Mr. Bernaldez & Estandarte

October 14, 1993 Mr. Bernaldez & Estandarte Bernaldez & Estandarte Law Office 75 Osmea Blvd. Cebu City 6000, Philippines S i r : This refers to your letter of September 23, 1993 requesting opinion on the queries posed therein. As stated, your client corporation, whose stockholders are all members of the same family, owns a parcel of land duly registered under its name. The stockholders want to preserve the property perpetually. Thus, they planned to enter into an agreement to the effect that said property must not be sold by the corporation. Their purpose is to have this property held in trust forever so that they, their children and their grandchildren may still enjoy the fruits of said property. The questions are: Can the stockholders do what they intend to do? If so, can the stockholders simply pass a resolution amending the Articles of Incorporation to effectuate their plan? If not, what is the legal basis? Is there any other way within the bounds of the law to effectuate their plan? In a corporation, there is an implied contract among the stockholders to pursue the business for which the corporation was created for the specific period of its existence and therefore, as a general rule, there should be no disposition of the property used by the corporation in its business until its dissolution. However, this rule is not absolute as there are pressing business necessity which requires transfer or sale of property to avoid loss or inability of the corporation to make further profits. The power to dispose corporate assets may be exercised where a just and reasonable cause exists, provided the transaction is not in fraud of the rights of creditors, is made for an adequate consideration and for the best interest of the corporation. Section 36 of the Corporation Code provides thus: "SECTION 36. Corporate powers and capacity . Every corporation incorporated under this Code has the power and capacity: xxx xxx xxx 7. To purchase, receive, take or grant, hold, convey, sell ,lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require ,subject to the limitations prescribed by law and the Constitution. (Emphasis supplied) However, in order to protect the interest of the stockholders from the destruction of the means to accomplish the purposes or objects for which the corporation was incorporated, the statutory authority to dispose corporate property is subject to the provisions of Section 40 of the Corporation Code quoted in part hereunder: LexLib "SECTION 40. Sale or other disposition of assets . ...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 or 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 of the members, in a stockholders' or members' meeting duly called for the purpose. ..." (Emphasis supplied) Accordingly, the Board of Directors has the power to dispose of all or substantially all of the corporate assets only with the approval of the stockholders. However, under the same provision, if the property to be sold constitutes merely a part of the assets of the corporation and the sale thereof will not render the corporation incapable of continuing its business or if the disposition is necessary in the usual and regular course of business, the Board of Directors, as it may deem expedient and in good faith, may dispose the same without the corresponding approval of the stockholders of the corporation. Therefore, whether or not the power to sell or dispose corporate property is included or denied in the articles of incorporation of the corporation, it is, nevertheless, deemed to be within the scope of its corporate power by express declaration of law. Consequently, an agreement to the contrary is not enforceable. Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman