Mr. Rodolfo B. Valdez

March 14, 1991 Mr. Rodolfo B. Valdez Wack Wack Golf and Country Club Mandaluyong, Metro Manila P.O. Box 129 S i r : This refers to your letter of February 21, 1991 requesting opinion on the query posed therein. LexLib As stated Wackwack Golf and Country Club executed a Memorandum of Agreement involving a disposition or transfer by the Club of 1.6 hectares out of its 118 hectares of land to the W.S. Shaw Foundation, Incorporated. One of the conditions in the Memorandum of Agreement requires the formal approval/ratification by the members of the Club. Since the 1.6 hectares to be transferred by the Club to the foundation is only about 1% of the Club's total land area, it does not involve the disposition of all or substantially all property and assets of the Club. The Club has been organized to operate a Golf Course and even with the transfer of the 1.6 hectares, it is still capable of continuing business of operating the Golf Course with its remaining property. Your query is, whether a simple majority vote of 2/3 vote is required in the approval by the stockholders. The statutory authority for the sale of corporate assets is found in Section 40 of the Corporation Code. Said section provides that "a corporation may, by a majority 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. "Thus, 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 was organized, the disposition can be made without complying with the requirements set forth in Section 40 of the Corporation Code as it is not covered by said section. (Agbayani, Commercial Laws of the Philippines, Vol. 3, p. 355) The general rule therefore is that when the property to be disposed is merely a part of the assets of the corporation, such that the disposition thereof will not render the corporation incapable of continuing the business or accomplishing the purpose for which it was incorporated, the Board may dispose the same without the need for a corresponding approval of the stockholders/members of the corporation. However, in the instant case, it is noted that the transfer of the property is covered by a memorandum agreement or contract providing for self-imposed conditions , one of which is the approval by the members. Hence, the contracting parties are bound by and must comply with said condition. As to what should be the required number of votes taking into consideration that the contract does not specifically provide therefor, it is submitted that since the property to be disposed by the corporation constitutes merely a part of the assets of the corporation and the disposition thereof will not render the corporation incapable of continuing its operation as a Golf Course, the corporation need not comply with the required number of votes under Section 40 of the Corporation Code. Accordingly, in the absence of any restriction in the by-laws, a simple majority vote of the members would be sufficient. Very truly yours, (SGD.) ARMANDO Z. GONZALES Associate Commissioner