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During their regular meeting, stockholders representing majority of the issued and
outstanding voting shares of Hebra Corporation elected Ramil, an Indian national, as
president, and Babylyn, a resident citizen, bot has secretary and treasurer of the
corporation. On what grounds, if any, could the election of these officers be challenged?

Section 25. Corporate officers, quorum. - Immediately after their election, the directors of a
corporation must formally organize by the election of a president, who shall be a director, a
treasurer who may or may not be a director, a secretary who shall be a resident and citizen of
the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or
more positions may be held concurrently by the same person, except that no one shall act as
president and secretary or as president and treasurer at the same time. The directors or
trustees and officers to be elected shall perform the duties enjoined on them by law and the by-
laws of the corporation. Unless the articles of incorporation or the by-laws provide for a greater
majority, a majority of the number of directors or trustees as fixed in the articles of incorporation
shall constitute a quorum for the transaction of corporate business, and every decision of at
least a majority of the directors or trustees present at a meeting at which there is a quorum shall
be valid as a corporate act, except for the election of officers which shall require the vote of a
majority of all the members of the board. Directors or trustees cannot attend or vote by proxy at
board meetings.

II. Of the total issued and outstanding shares of Bacsal Corporation, Noel 60% and the
rest belongs to the other shareholders. During the companys annual meeting held on 26
May 2008, Noel personally attended the meeting and due to his presence, a quorum was
declared. The items in the agenda include: a) approval of the minutes of the previous
stockholders meeting; b) increase in the capital stock of the corporation; and c) election
of directors. Just before these items could be taken up, Noel decided to leave the
meeting. Determine whether the remaining stockholders could vote upon these terms in
the agenda.

III. Explain whether:

1. The Board of Directors can fix or increase its per diems without the prior approval of
the stockholders.

Yes. Section 30. Compensation of directors. - In the absence of any provision in the by-laws
fixing their compensation, the directors shall not receive any compensation, as such directors,
except for reasonable per diems: Provided, however, That any such compensation other than
per diems may be granted to directors by the vote of the stockholders representing at least a
majority of the outstanding capital stock at a regular or special stockholders' meeting. In no case
shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of
the net income before income tax of the corporation during the preceding year.

2. Non-directors can be appointed to the executive committee.

No. Section 35. Executive committee. - The by-laws of a corporation may create an executive
committee, composed of not less than three members of the board, to be appointed by the
board. Said committee may act, by majority vote of all its members, on such specific matters
within the competence of the board, as may be delegated to it in the by-laws or on a majority
vote of the board, except with respect to: (1) approval of any action for which shareholders'
approval is also required; (2) the filing of vacancies in the board; (3) the amendment or repeal of
by-laws or the adoption of new by-laws; (4) the amendment or repeal of any resolution of the
board which by its express terms is not so amendable or repealable; and (5) a distribution of
cash dividends to the shareholders.

3. Unrestricted retained earnings would be necessary to declare stock dividends.

Yes. Section 43. Power to declare dividends. - The board of directors of a stock corporation may
declare dividends out of the unrestricted retained earnings which shall be payable in cash, in
property, or in stock to all stockholders on the basis of outstanding stock held by them:
Provided, That any cash dividends due on delinquent stock shall first be applied to the unpaid
balance on the subscription plus costs and expenses, while stock dividends shall be withheld
from the delinquent stockholder until his unpaid subscription is fully paid: Provided, further, That
no stock dividend shall be issued without the approval of stockholders representing not less
than two-thirds (2/3) of the outstanding capital stock at a regular or special meeting duly called
for the purpose. (16a) Stock corporations are prohibited from retaining surplus profits in excess
of one hundred (100%) percent of their paid-in capital stock, except: (1) when justified by
definite corporate expansion projects or programs approved by the board of directors; or (2)
when the corporation is prohibited under any loan agreement with any financial institution or
creditor, whether local or foreign, from declaring dividends without its/his consent, and such
consent has not yet been secured; or (3) when it can be clearly shown that such retention is
necessary under special circumstances obtaining in the corporation, such as when there is need
for special reserve for probable contingencies. (n)

4. The Board of Directors or stockholders owning majority can exercise waiver of pre-
emptive right in behalf of all the stockholders of the corporation.

IV. ???

V. Victa Corporation has amended its Articles of Incorporation for the increase of its
authorized capital stock from P1B to P2B worth of shares. The increase consists of 80%
common shares and 20% preferred shares and the Board of Directors had been
authorized in the amended articles of incorporation to fix the terms and renditions of
preferred shares. Determine whether:

a) All existing stockholders, including those not mentioned in the articles of

incorporation have pre-emptive right over the new shares.

b) The authority of the board of directors to fix the terms of preferred stocks is legally in

VI. Eric controls 18% and 51% of the voting shares of Lajara, Inc. and Laverez, Inc.,
respectively, and is currently a director of both corporations. The corporations have 6
directors as provided for in their respective AIO.
Lajara, Inc. then mortgaged its machiens and office equipment to Joey, also a director of
Laverez, Inc. to secure a loan obtained from the latter. As the mortgage covers
substantially all the assets of Lajara, Inc., it had the mortgage presented to the Board and
the shareholders for approval. In the directors meeting called for this purpose by Lajara,
Inc., 6 members were present and 4 of them, including Eric, voted for the approval of the
mortgage. In the ensuing shareholders meeting of Lajara, Inc. more than 75% of the OCS
also gave favorable votes as required by law.

a) What is the status of the mortgage between Lajara, Inc. and Joey? Why?

b) Would it matter if the mortgage involved Lajara, Inc. and Eric? Why?

c.) Could Emmylou, a stockholder of Laverez, Inv. and who dissented the mortgage to the
latter, invoke appraisal right?

VII. Sandra, President and Chief Executive Officer of Gulang Corporation, tendered her
resignation from the company which she coursed through its .a broker. A day after
the public disclosure of the resignation of Sandra, the prices of the shares of Gulang
Corporation being traded in the stock market considerably declined.

a) Determine whether Atty. Palma had engaged in insider trading.

Assume na lang nating yes. hahaha

b) Would it matter if after the disclosure of the resignation of Sandra, the price of
Gulangs traded shares did not change? Explain.

No, it would not matter if after the disclosure, the price of Gulangs traded shares did not

Section 27 of the SRC provides that a person is deemed engaged in insider trading when the
insider communicating such information knows or has reason to believe that such person will
likely buy or sell a security of the issuer while in possession of such information.

VIII. Arconado, Inc. is a publicly listed company. Its equity structure consists of the
following: 30% - Buen, Inc., 35% - King, Inc. and 35% - public. For its part, King, Inc. is
50% controlled by Eugenio and Ramona corporations. Rezaro, Inc. then acquired the
shares of Eugenio and Ramona Corporations in King, Inc.

a) Does the acquisition of shares fall within the tender offer rule?

b) Would it matter if King, Inc. gave Rezaro, Inc. an option to buy its shares in Arconado,
Inc. which it could exercise only within a pre-determined period? Explain.

c) Does the Securities and Exchange Commission have the power to nullify the
acquisition of securities when there is a violation of the tender offer rule? Explain.

IX. Maribel issued a check payable to order of Marcos. Marcos placed it in an envelope
which was found by Martin. Martin altered the check by writing his name as payee and
endorsed it to Melvin, a holder in due course. Melvin insists that as holder in due course,
he can recover from Maribel based on the original tenor of the instrument, Maribel claims
otherwise. Decide.

Maribel is correct.

In the case of Montinola vs PNB, while as a general rule, material alteration is only deemed as a
partial real defense which allows the payee to recover based on the original tenor of the
instrument (Sec. 124), it is believed that such alteration as to the parties amounts to forgery
which is a real defense by the indorsee forged and all prior parties as against any holder,
including a holder in due course.(p.246 of Aquino, last par.)

Hence, in this case, Melvin cannot recover the value of the check because the alteration made
by Martin is tantamount to forgery.

X. Alwyn, a minor, issued a negotiable promissory note payable to Alexander or order.

Alexander specially endorsed the note to Azucena who endorsed it to Aristeo with a
prohibition against further negotiation. Could Aristeo recover from Alwyn, Alexander and

He may only recover from Alexander and Aristeo.

Section 22 of the NIL provides that minority is a partial real defense available to the minor alone.
(p. 226, Aquino)

In this case, Aristeo can recover from Alexander and Azucena as they are general indorsers of
the promissory note who may be held liable to pay the according to the tenor of the instrument.

XI. Aristeo issued a bill of exchange drawn against Alcanse Bank and payable to the
order of Sharrah. Subsequent endorsements appear on the bill to wit, from Michelle, to
Marie, and then to Maria, the present holder. Alcanse Bank paid the check upon
presentment by Maria. Shortly thereafter, Alcanse Bank was advised that the
endorsement of Sharrah on the bill was forged.

a.) Could Alcanse Bank debit the account of Aristeo? Why?

b.) Would it matter if the bill is payable to bearer? Why?

a) No, the bank cannot debit.

Section 23 of NIL provides that a forged signature is wholly inoperative, and no right to retain
the instrument, or to give discharge therefor, or to enforce payment thereof against any party
thereto, can be acquired through or under such signature, unless the party against whom it is
sought to enforce such right is precluded from setting up the forgery or want of authority.

Furthermore, in the case of Gempesaw vs CA (p.28, Soriano notes), the SC stated that as a
rule, a drawee bank who has paid the check on which an indorsement has been forged cannot
charge the drawers account for the amount of the said check.
Hence, Alcanse Bank cannot debit the account of Aristeo.

b. Yes, it would matter I the bill is payable to bearer.

In Associated Bank vs CA (footnote, p. 277, Aquino), in bearer instruments, the signature of the
payee or holder is unnecessary to pass title to the instrument. The holder of a bearer instrument
can still recover from the drawer if a special indorsement was forged because the forged
signature is unnecessary for his title. (p.294 and 295, Aquino)

XII. Determine whether the following are negotiable.

a.) Manila, 11 January 2008

acknowledged to have received from Lyster P1M which I promise to pay on demand or in
5 months from the date with 1% interest per month payable within the first 5 days of
every month. If the interest is not paid when due, then both the principal and interest
shall become due at the option of the holder.

Sgd Regina.

Not a negotiable instrument.

Not payable to order or bearer (refer to Sections 9 and 8)

Not sure sa rules regarding interest as basis ng acceleration clause, but I think valid naman
yung clause na yun.

b.) Pay to the order of Franchesca P1,755,228.37 from the appropriation for food
administration. Reimburse yourself from Fund 501.

To: Foster Bank sgd. Josse

Not a negotiable instrument.

Section 3 of NIL provides that if there is a particular fund out of which reimbursement is to be
made or a particular account to be debited with the amount such is an unqualified order or
promise to pay.

XIII. Darlene issued a note payable to Grace or bearer. Grace specially endorsed it to
Allan. Allan likewise specially endorsed it to Ann. Ann lost the note which Allen found.
Allen forged the signature of Ann and further endorsed it in blank to Ines, a holder in due
course. Decide whether Darlene could set up the cut off rule against Ines.

No, cut off rule does not apply.

In Associated Bank vs CA (footnote, p. 277, Aquino), in bearer instruments, the signature of the
payee or holder is unnecessary to pass title to the instrument. The holder of a bearer instrument
can still recover from the drawer if a special indorsement was forged because the forged
signature is unnecessary for his title. (p.294 and 295, Aquino)
Hence, Darlene cannot set up the cut off rule.

XIV. Soliman stole expensive food products from Dionisio Company which he deposited
in the warehouse of John. Soliman was issued a receipt stating that the goods are
deliverable to Soliman. Soliman endorsed the receipt to Sheila, a purchaser in good faith.

Did Shiela acquire title to the goods? Why?

Would it matter if the receipt were non-negotiable? Why?

XV. Spouses Ronald and Therese opened a commercial letter of credit with Pigue Bank in
connection with their purchase of copper concentrates from a foreign supplier. To secure
the transaction, Pigue Bank required the spouses to execute a trust receipt in an amount
equivalent to the letter of credit. Upon arrival of the copper concentrates, the spouses
took possession and custody thereof but eventually defaulted in the payment of their
obligation to the bank. Upon the latters demand, the spouses returned the goods to the
deficiency. Decide.

Independence Principle?

XVI. Kimberly purchased 2,000 cubic meters of imported logs from Katherine at