Atty. Loreto C. Buduan

May 4, 1990 Atty. Loreto C. Buduan Buduan Law Office 8031 Roosevelt St. Makati, Metro Manila S i r : This has reference to your letter dated January 9, 1990 requesting opinion of this Commission on the queries posed therein. llcd In your letter, you stated that sometime in July, 1973, two corporations, Heirs of Rufino, Inc. (Heirs) and your client, Mercedes Realty and Development Corporation (MRDC) entered into an agreement whereby the former corporation (Heirs) ceded to the latter corporation (MRDC) a parcel of land in Los Angeles, California, U.S.A. in exchange for fully paid shares of stock of the transferee corporation (MRDC). It appears, however, that the formal Deed of Exchange although executed by the then officers representing both, the Deed was never notarized (acknowledged) until February 22, 1989. Consequently, MRDC, although holding title to the property has not transferred the property to its name, as the Title Insurance and Trust Office in L.A. Country California doubted whether a Deed of Exchange executed in 1973 but notarized only in 1989 would produce the legal effect of transferring title to the grantee since the grantor-corporation (Heirs) has terminated its corporate existence in 1974. Under the foregoing circumstances, it is your contention that: a) The transaction between the two corporations at that time (1975) legal and binding; b) That the bilateral exchange of consideration between the two corporations resulted in a complete transfer of title between them albeit the deficiency in the Deed of Exchange; c) That there is no legal impediment in having the deed of exchange notarized in 1989 and that, absent any other legal deficiency the transaction as far as it is concerned may be formally validated producing the desired legal effect. In determining the right of a corporation to take and hold real property and the extent of that right, inquiry should be directed at the outset to the constitutional and statutory provisions affecting the corporation's power and capacity in this respect. (6 A Fletcher Cyc. Corp., 1950 Rev. Vol., sec. 2786). Our law on the matter is found in Section 36 of the Corporation Code which provides that every corporation incorporated under said Code has the power and capacity, among others to receive, purchase, take, hold or otherwise deal with such real properties as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitation prescribed by law and the Constitution . Further, the Corporation Code provides: "SECTION 62. Consideration for stocks . . . . . Consideration for the issuance of stock may be any or a combination of any two or more of the following: xxx xxx xxx 2. Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued." . . . (Emphasis supplied) Thus, the right of a corporation in taking and holding real property may be treated by the purpose for which it was acquired and the ever present intention of devoting it to a proper and necessary corporate use. Consideration should be given, in determining the right to the object of acquisition, the intention with which the property is held, and the use to which it may be and is designated to be put, and the power of the corporation is to be limited to such real property as is reasonably necessary to such corporate purposes and uses (6 Fletcher sec. 2788). In line with the foregoing, and in view of the generality of the provisions of Section 36(7) of the Corporation Code on corporate acquisition of real properties implying that properties located anywhere may be contributed to the capital of the corporation, properties located in the United States as may be needed and necessary to pursue the legitimate corporate objectives, may be contributed to the capital of a corporation. In this connection, however, the law of the place where the property is located should be considered, specifically, as to whether a foreign corporation may own realty in a given state . ( SEC letter dated July 16, 1986 addressed to Richard Lumanlan ). Regarding the alleged deficiency in the deed of exchange, since the property involved is located outside the Philippines, the validity and formalities for the execution thereof also depend on the law where the property is located. Unless the transfer of ownership of the property is registered in the place where it is located, the deed of exchange purporting to convey the transfer of ownership of the land shall operate only as a contract between the parties . The registration of the transfer of the property in the place where the property is located shall be the operative act to transfer the land insofar as third persons are concerned. Please be advised accordingly. Very truly yours, (SGD.) RODOLFO L. SAMARISTA Associate Commissioner