DE LA RAMA vs. MA-AO SUGAR

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RAMON DE LA RAMA, FRANCISCO RODRIGUEZ, HORTENCIA SALAS, PAZ SALAS and PATRIA SALAS, heirs of Magdalena Salas, as stockholders on their own behalf and for the benefit of the Ma-ao Sugar Central Co., Inc., and other stockholders thereof who may wish to join in this action, plaintiffs-appellants, vs. MA-AO SUGAR CENTRAL CO., INC., J. AMADO ARANETA, MRS. RAMON S. ARANETA, ROMUALDO M. ARANETA, and RAMON A. YULO, defendants-appellants.

G.R. No. L-17504 & L-17506. February 28, 1969. CAPISTRANO, J.

 

Topic: Corporate Powers. Express powers. Invest Corporate Funds for Non Primary Purpose Endeavor.

 

FACTS: This was a derivative suit commenced by four minority stockholders against the Ma-ao Sugar Centra Co., Inc. and the corporation’s directors The complaint comprising the period November, 1946 to October, 1952, stated five causes of action, Among others, 1. For alleged illegal and ultra-vires acts consisting of self-dealing irregular loans, and unauthorized investments in the Mabuhay Printing, P2,280,00, and the Acoje Mining, P7,000.00.

 

The investments were made not in pursuance of the corporate purpose and without the requisite authority of two-thirds of the stockholders.

 

The lower court orders it to refrain from making investments in Acoje Mining, Mabuhay Printing, and any other company whose purpose is not connected with the Sugar Central business.

 

ISSUE: Whether the investment of corporate funds by the Ma-Ao Sugar Central in another corporation

(Philippine Fiber Processing Co) violate the Corporation Law.

 

HELD: No. The legal provision invoked by the plaintiffs, as appellants, Sec. 17-½ of the Corporation Law,

provides:

 

No corporation organized under this act shall invest its funds in any other corporation or business, or for any purpose other than the main purpose for which it was organized, unless its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitlin them to exercise at least two-thirds of the voting power on such proposal at a stockholders' meeting called for the purpose.

 

On the other hand, the defendants, as appellees, invoked Sec. 13, par. 10 of the Corporation Law, which provides:

 

(10) Except as in this section otherwise provided, and in order to accomplish its purpose as stated in the articles of incorporation, to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities and other evidences of indebtedness of any domestic or foreign corporation.

 

Reconciling these 2 apparently conflicting provisions is easy.

 

A private corporation, in order to accomplish its purpose as stated in its articles of incorporation, and subject to the limitations imposed by the Corporation Law, has the power to acquire, hold, mortgage, pledge or dispose of shares, bonds, securities, and other evidences of indebtedness of any domestic or foreign corporation. Such an act, if done in pursuance of the corporate purpose, does not need the approval of the stockholders; but when the purchase of shares of another corporation is done solely for investment and not to accomplish the purpose of its incorporation, the vote of approval of the stockholders is necessary.

 

Power to invest corporate funds. — A private corporation has the power to invest its corporate funds in any other corporation or business, or for any purpose other than the main purpose for which it was organized, provided that 'its board of directors has been so authorized in a resolution by the affirmative vote of stockholders holding shares in the corporation entitling them to exercise at least two-thirds of the voting power on such a proposal at a stockholders' meeting called for that purpose,' and provided further, that no agricultural or mining corporation shall in anywise be interested in any other agricultural or mining corporation. When the investment is necessary to accomplish its purpose or purposes as stated in it articles of incorporation, the approval of the stockholders is not necessary. 

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