Professional Documents
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Case Title; Topic Ramirez v. Orientalist Co. and Fernandez Who Exercises Corporate Powers: Board of Directors or Trustees Quick Facts CHAPTER VII Orientalist Co, engaged in the theater business, desired to be the exclusive agent of Ramirez, who is based in Paris, for two film outfitsclair Films and Milano films. Through the active involvement and negotiations of Ramon El Presidente Fernandez, a director of Orientalist and also its treasurer, with Ramirez, Orientalist was able to secure an offer, the terms of which were acceptable to the Board as well as to the stockholders. It appears that this acceptance of the terms of the offer was decided during an informal meeting of the board, and conveyed to Ramirez in two letters signed only by Fernandez, both in his individual and his capacity as treasurer of Orientalist. It turns out that the company was not financially capable to comply with the obligations set forth in the agency contract, and about this time films had already been delivered to the company. Two stockholders meetings were organized, the first adopted a resolution approving the action of the board on the offer, the second raising the contingency of the lack of funds and the proviso that the four officers involved, including Fernandez would continue importing the films using their own funds. Ramirez sues Orientalist and Fernandez for what is due on the contract. TC ruled Oriental as the principal debtor while Fernandez is subsidiarily liable. Held/Ratio/Doctrine
(1) it was incumbent upon the corporation if it desired to question the authority of Fernandez to bind it, to deny the due execution of the contract made by him. In pleading lack of authority of an officer of a corporation to bind the latter through a contract executed by the former is a special defense which should be specially pleaded and the answer setting up this defense must be verified under oath. The denial shall be specific, and a mere attack on the instrument in general terms is insufficient, even though under oath. In dealing with corporations the public at large is bound to rely to a large extent upon outward appearances. If a man is found acting for a corporation with the external indicia of authority, any person not having notice of want of authority, may usually rely upon those appearances, and if it be found that the directors had permitted the agent to exercise that authority and thereby held him out as a competent person to bind the corporation, or had acquiesced in a contract and retained the benefit supposed to have conferred by it, the corporation will be bound, notwithstanding the actual authority may never have been granted. The public is not supposed nor required to know the transactions which happen around the table where the corporate board of directors or the stockholders are from time to time convoked. It is therefore reasonable, in a case where an officer of a corporation has made a contract in its name, that the corporation should be required, is it denies his authority, to state such defense in his answer. This failure of Orientalist to make any issue in its answer with regard to the authority of Ramon Fernandez to bind it and its failure to deny specifically under oath the genuineness of the due execution of the contracts sued upon, have the effect of eliminating the question of his authority from the case. (2) Fernandez had no authority to bind the corporation. Corporate powers is exercised by the board of directors, and is recognized in the bylaws of Orientalist. The fact that the power to make contracts is thus vested in the borad does not always signify that a formal vote of the board must always be taken before contractual liability can be fixed; the board can create liability, like an individual, by other means than by formal expression of its will. It may be established without reference to official records of the proceedings of the board, by proof of the usage to which the company had permitted to grow up in the business, and of the acquiescence of the board charged with the duty of supervising and controlling the companys business. Fernandez was the most active in the effort to secure the films. The negotiations were conducted by him with the knowledge and consent of the other members of the board. The board, before the financial inability of the corporation was revealed, had already recognized the contracts as being in existence and had proceeded to take the steps necessary to utilize the films, particularly the publication of announcements in the papers. In light of this, the contracts in question were thus inferentially approved by the board and that the company is bound unless the subsequent failure of the stockholders to approve the same had the effect of abrogating the liability created. (3) the action of the stockholders, whatever its character, must be ignored. Stockholders or members resolutions dealing with matters other than the
Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Salvador P. Lopez v. Hon. Vicente Ericta Who Exercises Corporate Powers: Board of Directors or Trustees
Dr Consuelo Blanco was appointed Dean ad interim of the UP College of Education. The Board of Regents met on 26 May and UP President Lopez submitted the ad interim appointment for reconsideration. The minutes of the meeting reveal that the Board voted to defer action on the matter in view of the objections cited by Regent Kalaw, and to further study the same. The matter was referred to the Committee on Personnel. It was extended and made effective 1 May 1970 until 30 April 1971 unless sooner terminated and subject to the approval of the Board of Regents. At the next Board meeting, it appears in the minutes that the Personnel Committee recommended that the UP president review his nomination and that he would discuss with the nominee the possibility of withdrawing her nomination and appointment as Dean. The Committee then withdrew its recommendation, but subjected the Blanco appointment to a vote. The vote was 5-3-4, and not having the necessary number of votes, the Board agreed to expunge the result of the voting from the records, on the condition that the Board suspend action on the matter, which had the effect of the termination of the Blanco ad interim appointment. Blanco questions the action of the Board and the designation of an officer-in-charge of the COE and sues in the TC. Judge Ericta rules info Dr Blanco. Korean Airlines, through Atty. Aguinaldo, filed a Complaint against Expertravel with the RTC for the collection of the principal amount of P260,150.00, plus attorneys fees and exemplary damages. The verification and certification against forum shopping was signed by Atty. Aguinaldo, who indicated therein that he was the resident agent and legal counsel of KAL and had caused the preparation of the complaint. Expertravel filed a motion to dismiss the complaint on the ground that Atty. Aguinaldo was not authorized to execute the verification and certificate of non-forum shopping as required by the Rules of Court. KAL opposed the motion, contending that Atty. Aguinaldo was its resident agent and was registered as such with the Securities and Exchange Commission (SEC) as required by the CorpoCode, and was further alleged that Atty. Aguinaldo was also the corporate secretary of KAL. Atty. Aguinaldo also claimed that he had been authorized to file the complaint through a resolution of the KAL Board of Directors approved during
Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
a special meeting held on June 25, 1999, wherein the board of directors conducted a special teleconference on June 25, 1999, which he and Atty. Aguinaldo attended. It was also averred that in that same teleconference, the board of directors approved a resolution authorizing Atty. Aguinaldo to execute the certificate of non-forum shopping and to file the complaint. Suk Kyoo Kim also alleged, however, that the corporation had no written copy of the aforesaid resolution. TC denies MTD, CA affirms.
Velez deposited his unfunded personal checks with his current account with the petitioner. But prior to depositing said checks, he would present his personal checks to a bank officer asking the latter to have his personal checks immediately credited as if it were a cash deposit and at the same time assuring the bank officer that his personal checks were fully funded. Having already gained the trust and confidence of the officers of the bank because of his past transactions, the bank's officer would always accommodate his request. After his requests are granted which is done by way of the bank officer affixing his signature on the personal checks, private respondent Cresencio Velez would then deposit his priorly approved personal checks to his current account and at the same time withdraw sums of money from said current account by way of petitioner bank's manager's check. Private respondent would then deposit petitioner bank's manager's check to his various current accounts in other commercial banks to cover his previously deposited unfunded personal checks with petitioner bank. Naturally, petitioner bank and its officers never discovered that his personal check deposits were
Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
unfunded. On the contrary, it gave the petitioner bank the false impression that private respondent's construction business was doing very well and that he was one big client who could be trusted. This deceptive and criminal scheme he did every banking day without fail from September 4, 1985 up to March 11, 1986. The amounts that he was depositing and withdrawing during this period (September 4, 1985 to March 11, 1986) progressively became bigger. It started at P46,000.00 on September 4, 1985 and on March 11, 1986 the amount of deposit and withdrawal already reached over P3,000,000.00. At this point in time (March 11, 1986), the private respondent Cresencio Velez presumably already feeling that sooner or later he would be caught and that he already wanted to cash in on his evil scheme, decided to run away with petitioner's money. On March 11, 1986, he deposited various unfunded personal checks totaling P3,095,000.00 and requested a bank officer that the same be credited as cash and after securing the approval of said bank officer, deposited his various personal checks in the amount of P3,095,000.00 with his current account and at the same time withdrew the sum of P3,244,000.00 in the form of petitioner's manager's check. Instead of using the proceeds of his withdrawals to cover his unfunded personal checks, he ran away with petitioner bank's money. Thus, private respondent Cresencio Velez's personal checks deposited with petitioner bank on March 11, 1986 in the total aggregate amount of P3,095,000.00 bounced. The checks bounced after said personal checks were made the substantial basis of his withdrawing the sum of P3,244,000.00 from his current account with petitioner bank. Citibank sues on the grounds of violation of BP 22. Before pre-trial conference, and in pursuance of the authority granted to him by petitioner bank's by-laws, its Executing Officer appointed William W. Ferguson, a resident alien, as its Attorney-in-Fact empowering the latter, among other things, to represent Citibank in court cases such as the present case. In turn, William W. Ferguson executed a power of attorney in favor of J.P. Garcia & Associates (petitioner bank's counsel) to represent petitioner bank in the pre-trial conference before the lower court. Prime White Cement entered into a dealership agreement with one of its directors, Alejandro Te, for the latter to be the exclusive distributor of 20,000 bags of Prime White cement per month @ P9.70 per bag for the entire Mindanao area for 5 years, and that a letter of credit be opened to secure payment. Te advertised his dealership and was able to obtain possible clients, and entered into agreements with several hardware stores for the purchase of the cement. Te then informed Prime White of the orders, but the latter imposed additional conditions, which effectively delayed the delivery of the cement, lowered the number of bags to be delivered, and increased the price per bag. It also made the prices subject to change unilaterally and additional conditions on the manner of payment. Te refused to comply and Prime White cancelled the dealership agreement. Te sued for specific performance and damages. TC ruled ifo Te.
Prime White Cement v. IAC Who Exercises Corporate Powers: Board of Directors or Trustees
No. it is not valid and enforceable. All corporate powers are exercised by the Board. It may also delegate specific powers to its President or other officers. In the absence of express delegation, a contract entered into by the President in behalf of the corporation, may still bind the latter if the board should ratify expressly or impliedly. In the absence of express or implied ratification, the President may as a general rule bind the corporation through a contract in the ordinary course of business, provided the same is reasonable under the circumstances. These rules are applicable where the President or other officer acting for the corporation is dealing with a third person. The situation is different where a director or officer is dealing with his own corporation. Te was not an ordinary stockholder; he was a member of the Board and Auditor of the corporation. He is what is often called a self-dealing director. As a director, he holds a position of trust and owes a duty of loyalty to his corporation. In case his interests conflict with those of the corporation, he cannot sacrifice the latter to his own advantage and benefit. The trust relationship springs from the control and guidance of the corporate affairs and property interests of the stockholders. A directors contract with his corporation is not in all instances void or voidable. If the contract is fair and reasonable under the circumstances, it may be ratified by the stockholders provided a full disclosure of his adverse interest is made. The contract in this case is neither fair nor reasonable. At the time of the contract, the corporation had not
Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
The corporation, Heirs of Eugenia Roxas Inc, was established to engage in agriculture to develop the properties inherited from Eugenia Roxas and Eufroncio Roxas, which includes the land upon which the Hidden Valley Springs Resort was put up, including various improvements thereon, using corporate funds (used as site for filming Apocalypse Now). The AOI of Heirs Inc was amended for this purpose. Heirs Inc claims that Boyer-Roxas and Guillermo Roxas had been in possession of the various properties and improvements in the resort and only upon the tolerance of the corporation. It was alleged that they committed acts that impeded the corporations expansion and normal operation of the resort. They also did not comply with court and regulatory orders, and thus the corporation adopted a resolution authorizing the ejectment of the defendants. TC grants. CA affirms. Boyer and Roxas contend that, being SHs, their possession of the properties of the corporation must be respected in view of their ownership of an aliquot portion of all properties of the corporation.
EPG undertook the construction of the UP Law Library for around P7.5M. Upon completion, the building was turned over to UP Law. Sometime thereafter, the aircon in the 3rd floor was not functioning properly, and this was reported to EPG. After inspection EPG agreed to repair the same and shoulder the expenses thereof, but for whatever reason the repair was never undertaken despite repeated demands. EPG demanded a hefty sum, which UP claims should be covered by the guarantee provision in their contract. UP then contracts with another repair company, and demands reimbursement from EPG. UP sues EPG and its President, Emmanuel de Guzman. TC ruled ifo UP, and order both the company and its president to pay UP solidarily. The president Guzman claims that as to him, UP was suing him in his official capacity and not in his personal capacity, thus his inclusion as president of the company is superfluous, because his acts were corporate acts imputable to EPG itself as his principal. Cosalan, GM of the Benguet Electric Cooperative, was informed by COA that cash advances received by officers and employees of Benguet Electric had been virtually written off the books, that per diems and allowances showed substantial
Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
inconsistencies with the directives of the National Electricifcation Administration, and that several irregularities in the utilization of funds released by NEA to Benguet. Cosalan then implemented the remedial measures recommended by COA. Board members of Benguet responded by abolishing the housing allowance of Cosalan, reduced his salary, representation and other allowances, and directed him to hold in abeyance all disciplinary actions, and struck his name out as principal signatory of Benguet Electric. The Board adopted another series of resolutions which resulted in te ouster of Cosalan as GM. Cosalan nonetheless continued to work as GM, contending that only the NEA can suspend and remove him. The Board then refused to act on Cosalan request to release compensation due him. Cosalan files a complaint with the NLRC against the Board of Benguet Electric, and impleaded Benguet Electric itself as well as the individual members of the board in their official and private capacities. Labor Arbitrer rules ifo Cosalan, holding both the company and the board solidarily liable to Cosalan. NLRC modifies award to Cosalan by declaring Bengeut alone, and not the Board members, was liable to Cosalan. Benguet appeals. Woodchild Holdings v. Roxas Who Exercises Corporate Powers: Board of Directors or Trustees The respondent posits that Roxas was not so authorized under the May 17, 1991 Resolution of its Board of Directors to impose a burden or to grant a right of way in favor of the petitioner on Lot No. 491-A-3-B-1, much less convey a portion thereof to the petitioner. Hence, the respondent was not bound by such provisions contained in the deed of absolute sale.
Generally, the acts of the corporate officers within the scope of their authority are binding on the corporation. However, under Article 1910 of the New Civil Code, acts done by such officers beyond the scope of their authority cannot bind the corporation unless it has ratified such acts expressly or tacitly, or is estopped from denying them. Thus, contracts entered into by corporate officers beyond the scope of authority are unenforceable against the corporation unless ratified by the corporation. Evidently, Roxas was not specifically authorized under the said resolution to grant a right of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to sell to the petitioner a portion thereof. The authority of Roxas, under the resolution, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include the authority to sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create or convey real rights thereon. Neither may such authority be implied from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner on such terms and conditions which he deems most reasonable and advantageous. The general rule is that the power of attorney must be pursued within legal strictures, and the agent can neither go beyond it; nor beside it. The act done must be legally identical with that authorized to be done. In sum, then, the consent of the respondent to the assailed provisions in the deed of absolute sale was not obtained; hence, the assailed provisions are not binding on it. It bears stressing that apparent authority is based on estoppel and can arise from two instances: first, the principal may knowingly permit the agent to so hold himself out as having such authority, and in this way, the principal becomes estopped to claim that the agent does not have such authority; second, the principal may so clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that he actually has such authority. There can be no apparent authority of an agent without acts or conduct on the part of the principal and such acts or conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of reasonable prudence by a third person as claimant and such must have produced a change of position to
Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Yu Chuck v. Kong Lipo Who Exercises Corporate Powers: Corporate Officers and Agents
Kong Li Po is a corporation engaged in the publication of a Chinese newspaper. Its AOI provide for a president who shall sign all contracts and other instruments of writing, but does not provide for a business or general manager. CC Chen or TC Chen was appointed general business manager of the paper. He then entered into an agreement with Yu Chuck for the printing of the newspaper for P580 per month. Yu Chuck worked for a year until they were discharged by the new manager Tan Tian Hong because CC Chen had left for China. Yu Chuck sues the paper, claiming the the contract was for a period of 3 years, and that discharge without just cause before the expiration of this term entitles them to receive full pay for the remainder of the term. Kong Li Po counters that CC Chen was not authorized to enter into the contract with Yu Chuck. TC ruled ifo of Yu Chuck, concluding that the contract had been impliedly ratified by Kong Li Po and that although he had no express authority to enter into the contract, since he was general business manager in charge of the printing of the paper and thus had implied authority to employ the petitioners
Lapu-lapu Foundation v. CA Who Exercises Corporate Powers: Corporate Officers and Agents
Elias Q. Tan, then President of the co-petitioner Lapulapu Foundation, Inc., obtained four loans from the respondent Allied Banking Corporation covered by four promissory notes in the amounts of P100,000 each. As of January 23, 1979, the entire obligation amounted to P493,566.61 and despite demands made on them by the respondent Bank, the petitioners failed to pay the same. The respondent Bank was 17
Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
constrained to file with the Regional Trial Court of Cebu City, Branch 15, a complaint seeking payment by the petitioners, jointly and solidarily, of the sum of P493,566.61 representing their loan obligation. Foundation denied incurring indebtedness from the respondent Bank alleging that the loans were obtained by petitioner Tan in his personal capacity, for his own use and benefit and on the strength of the personal information he furnished the respondent Bank. The petitioner Foundation maintained that it never authorized petitioner Tan to cosign in his capacity as its President any promissory note and that the respondent Bank fully knew that the loans contracted were made in petitioner Tans personal capacity and for his own use and that the petitioner Foundation never benefited, directly or indirectly, therefrom. Tan admitted that he contracted the loans from the respondent Bank in his personal capacity. The parties, however, agreed that the loans were to be paid from the proceeds of petitioner Tans shares of common stocks in the Lapulapu Industries Corporation, a real estate firm. The loans were covered by promissory notes which were automatically renewable (rolled-over) every year at an amount including unpaid interests, until such time as petitioner Tan was able to pay the same from the proceeds of his aforesaid shares. According to petitioner Tan, the respondent Banks employee required him to affix two signatures on every promissory note, assuring him that the loan documents would be filled out in accordance with their agreement. However, after he signed and delivered the loan documents to the respondent Bank, these were filled out in a manner not in accord with their agreement, such that the petitioner Foundation was included as party thereto.
Board of Liquidators v. Kalaw Who Exercises Corporate Powers: Corporate Officers and Agents
Maximo Kalaw is chairman of the board and general manager of the National Coconut Corporation (NACOCO), a non-profit GOCC empowered by its charter to buy sell barter export and deal in coconut, copra, and dessicated coconut. Bocar, Garcia and Moll were directors. It entered into contracts for the trading and delivery of copra. Nature intervened4 typhoons devastated agriculture and copra production. NACOCO was on the verge of sustaining losses and could not be able to make good on the contracts. Sensing this, Kalaw submitted the contracts to the board for approval and made a full disclosure of the situation. No action was taken, and no vote was taken on the matter. On 20 Jan 1947 the board met again with Kalaw, Bocar, Garcia, and Moll in attendance, and approved the contracts. NACOCO however only partially performed the contracts. One of the contracts concerns the Louis Drayfus & Co., which sued NACOCO. NACOCO settled out-ofcourt and paid Drayfus P567,024.52 representing 70% of total claims. The total settlements sum up to P1.3M. NACOCO sues Kalaw, and his directors Bocar, Moll and Garcia to recover this sum, alleging negligence and BF and breach of trust in approving the contracts, by not having them approved by the board. TC dismisses complaint. NACOCO claims that the by-laws provide that prior Board approval is required before the GM can perform or execute in behalf of NACOCO all contracts necessary to accomplish its purpose.
Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Zamboanga Transportation Co. v. Bachrach Co. Who Exercises Corporate Powers: Corporate Officers and Agents
Board of Directors v. Tan Who Exercises Corporate Powers: Stockholders or members Notice
The Zamboanga Transpo Corp, a corporation managed by a BOD composed of 5 stockholders, purchased trucks, automobiles and parts from Bachrach Motors Inc. It incurred a balance of P44K due on several White trucks, secured by 2 CMs. As it was in dire financial straits, Zamboanga through its GM, President and Auditor Jose Erquiaga, entered into loan and additional agreements with Jose Clos, Bishop of Zamboanga, who was also the majority stockholder. As security for the financial accommodation, a new CM agreement was executed, wherein goods pledged to Bachrach was also pledged to the Bishop. Erquiaga submitted the mortgage deed to the board for approval. Two directors of Zamboanga expressed their satisfaction with the arrangement. Zamboanga partially complied with the mortgage deed. Bachrach sought the cancellation of the 2 CMs and to have it recorded in the registry of deeds. Erquiaga replied that the cancellations cannot be recorded pending the approval by the board of the mortgage deed. The BoD of Zamboanga then convened and rejected the mortgage deed, because of the discovery that the mortgage had been registered by Bachrach without the knowledge or consent of Zamboanga and without having first recorded the cancellations of the two previous mortgages. This also prompted the Board to adopt another resolution authorizing legal action to annul the mortgages. Bachrach also sued Zamboanga, and was able to obtain possession of all the chattels and sold the same at public auction. Zamboanga claims that an oral agreement existed such that the mortgage would not be valid without approval by resolution of the board and that it would not be recorded until approval thru resolution was obtained, among other conditions. Stockholder John del Castillo files an action in court to declare null and void the election of the members of the board of directors and Election Committee of SMB Workers Savings and Loan Assoc Inc. and to compel the board to call for an hold another election in accordance with its by-laws and the Corporation Law, and to restrain the illegally elected directors from exercising the functions of their office. TC grants the petition and declared the election null and void and ordered another election to be held. However, the same members of the Election Committee set the meeting of the members of the association to elect the new members. Del Castillo et al contends that it would be inequitable for them to conduct and supervise again the election. Furthermore, since the notice was posted and sent out only on 26 March, and the election would be held on 28 March, or two days after notice, it
it appears that the notice was posted on 26 March and 28 March was the date for the election. Therefore the five days previous notice required by the by-laws was not complied with. As regards the creation of a committee of three vested with the authority to call conduct and supervise the election, and the appointment of Viernes as chairman of the Committee, the court in the exercise of its equity jurisdiction may appoint such committee, it having been shown that the Election Committee provided for in the by-laws has been annulled by the TC and would jeopardize the rights of respondents if allowed to act.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
is not in accordance with the by-laws which provide that 5 days notice is required. The TC entered an order that the election set for 28 March be cancelled and a committee of three be constituted and appointed to call conduct and supervise the election. Logan, Irene, and Felisa Johnston, and Louis and Rosario Johnston, and Elizabeth Araneta are the majority shareholders of a family stock corporation known as Johnston Lumber Co Inc. A stockholders meeting was scheduled to elect a new set of directors who would in turn choose the new officers of the corporation. Logan presented a proxy by his mother, Felisa, and another proxy by his wife, Irene, which all-in-all represented 1,242 of the 2,462 shares of the corporation. He also requested that the duly endorsed shares of JB Solis be listed in the books for voting purposes. Minority SH Louis Johnston, as Chairman of the board, denied the request. Logan quickly sent for the original owners so that they could vote in his favor. Louis also disallowed Logan from voting the 307 shares of the elder Johnston which he had been voting in his capacity as administrator of the estate because the estate proceedings were already terminated. Thereafter, and before the existence of a quorum could be declared, Logan et al walked out of the SH meeting and refused to recognize the validity of the meeting. Louis group, the minority carried on and elected themselves directors and officers. Another SH meeting was called by Louis at the instance of Logan, which will cover matters not taken up or not finished during the regular SH meeting. During the meeting Logan moved for the election of a new board, claiming that there was no quorum in the last meeting and thus was not validly held. Louis denied the motion. Logan, who represented majority of the stocks, then nominated his own set of directors, and his group cast their votes in favor of the nominees, which were elected the new members of the board. This action was overruled again by Louis as Chair. Logan Irene and Felisa filed a quo warranto suit alleging that they were the duly elected members of the BOD of Johnston Lumber Co, and were also elected as the corporate officers thereof and praying for the ouster of Louis, Araneta and Rosario Johnston.
Logan Johnston v. Louis Johnston Who Exercises Corporate Powers: Stockholders or members Where all stockholders present
Ponce v. Encarnacion Who Exercises Corporate Powers: Stockholders or members Where no meeting called
At a stockholders meeting of the Daguhoy Enterprises Inc, the voluntary dissolution of the corporation and the appointment of Potenciano Gapol, the majority stockholder, as receiver was agreed upon, with a petition for voluntary dissolution drafted and signed by Ponce. Instead of filing the petition, Gapol changed his mind and filed a complaint in court to compel Ponce et al to render an accounting of the funds of the corp, reimburse it for expenses and purchases, and other amounts which were allegedly misspent and misappropriate for Ponces own use. Gapol also sought the removal of Ponce et al as members of the board, and prayed for an order directing him to call a meeting of the stockholders and to preside thereat. 2 days later, without notice to the Ponce group and to the other board members, the TC issued the order prayed for. Ponce only got to know about
The SHs who remained after the group representing the majority walked out without a quorum being declared represented the minority and did no constitute a quorum, and it is clear that they could not have validly transacted further business much less have elected a new set of directors. It follows that if the election of the directors after the withdrawal of Logan was null and void, then the subsequent meeting of the board at which the Louis group was elected was likewise null and void. If the purpose in bolting the meeting was to deliberately defeat the existence of a quorum, the absence of a quorum, then it would produce the effect of nullifying the proceedings that follows. It is to be noted that a SH can, for justifiable reasons, break the quorum by w/drawing from the meeting. Logan walked out because Louis persistently and with reason overruled Logan on his requests to vote the shares of the Silos family, which he validly purchased. That Logan did everything possible to register the stocks in order to vote them was substantial compliance with the charter and the by-laws. The denial by Louis to vote the shares of the minor children of Albert Johnston was likewise unreasonable. The withdrawal of Logan, although it actually defeated the existence of a quorum, was neither unreasonable nor unjustifiable. The second meeting of SH was properly convened. All parties were present. The roll was called and a quorum was declared. The contention of Louis that the 2nd meeting did not amount to an election cannot be sustained. It must be remembered that the Logan group held the majority of stocks when they cast their votes ifo the nominees. The inaction of the Louis faction, did not have the effect of defeating or invalidating the election. It is the essence of all elections that the will of the majority, properly expressed, shall govern. A majority of votes cast will decide, although some SHs who are present may refuse to vote, and thus the majority of the votes cast may be less than a majority of the persons or stocks present or represented. Neither may the second election be assailed on the ground that notice did not specifically include the election of the new board on the agenda. The notice provided that matters not taken up or finished during the first meeting will be part of the agenda, therefore the SHs knew that Logan would press for the new board and they were prepared for it, having attended the first meeting. Furthermore, all SHs were present either in person or by proxy during the 1st meeting and whatever defect in the notice was cured b their presence and acquiescence. The by-laws of the corporation provide in part that its board shall be elected by the stockholders every even year during the month of January. The requirement in the Corp Code that on the showing of good cause therefor does not mean that the petition must be set for hearing with notice served upon the board. The TC was satisfied that there was good cause considering that the chairman had failed, neglected, or refused to perform his duty to call a meeting of the stockholders to elect new sets of directors, in accordance with the by-laws. They had no right to continue as directors unless reelected by the stockholders in a meeting called for that purpose every even year. They had no right to hold-over brought about by the failure to perform the duty incumbent upon any of them. The alleged illegality of the election of one members of the board at the meeting called by Gapol was
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
the order when the bank refused to honor the checks because of its refusal to recognize the new board members. Detective & Protective Bureau v. Cloribel Who Exercises Corporate Powers: Instances When Stockholders or Members action is necessary Election of directors and trustees Fausto Alberto was managing director of the Detective and Protective Bureau Inc. who illegally seized and took control of the assets and books of the corporation, concealed them illegally and refused to allow any member of the corporation to examine. The stockholders in a meeting removed Alberto as managing director and elected Jose de la Rosa, who did not own a share of stock of the corporation. Alberto refused to vacate and surrender his office and continued to perform unauthorized acts and to use corporate funds. The corporation claimed that Alberto arrogated unto himself the powers of the board because of his refusal to surrender his office despite removal by the stockholders. This involves two actions in the SEC filed by John Gokongwei, a San Miguel Corporation stockholder by himself and through the URC and CFC, who sued the majority of the SMC BoD (Soriano, Zobel, Roxas, Ortigas, Prieto et al) and SMC itself to declare null and void the amended by-laws and a cancellation of the certificate of filing the amended by-laws. He alleges the following: SMCBOD acted without authority in amending the by-laws without the prescribed 2/3 vote of stockholders holding subscribed and paid-up capital stock Some members of the SMCBOD amended the by-laws which state that in determining whether or not a person is engaged in competitive business, the Board may look into factors such as competitive business and family relationship, thus purposely providing for Gokongweis disqualification as director, and effectively disqualified him from being elected as director Gokongwei also files an action in the SEC to compel SMC to allow him to inspect the records of the corporation, including the minutes of the last stockholders meeting, copy of the management contract with ANSCOR, latest financial statements among others, including the authority of the stockholders to invest corporate funds in San Miguel International Inc. The Sorianos counter by alleging that Gokongwei as president and majority stockholder of URC and CFC, conducted bad publicity against the SMC to generate support from the stockholders in his effort to secure a seat in the board. They add the fact Gokongwei was rejected by the stockholders because he was engaged in competitive business and securing a seat would have subjected SMC to grave disadvantages. SEC grants Gokongwei motion but denies the motion to inspect the financial statements and records of San Miguel International as he is not a stockholder thereof. SEC also allowed him to run as director but cannot sit as long as the validity of the by-laws has been settled. Meanwhile the SMCBOD submitted the amended by-laws to the stockholders, who ratified the same.
Gokongwei v. SEC Who Exercises Corporate Powers: Instances When Stockholders or Members action is necessary Election of directors and trustees
I: were the amended by-laws valid and reasonable H: In the case at bar, there are facts which cannot be denied, viz.: that the amended by-laws were adopted by the Board of Directors of the San Miguel Corporation in the exercise of the power delegated by the stockholders ostensibly pursuant to section 22 of the Corporation Law; that in a special meeting on February 10, 1977 held specially for that purpose, the amended by-laws were ratified by more than 80% of the stockholders of record; that the foreign investment in the Hongkong Brewery and Distellery, a beer manufacturing company in Hongkong, was made by the San Miguel Corporation in 1948; and that in the stockholders' annual meeting held in 1972 and 1977, all foreign investments and operations of San Miguel Corporation were ratified by the stockholders. I: Whether or not the amended by-laws of SMC of disqualifying a competitor from nomination or election to the Board of Directors of SMC are valid and reasonable H: Under US corporate law, corporations have the power to make by-laws declaring a person employed in the service of a rival company to be ineligible for the corporation's Board of Directors. This is based upon the principle that where the director is so employed in the service of a rival company, he cannot serve both, but must betray one or the other. Such an amendment "advances the benefit of the corporation and is good." In the Philippines, section 21 of the Corporation Law expressly provides that a corporation may make by-laws for the qualifications of directors. Thus, it has been held that an officer of a corporation cannot engage in a business in direct competition with that of the corporation where he is a director by utilizing information he has received as such officer, under "the established law that a director or officer of a corporation may not enter into a competing enterprise which cripples or injures the business of the corporation of which he is an officer or director. It is also well established that corporate officers "are not permitted to use their position of trust and confidence to further their private interests." In a case where directors of a corporation cancelled a contract of the corporation for exclusive sale of a foreign firm's products, and after establishing a rival business, the directors entered into a new contract themselves
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Roxas v. dela Rosa Who Exercises Corporate Powers: Instances When Stockholders or Members action is necessary Removal of Directors
The majority SHs of Binalbagan Estate Inc formed a voting trust, wherein the trustees (Fisher, Laguda, and Monteblanco) were authorized to represent and vote the shares pertaining to the majority SHs. During the SH meeting the trustees were able to elect a board to their liking without opposition from the minotiry. Various substitutions have been made in the personnel of the voting trust, such that the present composition wanted to oust the officers of Binalbagan elected by the voting trust previously, without waiting the termination of their official term or after one year from date of their election. The trust then called a special general meeting of the SHs for the election of the board, amendment of by-laws, and other business. A board member and a single SH sued the trustees to enjoin them from holding said meeting. TC granted the petition. Angeles et al were minority SHs, while Santos et al were the majority SHs of Paranaque Rice Mills Inc. At an extraordinary SH meeting the SH appointed an investigation committee to investigate and determine the properties, assets, and losses of the corporation. Santos denied access to the properties and the records and books of the corporation. Santos took the records and books and
Angeles v. Santos Who Exercises Corporate Powers: Instances When Stockholders or Members action is necessary Removal of Directors
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
appropriated for his own benefit the properties and funds of the corporation. He also refused to issue a certificate of stock for Angeles, and refused to call a SH meeting and a board meeting, as well as disposed of the properties of the corporation without authority. Santos also called no meeting of the board or of the SH thus enabling him to continue holding without any election, the position of president and GM. Angeles et al sought a court order to appoint a receiver, to order Santos to render an accounting, to issue to certificate of stock ifo Angeles, and to remove the present board and hold a special SH meeting to elect a new board.
Campbell v. Leows Inc. Who Exercises Corporate Powers: Instances When Stockholders or Members action is necessary Removal of Directors
Two factions have been fighting for control of Leows Inc the Tomlinson (majority SH) Faction, and the Vogel (president) Faction. At the SH meeting each nominated 6 directors and a neutral director, or 13 directors in all. 2 of the 6 Vogel directors, a Tomlinson director, and the neutral director resigned, making it 5-4 ifo Tomlinson. A quorum is 7. Only the 5 Tomlinson directors attended a directors meeting to fill the vacancies in the board. Before the meeting, Vogel as president called a SH meeting to fill director vacancies, amend the by-laws to increase the number of board members from 13 to 19, to increase the quorum from 7 to 10, and to elect 6 additional directors, as well as to remove 2 Tomlinson directors. A proxy statement was sent out by Vogel soliciting SH support for the agenda in the notice of the Vogel meeting and to fill the board with Vogel nominees. Tomlinson sued. He claims the president had no authority to call a special meeting of SH to act upon policy matters which have not been defined by the board. He also alleges that the president had no authority, without board imprimatur, to propose an amendment of the by-laws to enlarge the board.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
De la Rama v. Ma-Ao Sugar Central Who Exercises Corporate Powers: Instances When Stockholders or Members action is necessary Fundamental Changes
Derivative suit by 4 minority SHs against the Ma-ao Sugar Central, its president and 3 other directors. The minority SHs contend that the president subscribed for P3M worth of capital stock of the Phil Fiber Co Inc, a company making sugar bags, making 2 payments without any board resolution authorizing the investment at the time, but only after the investment was already made. They claim that the transaction is still wanting in legality, since no resolution was approved by affirmative vote of 2/3 of SHs
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
State ex. Rel Everett Trust v. Pacific Wax Devices Affecting Control The Proxy Device
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Pambul Inc was organized by the controlling stockholders of Pampanga Sugar as a scheme to perpetuate their monopoly of the directorship and executive positions of Pampanga sugar by loaning money to its SHs at as low a rate of interest as 7% per annum on the security of their shares of stock, the amount of the loans being as high as 90% of the par value of the shares, thereby inducing the SHs to avail themselves of the loan and thereby enabling the management of Pampanga Sugar through Pambul to secure sufficient proxies for their purpose, and as a result the pledgors-stockholders could do nothing even if they should make use of their right to vote when and if the management should commit corporate abuses, excesses, and mistakes.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Action to restrain Loews Inc from using corporate funds, employees, and facilities for solicitation of proxies for the Vogel group and from voting proxies so solicited. Campbell contends that the Vogel Group, by calling the meeting and by using corporate funds and facilities, are usurping the authority of the BOD, and that the president is in effect in using his corporate authority and the corporate resources to deny the will of the BOD and to maintain himself in office. The by-laws provide for 13 directors. 7 is a quorum. Due to 4 resignations there are now 9 directors in office. 5 of 9 are of the Tomlinson Faction while the remaining 4 are of the Vogel Faction. Since the Vogel Group will not attend directors meetings, it follows that the Tomlinson Group is unable to muster a quorum of the BOD and is thus unable to take action on behalf of the Board.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
6 stockholders, led by Davies (president) of the American Independent Oil Company took steps to form a coalition, in order to ensure the smooth functioning of its board considering that not one SH holds a majority of the stock of the corp, and no one SH is represented by more than four directors. The Davies 6 hold 54.5% of the corporate shares and is represented on the board by 8 of 15 directors. An agreement was executed between the 8 directors representing the Davies group and are called agents, and the Davies 6 to achieve effective control of the board and control of corporate policy. Motive was to prevent acquisition of control by Philipps, the largest single SH holding 1/3 of the stock. The agreement provides that it transfers voting conrol of the stock of the Davies 6 to the 8 agents for a period of 10 years. An agreement of 7 of the 8 agents is required to vote the stock and in case of disagreement an arbitrator will be designated. Abercrombie (one of the organizers of the company), Philips et al sued Davies and the agents, claiming that the agreement is invalid. In substance it is a voting trust but since it did not comply with the voting trust statute it should be void. Davies contends that it was never intended to be a voting trust but a mere pooling agreement.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Teal & Company is indebted to HW Peabody & Co. for P300K for tractors, plows, and parts delivered, of which it has paid P150K. Asia Banking Corp held drafts accepted by Teal under the HW Peabodys guarantee. Tractors were returned to HW Peabody due to its being unsellable due to financial and agricultural depression in the RP. Teal ordered another lot of tractors from Smith Kirkpatrick, but shipment was delayed until the rescission of the credit of Teal with Asia Bank. Yet Smith still delivered the order, and Teal at the request and advice of the Bank accepted the drafts and stored the same. Asia bank persuaded Teal, Peabody, and Smith Kirkpatrick to enter into a creditors agreement wherein it was mutually agreed that neither of the parties should take action to collect its debts from Teal for 2 years. Teal soon became indebted to Asia Bank for P750,000, secured by mortgage. The Bank then suggested that, for the mutual protection of Teal and itself, it was advisable that the Bank should temporarily obtain control of the management and affairs of the company. To this end, it was necessary for the SHs to place their shares in a voting trust to be held by the Bank, then the Bank would finance Teal under its own supervision. The Teal SHs were thus induced to enter into the Voting Trust Agreement, with the purpose that the agreement will be intended for the protection of all parties from outside creditors. Shortly after the execution and delivery of the voting trust and the MOA, Mullen as GM of the Bank, caused the displacement and removal SH representatives in the Board and the substitution in their place of the Banks employees or representatives. The new Board, who have not purchased any share of stock of Teal, proceeded to remove the Corp Secretary, discharge all the old managers and displace them with creatures of their own choosing whose interest consisted wholly in pleasing themselves and the Bank, and who were wholly foreign to the stockholders. Dixon was the owner of a leasehold interest in a tract of land in Minneapolis upon which stood what was known as the Nicollet Hotel. Nicollet Hotel Inc was organized for the purpose of adding to the hotel accommodation of that city. Arrangements were made to have Dixon take 2500 shares for his lease and to erect an new Nicollet Hotel upon this property. Cost was $3M, to be raised by the sale of $1M mortgage bonds and $1.25M of preferred stock. The Minnesota Loan and Trust Co approved the loan application of Nicollet for $1.8M secured by the said mortgaged bond. The loan agreement stipulates that a voting trust agreement is entered covering the common stock of Nicollet. The State Securities Commission approved Nicollets application for the license to sell its pref erred stock, provided that the common stock is to be trusted with three trustees for 10 years for the protection of preferred SHs. Thereafter a voting trust agreement was entered with Dixon et al as voting trustees. Mackin is the owner of a trust
Right of transferring SHs to set aside the trust agreement when their rights are trampled upon by the trustee. Corpo Code now provides that no VTA will be used for purposes of fraud.
Voting trusts are not illegal per se. In the instances where the voting trust has been held void, there existed invalidating circumstances such as want of consideration, voting power not coupled with an interest, fraud, illegal purpose, and so on. In this case there was no charge of illegality or fraud, nor of any invalidating circumstance. The voting power of the three trustees is coupled with an interest because of one of the trustees is a substantial owner of the common stock, and all are charged with the duty of protecting and conserving property for the benefit of those who became purchasers of preferred stock and bonds. The whole purpose of the agreement is legitimate and wholesome. It was a matter of civic pride and to make this possible, it involved the invitation of combinations of capital in substantial amounts, which could only be secured by having those who invested their money assured of the fact that there would be a continuity of management during a period of years until such time that the new enterprise
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
certificate representing 80 shares of common stock, alleging that the voting trust is void and that the trustees and directors appointed have mismanaged the company and have caused large losses. The agreement also allegedly denied them the right to inspect the books, and they ask the court to declare the same null and void and appoint a receiver until the beneficial owners can elect a new set of directors. NIDC v. Aquino Devices Affecting Control Voting Trust Batjak, a manufacturer of coco oil and copra cake for export, is on the brink of bankruptcy. It entered in to a Financial Agreement with PNB for additional operating capital for its 3 processing mills and to pay its other debts to other banks. Under the agreement with PNB, NIDC, a wholly-owned subsidiary of PNB, would invest P6.7M worth of preferred shares convertible within 5 years into common stock to pay off the other debts and the balance to pay off its own due with PNB. PNB also granted various credit accommodations. Batjak as part of the deal, mortgaged all its properties in the province. A 5-year voting trust agreement was executed ifo NIDC by the SHs representing 60% outstanding stock of Batjak. Years later, PNB instituted foreclosure proceedings against the mortgaged properties due to Batjaks insolvency, and soon became owner of the properties. Batjak failed to exercise its right to redeem within the period allowed and PNB transferred ownership of the 2 oil mills to NIDC. 3 years later, Batjak represented by majority SHs, inquired with NIDC if it was still interested in negotiating the renewal of the voting trust agreement. NIDC replied that its was no longer interested and requested turn-over of all Batjak assets and properties. Batjak demanded an accounting of all assets and properties and operations but NIDC refused to comply. Batjak then filed an action for mandamus. CFI Judge Aquino issued a TRO prohibiting NIDC from removing any record, report, or document or disposing all of the properties of Batjak, and allowed Batjak to inspect the same. Batjak then moved for the appointment of a receiver. NIDC and PNB opposes, but overruled by CFI. MRs denied.
Involves an action contesting the validity of the election of directors and officers of Ringling Bros-Barnum & Bailey Combined Shows Inc. Edith Ringling and Aubrey Haley, two of three majority SHs, entered into an agreement (valid for 10 years) that neither party will sell any shares or VTCs without first making a written offer to the other for the same price and under the same conditions, allowing a period of within 180 days to accept the offer. Each party will consult with the other and act jointly in exercising voting rights, and in case of disagreement, an arbitrator (Loos) will intervene, and his decision shall be binding on the parties. It also provides that each will enter into VTAs or other
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
agreements as deemed advisable. From 1943-45 both parties voted together in accordance with the agreement and elected 5 of 7 directors in each occasion. James Haley, as proxy for Mrs Haley, refused to follow the instructions of the arbitrator Loos on a particular manner of voting the shares (i.e. vote for adjournment and vote for 5 named nominees for director) by voting all his wifes shares for the election of Aubrey Haley and James Haley.
EK Buck Retail v. Harkert Devices Affecting Control Pooling and Voting Agreements
Suit for declaratory judgment to test the validity of a corporation control agreement entered by the parties in their capacities as SHs of Harkert House. Harkert, the sole owner of a chain of restaurants and burger chains, sought financial aid from EK Buck, and entered into 4 purchase and resale agreements prior to the incorporation of Harkerts restaurants. These involve the selling of equipment and fixtures of a designated outlet or stand to an investor for cahs and entering into an agreement to buy back the same at the end of 5 years for a higher price. Harkert then incorporated his business, with its net worth estimated at $47,504.38, which Buck knew. Harkert was then obligated on the repurchase agreements to persons other than Buck. Harkert, also indebted to Buck, entered into another agreement where buck would cancel the gross amount of indebtedness and pay in cash into the business for which he was to receive as consideration 40% of the stock and equal board representation. Buck invested around $90K into the Harkert Houses. In the agreement, the parties agree that the number of board members of Harkert be reduced from 5 to 4, which would include Buck and Devor (of the EK Buck Retail Stores), and at all times 2 nominees shall come from each party (Buck group and Harkert group). It was also agreed
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
between the parties that at all SH meetings all of the shares of the parties be voted in such a manner by the directors elected. EK Buck Retail thus became owner of 1198 shares to Harkerts 1437. The contract was between the parties as SHs. They involved no action on the part of the corporation. The board, offices, or other SH had no knowledge of the transactions. Harkert claims that an agreement between SHs as to how stock shall be voted at the election of directors ipso facto changes the manner of election prescribed by the Constitution. He adds that although a SH may vote as he pleases, public policy forbids the enforcement of a contract by which a SH undertakes to bargain away his right to vote for directors according to his best judgment. Buck counters that no public policy is violated in the making of an agreement between the majority and minority SHs to cause voting rights in the corporation to be equal when it is beneficial to the corporation for the purpose of brining fresh money into the business. Action for specific performance between Clark and Dodge, SHs of two New Jersey corporations, Bell & Co and Hollings-Smith Co, engaged in the business of manufacturing medicinal preparations by secret formulae. Clark owned 25% and Dodge 75% of each corporation. Dodge, a director, took no active part in the business but controlled the other directors of both corporations. Clark was a director, treasurer and GM of Bell but was in charge of a major part of the business of Hollings-Smith. The secret formulae were known to Clark alone. Both entered into an agreement that Clark should continue in the management and control of Bell so long as he remained faithful and competent, and that he should not be the sole custodian of the formulae but share his knowledge with Dodges son. The agreement also provides that Dodge during his lifetime and after death, a trustee to be appointed by him in his will would vote his stock and so vote as director that Clark would continue to be a director and GM and receive of the net income of the corporations, among others. Clark agreed to share the formula to Dodges son and instruct him on the methods of manufacturing. Clark accuses Dodge of breach and his failure to use his control of the stock to continue Clark as director and GM, and even prevented Clark from receiving a proportion of the income as stipulated in the agreement.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Sherman & Ellis v. Indiana Mutual Casualty Co. Devices Affecting Control Management Contracts
Indiana Mutual Casualty Co was organized to take over the business of an unincorporated association engaged in writing policies covering risks created by the Indiana Workmens Compensation Law. It ratified an agreement with Sherman & Ellis by which the management of the casualty company was conferred upon Sherman Ellis for 20 years. Indiana Mutual terminated its contract after some difficulties arose between Sherman Ellis and the Indiana state department in which the latter tried to appoint a receiver for Indiana Mutual. Sherman sues for specific performance to enforce the contract.
Benintendi v. Kenton Hotel Devices Affecting Control Unusual Voting and quorum requirements
2 men owned in equal amounts all the stock of a domestic business corporation, made an agreement to vote for and adopt the by-laws of the corporation, providing that no action should be taken by the SHs except by unanimous vote of the SH present in person or by proxy should be sufficient, that the directors of the corporation should be the 3 person receiving the unanimous vote of all SHs, that no action shall be taken by the directors except by unanimous vote of all directors. The minority SHs sued to have the by-laws adjudged valid and to enjoin the majority from doing anything inconsistent therewith.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Otis & Co v. Pennsylvania R. Co. Duty of Diligence: Business Judgment Rule CHAPTER VIII Otis & Co is a SH in and among the wholly-owned subsidiaries of the Pennsylvania Railroad Co (PRR), which included Pennsylvania Ohio 7 Detroit Railroads (POD). One of its subsidiaries had an outstanding bond issuance of $28.4M. The parent then negotiated with a third party, Kuhn, Loeb and Co, to refinance the bonds. The directors of POD approved a resolution authorizing the sale of the new Series D bonds at a best obtainable price. Bonds were then sold to Kuhn and Loeb. Another buyer was willing to purchase the bonds at a better price but the directors declined. The Interstate Commerce Commission found that the corporation was not able to get the best price for the sale and that other options were not explored, that negotiations were only with one investment house and were at arms -length dealing, and that it was possible to have greater savings
Montelibano et al are sugar planters adhered to the Milling Companys sugar central mill under identical contracts. The contracts would be in force for 30 years and provide that the resulting product should be divided in the ratio of 45% for the mill and 55% for the planters. It was proposed to execute the milling contracts, increasing the planters shares to 60% of the manufactured sugar and molasses and extending the period from 30 to 45 years. The Board of the Milling company then adopted a resolution granting further concessions to the planters over and above the amended contract. 17 years later, Montelibano sues the Milling company, contending that the 3 sugar centrals with a total annual production exceeding 1/3 of the production of all sugar millis in Negros, had already granted 62.5% participation to their planters, and in accordance with Para 9 of the resolution, it had become obligated to grant similar concessions to them.
Business judgment rule: courts will not interfere in matters of business judgment, in which it is presumed that judgment reasonable diligencehas in fact been exercised. A director cannot close his eyes to what is going on about him in the conduct of business judgment. Courts have given directors wide latitude in the management of the affairs of the corporation provided that the judgment is unbiased, honest and reasonably exercised. Negligence must be determined as of the time of transaction. Mistakes or errors in the exercise of honest business judgment do not subject the officers and directors to liability for negligence in the discharge of their appointed duties. Directors are entrusted with the management of the affairs of the corporation. If in the course of management they arrive at a decision for which there is a reasonable basis, and they acted in GF as the result of their independent judgment, and uninfluenced by any other consideration than what they honestly felt was in the best interests of the corporation. In the present case, the SC found that the officers and directors of the corporations acted honestly in GF and sought to exercise their best judgment for the best interests of their corporation. No fraud was present, but only a faint suggestion of BF. The directors had the right to negotiate privately with Kuhn and Loeb. In contracting with the latter, the directors were not contracting with another firm in which they were interested, nor did the directorship or officership positions interlock. There is no contention that fraud existed and fraudulent acts will not be presumed. When a resolution is passed in GF by the board, it is valid and binding, and whether or not it will cause losses or decrease the profits of the central, the court has no authority to review them. Questions of policy or management are left solely to the honest decision of officers and directors of a corporation, and the court is without authority to substitute its judgment for that of the board; the board is the business manager of the corporation and so long as it acts in GF its orders are not reviewable by the courts
The officers are liable for the transaction because the entire arrangement was so improvident, risky, and unusual and contrary to fundamental concepts of prudent banking practice. A bank director when appointed takes oath that he will diligently and honestly administer the affairs of the bank or trust company. Honesty alone would not suffice; there must be more than honestythere must be diligence, and that means care and prudence as well. What sound reason is there for a bank, desiring to make an investment, to buy securities under an arrangement whereby any appreciation will insure to the benefit of the seller and any loss will be borne by the bank. There is here more than a question of business judgment. The directors plainly failed to bestow the care which the situation demanded. A director, however, is not liable for loss or damage other than what was proximately caused by his own acts or omissions in breach of his duty. The
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
was engaged in real estate and advanced a loan to a third person taking as security his PN. The loan was not authorized by the board and was not for the benefit of the corporation nor was it in aid of its business. No effort was done to collect on the loan, which became due and demandable. The corporation went bankrupt, and the receiver sues the directors to collect on the amount due the insolvent corporation and for damages. Court held that the director was negligent. The board of the corporation authorized the purchase of 330 shares of capital stock of the corporation and the declaration of dividends at a time when the corporation was indebted and in such a bad financial condition. The directors relied on the face value on the books of its A/R, which had little or no value. Furthermore it appears that two of the directors were permitted to resign so that they could sell their stock to the corporation. The corporation became insolvent, and the receiver Steinberg sues the directors.
The corporation did not have a bona fide surplus with which dividends could be declared and paid out. The directors did not act in GF and were grossly ignorant of their duties. Directors were held personally liable for causing the corporation to purchase their own shares and declaring dividends, which because of such failure to take into consideration of worthless receivables, worked to the detriment of the creditors. The directors did not act with diligence in taking the word of their chairman and not making an informed decision based on the facts then available to them and on not relying on other documents available to them. Creditors have the right to assume that so long as there are outstanding debts and liabilities, the board will not use the corporate assets to purchase its own stock, and that it will not declare dividends to SHs when the corporation is insolvent First liability must rest upon the directors general inattention to his duties. He cannot be charged with neglect in attending director meetings, since there had been only 2. But his liability must depend upon his failure in general to keep advised of the conduct of the corporate affairs. While directors are collectively managers of the company, they are not expected to interfere individually in the actual conduct of its affairs. To do so would disturb the authority of the officers and destroy their individual responsibility, without which no proper discipline is possible. Having accepted a post of confidence, Andrews was charged with an active duty to learn whether the company was moving to production, and why it was not, and to consider what could be done to avoid the conflicts among personnel or correct their incompetence, which was slowly bleeding the business to death. He must go further to show that he should have been more active, as the cause of action against him by the receiver rests upon a tort of omission as though it had rested on a positive act on his part. When a business fails from general mismanagement or business incapacity, could the blame be placed upon a single director and could he have saved the company if he had tried? A director could have least fulfilled his duties to the company and to the SHs to have made the company prosper, or at least to show that he had done his duty enough to have broken the fall of the company. This Andrews failed to do. x True, Andrews was not well-suited by experience for the job he had undertaken. Directors are not specialists, but they must have good sense, and must have acquainted themselves with the corporate affairs, but they need not have any technical talent. They are the general advisers of the business, and if they faithfully give such ability as they have, it would not be lawful to hold them liable.
Corporation manufactures starters for Ford motor vehicles and airplanes. Director Andrews, the largest SH, who was induced by the President to become director, held only 2 board meetings. During his term, the company business was mismanaged. Barnes was then appointed receiver after the corporation had gone under, and was found that the company had no funds. He alleged that Andrews failed to give adequate attention to the affairs of the company, which had been conducted incompetently and without regard to the wastage in salaries. Work had languished from incompetence and extravagance and quarrels between the factory manager and the other personnel affected production.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Bates v. Dresser Duty of Diligence: Business Judgment Rule Bank employee was able to embezzle cash from the branch operations for a considerable period of time, unbeknown to the bank officers, who relied to heavily and trusted the employee. He was able to swindle money by concealing his withdrawals through entries in the records of the bank, and matched it with the correct statements which were relied upon by the cashier.
Case involves provisions in the by-laws of a corporation seeking to have its securities registered and distributed in the Philippines.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
office as director of the corporation. Barretto v. La Previsora Filipina Fixing Compensation of Directors and Officers Suit by the resigned directors of a building and loan association to recover 1% of the profits to each complainant in accordance with an amendment to the by-laws, which stipulate that they are entitled to a lifetime annuity from the profits of the corporation.
The amended by-laws does create any obligation to pay to the persons name therein such a life gratuity or pension out of the profits. A by-law of this nature must be clearly regarded as beyond the lawful powers of a mutual building and loan association and is thus ultra vires. As it were, the by-law cannot be held to establish a contractual relation between the parties. The authority conferred upon corporations in the code refers to providing compensation for future services of directors, officers, and employees after the adoption of the by-law and cannot in any sense be held to authorize the giving of continuous compensation to particular directors after their employment has terminated for past services rendered gratuitously by the them to the corporation. To permit the transaction would be to create an obligation unknown to the law, and to countenance a misapplication of funds of the building and loan association to the prejudice of SHs. Contracts between a corporation and third persons must be made by or under authority of its board and not by the SHs. The action of the SHs is only advisory and is not binding on the corporation. The SH ratification cures any voidable defect in the action of the board on the stock options plan. Ratification by SHs of voidable acts of directors is effective for all purposes unless the action of the directors constituted a gift of corporate assets to themselves or was ultra vires, illegal, or fraudulent. The validity of a stock option plan depends directly upon the existence of consideration to the corporation. Sufficient consideration to the corporation may be inter alia, the retention of the services of an employee, or the gaining of services of a new employee, provided there is a reasonable relationship between the value of the services rendered and the value of options granted. In this case, the stock option plan is deficient because it is not reasonably calculated to insure that the corporation will receive the contemplated benefits. No rule of thumb can be devised to test the sufficiency of the condition which are urged as insurance that the corporation will receive the contemplated benefit. The most that can be said is that in each case there must be some element which, within reason, can be expected to lead to the desired end. The plan and options issued do not of themselves insure that benefit of retaining the services of the employee to whom the option is granted will inure to the corporation. They are too insecure in nature to be regarded as a condition of the stock option plan designed to insure that the corporation will receive the contemplated benefit. In this case, Repide was the chief negotiator for the sale of the lands, acting for all the other SHs. Only he knew the state-of-play in the proposed sale. He owned of the shares of the corporation. Under these circumstances, and before the negotiations for the sale were completed, he employs agents to purchase shares of his company from another SH and conceals his own identity and knowledge of the state of the negotiations on the sale of the lands and their probable effect on the value of the shares to be purchased. A director may be accountable directly to the SH where the special facts surrounding the transaction give rise to the obligation
The stock option plan of the company provides that 250,000 shares of the corporations unissued stock be subject to options to purchase at $1/share, exercisable at any time within a period of 5 years. The profit sharing plan provides that when quarterly earning exceeded $30,000 before taxes, 10% shall be distributed among the name officers and executive personnel. If a loss is incurred, cumulative deficiency plus operating losses shall be carried forward to succeeding quarterly periods. Both plans were adopted at a board meeting, but only the stock options plan was ratified by the SH.
Erica Strong is the owner of 800 shares of the Phil Sugar Estates Devt Company, which owned of the value of friar lands in the Philippines. Repide is director and majority SH. The government made an offer to purchase the lands owned by the corporation and from the other owners. The offer was rejected by Repide, without consulting the other SHs, and held out for a better deal. He was aware that the value of the lands and the shares would be of no value if the sale were not consummated, since the company had not paid dividends, was living on credit, and could not even paid taxes. The land was the only valuable asset of the
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
corporation. Repide than took steps to purchase 800 shares of stock owner by Strong. He employed Kaufmann, who then employed Sloan the broker, to purchase the stock for him. Negotiations ensued. Strong through Jones agreed to sell Strongs shares to Repide. He thus obtained the 800 shares for 1/10th the amount they were worth by the eventual sale of the lands two months after he bought the shares. The probable value of the shares was unknown to anyone except Repide, while the agent of Strong had no idea that it was Repide who wanted to purchase the shares. Mrs Wright and Allen Wright, majority SH and both director respectively, employed an agent to purchase from Emma Taylor 3750 shares in the corporation to which they are directors in. Said shares were pledged as security for a loan by Taylor which the Wrights knew. The Wrights also knew that the company was operating at a loss, and they knew the true value of the shares (which was not traded in the exchange). They also concealed their identity and purpose in purchasing the stock from Taylor.
Three (3) rules are recognized as applying to the case. The Majority ruledirectors and officers owe no fiduciary duty at all to SHs, but may deal with them at arms length. A director is a fiduciary with respect to the corporation as an entity, and not to the SHs as individuals. In dealings with or for the corporation, the director is exercising a corporate function, and is subject to the usual fiduciary duty to disclose all material facts; but that in personal dealings with SHs he is not exercising a corporate function, and is free to deal with them at arms length. It is based on the theory that the corporationthe collective SHsis a separate and distinct legal entity, an artificial personality, to whom the director owes his duty. The Minority Rulerecognizes the directors obligation to the SHs individually as well as collectively, and refuses to permit him to profit at the latters expense by the use of information obtained as a result of his official position and duties. Such a duty exists because the SHs have placed the directors in a strategic position where they can make it appear the shares are much less valuable than they really are. The Special Facts rulean exception to the Majority rule; where special circumstances are present which make it inequitable for the director to withhold information from the SH, the duty to disclose arises, and concealment is fraud.
Assuming the Special Facts rule to be applicable, there is no doubt that the Wrights owed Taylor a duty and violated that duty to her damage. The stock was not sold or traded in any exchange. They concealed their position as directors, and had full knowledge of the real value of the stock, but kept that knowledge to themselves. They had full control over the corporation. Under such circumstances the findings that the Wrights are guilty of fraud within the meaning of the Special Facts rule are supported by the evidence. Singer v. Carlisle Seizing Corporate Opportunity Singer et al are SHs of the United Corporation which owns all capital stock of its subsidiary, NY United Corp, both of which are engaged in the business of underwriting securities. Carlisle et al are directors of the two corporations. Other defendants are investment houses JP Morgan, Drexel & Co, and Morgan Stanley. United Corp acquired substantial voting stock of various holding and operating companies/utilities, which were all publicly listed and obtained their funds through the public sale of their securities. JP Morgan et al were able to obtain large profits from the underwriting of such securities to the exclusion of United and NY United. Plaintiff Singer charge that the defendant bankers and investment houses and the directors of the two corporations fraudulently caused the latter corporations to use their influence and control over the subsidiaries in order to United and NY United were also engaged in underwriting as do the defendant banks. It was the duty of their directors and officers to make every effort consonant with good, honest judgment to obtain for those corporations as much of the underwriting business as possible, and to make this business as profitable as possible. This does not mean, however, that the directors and controlling SHs of United and NY United were required to do anything detrimental to the affairs of other corporations of which they were officers and directors, and to the affairs of United and NY United. One in control of a majority of the stock and of the board of a corporation occupies a fiduciary relation towards the minority, and is charged with the duty of exercising a high degree of GF, care, and diligence for the protection of the same. Every act in its own interest to the detriment of the
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
induce them to award the underwriting business to the defendant bankers. Having eliminated United Corp and NY United as their competitors for the underwriting business of the subsidiaries, the defendants allegedly proceeded to utilize their control and influence to obtain the business for themselves. Singer et al also claimed that the directors of the corporation, as fiduciaries, eliminated their cestui as a competitor in the underwriting profits.
Irving is the trustee of the insolvent company Sonora Acoustic. Acoustic desired the patents of the De Forest company and wanted gain at least minority stake to have a voice in the management of its patents and products, which goes to Acoustics corporate purpose. Reynolds & Co, receiver of the insolvent De Forest, offered to give Acoustic 1/3 participation in the purchase of 600,000 shares of De Forest stock. It also stipulated that Acoustics nominees should hold 4 of 9 seats in the board and that it should have the right to enter into a contract to handle the managing and selling of De Forest products. This offer was presented to the board of Acoustic and a resolution was passed authorizing its president, Deutsch, to obtain sufficient funds to enable Acoustic to carry out its obligations in case it accepts the offer. No funds were obtained but Biddle and Deutsch et al, agreed to put up the money and accept the certificates of De Forest stock issued when date of payment came under the offer. Reynolds agreed and issued the certificates. The deal was consummated on the purchase of De Forest stock. It was then traded in the exchange and Biddle, Deutsch et al were able to reap huge profits in selling their shares. Acoustic declares bankruptcy and sues the Biddle group, three of whom were directors of De Forest, appropriated to themselves Acoustics right under its contract, when as fiduciaries they were obligated to preserve those rights for Acoustic and were forbidden to take position where personal interest would conflict with the interest of their principal. JP Morgan, in disposing of 1,250,000 shares of CS of Alleghany corporation, offered 500,000 to Guaranty Corporation to be sold on a commission at $24/share. Before the public offering, Morgan also offered the other 750,000 to friends at $20. Among those receiving the shares were some directors of Guaranty Corp, who received 40,000 shares. The market opened at a premium and the directors were able to dispose of their stock at a substantial profit
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Globe Woolen needed electric power to run its mills. Its president and majority SH, Maynard, was able to get a contract with the electric company Utica Gas which was ratified by the executive committee of Glob es board. Maynard was a nominal SH in the electric company also, and did not vote in the meeting. Globe desires to enforce the contract.
The Management group (composed of Philadelphia banks) transferred control over the Insuranshares Corporation, an investment trust specializing in shares of small life insurance companies, to the Boston Group, none of whom ever had any interest of any in it. With the control went plenary power under the by-laws to sell or transfer all the securities in the companys portfolio. Such acquisition of control was the first step of a grand scheme, planned by the Boston Group with the connivance of brokers, to strip the corporation of its valuable assets, leaving a
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
mere shell to the remaining SHs Pardo v. Hercules Lumber Remedies Available if Inspection Refused CHAPTER IX Corporate secretary of Hercules Lumber refused to permit Pardo, a SH, or his agent to inspect the records and business transactions of the company at the times desired by Pardo. Basis of the refusal was the provision in the companys by-laws which stipulated that every SH may examine the books of the company and other documents upon the days which the board annually fixes.
Gokongwei, a major SH of San Miguel Corporation, sought to exercise his right to inspect the books and records of SMC Intl, a foreign subsidiary wholly -owned and controlled by SMC. Since he was not a SH of the subsidiary, SMC denied his request to inspect its books.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
CHAPTER X Plaintiffs are minority SHs who brought a derivative suit against the principal officer for damages resulting from the mismanagement of corporate affairs and misuse of corporate assets. The complaint prayed for judgment requiring defendant, among others, to pay plaintiffs the value of their respective participation in said assets on the basis of the value of the shares held by them.
A derivative suit was brought against the officers and the board. Complaint alleged that the directors approved a resolution granting excessive compensation to the corporate officers. Suit was filed in order to prevent dissipation of the corporate funds for the payment of salaries of the said officers. Board claims the action cannot prosper for failure to compel the board to file the suit for and in behalf of the corporation
Suit would not prosper. SHs brought the action not for the benefit of the corporation but for their own benefit since they asked that the defendant make good the losses occasioned by his mismanagement and pay them the value of their respective participation in the corporate assets on the basis of their respective holdings. The relief sought could not be done until all the corporate debts, if there are any, are paid and the existence of the corporation terminated by the limitation of its charter or by lawful dissolution. Since it is the corporation which is the real party-in-interest, then the reliefs prayed for must be for the benefit or interest of the corporation. When the reliefs prayed for do not pertain to the corporation, then it is an improper derivative suit. Such a suit need not be authorized by the corporation where its objective is to nullify the action taken by its manager and the board, in which case any demand for intra-corporate remedy would be futile, and thus necessitating the court to intervene by granting the petition for a derivative suit. A SH in a banking corporation has a right to maintain a suit for an in behalf of the corporation, but the extent of such right depends upon when and for what purpose he acquired the shares of stock of which he is the owner. On the issue that the relators controverted the right to question the appointment and selection of Cuaderno and Dizon, which they contend to be the resilt of corporate acts with which the plaintiff as SH, cannot intervere, the SC held that an individual SH is permitted to institute a derivative suit in behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the official of the corporation refuses to sue, or are to ones to be sued Requisites for a proper derivative suit: (a) party bringing suit should be a SH as of the time of the act or transaction complained of and at the time of filing of the suit. Number of shareholdings immaterial. A bona fide ownership by a SH in his own right suffices to invest him with standing to bring a derivative action in behalf of the corporation (b) party has tried to exhausted intra-corporate remedies (made demand on the board to sue in behalf of the corporation, but the latter failed or refused) (c) cause of action actually devolves on the corporation, the wrongdoing or harm having been or being caused to the corporation itself and not to the suing SH
CHAPTER XIV Marcus is registered owner of 50 shares of common stock of RH Macy. --Resp had auth capitalization of 500K shares of cumulative PS ($100 pv) and 2.5M CS no par. Issued: 165K PS and 1.656M CS --PS had no voting rights except for specified contingencies. --A proposal was approved during the SHs meeting that the articles be amended
I: WON Marcus can invoke her appraisal right and to enforce payment of the value of her stock. H: YES. --The amendment granted to the PS additional rights which increased their voting
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
as to add voting rightsequal share for shareas enjoyed by holders of the common stock, to the rights of preferred SHs. --Marcus objected to the proposed amendment and notified the corporation. She also demanded payment for the common stock then owned by her. During the said meeting, her common stock was voted against such amendment. --She then sues to determine the value of her stock as a basis of the enforcement of payment therefor. Her application for the appointment of appraisers having denied, and affirmed by the Appellate court.
PhilTrust is the assignee in the insolvency case of La Cooperativa Naval Filipina. It sues Marciano Rivera, an incorporator who subscribed for 450 shares of the insolvent, to recover the balance of P22,500, alleged to have been due on his subscription to the stock of the insolvent. (Orig capitalization of Naval = P100,000, at P100 par or 1,000 shares. Rivera subscribed to 450 shares ((P45K) --Rivera claims that during a SHs mtg, it was agreed that the capital of the company be reduced by 50% and the subscribers released from the obligation to pay any unpaid balance of their subscription in excess of 50% of the total subscribed shares. --There was no compliance with the formalities of the statute relative to the reduction of capital stock. TC ruled that the resolution was without effect and that Rivera was still liable for his unpaid subscription
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
CHAPTER XV Unson is the creditor of Diosomoto, who is original owner of 75 shares of North Electric which were levied by a writ of attachment to satisfy the judgment creditor. Uson obtained judgment against Diosomoto and the shares were sold at public auction to the judgment creditor Uson. --Diosomoto sold the shares attached to Barcelon and delivered the corresponding certificates. The transfer to Barcelon was not registered and noted on the books of the corporation until after 9 months after the attachment was levied and later (9 months after) transferred to HPE Jollye. HPL Jollye claims to be owner of the 75 shares and presents a certificate of stock issued by North Electric.
I: W/n a bona fide transfer of shares of a corporation, not registered or noted on the books, is valid as against a subsequent lawful attachment of said shares, regardless of whether the attaching creditor had actual notice of the transfer or not . H: GR: NO> No transfer is valid except as between the parties unless it is duly registered. All transfers of shares must be entered on the books of the corporation. All transfers not so validly entered are invalid as to attaching or execution creditors of the assignors, of the corporation, and as to all subsequent purchasers in GF, and even to all parties interested. All transfers not so entered on the books are absolutely void, not because they are without notice or fraudulent in law, but because they are made void by the statute. Courts in the Phils adhere to the principle that the right of the owner of the shares to transfer to same by delivery of the certificate, whether it be regarded as statutory or common law right, is limited and restricted by the express provision that no transfer shall be valid except as between the parties, until the transfer is entered and noted upon the books of the corporation. The right of the owner of the shares of a corporation to transfer the same by delivery of the certificate, whether it be regarded by the express provision that no transfer however shall be valid except as between the parties, until the transfer is entered and noted upon the books of the corporation. --The transfer of 75 shares in the NEC, made by Diosomito to Barcelon was not valid as to Uson, on Jan 18, 1932, the date on w/c they still stood in the name of Diosomito on the books of the corp. The SEC and CA correctly found Yumul to be a stockholder of Nautica, of one share of stock recorded in Yumuls name, although allegedly held in trust for Dee. Nauticas Articles of Incorporation and By-laws, as well as the General Information Sheet filed with the SEC indicated that Yumul was an incorporator and subscriber of one share. Even granting that there was an agreement between Yumul and Dee whereby the former is holding the share in trust for Dee, the same is binding only as between them. From the corporations vantage point, Yumul is its stockholder with one share, considering that there is no showing that Yumul transferred his subscription to Dee, the alleged real owner of the share, after Nauticas incorporation. Other than petitioners self-serving assertion that the beneficial ownership belongs to Dee, they failed to show that the subscription was transferred to Dee after Nauticas incorporation. The conduct of the parties also constitute sufficient proof of Yumuls status as a stockholder. On April 4, 1995, Yumul was elected during the regular annual stockholders meeting as a Director of Nauticas Board of Directors. Thereafter, he was elected as president of Nautica.
Nautica v. Yumul
Roberto C. Yumul was appointed COO/General Manager of Nautica. On the same date, First Dominion Prime Holdings, Inc., Nauticas parent company, through its Chairman Alvin Y. Dee, granted Yumul an Option to Purchase up to 15% of the total stocks it subscribed from Nautica. A Deed of Trust and Assignment was executed between First Dominion Prime Holdings, Inc. and Yumul whereby the former assigned 14,999 of its subscribed shares in Nautica to the latter. The deed stated that the 14,999 shares were acquired and paid for in the name of the ASSIGNOR only for convenience, but actually executed in behalf of and in trust for the ASSIGNEE. After Yumuls resignation from Nautica on August 5, 1996, he wrote a letter to Dee requesting the latter to formalize his of fer to buy Yumuls 15% share in Nautica on or before August 20, 1996; and demanding the issuance of the corresponding certificate of shares in his name should Dee refuse to buy the same. Dee, through Atty. Fernando R. Arguelles, Jr., Nauticas corporate s ecretary, denied the request claiming that Yumul was not a stockholder of Nautica. Yumul requested that the Deed of Trust and Assignment be recorded in the Stock and
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Transfer Book of Nautica, and that he, as a stockholder, be allowed to inspect its books and records. Yumuls requests were denied allegedly because he neither exercised the option to purchase the shares nor paid for the acquisition price of the 14,999 shares. Atty. Arguelles maintained that the cash dividend received by Yumul is held by him only in trust for First Dominion Prime Holdings, Inc. Nautica et al contend that Yumul was not a stockholder of Nautica; that he was just a nominal owner of one share as the beneficial ownership belonged to Dee who paid for said share when Nautica was incorporated. They also allege that Yumul was given the option to purchase shares of stocks in Nautica under the Option to Purchase, and since he failed to exercise the option, there was thus no cause or consideration for the Deed of Trust and Assignment, which makes it void for being simulated or fictitious. Enrique Razon organized the E. Razon, Inc. for the purpose of bidding for the arrastre services in South Harbor. Vicente Chuidian is the administrator of the intestate estate of Juan Telesforo Chuidian. A stock certificate for 1,500 shares of stock of E Razon Inc was issued in the name of Juan T. Chuidian. On the basis of the 1,500 shares of stock, the late Juan T. Chuidian and after him, Vicente Chuidian, were elected as directors of E. Razon, Inc. Enrique Razon had not questioned the ownership by Juan T. Chuidian of the shares of stock in question and had not brought any action to have the certificate of stock over the said shares cancelled. The certificate of stock was in the possession of defendant Razon who refused to deliver said shares to the plaintiff, until the same was surrendered by defendant Razon and deposited in a safety box in Philippine Bank of Commerce. 1,500 shares of stook under Stock Certificate No. 003 were delivered by the late Chuidian to Enrique because it was the latter who paid for all the subscription on the shares of stock in the defendant corporation and the understanding was that he (defendant Razon) was the owner of the said shares of stock and was to have possession thereof until such time as he was paid therefor by the other nominal incorporators/ stockholders. Since then, Enrique Razon was in possession of said stock certificate even during the lifetime of the late Chuidian, from the time the late Chuidian delivered the said stock certificate to Razon. By agreement of the parties delivered it for deposit with the bank under the joint custody of the parties. TC ruled Razon owns the shares, IAC reverses. Razon claims that the shares of stock were registered in the name of Chuidian only as nominal stockholder and with the agreement that the said shares of stock were owned and held by the petitioner but Chuidian was given the option to buy the same. Vicente B. Chuidian insists that the appellate court's decision declaring his deceased father Juan T. Chuidian as owner of the 1,500 shares of stock of E. Razon, Inc. should have included all cash and stock dividends and all the preemptive rights accruing to the said 1,500 shares of stock.
Razon v. IAC
H: (1) Chuidian owns the shares. For an effective, transfer of shares of stock the mode and manner of transfer as prescribed by law must be followed. As provided under the Corporation Code of the Philippines, shares of stock may be transferred by delivery to the transferee of the certificate properly indorsed. Title may be vested in the transferee by the delivery of the duly indorsed certificate of stock. However, no transfer shall be valid, except as between the parties until the transfer is properly recorded in the books of the corporation. In the instant case, there is no dispute that the questioned 1,500 shares of stock of E. Razon, Inc. are in the name of the late Juan Chuidian in the books of the corporation. Moreover, the records show that during his lifetime Chuidian was elected member of the Board of Directors of the corporation which clearly shows that he was a stockholder of the corporation. From the point of view of the corporation, therefore, Chuidian was the owner of the 1,500 shares of stock. In such a case, the petitioner who claims ownership over the questioned shares of stock must show that the same were transferred to him by proving that all the requirements for the effective transfer of shares of stock in accordance with the corporation's by laws, if any, were followed or in accordance with the provisions of law. Razon however did not present any by-laws which could show that the 1,500 shares of stock were effectively transferred to him. In the absence of the corporation's by-laws or rules governing effective transfer of shares of stock, the provisions of the Corporation Law are made applicable to the instant case. The law is clear that in order for a transfer of stock certificate to be effective, the certificate must be properly indorsed and that title to such certificate of stock is vested in the transferee by the delivery of the duly indorsed certificate of stock. (Section 35, Corporation Code) Since the certificate of stock covering the questioned 1,500 shares of stock registered in the name of the late Juan Chuidian was never indorsed to the petitioner, the inevitable conclusion is that the questioned shares of stock belong to Chuidian. The petitioner's asseveration that he did not require an indorsement of the certificate of stock in view of his intimate friendship with the late Juan Chuidian can not overcome the failure to follow the procedure required by law or the proper conduct of business even among friends. To reiterate, indorsement of the certificate of stock is a mandatory requirement of law for an effective transfer of a certificate of stock. The preponderance of evidence also supports the findings that the shares of stock were given to Juan T. Chuidian for value. Juan T. Chuidian was the legal counsel who handled the legal
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Josefa Santamaria is the owner of 10000 shares of Batangas Minerals Inc thru the offices of the Woo stockbrokerage firm. She then placed an order for 10000 shares of Crown Mines thru RJ Campos & Co stockbrokerage firm and delivered the certificate of stock of her shares in Batangas Minerals as security. Her name was penciled on the certificate she delivered. The certificate then came into the possession of HSBC by virtue of a document of hypothecation, wherein Campos pledged all shares and securities in its possession to HSBC because of an overdraft account it had with the bank. The certificate was indorsed by Campos to HSBC. HSBC then requested the Batangas Minerals to cancel the same and a new certificate was issued in the name of HSBCs nominee Robert Taplin. Mrs Santamaria then tendered payment for the Crown Mine shares with Campos, but the latter was now prohibited from transacting business due to its insolvency proceedings. She demanded that HSBC return her certificate, but Taplin replied that the bank did not know anything about her transaction with Campos. She sues HSBC.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Involves the true ownership of 1,600,000 shares of Lepanto Mining. The original owner was the Mitsui Co, a Japanese corporation, and was held in trust by Vicente Madrigal, in whose name the shares were registered in the books of Lepanto. Madrigal delivered the certificates to the Mitsui office in the RP, which kept the same until the liberation of Manila by the US. The Mitsuis nor Madrigal had never sold or disposed of the shares, which was alleged to have been looted or stolen during the liberation. By virtue of vesting order P-12, title in the shares was ordered vested in the Alien Property Custodian of the US, which was succeeded in this action by the US Atty General. De Los Santos and Astraquillo however claim to be owners of 1,600,000 shares of Lepanto Mining, alleging that they bought 1,100,000 from Carl Hess and 500,000 from Juan Campos. All evidence and persons who could testify as to their ownership of the shares no longer existed. Hess was executed by the Japanese and Campos killed during the liberation. A receipt made in a purported sale by Astraquillo of the shares was curiously destroyed by fire.
I: Who owns the certificates? H: Under the Code, a share of stock may be transferred by endorsement of the certificate coupled with delivery. The transfer is not valid except as between the transferring parties, unless it is entered and noted upon the books of the corporation. No such entry in the name of de los Santos and Astraquillo having been made, it follows that the transfer allegedly effected by Hess and Campos is not valid, except as between themselves. It does not bind the Madrigals or the Mitsuis who are not parties to the alleged transaction. Although a stock certificate is sometimes regarded as quasi-negotiable, in the sense that it may be transferred by endorsement, coupled with delivery, it is well-settled that the instrument is non-negotiable, because the holder thereof takes it without prejudice to such rights or defense as the registered owner or credit may have under the law. If the owner of the certificate has endorsed it in blank, and it is stolen from him, no title is acquired by an innocent purchaser for value. The doctrine that a bona fide purchaser of shares under a forged or unauthorized transfer acquires no title as against the true owner does not apply where the circumstances are such as to estop the latter from asserting his title. Where one of two innocent parties must suffer by reason of a wrongful or unauthorized act, the loss must fall on the one who first trusted the wrongdoer and put in his hands the means of inflicting such loss. But negligence which will work an estoppel of this kind must be the proximate cause of the damage and must be in or immediately connected with the transfer itself. Moreover, delos Santos and Astraquillo were aware of sufficient facts to put them on notice of the need of inquiring into the regularity of the transactions and the title of supposed vendors. The certificates were in the name of Madrigal. Obviously therefore, the alleged sellers were not the registered owners of the certificates and shares of stock. They must have been conscious of the infirmities
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Clemente G. Guerrero, President of the Rural Bank of Salinas, Inc., executed a Special Power of Attorney in favor of his wife, private respondent Melania Guerrero, giving and granting the latter full power and authority to sell or otherwise dispose of and/or mortgage 473 shares of stock of the Bank registered in his name. Pursuant to said Special Power of Attorney, private respondent Melania Guerrero, as Attorney-in-Fact, executed a Deed of Assignment for 472 shares out of the 473 shares, in favor of private respondents, and executed a Deed of Assignment for the remaining one (1) share of stock in favor of private respondent Francisco Guerrero, Sr. Melania Guerrero presented to petitioner Rural Bank of Salinas the two (2) Deeds of Assignment for registration with a request for the transfer in the Bank's stock and transfer book of the 473 shares of stock so assigned, the cancellation of stock certificates in the name of Clemente G. Guerrero, and the issuance of new stock certificates covering the transferred shares of stocks in the name of the new owners thereof. However, petitioner Bank denied the request of respondent Melania Guerrero.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Chua Guan v. Samahang Magsasaka Collateral Transfers Chua Gan is the assignee of all rights and interests of mortgagee Chua Chiu, in whose favor a mortgage upon shares of corporation Samahang Magsasaka Inc owned by debtor Cotoco was entered into, delivered, and registered in the RoDs. Cotoco defaults, Chua Gan forecloses mortgage and after public auction, certificate of shares were entered in his favor. Chua Gan then tendered the certificates to the corporation for cancellation and the issuance of new certificates in his name. Officers of Samahang Magsasaka refused, contending that 9 attachments had been issued and served against the shares of Cotoco in the books. 8 of the writs were served and noted in the books before the corporation knew of the mortgage of Chua Chiu. Chua Gan sues. (The registered owner mortgaged the shares and the mortgagee not only registered the mortgage with the registry of deeds, but also in the books of the corporation. When the mortgagee foreclosed on the mortgage, the officers of the corporation refused to issue the new certificates in the name of the mortgagee as the winning bidder thereof in the auction sale, on the ground that before the mortgagee made his demand upon the corporation, writs of attachments had been served upon and registered in the books of the corporation against the mortgagor, which the mortgagee refused to have annotated in the new certificate to be issued to him)
CHAPTER XVI Lizares et al, minority SHs of the Financing Corp of the Phils, sued the corporation and J Amado Araneta, its president and GM, alleging gross mismanagement and fraudulent conduct of the corporate affairs by Araneta and asking that the corporation be dissolved and Araneta be declared personally accountable for the unauthorized and fraudulent disbursements of the corporate assets. Judge Teodoro granted petition for appointment of a receiver (Yulo). The corporation contends that the appointment is merely an auxiliary remedy; that the principal remedy was the dissolution of the corporation, and that the minority SHs have nor right and personality to maintain an action for dissolution, that right belonging only to the State.
GR: minority SHs of a corporation cannot sue and demand dissolution. Exception: if they are unable to obtain redress and protection of their rights within the corporation (Hall v Piccio). Even the existence of a de jure corporation may be terminated in a private suit for its dissolution by SHs without the intervention of the State. The question of the right of minority SHs to ask for dissolution in Hall was held not to affect the courts jurisdiction over the case, and that the remedy by the party dissatisfied was to appeal. GR: minority SHs cannot ask for dissolution in a private suit, and that action should be brought by the government through its legal officer. Exception: cases wherein the intervention of the State cannot be obtained because the complaint is a matter strictly between the SH and the corporation and does not involve issues which involve acts/omissions warranting a quo warranto. When such action is brought, the TC has jurisdiction and has discretion to grant the prayer or not. Having such jurisdiction, the appointment of e receiver pendent elite is left to the sound discretion of the TC. In Angeles v Santos, it was held that it is within the
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Government files petition for quo warranto against the Bisaya Land Tranpo Co and its board, and asks for the appointment of a receiver pendente lite, alleging that the corporation, through the board, violated the provisions of the Corporation Law as outlined in 9 causes of action. Miguel Cuenco, a member of the Board, sets up a cross-claim against the other members to recover P4M arising for illegal acts of the corporation of which damage was caused him, and asks for the appointment of a receiver. The other directors argue that the petition should be dismissed as to Cuenco because his claims did not arise out of the transactions the subject matter of the quo warranto, which did not assert any claim against any of the directors. TC denies MTD the quo warranto. Corporation then filed a motion for judgment on consent, manifesting its consent to the ordering of the dissolution of the corporation, and ordered the board to proceed with the liquidation of its assets. It contended that the pendency of the quo warranto petition had prejudiced the corporation and its business, and that immediate relied be given the corporation. It also alleged that the majority of the board and 2/3 SHs acceded to the request to dissolve as the most feasible remedy to its problems. Republic moves that the matter of implementation of the dissolution be submitted to the TC for judgment. Cuenco concurs but urges the appointment of a receiver. Directors not Cuenco filed a motion to withdraw its previous motion for judgment on consent on the ground that the conditions to which motion was subject had not been accepted. Cuenco opposes withdrawal and pressed for appointment of receiver. TC denied motion to withdraw. Corporation appeals. SolGen Barredo moved to dismiss quo warranto proceedings, to which Cuenco opposed. TC grants Republics motion but denies Cuencos crossclaim.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Spouses Gonzales obtained a loan from the RPBank in the amount of P 176,000.00 secured by a real estate mortgage. The proceeds of the loan were released on a staggered basis and the loan was "payable from [the] 1980-1981 sugar crop, " the amortization payments to be remitted by the Philsucom to the RPBank. The RPBank is owned and controlled by the Philsucom. Gonzales received a statement of account from the RPBank setting forth that they had an outstanding loan balance due to the bank of P 652,446.38. It appeared that the Gonzaleses had received the total amount of P l,041,610.55 in loan funds from the RPBank and that they had re-paid thereon the total amount of P 1,051,296.77; in other words, they had already more than fully repaid their loan. The Gonzales further averred that Philsucom had deducted from the export sugar proceeds of petitioners the amount of P 421,517.32 without their authority and consent with the result that the spouses had overpaid the RPBank by P 289,260.88. the spouses prayed that the real estate mortgage be cancelled, and that Philsucom and SRA be required jointly and severally to reimburse the petitioners the amount of P 289,260.88 + damages. The RPBank, Philsucom and herein respondent SRA moved to dismiss the complaint upon the ground of lack of cause of action. Philsucom and respondent SRA through the Solicitor General, denied any obligation on the part of the Philsucom to return any amount to petitioners on account of allegedly unauthorized deductions from the proceeds of petitioners' sugar sold by the Philsucom. For its part, the SRA also noted that while the deductions complained of were made by the Philsucom during the period from 1980 to 1984, the SRA itself had been created by Executive Order No. 18 only on 18 May 1986 and that it was not a party to the real estate mortgage between petitioners and the RPBank.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Pepsi v. CA
Pepsi-Cola Products Philippines, Inc. Employees and Workers Union (PCEWU), a duly- registered labor union of the employees of the Pepsi-Cola Distributors of the Philippines (PCDP) filed a Complaint against PCDP for payment of overtime services rendered by fifty-three (53) of its members, for work done during 8 Muslim Holidays. LA held that workers in Region 12 were entitled, but workers in Region 9 were not. Pepsi Distributors appeals to NLRC, which affirms. Pending resolution of its MR, ownership of various Pepsi-Cola bottling plants was transferred to petitioner Pepsi-Cola Products Philippines, Inc. (PCPPI). The PCDP alleged that it had ceased to exist as a corporation on July 24, 1989 and that it has winded up its corporate affairs in accordance with law. It also averred that it was now owned by PCPPI. NLRC dismisses complaint, holding that with the cessation and dissolution of the corporate existence of the PCDP, rendering any judgment against it is incapable of execution and satisfaction. The CA reverses, and declared that the PCDP was still in existence when the complaint was filed, and that the supervening dissolution of the corporation did not warrant the dismissal of the complaint against it. After all, the appellate court ratiocinated, every corporation is given three (3) years to wind up its affairs. Hence, in case any litigation is filed by or against the corporation within the three (3)-year period which could not be terminated within the expiration of the same, such period must necessarily be prolonged until the final determination of the case.
Under Section 122 of the Corporation Code, a corporation whose corporate existence is terminated in any manner continues to be a body corporate for three (3) years after its dissolution for purposes of prosecuting and defending suits by and against it and to enable it to settle and close its affairs, culminating in the disposition and distribution of its remaining assets. It may, during the three-year term, appoint a trustee or a receiver who may act beyond that period. At any time during the said three (3) years, the corporation is authorized and empowered to convey all of its properties to trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and after any such conveyance by the corporation of its properties in trust for the benefit of its stockholders, members, creditors and others in interest, all interest which the corporation had in the properties terminates the legal interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest. Upon the winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member, who is unknown or cannot be found, shall be escheated to the city or municipality where such assets are located. Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. The termination of the life of a corporate entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity. If the threeyear extended life has expired without a trustee or receiver having been expressly designated by the corporation, within that period, the board of directors (or trustees) itself, may be permitted to so continue as "trustees" by legal implication to complete the corporate liquidation. I: W/n an action, commenced within 3 years after the abolition of the corporation, may be continued by the same after expiration of the period. NO W/m the TC was correct in dismissing motion. NO. should have granted the motion H: GR: pending actions by or against a corporation are abated upon the expiration of the period allowed by law for liquidation. The old corpo law contains no provision authorizing a corporation after 3 years from expiration of its lifetime, to continue in its corporate name actions instituted by it within a period of 3 years. It
National Abaca Corp v. Pore Effects of Dissolution, Winding Up and Liquidation: Loss of Juridical Personality
National Abaca Corp sued Apolonia Pore to recover money advanced for the purchase of hemp for the account of the corporation for which she failed to account therefor. Pore in defense, contends that she made an accounting of the advances received by her. TC held her accountable and ordered to her to pay the corporation. Pore moved to dismiss on the ground that the corporation had no legal capacity to sue, it having been abolished by EO 372. Corporation contends that the EO also stipulates that it shall continue as a body corporate for 3 years from date of effectivity of the EO, for the purpose of defending and prosecuting suits and
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
enabling the Board of Liquidators to settle and close all its affairs. TC ordered corporation to amend the complaint by including the Board of Liquidators as co-party plaintiff, otherwise case shall be dismissed. The corporation fails to submit amended complaint, and the TC dismisses case. Corporation in seeking reconsideration, said that it was not able to submit the amended complaint on time because of the negligence of the filing clerk, Ms Ocampo, and that it was lost despite diligent efforts to look for it. TC denies motion.
China Banking Corp v. Michelin Effects of Dissolution, Winding Up and Liquidation: Distribution of assets after payment of debts
George OFarrel & Cie Inc is a domestic corporation acting as agent and representative of the M Michelin & Cie, a foreign corporation engaged in the sale and distribution of Michelin tires. Michelin decided to discontinue their business relations, and it was discovered that O Farrel failed to account for an amount representing the price of tires sold by the latter. Michelin claims the money was disposed by O Farrel for its own use and benefit and without the authority or consent of Michelin. Gaston OFarrel (the person) and Sanchez executed a mortgage on the house of OFarrel and shares owned by both to guarantee payment of the amount to the Michelin, but left a balance which the latter seeks to recover. The board of OFarrel filed a petition for its dissolution and sought the appointment of Gaston as receiver and liquidator, which was granted by TC. Michelin filed its claim against OFarrel Corp with a prayer that its claim be allowed as a preferred one against the latter. TC grants motion of Michelin. Nobody except Michelin and Gaston was notified of the order. China Bank intervened and moved that Michelins claim be allowed as an ordinary one under the Insolvency Law and sought the nullification of the TC orders.
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Republic v. Marsman Devt Co. Effects of Dissolution, Winding Up and Liquidation: Distribution of assets after payment of debts
: Marsman is a lumber company. An investigation was conducted and certain taxes due from logs produced from its timber concession granted by the government. CIR demanded payment representing three assessments made on forest charges, deficiency sales tax and other surcharges and penalties. Counsel for the corporation requested for reinvestigation, but was denied unless the legal requirements for such a request were complied with and payment of of total assessments were made, and to furnish a bond to guarantee payment of the balance. The corporation repeated failed to comply with the conditions set by the CIR, which was constrained to make extrajudicial demand for the tax liabilities. Marsman was then extrajudicially dissolved. BIR files a complaint for its demands after more than 3 years following the corporations dissolution, and the TC sentenced the corporation to pay the amount demanded by CIR.
Tan Chiong Bio v. CIR Effects of Dissolution, Winding Up and Liquidation: Distribution of assets after payment of debts
: Tan Tiong Bio et al are incorporators and directors (some are officers President and treasurer) of the Central Syndicate. The company realized a net profit of close to P300K, and sale of goods was the only transaction undertaken by it. BIR sues the Tan Tiong et al for deficiency sales taxes and surcharges on surplus goods purchased by the corporation from the Foreign Liquidation Commission. Corporation was dissolved, and Tan Tiong and company substituted themselves as parties, thereby becoming successors-in-interests in the corporate
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
assets after liquidation. TC rules ifo BIR, and Tan Tiong et al appeals, claiming that they cannot be held liable for tax liability there being no law authorizing the government to proceed against SHs of a defunct corporation as transferees of the corporate assets upon liquidation. If they were liable, it is only to the extent of the benefits derived by them, and that the action is barred by prescription due to the 3-year limit in the corpo Law.
CHAPTER XVII Minority SHs of the Laguna Tayabas Bus Co file an action to enjoin Blouse et al from executing its resolution approved by 99 % of SHs to consolidate the properties and franchises of Laguna Tayabas with Batangas Transport. Blouse believes it is merely an exchange of properties and not a consolidation.
I: W/n the real purpose of the resolution is merger or consolidation, and if so, whether it can be carried out under the old Corpo Law. H: The questioned resolution charges the board of Laguna to consolidate properties and franchises thereof with that of Batangas Transport. Both corporations have passed similar resolutions to take steps to effect the consolidation. It is apparent that the purpose of the resolution is not to dissolve but to merely transfer its assets to a new corporation in exchange for its shares. This comes within the purview of the old corporation law, which provides that a corporation may sell, exchange, lease or otherwise dispose of all its property and assets when authorized by affirmative vote of 2/3 of SHs. The phrase otherwise dispose of covers mergers and consolidations. The transaction in this case cannot be considered, strictly speaking, as a merger or consolidation because a merger implies the termination or cessation of the merged corporations and not merely a merger of assets and properties. The two companies will not lose their corporate existence but will continue to exist after consolidation. What is intended to be managed and operated by a new corporation, and not a merger. The court added that the merger/consolidation (if any) would still be carried out under the Public Service Law. It does not impose any qualification other that it shall be done with the approval of the PSC. GR: where the corporation sells or otherwise transfers all of its assets to another
: The Edward Nell Co secured a judgment representing the unpaid balance of the
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
Sale of Substantially All Assets price of a pump sold to Insular Farms. Pacific Farms then purchased all or substantially all of shares of stock as well as real and personal property of Insular, selling the shares to certain individuals who reorganized Insular. The board of the reorganized Insular then sold its assets to be sold to Pacific for P10000. The writ of execution was returned, stating that Insular had no leviable property. Nell Co sued Pacific Farms, on the ground as a result of the purchase of all or substantially all assets of Insular, Pacific became the alter ego of Insular Farms.
Marshall Wells v. Elser Effects of Failure to Secure SEC License Columbia Pictures v. CA Effects of Failure to Secure SEC License Geneeral Garments Corp. v. Director Effects of Failure to Secure SEC License La Chemiste Lacoste v. Fernandez Effects of Failure to Secure SEC License Litton Mills v. CA Effects of Failure to Secure SEC License Mentholatum v. Mangaliman What Constitutes Transacting Business Agilent Tech v. Integ. Silicon Tec.h
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Corporation Law Finals Case Reviewer Prof. Jacinto 2nd semester AY 2011-2012
Unless otherwise stated, all digests are from Suis Corpo Reviewers. This reviewer is only for the convenience of having all cases in one document
` Merryl Lynch v. CA Topweld Manuel v. ECED What Constitutes Transacting Business Antam Consolidated v. CA What Constitutes Transacting Business