LAW: Recitation amidst the pandemic PDF

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ALTER EGO DOCTRINE"[t]he doctrine of alter ego is based upon the misuse of a corporation by an individual for wrongful or inequitable purposes, and in such case the court merely disregards the corporate entity and holds the individual responsible for acts knowingly and intentionally done in...

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ALTER EGO DOCTRINE "[t]he doctrine of alter ego is based upon the misuse of a corporation by an individual for wrongful or inequitable purposes, and in such case the court merely disregards the corporate entity and holds the individual responsible for acts knowingly and intentionally done in the name of the corporation."

No. The contact of sale is invalid and unenforceable. Under the RCCP, the by-laws of corporations have binding effect over its officers. If there is an express provision in the by-laws that vests the power to enter into contract of sale, solely to the VP for Sales, this warrants strict conformance. The act of the President is considered ultra vires, which questions his authority to enter into the contract in question. When such authority is not established as it goes against the by-laws, consent is lacking. Should there be ratification of the contract by the Board of Directors for the action of the President, the contract may be considered binding and enforceable. However, absent the same, the contract is invalid. PASOK ANG DOCTRINE OF LIMITED/SPECIAL CAPACITIES

Second case ay Doctrine of legal entity, expand, basta may separate ang legal entity pero walang alter ego. Kaya hindi pwedeng icompel ni SEC.

A VOTING TRUST AGREEMENT results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends and other rights to which a stockholder may be entitled until the liquidation of the corporation. It is the trustee of the shares who acquires legal title to the shares under the voting trust agreement and thus ENTITLED TO THE RIGHT TO VOTE and the right to be elected as board of directors while the trustor‐stockholder has the beneficial title which includes the right to receive dividends

Bale, according po sa Pre‐incorporation agreements, a third party who promised to subscribed a specific class of share and its quantity are obliged to subscribe it by virtue of subscription agreement and it is irrevocable under rules set forth by the code. And at this point po, the role of promoters arises; In this case, the corporation po is not a party to the transaction because it is not yet given an imprimatur by the state. Diba po Atty., if for any other unwanted circumstances that the corporation is not formed or doesn’t adopt the agreement, the said corporation’s promoter will be held personally responsible for the breach of agreement? YES

COMPARISON 1. As to Manner of Creation – a. Partnership is created by mere agreement; b. the existence of the corporation commences only from the issuance of a Certificate of Incorporation by the SEC or in proper cases, passage of a special law; 2. As to Number of Organizers – a. Even 2 persons may form a partnership;

b. a corporation needs at least 5 incorporators; 3. As to Powers - a corporation is more restricted in its powers because of its limited personality; a partnership is subject only to what may be agreed upon by the partners; 4. Authority of those who Compose - there is mutual agency in partnership and each general partner can represent and bind the partnership; stockholders are not agents of the corporation in the absence of express authority; 5. Transfer of interest - corporate shares are freely transferable without the consent of other stockholders (unless there is a stipulation); interest in the partnership cannot be transferred without the consent of the other partners; 6. Succession - there is no right of succession in partnership as death of a general partner dissolves the partnership; there is right of succession in corporations.

What is the effect of non-filing of the articles of incorporation within the required period? Failure to submit the by-laws within 30 days from incorporation does not automatically dissolve the corporation. It is merely a ground for suspension or revocation of its charter after proper notice and hearing. The corporation is, at the very least, a de facto corporation whose existence may not be collaterally attacked.

When is the corporation estopped to deny ratification of contracts or acts entered by its officers or agents? Generally, when the corporation has knowledge that its officers or agents exceed their power, it must promptly disaffirm the contract or act, and allow the other party or third

person to act in the belief that it was authorized or has been ratified. Otherwise, if it acquiesces, with knowledge of the facts, or if it fails to disaffirm, ratification will be implied. On September 15, 2007, XYZ Corporation issued to Paterno 800 preferred shares with the following terms:

"The Preferred Shares shall have the following rights, preferences, qualifications, and limitations, to wit: 1. The right to receive a quarterly dividend of One Per Centum (1%), cumulative and participating; 2. These shares may be redeemed, by drawing of lots, at any time after two (2) years from date of issue, at the option of the Corporation; x x x."

Today, Paterno sues XYZ Corporation for specific performance, for the payment of dividends on, and to compel the redemption of, the preferred shares, under the terms and conditions provided in the stock certificates. Will the suit prosper? Explain.

Paterno cannot compel the corporation to declare dividends as this is a discretionary act on the part of the corporation and cannot be subject of a specific performance. A corporation can only declare dividends only if there are unrestricted retained earnings otherwise this would result to the violation of the trust fund doctrine. The right of Paterno of preference over payment of dividends arises only if the corporation actually declares dividends. Paterno cannot compel the Corporation to redeem its shares since the agreement clearly provides that the shares may be redeemed at the option of the corporation. Redemption therefore as stated in the agreement is optional on the part of the corporation and not mandatory. (2009 Bar Question)

What are the tests to determine whether a dispute constitutes an intra-corporate controversy and dispute?

How would jurisdiction be determined? 1. Relationship Test; and 2. Nature of the Controversy Test.

Jurisdiction should be determined by considering not only the status or relationship of the parties, but also of the nature of the question under controversy. This two-tier test was adopted in the case of Speed Distribution, Inc. vs. Court of Appeals: “To determine whether a case involves an intra-corporate controversy, and is to be heard and decided by the branches of the RTC specifically designated by the Court to try and decide such cases, two elements must concur: 1. the status or relationship of the parties (relationship test); and 2. the nature of the question that is subject of the controversy (nature of the controversy test).

The first element requires that the controversy must arise out of intracorporate partnership relations between any or all of the parties and the corporation, partnership, or association of which they are stockholders, members, or associates, respectively; and between such corporation, partnership, or association and the State insofar as it concerns their individual franchises.

The Second element requires that the dispute among the parties be intrinsically connected with the regulation of the corporation. If the nature of the controversy involves matters that are purely civil in character, necessarily, the case does not involve an intra-corporate controversy. (Reyes vs. Zenith Insurance Corp., G.R. No. 165744, August 11, 2008, [Brion, J.])

What is meant by the Relationship Test? Initially, the main consideration in determining whether a dispute constitutes an intracorporate controversy was limited to a consideration of the intra-corporate relationship (also known as the Relationship Test) existing between or among parties. The types of

relationships embraced under Section 5(b), as declared in the case of Union Glass & Container Corp. vs. SEC, were as follows: 1. Between the corporation, partnership, or association and the public; 2. Between the corporation, partnership, or association and its stockholders, partners, members or officers; 3. Between the corporation, partnership, or association and the State as far as its franchise, permit or license to operate is concerned; and 4. Among the stockholder, partners, or associates themselves. (Reyes vs. Zenith Insurance Corp., G.R. No. 165744, August 11, 2008, [Brion, J.])

What is meant by the Nature of the Controversy Test? Under the nature of the controversy test, the incidents of that relationship must also be considered for the purpose of ascertaining whether the controversy itself is intracorporate. The controversy must not only be rooted in the existence of an intracorporate relationship, but must pertain to the enforcement of the parties’ correlative rights and obligations under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation. If the relationship and its incidents are merely incidental to the controversy or if there will still be conflict even if the relationship does not exist, then no intra- corporate controversy exists.

Who is an independent director? Shall mean a person other than an officer or employee of the corporation, its parent or subsidiaries, or any other individual having a relationship with the corporation, which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director

What is the Concession Theory? Does it have any legal basis in Philippine Law?

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

Section 19 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines provides for the Commencement of corporate existence, that—“A private corporation formed or organized under this Code commences to have corporate existence and juridical personality and is deemed incorporated from the date the Securities and Exchange Corporation issues a certificate of incorporation under its official seal x x x”.

What is business judgment rule? General Rule: Courts will not interfere in the decisions made by the BOD as regards the internal affairs of the corporation

Exception: Unless such contracts are so unconscionable and oppressive as to amount to a wanton destruction of rights of the minority.

When is a director or officer liable for a criminal offense? Where a law requires a corporation to do a particular act, failure of which on the part of the responsible officer to do so constitutes an offense, the responsible officer is criminally liable therefore. The reason is that a corporation can act through its officers and agents and where the business itself involves a violation of law all who participate in it are liable. While the corporation may be fined for such criminal offense if the law so provides, only the responsible corporate officer can be imprisoned. (People vs. Tan Boon Kon, 1930) However, a director or officer can be held liable for a criminal offense

only when there is a specific provision of law making a particular officer liable because being a corporate officer by itself is not enough to hold him criminally liable.

TRANSFER OF SHARES OF STOCKS Category: Corporation Law

Why is a stock certificate not negotiable? Because the holder thereof takes it without prejudice to such rights or defenses as the registered owners or transferor’s creditor may have under the law, except insofar as such rights or defenses are subject to the limitations imposed by the principles governing estoppel. (De los Santos v. Republic, G.R. No. L-4818, Feb. 28, 1955)

What are the requirements for a valid transfer of stock? 1. The certificate of stock must be duly endorsed by the transferor or his legal representative. 2. There must be delivery of the stock certificate. 3. To be valid against third parties, the transfer must be recorded in the books of the corporation. (G.R. No. 124535, September 28, 2001)

How are shares of stock transferred? 1. If represented by a certificate, the following must be strictly complied with: a. Indorsement by the owner and his agent b. Delivery of the certificate c. To be valid to third parties, the transfer must be recorded in the books of the corporation. (Rural Bank of Lipa v. CA, G.R. No. 124535, Sept 28, 2001).

2. If not represented by a certificate (such as when the certificate has not yet been issued or where for some reason is not in the possession of the stockholder).

a. By means of deed of assignment: and b. Such is duly recorded in the books of the corporation.

What effect does the civil code provision on succession have in the corporation with respect to the shares of stock registered under the name of the decedent? Is there any exception? Article 777 of the Civil Code declares that he successional rights are transferred from the moment of death of the decedent. Accordingly, upon the decedent’s death, the heirs acquired legal right to his estate (which includes his shareholdings with the corporation), and they are, prior to the estate’s partition, deemed to be co- owners thereof. This status as co-owners, however, does not immediately and necessarily make them stockholders of the corporation. Unless and until there is compliance with Section 63 of the Corporation Code on the manner of transferring shares, the heirs do not become registered stockholders of the corporation. Section 63 provides:“x x x No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation so as to show the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates, and the number of shares transferred. x x x”

Simply stated, the transfer of title by means of succession, though effective and valid between the parties involves (i.e., between the decedent’s estate and his heirs), does not bind the corporation and third parties. The transfer must be registered in the books of the corporation to make the transfereeheirs a stockholder entitled to recognition as such by both the corporation and by third parties. It is noted, that in relation with the above statement, that in Abejo vs. Dela Cruz and TCL Sales Corporation vs. Court of Appeals, it did not require the registration of the transfer before considering the transferee a stockholder of the corporation. A marked difference, however, exists between these cases and the present one.

In Abjeo and TCL Sales, the transferee held definite and uncontested titles to a specific number of shares of the corporation; after the transferee has established prima facie ownership over the shares of stocks in question, registration became a mere formality in confirming their status as stockholders. In the present case, each of the decedent’s heirs holds only an undivided interest in the shares. This interest, at this point, is still inchoate and subject to the outcome of a settlement proceeding; the right of the heirs

to specific, distributive shares of inheritance will not be determined until all the debts of the estate of the decedent are paid. In short, the heirs are only entitled to what remains after payment of the decedent’s debts; whether there will be residue remains to be seen.

Justice Jurado aptly puts it as follows: “No succession shall be declared unless and until a liquidation of the assets and debts left by the decedent shall have been made and all his creditors are fully paid. Until a final liquidation is made and all the debts are paid, the right of the heirs to inherit remains inchoate. This is so because under our rules of procedure, liquidation is necessary in order to determine whether or not the decedent has left any liquid assets which may be transmitted to the heirs.” An heir must, therefore, hurdle two obstacles before he can be considered a stockholder of the corporation with respect to the shareholdings originally belonging to the decedent. First, he must prove that there are shareholdings that will be left to him and his co-heirs, and this can be determined only in a settlement of the decedent’s estate. Second, he must register the transfer of the share allotted to him to make it binding against the corporation. He cannot demand that this be done unless and until he has established his specific allotment (and prima facie ownership) of the shares.

Without the settlement of the decedent’s estate, there can be no definite partition and distribution of the estate to the heirs. Without the partition and distribution, there can be no registration of the transfer. And without the registration, we cannot consider the transferee-heir a stockholder who may invoke the existence of an intra- corporate relationship as premise for an intracorporate controversy within the jurisdiction of a special commercial court. (Reyes vs. Zenith Insurance Corp., G.R. No. 165744, August 11, 2008, [Brion, J.])

May the corporation, through its president condone penalties and charges after it had been placed under receivership? No. The appointment of a receiver operates to suspend the authority of a corporation and of its directors and officers over its property and effects, such authority being reposed in the receiver...