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BOD; Election of Aliens as Gregorio of the decision of their BOD

members (1995) not to ratify the letter offer.


A Korean national joined in a However, since Gregorio had already
corporation which is engaged in the paid the down-payment, TF delivered
furniture manufacturing business. He 500 bags of fertilizer which Gregorio
was elected to the Board of Directors. accepted. TF made it clear that the
To complement its furniture delivery should be considered an
manufacturing business, the entirely new transaction. Thereafter,
corporation also engaged in the Gregorio sought enforcement of the
logging business. With the additional letter-offer. Is there a binding contract
logging activity, can the Korean for the 5,000 bags of fertilizer? Explain
national still be a member of the
Board of Directors? Explain?
SUGGESTED ANSWER:
No, there is no binding contract for the
SUGGESTED ANSWER:
5,000 bags of fertilizer. First, the facts
Yes, just as long as the 60% of the do not indicate that Rodman, the
Board of Directors are Filipinos. President of TF Co., was authorized by
Corporations that are sixty percent the BOD to enter into the said contract
owned by Filipinos can engage in the or that he was empowered to do so
business of exploration, development under some provision of the by-laws of
and utilization of natural resources TF Co. the facts do not also indicate
(Art. XII, Sec.2, 1987 Constitution). that Rodman has been clothed with
The election of aliens as members of the apparent power to execute the
the Board of Directors engaging in contract or agreements similar to it.
partially-nationalized activities is Second, TF Co. has specifically
allowed in proportion to their informed Gregorio that it has not
allowable participation or share in the ratified the contract for the sale of
capital of such entities. (Sec. 2-A, Anti 5,000 bags of fertilizer and that the
Dummy Law). Nothing in the facts delivery to Gregorio of 500 bags,
show that more than forty percent which Gregorio accepted, is an entirely
(40%) of the Board of Directors are new transaction. (Yao Ka Sin Trading
foreigners. vs CA GR No. 53820 June 15, 1992
209 SCRA 763)

BOD; Capacity of Directors (1996)


BOD; Conflict of Interest (1994)
Rodman, the President of TF Co., wrote
a letter to Gregorio, offering to sell to ABC Pigger Inc. is engaged in raising
the latter 5,000 , met a bags of and selling hogs in the local market.
fertilizer at P100 per bag. Gregorio Mr. De Dios, one of its directors while
signed his conformity to the letter- traveling abroad met a leather goods
offer, and paid a down payment of manufacturer who was interested in
P50,000. A few days later, the buying pig skins from the Philippine.
Corporate Secretary of TF informed Mr. De Dios set up a separate
corporation and started exporting pig
skins to his foreign contact but the pig
skins exported were not sourced from 1. His vote is not necessary for
ABC. His fellow directors in ABC the approval of the contract,
complained that he should have given and
this business to ABC. How would you 2. The contract is fair and
decide on this matter? reasonable under the
circumstances.
SUGGESTED ANSWER:
At the meeting of the BOD of Kwik to
I would decide in favor of De Dios. ABC approve of the contract, Chito would
is engaged in raising and selling hogs have to make sure that
in the local market. The company that
Mr. De Dios had set up was to engage, a.) there is no fraud involved; and
as it did, in the export of pigs skins.
b.) the contract is fair and reasonable
There is thus no conflict of interest
under the circumstances.
between Mr. De Dios and ABC Pigger
Inc. so as to make the case fall within
the conflict of interest situation under
the law (Sec 34 Corp. Code) (2) If these conditions are not met,
how may this contract be
ratified? Explain.
BOD; Interlocking Directors (1995)
Chito Santos is a director of both SUGGESTED ANSWER:
Platinum Corporation and Kwik Silver
Corporation. He owns 1% of the (3) If the conditions relating to the
outstanding capital stock of Platinum quorum and required number of
and 40,000 of Kwik. Platinum plans to votes are not met, the contract
enter into a contract with Kwik that must be ratified by the vote of
will make both companies earn very stockholders representing at
substantial profits. The contract is least 2/3 of the outstanding
presented at the respective board capital stock in a meeting called
meetings of Platinum and Kwik. for the purpose. Furthermore,
the adverse interest of Chito in
1. In order that the contract will the contract must be disclosed
not be voidable, what conditions and the contract is fair and
will have to be complied with? reasonable. (Secs. 32 and 33,
Explain. BP 68)

SUGGESTED ANSWER:
BOD; Interlocking Directors (1996)
(1) At the meeting of the BOD of
Platinum to approve contract, Leonardo is the Chairman and
Chito would have to make sure President, while Raphael is a Director
that his presence as director at of NT Corp. On one occasion, NT Co.,
the meeting is not necessary to represented by Leonardo and A Ent., a
constitute a quorum for such single proprietorship owned by
meeting; Raphael, entered into a dealership
agreement whereby NT Co. appointed
A Ent as exclusive distributor of its 3) That the agreement is fair and
products in Northern Luzon. Is the reasonable under the
dealership agreement valid? Explain. circumstances (Sec 32 Corp
Code)

SUGGESTED ANSWER:
By-Laws; Validity; Limiting
The dealership agreement is voidable
Qualifications of BOD members
at the option of NT
(1998)
Co. inasmuch as the facts do not
indicate that the same was not The BOD of X Co., acting on a standing
approved by the BOD of NT Co. before authority of the stockholders to amend
it was signed or, assuming such the by-laws, amended its by-laws so
approval, that it was approved under as to disqualify any of its stockholders
the following conditions: who is also a stockholder and director
of a competitor from being elected to
1) That the presence of Raphael,
its BOD.
the owner of A Ent, in the
meeting of the BOD at which Y, a stockholder holding a sufficient
the agreement was approved assets to assure him of a seat in the
was not necessary to constitute BOD, filed a petition with the SEC for a
a quorum for such meeting; declaration of nullity of the amended
2) That the vote of Raphael was by-laws. He alleged among other
not necessary for the approval things that as a stockholder, he had
of the agreement; acquired rights inherent in stock
3) That the agreement is fair and ownership such as the right to vote
reasonable under the and be voted upon in the election of
circumstances (Sec 32 Corp. directors. Is the stockholders petition
Code) tenable?
ALTERNATIVE ANSWER:
The dealership agreement is valid SUGGESTED ANSWER:
upon the assumption that the same
was approved by the BOD of NT Co. No. there is no vested right of a
before it was signed and that such stockholder to be elected as director.
approval was made under the When a person buys stock in a
following conditions: corporation he does so with the
knowledge that its affairs are
1) That the presence of Raphael, dominated by a majority of the
owner or A Ent, in the meeting stockholders. To this extent, the
of the BOD at which the stockholder parted with his personal
agreement was approved was right to regulate the disposition of his
not necessary to constitute a property which he invested in the
quorum for such meeting; capital stock of the corporation and
2) That the vote of Raphael was surrendered it to the will of the
not necessary for the approval majority of his fellow incorporators or
of the agreement; stockholders.
Corporations have the power to make provision is not inconsistent of the
by-laws declaring a person employed Corp. Code.
in the service of a rival company to be
ineligible for the Corporations BOD.
An amendment which renders a By-laws; Validity; Limiting
director ineligible, or if elected, Qualifications of BOD members
subjects him to removal, if he is also a (2001)
director in a corporation whose
business is in competition with or is Is a by-law provision of X Corporation
antagonistic to the other corporation is rendering ineligible or if elected,
valid. subject to removal, a director if he is
also a director in a corporation whose
business is in competition with or is
antagonistic to said corp. valid and
By-laws; Validity; Limiting
legal? State your reasons?
qualifications of BOD members
(2000) SUGGESTED ANSWER:
At the annual stockholders meeting of Yes, it is the right of a corporation to
MS Corp. the stockholders protect itself against possible harm
unanimously passed a resolution and prejudice that may be caused by
authorizing the BOD to amend the its competitors. The position of
corporate by-laws so as to disqualify director is highly sensitive and
any stockholder who is also a director confidential. To say the least, to allow
or stockholder of a competing the person, who is a director in a
business from being elected to the corporation whose business is in
BOD of MS Corp. the by-laws were competition with or is antagonistic to
accordingly amended. GK, a X corp., to become also a director in X
stockholder of a competitor, sought Corp. would be harboring a conflict of
election to the BOD of MS Corp. his interest which is harmful to the latter.
nomination was denied on the ground (Gokongwei Jr. Vs SEC 89 SCRA 336
that he was ineligible to run for the (1979); 97 SCRA 78 (1980)).
position. Seeking a nullification of the
offending disqualification provision, GK
consults you about its validity under By-laws; Validity; Limiting
the Corp. Code. What would your legal Qualifications of BOD members
advice be? (2003)
SUGGESTED ANSWER: To prevent the entry of Marlo Enriquez,
The provision of the amended by-laws whom it considered as one
disqualifying any stockholder who is antagonistic to its interest, into its
also a director or stockholder of a BOD, Bayan Corp. amended its articles
competing business from being of incorporation and by-laws to add
elected to the BOD of MS Corp. is certain qualifications of stockholders
valid. The corporation is empowered to be elected as members of its Board
to adopt a code of by-laws for its of Directors. When presented for
government not inconsistent with the approval at a meeting of its
Corp. Code. Such disqualifying stockholders duly called for the
purpose, the amendments were accordingly implemented and the
overwhelmingly ratified. Marlo corresponding close corporation was
Enriquez brought suits against Bayan incorporated. After 3 years, Robert,
Corp. to question the amendments. Rey and Ben could not agree on the
Would the action prosper? Why? business in which to invest the funds
of the corporation. Robert wants the
SUGGESTED ANSWER:
deadlock broken.
The SC reiterated in the case of SMC
1. What are the remedies available
vs SEC decided in April 11, 1979, that
to Robert under the Corp. Code
it is recognized by all authorities that
to break the deadlock? Explain.
every corporation has the inherent
power to adopt by-laws for its internal SUGGESTED ANSWER:
government, and to regulate the
(1) Robert can petition the SEC to
conduct and prescribe the rights and
arbitrate the dispute, with such
duties of its members toward itself
powers as provided in Sec. 104
and among themselves in reference to
of the Corp. Code.
the management of its affairs. At
common law, the rule was that the
2. Are there any remedies to
power to make and adopt by-laws was
prevent the paralyzation of the
inherent in every corporation as one of
business available to Robert
its necessary and inseparable legal
under PD 902-A while the
incidents. And it is settled throughout
petition to break the deadlock is
the United States that in the absence
pending litigation? Explain.
of positive legislative provisions
limiting it, every private corporation SUGGESTED ANSWER:
has this inherent power as one of its
necessary and inseparable legal (2) The SEC can appoint a
incidents, independent of any specific rehabilitation receiver or a
enabling provision in its charter or in management committee.
general law, such power of self-
government being essential to enable
the corporation to accomplish the Closed Corporation; Restrictions;
purpose of its creation. Transfer of Shares (1994)
Rafael inherited from his uncle 10,000
shares of Sta. Ana Corp., a close
Close Corporations; Deadlocks corporation. The shares have a par
(1995) value of P10.00 per share. Rafael
Robert, Rey and Ben executed a joint notified Sta. Ana that he was selling
venture agreement to form a close his shares at P70.00 per share. There
corporation under the Corp. Code the being no takers among the
outstanding capital stock of which the stockholders, Rafael sold the same to
three of them would equally own. They his cousin Vicente (who is not a
also provided therein that any stockholder) for P700,000.
corporate act would need the vote of The corporate secretary refused to
70% of the outstanding capital stock. transfer the shares in Vicentes name
The terms of the agreement were in the corporate books because
Alberto, one of the stockholders, with such reasonable term or period
opposed the transfer on the ground stated therein.
that the same violated the by-laws.
Here, limiting the price to be paid,
Alberto offered to buy the shares at
when the right to first refusal is
P12.50 per share, as fixed by the by-
exercised, to not more than 25% par
laws or a total price of P125,000 only.
value, without any qualification
While the by-laws of Sta. Ana provides whatsoever, is not in the articles. It is
that the right of first refusal can be merely stated in the by-laws.
exercised at a price not exceeding Therefore, such limitation shall not be
25% more than the par value of such binding on the purchaser. (GoSock &
shares, the Articles of Incorporation Sons vs. Sy Gui Huat Inc vs LAC 1987)
simply provides that the stockholders
of record shall have preferential right
to purchase said shares. It is silent as Controversy; Intra Corporate
to pricing. (1994)
Is Rafael bund by the pricing proviso Because of disagreement with the
under the by-laws of Sta. Ana Corp? BOD and a threat by the BOD to expel
her for misconduct and inefficiency,
SUGGESTED ANSWER:
Carissa offered in writing to resign as
Yes. In a close corporation, the President and member of the BOD,
restriction as to the transfer of and to sell to the company all her
shares has to be stated/ annotated in shares therein for P300,000. Her offer
the Articles of Incorporation, the by- to resign was effective as soon as my
laws and the certificate of stock. This shares of stock to the company, and
serves as notice to the person dealing promised to buy the stocks on a
with such shares like Rafael in this staggered basis. Carissa was informed
case. With such notice, he is bound by of the BOD Resolution in a letter-
the pricing stated in the y-laws. agreement to which she affixed her
consent. The companys new President
ALTERNATIVE ANSWER:
signed the promissory note. After
No. Rafael is not bound by the pricing payment, P100,000 the company
proviso under the by-laws of Sta. Ana defaulted in paying the balance of
Corp. Under the Corporation law, the P200,000.
restrictions on the right to transfer
Carissa wants to sue the company to
shares must appear in the Articles of
collect the balance. If you were
Incorporation and in the by-laws as
retained by Carissa as her lawyer,
well as in the certificate of stock,
where will you file the suit?
otherwise, the same shall not be
binding on any purchaser thereof in a) Labor Arbiter; b) RTC; or c) SEC
good faith.
SUGGESTED ANSWER:
Moreover, the restriction shall not be
The RTC jurisdiction over this case
more onerous than granting the
which involves intra-corporate
existing stockholders or the
controversy. As of 2006, the applicable
corporation the option to purchase the
rule is that there is a TRANSFERRED
shares of the transferring stockholder
JURISDICTION under Sec. 5.2 of the Controversy; Intra Corporate
SRC, the commissioners jurisdiction (1996)
over all cases enumerated under PD
Jennifer and Gabriel owned the
902-A sec.5 has been transferred to
controlling stocks in MFF Co. and CLO
the Court of general jurisdiction of the
Inc., both family corporations. Due to
appropriate Regional Trial Court.
serious disagreements, Jennifer
assigned all her shares in MFF to
Gabriel, while Gabriel assigned all his
Controversy; Intra Corporate
shares in CLO to Jennifer.
(1996)
Subsequently, Jennifer and CLO filed a
In 1970, Magno joined AMD Co. as a complaint against Gabriel and MFF in
Junior Accountant. He steadily rose the SEC seeking to recover the
from the ranks until he became AMDs corporate records and funds of CLO
Executive VP. Subsequently, however which Gabriel allegedly refused to turn
because of his involvement in certain over, and which remained in the
anomalies, the AMD BOD considered offices of MFF. Is there an intra-
him resigned from the company due to corporate controversy in this case?
loss of confidence.
SUGGESTED ANSWER:
Aggrieved, Magno filed a complaint in
Yes, there is an intra-corporate
SEC questioning the validity of his
controversy in this case. The fact that,
termination, and seeking
when the complaint against Gabriel
reinstatement to his former position,
and MFF was field with the SEC, (per
with back wages, vacation and sick
2006, RTCs jurisdiction), Jennifer and
leave benefits, 13th month pay and
CLO were no longer stockholders of
Christmas bonus, plus moral and
MFF did not divest the SEC (RTC) of its
exemplary damages, attorneys fees
jurisdiction over the case inasmuch as
and costs. AMD filed a motion to
Jennifer was a former stockholder of
dismiss, arguing that the SEC has no
MFF and the controversy arose out of
jurisdiction over cases of illegal
this relation. (SEC vs CA GR No.
dismissal, and has no power to award
93832)
damages. Should the motion to
dismiss be granted? Explain.
SUGGESTED ANSWER:
As of 2006, the applicable rule is that
there is a TRANSFERRED JURISDICTION
under Sec5.2 of the SRC, the
Commissions jurisdiction over all Controversy; Intra Corporate
cases enumerated in PD 902-A sec.5 (2006)
has been transferred to the Courts of
general jurisdiction of the appropriate What is an intra-corporate
RTC. controversy?
SUGGESTED ANSWER:
An intra-corporate controversy is a
conflict between stockholders,
members or partners and the of the corp. and claimed that his
corporation, association or partnership certificate of stock no. 1001 was lost
regarding the regulation of the and that, despite diligent efforts, the
corporation. The controversy must certificate could not be located. The
arise out of intra-corporate or formalities prescribed by law for the
partnership relations of the parties; or replacement of the lost certificate
between such corporation, partnership were complied with. Eventually X Co.
or association and the State insofar as issued in substitution of the lost
it concerns their individual franchises. certificate, Cert. of Stock No. 2002.
It is further required that the dispute Juan forthwith transferred for valuable
be intrinsically connected with the consideration the new certificate to
regulation of the corporation. (Speed Jose who knew nothing of the previous
Distributing corp. et al vs CA GR No. sale to Pedro. In time, the corporation
149351; GR No. 112872) was confronted with the conflicting
claims of Jose and Pedro. The BOD of X
Co. invited you to enlighten them on
Is the SEC the venue for actions these questions; viz a) If a suit were to
involving inta-corporate be initiated in order to resolve the
controversies? controversy between Pedro and Jose,
should the matter be submitted to the
SUGGESTED ANSWER: SEC or to the regular courts? B)
No, pursuant to subsection 5.2 of the between Jose and Pedro, whom should
Securities Regulation Exchange Code, the corporation so recognize as
the quasi-judicial jurisdiction of the rightful stockholder? How would you
SEC to hear intra-corporate respond to the above queries?
controversies, under Sec 5 of Pres. SUGGESTED ANSWER:
Decree No. 902-A, has been expressly
transferred to the designated RTC. a) The matter should be submitted
Pursuant to memorandum circular to the regular courts-
issued by the Supreme Court, only specifically the RTC where the
particularly designated RTC special principal office of the
commercial courts in each judicial corporation is located. The
region have original and exclusive controversy between Pedro and
jurisdiction over such cases (GR No. Jose is not an intra-corporate
112872) controversy.

b) If there is no over-issuance of
shares resulting from the two-
Controversy; Intra Corporate
transactions of Juan, the
(1997)
corporation should recognize
Juan was a stockholder of X Co. He both Pedro and Juan as rightful
owned a total of 500 shares evidenced stockholders. This is without
by Cert. of Stock No. 1001. He sold the prejudice to the right of the
shares to Pedro. After getting paid, corporation to claim against
Juan indorsed and delivered said Cert. Juan for the value of the shares
of stock no. 1001 to Pedro. The which Juan sold to Jose.
following day, Juan went to the offices
Corporation Sole; Definition (2004) Corporation; Rights of Repurchase
of Shares; Trust Fund Doctrine
What is a Corporation Sole?
(2005)
SUGGESTED ANSWER:
Under what conditions may a stock
Section 110 of the Corp. Code defines corporation acquire its own shares?
a corporation sole as one formed for
SUGGESTED ANSWER:
the purpose of administering and
managing, as trustee, the affairs, In line with the Trust Fund Doctrine
property and temporalities of any that generally renders it unlawful for
religious denomination, sect or church. the corporation to return assets to the
It is formed by the chief archbishop, stockholders representing capital, a
bishop, priest, minister, rabbi or other corp may acquire its own shares only
presiding elder of such religious when there exists in the books
denomination, sect or church. unrestricted retained earnings to cover
the repurchase of shares. The purpose
of the repurchase of shares must be a
Corporation: issuance of shares of legitimate business purpose of the
stock to pay for the services corporation, such as to:
(2005)
1. ELIMINATE fractional shares
Janice rendered some consultancy arising out of stock dividends;
work for XYZ Corp. Her compensation 2. COLLECT or COMPROMISE an
included shares of stock therein. Can indebtedness to the corporation
XYZ Corp. issue shares of stock to pay arising out of unpaid
for the services of Janice as its subscription in a delinquency
consultant? Discuss your answer. sale;
3. To PURCHASE delinquent shares
SUGGESTED ANSWER: sold during the sale; and
4. To PAY dissenting or
Yes, provided the approval of
withdrawing stockholders
stockholders representing 2/3 of the
entitled to such payment under
outstanding capital stock is obtained.
the Corp. Code. (See 41 and
Although the facts indicate that the
82 , Corp. Code)
consultancy work has already been
rendered constituting previously Corporation; Sole Proprietorship
contracted debt, under sec. 39 of the (2004)
Corp Code, the pre-emptive rights of
existing stockholders need not be YKS Trading filed a complaint for
respected in payment of previously specific performance with damages
contracted debt, but only with the against PWC Corp. for failure to deliver
indicated stockholders approval. cement ordered by plaintiff. In its
Under sec. 62 of the Corp Code, answer PWC denied liability on the
consideration for the issuance of stock ground, inter alia, that YKS has no
may include labor performed for or personality to sue, not being
services actually rendered to the corp. incorporated, and that the president of
PWC was not authorized to enter into
a contract with plaintiff by the PWC
BOD, hence the contract is ultra vires.
YKS Trading replied that it is a sole What are your comments and
proprietorship owned by YKS, and that suggested changes to the proposed
the president of PWC had made it articles?
appear in several letters presented in
evidence that he has authority to sign
contracts on behalf of the BOD of SUGGESTED ANSWER:
PWC. Will the suit prosper or not?
Reason briefly. a) On the First Article, I would
suggest that the corporate
name indicate the fact of
incorporation by using either
SUGGESTED ANSWER:
Toho Marketing Corporation or
Yes, the suit will prosper. As a sole Toho Marketing, Incorporated.
proprietorship, the proprietor of YKS
Trading has the capacity to act and the b) The Third Article should indicate
personality to sue PWC. It is not the City or the Municipality and
necessary for YKS Trading to be the Province in the Philippines,
incorporated before it can sue. On the and not merely the region or as
other hand, PWC is estopped from its BOD may later designate, to
asserting that its president had no be its place of principal office.
authority to enter into the contract,
considering that, in several of PWCs c) The Seventh Article must
letters, it had clothed its president additionally point out the
with apparent authority to deal with number of shares into which the
YKS Trading. capital stock is divided, as well
as the par value thereof or a
statement that said stock or a
portion thereof are without par
Corporation; Articles of Incorporation
value (Sec 14 and 15 Corp
(1990)
Code)
The articles of Incorporation to be
registered in the SEC contained the
Corporation; Bulk Sales Law
following provisions
(2005)
a) First Article. The name of the
Divine Corp. is engaged in the
corporation shall be Toho
manufacture of garments for export. In
Marketing Company.
the course of its business, it was able
b) Third Article. The principal
to obtain loans from individuals and
office of such corporation shall
financing institutions. However, due to
be located in Region III, in such
the drop in the demand for garments
municipality therein as its Board
in the international market, Divine
of Directors may designate.
c) Seventh Article. The capital Corp. could not meet its obligations. It
stock of the corporation is One decided to sell all its equipment such
Million Pesos (P1,000,000) as sewing machines, perma-press
Philippine Currency. machines, high speed sewers, cutting
tables, ironing tables, etc., as well as
its supplies and materials to Top Grade
fashion Corp., its competitor. 1) How void in case of failure to meet the twin
would you classify the transaction? approvals. (GR No. 117897, 1997)
SUGGESTED ANSWER: ALTERNATIVE ANSWER:
The transaction would constitute a Divine Corp. can sell the items to its
sale of substantially all of the assets competitor, Top Grade Fashion Corp.
of Divine Corp. complying with the test However, Divine Corp. must comply
under sec. 40 of the corporation code, with Sec. 3, 4 and 5 of the Bulk Sales
the transactions not being in the Law, namely: (1) deliver sworn
ordinary course of business, and one statement of the names and
thereby the corporation would be addresses of all the creditors to whom
rendered incapable of continuing the the vendor or mortgagor may be
business or accomplishing the purpose indebted together with the amount of
for which it was incorporated. indebtedness due or owing to each of
said creditor (2) apply the purchase or
mortgage money to the pro-rata
ALTERNATIVE ANSWER: payment of bona fide claims of the
creditors; and (3) make a full detailed
It is a sale and transfer in bulk in inventory of the stock of goods, wares,
contemplation of the Bulk Sale Law. merchandise, provisions or materials,
Under Sec. 2 of the Bulk Sale Law, A in bulk, and notify every creditor at
bulk sale includes any sale, transfer, least ten (10) days before transferring
mortgage, or assignment of all, or possession.
substantially all, of the business or
trade therefore conducted by the (3) How can you protect the
vendor, mortgagor, transferor, or interests of the creditors of
assignor. This is exactly what Divine Corp.?
happened in the case at bar.
SUGGESTED ANSWER:
(2) Can Divine Corp. sell the
Considering that Divine Corp. has
aforementioned items to its
entered a de facto stage of dissolution
competitor, Top Grade Fashion
with the ceasing of its operations, I
Corporation? What are the
would invoke on behalf of the creditors
requirements to validly sell the items?
the protection under Sec. 122 of the
Explain.
Corp Code, that proceeds of the sale
should first be applied towards the
settlement of the obligations of the
SUGGESTED ANSWER: corporation, before any amount can be
For such a transaction to be valid, it paid to the stockholders.
requires not only the favorable ALTERNATIVE ANSWER:
resolution of the Board of Directors of
Divine Corporation, but also the Under the Bulk Sale Law, if the
ratificatory vote of stockholders proceeds are not, applied
representing at least 2/3 of the proportionately towards the
outstanding capital stock, as settlement of the accounts of the
mandated under sec. 40 of the corporate debts, to have the sale of
Corporation Code. The sale would be the subject matters to Top Grade
Fashion Corp., as being fraudulent residents of the Philippines, may form
and void and obtain satisfaction from a private corporation for any lawful
the properties which are deemed to purpose.
still be owned by Divine Corp. in spite
This is the same minimum and
of the delivery to the buyer. The
maximum number of directors
creditors can collect on the credit
required in a stock corporation under
against Divine Corp., and if it cannot
section 14 (6) of the corporation code.
pay, the creditors can apply for
attachment on the property
fraudulently sold. (GR No. 48836)
Corporation; Meeting BOD &
(4) In case the Divine Corp. violated Stockholders
the law, what remedies are
available to Top Grade Fashion Under the Articles of Incorporation of
Corp. against Divine Corp? Manila Industrial Corp., its principal
place of business shall be in Pasig,
SUGGESTED ANSWER: MM. The principal corporate offices are
at the Oritgas Center, Pasig, MM while
If the sale by Divine Corp. did not
its factory processing leather products,
obtain the required 2/3 vote of the
is in Manila. The corporation holds its
outstanding capital stock, then the
annual stockholders meeting at the
transaction is void. (GR No. 117897)
Manila Hotel in Manila and its BOD
Top Grade Fashion Corp. can have the meeting at a hotel in Makati MM. the
purchase declared void and recover by-laws are silent as to the place of
the purchase price paid, as well as meetings of the stockholders and
damages against the directors and directors.
officers who undertook the transaction
1) Who shall preside at the
in violation of the law.
meeting of the directors?
ALETERNATIVE ANSWER:
SUGGESTED ANSWER:
For violation of the Bulk Sale Law, the
(1) The president presides over the
principal officers of the Divine Corp.
meeting of the directors, if there
can be held criminally liable. In
is no position of Chairman
addition, Top Grade can sue Divine
provided in the by-laws. If there
Corp. for damages. Violation of the
is the position of chairman
Bulk Sales Law would render such a
provided in the by-laws, the
sale fraudulent and void. Since Top
chairman presides over the
Grade would be compelled to return
meeting of the Directors (sec.
the goods to Divine Corporation.
54 Corp Code)
Is this also the same minimum
and maximum number of directors
2) Can Ting, a stockholder, who
required in a stock corporation?
did not attend the stockholders
Under sec. 10 of the Corp. Code, any annual meeting in Manila,
number of natural person not less than question the validity of the
5 but not more than 15, all of legal corporate resolutions passed at
age and a majority of whom are such meeting?
corporation will then be considered as
(2) No. the law provides that the one and the same.
annual stockholders meeting
shall be held in the city or
municipality where the principal Corporation; Non-Stock Corporation
office of the corporation is (1993)
located. For this purpose, the
law also provides that Metro The AB Memorial Foundation was
Manila is considered a city or incorporated as a non-profit, non-stock
municipality. Since the principal corporation in order to establish and
place of business of MIC is maintain a library and museum in
Pasig, MM, the holding of the honor of the deceased parents of the
annual stockholders meeting in incorporators. Its Articles of
Manila is proper. (Sec. 51 Corp Incorporation provided for a board of
Code) trustees composed of 5 incorporators,
which authorized to admit new
members. The Articles of Incorporation
3) Can the same stockholder also allow the foundation to receive
question the validity of the donations from members. As of Jan 30,
resolutions adopted by the BOD at 1993, 60 members had been admitted
the meeting held in Makati? by the BOT.
(1)Can the Foundation use the
(3) No. the law allows the BOD to funds donated to it by its
hold its meeting anywhere in members for purchase of
the Phils. The holding of the food and medicine for
BOD meeting in the Makati was distribution to the victims of
proper and the validity of the the Pinatubo eruption?
resolutions adopted by the
Board in that meeting cannot be SUGGESTED ANSWER:
questioned. (sec. 53 Corp Code)
a) Yes, Sec. 36 (9) of the Corp.
Corporation; Nationality of Code as long as the amount of
Corporation (1998) donation is reasonable.

What is the nationality of a corporation (2)Can the Foundation operate


organized and incorporated under the a specialty restaurant that
laws of a foreign country, but owned caters to the general public
100% by Filipinos? in order to augment its
SUGGESTED ANSWER: funds?

Under the control test of corporate b) If the purpose of the corporation


nationality, this foreign corporation is are limited to the establishment
of Filipino Nationality. Where there are and maintenance of the library
grounds for piercing the veil of and museum as stated in the
corporate entity, that is, disregarding problem, the foundation cannot
the fiction, the corporation will follow operate a specialty restaurant
the nationality of the controlling that caters to the general
members of stockholders, since the public. In such case, the action
of the foundation will be ultra reasonable necessary to the
vires. manufacture of cement by
Stikki (and they do not appear
to be so), then the approval of
ALTERNATIVE ANSWER:
said projects by a majority of
b.i) if the act of the corporation is the BOD and the ratification of
justified by the secondary purpose such approval by the
of the corporation which includes stockholders representing at
the act of operating a restaurant, least 2/3 of the outstanding
the foundation will be within its capital stock would be
power to do so. necessary.

(3) One of the original trustees As for the quarry operations for
died and the other two limestone, the same is an
resigned because they indispensable ingredient in the
immigrated to the US. How will manufacturer of cement and
the vacancies in the BOT be may, therefore, be reasonably
filled? necessary to accomplish the
primary purpose of Stikki. In
(c) since there are only 2 of the
such case, only the approval of
members of the BOT remaining and
the BOD would be necessary
there is no quorum, the vacancies
(Sec 42 BP 68)
will have to be filled up in a special
meeting of the members (sec 29 ALTERNATIVE ANSWER:
Corp Code)
1) The majority vote of the BOD is
necessary. The investment in a)
a power plant project, b) a
Corporation; Power to Invest
concrete road project, and c)
Corporate Funds for other
quarry operations of limestone
Purpose (1995)
used in the manufacture of
Stikki Cement Co. was organized cement, is within the express or
primarily for cement implied power of the
manufacturing. Anticipating corporation, or at least the
substantial profits, its president same is incidental to, or
proposed that Stikki invest in a) a necessary for the existence of
power plant project, b) a concrete the corporation.
road project, and c) quarry
SUGGESTED ANSWER:
operations for limestone in the
manufacture of cement. 2.a) The procedure in securing the
approval of the BOD is as follows:
1) What corporate approvals or
votes are needed for the A notice of the BOD should be sent
proposed investments? to all the directors. The notice
should state the purpose of the
SUGGESTED ANSWER:
meeting.
a) Unless the power plant and the
At the meeting, each of the project
concrete road project are
should be approved by a majority
of the BOD (not merely a majority Corporation; Power to Invest
of those present at the meeting) Corporate Funds in another
Corporation (1996)
2.b) The procedure in securing
the approval of the When may a corporation invest funds
stockholders is as follows: in another corporation or business or
for any other purposes?
Written notice of the proposed
investment and the time and place SUGGESTED ANSWER:
of the stockholders meeting
A Corporation may invest its funds in
should be sent to each stockholder
another corporation or business or for
at his place of residence as shown
any other purpose other than the
on the books of the corporation
primary purpose for which it was
and deposited to the addressee in
organized when the said investment is
the post office with postage
approved by a majority of the BOD
prepaid, or served personally.
and such approval is ratified by the
At the meeting, each of the stockholders representing at least 2/3
projects should be approved by the of the outstanding capital stock.
stockholders representing at least
Written notice of the proposed
2/3 of the outstanding capital
investment and the date, time and
stock. (Sec 42 BP 48)
place of the stockholders meeting at
which such proposal will be taken up
must be sent to each stockholder. (sec
42 Corp Code)