Bar Q and A #21

GCash Donate

Gcash Donate

Collapsable Answer Just click the plus sign in the right side.

1.) What vote is needed to consider every decision to be valid corporate act? a. A majority of the directors present at the meeting b. 2/3 of the directors present at the meeting c. A majority of the directors present at the meeting at which there is a quorum d. 2/3 of the directors present at the meeting at which there is a quorum

c. A majority of the directors present at the meeting at which there is a quorum.

Textbox

2.) Which of the following corporate acts are valid, void, or voidable? Indicate your answer by writing the paragraph number of the query, followed by your corresponding answer as “Valid,” “Void,” or “Voidable,” as the case may be. If your answer is “Void,” explain your answer. In case of a “Voidable” answer, specify what conditions must be present or complied with to make the corporate act valid. a. XL Foods Corporation, which is engaged in the fast- food business, entered into a contract with its President Jose Cruz, whereby the latter would supply the corporation with its meat and poultry requirements. b. The Board of Directors of XL Foods Corporation declared and paid cash dividends without approval of the stockholders. c. XL Foods Corporation guaranteed the loan of its sister company XL Meat Products, Inc.

a. Voidable – A contract of the corporation with one or more of its directors or trustees or officers is voidable, at the option of such corporation (Sec 32, Corporation Code). Such contract can be ratified by the vote of the stockholders representing at least two-thirds of the outstanding capital stock in a meeting called for the purpose: Provided, that full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided, however, That the contract is fair and reasonable under the circumstances.

b. Valid – Approval of the stockholders is not required in declaring cash dividends.

c. Void – This is an ultra vires act on part of XL Foods Corporation, and is not one of the powers provided for in Sec. 36 of the Corporation Code. It can be ratified provided it is not illegal per se but merely beyond the power of the corporation by the approval of the majority of the board and vote of the stockholders representing at least two thirds of the outstanding capital stock. Where the contract or act is not illegal per se but merely beyond the power of the corporation, the same is merely voidable and may be enforced by performance, ratification, or estoppels, or on equitable grounds (Republic v. Acoje Mining Co., Inc) especially if no creditors are prejudiced thereby and no rights of the state or the public are involved.

Textbox

3.) A group of stockholders of Sesame Corporation filed a court suit against the members of the Board of Directors to make good to the shareholders, in proportion to their shareholdings, the losses incurred by the corporation because the of defendant Board of Directors’ management. While the case was pending, the corporation was dissolved. During the three-year period from its dissolution, the Board of Directors decided to extend the corporate life by an amendment of its Articles of Incorporation. Can the Board of Directors do so? Reasons.

NO. The corporate life may be extended so long as the proper steps therefor (charter amendment) are done by the corporation before its expiry date.

Textbox

4.) Suppose “X” Corporation has an authorized capital stock of P1M divided into 100,000 shares of stock with par value of P10 each. a. Give two ways whereby said authorized capital stock may be increased to about P1.5 M. b. Give three practical reasons for a corporation to increase its capital stock.

a. Two ways of increasing the Authorized Capital Stock of “X” Corporation to P1.5 M are:
1. Increase the number of shares from 100,000 to 150,000 shares with the same par value of P10 each.
2. Increase par value of the 1000,000 shares to P15 each.

b. Three practical reasons for a corporation to increase its capital stock are:
1. To generate more working capital;
2. To have more shares with which to pay for the acquisition of more assets like acquisition of company car, stocks, house, machinery or business; and
3. To have extra share with which to cover or meet the requirement for declaration of stock dividend.

Textbox

5.) Venezia is a famous international fashion chain outlets in Makati, Ortigas, and Manila. It has complied with the minimum capitalization required under the Retail Trade Nationalization Act and carries on retail business worth more than $3M for each outlet. As its Manila outlet is not doing very well, it decides to sell all of its business there consisting of remaining inventory, furniture and fixtures and other assets to its competitor. a. Venezia’s Manila outlet constitutes 1/3 of its total business. Should it comply with the requirements of the Bulk Sales Law? Why or why not? b. If instead of selling its Manila outlet, Venezia merely mortgages its assets there, would it need to comply with the requirements of the Bulk Sales Law? c. What are the legal consequences of a failure to comply with the requirements of a Bulk Sales Law?

a. Venezia need not comply with the requirements of the Bulk Sales Law as its Manila outlet constitutes only 1/3 of its total business and, therefore, it would not be a sale of all or substantially all of the business conducted by Venezia. Moreover, the requirements of the Bulk Sales Law reflected in Sections 3, 4, 5, and 9, by the express language of said provisions, apply only to the first type of bulk sales, i.e., to any sale, transfer, mortgage or assignment of a stock of goods, wares, merchandise, provisions or materials otherwise than in the ordinary course of trade and the regular prosecution of business of the vendor, mortgagor, transferor, or assignor, and not to the second type (as in the sale described in the problem) or the third type (i.e., sale, etc. of all or substantially all of the fixtures and equipment used in and about the business). As the Bulk Sales Law is penal in nature, it should be interpreted strictly against the State.

b. For the same reasons stated in the answer to (1) above, Venezia need not comply with the requirements of the Bulk Sales Law. The second type of bulk sales also includes the mortgage of all or substantially all of the business of the mortgagor.

c. Failure to comply with the requirements of a Bulk Sales Law renders the sale, transfer, mortgage, or assignment fraudulent and void, and makes any person found guilty of violating any provision of the Bulk Sales Law punishable by imprisonment for not less than 6 months nor more than 5 years, or a fine in an amount not exceeding P5,000, or both such imprisonment and fine in the discretion of the court.

Textbox

6.) The Board of Directors of Union Corporation, with the unanimous authority of its stockholders in a meeting duly called for the purpose, sold to Victory Corporation for P880 Million substantially all of the company’s assets consisting of pieces of machinery, fixtures, and equipment used in the alcoholic beverage business of the company. Acme Bottlers, Inc., creditor- supplier of the bottle requirements of Union Corporation, now questions the sale as fraudulent and therefore null and void, contending that it learned of the sale only from the column of Leticia Locsin at the Daily Globe. a. Is Acme Bottlers, Inc. correct in alleging that the said sale is null and void? b. What are the rights and liabilities of Victory Corporation?

a. NO, the allegation of Acme that the sale is null and void cannot be sustained. The Corporation Code expressly authorizes corporations to sell all or substantially all of its assets under the conditions therein expressed which had been complied with according to the facts stated in the problem. The Bulk Sales Law, upon the other hand, cannot successfully be invoked as the legal basis for the nullity of the sale as the Act applies only to the conveyance in bulk of stocks in trade. Had the law been applicable, notice to the creditors before the sale would have been required under the Bulk Sales Law for its validity.

b. Victory has acquired rights as lawful buyer in the sale of Union’s corporate assets. If, as alleged by Acme, the sale is fraudulent and it is rescinded on that ground, the rescission would only be to the extent that there is prejudice to the creditors. Assuming further, that the rescission, in fact, takes place, Victory Corporation may go after the seller for breach of sale or warranty as the ultimate facts would warrant.

Textbox

7.) In the annual meeting of the “XYZ” Corporation, the stockholders unanimously adopted a resolution proposed by the Board of Directors to sell substantially all the fixtures and equipment used in and about its business. The President of the Corporation approached you and asked for legal assistance to effect the sale. a. What steps should you take so that the sale may be valid? b. What are two instances when the sale, transfer, mortgage, or assignment of stock of goods, wares, merchandise, provision, or materials otherwise than in the ordinary course of trade and the regular prosecution of the business of the vendor are not deemed to be a sale or transfer in bulk?

a. The requirements of the Bulk Sales Law must be complied with. The seller delivers to the purchaser a list of his creditors and the purchaser in turn notifies such creditors of the proposed sale at a stipulated time in advance.

b. If the sale and transfer is made (1) by vendor, mortgagor, transferor or assignor who produces and delivers a written waiver of the provisions of the Bulk Sales Law from his creditors as shown by verified statement; and (2) by a vendor, mortgagor, receiver, assignee in insolvency, or public officer acting under judicial process, the sale or transfer is not covered by the Bulk Sales Law.

Textbox

8.) E Corporation sold its assets to M, Inc. after complying with the requirements of the Bulk Sales Law. Subsequently, one of the creditors of E Corporation tried to collect the amount due it, but found out that E Corporation had no more assets left. The creditor then sued M, Inc. on the theory that M, Inc. is a mere alter ego of E Corporation. Will the suit prosper? Explain.

The suit will not prosper. The sale by E Corporation of its assets to M, Inc. does not result in the transfer of the liabilities of the latter to, nor in the assumption thereof by the former. The facts given do not indicate that such transfer or assumption took place or was stipulated upon by the parties in their agreement. Furthermore, the sale by E Corporation of its assets is a sale of its property. It does not involve the sale of the shares of stock of the corporation belonging to its stockholder. There is, therefore, no merger or consolidation that took place. E Corporation continues to exist and remains liable to the creditor.

Textbox

9.) House of Pizza (PIZZA) is the owner and operator of a nationwide chain of pizza outlets. House of Liquor (LIQUOR) is a retailer of all kinds of liquor. House of Foods (FOODS) has offered to purchase all of the outlets, equipment, fixtures and furniture of PIZZA. FOODS also offered to purchase from LIQUOR all of its moderately priced stock constituting 50% of its total inventory. Both PIZZA and LIQUOR have creditors. What legal requirements must PIZZA and LIQUOR comply with in order for FOODS to consummate the transactions? Discuss fully.

PIZZA and LIQUOR must prepare an affidavit stating the names of all their creditors, their addresses, the amounts of their credits and their respective maturities. PIZZA and LIQUOR must submit said affidavit to FOODS which, in turn, should notify the creditors about the transaction which is about to be concluded with PIZZA and LIQUOR.

Textbox

10,) Company X, engaged in the business of manufacturing car parts and accessories, operates a factory with equipment, machinery and tools for this purpose. The manufactured goods are sold wholesale to distributors and dealers throughout the Philippines. Company X was among the business entities adversely hit by the 1997 Asian business crisis. Its sales dropped with the decline in car sales and its operating costs escalated, while its creditor banks and other financial institutions tightened their loan portfolios. Company X was faced with the dismal choice of either suspending its operations or selling its business. It chose the latter. Having struck a deal with Company Z, a more viable entity engaged in the same business, Company X sold its entire business to the former without much fanfare or any form of publicity. In fact, evidence exists that the transaction was furtively entered into to avoid the prying eyes of Company X’s creditors. The creditor banks and other financial institutions sued Company X for violation of the Bulk Sales Law. Decide.

Company X violated the Bulk Sales Law when it sold its entire business to Company Z furtively to avoid the prying eyes of its creditors. Its manufactures goods are sold wholesale to distributors and dealers. The sale of all or substantially all of its stocks, not in the ordinary course of business, constitutes bulk sale. The transaction being a bulk sale, entering into such transaction without complying with the requirements of the Bulk Sales law, Company X violated said law.

Textbox