Maria Cecilia S.

Santiago
Commercial Law Review
Midterm Examination

I. a. Yes. The filing up of the 8th sit in the board of directors is valid.
The remaining directors even if there is no quorum may elect a
temporary replacement director but subject to the following
requirement:
1. The remaining directors do not constitute a quorum;
2. There is a need for emergency action;
3. The action is necessary to prevent grave, substantial, and irreparable
loss or damage to the corporation;
4. The temporary replacement must come from the officers of the
corporation;
5. The temporary replacement must be elected by a unanimous vote of
the remaining directors or trustee; and
6. Notice must be given to the SEC within 3 days from the creation of an
emergency board.
The action by the designated director shall be limited to the emergency action
necessary; and the term shall cease within reasonable time from the termination
of the emergency or upon election of the replacement director whichever comes
first.

b. By plurality vote of the stockholders or members if the vacancy

occurs because of (1) removal; (2) resignation; (3) death; (4) expiration of term;
and (5) disloyalty. The stockholders can always fill up the vacancy.

c. No. It must take place either at a regular meeting or special meeting

of the stockholders dully called for the purpose and there must be notice of the
intention to propose a removal at a meeting. The removal must be by vote of the
stockholders representing 2/3 of outstanding capital stock. The director may be
removed with or without cause unless he was elected by the minority, in which
case, it is required that there is a cause for removal.
 d. No. The law provides that Corporate by-laws relatively permanent
and continuing rules of action adopted by the corporation for its own government
and that of the individuals composing it and those having the direction,
management and control of its affairs, in whole and in part, in the management
and control of its affairs and activities. It must be consistent with the
Corporation Code and pertinent laws and regulations and should not undermine
vested rights, impair contract or property rights or create obligation unknown to
law.

e. No. Founders’ shares classified as such in the Article of

Incorporation, which may be given certain rights and privileges not enjoyed by
others. However, if the right is the exclusive right to vote and be voted as a
director, it must be for a period not exceeding 5 years from the date of issuance
of a certificate of incorporation.

II. a. Director Cruz was validly elected having garnered a unanimous

vote by all stockholders.

b. Yes. He obtained the highest number of votes and therefore

declared elected. Plurality of votes prevailed.

c. Generally Valid. As a rule, if a director, by virtue of such office

obtained a business opportunity which should belong to the corporation thereby
obtaining profit to the prejudice of the corporation, he must account and refund
to the corporation all the profits. Except; the contract or act may be ratified by a
voted of the stockholders owning or representing at least 2/3 of the outstanding
capital stock.

d. As a General rule then contract of sale is voidable at the option of

the Corporation. It will only be valid, if the contract is fair and reasonable under
the circumstances.
 e. Yes. The contract between two corporations having interlocking
director shall not be invalidated on that ground alone. Except: voidable at the
option of the Corporation if the contract is fraudulent or not fair and reasonable.

III. a. The following are the requisites for the valid merger of two or
more corporations:
1. It must be approved by the boar of each corporation by at least
majority vote.
2. It must be ratified by vote of the stockholders representing 2/3 of
outstanding capital stock or members.
3. It must be approved by the SEC
4. It must be approved by the Philippine Competition Commission.

b. The dissenting stockholders of Allied Bank may exercise their

Appraisal Right – the right to withdraw from the corporation and
demand payment of the fair value of their shares, which right is
exercised after dissenting from or voting against proposed corporate
acts involving fundamental changes in the corporate structure.

The manner or procedure in exercising such right are as follows:

1. The stockholder must be dissenting stockholder – he voted against the

proposed action.

2. Make a written demand on the corporation within 30 days after the vote
was taken for the payment of the fair value of his shares.

3. The dissenting shareholder shall submit his certificates of stock within 10

days from demanding payment for notation that the shares are dissenting
shares.

4. The price to be paid is the fair value of the shares on the date before the
vote was taken
5. Upon payment of the fair of shares, all the rights of dissenting stockholder
are terminated and not merely suspended.

6. There must be unrestricted earning for the exercise of appraisal right to

prosper.

c. The dissenting stockholders can avail of the following Remedial Rights:

1. Individual Suit
2. Representative Suit
3. Derivative Suit

d. Effects of merger of PNB and Allied are as follows:

1. The constituent corporations shall become single corporations.

2. The separate existence of the constituents shall cease except that of
the surviving corporation or the consolidated corporation.
3. The surviving corporation shall possess all the rights, privileges,
immunities and powers and shall be subject to all duties and liabilities of
a corporation under the RCCP.
4. The surviving corporation shall possess all the rights, franchises of each
constituent corporation and all properties, including receivables and
subscription to shares, shall be deemed transferred to and vested in the
surviving or the consolidated corporations.
5. All liabilities and obligations of the constituent corporations shall
pertain to the surviving or the consolidated corporation.
6. Any pending claim, action or proceeding brought by or against the
surviving or consolidated corporation.
7. Full protection to labor and employment contracts are automatically
assumed by the surviving corporation in the merger even in the absence
of such stipulation. However, the rule the automatic absorption does
not impair the right of the employer to terminate employment of the
absorbed employee for lawful and authorized cause.
 e. No. Merger does not automatically impair the right on automatic
assumption or absorption of employees. PNB and Allied has the right to
absorbed or terminate employees for a lawful or authorized cause or
the right of the employee to resign, retire or otherwise severe his
employment, whether or before or after the merger subject to existing
contractual obligations.

IV. a. Parent companies are legal and separate companies (with separate
rights and liabilities) and are not therefore normally responsible for the
debts and actions of their subsidiaries.

b. Yes. The law provides, that where a corporation is so organized and

its affairs are conducted so that it is in fact, a mere instrumentality or adjunct to
the other, the fiction of identity of instrumentality may be disregarded. The
finances and conduct may not be its own but rather the principal.

c. No. Big Dipper Incorporated is a mere subsidiary of ABS -ZBN

therefore not liable or responsible for its debts to its creditors.

d. Yes. This is in order for the court to look into or to look at the
corporation as mere collection of individual or aggregation of person undertaking
business as a group disregarding the juridical personality of the corporation
unifying the group.

e. No. A corporation is a distinct and legal entity to be considered as

separate and apart from the individual stockholders or members who compose it.

f. Yes. When the directors sold dumped almost 75% of their holdings
to the market while franchise bill is pending in Congress. It is an illegal practice of
trading stock exchange to one’s own advantage while having access to confidential
information.

V. a. Yes. There is no doubt that ABS -ZBN pass the grandfather rule test.
The grandfather rule applies only when the 60-40 Filipino – foreign equity
ownership is in doubt. If the subject corporation’s Filipino fall below the
threshold 60% the corporation is immediately considered foreign owned,
in which case, the need to resort to the Grandfather Rule disappears. On
the other hand, a corporation that complies with the 60-40 Filipino to
foreign corporation if there is no doubt as to who has the beneficial
ownership and control of the corporation. The doubt demands the
application of the Grandfather Rule in addition to or in tandem with
Control Test does not refer to the fact that the apparent Filipino
ownership of the corporation’s equity fall below the 60% threshold.
Doubt refers to various indication that the beneficial ownership and
control of the corporation do not reside in Filipino shareholders but in
foreign stakeholders.

b. No. The use of PDRs to heed the need of investment, to obtain foreign
investment without being under the sanction of violating the constitution
actually curtail the constitutional mandate of Total Filipino ownership in
mass media. Regardless of different scenario whether the said PDRs are
exercised or not, the consequence of which is that it will enable foreigners
to control mass media corporations, a situation which was sought to be
prevented by the Constitution. PDRs represents a share, and when
bought by foreign entity it gives the buyer the right to all the dividends
due to a share of stock required. PDRs has the ability to enable foreigners
to exercise control over media corporation despite absence of legal title
to the same.

VI. a. File a Corporate Rehabilitation on behalf of Marco Polo Davao

Incorporated. A remedy for corporation which foresee the impossibility
of meeting their debts when they fall due with an end view to restore and
 reinstate them to their former position of successful operation and
solvency. The debtor is given a fresh start or a new lease in life thereby
allow their creditors to be paid their claims from debtor’s earnings.

b. The law provides, that assets of the insolvent debtor shall be divided
among the creditors in accordance with the liquidation plan submitted by
the liquidator and approved by the court. The rules on concurrence and
preference of credits under the New Civil Code and other relevant laws
shall be observed in the liquidation plan.

c. The law provides, that claims of whatever nature or character against

the debtor or its property, whether for money or otherwise includes
claims against directors and officers of debtor arising from acts done in
discharge of their functions falling within the scope of their authority.

VII. a. No. Only a natural person, trust or an estate may form a One Person
Corporation. Therefore, Reign Laco cannot use a prosed name Laco’ste.

b. No. A natural person who is licensed to exercise a profession may

not organize as a One Person Corporation (OPC) for the purpose of
exercising such profession except as otherwise provided under special
laws.

c. No. The single stockholder may not be appointed as the corporate

secretary and treasurer. The law requires that within 15 days from
issuance of its certificate of OPC shall appoint a treasurer, corporate
secreta4ry and other officers as it may deem necessary and notify SEC
thereof within 5 days from appointment. However, a single stockholder
who is likewise the self-appointed treasurer shall give a bond to SEC with
undertaking in writing to faithfully administer the OPC ‘s funds to be
 received as treasurer, and to disburse and invest according to the Articles
of the Incorporation as approved by the SEC.

d. The law provides, that the OPC has a personality separate and distinct
from the single stockholder. However, the law also provides, while the
single stockholder’s liability is also limited to his investment, a sole
shareholder claiming limited liability has the burden of the affirmatively
showing that the corporation was adequately financed. Where the
single stockholder cannot prove that the property of the OPC is
independent of the stockholders’ personal property, the stockholder shall
be jointly and severally liable for the debts and other liabilities of the OPC.

VIII. a. The ABC ltd. Is liable for the civil damages amounting to 1M. It is an
exceptional case wherein the partnership is liable directly and solidarily
for everything chargeable to the partnership. This is for the loss or injury
caused to a third person or any penalty incurred by reason of the wrongful
act or omission of any partner acting in the ordinary course of business.

b. All partners shall be liable pro rata with all their property and after
all their property has been exhausted for the contract they may have
entered into the name and account of the partnership. However, any
partner may enter into a separate obligation to perform a partnership
contract.

c. The general partners will ultimately shoulder such obligations. The

law provides that, the general partners are the one liable for partnership
debts to the extent of his separate property after all assets of the
partnership have been exhausted. He is present in every type of
partnership.
IX. a. The law provides that a capitalist partner can engage in a business
of different kind even without stipulation allowing him to do so and in
business of then same kind if there is stipulation to do so. In the case at
bar, B engaged in the same business without the permission from the
partnership. The injured parties, A and C can avail the remedies of asking
the guilty partner to bring to the common fund any profits accruing to
him from the said transaction; and to ask the guilty capitalist partner to
bear all the losses from the said transaction.

b. The law provides that an Industrial partner cannot engage in any

business for himself unless the partnership expressly permits him to do
so. If such, and the Industrial partner engaged otherwise, the partners
may exclude C, the industrial partner from the partnership with damages.
A and B may also avail themselves of the benefits obtained from the
business he engaged in with the right to damages.

X. a. Yes. D an Industrial partner has the right to object in the hiring of an

accountant because all partners are considered agents of the partnership
therefore considered as managers. But in case of opposition of the other
partners the decision of partners owing the controlling interest shall
prevail.

b. Yes. The decision of the majority in the hiring of the secretary shall
prevail and the decision of the controlling interest in the partnership shall
prevail in case of tie.

XI. a. Yes. The court will consider the resemblance between trademarks,
the similarity of the goods in which the trademark is attached and if it will
likely affect or the effect on the purchaser or for those who patronize.
 Two tests by jurisprudence have been developed the dominancy test and
the holistic test. The tests focus on the similarity of the prevalent feature
of the competing trademarks. Whether the use of the marks cause
confusion or mistake in the mind of the public.

b. No. The foreign corporation transacting business in the Philippines

without a license to do business shall not be permitted to maintain or
intervene in any action, suit or proceeding in any court or administrative
agency. Loan Shark Incorporation is a corporation organized in China.

c. Ana, Bea and Carla are personally liable for the 3M loan acquired
from Laon Shark by misrepresenting as ABC corporation. They are
estopped to challenge the personality of Loan Shark after having entered
into contract with it and later taking advantage and receiving the benefits
of which. Loan Shark can do subsequent compliance that will cure the
lack and capacity to sue at the time of the execution of the obligation.

XII. a. Yes. It is the corporate secretary’s ministerial duty and obligation to

register and transfer of stock. However, the law also requires the full
payment of the subscription together with interest and expenses. No
certificate shall be issued if there is unpaid subscription. Covida in the
case at bar, paid only the 400 out of 1000 subscribed shares.

b. A stock becomes delinquent upon failure of the holder to pay the

subscription or balance within 30 days from the date specified in the
contract of subscription.
 c. It deprives the stockholder the right to:

1. to be voted
2. to vote
3. to representation at any stockholders’ meeting.
Delinquent stockholder shall not be entitled to any of the rights of the stockholder;
his rights is suspended except that he shall still be entitled to dividends subject to
the provision of the code. Delinquent stock is also or shall be subject to
delinquency sale.

d. ABC Corporation may call that the unpaid subscription are due and
payable. Notice of sale shall be served on the subscribers either personally or
registered mail and publication in the newspaper of general circulation in the
province or city where the principal office is located once a week for two
consecutive weeks.

XIII. a. Yes. It is permitted and specified in the Code that such restriction is
specified in the Article of Incorporation, by-laws and such certificate be
binding on third persons.

b. Yes. The stockholders themselves can directly manage the

corporation and perform the functions of directors without the need of election as
may be provided in the Articles of Incorporation.

c. Yes. Since the corporation is managed directly by stockholders;

in which case they assume the liabilities of directors.

XVI. a. An Individual action a stockholder has the right to sue as a

shareholder in his own name against a corporation when a wrong is directly
inflicted against him. In this case non issuance of stock certificate, provided
however that all subscription has been fully paid.
 b. Pre-emptive right is the right of the shareholder to subscribe
to all issues or disposition of shares of any class in proportion to their
stockholdings. The purpose of which is to enable the shareholder to retain his
proportionate control in the corporation and to retain his equity in the surplus.

c. Pre-emptive right is the right of the shareholder to subscribe

to all issue and disposition of shares in proportion to their stockholdings. The
right of first refusal is when a shareholder is not allowed to sell, assign, pledge or
in any manner transfer stock of the corporation except by transfer which meets
the requirement set by the corporate by laws.

d. No. Pre-emptive right is not available when the issued share s

is to comply with laws requiring stock offering or minimum stock by the public.

XV. a. No. Derivative suit is proper only when a redress wrong is

committed against a corporation. To protect corporation rights whenever
corporation official refuse to sue. There is no evidence that there is such a
wrong committed against the corporation.

b. Business Judgment according to jurisprudence it protects the

board from frivolous lawsuits for its corporate decisions made in good faith.
Question of policy or management are left solely to the honest decision of officers
and directors of a corporation and the courts are without authority to substitute
their judgement for the board of directors; the board is the business manager of
the corporation so long as it acts in good faith, its orders are not reviewable by
the court and SEC. The director are not liable to stockholders for performing such
acts.
While management prerogative refers to the right that management feels
intrinsic to the ability to manage, not subject to CBA. It is not absolute, subject to
limitations imposed on CBA.

c. Shares of stock – unit of interest in a corporation. It is an

incorporeal or intangible property. It may be issued by the corporation even if
the subscription is not fully paid. The stockholder may own the share even if he
is not holding a certificate of stock. A stockholder proprietary rights mentions
such rights to receive dividends the right of appraisal to inspect corporate books
the right to vote and further the right to sue to protect and vindicate corporate
rights.

XVI. a. The law provides that, when the corporation does not formally
organize and commence its business within 5 years from the date of
incorporation, its certificate of incorporation shall be deemed revoked as of the
day following the end of the five-year period.

b. If a corporation does not formally organize and inoperative of

at least 5 consecutive years SEC may, upon notice and hearing place the
corporation under delinquent status.

c. The life and existence of a corporation is not perpetual, under

the corporation code, the term of corporation is limited to a period not exceeding
50 years from the date of expiration unless dissolved earlier or such period is
extended. The corporation code requires that the corporation must file an
extension of its corporate term before it expires, a motion to extend must be
done before the expiry of the period sought to be extended.

d. There is no legal remedy to an expired corporate term. If no

request to renew was filed to the SEC before the expiration date, the corporation
ceases to exist. The serious consequence once the corporate term expires, the
juridical entity, the assts of the corporation are deemed transferred to
shareholders as if the corporation was dissolved or liquidated. The liquidation
gain will be subject to 30% tax. And the corporation cease to be a legal person
thus incapable to enter into contracts and hold its licenses. It becomes non-
persona.

XVII. a. Preferred shares issued by a corporation are non- voting

stocks. However non-voting shares are nevertheless entitled to vote on the
following; amendment of the Articles of Incorporation, adoption of by- laws,
lease, exchange, mortgage or other disposition of all the property of the
corporation and other mentioned in the code as ell as the dissolution of the
corporation.

b. In proxy agreement stockholders and members may vote in

person or by proxy in all meetings of stockholders or members. It is in writing in
any form authorized by the By-laws signed by stockholders and received by the
Corporate secretary within reasonable time before scheduled meeting. Each
meeting shall include proxy form and it shall be valid for the meeting for which it
is intended. No proxy shall be valid and effective for the longer period of 5
years at any one time. Voting Trust purpose is to confer upon trustee the right
to vote and other rights pertaining to the share for a period not exceeding 5 years
at any one time. Then trustee can be voted as director and will acquire legal
rights that must be recorded in the stock and transfer books. But does not
become the trustee of corporate assets. Voting trust certificate shall be executed
and delivered by the trustee to the transferor and such certificate shall be
transferrable in the same manner as stock certificate.

c. No. But only binding between the parties and will not
bind the corporation. The corporation can actually refuse to recognize such
transfer especially if the same shares are not fully paid. The stock certificate is
evidence of the personality owned by stockholder. It defines the nature and
extent of his ownership. Over share of stock. It outlines the regulation and
limitation of ownership, which must be known to parties prior to conveyance.
Therefore, only share of stock covered by stock certificate can be subject of
legally demandable and binding sale or disposition.

d. C and D, Cis proxy with voting rights and D with a voting

trust agreement. Therefore, legally binding to be voted to the seat of Director in
the Corporation.

XVIII. All of the above. The Executive Committee is composed of 3

members of the Board of Directors. Those mentioned corporate acts needs votes
from the stockholders as mentioned by the Code.
 XIX. a. The unpaid obligation shall be collected to the partnership
with the exception of the Industrial partner E. All partners shall bear the
obligation of the partnership.

b. Partners are liable to creditors including the Industrial

partner for obligation contacted in the name of the Partnership. Liabilities are
pro rata and subsidiary.

XX. a. The 1,000. Goes to the Partnership as A issued the receipt

on behalf of the same.

b. The 1,000 still goes to the partnership to apply to D’s

credit.

c. The credits still go to the Partnership even if B is a non-

managing partner of the Partnership.

XXI. C is liable for all the obligations of the partnership arising

before his admission as though he had been a partner when such obligation were
incurred, except that his liability shall be satisfied only out of partnership
property, unless there is a stipulation to the contrary. he is liable pro-rata and
subsidiarily for all obligations incurred after his admission as a partner.

XXII. Limited Partnership is a partnership where there is at least

one general partner, who is liable up to the extent of his separate assets after the
exhaustion of partnership assets, and there is at least limited partner, who is
liable only up to the extent of his capital contribution.
 XXIII. Generally, creditors first followed by partners who are also
creditors of the partnership. Remaining assets are then divided among remaining
partners in accordance with their respective share of partnership profits.

XXIV. Conversion to Corporate Aggregate does not need

dissolution. A corporation sole or Religious corporation may be converted
through the amendment of its Article of Incorporation. Concurrence of 2/3 of the
members of the corporation is necessary for the amendment of the Articles of the
Incorporation.

XXV. a. No. Shares of Stock must be endorsed and delivered by

the owner or his agent and to be valid to third parties the transfer must be
recorded in the books of the corporation.

b. Mr. B cannot compel the Corporate Secretary to

register the sale. Although it is the duty of the Corporate Secretary and
obligation to do the same, only if the same share of stocks is fully paid and
endorsed by Mr. S.

c. A petition for Mandamus to compel the corporate

secretary to transfer the shares of stocks and record then same in the stock and
record books to legally bind the sale and be recognized by the third party.

XXVI. Yes. ESC has the power and control over security
registration investment. It has the power to investigate violation of Securities
laws and impose sanction to such violations. Power to issue subpoenas and
punish contempt. Having jurisdiction over corporations and other associations
concerning securities market.

XXVII. Yes. He is ineligible to be director if he is also a director

in a corporation whose business in competition of that other corporation. The
established law provides a director may not enter into competing enterprise
which cripples or injures the business of which he is an officer or director. They
are not permitted to use their position for trust and confidence to promote their
private interests.

XXVIII. a. The Trust fund Doctrine is violated by declaration of

dividend even the company is insolvent.

b. Violated the Trust fund doctrine. The creditors have

the right to look into for the satisfaction of their credits. TFD I violated when
properties are transferred in fraud of creditors.

c. Payment of dividends without unrestricted earnings

is violation of the TFD.

XXIX. Yes. In a close corporation they can directly manage

and perform the functions of directors. There is no need to call a meeting to elect
directors.

XXX. a. No. A stockholder is given the right to participate in

the corporate affairs the right. To inspect and reproduce books it shall be open
for inspection by any including stockholders or member in person or by
representative and a written demand may be made by stockholders or member
to secure copies or excerpts from the records but bound by confidentiality rule
under prevailing law.

b. 1. Summary Investigation. If the corporation

denies or does not act on demand for inspection or reproduction of corporate
books or records the aggrieved party may report such denial or inaction to the
SEC. SEC shall conduct a summary investigation and issue a directive to inspect
the requested records. 2. Mandamus, if improperly deprived of his right to
inspect; 3. Criminal action under the RCCP.