ATENEO DE MANILA LAW SCHOOL

CORPORATE LAW - 2A & 2B

FINAL EXAMINATIONS

Dean CESAR L. VILLANUEVA 30 Mar ! 200" # M$n%a&

INSTRUCTIONS
T!e E'a()na*)$n $n+)+*+ $, FIVE -./ Pr$01e(+ $n THREE -3/ 2a3e+. Rea% ea ! )*e( are,411&. An+5er *!e 64e+*)$n+ SE7UENTIALL8# $n )+e1& an% 1ear1& STARTIN9 EVER8 ANSWER ON A SEPARATE RI9HT-HAND PA9E# 04* *!erea,*er &$4 (a& 5r)*e $n *!e 0a : 2a3e. D$ n$* re2ea* *!e 64e+*)$n+ an% MA;E SURE 8OU ADDRESS THE SPECIFIC 7UESTIONS AS;ED AT THE END OF EACH PROBLEM. A (ere <8ES= $r <NO= $r MERE CONCLUSIONS OF LAW 5)11 re e)>e >er& 1)**1e re%)*# ), a* a11. Un1e++ $*!er5)+e e'2re++1& +*a*e%# a11 +*a*e(en*+ )n *!e 2r$01e(+ are a1rea%& %ee(e% 2r$>en -*!)+ )+ n$* an e'a()na*)$n )n Evidence/# an% &$4r an+5er+ (4+* *a:e *!e ,$r( $, a %e )+)$n $r r41)n3 $, a ?4%3e *!a* %)+2$+e+ $, *!e )++4e+ ra)+e%# an% n$* a (ere a a%e() %)+ 4++)$n. 9OOD LUC;@

A$O$A

FACTS COMMON TO PROBLEMS B# 2 AND 3

N) $1a+ Tra%)n3 C$r2. )+ a %$(e+*) $r2$ra*)$n )n e')+*en e ,$r *!e 1a+* *en &ear+# an% !a% a+ )*+ $r)3)na1 )n $r2$ra*$r+ *!e ,$11$5)n3 )n%)>)%4a1+C N$. $, S!are+ B0#000 "#000 D#000 E#000 .#000 A($4n* S40+ r)0e% P B#000#000 "00#000 D00#000 E00#000 .00#000 A($4n* Pa)%-U2 . P .00#000 .00#000 .00#000 .00#000 .00#000

N) $1a+ Ar*e()$ W)1,re%$ E4+e0)$ Te$,)1$

B$*! *!e ar*) 1e+ $, )n $r2$ra*)$n an% 0&-1a5+ 2r$>)%e% ,$r a .-(an B$ar% $, D)re *$r+# $, 5!) ! *!e )n $r2$ra*$r+ !a>e a15a&+ e1e *e% *!e(+e1>e+ *$ ,)11-42# 5)*! N) $1a+ e1e *e% re341ar1& a+ Pre+)%en*# an% Ar*e()$ a+ C$r2$ra*e Se re*ar&. T!e 0&-1a5+ a1+$ 2r$>)%e *!a* *!e B$ar% $, D)re *$r+ (a&# )n *!e e'er )+e $, )*+ 04+)ne++ ?4%3(en* )++4e er*),) a*e+ $, +*$ : $>er 2$r*)$n+ $, *!e +40+ r)2*)$n+ *!a* are 2a)%. F)>e &ear+ a3$# ne5 )n>e+*$r+ 5ere )n>)*e% *$ )n>e+* )n *!e ,$11$5+C T!$(a+ W)11)a( H)1ar& O *a>)4+ Fe,,er+$n S!are+ .#000 .#000 .#000 .#000 .#000 S40+ r)0e% P .00#000 .00#000 .00#000 .00#000 .00#000 Pa)%-U2 . P B00#000 B00#000 B00#000 B00#000 B00#000 $(2an& a+

S40+ r)2*)$n a3ree(en*+ 5ere e'e 4*e% ,$r ea ! $, *!e a%%)*)$na1 )n>e+*$r+ 5!ere )* 5a+ +2e ),) a11& 2r$>)%e% *!a* *!e +!are+ +40+ r)0e% 0& ea ! ne5 )n>e+*$r +!a11 0e <)n e+ r$5= an% n$* $n+)%ere% *$ 0e 2ar* $, *!e $4*+*an%)n3 a2)*a1 +*$ : $, N) $1a+ Tra%)n3 4n*)1 *!e +40+ r)2*)$n )+ ,411&-2a)% an% a $>er)n3 er*),) a*e $, +*$ : )++4e%. Ea ! $, *!e a3ree(en* 2r$>)%e% ,$r 2a&(en* 5)*!)n B0 &ear+# 5)*! )n*ere+* a* B2G 2.a.# $r ear1)er 5!en 0& re+$14*)$n# *!e B$ar% (a:e+ a a11. I* *4rn+ $4* *!a* +)' &ear a3$ -0e,$re ne5 )n>e+*$r+ a(e )n/# *!e B$ar% $, D)re *$r+ !a% ,$r(a11& a22r$>e% *!e )++4an e $, er*),) a*e+ $, +*$ : $>er)n3 *!e en*)re +40+ r)2*)$n+ $, *!e )n $r2$ra*)n3 +*$ :!$1%er+# an% 1a++),&)n3 *!e 4n2a)% +40+ r)2*)$n+ ,r$( <S40+ r)2*)$n+ Re e)>a01e= *$ <N$*e+ Re e)>a01e+#= ,$r 5!) !

ea ! $, *!e( )++4e% $rre+2$n%)n3 2r$()++$r& n$*e+ 2a&a01e 5)*!)n B0 &ear+# 5)*! )n*ere+* a* B2G 2.a.

B.
In Fan4ar& $, *!)+ &ear# 4n%er a Dee% $, A0+$14*e Sa1e# W)1,re%$ +$1% !)+ en*)re +!are!$1%)n3+ )n N) $1a+ Tra%)n3 *$ San Pa01$# an% %41& en%$r+e% an% %e1)>ere% *!e $>er)n3 +*$ : er*),) a*e. A $421e $, %a&+ 1a*er# 4n%er an$*!er Dee% $, A0+$14*e# San Pa01$ a1+$ 0$43!* *!e en*)re +!are!$1%)n3+ $, Fe,,er+$n. W!en San Pa01$ +$43!* *$ !a>e *!e 24r !a+e% +!are+ re3)+*ere% )n *!e 0$$:+ $, *!e C$(2an&# N) $1a+ an% Ar*e()$# a+ 1ea%)n3 $,,) er+# re,4+e% $n *!e 3r$4n% *!a* 4n%er Se *)$n E3 $, *!e C$r2$ra*)$n C$%e# <N$ +!are+ $, +*$ : a3a)n+* 5!) ! *!e $r2$ra*)$n !$1%+ an& 4n2a)% 1a)( +!a11 0e *ran+,era01e )n *!e 0$$:+ $, *!e $r2$ra*)$n.= San Pa01$ 0r$43!* +4)* ,$r +2e ),) 2er,$r(an e -n$* mandamus/ a3a)n+* *!e $(2an&# an% )n 14%e% *!ere)n a+ %e,en%an*+ 0$*! W)1,re%$ an% Fe,,er+$n# 5!$ ,)1e% an+5er+ $n,)r()n3 *!e)r +a1e+ $, e64)*& *$# an% a e%)n3 *$ *!e r)3!* $,# San Pa01$. T!e $(2an& 5a+ a01e *$ 2r$>e *!a* *!ere 5ere +*)11 4n2a)% +40+ r)2*)$n+ $n ea ! $, *!e *5$ +e*+ $, +!are!$1%)n3+# an% *!a* )n *!e a+e $, Fe,,er+$n# +)n e *!e +!are+ 5ere +*)11 )n e+ r$5# !e !a% n$ 2r$2er*& r)3!*+ *$ +e11. H$5 5$41% &$4 r41e $n *!e +4)*H De )%e 5)*! rea+$n+. -B0G/

SU99ESTED ANSWERSC
Insofar as the shares of Wilfredo, having been covered by a stock certificate, which made the shares conclusively insofar as the corporation is concerned as fully-paid and non-assessable, the same should be registered in the name of San Pablo, since his purchase is supported by both a deed and the covering certificate endorsed and delivered, and the previously registered stockholder Wilfredo! acknowledging that the shares should be registered in the name of San Pablo" With respect to the shares in the name of #efferson, even though the subscription agreements provided the shares to be in escrow, nonetheless, the operative effect of subscription is the issuance of the shares and the constitution of #efferson and all the new investors! as shareholders, entitled to all the rights pertaining to such position, including the right to sell or encumber their shares" $onetheless, although #efferson had the right to sell or dispose of his shares, the validity and enforceability of the contract of disposition sale! is as between the parties thereto, and cannot be binding on the corporation unless it agrees thereto in accordance with the clear provisions of Section %& of the 'orporation 'ode" In other words, since a disposition of unpaid shares constitutes a novation by substitution of the principal obligor #efferson!, the same is not valid as to the obligee $icolas (rading!, unless done with the consent of the latter" (he sale is valid as between #efferson and San Pablo, but cannot be binding upon $icolas (rading without the latter)s consent, and which can hold #efferson liable to the original terms of the unpaid subscription" (he remedy of San Pablo is to pay-up the unpaid subscription due on the shares or to rescind the purchase"

2.
IFa *+ )n Pr$01e( . D$ N$* E')+*CJ W!en *!e $(2an&K+ $2era*)$n+ nee%e% ,4r*!er 5$r:)n3 ,4n%+# *!e B$ar% $, D)re *$r+ 2a++e% a re+$14*)$n (a:)n3 a ,$r(a1 a11 $n a11 $4*+*an%)n3 +40+ r)2*)$n *$ 0e 2a)%. I* 5a+ *!en *!a* *!e ne5 )n>e+*$r+# *!r$43! e'a()na*)$n $, $r2$ra*e re $r%+# 1earne% *!a* *!e 2re>)$4+ +40+ r)2*)$n+ $, *!e $r)3)na1 )n $r2$ra*$r+ !a% 0een $n>er*e% )n*$ 2r$()++$r& n$*e+. W!en *!e ne5 )n>e+*$r+ re,4+e% *$ 2a& 4n*)1 *!e $r)3)na1 +*$ :!$1%er+ a1+$ 2a)% *!e)r 2r$()++$r& n$*e+# *!e B$ar% $, D)re *$r+ $, N) $1a+ Tra%)n3 0r$43!* +4)* *$ $11e * $n *!e 4n!ee%e% a11.

-a/ T!e ne5 )n>e+*$r+ $22$+e% *!e +4)* $n *!e 3r$4n% *!a* *!e 2r$2er re(e%& $, *!e B$ar% +!$41% !a>e 0een a %e1)n64en & +a1e 4n%er Se *)$n E" $, *!e C$r2$ra*)$n C$%e. -.G/ -0/ T!e ne5 )n>e+*$r+ ,)1e% a $4n*er 1a)( a3a)n+* *!e (e(0er+ $, *!e B$ar% $, D)re *$r+ ,$r *!e( *$ a1+$ 2a& *$ *!e $r2$ra*)$n *!e)r $4*+*an%)n3 2r$()++$r& n$*e+. T!e B$ar% $22$+e% *!e $4n*er 1a)( $n *!e 3r$4n%+ *!a* *!e ne5 )n>e+*$r+ !a% n$ +*an%)n3 *$ 0r)n3 *!e +a(e +)n e )* 2er*a)n *$ *!e e'er )+e $, 04+)ne++ ?4%3(en*. -B0G/ - / F4r*!er *!e B$ar% (e(0er+ 1a)(e% *!a* 4n1):e *!e ne5 )n>e+*$r+# *!e $r)3)na1 +*$ :!$1%er+ %)% n$* +)3n an& +40+ r)2*)$n a3ree(en* 0& 5!) ! *!e& 5$41% 0e 0$4n%L an% *!e *er(+ $, *!e 2r$()++$r& n$*e %)% n$* (a:e *!e $01)3a*)$n+ *!ere)n %4e an% %e(an%a01e n$r +40?e * *$ a a11. -B0G/ -%/ H$5 5$41% &$4 %e )%e $n *!e +4)* )*+e1,# )n 14%)n3 *!e $4n*er 1a)(# e+2e )a11& 5!en *!e (e(0er+ $, *!e B$ar% )n+)+* *!a* 0$*! *!e 0$$:+ $, *!e $(2an& an% *!e 9enera1 In,$r(a*)$n S!ee* ,)1e% 5)*! *!e SEC 1ear1& )n%) a*e *!a* *!e)r +!are!$1%)n3+ are ,411& 2a)%. -B0G/ In ea ! a+e# &$4 (4+* %e )%e 5)*! rea+$n+.

SU99ESTED ANSWERSC
2-a/. (here is no doubt that based on the formal call made by the +oard of ,irectors of $icolas (rading, that the unpaid subscriptions of the new investors had to be paid, or became due and demandable under the terms of the subscription agreements each of them e-ecuted" .lthough the company is given the right to collect on unpaid subscription based on the delin/uency sale provided under Section %0 of the 'orporation 'ode, nevertheless this is not the only remedy afforded to the company" Section 12 provides that $othing in this 'ode shall prevent the corporation from collecting by action in a court of proper 3urisdiction the amount due on any unpaid subscription, with accrued interest, costs and e-penses" 45! 2-0/. (here is no merit to the assertion of the +oard that the new investors had no standing to bring the counterclaim against them, for being stockholders by entering into the subscription agreements, under Section 1* of the 'orporation 'ode, 6olders of subscribed shares not fully paid which are not delin/uent shall have all the rights of a stockholder, although a call has been made, there has been no declaration of delin/uency" (herefore, since the suit was originally brought in the name of the corporation by the +oard, then the new investors had standing to bring a derivative suit by way of counterclaim in behalf of the company against the original stockholders, especially so when the relief sought was not for their benefit but for the benefit of the company" $o previous demand was necessary on the part of the new investors as relators for the company since it was obviously useless clearly shown by the fact that the directors themselves are involved and they had made formal position denying obligation to pay the original unpaid subscription to the corporation" 7ikewise, there were stockholders already of the corporation at the time when the cause of action against the +oard members arose a call was made not including themselves! and at the time the counterclaim by way of derivative suit was filed" 2- /. It may be true that the original incorporators did not sign formal subscription contracts with the then new company, but it does not mean that they did not enter into subscription agreements" 8nder Section %2 of the 'orporation 'ode, .ny contract for the ac/uisition of unissued stock in an e-isting corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this (itle, notwithstanding the fact that the parties refer to it as a purchase or some other contract" (here is no re/uirement that for that subscription agreement to be valid and enforceable it had to be in writing" In any

&

event, there is clear written evidence of the subscription agreements of each of the incorporators with the company, which is the provisions in the articles of incorporation submitted to the S9' embodying the incorporators, and the incorporation subscription and paid-up capital stock" 2-%/. (he new investors would be liable to pay the unpaid balance of their subscriptions based on the call made by the +oard of ,irectors, as this condition is clearly provided for in their covering subscription agreements" (here is also no doubt that the original shareholders are liable on their unpaid subscriptions which are now evidenced by their promissory notes, under the principle that when a call is made by the +oard, it shall be uniformly applied to all shareholders" In spite of the entries in the books of the company showing that the shareholdings of the original stockholders are fully paid, and notwithstanding the entries in the :IS to the same effect, the same would be void as contravening the trust fund doctrine" It is clear under Section %* of the 'orporation 'ode that the consideration for the subscription of shares of stock must be payable in money or in property useful to the corporation, and that payment made for promissory notes or future services, is void for being in contravention of the trust fund doctrine" In fact, the resolute doctrine is that any contractual stipulation or transaction that either renders ineffective or sub3ects to condition the payment of the subscription of shares would be void"

3.
IIn%e2en%en* $, *!e ,a *+ )n Pr$01e( 2CJ N) $1a+ Tra%)n3 a(e )n*$ ,)nan )a1 %),,) 41*)e+ an% 0e a(e )n+$1>en*# an% *!ere0& +!4* %$5n $2era*)$n+. E>en*4a11&# *!e SEC %)re *e% *!e %)++$14*)$n $, *!e $(2an& -an $r%er *!a* 5a+ 2401)+!e% )n ne5+2a2er+ $, 3enera1 )r 41a*)$n/ ,$r !a>)n3 0een )n$2era*)>e an% ,a)1)n3 *$ $(21& 5)*! *!e a3en &K+ re2$r*$r)a1 re64)re(en*+. F$4r &ear+ *!erea,*er# a 1ar3e re%)*$r $, *!e $(2an&# L$ Pen3 La(# (ana3e% *$ 1$ a*e *!e 5!erea0$4*+ an% *!e a++e*+ $, 0$*! *!e $r)3)na1 )n $r2$ra*$r+ an% *!e ne5 )n>e+*$r+# an% 0r$43!* +4)* a3a)n+* *!e( $11e *)>e1& *$ re $>er ,r$( *!e $r)3)na1 )n $r2$ra*$r+ $n *!e)r $4*+*an%)n3 2r$()++$r& n$*e+ *$ *!e $(2an&# an% ,r$( *!e ne5 )n>e+*$r+ *!e)r 4n2a)% +40+ r)2*)$n. An )n*e3ra1 2ar* $, *!e re1)e, )n *!e $(21a)n* ,)1e% 0& L$ Pen3 La( )+ ,$r *!e $4r* *$ a22$)n* a re e)>er *$ re e)>e *!e a($4n*+ ,$r *!e 0ene,)* $, a11 re%)*$r+ $, N) $1a+ Tra%)n3. T!e %e,en%an*+ $22$+e% *!e 1a)( $n *!e 3r$4n% *!a* L$ Pen3 La( !a% n$ +*an%)n3 *$ re $>er $n 2r$2er*& r)3!*+ *!a* 2er*a)ne% *$ a +e2ara*e ?4r)%) a1 2er+$n an% ,$r 5!) ! )* $41% n$* e>en re $>er +)n e )* )+ 0e&$n% *!e 3-&ear 1)64)%a*)$n 2er)$% (an%a*e% 4n%er Se *)$n B22 $, *!e C$r2$ra*)$n C$%e. H$5 5$41% &$4 %e )%e *!e +4)*H De )%e 5)*! rea+$n+ -B0G/

SU99ESTED ANSWERC
I would basically rule for the appointment of the receiver to whom the amounts owed by the stockholders of record would be paid to cover outstanding obligations of $icolas (rading" (here is no doubt that both the original incorporators and the new investors their unpaid subscriptions to the company, irregardless of the terms and conditions of their underlying subscription agreement, became due and demandable for the benefit of the creditors as one of the legal conse/uence of the application of the trust fund doctrine" In spite of the language of Section ;** of the 'orporation 'ode of the abatement of all suits for or against a dissolved corporation after the lapse of the &-year period, the Supreme 'ourt has through various decisions held that the legal right and ability of the creditors of a dissolved corporation do recover from the assets of the corporation cannot fail" (he stockholders are deemed to have in their possession assets of the dissolved company i"e", subscription receivables of $icolas (rading!, and the 'ourt held in Tan Tiong Bio v. Commissioner , ;22 Phil" 0% ;<4%!, that even after

the three &! year period of li/uidation, corporate creditors can still pursue their claims against corporate assets against the officers or stockholders who have taken over the properties of the corporation" 7ately, in Paramount Insurance Corp. v. A.C. Ordoez Corp. , 4%; S'>. &*1 *220!, the 'ourt held that ,issolution or even the e-piration of the threeyear li/uidation period should not be a bar to a corporation)s enforcement of its rights as a corporation" In support of this ruling, Paramount Insurance /uoted from Section ;=4 of the 'orporation 'ode which provided that $o right or remedy in favor of or against any corporation " " " shall be removed or impaired either by the subse/uent dissolution of said corporation or by any subse/uent amendment or repeal of this 'ode or of any part thereof" It should be noted however that the provisions of Section ;=4 were primarily for transition for corporations then in e-istence under the terms of the old 'orporation 7aw" FACTS COMMON TO PROBLEMS M AND .
9$1%en A re+ C$r2.# a De1a5are $r2$ra*)$n en3a3e% )n *!e (an4,a *4re an% %)+*r)04*)$n $, a3r) 41*4ra1 ,$$% 2r$%4 *+# en*ere% )n*$ a S!are!$1%er+ A3ree(en* 5)*! De1a Cr4N Tra%)n3 C$r2.# a %$(e+*) $(2an& re3)+*ere% 5)*! *!e 2r)(ar& 24r2$+e *$ en3a3e )n < $((er )a1 *ra%)n3=# 5!ere0& *!e& +e*-42 an% e+*a01)+!e% )n *!e P!)1)22)ne+ a ne5 1$ a1 $(2an&# 9$1%en P)n$& Ven*4re+# In .# *$ en3a3e )n *!e 2r)(ar& 24r2$+e $, (ar:e*)n3 an% %)+*r)04*)$n $, 2r$ e++e% ,$$%+*4,, 2r$%4 *+ $, 9$1%en A re+ *!r$43!$4* *!e ar !)2e1a3$# 5)*! *!e ,$11$5)n3 e64)*&C M0G 9$1%en A re+L E0G De1a Cr4N Tra%)n3. T!e S!are!$1%er+ A3ree(en* a1+$ 2r$>)%e% *!a* *!e .-(an B$ar% $, D)re *$r+ +!a11 0e $(2$+e% $, 2 n$()nee+ $, 9$1%en A re+# an% 3 n$()nee+ $, De1a Cr4N Tra%)n3L an% *!a* *!e C!a)r(an an% C$r2$ra*e Se re*ar& +!a11 0e n$()na*e% 0& A re+ C$r2.# 5!)1e *!e Pre+)%en* an% C$r2$ra*e Trea+4rer 5$41% 0e n$()na*e% 0& De1a Cr4N Tra%)n3. On e 9$1%en P)n$& 5a+ re3)+*ere% 5)*! *!e SEC# a L) en+)n3 an% D)+*r)04*$r+!)2 C$n*ra * 5a+ en*ere% )n*$ 5)*! 9$1%en A re+# 5)*! *!e ,$r(er 0e)n3 a22$)n*e% *!e e' 14+)>e %)+*r)04*$r $, a11 $, *!e 1a**erK+ 2r$%4 *+ )n *!e P!)1)22)ne+# *$ 0e +$1% )n *!e na(e $, an% 4n%er *!e $n*r$1 $, 9$1%en P)n$&# 04* 5)*! *!e !43e $+* $, a%>er*)+)n3 *!r$43!$4* *!e ar !)2e1a3$ an% *!r$43! a11 (e%)a ,$r *!e a $4n* $, 9$1%en A re+. A2ar* ,r$( *!e e64)*& $n*r)04*)$n+ )n*$ 9$1%en P)n$&# 9$1%en A re+ a1+$ e'*en%e% a PB0.0 ()11)$n 1$an *$ *!e 1$ a1 $(2an& *$ ,4n% *!e +e**)n3-42 $, %)+*r)04*)$n ne*5$r:+ *!r$43!$4* *!e $4n*r&. F)na11&# a Mana3e(en* C$n*ra * 5a+ en*ere% )n*$ 0e*5een 9$1%en P)n$& an% De1a Cr4N Tra%)n3# 5!ere0& *!e 1a**er 5a+ 3ran*e% 2$5er *$ (ana3e *!e %)+*r)04*)$n 04+)ne++ $, 9$1%en P)n$&# 5!) ! 5$41% en*)*1e De1a Cr4N Tra%)n3 a (ana3e(en* ,ee e64)>a1en* *$ B"G $, 3r$++ ($n*!1& re e)2*+. T!e *er(+ $, *!e Mana3e(en* C$n*ra * a1+$ a11$5e% 9$1%en P)n$& *$ (a)n*a)n )*+ !ea% $,,) e )n a +e2ara*e 04)1%)n3 5)*!)n *!e $(2$4n% $, De1a Cr4N Tra%)n3. Mr. Pa*r) : Me%)na 5a+ !)re% ,r$( $4*+)%e *$ 0e $(e *!e Pre+)%en* $, *!e 9$1%en P)n$&# an% )*+ C!a)r(an re2re+en*)n3 $ne $, *!e *!ree -3/ +2$*+ *$ 0e n$()na*e% 0& De1a Cr4N# 5)*! *5$ -2/ $*!er (e(0er+ $, *!e B$ar% $()n3 ,r$( *!e V) e-Pre+)%en* ran:+ $, De1a Cr4NL 5!)1e *!e *5$ -2/ (e(0er+ a++)3ne% *$ 9$1%en A re+ 5ere $,,) er+ )n De1a5are 5!$ 5$41% $(e re341ar1& *$ *!e P!)1)22)ne+ *$ a**en% B$ar% (ee*)n3+.

M.
De1,)n# $ne $, *!e ()n$r)*& +*$ :!$1%er+ $, De1a Cr4N Tra%)n3# %e(an%e% ,r$( *!e B$ar% $, D)re *$r+ *!a* *!e& a0an%$n *!e >ar)$4+ a3ree(en*+ *!e& en*ere% )n*$ 5)*! 9$1%en A re+ an% 9$1%en P)n$& ,$r 0e)n3 4n1a5,41 !a>)n3 0een e,,e *e% *!r$43! (ere B$ar% re+$14*)$n+ 5)*!$4* +*$ :!$1%er+K a22r$>a1. He a1+$ %e(an%e% an e'a()na*)$n an% $2&)n3 $, a11 $r2$ra*e re $r%+ $, 9$1%en P)n$&. W!en *!e De1a Cr4N B$ar% re,4+e% *$ !ee% !)+ %e(an% $n *!e 3r$4n%+ *!a* *!e

2r$?e * an% *!e 4n%er1&)n3 a3ree(en* 5ere 5)*!)n *!e 04+)ne++ ?4%3(en* $, *!e B$ar%# an% *!a* De1,)n !a% n$ +*an%)n3 *$ e'a()ne *!e 0$$:+ $, 9$1%en P)n$& $, 5!) ! !e )+ n$* a +*$ :!$1%er $, re $r%# De1,)n 0r$43!* 0e,$re *!e RTC +2e )a1 $((er )a1 $4r*C -a/ See:)n3 an $r%er %)re *e% *$ De1a Cr4N an% 9$1%en P)n$& a11$5)n3 !)( *$ e'a()ne an% $2& *!e re $r%+ $, 9$1%en P)n$& 2er*a)n)n3 *$ )*+ $r2$ra*e re3)+*ra*)$n an% $n *!e %)+*r)04*)$n 2r$?e *. I+ De1,)n en*)*1e% *$ *!e re1)e, +$43!*H -.G/ -0/ A %er)>a*)>e +4)* *$ !a>e De1a Cr4N Tra%)n3K+ )n>e+*(en* )n*$ *!e 9$1%en P)n$& 2r$?e * 0e %e 1are% 4n1a5,41# )n 14%)n3 *!e e'e 4*)$n $, *!e S*$ :!$1%er+K A3ree(en*. -B0G/ - / T$ !a>e *!e Mana3e(en* A3ree(en* %e 1are% 4n1a5,41 an% >$)%. -B0G/ De )%e ea ! $, *!e *!ree a4+e+ $, a *)$n 5)*! rea+$n+.

SU99ESTED ANSWERSC
M-a/. ,elfin has legal standing to e-amine and copy, at his own cost, the corporate records of :olden Pinoy" It may be true that ,elfin is not a stockholder of record of :olden Pinoy, and the right to inspect corporate records only pertains to stockholders of record, nevertheless, being a stockholder of record of the parent company, ,ela 'ru? (rading, Inc", it has been held in Gokongwei v. Securities and E c!ange Commission, 0< S'>. &&% ;<1<!, that a stockholder)s right to inspect shall e-tend to the records of a subsidiary company that is under the management anc control of the parent company" +y virtue of the @anagement 'ontract, and the actual business set-up between ,ela 'ru? (rading and :olden Pinoy, it is clear that the latter is within the effective control of the former, which would bring the latter within the inspection rights of the stockholders of the former" 45! M-0/. +eing a stockholder of record, and having made former demand which were not heeded, the filing of the derivative suit in behalf of ,ela 'ru? (rading was properly laid, since the cause of action and relief sought are purportedly to protect the interest of ,ela 'ru? (rading" .ll investments made by the corporation that are pursuant to or necessary for the fulfillment of the primary purpose fall within the business discretion of the +oard under Section *& of the 'orporation 'ode" Stockholders) ratificatory approval is re/uired under Section =* of the 'orporation 'ode only to investments on a business enterprise outside of the primary purpose are indicated in the articles of incorporation, and the same section is careful enough to declareA (hat where the investment by the corporation is reasonable necessary to accomplish its primary purpose as stated in the articles of incorporation, the approval of the stockholders or members shall not be necessary" Since ,ela 'ru? (rading is registered with the primary purpose of commercial trading in all sorts of goods and products then it is clear that its controlling investment in a domestic company engaged in the distribution of foodstuffs is consistent with its primary purpose and does not re/uire stockholders) ratification to be valid" 'onse/uently, the e-ecution of the Stockholders .greement in pursuant of the investment and the pro3ect is valid, by mere board resolution and without the need for stockholders) ratificatory approval" M- /. (he @anagement 'ontract grants to ,ela 'ru? (rading the power to manage the distribution business of :olden Pinoy, which constitutes its main and only business undertaking, and would fall within the coverage of Section == of the 'orporation 'ode that re/uires that the same to be valid, must be approved separately by each of the +oards of ,irectors of ,ela 'ru? (rading and :olden %

Pinoy, but also ratified separately by their stockholdersA in the case of ,ela 'ru?, by a ma3ority of its outstanding capital stock, in the case of :olden Pinoy, by twothirds *B&! of its outstanding capital stock" Without such stockholders) approval, the management contract would be deemed not merely voidable, but void for lacking the essential element of complete consent"

..
In *!e $4r+e $, *!e $2era*)$n+ $, *!e 04+)ne++ en*er2r)+e $, 9$1%en P)n$&# +$(e $, *!e +4221)er+ 5ere n$* 2a)%# an% %4e *$ *!e e $n$() %$5n*4rn# *!e $(2an& 0e a(e )n+$1>en*# an% )*+ $2era*)$n+ +!4* %$5n 2er(anen*1&. Ter(a3an S4221)e+# In .# $ne $, *!e 4n2a)% +4221)er+# ,)1e% +4)* 0e,$re *!e 1$ a1 $4r* a3a)n+* 9$1%en P)n$&# De1a Cr4N Tra%)n3# an% 9$1% A re+ *$ 0e 1)a01e ,$r *!e 4n2a)% re%)*. Ser>) e $, +4(($n+ 5a+ (a%e 42$n *!e 2r$2er $,,) er+ $, 9$1%en P)n$& an% De1a Cr4N# an% $ne $, *!e %)re *$r+ $, 9$1%en A re+ %4r)n3 !)+ >)+)* )n *!e P!)1)22)ne+. -a/ De1a Cr4N Tra%)n3 $22$+e% *!e +4)* *!a* +$43!* *$ (a:e )* 1)a01e ,$r an a $4n* *!a* 5a+ $0*a)ne% %)re *1& )n *!e na(e $, 9$1%en P)n$&# 5)*! +*r$n3 2$+)*)$n *!a* De1a Cr4N Tra%)n3 ann$* 0e (a%e <2er+$na11&= 1)a01e ,$r *!e $01)3a*)$n+ )n 4rre% %)re *1& )n *!e na(e $, 9$1%en P)n$& 5)*!)n *!e + $2e $, a4*!$r)*& an% )n *!e 2r$2er 24r+4)* $, 04+)ne++# an% *!ere 0e)n3 n$ ,ra4% a11e3e% *$ !a>e 0een $(()**e% 0& De1a Cr4N Tra%)n3 )n *!e (a**er. -B0G/ -0/ 9$1%en A re+# 0& $4n+e1# 5!$ $n1& en*ere% 4n%er <+2e )a1 a22earan e#= +ee:+ *!e %)+()++a1 $, *!e +4)* a+ a3a)n+* 9$1%en A re+ $n *!e 3r$4n% *!a* *!e *r)a1 $4r* !a+ n$ ?4r)+%) *)$n $>er )*+ 2er+$n. In $22$+)n3 *!e ($*)$n *$ %)+()++# Ter(a3an 2$+)*+ *!a* ,r$( *!e ,a *+ $, *!e a+e - i.e.# $(($n ,a *+ are %ee(e% 2r$>en/# )* )+ 1ear *!a* 9$1%en A re+ 5a+ en3a3e% )n 04+)ne++ )n *!e P!)1)22)ne+ 5)*!$4* a 1) en+e# an% *!ere,$re an 0e >a1)%1& +4e% 0e,$re 1$ a1 $4r*+. -B0G/ De )%e *!e a+e 5)*! 2r$2er an% ,411 rea+$n)n3.

SU99ESTED ANSWERSC
.-a/ With :olden Pinoy without assets to cover its outstanding debts, it is clear that ,ela 'ru? (rading may be held liable for the subsidiary)s obligation, not under fraud piercing since there was no proof thereof, but under alter-ego piercing" .lthough it may be true that ma3ority control in the e/uity of a corporation does not by itself authori?ed the application of the piercing doctrine, however, when this is coupled by other factors which clearly indicate that a corporation is merely being used as a conduit or an alter ego, then there would be proper application of the piercing doctrine to merge two corporations as one and make them liable for the debt of the other" .side from ma3ority e/uity, the ma3ority of the members of the +oard of :olden Pinoy were designated and even officers of ,ela 'ru? (radingC the head office of :olden Pinoy was located within the same compound owned by ,ela 'ru? (radingC and more importantly, the entirety of the business enterprise and operations of :olden Pinoy were under the control of ,ela 'ru? (rading under the @anagement 'ontract" (here is more than enough evidence to support the fact that :olden Pinoy was merely operated as a conduit or alter ego of ,ela 'ru? (rading" .-0/ .lthough it may be true that :olden .cres does not have a license to do business in the Philippines, it does not mean that it is susceptible of being sued in local courts, unless it is shown that it has engaged in business in the Philippines" +oth 3urisprudence and prevailing rules and regulations provide that e/uity investment by itself in any business in the Philippines, no matter how significant in amount, does not by itself constitute doing businessC nor does the e-ercise of the e/uity rights, such as election of directors into the +oard, constitute doing business" (here is nothing in the facts proven to show that :olden .cres was nothing but a passive foreign investor in the :olden Pinoy pro3ect, much less were there unduly restrictive terms in the licensingBdistribution 1

agreement that would indicate that :olden Pinoy was merely reduced to a conduit or agent of :olden .cres, or that ,ela 'ru? (rading was acting merely as an agent of :olden .cres in the Philippines" (he fact that :olden .cres was bound to undertake e-pensive advertising campaign in the Philippines for its product do not constitute doing business in the Philippines as e-pressly so provided under the implementing rules and regulations of the Doreign Investment .cts of ;<<;" $ot being present in the Philippines, and having not consented nor surrendered 3urisdiction over its person, the local court has no authority over :olden .cres which is an entity beyond its territorial 3urisdictionC and if it proceeds to render any 3udgment against :olden .cres it would violate principles of due process" A$O$A

SU99ESTED ANSWERS PUBLISHED AT ADMINISTRATIVE STAFF WINDOW