Doctrine of Corporate Opportunity (2005)

Briefly discuss the doctrine of corporate opportunity. (2%)

SUGGESTED ANSWER:
In brief, the doctrine disqualifies a director, trustee or officer from appropriating for his
personal benefit a transaction or opportunity that pertains to the corporation, and which
under the duty of loyalty he should first bring to the corporation for its use or exploitation.
The doctrine of corporate opportunity is an enforcement of the duty of loyalty of corporate
directors and officers. When a director, trustee or officer attempts to acquire an
interest adverse to the corporation in respect of any matter which has been
reposed in him in confidence, he shall be liable as a trustee for the
corporation and must account for the profits which otherwise would have
accrued to the corporation. Equity imposes liability upon him not to deal for his own
benefit. (Sec. 31, Corporation Code)Under Sec. 34 of the Corporation Code where a
director, 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,
he must account to the latter for all such profits by refunding the same, unless his act has
been ratified by a vote of the stockholders owning or representing at least two-thirds (2/8)
of the outstanding capital stock.

Piercing the Corporate Veil (2004)

How does one pierce the veil of corporate fiction?

SUGGESTED ANSWER: The veil of corporate fiction may be pierced by proving in court
that the notion of legal entity is being used to defeat public convenience, justify wrong,
protect fraud, or defend crime or the entity is just an instrument or alter ego or adjunct
of another entity or person.

Piercing the Corporate Veil (2006)

A.What is the doctrine of "piercing the veil of corporate entity?" Explain.
B.To what circumstances will the doctrine apply? (2.5%)
SUGGESTED ANSWER:
A. The doctrine of "piercing the veil of corporate entity," is the doctrine that allows the
courts to look behind the separate juridical personality of a corporation and treat the
corporation as an association of persons and thereby make the individual actors
personally liable for corporate liabilities. The fiction of corporate identity is disregarded
and the individuals comprising it can be treated identically. The stockholders can be held
directly liable for corporate obligations, even to the extent of their personal assets
(Concept Builders v. NLRC, Marabe, et al, G.R. No. 108734, May 29, 1996).

B.The doctrine is applicable when the notion of legal entity is used to —

1) Defeat public convenience.
2) Justify wrong.
3) Protect fraud.
4) Defending a crime (PNB v. Andrada Electric, G.R. No.142936, April 17, 2002).
5) Shield a violation of the proscription against forum shopping (First Philippine
International Bank v. Court of Appeals, G.R. No. 137537, January 24, 1996).
6) Work inequities among members of the corporation internally, involving no rights of
the public or third persons (Secosa v. Heirs ofErwin Suarez Francisco, G.R. No. 156104,
June 29, 2004).
7) Evade the lawful obligations of the corporation like a judgment credit (Sibagat Timber
Corp. v. Garcia, G.R. No. 112546, December 11, 1992).
8) Escape liability arising from a debt (Arcilla v. Court of Appeals, G.R. No. 88113, October
23, 1992).
9)Avoid inclusion of corporate assets as part of the estate of the decedent (Cease v. Court
of Appeals, G.R. No. L-35861 October ,18, 1979)
10) To promote or to shield unfair objectives (Villanueva v. Adre, G.R. No. 80863, April
27,1989).

Doctrine of Equality of Shares:

Each share shall be equal in all respects to every other share, except as otherwise provided
in the articles of incorporation and in the certificate of stock.

Trust Fund Doctrine

SUGGESTED ANSWER: In line with the trust fund doctrine that generally renders it
unlawful for the corporation to return assets to the stockholders representing capital, a
corporation may acquire its own shares only when there exists in the books unrestricted
retained earnings to cover the repurchase of shares. The purpose of the repurchase of
shares must be a legitimate business purpose of the corporation, such as to: (1)
ELIMINATE fractional shares arising out of stock dividends; (2) COLLECT or
COMPROMISE an indebtedness to the corporation arising out of unpaid subscription in
a delinquency sale; (3) to PURCHASE delinquent shares sold during the sale; and (4) to
PAY dissenting or withdrawing stockholders entitled to such payment under the
Corporation Code. (Sees. 41 and 82, Corporation Code)

"TRUST FUND DOCTRINE" that provides that the capital stock of the corporation is a
trust fund to be kept intact during the life of the corporation for the benefit of the creditors
of the corporation.
The trust fund doctrine means that the capital stock, properties and other assets of a
corporation are regarded as equity in trust for the payment of corporate creditors. Stated
simply, the trust fund doctrine states that all funds received by the corporation in
payment of the shares of stock shall be held in trust for the corporate creditors and other
stockholders of the corporation. Under such doctrine, no fund shall be used to buy back
the issued shares of stock except only in instances specifically allowed by the Corporation
Code (Boman Environmental Development Corporation v. Court of Appeals, 167 SCRA
540 [1988]).

. The Board of Directors or Trustees of a Corporation; Qualification and

Term. - Unless otherwise provided in this Code, the board of directors or trustees shall
exercise the corporate powers, conduct all business, and control all properties of the
corporation.

No. All the requisites for a valid derivative suit exist in this case.
First, AA was exempt from exhausting his remedies within the corporation, and did not
have to make a demand on the Board of Directors for the latter to sue. Here, such a
demand would be futile, since the directors who comprise the majority (namely, BB, CC,
DD and EE) are the ones guilty of the wrong complained of.
Second, AA appears to be stockholder at the time the alleged misappropriation of
corporate funds.
Third, the suit is brought on behalf and for the benefit of MOP Corporation. In this
connection, it was held in Conmart (Phils.) Inc. v. Securities and Exchange Commission,
198 SCRA 73 (1991) that to grant to the corporation concerned the right of withdrawing
or dismissing the suit, at the instance of the majority stockholders and directors who
themselves are the persons alleged to have agreement of statutory conditions and such
other terms and conditions specified in the agreement. The five year-period may be
extended in cases where the voting trust is executed pursuant to a loan agreement
whereby the period is made contingent up on full payment of the loan.
If the major shareholders committed the breach of trust against the interests of the
corporation, The remedy would be to emasculate the right of minority stockholders to
seek redress for the corporation. Filing such action as a derivative suit even by a lone
stockholder is one of the protections extended by law to minority stockholders against
abuses of the majority.

Yes. Mr. X, a stockholder holding 4,000 shares, has pre-emptive right to the
remaining 10,000 shares. All stockholders of a stock corporation shall enjoy preemptive
right to subscribe to all issues or disposition of shares of any class, in proportion to their
respective shareholdings.

Yes, A would have a pre-emptive right to 200 of the new issue of 1000 shares. A is a
stockholder of record holding 200 shares in X Corpo. According to the Corp Code, each
stockholder has the pre-emptive right to all issues of shares made by the corporation in
proportion to the number of shares he holds on record in the corporation.
b) Pre-emptive right must be exercised in accordance with the Articles of Incorporation
or the By-Laws. When the Articles of Incorporation and the By-Laws are silent, the BOD
may fix a reasonable time within which the stockholders may exercise the right.