Mr. Bonifacio D. Marines

December 14, 1995 Mr. Bonifacio D. Marines Dangwa Transportation Co., Inc. 1600-1602 Dimasalang St., Sampaloc, Manila S i r : This refers to your letter dated December 1, 1995 inquiring whether the proposal stated therein is legally feasible. Allegedly, there exists a corporate problem of Dangwa Transportation Co., Inc. because a certain group of stockholders filed estafa cases against the Board of Directors of the Corporation. As a result, the operation of the corporation has been hampered. Even if the court will hand down its verdict, you believe that hard feelings and some sort of rift will develop and continue between the complainants and the accused. Thus, you intend to propose during the next stockholders meeting to split the management of the corporation one for the group of the complaining party and another for the defendants. The number of buses to be operated by each group will be proportionately computed based on the holdings of each group. Likewise, the liabilities of the company will be proportionately shared between the two. The facilities of the corporation such as shop, terminal, offices and others will be availed of by the proposed two managements. The proposal will be submitted for stockholders approval. Your query is, whether or not the above-proposed is legally allowable without going through the process of dissolution. It is well-settled in corporate jurisdiction that a corporation has a personality separate and distinct from that of each shareholder . Consequently, the former is not affected by the personal transactions, obligations and liabilities of the latter. Accordingly, the estafa cases filed against the members of the Board of Directors should not in any way affect the ordinary operations of the corporation. Furthermore, the proposal would be violative of Section 122 of the Corporation Code which provides that ". . . Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities ." Accordingly, your query is answered in the negative. However, as a remedy, the stockholders may, if they feel it is necessary under the situation, replace the incumbent members of the Board pursuant to the following provision of Corporation Code: "SECTION 28. Removal of directors or trustees . Any director or trustee of a corporation may be removed from office by a vote of the stockholders holding or representing two-thirds (2/3) of the outstanding capital stock, or if the corporation be a non-stock corporation, by a vote of two-thirds (2/3) of the members entitled to vote. Provided, That such removal shall take place either at a regular meeting of the corporation or at a special meeting called for the purpose, and in either case, after previous notice to stockholders or members of the corporation of the intention to propose such removal at the meeting. A special meeting of the stockholders or members of a corporation for the purpose of removal of directors or trustees, or any of them, must be called by the secretary on order of the president or on the written demand of the stockholders representing or holding at least a majority of the outstanding capital stock, or, if it be a non-stock corporation, on the written demand of a majority of the members entitled to vote. Should the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice, or if there is no secretary, the call for the meeting may be addressed directly to the stockholders or members by any stockholder or member of the corporation signing the demand. Notice of the time and place of such meeting, as well as the intention to propose such removal, must be given by publication or by written notice as prescribed in this Code. The vacancy from removal pursuant to this section may be filled by election at the same meeting without further notice, or at any regular or at any special meeting called for the purpose, after giving notice as prescribed in this Code. Removal may be with or without cause : Provided, That removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may be entitled under Section 24 of this Code." (Emphasis supplied) Very truly yours, (SGD.) PERFECTO R. YASAY, JR. Acting Chairman