in which interest of its investor. Reynaldo Magaling
the stockholders and officers are not personally miserably failed to exercise at most diligence
liable. Said corporation has a personality separate expected from the highest officer of a corporation
and distinct from that of Reynaldo Magaling who in the conduct of its affairs. Hence, he should be
happens to be only a stockholder and president held jointly and severally liable for the corporate
thereof at that time. obligation of Thermo Loans to appellant Peter
Ong.
On appeal the appellate court reversed and set
aside the decision of the RTC. The Court of Appeals JAMES IENT AND MAHARLIKA SCHULZE, VS. TULLETT
pierced the veil of corporate fiction and held the PREBON
spouse’s solidarity liable with Thermo Loans for
the corporate obligations of the latter. Hence, this Facts:
petition for certioraris. Ient is a British national and the Chief Financial
Officer of Tradition Asia Pacific Pte. Ltd. (Tradition
ISSUE: Whether or not the defendants being Asia) in Singapore. Petitioner Schulze is a
officers and stockholders of Thermo Loans and Filipino/German who does Application Support for
Tradition Financial Services Ltd. in London (Tradition
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London). Tradition Asia and Tradition London are Sections 31 and 34 of the Corporation Code which
subsidiaries of Compagnie Financiere Tradition and made them criminally liable under Section 144. As for
are part of the "Tradition Group." petitioners Ient and Schulze, Tullett asserted that they
conspired with Villalon and Chuidian in the latter's
Tradition Group and Tullett are competitors in the acts of disloyalty against the company.
inter-dealer broking business. Tullett was the first to
establish a business presence in the Philippines and In their respective Counter-Affivadits, Villalon alleged
had been engaged in the inter-dealer broking business that frustration with management changes in Tullett
or voice brokerage here since 1995. Meanwhile, on the Prebon motivated his personal decision to move from
part of the Tradition Group, the needs of its Philippine Tullett and accept the invitation to enlist with the
clients were previously being serviced by Tradition Tradition Group. Villalon further argued that his
Asia in Singapore. The other IDBs in the Philippines resignation from Tullett was done in the exercise of
are Amstel and Icap. his fundamental rights to the pursuit of life and the
exercise of his profession; he can freely choose to avail
In August 2008, in line with Tradition Group's motive of a better life by seeking greener pastures; and his
of expansion and diversification in Asia, petitioners actions did not fall under any of the prohibited acts
Ient and Schulze were tasked with the establishment under Sections 31 and 34 of the Corporation Code. He
of a Philippine subsidiary of Tradition Asia to be claimed that the DOJ had previously proclaimed that
known as Tradition Financial Services Philippines, Inc. Section 31 is not a penal provision of law but only the
(Tradition Philippines).[9] Tradition Philippines was basis of a cause of action for civil liability. Thus, he
registered with the Securities and Exchange concluded that there was no probable cause that he
Commission (SEC) on September 19, 2008. violated the Corporation Code nor was the charge of
conspiracy properly substantiated.
On October 15, 2008, Tullett, through one of its
directors, Gordon Buchan, filed a Complaint-Affidavit Chuidian claimed that she left Tullett simply to seek
against the officers/employees of the Tradition Group greener pastures. Like Villalon, She merely exercised
for violation of the Corporation Code. her right to exercise her chosen
profession and pursue a better life. She argued that
Villalon ( formerly President and Managing Director of Section 144 as a penal provision should be strictly
Tullett) and Chuidian ( formerly a member of Tullett's construed against the State and liberally in favor of the
Board of Directors) were charged with using their accused and Tullett has failed to substantiate its
former positions in Tullett to sabotage said company charge of bad faith on her part.
by orchestrating the mass resignation of its entire
brokering staff in order for them to join Tradition In her Counter-Affidavit, petitioner Schulze denied the
Philippines. Tullett claimed that the Villalon held charges leveled against her. She argued that "[s]ince
several meetings between August 22 to 25, 2008 with the Corporation Code does not expressly provide that
members of Tullett's Spot Desk and brokering staff in the provisions of the Revised Penal Code shall be
order to convince them to leave the company. Villalon made to apply suppletorily, nor does it adopt the
likewise supposedly intentionally failed to renew the nomenclature of penalties of the Revised Penal Code,
contracts of some of the brokers. On August 25, 2008, the provisions of the latter cannot be made to apply
a meeting was also allegedly held in Howzat Bar in suppletorily to the former as provided for in the first
Makati City where petitioners and a lawyer of sentence of Article 10 of the Revised Penal Code." She
Tradition Philippines were present. At said meeting, concluded that a charge of conspiracy which has for
the brokers of complainant Tullett were purportedly its basis Article 8 of the Revised Penal Code cannot be
induced, en masse, to sign employment contracts with made applicable to the provisions of the Corporation
Tradition Philippines and were allegedly instructed by Code.
Tradition Philippines' lawyer as to how they should
file their resignation letters. Villalon allegedly For his part, Ient alleged that the charges against him
informed Mr. Barry Dennahy, Chief Operating Officer were merely filed to harass Tradition Philippines and
of Tullett Prebon in the Asia-Pacific, through prevent it from penetrating the Philippine market.
electronic mail that all of Tullett's brokers had Adopting a similar line of reasoning as Schulze, Ient
resigned. Subsequently, , in another meeting with Ient believed that the Revised Penal Code could not be
and Tradition Philippines' counsel, indemnity made suppletorily applicable to the Corporation Code
contracts in favor of the resigning employees were so as to charge him as a conspirator. According to Ient,
purportedly distributed by Tradition Philippines. he merely acted within his rights when he offered job
opportunities to any interested person as it was
According to Tullett, respondents Villalon and within the employees' rights to change their
Chuidian(who were still its directors or officers at the employment.
times material to the Complaint-Affidavit) violated
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In a Consolidated Reply-Affidavit, Tullett argued that When a director, trustee or officer attempts to acquire
Villalon, Chuidian, Schulze, and Ient have mostly or acquires, in
admitted the acts attributed to them in the Complaint- violation of his duty, any interest adverse to the
Affidavit and only attempted to characterize said acts corporation in respect of any matter which has been
as "normal," "innocent" or "customary." Even reposed in him in confidence, as to which equity
assuming that Villalon and Chuidian were dissatisfied imposes a disability upon him to deal in his own
with their employment in Tullett, this would behalf, he shall be liable as a trustee for the
supposedly not justify nor exempt them from violating corporation and must account for the profits which
their duties as Tullett's officers/directors. Tullett otherwise would have accrued to the corporation.
asserts that Section 144 applies to the case at bar
since the DOJ Resolution in UCPB is not binding as it SECTION 33. Disloyalty of a Director. — Where a
applies only to the parties therein and it likewise director, by virtue
involved facts different from the present case. of his office, acquires for himself a business
opportunity which should belong to the corporation,
In a Resolution, State Prosecutor (Prosecutor Delos thereby obtaining profits to the prejudice of such
Trinos, Acting City Prosecutor of Makati City, corporation, he must account to the latter for all such
dismissed the criminal complaints. profits by refunding the same, unless his act has been
ratified by a vote of the stockholders owning or
Tullett filed a petition for review with the Secretary of representing at least two-thirds (2/3) of the
Justice to assail the foregoing resolution of the Acting outstanding capital stock. This provision shall be
City Prosecutor of Makati City. applicable, notwithstanding the fact that the director
risked his own funds in the venture.
Ient and Schulze moved for reconsideration of the
foregoing Resolution by the Secretary of Justice. SECTION 144. Violations of the Code. — Violations of
Secretary of Justice denied the motion for any of the
reconsideration filed by petitioners. provisions of this Code or its amendments not
otherwise specifically penalized therein shall be
CA decision: punished by a fine of not less than one thousand
Petitioners brought the matter to the Court of Appeals (P1,000.00) pesos but not more than ten thousand
via a petition for certiorari under Rule 65. The Court (P10,000.00) pesos or by imprisonment for not less
of Appeals affirmed the Secretary of Justice's than thirty (30) days but not more than five (5) years,
Resolutions. Appeals, petitioners Ient and Schulze or both, in the discretion of the court. If the violation
filed separate petitions for review with the SC. is committed by a corporation, the same may, after
notice and hearing, be dissolved in appropriate
ISSUE:WON Section 144 of the Corporation Code proceedings before the Securities and Exchange
aplicable to Sections 31 and 34 of the same statute Commission: Provided, That such dissolution
such that criminal liability attaches to violations of shall not preclude the institution of appropriate action
Sections 31 and 34. against the director, trustee or officer of the
corporation responsible for said violation: Provided,
Ruling: the consolidated petitions are GRANTED further , That nothing in this section shall be
construed to repeal the other causes for dissolution of
The main bone of disagreement among the parties in a corporation provided in this Code.
this case is the applicability of Section 144 of the
Corporation Code to Sections 31 and 34 of the same Petitioners posit that Section 144 only applies to the
statute such that criminal liability attaches to provisions of the Corporation Code or its amendments
violations of Sections 31 and 34. "not otherwise specifically penalized" by said statute
and should not cover Sections 31 and 34 which both
SECTION 31. Liability of Directors, Trustees or prescribe the "penalties" for their violation; namely,
Officers. Directors or trustees who willfully and damages, accounting and restitution of profits. On the
knowingly vote for or assent to patently unlawful acts other hand, respondent and the appellate court have
of the corporation or who are guilty of gross taken the position that the term "penalized" under
negligence or bad faith in directing the affairs of the Section 144 should be interpreted as referring to
corporation or acquire any personal or pecuniary criminal penalty, such as fine or imprisonment, and
interest in conflict with their duty as such directors or that it could not possibly contemplate "civil" penalties
trustees shall be liable jointly and severally for all such as damages, accounting or restitution.
damages resulting therefrom suffered by the
corporation, its stockholders or members and other After a meticulous consideration of the arguments
persons. presented by both sides, the Court comes to the
conclusion that there is textual ambiguity in Section
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144; moreover, such ambiguity remains even after an directors but without unduly impeding them in the
examination of its legislative history and the use of discharge of their work with concerns of litigation.
other aids to statutory construction, necessitating the Considering the object and policy of the Corporation
application of the rule of lenity in the case at bar. Code to encourage the use of the corporate entity as a
vehicle for economic growth, we cannot espouse a
A perusal of Section 144 shows that it is not a purely strict construction of Sections 31 and 34 as penal
penal provision. When it is a corporation that commits offenses in relation to Section 144 in the absence of
a violation of the Corporation Code, it may be unambiguous statutory language and legislative intent
dissolved in appropriate proceedings before the to that effect. We stress that had the Legislature
Securities and Exchange Commission. The involuntary intended to attach penal sanctions to Sections 31 and
dissolution of an erring corporation is not imposed as 34 of the Corporation Code it could have expressly
a criminal sanction, 53 but rather it is an stated such intent in the same manner that it did for
administrative penalty. Section 74 of the same Code.
WHEREFORE, the consolidated petitions are
There is no provision in the Corporation Code using GRANTED.
similarly emphatic language that evinces a categorical
legislative intent to treat as a criminal offense each
and every violation of that law. Consequently, there is Discussion:
no compelling reason for the Court to construe Section
144 as similarly employing the term "penalized" or Section 144 is not applicable since sections 31 and 34
"penalty" solely in terms of criminal liability. already provide penalty for violations of those
provisions. Section 144 will only apply if the act is not
Sections 31 to 34 were introduced into the penalized in the sections that are violated.
Corporation Code to define what acts are covered, as
well as the consequences of such acts or omissions Note:
amounting to a failure to fulfil a director's or Section 144 (now section 170 under the revised
corporate officer's fiduciary duties to the corporation. corporation code) is no longer a criminal offense. It is
A closer look at the subsequent deliberations on C.B. now civil. However, it still applies to violations of the
No. 3, particularly in relation to Sections 31 and 34, corporation code that do not have specific penalties.
would show that the discussions focused on the civil
liabilities or consequences prescribed in said SEC. 170. Other Violations of the Code; Separate
provisions themselves.There is no legislative intent to Liability. – Violations of any of the other provisions of
criminalize Sections 31 and 34 was manifested in the this Code or its amendments not otherwise
deliberations on the Corporation Code. specifically penalized therein shall be punished by a
fine of not less than Ten thousand pesos (P10,000.00)
It is noteworthy from the same deliberations that but not more than One million pesos (P1,000,000.00).
legislators intended to codify the common law If the violation is committed by a corporation, the
concepts of corporate opportunity and fiduciary same may, after notice and hearing, be dissolved in
obligations of corporate officers as found in American appropriate proceedings before the Commission:
jurisprudence into said provisions. In common law, Provided, That such dissolution shall not preclude the
the remedies available in the event of a breach of institution of appropriate action against the director,
director's fiduciary duties to the corporation are civil trustee, or officer of the corporation responsible for
remedies. If a director or officer is found to have said violation: Provided, further, That nothing in this
breached his duty of loyalty, an injunction may be section shall be construed to repeal the other causes
issued or damages may be awarded. A corporate for dissolution of a corporation provided in this Code.
officer guilty of fraud or mismanagement may be held Liability for any of the foregoing offenses shall be
liable for lost profits. A disloyal agent may also suffer separate from any other administrative, civil, or
forfeiture of his compensation. There is nothing in the criminal liability under this Code and other laws.
deliberations to indicate that drafters of the
Corporation Code intended to deviate from common
law practice and enforce the fiduciary obligations of SELF-DEALING DIRECTORS
directors and corporate officers through penal SEC. 31. Dealings of Directors, Trustees or Officers
sanction aside from civil liability. with the Corporation. – A contract of the corporation
with one
or more of its directors, trustees, officers or their
The Corporation Code was intended as a regulatory spouses and relatives within the fourth civil degree of
measure, not primarily as a penal statute. Sections 31 consanguinity or affinity is voidable, at the option of
to 34 in particular were intended to impose exacting such corporation, unless all the following conditions
standards of fidelity on corporate officers and are present:
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a.The presence of such director or trustee in the board a. If one of the 2 is a self dealing director
meeting in which the contract was approved was not Legal Effect : Contract is Voidable
necessary to constitute a quorum for such meeting;

b.The vote of such director or trustee was not 3 |Contract should be fair and reasonable
necessary for the approval of the contract; (Self -explanatory )

c.The contract is fair and reasonable under the

circumstances;
If any of the three is missing :
d.In case of corporations vested with public interest, Effect: Contract is voidable
material contracts are approved by at least two-thirds
(2/3) of the entire membership of the board, with at REMEDY : Ratification by Stockholders
least a majority of the independent directors voting to a. representing at least (2/3) of the members in a meeting
approve the material contract; and called for the purpose
b. Provided, that full disclosure of the adverse interest of
e.In case of an officer, the contract has been previously the directors or trustees involve dis made at such meeting
authorized by the board of directors.
c. Contract is fair and reasonable under the circumstance
Where any of the first three (3) conditions set forth in SUMMARY
the preceding paragraph is absent, in the case of a If a director contracts with the corporation , the contract
contract with a director or trustee, such contract may
that has been entered into is VOIDABLE unless the
be ratified by the vote of the stockholders
following requirements are complied:
representing at least two-thirds (2/3) of the
outstanding capital stock or of at least two-thirds
(2/3) of the members in a meeting called for the a. There should be a QUORUM but the presence of the
purpose: Provided, That full disclosure of the adverse director is not necessary to constitute a quorum
interest of the directors or trustees involved is made b. The VOTE (approval ) of such director is not necessary
at such meeting and the contract is fair and for the approval of the contract.
reasonable under the circumstances. c. Contract is fair and reasonable under the circumstances.

Requirements
1. Quorum (presence)
2. Approval ( vote) Atty: If 1 of this three or even if all is not complied with the
3. Contract is fair and reasonable under the circumstances contract is NOT VOID. There is still a quorum if his presence
is required to constitute a quorum , there is still a valid
1 | Quorum approval if his vote was necessary for the approval. But
that contract itself is voidable for being a self dealing
There has to be a quorum but the presence of such contract. But even if the contract is voidable it could still be
director in the board meeting in which the contract was ratified. (see above discussion on ratification)
approved WAS NOT necessary to constitute a quorum.

ILLUSTRATION: 5 directors Note:

a. to constitute quorum , needs 3 directors 1. Contract entered into by the corporation is still
b. the presence of the inter dealing director should not be considered as “self -dealing “ if entered into with the
counted in constituting the quorum , ( not part of the 3 spouses and relatives within the fourth civil degree of
directors) consanguinity or affinity of the directors, trustees , or
officers.
2 | Vote of such director or trustee was not necessary for the
approval CORPORATION VESTED WITH PUBLIC INTEREST
 Material Contracts - they are approved by at least
His vote is still counted but his vote should not be two- third ( 2/3) of the ENTIRE MEMBERSHIP of the
necessary for the approval for such contract. board, with at least a majority of the independent
directors voting to approve the material contract
ILLUSTRATION:
3 Directors present and 1 of them is the Self-dealing Atty: not just of the directors present but of the
director (Majority -2) Entire Membership
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1. The presence of such interlocking director is not

necessary to constitute a quorum.
BOARD OF DIRECTORS 2. The vote of such interlocking director is not necessary to
INTERLOCKING DIRECTORS approve a contract.
Sec. 32 . Contracts Between Corporations with 3. When contract is fair and reasonable under the
Interlocking Directors . - Except in cases of fraud , and circumstances given.
provided the contract is fair and reasonable under the
circumstances , a contract between two (2) or more
corporations having interlocking directors shall not be
REMOVAL OF DIRECTORS OR TRUSTEES
invalidated on that ground alone: Provided , that if the
Section 27. Removal of directors or trustees. – any
interest of the interlocking director in one (1)
director or trustee of a corporation may be removed
corporation is substantial and the interest in the other
from office by a vote of the stockholders holding or
corporation or corporations is merely nominal , the
representing at least two-thirds (2/3) of the
contract shall be subject to the provisions of the
outstanding capital stock, or if the corporation in a
preceding section insofar as the latter corporation or
non-stock corporation, by a vote of at least two-thirds
corporations are concerned.
(2/3) of the members entitled to vote: provided, that
such removal shall take place either at a regular
Stockholdings exceeding twenty percent (20
meeting of the corporation or at a special meeting
%) of the outstanding capital stock shall be
called for the purpose, and in either case, after
considered substantial for the purposes of
previous notice to stockholders or members of the
interlocking.
corporation of the intention to propose such removal
at the meeting. A special meeting of the stockholders
or members for the purpose of removing any director
or trustee must be called by the secretary on order of
INTERLOCKING DIRECTOR
the president, or upon written demand of the
stockholders representing or holding at least a
There is an interlocking director when you have two majority of the outstanding capital stock, a majority of
corporations contracting with each other and there is a the members entitled to vote.
common director/ directors.
If there is no secretary, or if the secretary, despite
GENERAL RULE: demand, fails or refuses to call the special meeting or
Contracts between corporations with interlocking to give notice thereof, the stockholder or member of
directors is valid SO LONG AS IT IS FAIR the corporation signing the demand may call for the
AND REASONABLE. meeting by directly addressing the stockholders or
INTERLOCKING DIRECTORS IS NOT A GROUND TO members. Notice of the time and place of such
INVALIDATE A CONTRACT. There is no meeting, as well as of the intention to propose such
prohibition at all to be an interlocking removal, must be given by publication or by written
director. notice prescribed in this code. Removal may be with
or without cause: provided, that removal without
EXCEPTION: cause may not be used to deprive minority
1. IN CASES OF FRAUD. stockholders or members of the right of
representation to which they may be entitled under
2. IF THE INTEREST OF THE INTERLOCKING section 23 of this code.
DIRECTOR IS SUBSTANTIAL IN ONE, AND
NOMINAL IN THE OTHER CONTRACTING The commission shall, motu propio or upon verified
CORPORATION, IN WHICH CASE, THE complaint, and after due notice and hearing, order the
CORPORATION WHERE THE DIRECTOR HAS A removal of a director or trustee elected despite the
NOMINAL INTEREST HAS TO COMPLY WITH disqualification, or whose disqualification arose or is
THE REQUIREMENTS ON SELF- DEALING (SEC. discovered subsequent to an election. The removal of
31). a disqualified directed shall be without prejudice to
other sanctions that the commission may impose on
Important: A director is considered to have substantial the board of directors or trustees who, with
interest in a corporation when he has stockholdings knowledge of the disqualification, failed to remove
exceeding 20% percent of the outstanding capital stock. such director or trustee

EFFECT OF EXCEPTION
When this happens, the contract is voidable, unless: Who may remove

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 Stock corporation: vote of the stockholders The SC said that the relationship of the directors and
holding or representing at least two-thirds (2/3) the stockholder is a Fiduciary Relationship. Such that
of the outstanding capital stock the stockholder being the proprietor of the corporate
 Non-stock corporation: vote of at least two- interest and the beneficiary of the corporate interest
thirds (2/3) of the members entitled to vote should have the power to console the directors, such
that if the directors fail to perform their duty, then
How removal is done the director has the right under the law, under the by-
laws of the corporation to remove and replace the
 By the stockholders through a regular or erring director. So SC said, of course, the stockholders
special meeting of a corporation has the right to remove the directors
O If in a special meeting, the special meeting because of the fiduciary relationship between the
shall be for the purpose of removing the corporation, the stockholders and the directors.
director. In the case, there is a problem because the special
o Must be called by the secretary on order of stockholders meeting was not called by the corporate
the president, or upon written demand of the secretary upon order of the president. The corporate
stockholders representing or holding at least secretary and the president would not call because
a majority of the outstanding capital stock, a they were part of the ruling group, so it was not called
majority of the members entitled to vote. by the secretary, it was not even called by the
o If there is no secretary, or if the secretary, members but rather it was called by the oversight
committee. The by-laws of the Makati Sports Club says
despite demand, fails or refuses to call the
that it is the president or the board of directors who
special meeting or to give notice thereof, the
can call for a special meeting. So it did not comply
stockholder or member of the corporation
with the
signing the demand may call for the meeting
procedure.
by directly addressing the stockholders or
members.
So according to the SC that even if you have the right
o Notice of the time and place of such meeting,
to remove the directors you have to follow the
as well as of the intention to propose such
procedure. Sec 28 says, it is the corporate secretary or
removal, must be given by publication or by
upon written demand of a stockholder.
written notice prescribed in this code
And even the by-laws says it is the president and
 By SEC
board of directors. SC said that nowhere in the
o upon verified complaint, and after due notice
corporation code or in the bylaws of the Makati Sports
and hearing, order the removal of a director Club that the oversight committee is authorized to set
or trustee elected despite the disqualification, in whenever there is a breach of fiduciary duty and
or whose disqualification arose or is call for special election for the purpose of removing
discovered subsequent to an election the existing set of
officers and electing their replacement.

BERNAS V. CINCO, GR NO. 163356-57 JULY 1, 2015 The oversight committee did not have the power to
call. Thus, the special stockholders meeting is void.
Facts: Even if that special meeting was later on ratified
during the annual stockholders meeting. “SC said, if
The case is about Makati Sports Club where in this the act is invalid it cannot be ratified.” You have to
case, there is a certain group that had been managing distinguish an act which is illegal because it is against
the sports club. And then there were rumor that the the law and an act which is beyond the authority of
group was mismanaging and certain funds were the officers. SC said that the act is against the law, it
missing. The oversight committee which is made up of cannot be ratified. The law is very specific, in order to
previous/past presidents of the organization, called remove a director you have to comply with the
for a special meeting to remove the directors. And requirements of the corporation code or the bylaws.
they were able to call that meeting and they had that There was also an issue that it’s impossible for the
meeting and they were able to remove and replace the president to call for the meeting because he’s the
ruling group. So now a case was brought by the person that’s supposed to be removed. SC said, it
removed directors saying that the oversight doesn’t matter because you are left recourse with the
committee had no right court. If the officers mentioned in the bylaws fails to
to remove them as director. call such meeting you can
go to SEC.
Ruling:
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Take note: An improper Board Meeting is a void meeting to fill in a vacancy caused by the resignation of a hold-over
and if the person calling the meeting is not the person director?
authorized to do so, that is a ground for voiding the
FACT:
meeting and any resolutions passed during that meeting.
aIn 1996, during the Annual Stockholders Meeting of
petitioner Valle Verde Country Club, Inc. (VVCC), an election
Q FROM CLASSMATE: with respect to sec’s power to was conducted (9 directors were elected). In the years 1997,
remove directors, it says here that they can motu proprio 1998, 1999, 2000, and 2001, however, the requisite quorum
do it, so even though without a complaining stockholder, for the holding of the stockholders meeting could not be
they can still remove? YES. obtained. Consequently, the directors elected in 1996
continued to serve in the VVCC Board in a hold-over
capacity.
Q FROM CLASSMATE: if there’s a corporate secretary, can
the stockholders petition to the SEC or they must go to In 1998, Dinglasan resigned from his position as member of
Secretary first? They can go to SEC only when the the VVCC Board. In a meeting after, the remaining directors,
secretary refuses, that’s only for any other kind of still constituting a quorum of VVCCs nine-member board,
meeting, because under Sec. 27: elected Roxas to fill in the vacancy.

A year later, Makalintal also resigned as member of the VVCC

Sec. 27 Removal of Directors or Trustees: Board and was replaced by Ramirez, who was elected by the
xxxxxxx remaining members of the VVCC Board in 2001.

IF THERE IS NO SECRETARY, OR IF THE SECRETARY, DESPITE Respondent Africa, a member of VVCC, questioned the
DEMAND, FAILS OR REFUSES TO CALL THE SPECIAL election of Roxas and Ramirez with SEC and RTC,
respectively. [SEC – Roxas; RTC – Ramirez]
MEETING OR TO GIVE NOTICE THEREOF, THE
STOCKHOLDER OR MEMBER OF THE CORPORATION In his nullification complaint before the RTC, Africa alleged
SIGNING THE DEMAND MAY CALL FOR THE MEETING BY that the election of Roxas was contrary to Section 29, in
DIRECTLY ADDRESSING THE STOCKHOLDERS OR relation to Section 23, of the Corporation Code of the
MEMBERS. Notice of the time and place of such meeting, Philippines (Corporation Code). These provisions read:
as well as of the intention to propose such removal, must
Sec. 23. The board of directors or trustees. - Unless
be given by publication or by written notice prescribed in
otherwise provided in this Code, the corporate powers of all
this Code. Removal may be with or without cause: corporations formed under this Code shall be exercised, all
Provided, that removal without cause may not be used to business conducted and all property of such corporations
deprive minority stockholders or members of the right of controlled and held by the board of directors or trustees to
representation to which they may be entitled under be elected from among the holders of stocks, or where there
Section 24 23 of this Code. is no stock, from among the members of the corporation,
who shall hold office for one (1) year until their successors
are elected and qualified.
HOW VACANCIES IN THE BOARD FILLED
xxxx
1. BY THE BOARD MEMBERS: If the reason for the
vacancy is other than the removal or expiration of Sec. 29. Vacancies in the office of director or trustee. -
the term or amendment of the Articles of Any vacancy occurring in the board of directors or
Incorporation increasing the numbers of the trustees other than by removal by the stockholders or
Directors, provided they still constitute a members or by expiration of term, may be filled by the
quorum. vote of at least a majority of the remaining directors
or trustees, if still constituting a quorum; otherwise,
2. BY THE STOCKHOLDERS: If the reason for the said vacancies must be filled by the stockholders in a
vacancy is the expiration of the term or the regular or special meeting called for that purpose. A
removal by the stockholders, or vacancy due to director or trustee so elected to fill a vacancy shall be
the amendment of the Articles of Incorporation elected only for the unexpired term of his predecessor
or if the Board Members does not constitute a in office.
quorum.
Africa claimed that a year after Makalintal’s election,
Take note: the stockholders always has the inherent right his term as well as those of the others should be
considered to have already expired. Thus, the
to fill in the vacancies. Regardless of the reason.
resulting vacancy should have been filled by the
stockholders in a regular or special meeting called for
VALLE VERDE CASE
that purpose.
Legal question on corporate governance: Can the members
of a corporation’s board of directors elect another director
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Africa additionally contends that for the members to The holdover period is not part of the term of office of
exercise the authority to fill in vacancies in the board a member of the board of directors.
of directors, Section 29 requires, among others, that
there should be an unexpired term during which the Definite meaning of TERM (based on jurisprudence)
successor-member shall serve. Here, there is no more - time during which the officer may claim to hold the
unexpired term during which Ramirez could serve. office as of right, and fixes the interval after which the
several incumbents shall succeed one another
RTC - favor of Africa and declared the election of - not affected by the holdover
Ramirez as null and void - fixed by statute and not change simply because the
SEC - issued a similar ruling, nullifying the election of office may have become vacant, nor because the
Roxas incumbent holds over in office beyond the end of the
No appeal was filed to CA. term due to the fact that a successor has not been
CA - considered the case closed and terminated and elected and has failed to qualify
the SECs ruling final and executory
Term vs Tenure
VVCC now appeals to SC to assail the RTCs partial Officer’s tenure represents the term during which the
decision for being contrary to law and jurisprudence. incumbent actually holds office. The tenure may be
shorter (or, in case of holdover, longer) than the term
ISSUE: for reasons within or beyond the power of the
Whether the remaining directors of the corporation’s incumbent.
Board, still constituting a quorum, can elect another
director to fill in a vacancy caused by the resignation Based on the above discussion, when Section 23 of the
of a hold-over director. Corporation Code declares that the board of directors shall
hold office for one (1) year until their successors are elected
and qualified, we construe the provision to mean that the
term of the members of the board of directors shall be only
for one year; their term expires one year after election to the
Contention of VVCC: office. The holdover period that time from the lapse of one
The power to fill in a vacancy created by the year from a member’s election to the Board and until his
resignation of a hold-over director is expressly successor’s election and qualification is not part of the
granted to the remaining members of the director’s original term of office, nor is it a new term; the
corporation’s board of directors under Section 29 of holdover period, however, constitutes part of his tenure.
the Corporation Code. Correlating Section 29 with Corollary, when an incumbent member of the board of
Section 23 of the same law, VVCC alleges that a directors continues to serve in a holdover capacity, it implies
that the office has a fixed term, which has expired, and the
member’s term expires only when his successor to the
incumbent is holding the succeeding term.
Board is elected and qualified. Thus, until such time as
[a successor is] elected or qualified in an annual After the lapse of one year from his election as member of
election where a quorum is present, VVCC contends the VVCC Board in 1996, Makalintal’s term of office is
that the term of [a member] of the board of directors deemed to have already expired. That he continued to serve
has yet not expired. in the VVCC Board in a holdover capacity cannot be
considered as extending his term. His resignation as a
Upon failure of a quorum at any annual meeting the holdover director did not change the nature of the vacancy;
directorate naturally holds over and continues to the vacancy due to the expiration of Makalintal’s term had
been created long before his resignation.
function until another directorate is chosen and
qualified. Unless the law or the charter of a The powers of the corporation’s board of directors emanate
corporation expressly provides that an office shall from its stockholders. VVCCs construction of Section 29 in
become vacant at the expiration of the term of office relation to Section 23 thereof, effectively weakens the
for which the officer was elected, the general rule is to stockholders power to participate in the corporate
allow the officer to hold over until his successor is governance by electing their representatives to the board of
duly qualified. Mere failure of a corporation to elect directors. The board of directors, in drawing to themselves
officers does not terminate the terms of existing the powers of the corporation, occupies a position of
officers. trusteeship in relation to the stockholders, in the sense that
the board should exercise not only care and diligence, but
utmost good faith in the management of corporate affairs.
RULING:
Unmeritorious. The underlying policy of the Corporation Code is that the
business and affairs of a corporation must be governed by a
The resolution of this legal issue is significantly hinged board of directors whose members have stood for election,
on the determination of what constitutes a directors and who have actually been elected by the stockholders, on
term of office. an annual basis. The shareholder vote is critical to the

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theory that legitimizes the exercise of power by the Rationale

directors or officers over properties that they do not own. The reason why the law allows the directors to fill-in the
vacancies is for convenience because it’s very hard to call a
The law has authorized the remaining members of the board
stockholders’ meeting especially if you have a lot of
to fill in a vacancy only in specified instances, so as not to
retard or impair the corporations operations; yet, in stockholders. It will be difficult to get quorum, and it’s also
recognition of the stockholders right to elect the members of the directors who manage the corporation. So, if the board
the board, it limited the period during which the successor of directors cannot act, because they’re missing a member,
shall serve only to the unexpired term of his predecessor in then that is not good for the corporation.
office. So, the law allows the directors to fill in a vacancy. But only
in certain instances. But, if the stockholders really insist on
While the Court in El Hogar (case cited by VVCC) approved
of the practice of the directors to fill vacancies in the
holding a meeting to fill in the vacancy, then that is their
directorate, we point out that this ruling was made before prerogative. Because the power of the board, as
the present Corporation Code was enacted and before its mentioned in the valle verde case to fill in the vacancy is
Section 29 limited the instances when the remaining merely a delegated power coming from the stockholders.
directors can fill in vacancies in the board. IT’S INHERENT IN THE STOCKHOLDERS TO FILL IN OR
ELECT MEMBERS OF THE BOARD.
As correctly pointed out by the RTC, when remaining
members of the VVCC Board elected Ramirez to replace
HOW ONE CAN BECOME A STOCKHOLDER
Makalintal, there was no more unexpired term to speak of,
as the term had already expired. Pursuant to law, the
authority to fill in the vacancy lies with the VVCCs 2 ways to become a stockholder
stockholders, not the remaining members of its board of 1. SUBSCRIPTION – purchasing unissued stocks
directors. 2. ASSIGNMENT – purchasing issued stocks

SEC. 28. VACANCIES IN THE OFFICE OF THE DIRECTOR OR TRUSTEE; Types of subscriptions
EMERGENCY BOARD. 1. Pre-incorporation subscription – subscription
XXXX before the corporation is incorporated
XXXX 2. Post-incorporation subscription – subscription
after the corporations incorporated
HOWEVER, WHEN THE VACANCY PREVENTS THE
REMAINING DIRECTORS FROM CONSTITUTING A QUORUM
AND EMERGENCY ACTION IS REQUIRED TO PREVENT
Pre-incorporation Subscription
GRAVE, SUBSTANTIAL, AND IRREPARABLE LOSS OR SEC. 60. Pre-incorporation Subscription. –
DAMAGE TO THE CORPORATION, THE VACANCY MAY BE A subscription of shares in a corporation still to be
TEMPORARILY FILLED FROM AMONG THE OFFICERS OF formed shall be irrevocable for a period of at least
THE CORPORATION BY UNANIMOUS VOTE OF THE six
REMAINING DIRECTORS OR TRUSTEES. THE ACTION BY (6) months from the date of subscription, unless all
THE DESIGNATED DIRECTOR OR TRUSTEE SHALL BE of
LIMITED TO THE EMERGENCY ACTION NECESSARY, AND
the other subscribers consent to the revocation, or
THE TERM SHALL CEASE WITHIN A REASONABLE TIME
FROM THE TERMINATION OF THE EMERGENCY OR UPON
the
ELECTION OF THE REPLACEMENT DIRECTOR OR TRUSTEE, corporation fails to incorporate within the same
WHICHEVER COMES EARLIER. THE CORPORATION MUST period or within a longer period stipulated in the
NOTIFY THE COMMISSION WITHIN THREE (3) DAYS FROM contract of subscription.
THE CREATION OF THE EMERGENCY BOARD, STATING No pre-incorporation subscription may be revoked
THEREIN THE REASON FOR ITS CREATION. (New after the articles of incorporation is submitted to
provision; POWER TO CONSTITUTE AN EMERGENCY the
BOARD) Commission.

Atty: If there is an emergency situation, in order to Rule for Pre-incorporation Subscription

prevent, grave, substantial, and irreparable loss or damage  Irrevocable for a period of six months, unless all
to the corporation, the vacancy may be temporarily filled of
from among the officers of the corporation. Temporary the other subscribers consent to the revocation,
only. After the emergency the Stockholders would have to or the corporation fails to incorporate within the
fill-in the vacancy because the board does not form a same period or within a longer period stipulated
quorum anymore. in the contract of subscription.
 No pre-incorporation subscription may be
Take note: for emergency situations, the board, even if revoked after the articles of incorporation is
they do not constitute a quorum may temporarily fill-in submitted to the Commission
the vacancy from the officers of the corporation.

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(a) consents to the issuance of stocks for a

consideration less than its par or issued value;
(b) consents to the issuance of stocks for a
CONSIDERATION FOR STOCKS consideration other than cash, valued in excess of
SEC. 61. Consideration for Stocks. – Stocks shall not its fair value; or
be issued for a consideration less than the par or (c) having knowledge of the insufficient
issued price thereof. Consideration for the issuance consideration, does not file a written objection with
of the corporate secretary, shall be liable to the
stock may be: corporation or its creditors, solidarily with the
(a) Actual cash paid to the corporation; stockholder concerned for the difference between
(b) Property, tangible or intangible, actually the value received at the time of issuance of the
received stock and
by the corporation and necessary or convenient for the par or issued value of the same
its
use and lawful purposes at a fair valuation equal to When director or officer liable
the par or issued value of the stock issued; a. If the consideration is cash, and the
(c) Labor performed for or services actually officer/director consents to the issuance of stocks
rendered for a consideration less than its par or issued
to the corporation; value;
(d) Previously incurred indebtedness of the b. If the consideration is other than cash, and the
corporation; officer/director consents to the issuance of stocks
(e) Amounts transferred from unrestricted retained for a consideration valued in excess of its fair
earnings to stated capital; value; or
(f) Outstanding shares exchanged for stocks in the c. If having knowledge of the insufficient
event of reclassification or conversion;
consideration, does not file a written objection
(g) Shares of stock in another corporation; and/or
with the corporate secretary
(h) Other generally accepted form of consideration.
Liability
Where the consideration is other than actual cash,
or The officer/director who falls under the enumeration
consists of intangible property such as patents or above shall be solidarily liable with the stockholder
copyrights, the valuation thereof shall initially be concerned, to the corporation and or its creditors, for
determined by the stockholders or the board of the difference between the value received at the time
directors, subject to the approval of the of issuance of the stock and the par or issued value of
Commission. the same.
Shares of stock shall not be issued in exchange for
promissory notes or future service. The same TRUST FUND DOCTRINE
considerations provided in this section, insofar as This doctrine, first enunciated by the Supreme Court in the
applicable, may be used for the issuance of bonds by case of Philippine Trust Co. vs. Rivera (144 Phil. 469
the corporation. [1923].), holds that the assets of the corporation as
represented by its capital stock are "trust funds" to be
The issued price of no-par value shares may be fixed maintained unimpaired and to be used to pay corporate
in the articles of incorporation or by the board of creditors in the sense that there can be no
directors pursuant to authority conferred by the distribution of such assets among the stockholders
articles of incorporation or the bylaws, or if not so without provision being first made for the payment of
fixed, by the stockholders representing at least a corporate debts and that any such disposition of it is a
majority of the outstanding capital stock at a fraud on the creditors of the corporation who extend
meeting credit to the corporation on the faith of its outstanding
duly called for the purpose. capital stock and, therefore, void.

The amount of the consideration should not be less than As between the stockholders and the creditors, the
the par value or the issued price of the shares. If it is less, creditors have preference over the assets of the
it becomes a WATERED STOCK. corporation. And the unpaid subscription of the
stockholders is considered as assets of the corporation.
LIABILITY FOR WATERED STOCKS
They are receivables. So, even without going through
SEC. 64. Liability of Directors for Watered Stocks. – piercing the veil, the stockholders, really, are liable for
A director or officer of a corporation who: their unpaid subscription. it is just like any other asset of
the corporation that creditors can go after.

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the corporation’s obligation to them. That is the

When you have an unpaid subscription, your true creditor trust fund doctrine
is the corporation. It owns the accounts receivables. It’s
just that the creditors can look into the unpaid QUESTIONS:
subscription for the fulfillment of their obligation. Under 1. Two stockholders. The unpaid subscription is 250K each.
normal circumstances, the creditors don’t go directly at Amount payable to creditor is 20K. If the creditor decides
the stockholders. They go after the corporation. If the to sue only one of the stockholders, can said stockholder
corporation does not have sufficient funds, that’s the time cannot demand that it be prorated among them,
they go after the receivables, which is the unpaid considering that they have the same unpaid subscription?
subscription. Can the stockholder demand that the liability be 10K for
each?

HALLEY VS PRINTWELL - G.R. NO. 157549 NO. It doesn’t matter that the payable is only 20K because
Facts: your liability is 250K. The whole amount of your
Halley was an incorporator and original director subscription is owed to the corporation. The stockholder
of Business Media Philippines, Inc. (BMPI). BMPI cannot say that “dili pwede nga ako ra imu paninglan”, just
commissioned Printwell for the printing of because wala gipaninglan ang uban does not make the
magazines Philippines For that purpose, Printwell obligation void. In the same way, you can’t say that it is
extended 30-day credit accommodations to BMPI. “okay ra mag cheat because others are also cheating.” Ang
BMPI paid only P25,000.00 therefore, Printwell dili pwede, dili pwede.
sued BMPI for the collection of the unpaid balance
of P291,342.76 in the RTC. 2. Under the trust fund doctrine, what is the liability of the
subscribers? Direct or not to the creditors of the
Printwell amended the complaint in order to corporation?
implead as defendants all the original
stockholders and incorporators who have Supposedly, the liability of the subscriber is only to the
remaining unpaid subscriptions to BMPI.
corporation because it is an asset of the corporation. But
defendants filed a consolidated answer averring
in rare instances, the courts allow that the creditor can
that BMPI had a separate personality from those
collect directly from the subscribers. The creditors have to
of its stockholders
implead the corporation because the obligation is
Issue: supposedly to the corporation. You have to establish that.
Whether the stockholders can be liable to the
creditors for their unpaid subscriptions
Second mode of transferring stocks
SEC. 62. Certificate of Stock and Transfer of Shares. – The
Ruling: capital stock of corporations shall be divided into shares for
the petitioner is liable pursuant to the trust fund which certificates signed by the president or vice president,
doctrine for the corporate obligation of BMPI by countersigned by the secretary or assistant secretary, and
virtue of her subscription being still unpaid. sealed with the seal of the corporation shall be issued in
Printwell, as BMPIs creditor, had a right to reach accordance with the bylaws.
for Halley’s unpaid subscription in satisfaction of
its claim. Shares of stock so issued are personal property and may be
a stockholder is personally liable for the financial transferred by delivery of the certificate or certificates
obligations of the corporation to the extent of his indorsed by the owner, his attorney-in-fact, or any other
person legally authorized to make the transfer.
unpaid subscription. In view of the petitioners’
unpaid subscription being worth P262,500.00, she No transfer, however, shall be valid, except as between the
was liable up to that amount. parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the
Atty’s Discussion on the case: transaction, the date of the transfer, the number of the
The extent of her liability is only up to the full certificate or certificates, and the number of shares
amount of the stockholder’s unpaid subscription. transferred.
It’s the same as to the other stockholders – They
are liable only up to the extent of their unpaid The Commission may require corporations whose securities
are traded in trading markets and which can reasonably
subscription. It is not prorated per stockholder. It
demonstrate their capability to do so to issue their
is to the exact peso amount of the unpaid securities or shares of stocks in uncertificated or scripless
subscription. form in accordance with the rules of the Commission.No
The unpaid subscription constitutes a fund to shares of stock against which the corporation holds any
which creditors can look into for the fulfillment of unpaid claim shall be transferable in the books of the
corporation.
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In a sale of shares of stock, physical delivery of a stock

certificate is one of the essential requisites for the
transfer of ownership of the stocks purchased. The
Two ways to transfer shares
delivery contemplated in Section 63, however,
pertains to the delivery of the certificate of shares by
1. Deliver the stock certificate with an intention to
the transferor to the transferee, that is, from the
transfer ownership duly indorsed; or original stockholder named in the certificate to the
2. Execute a Deed of Assignment for the shares person or entity the stockholder was transferring the
shares to, whether by sale or some other valid form of
Transfer meaning secondary, it is not the unissued shares absolute conveyance of ownership.
anymore. Pertains to issued shares. You are buying from
issued stocks of a corporation. "Shares of stock may be transferred by delivery to the
transferee of the certificate properly indorsed. Title
Effect may be vested in the transferee by the delivery of the
It merely transfers the ownership of the shares to the duly indorsed certificate of stock."
transferee or the assignee, being now the owner of the
shares. There is already a valid transfer of ownership. Nevertheless, to be valid against third parties and the
However, it does not make the transferee or assignee a corporation, the transfer must be recorded or
stockholder yet. registered in the books of corporation. Upon
registration of the transfer in the books of the
How one becomes a stockholder corporation, the transferee may now then exercise all
The registration of the transfer makes one a stockholder, the rights of a stockholder, which include the right to
have stocks transferred to his name.
regardless of the issuance or non-issuance of a new
certificate.
Atty G: The delivery of the stock certificate duly
Teng vs. SEC, GR NO. 184332, FEBRUARY 17, 2016 indorsed is a mode of transferring ownership. It is
Facts: This case originated from the case of TCL Sales Corp v. only required if you are going to transfer ownership.
CA. Respondent Ting Ping purchased shares of TCL Sales However, delivery of stock certificate is not required in
Corporation (TCL) from Chiu, his brother Teng Ching Lay
the registration of the transfer in the Stock and
(President and operations manager of TCL), and Maluto.
Teng Ching died. Ting Ping, to protect his shareholdings with Transfer Book. Delivery is important to transfer
TCL, requested petitioner Teng (TCL's Corporate Secretary), ownership, hence it is necessary. But once that is
to enter the transfer in the Stock and Transfer Book of TCL done, the transferee only needs to have the transfer
for the proper recording of his acquisition. He also registered in the Stock and Transfer Book.
demanded the issuance of new certificates of stock in his
favor. TCL and Teng refused despite repeated demands. Ting Is the issuance of a new certificate necessary to make
Ping filed mandamus with the SEC which was granted. SEC Ting Ping a stockholder?
issued a writ of execution. Teng argued that prior to NO. What makes the transferee a stockholder is the
registration of stocks in the corporate books, it is mandatory registration of the transfer of the shares in the Stock
that the stock certificates are first surrendered because a
and Transfer Book. Hence, it is not the issuance of the
corporation will be liable to a bona fide holder of the old
certificate if, without demanding the said certificate, it
new stock certificate that makes one a stockholder.
issues a new one. On the other hand, Ting Ping argued that
Section 63 of the Corporation Code does not require the
surrender of the stock certificate to the corporation, nor
make such surrender an indispensable condition before any
transfer of shares can be registered in the books of the
corporation. The only limitation imposed by Section 63 is
when the corporation holds any unpaid claim against the
shares intended to be transferred.
F & S Velasco vs. Madrid, GR NO. 208844, NOVEMBER 10,
Issue: Whether or not the surrender of the certificates of 2015
stock is a requisite before registration of the transfer may be
made in the corporate books and for the issuance of new Facts: F&S Velasco Company, Inc. (FSVCI)was duly organized
certificates in its stead. and registered as a corporation with its incorporators:
Spouses Francisco and Simona Velasco, their daughter
Held: NO. To compel Ting Ping to deliver to the corporation Angela Madrid whose husband is Dr. Rommel Madrid
the certificates as a condition for the registration of the (respondent), and Saturnino Velasco (petitioner). Spouses
transfer would amount to a restriction on the right of Ting Velasco died, thus, their daughter Angel inherited their
Ping to have the stocks transferred to his name, which is not shares thereby giving her control of 70.82%, who was also
sanctioned by law. then the Chairman of the BOD. She however later on died
intestate and w/o issue, thus, Madrid executed an Affidavit
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of Self-Adjudication which includes the shares owned by his sought by Section 26 40 of the Corporation Code which is to
wife Angela. give the public information, under sanction of oath of
responsible officers, of the nature of business, financial
Without registration on the corporate book of such transfer, condition, and operational status of the company, as well as
Madrid called for a meeting for the Re-Organization of the its key officers or managers, so that those dealing and who
BOD, to which meeting, other respondents (Madrid Group) intend to do business with it may know or have the means of
was given one share, and such group took over the BODs. At knowing facts concerning the corporation's financial
the same time, Velasco also had a meeting for the election of resources and business responsibility. The contents of the
the President and Vice-P of the BOD. Thus, two separate GIS, however, should not be deemed conclusive as to the
meetings. Later on, Velasco petitioned with the RTC to identities of the registered stockholders of the corporation,
declare null and void Madrid’s meeting. as well as their respective ownership of shares of stock, as
RTC: Declared both meetings null and void. Velasco’s the controlling document should be the corporate books,
meeting lacks quorom; while the estate of Angela was not specifically the Stock and Transfer Book. As between the
yet settled, thus, Madrid only has an inchoate right of the General Information Sheet and the corporate books, it is the
70.82%. Madrid appealed, but Velasco did not. latter that is controlling.
CA: Madrid’s meeting was valid as the Affidavit executed
was sufficient to transfer the 70.82% shares to Madrid. Since as reflected in the Stock and Transfer book Madrid
Further ruled the creation of a Management Committee in only has 4.16% in view of the non- registration of the
view of the conflicting interests between the two. transfer, Madrid’s Meeting is null and void. And considering
that RTC’s decision of Velasco’s Meeting’s nullity, the FSVCI’s
Issue: BOD at the time of Angela’s death should be reconstituted,
1. WON Madrid’s meeting is legal and valid. and Angela’s vacant seat should be filled. Such BODs should
2. WON a Management Committee should be created. only act in a hold-over capacity until their successors are
elected and qualified.
Ruling:
2. NO. Such extraordinary remedy requires the concurrence
1. NO. It is true that the RTC already recognized Madrid as of two elements: (a) Dissipation, loss, wastage or
the sole heir of Angela to the exclusion of others (sister of destruction of assets or other properties; and (b)
Angela for failure to appeal in a separate case), thus death of Paralyzation of its business operations which may be
Angela immediately transferred the 70.82% ownership of prejudicial to the interest of the minority stockholders,
shares to him, and he can compel issuance of certificates of parties- litigants or the general public. This is because
stock in his favor. However, this does no ipso facto afford him appointed management committees will immediately take
the rights accorded to such majority ownership of FSVCI’s over the management of the corporation and exercise the
shares. Sec. 63 of the Corporation Code provides that: management powers specified in the law. This may have a
negative effect on the operations and affairs of the
corporation with third parties, as persons who are more
Xxx No transfer, however, shall be valid, except as between the familiar with its operations are necessarily dislodged from
parties, until the transfer is recorded in the books of the their positions in favor of appointees who are strangers to
corporation showing the names of the parties to the the corporation's operations and affairs. The CA merely
transaction, the date of the transfer, the number of the based its directive on the finding that there is a conflicting
certificate or certificates and the number of shares interest between the two groups. However, absent any
transferred. actual evidence from the records showing such imminent
Thus, all transfers of shares of stock must be registered in danger, the CA's findings have no legal or factual basis to
the corporate books in order to be binding on the support the appointment/constitution of a Management
corporation. Specifically, this refers to the Stock and Committee for FSVCI. Accordingly, the CA erred in ordering
Transfer Book as provided for under Sec. 74. the creation of a Management Committee in this case.

An owner of shares of stock cannot be accorded the rights

pertaining to a stockholder — such as the right to call for a
Scripless Trading
meeting and the right to vote, or be voted for — if his
ownership of such shares is not recorded in the Stock and
“The Commission may require corporations whose
Transfer Book. until registration is accomplished, the securities are traded in trading markets and which can
transfer, though valid between the parties, cannot be reasonably demonstrate their capability to do so to issue
effective as against the corporation. The purpose of their securities or shares of stocks in uncertificated or
registration, therefore, is two-fold: to enable the transferee scripless form in accordance with the rules of the
to exercise all the rights of a stockholder, including the right Commission” – excerpt from Section 62 of the Revised
to vote and to be voted for, and to inform the corporation of
Corporation Code of the Philippines.
any change in share ownership so that it can ascertain the
persons entitled to the rights and subject to the liabilities of
a stockholder. Records are bereft of any showing that the “Scrip”
transfer of Angela's shares of stock to Madrid had been A duly signed stock certificate
registered in FSVCI's Stock and Transfer Book.
Scripless Trading
Further, be it noted also that submission of a GIS of a
corporation before the SEC is pursuant to the objective
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Transfer of ownership of shares without actually delivering 3. Brokers will have their own list of their own
stock certificates is done through BOOK ENTRIES clients as well

This kind of trading is usually done when the stocks are Ownership of stocks traded through Scripless Trading
listed in the Stock Exchange. Legal Owner – PDTC; Beneficial Owner – Client of the
Brokers
Rationale
For convenience of buying and selling securities. To strictly
follow to the traditional way of transferring shares Voting during Elections
(delivery of actual certificates), the stock market will not The beneficial owner should ask for a certification from the
survive because the transactions will take from days to broker that he is the owner of this certain number of
months. shares; that certification (NOT a stock certificate) should
be brought by the beneficial owner during the election;
How Done akin to proxy allowing to vote shares.
The Corporation that intends to trade shares in the Stock
Exchange must—

1. Deliver all their securities on their shares to the

Philippine Depository and Trust Corporation
(PDTC).
2. The shares in the book of PDTC will now be
assigned or given to the brokers who purchased
the shares
3. Stock and Transfer Agent records the stocks in the
Stock and Transfer Book and issues the Stock
Certificates of the Corporation.

Take Note: The entity recorded in the Stock and Transfer

Book will be PDTC, the holder of the share under the Stock
and Transfer Book.

4. In turn, PDTC will make entries their own records

(BOOK ENTRIES)

Uplifting of Shares
If the shares are desired to be kept for a long time without
intent to trade it, the shares can be uplifted by—

1. Requesting the PDTC to take out the shares from

their custody and record it in the Stock and
Transfer Book under the name of the purchaser
(Corporation/Stockholder)
2. Stock and Transfer Agent will issue the shares to
that person

If later on you decide to sell it, the stock certificate should

be returned to the Stock and Transfer Agent, which will
again take time.

Take Note: This is the delay and complication that Scripless

Trading avoids.

Key Points on Scripless Trading

1. There is only one owner—PDTC, the listed
stockholder in the books of the Corporation.
2. PDTC will have its own list of brokers who hold
the shares for their clients
CENIZA | FONTANOSA | GABUNADA | GEGANTO | GEONZON | GLORIA | JUMAO-AS | KE-E | MALAZARTE | MARTINQUILLA | MATA |
SEÑAGAN | WEE U N I V E R S I T Y O F S A N C A R L O S | Page 20 of 20