SUNDIANG CONSOLIDATED PROBLEMS IN

CORPORATION LAW
1. A corporation was created by a special law. Later, the law creating it was declared
invalid. May such corporation claim to be a de facto corporation?

No. The corporation is not a de facto corporation because the resquisites for its existence are absent. Thee is no
valid law under which it was organized and there would be no continuity of good faith.

This is specialty true if the corporation that was created was private corporation which was not a government-owned
or controlled corporation. Private corporations can only be created by special law if it is government-owned or
controlled.

2. Mamuhunan was invited by his friends to invest in A Corp., a newly organized firm
engaged in money market and financing operation. Because of his heavy investments,
Mamuhunan became the firm’s president and, as such, purchased a big number of
computers, typewriters and other equipment from Taktak Corp. On installment basis. A
Corp. paid the downpayment and Taktak Corp. issued the corresponding receipt. To his
chagrin, Mamuhunan discovered that the Articles of Incorporation had not been filed by
his friends on that date so he hurriedly attended to the matter. No sooner had the
Certificate of Incorporation been issued by the SEC, A Corp. became bankrupt after
three months.

Upon being sued by Taktak Corporation in his personal capacity, Mamuhunan raised
among its defenses the doctrines of de facto corporations and corporations by estoppel.

Can two defenses be validly raised? Explain.

No. The two defenses cannot be raised because they are not available to Mamuhunan. In the first, there was no de
facto corporation because the Articles of Incorporation was not filed with the SEC. There can be no attempt in
good faith to incorporate if no Articles of Incorporation was filed with the SEC. In addition, Mamuhunan cannot
raise the defense that his corporation is a de facto corporation to defeat a claim. Until the personality is attacked by
the State, the de facto corporation can continue as a corporation.

The allegation that there was a corporation by estoppel may be correct but the same is not a defense against
claimants. The concept of corporation by estoppel is precisely for the purpose of protecting third persons or creditors.
The defense is established in favor of persons with whom the corporation deals but not in favor of those who
represent themselves as such corporation although it is not, like Mamuhunan.

However, Mamuhunan can raise his good faith as a defense and claim that his liability is only up to the extent of
his investment. Section 21 of the Corporation Code makes liable a general partner only those who assume to act as
a corporation knowing it to be without authority.

3. The Articles of Incorporation to be registered in the SEC contained the following

provisions: a) “First Article. The name of the corporation shall be Toho Marketing
Company.” b) Third Article. The principal office of the corporation shall be located in
Region III, in such municipality therein as its Board of Directors may designate.” c)
“Seventh Article. The capital stock of the corporation in One Million Pesos
(P1,000,000.00), Philippine Currency.”

What are your comments and suggested changes to the proposed articles?

a) The First Article does not comply with the SEC Memorandum Circular No. 5 dated July 17, 2008, which
requires the corporate name to contain the word “corporation” or its abbreviation “Corp.,” Incorporated or “Inc.”

By Joliene Nicolas
Hence, the name should be either be “Toho Marketing Corporation” or “Toho Marketing Company,
Incorporated,” “Toho Marketing Corp.,” “Toho Marketing, Inc.”

b) The Third Article should indicate the specific address in the Philippines, and not merely the region (SEC
Circular No. 3, Series of 2006).

c) The Seventh Article must indicated the number of shares into which the capital is divided and the par value if
any if as well as those without par value.

4. IAI, Inc. (IAI) by a Stock Purchase Agreement, sold to AI, Inc. (AI) for the sum of
P19.5 Million all its outstanding shares of stocks in “F” Corp. The agreement was signed
by LG and JV, presidents of IAI and AI respectively. IAI expressly warranted in the
agreement that the net worth of “F” Corp. is P12 Million. IAI agreed that if the net worth
is less than P12 Million, IAI will pay AI the deficiency. AI paid IAI P12 Million and
retained the amount of P7.5 million to answer for any deficiency in the net worth. Instead
of reflecting a net worth, it turned out that “F” had a deficiency of P1.2 Million. Hence,
IAI is obligated to reimburse AI the amount of P13.2 Million (P12 Million plus the
deficiency of P1.2 Million). However, considering that AI retained P7.5 Million, the
balance to be reimbursed is only P5.2 Million. Later, LG, the president of IAI proposed
in writing that AI’s claim for refund be reduced to P4.09 Million but he promised to pay
the costs of certain superstructures in behalf of AI. AI accepted the proposal. Later, IAI’s
Board refused to implement the accepted proposal on the ground that while the said
Board authorized LG to purchase the shares, it did not authorize LG to make the last
proposal. Is the position of IAI’s Board tenable?

The position of the Board of IAI is not tenable. An officer of a corporation who is authorized to purchase the
stock of another corporation has the implied power to perform all other obligations arising therefrom, such as
payment of the shares of stock. By allowing its president to sign the agreement to purchase the share on its behalf,
the corporation clothed him with apparent capacity to perform all acts which are expressly provided for or impliedly
and inherently included therein (Inter-Asia Investment Industries, Inc. vs CA)

6. X Corporation is engaged in selling pencils on wholesale basis. It is merely renting a

bodega and 90% of its assets consist of its stocks of pencil. “A,” a school supply dealer,
purchased all the stocks of X Corporation. Is the transaction a sale of substantially all of
the assets of the corporation requiring concurrence of stockholders representing 2/3 of
the outstanding capital stock?

No. Section 40 of the Corporation Code provides that nothing in the law is intended to restrict the power of any
corporation, without authorization by the stockholders or members, to sell or otherwise dispose of any of its property
and assets if the same is necessary in the usual and regular course of business or if the proceeds of the sale or other
disposition of such property and assets be appropriated for the conduct of its remaining business. The sale in the
given problem appears to be a sale in the regular course of business because X Corporation is engaged in wholesale
business.

7. AA Corporation is engaged in the business of printing books. Around 70% of its assets
consists of cash in the bank, 25% printing machine and the remaining office equipment
and supplies. AA Corporation plans to sell the machine. Can it be considered sale of
substantially all of the assets of the corporation?

Yes. It may be considered sale of substantially all of the assets because without a printing machine, the corporation
would be rendered incapable of continuing its printing business. The fact that it is only 25% of the total assets of
the corporation is immaterial.

By Joliene Nicolas
8. “A,” as owner of certain number shares of stock in X corporation, entered into a voting
trust agreement with B. On the basis of the voting trust agreement, B announced his
desire to run for a seat in the Board of Directors of X corporation. C, another stockholder,
objected and questioned the eligibility of B to be a director of X corporation.

Is C’s contention correct? Why?

The contention of C is not correct. Under paragraph 1 of Section 59, a trustee under a voting trust agreement
becomes registered as a stockholder in the corporate books and as such he becomes the legal title holder or owner of
the shares of stock transferred. By becoming the registered title holder of the stocks, he becomes eligible to run for a
position in the Board of Directors.

9. FLAD Corporation (FLAD for short) was originally incorporated with an authorized
capital stock of P500,000.00 shares with the members of the “T” family owning
P450,200.00 shares representing the outstanding capital stock to give each group equal
(50-50) shareholdings as agreed upon in the Pre-Subscription Agreement. Pursuant to the
said subscription agreement, the authorized capital stock was thus increased from
P500,000.00 shares to P2,000,000.00 shares with a par value of P100.00 each, with the “O”
family subscribing to P1,000,000.00 shares and the “T” to P549,800.00 more shares in
addition to their P450,200.00 shares to complete P1,000,000.00 shares. The
Pre-Subscription Agreement likewise provides that the “T” family shall nominate the
Vice-President and Treasurer and five directors while the “O” family shall nominate the
President and six directors. The “O” family is supposed to manage the mall owned by
FLADC. Later, alleging non-compliance with the obligation under the agreement (the
members of the “T” family were allegedly prevented from acting as Vice-President and
Treasurer), the “T” family filed an action for rescission of the Pre-Subscription
Agreement and asked for the liquidation of the asset of FLADC. Will the action prosper?
Explain.

The action will not prosper for the ff reasons:

a) The “T” family cannot rescind the contract because they are not the real parties in interest. The subject matter of
the contract was the P1,000,000.00 unissued shaes of FLADC stock allocated to the “O” Family. The parties’
Pre-Subscription Agreement was in fact a subscription contract as defined under Section 60 of the Corporation
Code. A subscription contract necessarily involves the corporation as one of the contracting parties since the subject
matter of the transaction is property owned by the corporation - its shares of stock. Thus, the subscription contract
(denominated by the parties as a Pre-Subscription Agreement) whereby the “O” family invested P100.00 million
for P1,000,000.00 shares of stock was, from the viewpoint of the law, one between the “O” family and FLADC,
not between the “O” and the “T.” Hence, it is the corporation and not the “T” family that has the personality to
rescind the contract. Even if there was a violation of the agreement, the “T” family has other remedies but
rescission is not one of them.

b) Granting

By Joliene Nicolas