Forbes Park Association, Inc.

February 16, 1987 Forbes Park Association, Inc. Pandan Road cor. Kawayan Road Forbes Park, Makati, MM Gentlemen: This relates to your letter, dated February 5, 1987, requesting the opinion of this Commission on the query posed therein. It appears therein that Forbes Park Association, Inc. owns and operates the water system in the Forbes Park Village, Makati, Metro Manila. The Board of Governors (Directors) desires to turnover and assign the subdivision's water system, consisting of all pumps, motors, and wells, equipment and pertinent lots occupied, to the Metropolitan Waterworks and Sewerage System (MWSS).You alleged that the conveyance of the system is a condition for the MWSS to allow the Forbes Park area to be connected to the MWSS water mains. Considering that the water system to be transferred to the MWSS is merely a part and parcel of the total assets of the Association, your query is: may a mere resolution of the Board of Directors validly effect such transfer? The statutory authority for sale of corporate assets is found in Section 40 of the Corporation Code. Said section provides that "a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon such terms and conditions and for such consideration, which may be money, stocks, bonds or other instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem expedient, when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock; or in the case of non-stock corporation, by the vote of at least two-thirds (2/3) of the members, . . . ." Paragraph 2 of the same section defines the term "sale or disposition of all or substantially all the assets" as one which will render the corporation incapable of continuing the business or accomplishing the purpose for which it was incorporated. " Any disposition short of this will not need stockholders action ." (Campos, Campos, Corporation Code, "Comments, Notes and Selected Cases, 1981 ed., p. 960). In other words, if after the disposition of corporate assets, the disposing corporation can still continue the business for which it is organized, the disposition can be made without complying with the requirements set forth in Section 40 as it is not covered by said sections. (Agbayani, Commercial Laws of the Philippines, Vol. 3, p. 355) On the assumption, therefore, that the water system constitutes merely a part of the assets of Forbes Park Association, Inc.,such that the assignment thereof in favor of MWSS for such other property or consideration as the board of directors may deem expedient will not render the Association incapable of continuing the business or accomplishing the purpose for which it was incorporated; it is advised that the Board would not be amiss in disposing or assigning said property without the corresponding approval of the general membership of the Association. Hence, your query as earlier restated is answered in the affirmative. Please be advised accordingly. Very truly yours, (SGD.) JULIO A. SULIT, JR. Chairman