Atty. Raul Austria Bo

October 9, 1985 Atty. Raul Austria Bo Rm. 330-A Third Floor Regina Bldg., Escolta Manila Sir : This relates to your letter, dated October 1, 1985, requesting the opinion of this Commission on the query posed therein. It appears therein that two (2) corporations, hypothetically named corporations "A" and "B", are engaged in the same line of business. An assumption was made that of the 100 outstanding shares of stock of "A" corporation, 96% of which is owned by "B" corporation while the remaining 4% is equally divided among four individual stockholders who are officers of "A" corporation. "A" corporation has a piece of property registered in its name which it proposes to sell or assign in favor of "B" corporation. The question is: Can the sale or assignment be considered legitimate assuming that the transaction is supported by a board resolution of "A" Corporation, and the buyer is an investor/stockholder of "A" Corporation? In other words, can there be a valid transfer of title of a real property from "A" Corporation, assuming there will be no resulting prejudice to third persons? As a matter of policy, this Commission refrains from giving its opinion on any hypothetical case presented before it, involving any of the statutes entrusted to it for enforcement. Unless the case is an actual one and the facts thereof are fully disclosed and made known to the Commission, this office feels that it should not make any pronouncement thereon. However, for purposes of general information only, the following may be imparted. Under Section 36 of the Corporation Code, every corporation incorporated under the Code has the power and capacity to purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property 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. It is therefore clear and indubitable that every corporation has the power, among others, to purchase or acquire real property as may be necessary to enable it to carry out the purpose for which it was organized. (SEC Opinion, dated September 7, 1982). cdlex Should there exist interlocking directorate between corporations "A" and "B", the law on the matter is: except in cases of fraud, and provided the contract is fair and reasonable under the circumstances, a contract between two or more interlocking directors shall not be invalidated on that ground alone. Provided, that if the interest of the interlocking director in one corporation is substantial and his interest in the other corporation is merely nominal, he shall be subject to the provisions of Section 32 of the Corporation Code insofar as the latter corporation is concerned. Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for purposes of interlocking directors. (Section 33, Corporation Code). Furthermore, should the piece of property which corporation "A" contemplates to sell or assign in favor of corporation "B" constitute all or substantially all of its property, subject to the provisions of existing laws on illegal combinations and monopolies, corporation "A" may, by a majority vote of its board of directors, sell or otherwise dispose of said property, upon such terms and conditions and for such consideration, which may be money, stocks, bonds or other instruments for payment of money or other property or consideration, as its board of directors may deem expedient, when authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally, provided, that any dissenting stockholder may exercise his appraisal right under the conditions provided in the Corporation Code. A sale or disposition shall be deemed to cover substantially all the corporate properties and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. (Section 40, Corporation Code). Subject therefore to the above-stated laws on the matter, our answer to your query is in the affirmative. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman