Philippine Cooperative Marketing Law 1927

Purpose and policy

Every cooperative marketing association must be operated primarily for the mutual benefit of its members as producers. (Section 1)
Every association must aim to promote, foster, and encourage the intelligent and orderly marketing of agricultural products through cooperation. (Section 1)
Every association must seek to make the distribution of agricultural products between producer and consumer as direct as can be efficiently done. (Section 1)
Every association must seek to stabilize the marketing of agricultural products. (Section 1)

Key definitions and coverage

“Agricultural products” include horticultural, forestry, dairy, livestock, poultry, and any farm products. (Section 2(a))
“Association” means any corporation organized under Act No. 3425. (Section 2(b))
“Member” includes actual members of associations without capital stock, and holders of common stock in associations organized with capital stock. (Section 2(c))
“Person” includes individuals, firms, partnerships, corporations, and associations. (Section 2(d))
Associations are organized for growers’ or producers’ cooperative marketing activities. (Section 41)

Who may organize and where they operate

Fifteen or more persons, with a majority of residents of the Philippine Islands, engaged in production of agricultural products may form a cooperative marketing association under Act No. 3425. (Section 3)
Associations may be organized with or without capital stock under Act No. 3425 by adopting and filing articles of incorporation and by-laws in the manner required for other corporations under Act No. 1459 (as amended), except as provided in Act No. 3425. (Section 3)
The Director of the Bureau of Commerce and Industry may divide the Philippine Islands into cooperative marketing districts and territories. (Section 5)
The Director may refuse incorporation of an association that proposes to operate in a district or territory where another association handling any or all of the agricultural products proposed to be handled is already organized and existing under Act No. 3425. (Section 5)

Incorporation, districts, and by-law formation

Contemplated organizers must communicate with the Director of the Bureau of Commerce and Industry, who must inform them regarding what a survey of marketing or other economic conditions indicates about probable success. (Section 4)
If there is non-compliance with this communication requirement, or if the Director believes marketing/economic conditions do not justify the association, the Director may delay or refuse the issuance of a certificate of incorporation. (Section 4)
Articles of incorporation must state the corporate name including the word “Cooperative.” (Section 8(a))
Articles must state the purposes and the agricultural product or products to be handled. (Section 8(b))
Articles must state the principal business place(s) and the principal office location, all within the Philippine Islands. (Section 8(c))
Articles must state the term of existence, which must not exceed fifty years. (Section 8(d))
Articles must state the names and addresses of incorporators and the names and addresses of incorporating directors for the first term; the number of directors must be not less than five. (Section 8(e)–(f))
Articles must provide, for nonstock associations, rules on whether members’ property rights/interests are equal or unequal and a scheme for admitting new members sharing in property with old members. (Section 8(g))
Articles must state, for capital-stock associations, the amount of capital stock in Philippine currency, the number of shares, and the par value. (Section 8(h))
Articles must state, for capital-stock associations, the amount actually subscribed, names and residences of subscribers, the amount subscribed by each, and the sum paid by each. (Section 8(i))
Articles may divide capital stock into preferred and common, and if so divided, articles must state the number of preferred shares, the nature and definite extent of preference and privileges, and the manner of redeeming or retiring preferred stock. (Section 8(j))

Capital stock subscription requirements and corporate fees

The Director of the Bureau of Commerce and Industry shall not file articles of incorporation for a cooperative marketing association with capital stock unless accompanied by a sworn statement of a treasurer elected by the directors. (Section 9)
The sworn statement must show at least 20% of the entire capital stock has been subscribed. (Section 9)
The sworn statement must show at least 20% of the subscription has been either (1) paid to the treasurer in actual cash for the benefit and to the credit of the association, or (2) transferred to the treasurer in trust, received for the benefit and credit of the association, with fair valuation equal to 20% of the subscription. (Section 9)
Each association must pay filing fees to the Director of the Bureau of Commerce and Industry:
- PHP 15 for filing articles of incorporation (Section 15(a))
- PHP 5 for filing amendments to articles of incorporation (Section 15(b))
- PHP 2 for filing by-laws (Section 15(c))
- PHP 1 for filing amendments to by-laws or new by-laws (Section 15(d))

By-laws: adoption, filing, content, and amendments

Each association must adopt a code of by-laws for government and management not inconsistent with powers granted by Act No. 3425 and the articles of incorporation. (Section 10)
A majority vote of members or their written assent is required to adopt by-laws. (Section 10)
By-laws must be signed by members voting for them or giving assent and must be kept at the principal office subject to inspection during office hours; a certified copy must be filed with the Director. (Section 10)
By-laws may be filed at the time of filing articles of incorporation or thereafter. (Section 11)
Upon filing by-laws, the Director must issue a certificate (under the seal of office) stating that articles and by-laws have been duly filed, and thereafter incorporators and their associates and successors become a body politic and corporate under the certificate name for a term not exceeding fifty years unless sooner dissolved. (Section 11)
By-laws may provide for:
- Regular meeting schedule and meeting calling and conduct (Section 12(a))
- The number of voting members/stockholders constituting a quorum (Section 12(b))
- Voting by proxy or by mail or both and related conditions and effects (Section 12(c))
- The number of directors constituting a quorum (Section 12(d))
- Qualifications, compensation, duties, term, election timing, and notice mode/manner for directors and officers (Section 12(e))
- Penalties for violations of the by-laws (Section 12(f))
- Entrance, organization, and membership fees; collection methods; and purposes for which they are used (Section 12(g))
- Annual or periodic member payments to carry on business; service charges; payment timing and collection; and the marketing contract every member may be required to sign (Section 12(h))
- Membership qualifications/conditions precedent; withdrawal and stock transfer rules; assignment/transfer of interests; cessation of membership; automatic suspension upon ineligibility; expulsion process and effects; appraisal and purchase of member interest on death, withdrawal, expulsion, forfeiture, or at association option at a price fixed by conclusive board appraisal (Section 12(i))
When a member withdraws or is expelled, the board must equitably and conclusively appraise property interests and fix the amount in money payable within one year after withdrawal or expulsion. (Section 12(i))
Articles may be amended at any regular meeting or special meeting called for the purpose. (Section 13)
An amendment must be first approved by a majority of directors, then adopted by a vote of the majority of all members or stockholders entitled to vote. (Section 13)
Adopted amendments must be filed with the Director for attachment to the original articles. (Section 13)
By-laws may be amended or repealed, or new by-laws adopted, by a vote of the majority of all members/stockholders entitled to vote or by their written assent. (Section 14)
Copies of by-law amendments or new by-laws must be kept and filed in the same manner as the original by-laws. (Section 14)

Membership, voting, directors, and officers

An association must admit as members, or issue common stock only to persons engaged in production of agricultural products handled by or through the association, including lessees and tenants, and also lessors and landlords who receive all or part of the crop as rent. (Section 7)
An association may become a member or stockholder of any other association organized under Act No. 3425. (Section 7)
The by-laws must prohibit transfer of common stock to persons not engaged in the production of agricultural products handled, and the restriction must be printed on every certificate. (Section 31)
No member is entitled to more than one vote, regardless of amount of common stock or membership capital. (Section 17)
Holders of preferred stock with no common shares have no voting power and are not entitled to notice of regular or special meetings. (Section 17)
If an association fails to pay preferred-stock dividends for two years after the dividend accrues, preferred stockholders become entitled to notice of all regular or special meetings and to the same voting power as common-stockholders until all such dividends are paid. (Section 17)
Preferred stockholders may attend meetings and voice opinions regarding election/appointment/removal of directors or officers and questions affecting management. (Section 17)
The association must be managed by a board of not less than five directors, elected by members or stockholders entitled to vote. (Section 18)
By-laws may provide district election of directors, including the number of directors per district, reapportionment, and redistricting mechanics. (Section 18)
By-laws may provide that one or more directors may be appointed by a public official; appointed directors need not be members/owners of common stock, but must not exceed one-fifth of the entire board. (Section 18)
Except for appointed directors under Section 18, a person must be a member or an owner of common stock to become a director. (Section 18)
Vacancy filling: when a vacancy occurs other than by expiration of term, remaining directors fill it by majority vote unless directors are elected by district; then a special meeting must be called for the district. (Section 19)
By-laws may provide for a manager (not necessarily a member or stockholder) and may allot to the manager functions and powers of the board subject to the board’s general direction and control. (Section 20)
Directors elect from their number a president and one or more vice-presidents; they also elect a secretary and treasurer (who need not be directors or members/stockholders), and may combine the secretary and treasurer into a secretary-treasurer or unite both functions and titles in one person. (Section 21)
The Secretary of the concerned Department may grant written authority to a government officer or employee recommended by a Bureau chief to take an active part in organization and operation and to occupy and perform duties outside government office hours and receive salary or emoluments therefrom. (Section 22)

Meetings, bonding, profits, and removal

By-laws must provide for one or more regular meetings annually. (Section 16)
The board may call special meetings at any time. (Section 16)
10% of members or stockholders may file a petition stating specific business and demand a special meeting; the directors must call it. (Section 16)
Notice of meetings with statement of purposes must be mailed at least ten days prior to the meeting to each voting member/stockholder. (Section 16)
By-laws may require notice instead by publication in a newspaper of general circulation published at the principal place of business of the association, or otherwise in a newspaper of general circulation in the City of Manila. (Section 16)
Every director, officer, and employee handling funds or negotiable instruments or property, or having charge/control over agricultural products belonging to the association or its members must execute adequate bonds for faithful performance. (Section 23)
During term of office, no director, officer, or employee may be a party to a contract for profit with the association that differs from the business relations accorded members or differs from terms generally current in the district. (Section 24)
A member or stockholder may bring charges against an officer or director by filing written charges with the association secretary, together with a petition signed by 5% of members/stockholders requesting removal; the association votes at the next regular or special meeting. (Section 25)
The charged officer/director must be informed in writing of charges before the meeting and must be given opportunity at the meeting to be heard in person or by counsel and to present witnesses; the complainants must have the same opportunity. (Section 25)
If by-laws provide district election of directors, the removal petition must be signed by 20% of members/stockholders residing in the district from which the director was elected, and removal is decided by a majority vote of those in the district at a special meeting. (Section 25)
Referendum: upon demand of not less than two-fifths of the entire board of directors, matters approved or passed by the board must be referred to members/stockholders for decision at the next regular meeting or special meeting; a majority vote settles the matter. (Section 26)

Stock issuance, dividends, profits, and liability limits

No association may issue stock until fully paid. (Section 27)
Promissory notes may be accepted as full or partial payment for stock, but never before or during filing of articles of incorporation; the association holds the stock and interests/dividends as security for the note, without affecting voting rights. (Section 27)
Dividends may not exceed:
- 8% per annum on membership capital and common stock (Section 28(a))
- 10% per annum on preferred stock (Section 28(b))
Net profits in excess of expenses and dividends on membership capital/capital stock actually subscribed and paid must be distributed as patronage dividend among members/common-stock owners in proportion to the value or volume of agricultural products sold to or through the association during the apportionment period; associations may set aside part for a surplus fund for association benefit. (Section 29)
No member/stockholder is liable for association debts beyond the sum remaining unpaid on membership fee or subscription to capital stock, including unpaid balances on promissory notes given for that payment. (Section 30)

Financial operations and association purchases

The association may buy in or purchase its common stock at book value as conclusively determined by the board and pay for it in cash within one year after purchase, except when association debts exceed 50% of assets. (Section 32)
An association with preferred capital stock may discharge obligations for acquired stock/property/interests by exchanging preferred shares for the acquired interest to an amount where par value equals the fair market value of the stock/interest purchased as determined by the board; such transfer is equivalent to payment in cash for issued preferred shares. (Section 33)
The association may establish reserves and invest funds in stock or bonds or other property as may be provided in the by-laws. (Section 6(e))
The association may borrow money and make loans and advances to members. (Section 6(b))

Powers and permitted handling

The association has powers, subject to general corporate powers under Act No. 1459 as amended, to the extent not inconsistent with Act No. 3425. (Section 6)
The association may carry out marketing-related activities including marketing, selling, preserving, harvesting, drying, processing, manufacturing, canning, packing, grinding, baling, storing, handling, or utilization of agricultural products produced or delivered by members, and activities involving by-products; it may also purchase, hire, or use supplies, machinery, or equipment by members, and finance these activities. (Section 6(a))
The association may handle products of non-members only for storage. (Section 6(a))
The association may act as agent or representative of members in the above activities. (Section 6(c))
The association may own stock of or be a member of other associations under Act No. 3425 or corporations/associations under previously existing Philippine laws engaged in related activity or warehousing/handling/marketing of the agricultural products handled by the association. (Section 6(d))
The association may do things necessary or expedient for purposes enumerated, including contracting accordingly, and has all incidental powers necessary for purposes and activities. (Section 6(f))

Marketing contracts and remedies

The association and its members may make marketing contracts requiring members to sell all or specified parts of agricultural products for a period not over ten years exclusively to or through the association. (Section 35)
If a member contracts a sale to the association, title to products passes absolutely and unreservedly to the association upon delivery or at a time specified in the contract, except for recorded liens. (Section 35)
The contract may provide that the association may sell or resell products delivered by members with or without taking title and pay members the resale price after deducting necessary selling, overhead, and other costs/expenses, including dividends on membership capital or capital stock actually subscribed and paid, and reserves for retiring preferred stock if any, and other proper reserves. (Section 35)
By-laws or marketing contracts may fix liquidated damages as specific sums payable by the member to the association upon breach of provisions regarding sale, delivery, or withholding of products. (Section 36)
The by-laws or marketing contracts may also require the member to pay all costs, premium for bonds, and court expenses and attorney’s fees if the association brings action upon the contract. (Section 36)
Upon breach or threatened breach by a member, the association is entitled to injunction and a decree of specific performance. (Section 37)
The association may obtain a temporary restraining order by filing a verified complaint showing breach or threatened breach and a sufficient bond. (Section 37)
Conclusive presumption: in actions upon marketing agreements, a landowner/landlord/lessor is conclusively presumed able to control delivery of products produced on the land by tenants or others when tenancy/possession/work terms were created or changed after execution of the marketing agreement. (Section 38)

Third-party liability and prohibited inducements

Warehousemen: a person/firms/corporation operating a warehouse in the Philippines that solicits/persuades or permits an association member to breach a marketing contract by accepting/receiving member products for sale/auction/display for sale contrary to marketing agreement terms is liable for damages to the aggrieved association in a civil suit of not more than five hundred pesos for each offense. (Section 39)
The association is entitled to an injunction against such warehouseman to prevent further breaches. (Section 39)
Such warehouseman must pay the association a reasonable attorney’s fee and all costs involved in litigation or proceedings. (Section 39)
Inducing breach and false reports: any person who knowingly induces or attempts to induce a member to breach a marketing contract, or who maliciously and knowingly spreads false reports about the finances or management of the association, is punished by a fine of not less than one hundred pesos and not more than five hundred pesos for each offense, and is liable for damages in a civil suit in the sum of not more than five hundred pesos for each offense. (Section 40)

“Cooperative” naming restriction

No person, firm, corporation, or association beginning to do business or organized in the Philippines after passage of Act No. 3425 may use the word “Cooperative” as part of its corporate or other business name or title for growers’ or producers’ cooperative marketing activities unless it has complied with Act No. 3425. (Section 41)

Existing associations adopting the system

An existing corporation or association engaged in growers’ or producers’ cooperative marketing activities may be brought under Act No. 3425 by limiting membership and adopting restrictions under the Act through a majority vote of members or stockholders. (Section 42)
Contracts made by or on behalf of such association before incorporation under Act No. 3425 remain unaffected. (Section 42)
The association must make out in duplicate a statement signed and sworn to by its directors that, by majority vote, it decided to accept benefits and be bound by Act No. 3425 and authorized required changes accordingly. (Section 42)
Amendments to articles of incorporation and by-laws must be made, adopted, and filed to comply with Act No. 3425, and filing fees follow the same amounts as for filing amendments under Act No. 3425. (Section 42)

Records, reports, and government supervision

Each association must keep and preserve records of business transactions and detailed minutes of directors’ and members’/stockholders’ meetings including date/place, whether regular or special and purpose, by whom special meeting was called, directors/members present and absent, and all resolutions adopted. (Section 43)
Each association must prepare an annual report on forms furnished by the Director, including: association name; principal place of business; names and addresses of directors and officers; a general statement of business operations during the year; for stock associations, amount of capital stock paid up and number of stockholders; for nonstock associations, number of members and membership fees received; total expenses of operation; and balance sheets. (Section 44)
The Director of the Bureau of Commerce and Industry must make propaganda in the provinces for proper and speedy organization of associations under Act No. 3425 and must act as legal and technical adviser to such associations. (Section 45)
The Director may cause examination of each association’s operations to determine compliance with Act No. 3425, articles of incorporation, and by-laws. (Section 45)
When violations are found, the Director must give necessary orders to the board to remedy defects; upon noncompliance, the secretary must call a special meeting upon request of the Director or agents for the association to decide whether there are grounds for removal of responsible officers or directors. (Section 45)
Research Division personnel of the Bureau of Commerce and Industry are assigned to implement Section 45. (Section 45)
The Treasurer of the province where the association is located and the Auditor of the Philippine Islands may examine books, records, and accounts at times the Director requests; results must be reported to the Director. (Section 45)

Restraint of trade rule; price controls and forfeiture

Associations are not deemed a conspiracy or combination in restraint of trade or an illegal monopoly; they are not deemed to attempt to lessen competition or arbitrarily fix prices or create prohibited pools. (Section 46)
Marketing contracts and agreements between the association and its members, and agreements authorized in Act No. 3425, are considered not illegal nor in restraint of trade nor contrary to laws enacted against pooling or combinations. (Section 46)
Associations are prohibited from restraining trade by arbitrarily fixing or unduly enhancing the price of any agricultural products. (Section 47)
Any association violating Section 47 is deemed to have abused its powers and has its charter subject to forfeiture. (Section 47)

Tax treatment and conflict with other laws

Associations are exempt from payment of the merchant’s sales tax and the income tax. (Section 48)
Exemptions under existing laws applicable to agricultural products in the possession or under the control of individual producers apply similarly and completely to agricultural products delivered by farmer members to the association or in the association’s possession/control. (Section 48)
Conflicting laws do not apply to associations organized under Act No. 3425. (Section 49)
The Corporation Law, Act No. 1449 as amended, and its powers/rights generally apply to such associations except where provisions conflict or are inconsistent with express provisions of Act No. 3425 or contrary to the spirit of the Act. (Section 49)

Exempt associations: organization and business exceptions

The Act expressly permits associations to transact marketing and related operations under their enumerated powers, and limits non-member handling to storage. (Section 6(a))