Finals BarQs Flashcards
The Articles of Incorporation of X Corporation provides that
preferred shares shall earn cumulative dividends of 6% to
16% as the Board may determine. Assume that the delegation
of power to the Board is valid. Can a shareholder exercise an
appraisal right every time the Board declares dividends and
fixes the rate thereof within the limitations provided for in said
By-Laws provision?
No, th appraisal right does not arise each time that the Board of
Directors fixes the terms and conditions of the preferred shares
considering that such authority was given to them at the outset
and such delegation is not unlimited (if and when revised) and
would not change or restrict the rights of the stockholders or
class of shares or create preferences in any respect superior
to those of the outstanding shares of any class. (SEC Opinion,
January 11, 1982)
The Board of Directors of P Corporation approved a resolution
authorizing the acquisition of up to 100% of the common stocks
of J Corporation. The Board specifically appointed one of its
Directors, Mr. S, to act as attorney-in-fact and proxy who could
vote all the shares of P Corporation in J Corporation. The Board
likewise approved that the payment of the shares shall be
made by transferring the real property of P Corporation. The
property to be transferred constitutes substantially all of the
assets of the corporation. The decision of the Board was later
ratified by the stockholders representing 74% of the outstanding
capital. However, before the stockholder’s meeting where
such ratification was made, the minority stockholders filed a
derivative suit asking the Court to declare null and void the
resolution of the Board.
Was appraisal right available?
Yes, appraisal right was available. The decision of the Board
is in the nature of investment of corporate property in another
corporation. Section 42 of the Corporation Code (now Section
41 of the RCCP) expressly provides an a_ppraisal right to all
dissenting stockholders in actions of such nature. In addition, the
existence of an appraisal right is provided for under paragraph
(2) of Section 81 of the Corporation Code (now Section 80 of the
RCCP) because P Corporation decided to transfer substantially
all of the properties of the corporation.
The Board of Directors of P Corporation approved a resolution
authorizing the acquisition of up to 100% of the common stocks
of J Corporation. The Board specifically appointed one of its
Directors, Mr. S, to act as attorney-in-fact and proxy who could
vote all the shares of P Corporation in J Corporation. The Board
likewise approved that the payment of the shares shall be
made by transferring the real property of P Corporation. The
property to be transferred constitutes substantially all of the
assets of the corporation. The decision of the Board was later
ratified by the stockholders representing 74% of the outstanding
capital. However, before the stockholder’s meeting where
such ratification was made, the minority stockholders filed a
derivative suit asking the Court to declare null and void the
resolution of the Board.
The minority shareholders claimed that the appraisal right was
not available because appraisal right may be exercised only by
stockholders who had voted against the proposed action. Is the
contention tenable?
No the contention is not tenable. The minority stockholders themselves caused the unavailability of the appraisal right
by filing their complaint even before the Resolution of the
Board could be presented to the stockholders of P Corporation
for approval or rejection. (Cua, Jr. v. Ocampo Tan, G.R. Nos.
181455-56 and 182008, December 4, 2009)
In a stockholders’ meeting, S dissented from the corporate
act converting preferred voting shares to non-voting shares. Thereafter, S submitted his certificates of stock for notation that his shares are dissenting. The next day, S transferred his shares
to T to whom new certificates were issued. Now, T demands from
the corporation the payment of the value of his shares. Can T
exercise the right of appraisal? Reason briefly.
No, T cannot exercise the right of appraisal. Appraisal right ceased. Section 85 of the RCCP provides that if the shares represented by the certificates bearing a notation that they are d1ssentmg shares are transferred, and the certificates are consequently canceled, the rights of the transferor like S as a dissenting stockholder shall cease and the transferee, like T, shall have all the rights of a regular stockholder· and all dividend distributions that would have accrued on such shares shall be paid to the transferee. In addition, it is also required that the appraisal right is exercised by any stockholder who
voted against the proposed corporate action. T was not the one who voted for the action. (2007 Bar)
The members of ABC Corporation, a non-stock corporation,
contributed an amount for a corporate activity. However, the
total amount that was contributed was more than sufficient for
the activity; hence, a balance of P500,000.00 was left with the
corporation. There is a proposal to offset the unused contribution
against the balance of the receivables from the members. Is the
proposal in accordance with law?
No. The offsetting will amount to distribution of the assets of the
corporation. The properties of a non-stock corporation cannot
be distributed and the members cannot reduce the corporate
capital unless the corporation is dissolved. Receivables from the
members are considered assets of the corporation and may not
therefore be distributed. (SEC Opinion, November 27, 1985)
The AB Memorial Foundation, Inc. was incorporated as a non-
profit, non-stock corporation in order to establish and maintain
a library and museum in honor of the deceased parents of the
incorporators. Its Articles of Incorporation provides for a Board of Trustees composed of five incorporators, which is authorized
to admit new members. The Articles of Incorporation also
allows the foundation to receive donations from members. As of
January 30, 1993, 60 members had been admitted by the Board
of Trustees.
a. Can the Foundation use the funds donated to it by its
members for the purchase of food and medicine for
distribution to the victims of the Pinatubo eruption?
Yes, as long as the amount of donation is reasonable, the
donation is allowed under Section 35(i) of the RCCP.
The AB Memorial Foundation, Inc. was incorporated as a non-
profit, non-stock corporation in order to establish and maintain
a library and museum in honor of the deceased parents of the
incorporators. Its Articles of Incorporation provides for a Board of Trustees composed of five incorporators, which is authorized
to admit new members. The Articles of Incorporation also
allows the foundation to receive donations from members. As of
January 30, 1993, 60 members had been admitted by the Board
of Trustees. Can the Foundation operate a specialty restaurant that
caters to the general public in order to augment its funds?
The action is ultra vires. The purposes of the corporation are limited to the establishment and maintenance of the library and museum as stated in the problem; thus, the foundation cannot operate a specialty restaurant that
caters to the general public. However, it may also be possible to establish that the act of the corporation is justified by showing that the restaurant’s purpose is to raise funds to support the library and museum.
Under Section 86 of the RCCP, any profit which a nonstock corporation may obtain incidental to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized, subject to the provisions of this Title.
The AB Memorial Foundation, Inc. was incorporated as a non-
profit, non-stock corporation in order to establish and maintain
a library and museum in honor of the deceased parents of the
incorporators. Its Articles of Incorporation provides for a Board of Trustees composed of five incorporators, which is authorized
to admit new members. The Articles of Incorporation also
allows the foundation to receive donations from members. As of
January 30, 1993, 60 members had been admitted by the Board
of Trustees. One of the original trustees died while two others resigned because they immigrated to the United States. How will
the vacancies in the Board of Trustees be filled?
There is no quorum to do business because there are
only two members of the Board of Trustees remaining.
Consequently, the vacancies will have to be filled up in a
special meeting of the members. (Section 28, RCCP; 1993
Bar)
Ten classmates, all graduates of Class ‘78 of the Los Banos
School of Agriculture and Husbandry, decided to form “Gatas
Atbp., Inc.,” the principal purpose of which is to produce,
package, and sell carabao’s milk. The Articles of Incorporation
provided, among others, that the business of the corporation
shall be managed by the stockholders of the_ corporation rather
than by a board of directors and restricts the transfer of shares
to outsiders.
One of the ten classmates, Mr. Sakit-ulo, disgruntled at the
way the affairs of the corporation was being handled, demanded
that all the ten stockholders meet to elect directors. Meanwhile,
Ms. Sakit-tiyan, sued all the ten classmates-stockholders for
damages for violation of the Food, Drugs Cosmetics Act -
a cockroach was found in the milk she drank, the package of
which bore the inscription “produced, packaged, and sold by
Gatas Atbp., Inc.”
a. Can Mr. Sakit-ulo demand that a stockholders’ meeting be
called to elect directors of the corporation?
No. Gatas Atbp., Inc. is a close corporation, and its Articles of
Incorporation can provide that the business of the corporation
be managed by the stockholders rather than by a board of
directors. Thus under Section 96 of the RCCP, the provision that
makes the stockholders managers, precludes Mr. Sakit-ulo from
demanding that the stockholders meet in order to elect directors
of the company.
Ten classmates, all graduates of Class ‘78 of the Los Banos
School of Agriculture and Husbandry, decided to form “Gatas
Atbp., Inc.,” the principal purpose of which is to produce,
package, and sell carabao’s milk. The Articles of Incorporation
provided, among others, that the business of the corporation
shall be managed by the stockholders of the_ corporation rather
than by a board of directors and restricts the transfer of shares
to outsiders.
One of the ten classmates, Mr. Sakit-ulo, disgruntled at the
way the affairs of the corporation was being handled, demanded
that all the ten stockholders meet to elect directors. Meanwhile,
Ms. Sakit-tiyan, sued all the ten classmates-stockholders for
damages for violation of the Food, Drugs Cosmetics Act -
a cockroach was found in the milk she drank, the package of
which bore the inscription “produced, packaged, and sold by
Gatas Atbp., Inc.”
Does Ms. Sakit-tiyan have a cause of action against all the ten
classmates-stockholders, albeit no negligence has been proven?
Yes. Ms. Sakit-tiyanhas a cause of action against the stockholders.
The stockholders who are managers of the close corporation are
liable for corporate torts. Said stockholders are made personally
liable for corporate torts unless the corporation has obtained
reasonably adequate liability insurance. Negligence need not be
proven to warrant liability by manufacturers of foodstuff under
Article 2187 because the liability under the same provision is in
the nature of strict liability. (1988 Bar)
Mr. A, a member of the board of directors of XYZ Corporation,
a close corporation, engaged the services of Mr. X to provide
technical service to the corporation. No meeting was held to
approve the contract with Mr. X. However, all directors signed
the contract. Can the contract be questioned on the ground that
there was no approval by the board in a meeting called for such
purpose?
No. The contract cannot be questioned on such ground. Section
100 of the RCCP provides that any action by the directors of
a close corporation without a meeting shall nevertheless be
deemed valid if, among other cases, before or after such action
is taken, written consent of the action taken is signed by all
the directors. In this case, all the directors signed the contract;
hence, the same partakes of the nature of a written consent that
makes a meeting of the directors no longer necessary.
The stockholders of ABC Corporation, a corporation organized
as a close corporation, were sued by an employee, Mr. X, for
separation pay. At that time the stockholders are the ones
managing the close corporation. The stockholders do not dispute
that the separation pay was unlawfully withheld. However, they
invoke the doctrine to separate personality in support of their
position that they are not liable. Are the stockholders liable?
Yes, the stockholders are liable. The fifth paragraph of Section
99 of the RCCP specifically imposes personal liability upon th tockholders who ar actively managing or operating
th business and affairs of the corporation. This covers cases
involving tort liability. Tort under Section 99 consists in the
violation of a right given or the omission of a duty imposed
by law. In this case, there was an omission of a duty to pay
separation pay. (Serio F. Naguiat v. NLRC, et al., G.R. No.
116123, March 13, 1997, 269 SCRA 564)
Rafael inherited from his uncle 10,000 shares of Sta. Ana
Corporation, a close corporation. The shares have a par value
of Pl0.00 per share. Rafael notified Sta. Ana that he was selling
his shares at P70.00 per share. There being no takers among the
stockholders, Rafael sold the same to his cousin Vicente (who is
not a stockholder) for P700,000.00.
The Corporate Secretary refused to transfer the shares in
Vicente’s name in the corporate books because Alberto, one of
the stockholders, opposed the transfer on the ground that the
same violated the by-laws. Alberto offered to buy the shares
at Pl2.50 per share, as fixed by the by-laws or a total price of
P125,000.00 only.
While the by-laws of Sta. Ana provides that the right of
first refusal can be exercised “at a price not exceeding 25% more
than the par value of such shares,” the Articles of Incorporation
simply provides that the stockholders of record “shall have
preferential right to purchase said shares.” It is silent as to
pricing.
Is Rafael bound by the pricing proviso under the by-laws
of Sta. Ana Corporation?
Yes. In a close corporation, the restriction as to the transfer of
shares has to be stated/annotated in the Articles oflncorporation,
the By-Laws, and the Certificate of stock. This serves as notice
to the person dealing with such shares like Rafael in this case.
With such notice, he is bound by the pricing stated in the By-
Laws. (1994 Bar)
Robert, Rey, and Ben executed a joint venture agreement
to form a dose corporation under the Corporation Code, the
outstanding capital of which the three of them would equally
own. They also provided therein that any corporate act would
need the vote of 70% of the outstanding capital stock. The
terms of the agreement were accordingly implemented and the
corresponding close corporation was incorporated. After three years, Robert, Rey, and Ben could not agree on the business in
which to invest the funds of the corporation. Robert wants the
deadlock broken. What are the remedies available to Robert
under the RCCP to break the deadlock? Explain.
Robert can petition the SEC to arbitrate the dispute. Under
Section 103 of the RCCP, if the directors or stockholders are so
divided respecting the management of the corporation’s business
and affairs that the votes required for any corporate action
cannot be obtained, with the consequence that the business
and affairs of the corporation can no longer be conducted to the
advantage of the stockholder, the SEC �hall have the power to
arbitrate the dispute. (1995 Bar)
“X” Corporation brought an action against Y for the collection
of a sum of money. Y set up the defense that X had no legal
capacity to sue because it was no longer in existence a week
before the suit was filed. The stockholders held a meeting
whereat a resolution was adopted unanimously dissolving said
corporation. Is the defense valid? Give reasons.
No, the defense is not valid. In the first place, the SEC has
not yet approved the dissolution. Secondly, even if there was
a duly approved dissolution, the corporate existence does not
automatically cease. The corporation has three years after
dissolution to liquidate its affairs. (1968 Bar)
“X” Corporation shortened its corporate life by amending its
articles of incorporation. It has no debts but owns a prime
property located in Quezon City. How would the said property
be liquidated among the five stockholders of said corporation?
Discuss two methods of liquidation.
The prime property of “X” Corporation can be liquidated among
the five stockholders through any of the following modes: (1)
liquidation through the Board of Directors; (2) liquidation
through a trustee to whom the properties are conveyed; and (3)
liquidation through a receiver. The board, the trustee, or the
receiver as the case may be will then convey the property and
distribute it among the creditors after paying the corporate
debts. It is submitted that the specific property may either be
sold and the proceeds thereof distributed to the stockholders
after paying corporate debts or they may actually physically
divide the property if no creditor will be affected. (2001 Bar)
“Acme Corporation” filed a complaint for collection against “D.”
While the case was pending, Acme Corporation amended its Article of Incorporation to shorten its terms of existence up to
December 31, 2015. The Securities and Exchange Commission
appro;ved the amendment. The trial court, however, was not
notified thereof, so that the proceedings therein continued until
May 5, 2016, when “D,” learning of the dissolution, questioned
the personality of the corporation to continue prosecuting the
case. “D” alleged that since the corporation had already been
dissolved, but had not taken steps to wind up its affairs and
transfer its assets to a trustee or assignee within the three-year
period under the law, it had ceased to exist for all purposes.
Decide the case with reasons.
“D’s” contention is untenable. If there is still a pending case
when the three (3) year period to liquidate expired and there
is no trustee that is appointed, the counsel of the corporation
who prosecuted and represented the interest of the corporation
may be considered a trustee of said corporation with respect to
the same case and he can continue to represent the corporation.
(Gelano v. Court of Appeals, G.R. No. L-39050, February 24,
1981) (1981 Bar)
The corporation, once dissolved, thereafter continues to be a
body corporate for three years for purposes of prosecuting and
defending suits by and against it and of enabling it to settle
and close its affairs, culminating in the final disposition and
distribution of its remaining assets. If the three-year extended
life expires without a trustee or receiver being designated by
the corporation within that period and that time (expiry of the
three-year extended term), the corporate liquidation is not yet
over, how, if at all, can a final settlement of the corporate affairs
be made?
The final settlement can be made through the Board of Directors.
The members of the Board of Directors can continue with the
winding of the corporate affairs until final liquidation. They can
act as trustees or receivers for this purpose. (1997 Bar)
The Securities and Exchange Commission approved the
amendment of the Articles of Incorporation of GHQ Corporation
shortening its corporate life to only 25 years in accordance
with Section 136 of the RCCP. As shortened, the corporation
continued its business operations until May 30, 2019, the last
day of its corporate existence. Prior to said date, there were a
number of pending civil actions, of varying nature but mostly
money claims filed by creditors, none of which was expected to
be completed or resolved within five years from May 30, 2019.
If the creditors had sought your professional help at that time
about whether or not their cases could be pursued beyond May
30, 2019, what would have been your advise?
I will advise them that the cases could be pursued beyond the
last day of the corporate existence. Although Section 139 of
the RCCP provides that the corporation continues to be a body
corporate for three years after its dissolution for the purpose
of prosecuting and defending suits by and against it and for
enabling it to settle and close its affairs, the expiration of
the said period does not mean that the pending cases will be
terminated. Pending suits upon the expiration of the three-year
period after its dissolution may be prosecuted by the lawyer who
is handling the cases and the latter will act as the trustee for
such purpose. (2000 Bar)
