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B. ROLE OF SHAREHOLDERS

Right to Vote and Attend Meetings (Section 89 of the Cororation Code!

Sec. 89. Right to "ote. - The right of the members of any class or classes to vote may be

limited, broadened or denied to the extent specified in the articles of incorporation or the

by-laws. Unless so limited, broadened or denied, each member, regardless of class, shall

be entitled to one vote. Unless otherwise provided in the articles of incorporation or the by-laws, a member may

vote by proxy in accordance with the provisions of this Code. (n)

oting by mail or other similar means by members of non-stoc! corporations may be

a"thori#ed by the by-laws of non-stoc! corporations with the approval of, and "nder s"ch

conditions which may be prescribed by, the $ec"rities and %xchange Commission.

&ep"blic of the 'hilippinesS#$REME CO#R%

anila

% *+C

&.R. 'o. L)*+8, 'o"e-er ,/0 ,9))

1. S. $R2CE and %HE S#L# DEVELO$ME'% COM$A'30plaintiffs-appellants,vs.H. MAR%2'0defendant-appellant.%HE ASA' COCO'#% COM$A'30defendant-appellee.

J.W. Ferrier for plaintiff-appellants.G.E. Campbell and W.A. Caldwell for defendant-appellant.DeWitt, Perkins and Brady for appellee.

H#LL0 J.:

'laintiffs bro"ght s"it in the Co"rt of irst nstance of anila praying that a mortgage exec"ted by the $"l" evelopmentCompany on its properties in favor of the +g"san Cocon"t Company be dissolved and declared n"ll and void, the principalcontentions being that at the stoc!holders/ meeting in which the officers of the $"l" evelopment Company were electedand at which the proposed mortgage was approved of, 0 shares of stoc! of the $"l" evelopment Company were votedby the proxy of rs. 2orcester, in whose name the stoc! at that time stood "pon the boo!s of the company, whereasdefendant artin claimed that he was the tr"e owner and that he sho"ld have voted the stoc!.

rom the records of the $"l" evelopment Company it appears that at the meeting of ovember 13, 1034, artin

presented evidence to the effect that he, and not rs. 2orcester, was the owner of the 0 shares of stoc!. Copies of thedoc"ments relied "pon by artin were made a part of the record, b"t apparently no action was ta!en by the stoc!holdersor by the directors, and at the meetings of ovember 13, 1, and 10, rs. 2orcester/s proxy apparently voted the stoc!witho"t protest on the part of artin or any other stoc!holder.

+s far as the record shows, every formal action ta!en at those three meetings was "nanimo"s, and artin at the last twomeetings was accompanied by two members of the *ar of the 'hilippine slands as his co"nsel.

The $"l" evelopment Company from its inception "p to the time of exec"ting the contract was virt"ally owned andcontrolled by artin. 'rince p"rchased one share of stoc! abo"t a month before the called meeting b"t was not present atthe meetings in 5"estion.

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+nother gro"nd relied "pon by plaintiffs is a claim that the mortgage was witho"t consideration. The evidence shows thatfor years the +g"san Cocon"t Company, thro"gh its general manager, had been advancing s"ms thro"gh artin in orderthat the $"l" evelopment Company might sec"re good and s"fficient title to a large tract of land sit"ated near $iasi andthereon develop a cocon"t plantation. The amo"nt of money so advanced was in disp"te, b"t between the meeting onovember 13 and the final action on ovember 10, the attorney of the $"l" evelopment Company, one of whom wasalso an acco"ntant, and the attorneys of the +g"san Cocon"t Company went over the m"t"al acco"nts with care andarrived at the s"m set forth in the mortgaged. 6ad there been no agreement, s"it wo"ld have been instit"ted by the

+g"san Company against the $"l" evelopment Company.

There is also a claim that there was a parol agreement between artin and 2orcester, representing the two companies,that after the death of r. 2orcester on ay 3, 1037, the +g"san Cocon"t Company failed to comply with the terms andconditions of the so-called c"ltivation agreement, and artin prayed in his special cross-complaint and co"nter-claim thatthe efendant +g"san Cocon"t Company be re5"ired to ma!e s"ch f"rther cash advances to 8carry o"t the f"ll scaledevelopment of the tract of land in the c"ltivation agreement and as contemplated therein.8

The trial co"rt, on timely ob9ection, ref"sed to receive the parol evidence as to the c"ltivation agreement, and after trialand a lengthy opinion, held that the mortgage in 5"estion was valid and ref"sed to order its cancellation.

rom that decision plaintiff appeal and ma!e the following assignments of error:

The trial co"rt erred:

1. n ref"sing appellants the right to introd"ce evidence as to the 8c"ltivation agreement8 extensively referred to bythe parties herein.

3. n ref"sing to reopen the case on motion filed in d"e form and manner by the plaintiffs and appellants herein,on the gro"nd of newly discovered evidence, s"ch motion having been filed the rendition of the 9"dgment herein.

;. n finding that the plaintiff, 2.$. 'rice, did not appear here as a plaintiff to depend his own right b"t for thep"rpose of giving aid to the defendant, 6arry artin.

7. n r"ling that altho"gh the 0 shares voted by rs. anon

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1@. n not finding that there was attendant fra"d, misrepresentation and deceit in the exec"tion and iss"ance ofthe mortgage contract, %xhibit U.

11. n not holding that said mortgage is n"ll and void for want of legal consideration.

13. n finding that the plaintiffs and appellants herein are legally bo"nd by the said mortgage contract %xhibit U.

1;. n holding that the plaintiffs and appellants herein are legally estopped to contest the efficacy and validity ofthe mortgage contract, %xhibit, U.

17. n dismissing plaintiffs/ complaint herein.

14. n denying plaintiffs/ motion for a new trial.

2hile defendant artin appeals and assigns the following errors:

1. The trial co"rt erred in ref"sing to find that the one h"ndred shares of the capital stoc! of the appellant, the $"l"evelopment Company, delivered on ovember 3;, 1033, by the appellant, 6. artin, to the late ean C.2orcester, were so delivered in tr"st to be held and "sed for the benefit of the said 6. artin.

3. The trial co"rt erred in finding that the voting by rs. anon

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owning "s. 'otts, 3; .B. $tate "s. erris, 73 Conn., 4=@> ew or! A .6.&. Co. "s. $ch"yler, ;7 .., ?@> *an!of Commerce/s +pp., ; 'a., 40> 6oppin "s. *"ff"m, 0 &.., 41;> 11 +m. &ep., 310> #e $t. and said

stoc!holder may vote s"ch n"mber of shares for as many persons as there are directors to

be elected or he may c"m"late said shares and give one candidate as many votes as the

n"mber of directors to be elected m"ltiplied by the n"mber of his shares shall e5"al, or he

may distrib"te them on the same principle among as many candidates as he shall see fit:

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'rovided, That the total n"mber of votes cast by him shall not exceed the n"mber of

shares owned by him as shown in the boo!s of the corporation m"ltiplied by the whole

n"mber of directors to be elected: 'rovided, however, That no delin5"ent stoc! shall be

voted. Unless otherwise provided in the articles of incorporation or in the by-laws,

members of corporations which have no capital stoc! may cast as many votes as there are

tr"stees to be elected b"t may not cast more than one vote for one candidate. Candidates

receiving the highest n"mber of votes shall be declared elected. +ny meeting of the

stoc!holders or members called for an election may ad9o"rn from day to day or from time

to time b"t not sine die or indefinitely if, for any reason, no election is held, or if there not

present or represented by proxy, at the meeting, the owners of a ma9ority of the

o"tstanding capital stoc!, or if there be no capital stoc!, a ma9ority of the member

entitled to vote.

- +mendment of +rticles of ncorporation

($ection 1= of the Corporation Code

Sec. ,. A-end-ent of Artic5es of 2ncororation. - Unless otherwise prescribed by this

Code or by special law, and for legitimate p"rposes, any provision or matter stated in the

articles of incorporation may be amended by a ma9ority vote of the board of directors or

tr"stees and the vote or written assent of the stoc!holders representing at least two-thirds

(3D;) of the o"tstanding capital stoc!, witho"t pre9"dice to the appraisal right of

dissenting stoc!holders in accordance with the provisions of this Code, or the vote or

written assent of at least two-thirds (3D;) of the members if it be a non-stoc! corporation.

The original and amended articles together shall contain all provisions re5"ired by law to

be set o"t in the articles of incorporation. $"ch articles, as amended shall be indicated by"nderscoring the change or changes made, and a copy thereof d"ly certified "nder oath by the corporate

secretary and a ma9ority of the directors or tr"stees stating the fact that

said amendment or amendments have been d"ly approved by the re5"ired vote of the

stoc!holders or members, shall be s"bmitted to the $ec"rities and %xchange Commission.

The amendments shall ta!e effect "pon their approval by the $ec"rities and %xchange

Commission or from the date of filing with the said Commission if not acted "pon within

six (=) months from the date of filing for a ca"se not attrib"table to the corporation.

2n"est-ent in another B6siness

(Section 7+ of the Cororation Code!Sec. 7+. $oer to in"est cororate f6nds in another cororation or 6siness or for an:

other 6rose.- $"b9ect to the provisions of this Code, a private corporation may invest

its f"nds in any other corporation or b"siness or for any p"rpose other than the primary p"rpose for which it was

organi#ed when approved by a ma9ority of the board of directors

or tr"stees and ratified by the stoc!holders representing at least two-thirds (3D;) of the

o"tstanding capital stoc!, or by at least two thirds (3D;) of the members in the case of

non-stoc! corporations, at a stoc!holder/s or member/s meeting d"ly called for the

p"rpose. 2ritten notice of the proposed investment and the time and place of the meeting

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shall be addressed to each stoc!holder or member at his place of residence as shown on

the boo!s of the corporation and deposited to the addressee in the post office with

postage prepaid, or served personally: 'rovided, That any dissenting stoc!holder shall

have appraisal right as provided in this Code: 'rovided, however, That where the

investment by the corporation is reasonably necessary to accomplish its primary p"rpose

as stated in the articles of incorporation, the approval of the stoc!holders or members

shall not be necessary. (1 1D3a!

&ep"blic of the 'hilippinesS#$REME CO#R%

anila

% *+C

&.R. 'o. L,*;/7 < L,*;/ Fer6ar: +80 ,99

RAMO' DE LA RAMA0 FRA'C2SCO RODR2E=0 HOR%E'C2A SALAS0 $A= SALAS and $A%R2A SALAS0 heirs ofMagda5ena Sa5as0 as stoc>ho5ders on their on eha5f and for the enefit of the Maao S6gar Centra5 Co.0 2nc.0and other stoc>ho5ders thereof ho -a: ish to ?oin in this action0plaintiffs-appellants,vs.MAAO S#&AR CE'%RAL CO.0 2'C.0 @. AMADO ARA'E%A0 MRS. RAMO' S. ARA'E%A0 ROM#ALDO M.ARA'E%A0 and RAMO' A. 3#LO0 defendantsae55ants.

(an J!an, Afri&a and Benedi&to for plaintiffs-appellants.'i&ente *ilado and Gian+on, (ison, !lo and Asso&iates for defendants-appellants.

CA$2S%RA'O0 J.:

This was a representative or derivative s"it commenced on Fctober 3@, 104;, in the Co"rt of irst nstance of anila byfo"r minority stoc!holders against the a-ao $"gar Central Co., nc. and B. +mado +raneta and three other directors ofthe corporation.

The complaint comprising the period ovember, 107= to Fctober, 1043, stated five ca"ses of action, to wit: (1) for allegedillegal and "ltra-vires acts consisting of self-dealing irreg"lar loans, and "na"thori#ed investments> (3) for alleged grossmismanagement> (;) for alleged forfeit"re of corporate rights warranting dissol"tion> (7) for alleged damages andattorney/s fees> and (4) for receivership.

'laintiffs prayed, in s"bstance, as follows:

Under the &$T C+U$% F +CTF, that the defendant B. +mado +raneta and his individ"al co-defendants be orderedto render an acco"nting of all transactions made and carried o"t by them for defendant corporation, and 8to collect,prod"ce andDor pay to the defendant corporation the o"tstanding balance of the amo"nts so diverted and still "npaid todefendant corporation8>

Under the $%CF C+U$% F +CTF, that the individ"al defendants be held liable and be ordered to pay to thedefendant corporation 8whatever amo"nts may be recovered by the plaintiffs in Civil Case o. 3@133, entitled /rancisco&odrig"e# vs. a-ao $"gar Central Co./8> to ret"rn to the defendant corporation all amo"nts withdrawn by way ofdiscretionary f"nds or bac!pay, and to acco"nt for the difference between the corporation/s crop loan acco"nts payableand its crop loan acco"nts receivable>

Under the T6& C+U$% F +CTF, that the corporation be dissolved and its net assets be distrib"ted to thestoc!holders> and

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Under the FU&T6 C+U$% F +CTF, that the defendants be ordered 8to pay the s"m of ';@@,@@@.@@ by way ofcompensatory, moral and exemplary damages and for expenses of litigation, incl"ding attorney/s fees and costs of thes"it.8

T6% T6 C+U$% F +CTF was an application for the provisional remedy of receivership.

n their answer originally filed on ecember 1, 104;, and amended on ebr"ary 1, 1044, defendants denied 8theallegations regarding the s"pposed gross mismanagement, fra"d"lent "se and diversion of corporate f"nds, disregard ofcorporate re5"irements, ab"se of tr"st and violation of fid"ciary relationship, etc., s"pposed to have been discovered byplaintiffs, all of which are nothing b"t grat"ito"s, "nwarranted, exaggerated and distorted concl"sions not s"pported byplain and specific facts and transactions alleged in the complaint.8

* 2+ F $'%C+< %%$%$, the defendants alleged, among other things: (1) that the complaint 8is premat"re,improper and "n9"stified8> (3) that plaintiffs did not ma!e an 8earnest, not sim!lated effort8 to exha"st first their remedieswithin the corporation before filing their complaint> (;) that no act"al loss had been s"ffered by the defendant corporationon acco"nt of the transactions 5"estioned by plaintiffs> (7) that the payments by the debtors of all amo"nts d"e to thedefendant corporation constit"ted a f"ll, s"fficient and ade5"ate remedy for the grievances alleged in the complaint and(4) that the dissol"tion andDor receivership of the defendant corporation wo"ld violate and impair the obligation of existingcontracts of said corporation.

* 2+ F CFUT%&C

;. llegal investments in the ab"hay 'rinting, '3,3?@,@@, and the +co9e ining, ',@@@.@@. The investmentswere made not in p"rs"ance of the corporate p"rpose and witho"t the re5"isite a"thority of two-thirds of thestoc!holders>

7. Una"thori#ed loans to B. +mado +raneta totalling '1;3,@?3.@@ (which, according to the defendants, had beenf"lly paid), in violation of the by-laws of the corporation which prohibits any director from borrowing money fromthe corporation>

4. iversion of corporate f"nds of the a-ao $"gar Central Co., nc. to:

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B. +mado +raneta A Co. '37;,714.=3

more than that, defendants contend that since said company was engaged in theman"fact"re of s"gar bags it was perfectly legitimate for a-ao $"gar either to man"fact"re s"gar bags or investin another corporation engaged in said man"fact"re, and they 5"ote a"thorities for the p"rpose, pp. 3?-;1,memorand"m> the Co"rt is pers"aded to believe that the defendants on this point are correct, beca"se while $ec.1-1D3 of the Corporation

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the Co"rt is convinced that that law sho"ld be "nderstood to mean as the a"thorities state, that it is prohibited tothe Corporation to invest in shares of another corporation "nless s"ch an investment is a"thori#ed by two-thirds ofthe voting power of the stoc!holders, if the p"rpose of the corporation in which investment is made is foreign tothe p"rpose of the investing corporation beca"se s"rely there is more logic in the stand that if the investment ismade in a corporation whose b"siness is important to the investing corporation and wo"ld aid it in its p"rpose, tore5"ire a"thority of the stoc!holders wo"ld be to "nd"ly c"rtail the 'ower of the *oard of irectors> the onlytro"ble here is that the investment was made witho"t any previo"s a"thority of the *oard of irectors b"t was only

ratified afterwards> this of co"rse wo"ld have the effect of legali#ing the "na"thori#ed act b"t it is an indication ofthe manner in which corporate b"siness is transacted by the a-ao $"gar administration, the fact that off and on,there wo"ld be passed by the *oard of irectors, resol"tions ratifying all acts previo"sly done by themanagement, e.g. resol"tions passed on ebr"ary 34, 107, and ebr"ary 34, 1043, by the *oard of irectors asset forth in the affidavit of sidro T. "nca p. 13, etc. ol. 1. (ecision, pp. 3;0-371 of &ecord on +ppeal.)

x x x x x x x x x

(3) 8Fn the other hand, the Co"rt has noted against plaintiffs that their contention that a-ao $"gar is on theverge of ban!r"ptcy has not been clearly shown> against this are %xh. C to %xh. C-; perhaps the best proof thatinsolvency is still far is that this action was filed in 104; and almost seven years have passed since then witho"tthe company apparently getting worse than it was before> ...8 (ecision, pp. 37;-377,s!pra.)

x x x x x x x x x

(;) 8+s to the crop loan anomalies in that instead of giving "nto the planters the entire amo"nt alloted for that, theCentral withheld a certain portion for their own "se, as can be seen in +ppendix + of %xh. C-1, while the theory ofplaintiffs is that since between the amo"nt of ';,01,441.? the crop loan acco"nt payable, and the amo"nt of'1,@?,7??.33, the crop loan receivable, there is a difference of '3,@?;,@=;.4=, this wo"ld indicate that this latters"m had been "sed by the Central itself for its own p"rposes> on the other hand, defendants contend that the firstamo"nt did not represent the totality of the crop loans obtained from the *an! for the p"rpose of relending to theplanters, b"t that it incl"ded the Central/s own credit line on its 7@G share in the standing crop> and that thisirreg"larity amo"nts to a grievance by plaintiffs as planters and not as stoc!holders, the Co"rt m"st find that as tothis co"nt, there is really reason to find that said anomaly is not a clear basis for the derivative s"it, first, beca"seplaintiffs/ evidence is not very s"fficient to prove clearly the alleged diversion in the face of defendants/ defense>there sho"ld have been a showing that the Central had no a"thority to ma!e the diversion> and secondly, if theanomaly existed, there is gro"nd to hold with defendants that it was an anomaly pernicio"s not to the Central b"tto the planters> it was not even pernicio"s to the stoc!holders.

Eoing to the discriminatory acts of B. +mado +raneta, namely, manip"lation of cane allotments, withholding ofmolasses and alcohol shares, withholding of tr"c!ing allowance, formation of rival planters associations, ref"sal todeal with legitimate planters gro"p, %xh. $> the Co"rt notices that as to the fail"re to provide ha"lingtransportation, this in a way is corroborated by %xh. , that part containing the decision of the Co"rt of irstnstance of anila, civil 3@133, Fran&is&o #odri!e+ ". %a-ao (!ar> for the reason, however, that even if thesewere tr"e, those grievances were grievances of plaintiffs as planters and not as stoc!holders I 9"st as thegrievance as to the crop loans already adverted to, I this Co"rt will find ins"fficient merit on this co"nt. (ecision,pp. 3;@-3;1, s!pra.)

x x x x x x x x x

(7) 8...> for the Co"rt m"st admit its limitations and confess that it cannot pretend to !now better than the *oard inmatters where the *oard has not transgressed any positive stat"te or by-law especially where as here, there isthe circ"mstance that pres"mably, an impartial representative in the *oard of irectors, I the one from the'hilippine ational *an!, I against whom apparently plaintiffs have no 5"arrel, does not appear to have madeany protest against the same> the net res"lt will be to hold that the c"lpable acts proved are not eno"gh to sec"rea dissol"tion> the Co"rt will only order the correction of ab"ses, proved as already mentioned> nor will the Co"rtgrant any more damages one way or the other. (ecision, p. 377,s!pra.)

Fn the other hand, the errors assigned in the appeal of the defendants as appellants are as follows:

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T6% it isreally tr"e that according to the boo!s, and as admitted by defendants, B. +mado +raneta sec"red personal loans>in 107, the cash advance to him was '1;3,@?3.@@ (%xh. +)> the Co"rt has no do"bt that this was against the *y-

the Co"rt therefore finds this co"nt to be d"ly proved> worse, the Co"rt also finds that as plaintiffs contend, whilethe boo!s of the Corporation wo"ld show that the last balance of '7=,3@.@@ was written off as paid, as testifiedto by +"ditor r. $anche#, the payment appeared to be nothing more than a transfer of his loan receivableacco"nt, stated otherwise, the item was only transferred from the personal acco"nt to the loan receivable acco"nt,so that again the Co"rt considers established the 9"ggling of the boo!s> and then again, it is also tr"e that theloans were sec"red witho"t any interest and while it is tr"e that in the irectors/ meeting of 31 Fctober, 104;, itwas resolved to collect ?G, the Co"rt does not see how s"ch a "nilateral action of the *oard co"ld bind theborrowers. *e it stated that defendants have presented in evidence %xh. 4 photostatic copy of the page in loanreceivable and it is so"ght to be proved that B. +mado +raneta/s debt was totally paid on ;1 Fctober, 104;> to the

Co"rt, in the absence of definite primary proof of act"al payment having fo"nd o"t that there had already been a9"ggling of boo!s, it cannot 9"st believe that the amo"nt had been paid as noted in the boo!s. (ecision, pp. 3;;-3;4 of &ecord on +ppeal.)

(3) 82ith respect to the second point in the motion for reconsideration to the effect that the Co"rt did not ma!eany findings of fact on the co"nterclaim of defendants, altho"gh the Co"rt did not say that in so many words, theCo"rt ta!es it that its findings of fact on pages 1 to 31 of its decision were eno"gh to 9"stify a dismissal of theco"nterclaim, beca"se the co"nterclaims were based on the fact that the complaint was premat"re, improper,malicio"s and that the lang"age is "nnecessarily vit"perative ab"sive and ins"lting> b"t the Co"rt has not fo"ndthat the complaint is premat"re> nor has the Co"rt fo"nd that the complaint was malicio"s> these findings can begleaned from the decision with respect to the allegation that the complaint was ab"sive and ins"lting, the Co"rtdoes not conc"r> for it has not seen anything in the evidence that wo"ld 9"stify a finding that plaintiffs and beenact"ated by bad faith, nor is there anything in the complaint essentially libelo"s> especially as the r"le is that

allegations in pleading where relevant, are privileged even tho"gh they may not clearly proved afterwards> so thatthe Co"rt has not seen any merit in the co"nterclaims> and the Co"rt had believed that the decision alreadycarried with it the implication of the dismissal of the co"nterclaims, b"t if that is not eno"gh, the Co"rt ma!es itsposition clear on this matter in this order, and clarifies that it has dismissed the co"nterclaims of defendant> ...8(Frder of $eptember ;, 10=@, pp. 37?-370, s!pra.)

&egarding +ssignment of %rrors os. 3, ; and 7 contained in the brief of the plaintiffs as appellants, it appears to "s thatthe and (;) that the acts of mismanagement complained of and proved do not 9"stify a dissol"tion of the corporation.

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2hether insolvency exists is "s"ally a 5"estion of fact, to be determined from an inventory of the assets and theirval"e, as well as a consideration of the liabilities.... B!t t$e mere impairment of &apital sto&k alone does notestablis$ insol"en&y t$ere bein ot$er e"iden&e as to t$e &orporation bein a oin &on&ern wit$ s!ffi&ient assets.Also, t$e e&ess of liabilities o"er assets does not establis$ insol"en&y, w$en ot$er assets are a"ailable. (letcherCyc. of the

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n his wor! entitled 8The 'hilippine Corporation or (b) that a non-agric"lt"ral or non-miningcorporation shall be restricted to own not more than 14G of the voting stoc! of any agric"lt"ral or miningcorporation> and (c) that s"ch holdings shall be solely for investment and not for the p"rpose of bringing abo"t amonopoly in any line of commerce or combination in restraint of trade. (The 'hilippine Corporation

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with the s"gar central b"siness,8 is reversed. The other parts of the 9"dgment are, affirmed. o special prono"ncement asto costs.

Con&ep&ion, C.J., #eyes, J.B.2., Di+on, 3aldi"ar, Castro, Fernando and Barredo, JJ., &on&!r.%akalintal, (an&$e+ and 4ee$ankee, JJ., took no part.

&o>ongei "s. SEC0 89 SCRA )) (,9*9!'ost "nder case digests, Commercial

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holder, to be elected director, in the face of the fact that the law at the time s"ch stoc!holder/s right was ac5"ired

contained the prescription that the corporate charter and the by-laws shall be s"b9ect to amendment, alteration and

modification. + irector stands in a fid"ciary relation to the corporation and its shareholders, which is characteri#ed as

a tr"st relationship. +namendment to the corporate by-laws which renders a stoc!holder ineligible to be director, if he be

also director in a corporation whose b"siness is in competition with that of the other corporation, has been s"stained as

valid. This is based "pon the principle that where the director is employed in the service of a rival company, he cannot

serve both, b"t m"st betray one or the other. The amendment in this case serves to advance the benefit of the corporation

and is good. Corporate officers are also not permitted to "se their position of tr"st and confidence to f"rther their private

needs, and the act done in f"rtherance of private needs is deemed to be for the benefit of the corporation. This is called

the doctrine of corporate opport"nity. Merger and Conso5idation

(Section ** of the Cororation Code!

Sec. **. Stoc>ho5ders or -e-ers aro"a5. - Upon approval by ma9ority vote of each

of the board of directors or tr"stees of the constit"ent corporations of the plan of merger

or consolidation, the same shall be s"bmitted for approval by the stoc!holders or

members of each of s"ch corporations at separate corporate meetings d"ly called for the

p"rpose. otice of s"ch meetings shall be given to all stoc!holders or members of the

respective corporations, at least two (3) wee!s prior to the date of the meeting, either

personally or by registered mail. $aid notice shall state the p"rpose of the meeting and

shall incl"de a copy or a s"mmary of the plan of merger or consolidation. The affirmative

vote of stoc!holders representing at least two-thirds (3D;) of the o"tstanding capital stoc!

of each corporation in the case of stoc! corporations or at least two-thirds (3D;) of themembers in the case of non-stoc! corporations shall be necessary for the approval of s"ch

plan. +ny dissenting stoc!holder in stoc! corporations may exercise his appraisal right in

accordance with the Code: 'rovided, That if after the approval by the stoc!holders of s"ch plan, the board of

directors decides to abandon the plan, the appraisal right shall be

exting"ished.

+ny amendment to the plan of merger or consolidation may be made, provided s"ch

amendment is approved by ma9ority vote of the respective boards of directors or tr"stees

of all the constit"ent corporations and ratified by the affirmative vote of stoc!holders

representing at least two-thirds (3D;) of the o"tstanding capital stoc! or of two-thirds

(3D;) of the members of each of the constit"ent corporations. $"ch plan, together with any

amendment, shall be considered as the agreement of merger or consolidation. (n)

- 2ncrease and Decrease of Caita5 Stoc>

(Section )8 of the Cororation Code)

Sec. )8. $oer to increase or decrease caita5 stoc> inc6r0 create or increase onded

indetedness. - o corporation shall increase or decrease its capital stoc! or inc"r, create

or increase any bonded indebtedness "nless approved by a ma9ority vote of the board of

directors and, at a stoc!holder/s meeting d"ly called for the p"rpose, two-thirds (3D;) of

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the o"tstanding capital stoc! shall favor the increase or dimin"tion of the capital stoc!, or

the inc"rring, creating or increasing of any bonded indebtedness. 2ritten notice of the

proposed increase or dimin"tion of the capital stoc! or of the inc"rring, creating, or

increasing of any bonded indebtedness and of the time and place of the stoc!holder/s

meeting at which the proposed increase or dimin"tion of the capital stoc! or the inc"rring

or increasing of any bonded indebtedness is to be considered, m"st be addressed to each

stoc!holder at his place of residence as shown on the boo!s of the corporation and

deposited to the addressee in the post office with postage prepaid, or served personally.

+ certificate in d"plicate m"st be signed by a ma9ority of the directors of the corporation

and co"ntersigned by the chairman and the secretary of the stoc!holders/ meeting, setting

forth:

+ny increase or decrease in the capital stoc! or the inc"rring, creating or increasing of

any bonded indebtedness shall re5"ire prior approval of the $ec"rities and %xchange

Commission.

Fne of the d"plicate certificates shall be !ept on file in the office of the corporation and

the other shall be filed with the $ec"rities and %xchange Commission and attached to the

original articles of incorporation. rom and after approval by the $ec"rities and %xchange

Commission and the iss"ance by the Commission of its certificate of filing, the capital

stoc! shall stand increased or decreased and the inc"rring, creating or increasing of any

bonded indebtedness a"thori#ed, as the certificate of filing may declare: 'rovided, That

the $ec"rities and %xchange Commission shall not accept for filing any certificate of

increase of capital stoc! "nless accompanied by the sworn statement of the treas"rer of

the corporation lawf"lly holding office at the time of the filing of the certificate, showingthat at least twenty-five (34G) percent of s"ch increased capital stoc! has been

s"bscribed and that at least twenty-five (34G) percent of the amo"nt s"bscribed has been

paid either in act"al cash to the corporation or that there has been transferred to the

corporation property the val"ation of which is e5"al to twenty-five (34G) percent of the

s"bscription: 'rovided, f"rther, That no decrease of the capital stoc! shall be approved by

the Commission if its effect shall pre9"dice the rights of corporate creditors.

on-stoc! corporations may inc"r or create bonded indebtedness, or increase the same,

with the approval by a ma9ority vote of the board of tr"stees and of at least two-thirds

(3D;) of the members in a meeting d"ly called for the p"rpose.*onds iss"ed by a corporation shall be registered with the $ec"rities and %xchange

Commission, which shall have the a"thority to determine the s"fficiency of the terms

thereof.

Adotion0 A-end-ent0 and Reea5 of B:Las

(Section 78 of the Cororation Code!

Sec. 78. A-end-ents to :5as. - The board of directors or tr"stees, by a ma9ority vote

thereof, and the owners of at least a ma9ority of the o"tstanding capital stoc!, or at least a

ma9ority of the members of a non-stoc! corporation, at a reg"lar or special meeting d"ly

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called for the p"rpose, may amend or repeal any by-laws or adopt new by-laws. The

owners of two-thirds (3D;) of the o"tstanding capital stoc! or two-thirds (3D;) of the

members in a non-stoc! corporation may delegate to the board of directors or tr"stees the

power to amend or repeal any by-laws or adopt new by-laws: 'rovided, That any power delegated to the board

of directors or tr"stees to amend or repeal any by-laws or adopt

new by-laws shall be considered as revo!ed whenever stoc!holders owning or

representing a ma9ority of the o"tstanding capital stoc! or a ma9ority of the members in

non-stoc! corporations, shall so vote at a reg"lar or special meeting.

2henever any amendment or new by-laws are adopted, s"ch amendment or new by-laws

shall be attached to the original by-laws in the office of the corporation, and a copy

thereof, d"ly certified "nder oath by the corporate secretary and a ma9ority of the

directors or tr"stees, shall be filed with the $ec"rities and %xchange Commission the

same to be attached to the original articles of incorporation and original by-laws.

The amended or new by-laws shall only be effective "pon the iss"ance by the $ec"rities

and %xchange Commission of a certification that the same are not inconsistent with this

Code. (33a and 3;a)

Dec5aration of Stoc> Di"idends

(Section 7) of the Cororation Code!

Sec. 7). $oer to dec5are di"idends. - The board of directors of a stoc! corporation may

declare dividends o"t of the "nrestricted retained earnings which shall be payable in cash,

in property, or in stoc! to all stoc!holders on the basis of o"tstanding stoc! held by them:

'rovided, That any cash dividends d"e on delin5"ent stoc! shall first be applied to the"npaid balance on the s"bscription pl"s costs and expenses, while stoc! dividends shall

be withheld from the delin5"ent stoc!holder "ntil his "npaid s"bscription is f"lly paid:

'rovided, f"rther, That no stoc! dividend shall be iss"ed witho"t the approval of

stoc!holders representing not less than two-thirds (3D;) of the o"tstanding capital stoc! at

a reg"lar or special meeting d"ly called for the p"rpose. (1=a)

$toc! corporations are prohibited from retaining s"rpl"s profits in excess of one h"ndred

(1@@G) percent of their paid-in capital stoc!, except: (1) when 9"stified by definite

corporate expansion pro9ects or programs approved by the board of directors> or (3) when

the corporation is prohibited "nder any loan agreement with any financial instit"tion orcreditor, whether local or foreign, from declaring dividends witho"t itsDhis consent, and

s"ch consent has not yet been sec"red> or (;) when it can be clearly shown that s"ch

retention is necessary "nder special circ"mstances obtaining in the corporation, s"ch as

when there is need for special reserve for probable contingencies. (n)

Manage-ent Contracts

(Section 77 of the Cororation Code!

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Sec. 77. $oer to enter into -anage-ent contract. - o corporation shall concl"de a

management contract with another corporation "nless s"ch contract shall have been

approved by the board of directors and by stoc!holders owning at least the ma9ority of

the o"tstanding capital stoc!, or by at least a ma9ority of the members in the case of a

non-stoc! corporation, of both the managing and the managed corporation, at a meeting

d"ly called for the p"rpose: 'rovided, That (1) where a stoc!holder or stoc!holders

representing the same interest of both the managing and the managed corporations own

or control more than one-third (1D;) of the total o"tstanding capital stoc! entitled to vote

of the managing corporation> or (3) where a ma9ority of the members of the board of

directors of the managing corporation also constit"te a ma9ority of the members of the

board of directors of the managed corporation, then the management contract m"st be

approved by the stoc!holders of the managed corporation owning at least two-thirds (3D;)

of the total o"tstanding capital stoc! entitled to vote, or by at least two-thirds (3D;) of the members in the case of

a non-stoc! corporation. o management contract shall be

entered into for a period longer than five years for any one term.

The provisions of the next preceding paragraph shall apply to any contract whereby a

corporation "nderta!es to manage or operate all or s"bstantially all of the b"siness of

another corporation, whether s"ch contracts are called service contracts, operating

agreements or otherwise: 'rovided, however, That s"ch service contracts or operating

agreements which relate to the exploration, development, exploitation or "tili#ation of

nat"ral reso"rces may be entered into for s"ch periods as may be provided by the

pertinent laws or reg"lations.

Fiing of Consideration for $ar Va56e Shares

(Section + of the Cororation Code!

Sec. +. Considering for stoc>s.- $toc!s shall not be iss"ed for a consideration less than

the par or iss"ed price thereof. Consideration for the iss"ance of stoc! may be any or a

combination of any two or more of the following:

1. +ct"al cash paid to the corporation>

3. 'roperty, tangible or intangible, act"ally received by the corporationand necessary or convenient for its "se and lawf"l p"rposes at a fair

val"ation e5"al to the par or iss"ed val"e of the stoc! iss"ed>

;.

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2here the consideration is other than act"al cash, or consists of intangible property s"ch

as patents of copyrights, the val"ation thereof shall initially be determined by the

incorporators or the board of directors, s"b9ect to approval by the $ec"rities and

%xchange Commission.

$hares of stoc! shall not be iss"ed in exchange for promissory notes or f"t"re service.

The same considerations provided for in this section, insofar as they may be applicable,

may be "sed for the iss"ance of bonds by the corporation.

The iss"ed price of no-par val"e shares may be fixed in the articles of incorporation or by

the board of directors p"rs"ant to a"thority conferred "pon it by the articles of

incorporation or the by-laws, or in the absence thereof, by the stoc!holders representing

at least a ma9ority of the o"tstanding capital stoc! at a meeting d"ly called for the

p"rpose. (4 and 1=)

. %reas6r: Shares (Section ;* of the Cororation Code!

Sec. ;*. Voting right for treas6r: shares. - Treas"ry shares shall have no voting right as

long as s"ch shares remain in the Treas"ry. (n)

c. Cond6ct of Stoc>ho5ders or Me-ers Meetings

inds and Re6ire-ents of Meetings

(Sections 79 and ;/ of the Cororation Code!

Sec. 79. inds of -eetings.- eetings of directors, tr"stees, stoc!holders, or members

may be reg"lar or special. (n)

Sec. ;/. Reg65ar and secia5 -eetings of stoc>ho5ders or -e-ers. - &eg"lar meetingsof stoc!holders or members shall be held ann"ally on a date fixed in the by-laws, or if not

so fixed, on any date in +pril of every year as determined by the board of directors or

tr"stees: 'rovided, That written notice of reg"lar meetings shall be sent to all

stoc!holders or members of record at least two (3) wee!s prior to the meeting, "nless a

different period is re5"ired by the by-laws. 2henever, for any ca"se, there is no person a"thori#ed to call a

meeting, the $ecretaries

and %xchange Commission, "pon petition of a stoc!holder or member on a showing of

good ca"se therefor, may iss"e an order to the petitioning stoc!holder or member

directing him to call a meeting of the corporation by giving proper notice re5"ired by thisCode or by the by-laws. The petitioning stoc!holder or member shall preside thereat "ntil at least a ma9ority of

the stoc!holders or members present have been chosen one of their

n"mber as presiding officer. (37, 3=)

$5ace and %i-e of Meeting

(Section ;, and 9) of the Cororation Code!

Sec. ;,. $5ace and ti-e of -eetings of stoc>ho5ders or -e-ers. - $toc!holders/ or

members/ meetings, whether reg"lar or special, shall be held in the city or m"nicipality

where the principal office of the corporation is located, and if practicable in the principal

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office of the corporation: 'rovided, That etro anila shall, for p"rposes of this section,

be considered a city or m"nicipality.

otice of meetings shall be in writing, and the time and place thereof stated therein.

+ll proceedings had and any b"siness transacted at any meeting of the stoc!holders or

members, if within the powers or a"thority of the corporation, shall be valid even if the

meeting be improperly held or called, provided all the stoc!holders or members of the

corporation are present or d"ly represented at the meeting. (37 and 34)

Sec. 9). $5ace of -eetings. - The by-laws may provide that the members of a non-stoc!

corporation may hold their reg"lar or special meetings at any place even o"tside the place

where the principal office of the corporation is located: 'rovided, That proper notice is

sent to all members indicating the date, time and place of the meeting: and 'rovided,

f"rther, That the place of meeting shall be within the 'hilippines. (n)

G6or6- (Section ;+ of the Cororation Code!

$%CF $F

&.R. 'o. ,),)97. March +80 +//;I

@ES#S V. LA'#=A0 MA&AD3A RE3ES0 BA3A'2 RE3ES and AR2EL RE3ES0petitioners, vs.CO#R% OF A$$EALSSEC#R2%2ES A'D EJCHA'&E COMM2SS2O'0 DOLORES O'R#B2A0 ELE'2%A 'OLASCO0 @#A' O'OLASCO 2220 ES%A%E OF FA#S%2'A M. O'R#B2A0 $H2L2$$2'E MERCHA'% MAR2'E SCHOOL2'C.0 respondents.

D E C 2 S 2 O '

%2'&A0 J.4

'resented in the case at bar is the apparently straight-forward b"t complicated 5"estion: 2hat sho"ld be the basis of5"or"m for a stoc!holdersJ meetingIthe o"tstanding capital stoc! as indicated in the articles of incorporation or thatcontained in the companyJs stoc! and transfer boo!K

'etitioners see! to n"llify the Co"rt of +ppealsJ De&ision in C+LE.&. $' o. 717;M1N prom"lgated on 1? +"g"s100, affirming the $%C 5rderdated 3@ B"ne 100=, and the #esol!tionM3Nof the Co"rt of +ppeals dated ;1 Fctober 100which denied petitionersJ motion for reconsideration.

The antecedents are not disp"ted.

n 1043, the 'hilippine erchant arine $chool, nc. ('$) was incorporated, with seven h"ndred (@@) fo"ndersshares and seventy-six (=) common shares as its initial capital stoc! s"bscription reflected in the articles ofincorporation. 6owever, private respondents and their predecessors who were in control of '$ registered thecompanyJs stoc! and transfer boo! for the first time in 10?, recording thirty-three (;;) common shares as the only iss"ed

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and o"tstanding shares of '$. $ometime in 100, a special stoc!holdersJ meeting was called and held on the basis owhat was considered as a 5"or"m of twenty-seven (3) common shares, representing more than two-thirds (3D;) of thecommon shares iss"ed and o"tstanding.

n 10?3, the heirs of one of the original incorporators, B"an +cayan, filed a petition with the $ec"rities and %xchangeCommission ($%C) for the registration of their property rights over one h"ndred (13@) fo"ndersJ shares and twelve (13)common shares owned by their father. The $%C hearing officer held that the heirs of +cayan were entitled to the claimed

shares and called for a special stoc!holdersJ meeting to elect a new set of officers.M;N

The $%C En Ban&affirmed thedecision. +s a res"lt, the shares of +cayan were recorded in the stoc! and transfer boo!.

Fn @= ay 1003, a special stoc!holdersJ meeting was held to elect a new set of directors. 'rivate respondentsthereafter filed a petition with the $%C 5"estioning the validity of the @= ay 1003 stoc!holdersJ meeting, alleging that the5"or"m for the said meeting sho"ld not be based on the 1=4 iss"ed and o"tstanding shares as per the stoc! and transferboo!, b"t on the initial s"bscribed capital stoc! of seven h"ndred seventy-six (=) shares, as reflected in the 1043+rticles of ncorporation. The petition was dismissed.M7N+ppeal was made to the $%C En Ban&, which granted saidappeal, holding that the shares of the deceased incorporators sho"ld be d"ly represented by their respectiveadministrators or heirs concerned. The $%C directed the parties to call for a stoc!holders meeting on the basis of thestoc!holdings reflected in the articles of incorporation for the p"rpose of electing a new set of officers for the corporation. M4

'etitioners, who are '$ stoc!holders, filed a petition for review with the Co"rt of +ppeals. M=N&ebecca +cayanBayne F. +b"id, 2illie F. +b"id and &enato Cervantes, stoc!holders and directors of '$, earlier filed another petition

for review of the same $%C EnBan&6sorders. The petitions were thereafter consolidated.MN

The consolidated petitionsessentially raised the following iss"es, "i+: (a) whether the basis the o"tstanding capital stoc! and accordingly also fordetermining the 5"or"m at stoc!holdersJ meetings it sho"ld be the 10? stoc! and transfer boo! or if it sho"ld be the 1043articles of incorporation> and (b) whether the Co"rt of +ppeals Ogravely erred in applying the %spe9o ecision to the benefitof respondents.PM?NThe O%spe9o ecisionP is the decision of the $%C en ban&in $%C Case o. 33?0 which ordered therecording of the shares of Bose +cayan in the stoc! and transfer boo!.

The Co"rt of +ppeals held that for p"rposes of transacting b"siness, the 5"or"m sho"ld be based on the o"tstandingcapital stoc! as fo"nd in the articles of incorporation. M0N+s to the second iss"e, the Co"rt of +ppeals held that the r"ling intheA&ayancase wo"ld ipso fa&to benefit the private respondents, since to re5"ire a separate 9"dicial declaration torecogni#e the shares of the original incorporators wo"ld entail "nnecessary delay and expense. *esides, the Co"rt o+ppeals added, the incorporators have already proved their stoc!holdings thro"gh the provisions of the articles ofincorporation.M1@N

n the instant petition, petitioners claim that the 1003 stoc!holdersJ meeting was valid and legal. They s"bmit thareliance on the 1043 articles of incorporation for determining the 5"or"m negates the existence and validity of the stoc!and transfer boo! which private respondents themselves prepared. n addition, they posit that private respondents cannoavail of the benefits sec"red by the heirs of +cayan, as private respondents m"st show and prove entitlement to thefo"nders and common shares in a separate and independent actionDproceeding.

n private respondentsJ %emorand!mM11Ndated @? arch 3@@@, they point o"t that the instant petition raises the samefacts and iss"es as those raised in E.&. o. 1;1;14M13N, which was denied by the irst ivision of this Co"rt on 1?Ban"ary 1000 for fail"re to show that the Co"rt of +ppeals committed any reversible error. They add that as a logicaconse5"ence, the instant petition sho"ld be dismissed on the gro"nd of res7!di&ata. "rthermore, private respondentsclaim that in view of the applicability of the r"le on res7!di&ata, petitionersJ co"nsel sho"ld be cited for contempt forviolating the r"le against for"m-shopping.M1;N

or their part, petitioners claim that the principle of res 7!di&ata does not apply to the instant case. They arg"e tha

the instant petition is separate and distinct from E.&. o. 1;1;14, there being no identity of parties, and more importantly,the parties in the two petitions have their own distinct rights and interests in relation to the s"b9ect matter in litigation. othe same reasons, they claim that co"nsel for petitioners cannot be fo"nd g"ilty of for"m-shopping. M17N

n their %anifestationand otionM14Ndated 33 $eptember 3@@7, private respondents moved for the dismissal of theinstant petition in view of the dismissal of E.&. o. 1;1;14. +ttached to the said manifestation is a copy of the Entry oJ!dmentM1=Niss"ed by the irst ivision dated @1 ecember 1000.

The petition m"st be denied, not on res7!di&ata, b"t on the gro"nd that li!e the petition in E.&. o. 1;1;14 it fails toimp"te reversible error to the challenged Co"rt of +ppealsJ De&ision.

#es 7!di&ata does not apply int$e &ase at bar.

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#es 7!di&atameans a matter ad9"dged, a thing 9"dicially acted "pon or decided> a thing or matter settled by9"dgment.M1NThe doctrine of res7!di&ataprovides that a final 9"dgment, on the merits rendered by a co"rt of competent9"risdiction is concl"sive as to the rights of the parties and their privies and constit"tes an absol"te bar to s"bse5"enactions involving the same claim, demand, or ca"se of action.M1?NThe elements of res 7!di&ataare (a) identity of parties oat least s"ch as representing the same interest in both actions> (b) identity of rights asserted and relief prayed for, therelief being fo"nded on the same facts> and (c) the identity in the two (3) partic"lars is s"ch that any 9"dgment which maybe rendered in the other action will, regardless of which party is s"ccessf"l, amo"nt to res7!di&atain the action "nder

consideration.M10N

There is no disp"te as to the identity of s"b9ect matter since the cr"cial point in both cases is the propriety ofincl"ding the still "nproven shares of respondents for p"rposes of determining the 5"or"m. 'etitioners, however, denythat there is identity of parties and ca"ses of actions between the two petitions.

The test often "sed in determining whether ca"ses of action are identical is to ascertain whether the same facts orevidence wo"ld s"pport and establish the former and present ca"ses of action. M3@Nore significantly, there is identity oca"ses of action when the 9"dgment so"ght will be inconsistent with the prior 9"dgment. M31Nn both petitions, petitionersassert that the Co"rt of +ppealsJ De&isioneffectively negates the existence and validity of the stoc! and transfer boo!, aswell as a"tomatically grants private respondentsJ shares of stoc!s which they do not own, or the ownership of whichremains to be "nproved. 'etitioners in the two petitions rely on the entries in the stoc! and transfer boo! as the properbasis for comp"ting the 5"or"m, and conse5"ently determine the degree of control one has over the company%ssentially, the affirmance of the $%C 5rderhad the effect of diminishing their control and interests in the company, as it

allowed the participation of the individ"al private respondents in the election of officers of the corporation.

+bsol"te identity of parties is not a condition sine!anonfor res7!di&atato applyIa shared identity of interest iss"fficient to invo!e the coverage of the principle. M33N6owever, there is no identity of parties between the two cases. Theparties in the two petitions have their own rights and interests in relation to the s"b9ect matter in litigation. +s stated bypetitioners in their #eply to #espondents6 %emorand!m,M3;Nthere are no two separate actions filed, b"t rather, twoseparate petitions for review on &ertiorari filed by two distinct parties with the Co"rt and represented by their ownco"nsels, arising from an adverse consolidated decision prom"lgated by the Co"rt of +ppeals in one action or proceeding.M37N +s s"ch, res 7!di&atais not present in the instant case.

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() f it be a stoc! corporation, the amo"nt of its capital stoc!, in lawf"l money of the 'hilippines, and the n"mber of sharesinto which it is divided, and if s"ch stoc! be in whole or in part witho"t par val"e then s"ch fact shall bestated>Pro"ided, $owe"er, That as to stoc! witho"t par val"e the articles of incorporation need only state the n"mber ofshares into which said capital stoc! is divided.

(?) f it be a stoc! corporation, the amo"nt of capital stoc! or n"mber of shares of no-par stoc! act"ally s"bscribed, theamo"nt or n"mber of shares of no-par stoc! s"bscribed by each and the s"m paid by each on his s"bscription. . . . M3?N

+ review of '$Js articles of incorporationM30N shows that the corporation complied with the re5"irements laid downby +ct o. 1740. t provides in part:

. That the capital stoc! of the said corporation is %T T6FU$+ '%$F$ ('0@,@@@.@@) divided into two classes,namely:

FU%&$J $TFCQ - 1,@@@ shares at '3@ par val"e- ' 3@,@@@.@@CFF $TFCQ- @@ shares at ' 1@@ par val"e L ' @,@@@.@@

TFT+< ---------------------1,@@ shares----------------------------' 0@,@@@.@@

. . . .

?. That the amo"nt of the entire capital stoc! which has been act"ally s"bscribed is T2%T F% T6FU$+ $R6U&% '%$F$ ('31,=@@.@@) and the following persons have s"bscribed for the n"mber of shares and amo"nt ofcapital stoc! set o"t after their respective names:

$U*$C&*%& $U*$C&*% +FUT $U*$C&*%

o. of $hares 'ar al"e

Crisp"lo B. Fnr"bia 13@ o"nders ' 3,7@@.@@

B"an 6. +cayan 13@ 8 3, 7@@.@@

artin '. $agarbarria 1@@ 8 3, @@@.@@a"ricio E. Eallaga 4@ 8 1, @@@.@@

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rs. &amon +raneta ? 8 ?@@.@@

Carlos . Fnr"bia ? 8 ?@@.@@

= ' ,=@@.@@M;@N

There is no gainsaying that the contents of the articles of incorporation are binding, not only on the corporation, b"also on its shareholders. n the instant case, the articles of incorporation indicate that at the time of incorporation, the

incorporators were bonafidestoc!holders of seven h"ndred (@@) fo"ndersJ shares and seventy-six (=) commonshares. 6ence, at that time, the corporation had = iss"ed and o"tstanding shares.

Fn the other hand, a stoc! and transfer boo! is the boo! which records the names and addresses of all stoc!holdersarranged alphabetically, the installments paid and "npaid on all stoc! for which s"bscription has been made, and the dateof payment thereof> a statement of every alienation, sale or transfer of stoc! made, the date thereof and by and to whommade> and s"ch other entries as may be prescribed by law. M;1N+ stoc! and transfer boo! is necessary as a meas"re opreca"tion, expediency and convenience since it provides the only certain and acc"rate method of establishing thevario"s corporate acts and transactions and of showing the ownership of stoc! and li!e matters. M;3N6owever, a stoc! andtransfer boo!, li!e other corporate boo!s and records, is not in any sense a p"blic record, and th"s is not excl"siveevidence of the matters and things which ordinarily are or sho"ld be written therein. M;;Nn fact, it is generally held that therecords and min"tes of a corporation are not concl"sive even against the corporation b"t are prima fa&ieevidence onlyM;7Nand may be impeached or even contradicted by other competent evidence. M;4NTh"s, parol evidence may be admitted to

s"pply omissions in the records or explain ambig"ities, or to contradict s"ch records.

M;=N

n 10?@, Batas Pambansa Bl. 9:, otherwise !nown as OThe Corporation Code of the 'hilippinesP s"pplanted +ct o1740. *' *lg. =? provides:

$ec. 37. %lection of directors or tr"stees.I+t all elections of directors or tr"stees, there m"st be present, either in personor by representative a"thori#ed to act by written proxy, the owners of a ma9ority of the o"tstanding capital stoc!, or if therebe no capital stoc!, a ma9ority of the members entitled to vote. . . .

$ec. 43. S"or"m in meetings.- Unless otherwise provided for in this Code or in the by-laws, a 5"or"m shall consist of thestoc!holders representing a ma9ority of the o"tstanding capital stoc! or ma9ority of the members in the case of non-stoc!corporation.

F"tstanding capital stoc!, on the other hand, is defined by the Code as:

$ec. 1;. F"tstanding capital stoc! defined.I The term Oo"tstanding capital stoc!P as "sed in this code, means the totalshares of stoc! iss"ed to s"bscribers or stoc!holders whether or not f"lly or partially paid (as long as there is bindings"bscription agreement) except treas"ry shares.

Th"s, 5"or"m is based on the totality of the shares which have been s"bscribed and iss"ed, whether it be fo"ndersshares or common shares.M;Nn the instant case, two fig"res are being pitted against each otherI those contained in thearticles of incorporation, and those listed in the stoc! and transfer boo!.

To base the comp"tation of 5"or"m solely on the obvio"sly deficient, if not inacc"rate stoc! and transfer boo!, andcompletely disregarding the iss"ed and o"tstanding shares as indicated in the articles of incorporation wo"ld wor!in9"stice to the owners andDor s"ccessors in interest of the said shares. This case is one instance where resort todoc"ments other than the stoc! and transfer boo!s is necessary. The stoc! and transfer boo! of '$ cannot be "sedas the sole basis for determining the 5"or"m as it does not reflect the totality of shares which have been s"bscribed, moreso when the articles of incorporation show a significantly larger amo"nt of shares iss"ed and o"tstanding as compared tothat listed in the stoc! and transfer boo!. +s aptly stated by the $%C in its 5rderdated 14 B"ly 100=:M;?N

t is to be explained, that if at the onset of incorporation a corporation has 1 shares s"bscribed, the $toc! and Transfer*oo! sho"ld li!ewise reflect 1 shares. +ny sale, disposition or even reac5"isition of the company of its own shares, inwhich it becomes treas"ry shares, wo"ld not affect the total n"mber of shares in the $toc! and Transfer *oo!. +ll that willchange are the entries as to the owners of the shares b"t not as to the amo"nt of shares already s"bscribed.

This is precisely the reason why the $toc! and Transfer *oo! was not given probative val"e. id the shares, which werenot recorded in the $toc! and Transfer *oo!, b"t were recorded in the +rticles of incorporation 9"st vanish into thin airK . .. .M;0N

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+s shown above, at the time the corporation was set-"p, there were already seven h"ndred seventy-six (=) iss"edand o"tstanding shares as reflected in the articles of incorporation. o proof was add"ced as to any transaction effectedon these shares from the time '$ was incorporated "p to the time the instant petition was filed, except for the thirty-three (;;) shares which were recorded in the stoc! and transfer boo! in 10?, and the additional one h"ndred thirty-two(1;3) in 10?3. *"t obvio"sly, the shares so ordered recorded in the stoc! and transfer boo! are among the sharesreflected in the articles of incorporation as the shares s"bscribed to by the incorporators named therein.

Fne who is act"ally a stoc!holder cannot be denied his right to vote by the corporation merely beca"se the corporateofficers failed to !eep its records acc"rately. M7@N+ corporationJs records are not the only evidence of the ownership of stoc!in a corporation.M71N n an +merican case,M73Npersons claiming shareholders stat"s in a professional corporation were listedas stoc!holders in the amendment to the articles of incorporation. Fn that basis, they were in all respects treated asshareholders. n fact, the acts and cond"ct of the parties may even constit"te s"fficient evidence of oneJs stat"s as ashareholder or member.M7;Nn the instant case, no less than the articles of incorporation declare the incorporators to havein their name the fo"nders and several common shares. Th"s, to disregard the contents of the articles of incorporationwo"ld be to pretend that the basic doc"ment which legally triggered the creation of the corporation does not exist andaccordingly to allow great in9"stice to be ca"sed to the incorporators and their heirs.

'etitioners arg"e that the Co"rt of +ppeals Ogravely erred in applying the %spe9o decision to the benefit ofrespondents.P The Co"rt believes that the more precise statement of the iss"e is whether in its assailed De&ision, theCo"rt of +ppeals can declare private respondents as the heirs of the incorporators, and conse5"ently register thefo"nders shares in their name. 6owever, this iss"e as recast is not act"ally determinative of the present controversy as

explained below.

'etitioners claim that the De&isionof the Co"rt of +ppeals "nilaterally divested them of their shares in '$ asrecorded in the stoc! and transfer boo! and instantly created inexistent shares in favor of private respondents. 2e do noagree.

The assailed De&isionmerely declared that a separate 9"dicial declaration to recogni#e the shares of the originaincorporators wo"ld entail "nnecessary delay and expense on the part of the litigants, considering that the incorporatorshad already proved ownership of s"ch shares as shown in the articles of incorporation. M77NThere was no declaration of whothe individ"al owners of these shares were on the date of the prom"lgation of the De&ision. +s properly stated by the $%Cin its 5rderdated 3@ B"ne 100=, to which the appellate co"rtJs De&isionsho"ld be related, Oif at all, the ownership of theseshares sho"ld only be s"b9ected to the proper 9"dicial (probate) or extra9"dicial proceedings in order to determine therespective shares of the legal heirs of the deceased incorporators.PM74N

1HEREFORE, the petition is %% and the assailed De&isionis +&%. Costs against petitioners.SO ORDERED.

P!no, ;C$airman #ollo, pp.1@3-11@.

M3N)d. at 13;.

M;N)d.at =-.

M7N)d.at ?-?7.

M4N)d.at ?7-03.

M=N)d.at 14.

MNCo"rt of +ppealsJ ecision, )d.at 1@3.

M?N)d.at 1?.

M0N)d. at 1@0.

M1@N)d.at 1@0-11@.

M11N)d.at 331-340.

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M13N&ebecca +cayan, Bayne F. +b"id, 2illie F. +b"id and &enato Cervantes ". Co"rt of +ppeals, $ec"rities and %xchangeCommission, olores F. Fnr"bia, %lenita F. olasco, B"an F. olasco , %state of a"stina . Fnr"bia and'hilippine erchant arine $chool, nc., filed on 37 ecember 100.

M1;N#ollo, p. 371.

M17N)d.at ;44-;4?.

M14N)d. at ;?;-;?4.M1=N)d.at ;?.

M1Nanila %lectric Company ". 'hilippine Cons"mers o"ndation, nc., 734 'hil. =4, ? (3@@3), &itin7= + BU&. 417.

M1?N&ep"blic ". Co"rt of +ppeals, ;?1 'hil. 44?, 4=7 (3@@@).

M10NCr"# v. Co"rt of +ppeals, ;?? 'hil. 44@, 44= (3@@@).

M3@NCagayan de Fro Colise"m nc. ". Co"rt of +ppeals, ;? 'hil. 70?, 43@ (1000).

M31N(!pra note 10 at 440.

M33N)d. at 44.

M3;N

#ollo, pp. ;44-;=7.M37N)d. at ;4.

M34N)d.at ;4.

M3=N)d.at 1;@.

M3NEovernment of the 'hilippine slands ". anila &ailroad Co., 43 'hil. =00, =;-=7 (1030).

M3?NThe corresponding provision in *.'. *lg. =?, otherwise !nown as OThe Corporation Code of the 'hilippines,P reads:

$ec. 17. Contents of articles of incorporation.I+ll corporations organi#ed "nder this Code shall file withthe $ec"rities and %xchange Commission articles of incorporation in any of the official lang"ages d"ly signedand ac!nowledged by all of the incorporators, containing s"bstantially the following matters, except as otherwiseprescribed by this Code or by special law:

. . .

?. f it be a stoc! corporation, the amo"nt of its a"thori#ed capital stoc! in lawf"l money of the 'hilippines,the n"mber of shares into which it is divided, and in case the shares are par val"e shares, the par val"e of eachthe names, nationalities and residences of the original s"bscribers, and the amo"nt s"bscribed and paid by eachon his s"bscription, and if some or all of the shares are witho"t par val"e, s"ch fact m"st be stated> . . . .

M30N#ollo, pp. ;- 7;.

M;@N)d.at 7@. +ttached to the articles of incorporation was the Treas"rerJs +ffidavit, which stated the shares act"allys"bscribed and the amo"nt act"ally paid, and that at least 3@ percent of the entire capital stoc! has beens"bscribed and 34 percent thereof had been act"ally paid.

M;1N$ec. 7, *.'. *lg. =?.

M;3N6%CTF& $. %

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M;?N#ollo, pp. 07-1@@.

M;0N)d.at 0?.

M7@N1?+ + BU& 3d 1@;3, p. ?1.

M71N1?+ + BU& 3d ;?, p. =@.

M73N

Qrosnar ". $chmidt Qrosnar ca"ghton Earett Co., 3?3 'a $"per 43=, 73; +3d ;@, &ited in 1? + + BU& 3d ;?p. =@?.

M7;N1?+ + BU& 3d ;?, p. =@?.

M77N#ollo, pp. 1@0-11@.

M74N)d.at 03.

Lan6Ka "s. CA

Lan6Ka "s. CA

&R 'o. ,),)97 March +80 +//;

Facts4

'etitioners see! to n"llify the Co"rt of +ppealsJ De&isionin C+LE.&. $' o. 717;1prom"lgated on 1? +"g"st 100

affirming the $%C 5rderdated 3@ B"ne 100=, and the #esol!tion3of the Co"rt of +ppeals dated ;1 Fctober 100 which

denied petitionersJ motion for reconsideration.

n 1043, the 'hilippine erchant arine $chool, nc. ('$) was incorporated, with seven h"ndred (@@) fo"nders

shares and seventy-six (=) common shares as its initial capital stoc! s"bscription reflected in the articles of incorporation

Fnr"bia et. al, who were in control of '$ registered the companyJs stoc! and transfer boo! for the first time in 10?

recording thirty-three (;;) common shares as the only iss"ed and o"tstanding shares of '$.

n 100, a special stoc!holdersJ meeting was called and held on the basis of what was considered as a 5"or"m o

twenty-seven (3) common shares, representing more than two-thirds (3D;) of the common shares iss"ed and

o"tstanding.

n 10?3, B"an +cayan, one of the heirs of the incorporators filed a petition for the registration of their property rights wasfiled before the $%C over 13@ fo"ndersJ shares and 13 common shares owned by their father

$%C 6earing Ffficer: heirs of +cayan were entitled to the claimed shares and called for a special stoc!holdersJ meeting

to elect a new set of officers.

$%C en banc: affirmed the decision

+s a res"lt, the shares of +cayan were recorded in the stoc! and transfer boo!.

Fn ay =, 1003, a special stoc!holdersJ meeting was held to elect a new set of directors

Fnr"bia et al filed a petition with $%C 5"estioning the validity of said meeting alleging that the 5"or"m for the said

meeting sho"ld not be based on the 1=4 iss"ed and o"tstanding shares as per the stoc! and transfer boo!, b"t on the

initial s"bscribed capital stoc! of seven h"ndred seventy-six (=) shares, as reflected in the 1043 +rticles of

ncorporation

'etition was dismissed$C en banc: shares of the deceased incorporators sho"ld be d"ly represented by their respective administrators or

heirs concerned. Called for a stoc!holders meeting on the basis of the stoc!holdings reflected in the articles of

incorporation for the p"rpose of electing a new set of officers for the corporation

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. or p"rposes of transacting b"siness, the 5"or"m sho"ld be based on the o"tstanding capital stoc! as fo"nd in the

articles of incorporation

. To re5"ire a separate 9"dicial declaration to recogni#e the shares of the original incorporators wo"ld entail "nnecessary

delay and expense. *esides. the incorporators have already proved their stoc!holdings thro"gh the provisions of the

articles of incorporation.

+ppeal was made by

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Fne who is act"ally a stoc!holder cannot be denied his right to vote by the corporation merely beca"se the corporate

officers failed to !eep its records acc"rately.+ corporationJs records are not the only evidence of the ownership of stoc! in

a corporation.

t is no less than the articles of incorporation that declare the incorporators to have in their name the fo"nders and

several common shares. Th"s, to disregard the contents of the articles of incorporation wo"ld be to pretend that the basic

doc"ment which legally triggered the creation of the corporation does not exist and accordingly to allow great in9"stice to

be ca"sed to the incorporators and their heirs

1HEREFORE, the petition is %% and the assailed De&isionis +&%. Costs against petitioners

d. Contracts and Agree-ents Affecting Stoc>ho5ders

a. $ro: (Section ;8 of the Cororation Code!

Sec. ;8. $roies. - $toc!holders and members may vote in person or by proxy in all

meetings of stoc!holders or members. 'roxies shall in writing, signed by the stoc!holder

or member and filed before the sched"led meeting with the corporate secretary. Unless

otherwise provided in the proxy, it shall be valid only for the meeting for which it is

intended. o proxy shall be valid and effective for a period longer than five (4) years at

any one time. (n)

. . V%A (Section ;9 of the Cororation Code!

Sec. ;9. Voting tr6sts. - Fne or more stoc!holders of a stoc! corporation may create a

voting tr"st for the p"rpose of conferring "pon a tr"stee or tr"stees the right to vote and

other rights pertaining to the shares for a period not exceeding five (4) years at any time:

'rovided, That in the case of a voting tr"st specifically re5"ired as a condition in a loan

agreement, said voting tr"st may be for a period exceeding five (4) years b"t shalla"tomatically expire "pon f"ll payment of the loan. + voting tr"st agreement m"st be in

writing and notari#ed, and shall specify the terms and conditions thereof. + certified copy

of s"ch agreement shall be filed with the corporation and with the $ec"rities and

%xchange Commission> otherwise, said agreement is ineffective and "nenforceable. The

certificate or certificates of stoc! covered by the voting tr"st agreement shall be canceled

and new ones shall be iss"ed in the name of the tr"stee or tr"stees stating that they are

iss"ed p"rs"ant to said agreement. n the boo!s of the corporation, it shall be noted that

the transfer in the name of the tr"stee or tr"stees is made p"rs"ant to said voting tr"st

agreement.

The tr"stee or tr"stees shall exec"te and deliver to the transferors voting tr"st certificates,

which shall be transferable in the same manner and with the same effect as certificates of

stoc!.

The voting tr"st agreement filed with the corporation shall be s"b9ect to examination by

any stoc!holder of the corporation in the same manner as any other corporate boo! or

record: 'rovided, That both the transferor and the tr"stee or tr"stees may exercise the

right of inspection of all corporate boo!s and records in accordance with the provisions of

this Code.

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+ny other stoc!holder may transfer his shares to the same tr"stee or tr"stees "pon the

terms and conditions stated in the voting tr"st agreement, and there"pon shall be bo"nd

by all the provisions of said agreement.

o voting tr"st agreement shall be entered into for the p"rpose of circ"mventing the law

against monopolies and illegal combinations in restraint of trade or "sed for p"rposes of

fra"d.

Unless expressly renewed, all rights granted in a voting tr"st agreement shall

a"tomatically expire at the end of the agreed period, and the voting tr"st certificates as

well as the certificates of stoc! in the name of the tr"stee or tr"stees shall thereby be

deemed canceled and new certificates of stoc! shall be reiss"ed in the name of the

transferors.

The voting tr"stee or tr"stees may vote by proxy "nless the agreement provides

otherwise. (;=a)

&ep"blic of the 'hilippinesS#$REME CO#R%

anila

T6& $F

&.R. 'o. 9)9; Fer6ar: 70 ,99+

RAMO' C. LEE and A'%O'2O DM. LACDAO0 petitioners,

vs.%HE HO'. CO#R% OF A$$EALS0 SACOBA MA'#FAC%#R2'& COR$.0 $ABLO &O'=ALES0 @R. and %HOMAS&O'=ALES0 respondents.

Cayana, 3!nia > Anel 2aw 5ffi&es for petitioners.

4imbol > Asso&iates for pri"ate respondents.

%2ERRE=0 @R.0 J.:

2hat is the nat"re of the voting tr"st agreement exec"ted between two parties in this caseK 2ho owns the stoc!s of thecorporation "nder the terms of the voting tr"st agreementK 6ow long can a voting tr"st agreement remain valid andeffectiveK id a director of the corporation cease to be s"ch "pon the creation of the voting tr"st agreementK These arethe 5"estions the answers to which are necessary in resolving the principal iss"e in this petition for &ertiorari I whetheror not there was proper service of s"mmons on +lfa ntegrated Textile ills (+

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Fn $eptember 1, 10?, the petitioners filed a motion to dismiss the third party complaint which the &egional Trial Co"rtof a!ati, *ranch 4? denied in an Frder dated B"ne 3, 10??.

Fn B"ly 1?, 10??, the petitioners filed their answer to the third party complaint.

eanwhile, on B"ly 13, 10??, the trial co"rt iss"ed an order re5"iring the iss"ance of an aliass"mmons "pon +

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26%&%F&%, in view of the foregoing, the orders of respondent 9"dge dated +pril 34, 10?0 and +"g"st17, 10?0 are hereby $%T +$% and respondent corporation is ordered to file its answer within thereglementary period. (C+ ecision, p. ?> #ollo, p. 37)

Fn +pril 11, 100@, the petitioners moved for a reconsideration of the decision of the p"blic respondent which resolved todeny the same on ay 1@, 100@. 6ence, the petitioners filed this &ertiorari petition imp"ting grave ab"se of discretionamo"nting to lac! of 9"risdiction on the part of the p"blic respondent in reversing the 5"estioned Frders dated +pril 34,10?0 and +"g"st 17, 10?0 of the co"rt a !o, th"s, holding that there was proper service of s"mmons on + to r"le otherwise, as the respondent Co"rt of +ppeals did, wo"ld be violative of section3; of the Corporation Code ( #ollo, pp. 3@-;3;)> and

(3) that the petitioners were no longer acting or holding any of the positions provided "nder &"le 17,$ection 1; of the &"les of Co"rt a"thori#ed to receive service of s"mmons for and in behalf of the privatedomestic corporation so that the service of s"mmons on +

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agreement. n the boo!s of the corporation, it shall be noted that the transfer in the name of the tr"stee ortr"stees is made p"rs"ant to said voting tr"st agreement.

*y its very nat"re, a voting tr"st agreement res"lts in the separation of the voting rights of a stoc!holder from his otherrights s"ch as the right to receive dividends, the right to inspect the boo!s of the corporation, the right to sell certaininterests in the assets of the corporation and other rights to which a stoc!holder may be entitled "ntil the li5"idation of thecorporation. 6owever, in order to disting"ish a voting tr"st agreement from proxies and other voting pools andagreements, it m"st pass three criteria or tests, namely: (1) that the voting rights of the stoc! are separated from the otherattrib"tes of ownership> (3) that the voting rights granted are intended to be irrevocable for a definite period of time> and(;) that the principal p"rpose of the grant of voting rights is to ac5"ire voting control of the corporation. (4letcher, Cy&lopedia of t$e 2aw on Pri"ate Corporations, section 3@4 M10=N p. ;;1&itinTan!ersly v. +lbright, ;7 .$"pp. 4;?)

Under section 40 of the Corporation Code, s!pra,a voting tr"st agreement may confer "pon a tr"stee not only thestoc!holder/s voting rights b"t also other rights pertaining to his shares as long as the voting tr"st agreement is notentered 8for the p"rpose of circ"mventing the law against monopolies and illegal combinations in restraint of trade or "sedfor p"rposes of fra"d.8 (section 40, 4th paragraph of the Corporation Code) Th"s, the traditional concept of a voting tr"stagreement primarily intended to single o"t a stoc!holder/s right to vote from his other rights as s"ch and made irrevocablefor a limited d"ration may in practice become a legal device whereby a transfer of the stoc!holder/s shares is effecteds"b9ect to the specific provision of the voting tr"st agreement.

The exec"tion of a voting tr"st agreement, therefore, may create a dichotomy between the e5"itable or beneficialownership of the corporate shares of a stoc!holders, on the one hand, and the legal title thereto on the other hand.

The law simply provides that a voting tr"st agreement is an agreement in writing whereby one or more stoc!holders of acorporation consent to transfer his or their shares to a tr"stee in order to vest in the latter voting or other rights pertainingto said shares for a period not exceeding five years "pon the f"lfillment of stat"tory conditions and s"ch other terms andconditions specified in the agreement. The five year-period may be extended in cases where the voting tr"st is exec"tedp"rs"ant to a loan agreement whereby the period is made contingent "pon f"ll payment of the loan.

n the instant case, the point of controversy arises from the effects of the creation of the voting tr"st agreement. Thepetitioners maintain that with the exec"tion of the voting tr"st agreement between them and the other stoc!holders of

+

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2e find the petitioners/ position meritorio"s.

*oth "nder the old and the new Corporation Codes there is no disp"te as to the most immediate effect of a voting tr"stagreement on the stat"s of a stoc!holder who is a party to its exec"tion I from legal titleholder or owner of the sharess"b9ect of the voting tr"st agreement, he becomes the e5"itable or beneficial owner. ($alonga, P$ilippine 2aw on Pri"ateCorporations, 104? ed., p. 3=?> 'ineda and Carlos, 4$e 2aw on Pri"ate Corporations and Corporate Pra&ti&e, 10=0 ed., p.14> Campos and (ele&ted Cases, 10?1, ed., p. ;?=>+gbayani, Commentaries and J!rispr!den&e on t$e Commer&ial 2aws of t$e P$ilippines, ol. ;, 10?? ed., p. 4;=). Thepen"ltimate 5"estion, therefore, is whether the change in his stat"s deprives the stoc!holder of the right to 5"alify as adirector "nder section 3; of the present Corporation Code which deletes the phrase 8in his own right.8 $ection ;@ of theold Code states that:

%very director m"st own in $is own ri$t at least one share of the capital stoc! of the stoc! corporation ofwhich he is a director, which stoc! shall stand in his name on the boo!s of the corporation. + director whoceases to be the owner of at least one share of the capital stoc! of a stoc! corporation of which is adirector shall thereby cease to be a director . . . (%mphasis s"pplied)

Under the old Corporation Code, the eligibility of a director, strictly spea!ing, cannot be adversely affected by the simpleact of s"ch director being a party to a voting tr"st agreement inasm"ch as he remains owner (altho"gh beneficial ore5"itable only) of the shares s"b9ect of the voting tr"st agreement p"rs"ant to which a transfer of the stoc!holder/s sharesin favor of the tr"stee is re5"ired (section ;= of the old Corporation Code). o dis5"alification arises by virt"e of thephrase 8in his own right8 provided "nder the old Corporation Code.

2ith the omission of the phrase 8in his own right8 the election of tr"stees and other persons who in fact are not beneficialowners of the shares registered in their names on the boo!s of the corporation becomes formally legali#ed (seeCamposand

xxx xxx xxx

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0. +ny stoc!holder not entering into this agreement may transfer hi