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VILLANUEVA 2# $an%ar& 2''() M!nda& INSTRUCTIONS T*e Examina i!n +!n"i" " !, TEN -.'/ 0%e" i!n" !n THREE -1/ 2a3e" !, *i" 0%e" i!nnaire. Read ea+* i em 4er& +are,%55&. An"6er *e 7%e" i!n" SE0UENTIALL8) +!n+i"e5& and +5ear5&) STARTIN9 EVER8 ANSWER ON A SEPARATE PA9E. D! n! re2ea *e 7%e" i!n". ADDRESS THE SPECI:IC 0UESTIONS AS;ED AT THE END O: EACH PROBLEM. A mere <8ES= !r <NO= 6i55 re+ei4e n! +redi > mere +!n+5%"i!n" !, 5a6 6i55 re+ei4e 4er& 5i 5e +redi ) i, a a55. 9OOD LUC;? A @ SET O: :ACTS :riend" $%an) Pedr!) Car5!") 9!ri! and Rena !) a55 "+i!n" !, ri+* ,ami5ie") 6ere 3enera5 2ar ner" in *e +!m2an& <:!rd*am C!m2an&= 6*i+* *a" Aeen in A%"ine"" ,!r ei3* &ear" 2rimari5& en3a3ed "e in3-%2 medi%m 2!6er 3enera !r" in 4ari!%" re3i!n" !, *e +!%n r&. W*en a ne6 $a2ane"e e+*n!5!3& Aa"ed !n n%+5ear ,i""i!n 6a" in r!d%+ed ,!r 2!6er 3enera !r") *e 3r!%2 de+ided ! in4e" *e addi i!na5 PB' Mi55i!n ! %nder aCe *e 2r!De+ ) and *a4in3 +are,%55& e4a5%a ed *e ri"C" in4!54ed in a225&in3 *e ne6 e+*n!5!3&) ran",!rmed *e 2ar ner"*i2 in ! *e +!r2!ra i!n <:!rd*am P!6er 9enera !r) In+.= d%5& re3i" ered 6i * *e SEC. Sin+e *e ,ea"iAi5i & " %d& ,!r *e 2r!De+ "*!6ed *a i needed a ! a5 +a"* in,%"i!n !, P.B' Mi55i!n) *e +!r2!ra i!n A!rr!6ed ,r!m *e BanC !, Mani5a *e Aa5an+e !, P.'' Mi55i!n ! 2r!+eed 6i * *e 2r!De+ . T*e +!m2an& a5"! !A ained a55 ne+e""ar& +5earan+e" ,!r *e ne6 e+*n!5!3& ,r!m 2r!2er 3!4ernmen a3en+ie") in+5%din3 "a,e & ,ea %re" and en4ir!nmen a5 +5earan+e. A" ,eared) *e e+*n!5!3& 2r!4ed di"a" r!%" and *ree 3enera !r" +a%"ed dama3ed ! *e en4ir!nmen and 5!""e" ! 5i4e" and 2r!2er ie") a55 ! a5in3 P.2' Mi55i!n. N! *a4in3 en!%3* a""e " ! +!4er *e +5aim") :!rd*am ,i5ed ,!r in"!54en+&. -.'E/ .. T*e +5aiman " ,!r dama3e" ari"in3 ,r!m 5!"" !, 5i4e" andF!r 2r!2er &) "%ed *e ,i4e ,riend" 2er"!na55& a" *e 2rin+i2a5 " !+C*!5der") memAer" !, *e B!ard !, Dire+ !r") and Ce& !,,i+er" !, :!rd*am ,!r *e !r %!%" a+ " +!mmi ed in *e !2era i!n !, i " 3enera !r" a" *e dire+ +a%"e !, *e dama3e" and inD%rie". T*e ,i4e ,riend" !22!"ed *e +i4i5 "%i a3ain" *em 2er"!na55& !n *e 3r!%nd *a *e !r +!mmi ed "*!%5d Ae 2%r"%ed a3ain" *e +!m2an&. T*e +5aiman " +!%n ered *a *e& are a5"! Aein3 *e5d 5iaA5e A& a225i+a i!n !, *e d!+ rine !, 2ier+in3 *e 4ei5 !, +!r2!ra e ,i+ i!n ,!r i i" +5ear *a *e& de+ided ! +!n4er *eir 2ar ner"*i2 ,!r 6*i+* *e& 6ere %n5imi ed5& 5iaA5e ! a +!r2!ra i!n in !rder ! e"+a2e ,r!m *eir 2er"!na5 5iaAi5i & ari"in3 ,r!m *e A%"ine"" !2era i!n". H!6 6!%5d &!% de+ide *e "%i G De+ide 6i * rea"!n". -.'E/ SU99ESTED ANSWERH On the basis of the facts and the position taken by the five friends, I would hold them personally liable for the tort act committed on behalf of the company, as directors and officers, but not as stockholders. There is no doubt that a corporation like Fordham is liable for the tort acts committed by its officers on its behalf, but since the five friends admitted that the operation of the new technology was a tortuous act or a dangerous proposition inflicted upon the public, then we must apply the principle in Agency Law applicable to orporate Law, that both the principal and its agent are liable for damage caused by any tortuous act committed by the latter even when within the scope of his authority. !ore importantly, under "ection #$ of the orporation ode directors and officers who act in bad faith or gross negligence would be solidarily liable for the damage caused to the corporation, to its stockholders or even to third persons. On the other hand, I would not give much credit to the position of the claimants applying the piercing doctrine, for indeed there is nothing wrong with investors and businessmen is precisely pursuing the corporate medium in order to avoid personal liability. The %limited liability& feature of the corporate medium is one of its most important feature and the "tate uses such feature as a means to encourage investors and businessmen to use the corporate medium in their dealings. 2. BanC !, Mani5a ,i5ed "%i a3ain" *e ,i4e ,riend" in *eir 2er"!na5 +a2a+i & ! maCe *em 2er"!na55& 5iaA5e ,!r *e 2a&men !, :!rd*amI" !% " andin3 P.'' Mi55i!n 5!an !n *e 3r!%nd *a Aein3 A! * *e +!n r!55in3 -a+ %a55& *e !n5& " !+C*!5der"/) dire+ !r" and Ce& !,,i+er" !, *e +!m2an&) *e& +!n r!55ed i " !2era i!n" and "*!%5d Ae *e5d 2er"!na55& 5iaA5e ,!r i " !A5i3a i!n". In addi i!n) *e AanC

2!"i " *a *e +!m2an& 6a" re3i" ered and !2era ed a" a *in5&-+a2i a5iJed +!r2!ra i!n *a did n! mee *e na %re !, *e A%"ine"" i 6a" emAarCin3 !n) 6*i+* a3ain 6!%5d a55!6 *e a225i+a i!n !, *e 2ier+in3 d!+ rine ! maCe *e m!4e" and ,!%nder" *em"e54e" 2er"!na55& 5iaA5e ,!r *e +!r2!ra e deA "G H!6 6!%5d &!% r%5e !n *e +!m25ain aCin3 in ! a++!%n *e 6! ,%ndamen a5 ar3%men " !, *e BanC !, Mani5aG De+ide 6i * rea"!n". -.'E/ SU99ESTED ANSWERH I will rule against 'ank of !anila under both of its proffered grounds for piercing the veil of corporate fiction( the five friends cannot be held personally liable for the company loan with 'ank of !anila. It should be noted that the claim of 'ank of !anila is not based on tort claim, but upon a contract of loan e)tended clearly to Fordham. The fact that the members of the 'oard of *irectors are the controlling stockholders of the company has not by itself been ad+udged sufficient basis to pierce the veil of corporate fiction. The possession of the ma+ority or controlling e,uity in the corporation does not amount to %control& or %alter ego& situation because stockholders do not hold management and control of the business enterprise of the corporation. -nder "ection .# of the orporation ode, it is the 'oard of *irectors, not the ma+ority stockholders, who have management and control over the business enterprise of the corporation. The fact that the five friends are also the members of the 'oard and key officers of Fordham has never been a basis by itself for applying the piercing doctrine, absence showing of fraud, malice or bad faith on the part of the directors in running the affairs of the company and relating to the loan of /$00 !illion. Fraud is never presumed, and mere allegation on the part of the 'ank does not prove it, and there is nothing from the facts to show that the 'oard e)ercised any fraud against the 'ank in obtaining the loan or in servicing the same in the name of Fordham. Finally, the claim that the company was %thinly1capitali2ed& therefore implying fraud, does not have any merits insofar as 'ank of !anila is concerned, for it willingly and knowingly e)tended the /30 !illion loan to the company precisely because it e)isting capital funds were not enough to pursue the new venture. In other words, there is no fraud e)ercised upon the 'ank on this matter, and it used its business +udgment in determining from the financial standing of Fordham, whether to e)tend credit or not. The bank cannot claim to be a %victim& in this matter to be able to invoke the application of the piercing doctrine. B @ :ACTS COMMON Dar *m!% Tradin3 C!.) 6*i+* *a" Aeen in A%"ine"" ,!r m!re *an en &ear") 6a" r%nnin3 "*!r !, 6!rCin3 ,%nd" ! Ae aA5e ! aCe de5i4er& !, a 5ar3e "*i2men !, mer+*andi"e i im2!r ed. I " B!ard !, Dire+ !r" in a mee in3 +a55ed ,!r *e 2%r2!"e) re"!54ed ,!r an a225i+a i!n ! Ae made 6i * *e BanC !, MaCa i ,!r 5e er" !, +redi ,a+i5i ie" ,!r P2' Mi55i!n and a% *!riJed *e Pre"iden ) Mr. Pa%5! S%areJ) ! ne3! ia e *e ,ina5 erm" !, *e +redi ,a+i5i ie" and ! "i3n 5!an a3reemen ) *e 5e er !, +redi and *e +!4erin3 r%" re+ei2 . T*e 5!an a225i+a i!n 6a" a22r!4ed and 6*en *e mer+*andi"e arri4ed in *e P!r !, Mani5a) a55 d!+%men " 6ere d%5& exe+% ed A& Mr. S%areJ in *e name !, *e +!m2an&) in+5%din3 *e r%" re+ei2 6*i+* a55!6ed *e im2!r ed mer+*andi"e ! Ae de5i4ered ! *e +%" !d& !, *e +!m2an& %nder *e !A5i3a i!n ! %rn-!4er *e 2r!+eed" !, *e "a5e !r di"2!"i i!n !, *e mer+*andi"e !r ! re %rn *em %2!n demand !, BanC !, MaCa i in *e e4en *e& are n! di"2!"ed !,. T*e im2!r ed mer+*andi"e 6ere Ari"C5& "!5d A& *e +!m2an& *r!%3* i " di" riA% i!n ne 6!rC) A% *e 2r!+eed" 6ere %"ed %2 ! 2a& ,!r !2era i!na5 ex2en"e" and ! 2a&-!,, ! *er "%225ier". E4en %a55&) Dar *m!% "*% d!6n !2era i!n" d%e ! in"!54en+& Ar!%3* aA!% A& *e d!6n %rn in *e marCe . BanC !, MaCa i made ,!rma5 demand %2!n *e Pre"iden and *e Dar *m!% B!ard !, Dire+ !r" ,!r *e 2a&men !, *e 5!an in a++!rdan+e 6i * *e erm" !, *e r%" re+ei2 ) ! *er6i"e A! * +rimina5 and +i4i5 a+ i!n" 6i55 Ae Ar!%3* a3ain" *em in *eir 2er"!na5 +a2a+i ie" ! 2r! e+ *e AanCI" in ere" ". 1. W*en *e demand ! 2a& 6a" n! *eeded) BanC !, MaCa i +!mmen+ed +rimina5 "%i -ex2re""5& re"er4in3 *e +i4i5 a"2e+ ! Ae ,i5ed "e2ara e5&/ a3ain" Mr. S%areJ and ea+* !, *e ! *er memAer" !, *e Dar *m!% B!ard ,!r e" a,a %nder Pre". De+ree N!. ..B - *e Tr%" Re+ei2 " La6/ ,!r ,ai5in3 ! +!m25& 6i * *e erm" !, *e r%" re+ei2 . Mr. S%areJ !22!"ed *e +rimina5 "%i a3ain" *im !n *e 3r!%nd *a *e "i3ned *e r%" re+ei2 +5ear5& and ex2re""5& in *i" !,,i+ia5 +a2a+i & a" Pre"iden !, Dar *m!% 6*i+* i" *e rea5 2ar & in *e ran"a+ i!n) and 2%r"%an ! *e a% *!ri & 4e" ed in *im A& *e B!ard) and *ereA& did n! a+ 6i *!% a% *!ri & n!r in ,ra%d !r in Aad ,ai *. T*e memAer" !, *e B!ard 2!"i ed *a %nder *e 2rimar& d!+ rine !, "e2ara e D%ridi+a5 2er"!na5i &) *a4in3 a+ ed mere5& in *e re3%5ar +!%r"e !, A%"ine"") *e& +ann! a" a3en " !, *e +!m2an&) Ae *e5d 2er"!na55& 5iaA5e ,!r an& +rimina5 im2% a i!n ari"in3 ,r!m *e r%" re+ei2 ") e"2e+ia55& 6*en n!ne !, *em 2ar i+i2a ed in *e exe+% i!n *ere!,. A55 !, *e a++%"ed-re"2!nden " 2!"i *a i, *ere i" an& +rimina5 a+ ) i i" im2% aA5e ! *e 2ar & in 6*!"e name i 6a" d!ne) Dar *m!% . H!6 6!%5d &!% de+ide *e +rimina5 "%i addre""in3 *e i""%e" rai"ed A& *e re"2!nden "G De+ide 6i * rea"!n". -.'E/

SU99ESTED ANSWERH !r. "uare2, who signed the trust receipts, stands criminally liable for estafa under the terms of /res. *ecree 4o. $$3, even though he signed the same in his official capacity as /resident of the company. The other members of the 'oard of *irectors cannot be held criminally liable on the trust receipt although they authori2ed it, they were not signatories to it when it was drawn1up and issued. It is clear under the terms of /.*. $$3 that even when a trust receipts is e)ecuted by a corporate officer in behalf of a corporation, it is the e)ecuting officer that stands personally liable for the crime of estafa that may result from failure to comply with the conditions provided for the withdrawal of the merchandise covered by the trust receipts. "ince this is a criminal proceeding, /hilippine +urisdiction has not accepted the theory that a corporation can be held liable for a criminal offense, for essentially it could not have the essential element of malice to have committed a crime, and it could not stand to suffer the criminal penalties imposed. !ore importantly, it is the officers acting for the corporation that really commit the crime which they purportedly do so in the name of the corporation, and it would be against public policy to let such culprit escape their personal offense by hiding behind the veil of corporate fiction. As was held in Ching v. Secretary of Justice, 56$ " 7A 80. 9.008:; %Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or other officers or persons responsible for the offense, without pre+udice to the civil liabilities of such corporation and<or board of directors, officers, or other officials or employees responsible for the offense. The rationale is that such officers or employees are vested with the authority and responsibility to devise means necessary to ensure compliance with the law and, if they fail to do so, are held criminally accountable( thus, they have a responsible share in the violations of the law.& Ong v. Court of Appeals , 50$ " 7A 85=6 9.00#:, held; %The Trust 7eceipts Law recogni2es the impossibility of imposing the penalty of imprisonment on a corporation, hence, if the entrustee is a corporation, the law makes the officers or employees or other persons responsible for the offense liable to suffer the penalty of imprisonment.% K. BanC !, MaCa i +!mmen+ed a "e2ara e +i4i5 "%i a3ain" Mr. S%areJ and *e memAer" !, *e B!ard !, Dire+ !r" !, Dar m!% *) ! *!5d *em 2er"!na55& 5iaA5e ,!r *e am!%n !, *e r%" re+ei2 !n *e 3r!%nd *a *r!%3* *eir %n5a6,%5 a+ !, ,ai5in3 ! aAide A& *e erm" !, *e r%" re+ei2 ) *e& are n! !n5& +rimina55& 5iaA5e *ere,!re A% are a5"! 5iaA5e +i4i55& ,!r *e am!%n +!4ered *ereA&. Mr. S%areJ and *e ! *er memAer" !, *e B!ard !22!"ed *e +i4i5 +!m25ain !n *e 3r!%nd *a *e& a+ ed in *eir !,,i+ia5 +a2a+i & and ex2re""5& !n Ae*a5, !, *e +!m2an&) and *ere,!re *e& +ann! Ae *e5d 2er"!na55& 5iaA5e ,!r *e r%" re+ei2 . T*e& 2!"i ed *a *e +5aim "*!%5d Ae 2%r"%ed in *e in"!54en+& 2r!+eedin3" 2endin3 a3ain" Dar *m!% . H!6 6!%5d &!% de+ide *e +i4i5 "%i addre""in3 *e i""%e" rai"ed A& *e de,endan "G De+ide 6i * rea"!n". -.'E/ SU99ESTED ANSWERSH I will rule in favor of !r. "uare2 and the members of the 'oard of *irectors of *artmouth. "ince the proceedings here are purely civil in character, and they involve clearly corporate debts of *artmouth, there is no doubt that the doctrines of separate +uridical personality and limited liability must apply. The loan and the covering trust receipts were e)pressly entered into in the name of the company and to pursue purely company ob+ectives. Therefore, the general rule applies that a corporation, being a separate +uridical person, is liable for its own debts and obligations, and that it stockholders and officers cannot be held liable for the corporation>s debts and obligations. In particular, since !r. "uare2 and the members of the 'oard of *irectors acted clearly and e)pressly as agents of *arthmout and there was no misrepresentation to 'ank of !akati, then they cannot be held liable for the company>s incurred obligations under the principle in Agency Law that agents do not become liable for the contracts entered into in behalf of their principal when acting within the scope of their authority. Consolidated Bank and Trust Corp. v. Court of Appeals , #38 " 7A 8=$ 9.00$:, held; %It is hornbook law that corporate personality is a shield against personal liability of its officers?a corporate officer and his spouse cannot be made personally liable under a trust receipt where he entered into and signed the contract clearly in his official capacity.& The position of the defendants is correct, that the proper remedy of 'ank of !akati is to recover its claims in the insolvency proceedings brought against *arthmout. C @ SET O: :ACTS C!r2!ra i!n A) 6*i+* i" a d!me" i+ +!r2!ra i!n) *a" an e7%i & +!m2!"ed !, B(E :i5i2in! and K.E Ameri+an. C!r2!ra i!n B) 6*i+* i" a +!r2!ra i!n !r3aniJed %nder *e 5a6" !, De5a6are) *a" *e ,!55!6in3 e7%i & " r%+ %reH #'E :i5i2in! and K'E Ameri+an. C!r2!ra i!n" A and B) *r!%3* *eir re"2e+ i4e B!ard" !, Dire+ !r") are ne3! ia in3 ,!r *e "e in3 %2 !, *e A%"ine"" !, e5e+ ri+ di" riA% i!n in *e Pr!4in+e !, Ca3a&an.

B. C!r2!ra i!n" A and B) *r!%3* 2r!2er re"!5% i!n" !, *eir B!ard" !, Dire+ !r") en er in ! a Mem!rand%m !, A3reemen ,!r *e "e in3 %2 !, *e +!r2!ra i!n <P*i5i22ine P%A5i+ U i5i ie" In+.= -PPUI/ ! Ae re3i" ered 6i * *e SEC) ! en3a3e in *e !2era i!n !, an e5e+ ri+ di" riA% i!n +!m2an& i" Ca3a&an 2r!4in+e. T*e +a2i a5 " !+C !, PPUI 6i55 Ae "%A"+riAed and ,%55& 2aid-%2 a" ,!55!6"H C!r2!ra i!n A) L'E +!mm!n "*are" 4! in3> C!r2!ra i!n B) 1'E 2re,erred "*are" n!n-4! in3. I" *e +!r2!ra e "e -%2 !, PPUI 4a5id ,!r *e Cind !, A%"ine"" ! Ae en3a3ed inG De+ide 6i * rea"!n". -.'E/ SU99ESTED ANSWERH -nder the onstitution, a corporation engaged in public utilities must have an e,uity at least 80@ of which shall be Filipino, and at foreign e,uity shall not e)ceed 50@. The e,uity re,uirements do not distinguish between voting and non1voting shares, and apply to both common shares and preferred shares. In engaging into any nationali2ed industry, like public utilities, the first test to determine the nationality of a corporation is the place of incorporation test( and only when the place of incorporation test is complied with, does the control test come in. 'ased on the incorporation test, orporation A is a Filipino corporation, but that orporation ', having been organi2ed under the laws of *elaware is a foreign corporation. Therefore, irregardless of the fact that the ma+ority of the e,uity in orporation ' is owned by Filipinos, its entire holdings in //-I is considered to be foreign e,uity. onse,uently, at least #0@ of //-I is considered to be foreign e,uity. Turning now to the e,uity of orporation A, since the Filipino e,uity does not meet the minimum 80@ threshold under the *OA1"B grandfather rule, then it cannot be considered that the entire holding of orporation A in //-I is $00@ Filipino. Chat would apply is the ordinary application of the control test, which is application of the proportional actual holdings of Filipinos and foreigners in orporation A, thus; B(E :i5i2in! e7%i & in C!r2. A x -m%5 i25ied/ ! i " L'E *!5din3 in PPUI K.E :!rei3n e7%i & in C!r2. A x -m%5 i25ied/ ! i " L'E *!5din3 in PPUI onse,uently, the foreign e,uity holdings in //-I 9#0@ in e)ceeds the 50@ limit of the onstitution, and would be unlawful. #. S%22!"in3 *a *e e7%i & di" riA% i!n in C!r2!ra i!n A i" #'E :i5i2in! and K'E :!rei3n> and *a in" ead !, !r3aniJin3 and re3i" erin3 PPUI a" a "e2ara e +!r2!ra i!n) *e& 2%r"%e i a" a D!in 4en %re %nder a $!in Ven %re A3reemen ) and *a *eir e7%i & +!n riA% i!n" 6!%5d Ae a" ,!55!6"H C!r2!ra i!n A a" a 3enera5 2ar ner) L'E e7%i &> and C!r2!ra i!n B a" a 5imi ed 2ar ner) +!n riA% in3 1'E !, *e +a2i a5. W!%5d *e arran3emen n!6 Ae 4a5id and 5a6,%5G De+ide 6i * rea"!n". -.'E/ SU99ESTED ANSWERH Bven applying the *OA1"B rule that once the Filipino e,uity ownership reaches 80@, then the entire investment of the corporation is considered to be $00@ Filipino, thereby ensuring that the Filipino e,uity in the +oint venture is at least 80@, the arrangement would be unlawful. -nder a +oint venture arrangement, the principle of %mutual agency& would apply and that orporation A would be representing orporation ', a foreign corporation, as agent in the operations of the public utilities. -nder the onstitution, foreigners are limited to only 50@ e,uity participation in public utilities through a corporation, but cannot become owners or operators thereof. The most that is allowed them is to vote members of the 'oard of *irectors at least to the e)tent of their e,uity. 'ut in a partnership<+oint venture arrangement, orporation ' would be e)ercising management and control as a partner through its agent, general partner orporation A, and it would also have %co1ownership& interest directly in the venture, which is not allowed. The *OA1"B rule is limited to only %investments& and does not apply to a partnership or +oint venture arrangement that hands in the foreign partner ownership status to the venture itself which is nationali2ed. Therefore, the corporate medium allows the non1involvement of foreign investors from nationali2ed activities through the application of the corporate features of separate +uridical personality and the centrali2ed management. D @ SET O: :ACTS PACI:ICA CANNIN9 CORPORATION 6a" in+!r2!ra ed ,i4e &ear" a3! %nder *e ,!55!6in3 +a2i a5 " r%+ %reH


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AUTHORIOED CAPITAL STOC; - PK')''')''' di4ided in ! K'')''' "*are" 6i * a 2ar 4a5%e !, P.'' 2er "*are SUBSCRIBED CAPITAL STOC; - P.')''')''' di4ided am!n3 *e ,!55!6in3 " !+C*!5der" 6*! "%A"+riAed a 2ar 4a5%eH Am!%n S%A"+riAed A. Dee B. Dee C. Dee D. Dee E. Dee :. La%re5 9. La%re5 H. La%re5 I. La%re5 $. La%re5 P L).1()2'' 2'' 2'' 2'' 2'' 1')''' 1')''' 1'')''' B'')''' 2)''')''' P.')''')''' Am!%n Paid-U2 P K).K')''' 1')''' 1')''' 1'')''' B'')''' 2)''')''' P L)''')''' .

T*e ar i+5e" !, in+!r2!ra i!n 2r!4ided ex2re""5& *a Pa+i,i+aI" 2rimar& 2%r2!"e i" ! en3a3e in *e ,i"*in3 ind%" r&) *e +annin3 !, ,i"* 2r!d%+ ") and *eir "a5e and di" riA% i!n 5!+a55& and aAr!ad. Am!n3 *e "e+!ndar& 2%r2!"e" en%mera ed i" !ne *a a% *!riJed *e +!m2an& ! en3a3e in !%ri"m and ra4e5 ind%" r&. In addi i!n) *e ar i+5e" 2r!4ided ,!r a B-man B!ard !, Dire+ !r") and "2e+i,i+a55& 2r!4ided *a *e manner !, e5e+ i!n !, *e B!ard "*a55 Ae a *e ann%a5 " !+C*!5der"I mee in3 %nder *e "&" em !, " rai3* 4! in3. On *e ! *er *and) *e A&-5a6" !, *e +!r2!ra i!n 6ere amended *e 2re4i!%" m!n * in *e manner 2r!4ided A& *e C!r2!ra i!n C!de and d%5& a22r!4ed A& *e SEC) 2r!4ided ,!r an ex2anded Lman B!ard !, Dire+ !r") and dire+ ed *a +%m%5a i4e 4! in3 "*a55 Ae *e Aa"i" A& 6*i+* e5e+ i!n !, *e memAer" !, *e B!ard "*a55 Ae de+ided %2!n. In addi i!n) a ne6 2r!4i"i!n in *e A&-5a6" 6a" in+5%ded 6*i+* 2r!4ided *a 4! in3 !n an& ma er Ae,!re *e " !+C*!5der"I mee in3 d%5& +a55ed ,!r *e 2%r2!"e "*a55 Ae Aa"ed !n5& !n "*are" !, " !+C ! *e ex en 2aid. L. :!r *e d%5& +a55ed Ann%a5 S !+C*!5der" mee in3 "e *i" Sa %rda&) *e Dee 9r!%2 and La%re5 9r!%2 ,!rma55& and "e2ara e5& n!mina ed *eir re3i" ered " !+C*!5der" -,i4e ,!r ea+* 3r!%2/ ,!r e5e+ i!n in ! *e B!ard. T*e Dee 9r!%2 6ere aA5e ! add%+e e4iden+e -d%5& n! ariJed N!minee A3reemen "/ Ae,!re *e C!r2!ra e Se+re ar& & 9enera5 C!%n"e5) A &. A ne%) *a La%re5" :) 9) H and I) 6ere *!5din3 *eir "*are" mere5& a" n!minee" !, $. La%re5 6*!m *e& re+!3niJed a" *e r%e !6ner" !, *e "*are" re3i" ered in *eir name and 6*! 2aid ,!r *e "%A"+ri2 i!n". T*e Dee 9r!%2 demanded *a A &. A ne% i""%e a ,!rma5 r%5in3 di"7%a5i,&in3 *e ,!%r La%re5 n!minee" a" n! *a4in3 an& 2r!2er 7%a5i,&in3 "*are" in Pa+i,i+a in *eir <!6n ri3* =. In addi i!n) Dee 9r!%2 demanded a ,!rma5 r%5in3 ,r!m A &. A ne% *a *e n%mAer !, memAer" ! *e B!ard ! Ae e5e+ ed "*!%5d Ae ,i4e -B/ and n! "e4en -L/) and *a *e& 6!%5d Ae en i 5ed ! 4! e !n *eir en ire "*are*!5din3") n! D%" *e !ne" 2aid. On *e ! *er *and) *e La%re5 9r!%2 !22!"ed *e demand" !, *e Dee 9r!%2) and in"i" ed *a *e A&-5a6 2r!4i"i!n" "*!%5d 2re4ai5 Aein3 *e 5a e" amendmen " a5"! ra i,ied A& *e Dee 9r!%2 and d%5& a22r!4ed A& *e SEC a" Aindin3 !n *e +!r2!ra e "e -%2. I, &!% 6ere A &. A ne%) *!6 6!%5d &!% r%5e !n *e i""%e" rai"ed re5a in3 !H -a/ T*e n!minee "*are*!5din3" in4a5id ,!r B!ard n!mina i!n -1E/ -A/ T*e n%mAer !, Dire+ !r" *a +an 4a5id5& Ae e5e+ ed in ! *e B!ard -1E/ -+/ T*e n%mAer !, 4! in3 ,!r *e Dire+ !r" !, Pa+i,i+a) " rai3* 4! in3 a" 2r!4ided in *e ar i+5e") !r +%m%5a i4e 4! in3 a" 2r!4ided in *e A&-5a6". -1E/ -d/ T*e n%mAer !, "*are" and 4! in3 2!6er" -3i4e n%meri+a5 an"6er" 2er Dee 9r!%2 and La%re5 9r!%2) 6i * ex25ana i!n"/ *a ma& Ae +a" A& " !+C*!5der" a *e Ann%a5 S !+C*!5der"I mee in3 -1E/

and in ea+* !, &!%r an"6er") &!% m%" ex25ain and 3i4e *e 5e3a5 Aa"i" !, &!%r an"6er") ex25ainin3 *e <W*&I"G= !, *e " and" *a &!% aCe ,!r ea+* r%5in3. SU99ESTED ANSWERH -a/ "ection .# of the orporation ode re,uires that %Bvery director must own at least one 9$: share of the capital stock of the corporation of which he is a director , which shares shall stand in his name on the ooks of the corporation,% which has been interpreted in !ee v. Court of Appeals, .03 " 7A =3. 9$DD.:, to mean that it is no longer re,uired 9as was the case under the old orporation Law: that a director needed to hold at least one share in %his own right&, and it is sufficient that at least one share is registered in his name in the books of the corporation. "autica Canny Corp. v. #umul, 5=# " 7A 5$3 9.003: ruled that there is nothing per se wrong with a nominee arrangement, and that insofar as the corporation is concerned it is the registered owner that shall be recogni2ed as the stockholder of record. -A/ In spite of the amendatory provisions in the 'y1Laws which e)panded the 'oard to seven members, the same cannot overcome the provisions of the Articles of Incorporation which retained the original number of the 'oard to five 93:. Bven when the by1laws of a corporation have been duly adopted or amended, and approved by the "B , their very nature does not allow any of their provisions to contravene the law or provisions of the articles of incorporation. In case of conflict between the provisions of the by1laws and the articles of incorporation, the latter shall prevail. Therefore, the elections for the /acifica 'oard shall be for only five 93: positions. -+/ The voting for the /acifica 'oard would have to be by cumulative voting, in spite of the provisions in the articles of incorporation providing for straight voting. Chen it comes to stock corporations, the provisions of "ection .5 of the orporation ode providing for cumulative voting are mandatory in nature under the public policy consideration that minority representation in the 'oard is critical to good corporate governance. The principle applied here is not that the by1law provisions on cumulative voting shall prevail over the articles of incorporation provision on straight voting, but rather the principle that any provision in the articles of incorporation that is contrary to mandatory provisions of law are void, and the will of the "tate e)pressed in statutory language shall prevail. -d/ All of the subscribed shares, whether fully paid or not, shall have the right to vote for the nominees to the /acifica 'oard of *irectors, because the principal is that it is the subscription of shares, not the payment of the subscription, that constitute one>s standing as a stockholder with the concomitant powers and rights attached thereto. Therefore, total number of shares of each group 9not the peso value: multiplied by the ma)imum number of the 'oard 93: shall determine the voting powers, thus; Dee 9r!%2 @ L.)K'' 2N)#'' x x B B M M 1BL)''' 4! in3 2!6er .K1)''' 4! in3 2!6er

La%re5 9r!%2 @

N. :!r *i" 2ar i+%5ar 2r!A5em) &!% *a4e Aeen re ained A& *e La%re5 9r!%2 ! 2r!2er5& ad4i"e *em !n *i" Sa %rda&I" Ann%a5 S !+C*!5der"I Mee in3. On *e Aa"i" *a *e i""%e" rai"ed in Pr!A5em L *a4e Aeen 2r!2er5& re"!54ed A& &!% and ex25ained ! *e +5ien ) &!% m%" n!6 an"6er *e ,!55!6in3 +r%+ia5 7%e" i!n" *a *a4e Aeen 2!"ed ! &!% A& *e La%re5 9r!%2H -a/ How many seats in the Board of Directors of Pacifica are we sure of getting? -A/ How many nominees should be field and vote for in this Saturday meeting for the Board and still be assured of being able to successfully elect the assured number to the Board? and &!%r an"6er" m%" Ae "%22!r ed A& 2r!2er +!m2% a i!n" "*!6n in &!%r A5%e A!!C) a" 6e55 a" *e rea"!nin3 "%22!r in3 *e ,ina5 n%meri+a5 an"6er". -NE/ SU99ESTED ANSWERSH The sure number of seats that the Laurel Eroup may capture in the 31man 'oard of /acifica is ONE -./, since under the *>Fondt 7emainders Table bellow shows that by concentrating their total voting power of $5#,000 in only one candidate, that candidate will be within the five highest votes 9in fact #rd place:. The number of candidates that the Laurel Eroup should vote for is TWO -2/, since the Table below shows that the two nominees of the Laurel Eroup at =$,300 each would be higher than each of the five 93: *ee candidates who would be receiving only =$,500 votes each, such that the Laurel candidates would certainly have the two top spots 9at =$,300 each:, and the five *ee candidates would have to settle the tie

among themselves over the last three 9#: places in a 'oard of five 93: members. If the *ee Eroup decides to cast their votes to any number of candidates less than 3, then there is no way by which the Laurel Eroup can lose the $ seat they are assured of winning. For e)ample if the *ee Eroup concentrate their votes over 5 candidates, each would receive 6D,.30, compared to the two candidates of the Laurels at =$,300. onse,uently, there is always one seat left for the Laurel candidates to occupy when they break the tie between themselves. PACI:ICA CANNIN9 CORPORATION E7O-/ *BB E7O-/ LA-7BL E7O-/ . 2 1 K B =$,500 .6,800

1BL)''' .K1)'''




(. PREMEMBERIN9 THAT I PROMISED AT OUR LAST MEETIN9 IN 2''N THAT I WOULD COVER THESE AREAS IN THE MID-TERMSHQ A""%me ,!r Pr!A5em" ( and .' P!n5&Q *a Mr. Sa5a" 6a" aA5e ! A%& in *i" !6n ri3* a "ma55 n%mAer !, "*are" -BE/ ,r!m Mr. $. La%re5 6*i+* 6ere d%5& re3i" ered in *i" name in *e +!r2!ra e A!!C". T*e B!ard !, Dire+ !r" !, Pa+i,i+a ,!rma55& 2a""ed a re"!5% i!n a55! in3 *e "%m !, PB'.' Mi55i!n !, *e C!m2an&I" <in4e" iA5e ,%nd= -n! e""en ia5 ,!r *e !2era i!n" !, *e ,i"*in3 A%"ine""/ ,!r *e 2%r+*a"e !, a 5%x%r& +r%i"er ! en3a3e in !%ri"m ra4e5 A%"ine"" Ae 6een Mani5a P!r and *e Pa5a6an !%ri"m de" ina i!n". T*e +!4erin3 P%r+*a"e A3reemen !, *e 4e""e5 6a" exe+% ed 6i * P*i5i22ine Cr%i"e S*i2") In+.) 6i * a B'E d!6n2a&men and *e Aa5an+e 2a&aA5e %2!n de5i4er& !, *e 4e""e5 A& *e end !, :eAr%ar&. W*en Sa5a" 5earned !, *e ran"a+ i!n) *e ,!rma55& 6r! e *e Pa+i,i+a B!ard and P*i5i22ine Cr%i"e S*i2" demandin3 *a *e ran"a+ i!n n! Ae 2r!+eeded 6i * !n *e 3r!%nd *a i i" 4!id ,!r Aein3 ultra vires n! *a4in3 re+ei4ed *e ra i,i+a !r& 4! e !, *e " !+C*!5der"I in a mee in3 d%5& +a55ed ,!r *e 2%r2!"e. W*en *e B!ard" did n! *eed *e demand) Mr. Sa5a" ,i5ed a deri4a i4e "%i a3ain" A! * +!m2anie" ! *a4e *e ran"a+ i!n" de+5ared 4!id. T*e Pa+i,i+a B!ard !22!"e" *e +!m25ain !n *e 3r!%nd *a *e ran"a+ i!n +ann! Ae ultra vires ,!r i i" 6i *in *e 2!6er" and am!n3 *e A%"ine"" en er2ri"e ex2re""5& and +5ear5& 2r!4ided ,!r in *e Ar i+5e" !, In+!r2!ra i!n) and *a i i" in4e" iA5e ,%nd) n! *a ne+e""ar& ,!r *e 2rimar& 2%r2!"e !, ,i"*in3) i i" +5ear %nder Se+ i!n K2 !, *e C!r2!ra i!n C!de <T*a 6*ere *e in4e" men A& *e +!r2!ra i!n i" rea"!naA5e ne+e""ar& ! a++!m25i"* i " 2rimar& 2%r2!"e a" " a ed in *e ar i+5e" !, in+!r2!ra i!n) *e a22r!4a5 !, *e " !+C*!5der" !r memAer" "*a55 n! Ae ne+e""ar&)= *e in4e" men !, <in4e" iA5e ,%nd= in *e Ae" re %rn a4ai5aA5e i" n! a ran"a+ i!n *a re7%ire" *e ra i,i+a !r& 4! e !, *e " !+C*!5der") and ,a55" 6i *in *e A%"ine"" D%d3men 2!6er !, *e Pa+i,i+a B!ard %nder Se+ i!n 21 !, *e C!r2!ra i!n C!de. H!6 6!%5d &!% de+ide *e +a"e 5imi ed !n5& ! *e i""%e" Ae 6een Mr. Sa5a" re2re"en in3 Pa+i,i+a) and *e Pa+i,i+a B!ardG De+ide 6i * rea"!n". -.'E/ SU99ESTED ANSWERH I will rule in favor of !r. "alas> contentions, and re+ect the legal reasons given by the /acifica 'oard. Although the /acifica articles of incorporation clearly and e)pressly provides that the company is empowered to engage in tourism and travel industry, the purchase of the cruise vessel would still constitute ultra vires act of the second type, in that it is a transaction entered into in behalf of the corporation within its given powers but by representatives who have no authority to legally bind the corporation. "ection 5. of the orporation ode e)pressly provides that when the corporation is made to invest any funds for any purpose or business which is outside of the primary purpose, then the authority to validly do so to legally bind the corporation would be a resolution of the 'oard of *irectors duly ratified by stockholders representing at least two1thirds 9.<#: of the Outstanding apital "tock in a meeting duly called for the purpose. 4o such stockholders> meeting was called, and the ruling of the "upreme ourt in this matter is that without the stockholders> ratification, the transaction is void. Bven if it is clear that the funds invested into the tourism and travel business, which is e)pressly only a secondary purpose type of business, are %investible fund& or those not needed for the operations of the

primary1purpose fishing business, the essence of the ,uoted e)ception in "ection 5. covers those types of investment where the corporation would not be involved in the management of a secondary business, and their only connection with the investment is a return, by way of interest income or dividends of appreciation of the value of the shares invested in. In this case, there is no doubt that the whole purpose of the investment is to operate and manage the tourism and travel unit, which is essentially not a business incident to the primary purpose of fishing business. .'. Pr!+eedin3 ,r!m *e :a+ " !, Pr!A5em () *e B!ard !, Dire+ !r" !, P*i5i22ine Cr%i"e S*i2" !22!"ed *e "%i !n *e ,!55!6in3 3r!%nd"H T*a *e& are "e55er" in 3!!d ,ai * in *e *!ne" Ae5ie, *a *e B!ard !, Dire+ !r" !, Pa+i,i+a en ered in ! *e ran"a+ i!n" 6i * ,%55 a% *!ri & ! d! "!) and *a in ,a+ ) Aein3 a memAer !, *e 2%A5i+ dea5in3 in 3!!d ,ai *) an& 2r!A5em" *a Mr. Sa5a" and ! *er " !+C*!5der" ma& *a4e 6i * *eir B!ard i" 2%re5& an in erna5 ma er 6*i+* "*!%5d n! %ndermine *e +!n ra+ *a 6a" en ered in ! and 6*i+* i" 2ar ia55& +!n"%mma ed. Be"ide") e4en 3ran in3 *a *e ran"a+ i!n 6a" ultra vires) i 6a" n! !ne *a i" per se i55e3a5 !r +!n rar& ! 5a6" a" ! maCe i 4!id) and *e 2re4ai5in3 r%5e i" *a ultra vires +ann! Ae %"ed a" a de,en"e ! 2re4en *e en,!r+emen !, a +!n ra+ *a i" ! *er6i"e 4a5id) e"2e+ia55& 6*en *e d!+ rine !, e" !22e5 !r ra i,i+a i!n *a4e +!me in ! 25a&) and 6*en *e memAer" !, *e B!ard !, Pa+i,i+a a5"! !6n (BE !, *e O% " andin3 Ca2i a5 S !+C !, *e +!m2an&) 6*i+* i" deemed ra i,i+a i!n. H!6 6!%5d &!% de+ide *e +a"e 5imi ed !n5& ! *e i""%e" Ae 6een Mr. Sa5a" re2re"en in3 Pa+i,i+a) and *e P*i5i22ine Cr%i"e S*i2"G De+ide 6i * rea"!n". -.'E/ SU99ESTED ANSWERH I will rule in favor of !r. "alas representing /acifica, and re+ect the legal reasoning of /hilippine ruise "hips. First of all, it is certainly wrong to say that the transaction is not % 2er "e i55e3a5 !r +!n rar& ! 5a6"& for indeed it was a transaction that went against the provisions of "ection 5. of the orporation ode, and which violations have been declared void by the "upreme ourt. In other words, "ection 5. contracts are of the type that bind third parties who deal with the corporation. And violation of "ection 5. actually creates a %private wrong& against the stockholders of the corporation whose ratificatory vote has not been obtained and for which they have legal standing to have declared void. Finally, the doctrines of estoppel or ratification cannot apply to this types of ultra vires contracts, simply because the act or knowledge of the 'oard of *irectors can only bind their part of the %corporate consent& and cannot bind the stockholders who separately have the other part of what would constitute a full %corporate consent& under "ection 5.. The contract therefore is void for lack of %full consent& on the part of /acifica. And even if the members of the 'oard of *irectors who approved the contract represent D3@ of the outstanding capital stock, the same cannot be taken as a ratification on the part of the stockholders, because "ection 5. is pretty clear on what that %stockholders> ratification& looks like; it must be made in a stockholders> meeting duly called for the purpose. The only vote approving the transaction was in the 'oard meeting, and the members cast their votes as directors, and not as stockholders. R!O!R SU99ESTED ANSWERS POSTED AT ADMINISTRATIVE WINDOW PLEASE ;EEP THE 0UESTIONNAIRE? ASSI9NMENT :OR NEST CLASSH C*a2 er SI - STOC;HOLDERS AND MEMBERS