Corporation-law-final-exam-samplex-answer-key.docx

CORPORATION LAW FINAL EXAM SAMPLEX ANSWER KEY

San Juan Structural and Steel vs CA

Petitioner claims that Motorich is a close corporation. We rule that it is not. (See Sec. 96 for definition of a close corporation.) The articles of incorporation of Motorich Sales Corporation does not contain any provision stating that (1) the number of stockholders shall not exceed 20, or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation, or (3) listing its stocks in any stock exchange or making a public offering of such stocks is prohibited. From its articles, it is clear that Respondent Motorich is not a close corporation. Motorich does not become one either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The [m]ere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personalities." So, too, a narrow distribution of ownership does not, by itself, make a close corporation.

Manuel Dulay Enterprise vs CA

Petitioner corporation is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the action of its president. At any rate, a corporate action taken at a board meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written objection with the secretary of the corporation after having knowledge of the meeting which, in this case, petitioner Virgilio Dulay failed to do. Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to private respondents spouses Veloso is null and void as the alleged Board Resolution No. 18 was passed without the knowledge and consent of the other members of the board of directors cannot be sustained. The sale of the subject property to private respondents by Manuel Dulay is valid and binding.

Vesagas vs CA

The requirements (for dissolution) mandated by the Corporation Code should have been strictly complied with by the members of the club. The records reveal that no proof was offered by the petitioners with regard to the notice and publication requirements. Similarly wanting is the proof of the board members' certification. Lastly, and most important of all, the SEC Order of Dissolution was never submitted as evidence. We rule that the present dispute is intra-corporate in character. In the first place, the parties here involved are officers and members of the club. Respondents claim to be members of good standing of the club until they were purportedly stripped of their membership in illegal fashion. Petitioners, on the other hand, are its President and Vice-President, respectively. More significantly, the present conflict relates to, and in fact arose from, this relation between the parties. The subject of the complaint, namely, the legality of the expulsion from membership of the respondents and the validity of the amendments in the club's by-laws are, furthermore, within the Commission's jurisdiction.

DOCTRINES

Gonzales vs PNB

As may be noted, among the changes introduced in the new Code with respect to the right of inspection granted to a stockholder are the following: (1) the records must be kept at the principal office of the corporation; (2) the inspection must be made on business days; (3) the stockholder may demand a copy of the excerpts of the records or minutes; and (4) the refusal to allow such inspection shall subject the erring officer or agent of the corporation to civil and criminal liabilities. However, while seemingly enlarging the right of inspection, the new Code has prescribed limitations to the same. It is now expressly required as a condition for such examination that the one requesting it: (a) must not have been guilty of using improperly any information secured through a prior examination, and that (b) (b) the person asking for such examinations must be "acting in good faith and for a legitimate purpose in making his demand."

Babst vs CA

Padcomm Condominium vs Ortigas

At the outset, the preliminary issue of BPI's right of action must first be addressed. ELISCON and MULTI assail BPI's legal capacity to recover their obligation to CBTC. However, there is no question that there was a valid merger between BPI and CBTC. It is settled that in the merger of two existing corporations, one of the corporations survives and continues the business, while the other is dissolved and all its rights, properties and liabilities are acquired by the surviving corporation. Hence, BPI has a right to institute the case a quo.

As lot owner, PADCOM is a regular member of the Association. No application for membership is necessary. If at all, acceptance by the Board of Directors is a ministerial function considering that PADCOM is deemed to be a regular member upon the acquisition of the lot pursuant to the automatic membership clause annotated in the Certificate of Title of the property and the Deed of Transfer. Neither are we convinced by PADCOM's contention that the automatic membership clause is a violation of its freedom of association. PADCOM was never forced to join the association. It could have avoided such membership by not buying the land from TDC. Nobody forced it to buy the land when it bought the building with the annotation of the condition or lien on the Certificate of Title thereof and accepted the Deed. PADCOM voluntarily agreed to be bound by and respect the condition, and thus to join the Association.

Tan Tion vs CIR

The creditor of a dissolved corporation may follow its assets once they passed into the hands of the stockholders. The dissolution of a corporation does not extinguish the debts due or owing to it. A creditor of a dissolved corporation may follow its assets, as in the nature of a trust fund, into the hands of its stockholders. An indebtedness of a corporation to the federal government for income and excess profit taxes is not extinguished by the dissolution of the corporation.

Eriks Pte Ltd. vs CA

What is determinative of "doing business" is not really the number or the quantity of the transactions, but more importantly, the intention of an entity to continue the body of its business in the country. The number and quantity are merely evidence of such intention. The phrase "isolated transaction" has a definite and fixed meaning. i.e. a transaction or series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of the business organization. Whether a foreign corporation is "doing business" does not necessarily depend upon the frequency of its transactions, but more upon the nature and character of the transactions.

That the hands of the government cannot, collects taxes from a defunct corporation, it loses thereby none of its rights to assess taxes which had been due from the corporation, and to collect them from persons who by reason of transaction with the corporation hold property against which the tax can be enforced and that the legal death of the corporation no more prevents such action than would the physical death of an individual prevent the government from assessing taxes against him and collecting them from his administrator who holds the property which the decedent had formerly possessed.

Facilities Management Corporation vs Dela Rosa

Test of "doing business": Whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another.

Home Insurance vs Eastern Shipping Lines

By securing a license, the foreign entity would be giving assurance that it will abide by the decisions of our courts, even if adverse to it. This Court has ruled that subsequent acquisition of the license will cure the lack of capacity at the time of the execution of the contract.

If a foreign corporation, not engaged in business in the Philippines is not barred from seeking redress from courts in the Philippines, a fortiori, that same corporation cannot claim exemption from being sued in the Philippine courts for acts done against a person or persons in the Philippines. The act by a non-resident foreign corporation of recruiting Filipino workers for its own use abroad constitutes in the law doing business in the Philippines.

On validity of contracts of unlicensed foreign corporations - Contract enforceable upon compliance with the law - "Where there is a prohibition with a penalty, with no express or implied declaration respecting the validity or enforceability of contracts made by qualified foreign corporations, the contracts are enforceable upon compliance with the law. It is not necessary to declare the contract null and void as against the erring foreign corporation. The penal sanction for violation and the denial of access to our courts and administrative bodies are sufficient from the viewpoint of legislative policy. The lack of capacity at the time of the execution of the contracts is CURED by the subsequent registration of the licensed foreign corporation.

"Doing business" - The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object of its organization.

Summdad vs Harrigan

The mere use of the phrase "in fraud of creditors" does not, ipso fact, throw the case within SEC's jurisdiction. The amended complaint filed by Harrigan does not sufficiently allege acts amounting to fraud and misrepresentation committed by respondent corporation. Equally unavailing is petitioner's contention that the case involves an intracorporate controversy, or one between the corporation and its stockholder transposing it within the domain of the SEC. It should be noted that the issue has become moot and academic because with Republic Act No. 8799, Securities Regulation Code, it is now the Regional Trial Court and no longer the SEC that has jurisdiction. Under Section 5.2 of Republic Act No. 8799, original and exclusive jurisdiction to hear and decide, cases involving intracorporate controversies have been transferred to a court of general jurisdiction or the appropriate Regional Trial Court.

DEFINITIONS

ESSAY

CONCESSION THEORY It is a principle in the creation of corporations, under which a corporation is an artificial creature without any existence until it has received the imprimatur of the State acting according to law, through the SEC. The life of the corporation is a concession made by the State.

ELECTION OF PRESIDENT Section 25. Corporate officers, quorum. - Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as president and secretary or as president and treasurer at the same time.

Section 19 of the Corporation Code provides for the commencement of corporate existence, that— “A private corporation formed or organized under this Code commences to have corporate existence and juridical personality and is deemed incorporated from the date the SEC issues a certificate of incorporation under its official seal x x x.”

RECIPROCITY The right of reciprocity, being one of the elements of a foreign corporation, means that the laws by which the foreign corporation is organized allows Filipino citizens and corporations to do business in its own country or state.

COMMODITY FUTURES CONTRACT As defined in the case of Onapal vs CA, this refers to an agreement to buy or sell a specified quantity and grade of a commodity at a future date at a price established at the floor of the exchange.

BUSINESS OPPORTUNITY Under the doctrine of corporate opportunity, a director who, by virtue of his office, acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, is guilty of disloyalty and should, therefore, account to the latter for all such profits by refunding the same, notwithstanding that he risked his funds in the venture.

INSIDER TRADING In the concurring opinion of Justice Tinga in the case of SEC vs Interport Resources, “insider trading” was defined as involving the trading of securities based on knowledge of material information not disclosed to the public at the time. Such activity is generally prohibited in many jurisdictions, including our own, though the particular scope and definition of "insider trading" depends on the legislation or case law of each jurisdiction.

The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the by-laws of the corporation. Unless the articles of incorporation or the by-laws provide for a greater majority, a majority of the number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate business, and every decision of at least a majority of the directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a majority of all the members of the board. Directors or trustees cannot attend or vote by proxy at board meetings. (33a)

Section 26. Report of election of directors, trustees and officers. - Within thirty (30) days after the election of the directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, shall submit to the Securities and Exchange Commission, the names, nationalities and residences of the directors, trustees, and officers elected. Should a director, trustee or officer die, resign or in any manner cease to hold office, his heirs in case of his death, the secretary, or any other officer of the corporation, or the director, trustee or officer himself, shall immediately report such fact to the Securities and Exchange Commission. (n)

Section 27. Disqualification of directors, trustees or officers. - No person convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of this Code committed within five (5) years prior to the date of his election or appointment, shall qualify as a director, trustee or officer of any corporation. (n)

REFUSAL TO ISSUE STOCK CERTIFICATE (1) Every stockholder has a right to have a proper certificate issued to him as soon as he has complied with the conditions which entitle him to one as by payment for his shares or the like. a. suit for specific performance of an express or implied contract  a stockholder may, however, sue instead for damages where specific performance cannot be granted, or  in some instance, may rescind his contract of subscription and recover the consideration paid b. petition for mandamus when appropriate (2) But one who has no subscription contract with a corporation cannot compel the corporation to issue certificates of stock for the shares paid for by him where certificates for the said shares had already been issued in the name of an officer of the corporation

with whom the plaintiff had agreed on a joint venture to be conducted in the name of the corporation and to whom the payment was given, his remedy being against such officer. (British American Engineering Corporation vs Alto Surety & Insurance Co.)

REFUSAL TO PAY OUTSTANDING BALANCE IN SUBSCRIPTION Section 67. Payment of balance of subscription. - Subject to the provisions of the contract of subscription, the board of directors of any stock corporation may at any time declare due and payable to the corporation unpaid subscriptions to the capital stock and may collect the same or such percentage thereof, in either case with accrued interest, if any, as it may deem necessary. Payment of any unpaid subscription or any percentage thereof, together with the interest accrued, if any, shall be made on the date specified in the contract of subscription or on the date stated in the call made by the board. Failure to pay on such date shall render the entire balance due and payable and shall make the stockholder liable for interest at the legal rate on such balance, unless a different rate of interest is provided in the by-laws, computed from such date until full payment. If within thirty (30) days from the said date no payment is made, all stocks covered by said subscription shall thereupon become delinquent and shall be subject to sale as hereinafter provided, unless the board of directors orders otherwise. (38)

REQUIREMENTS OF CLOSE CORPORATION Section 96. Definition and applicability of Title. - A close corporation, within the meaning of this Code, is one whose articles of incorporation provide that: (1) All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code. Any corporation may be incorporated as a close corporation, except mining or oil companies, stock exchanges, banks, insurance companies, public utilities, educational institutions and corporations declared to be vested with public interest in accordance with the provisions of this Code. The provisions of this Title shall primarily govern close corporations: Provided, That the provisions of other Titles of this Code shall apply suppletorily except insofar as this Title otherwise provides.

DOCTRINE OF SEPARATE ENTITY A corporation is a legal or juridical person with a personality separate and apart from its individual stockholders or members and from any other legal entity to which it may be connected.

OTHER POSSIBLE QUESTIONS SUPREME COURT DEFINITION OF “DOING BUSINESS” Batas Pambansa Blg. 68, otherwise known as “The Corporation Code of the Philippines,” is silent as to what constitutes doing” or “transacting” business in the Philippines. Fortunately, jurisprudence has supplied the deficiency and has held that the term “implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of, the purpose and object for which the corporation was organized.” In Mentholatum Co. Inc., vs. Mangaliman, this Court laid down the test to determine whether a foreign company is “doing business,” thus: “ x x x The true test, however, seems to be whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized or whether it has substantially retired from it and turned it over to another.” (MR Holdings vs Bajar)

What is determinative of "doing business" is not really the number or the quantity of the transactions, but more importantly, the intention of an entity to continue the body of its business in the country. The number and quantity are merely evidence of such intention. The phrase "isolated transaction" has a definite and fixed meaning, i.e. a transaction or series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of the business organization. Whether a foreign corporation is "doing business" does not necessarily depend upon the frequency of its transactions, but more upon the nature and character of the transactions. (Eriks Pte. Ltd. vs CA)

TENDER OFFER Tender offer is a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company. A public company is defined as a corporation which is listed on an exchange, or a corporation with assets exceeding P50,000,000.00 and with 200 or more stockholders, at least 200 of them holding not less than 100 shares of such company. Stated differently, a tender offer is an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer. Tender offer is in place to protect minority shareholders against any scheme that dilutes the share value of their investments. It gives the minority shareholders the chance to exit the company under reasonable terms, giving them the opportunity to sell their shares at the same price as those of the majority shareholders.