Possible Questions in Commercial Law
(Based on Atty. Maria Zarah Villanueva-Castro’s 2023 Pre-Week Lecture in Legal Edge)
20% OF THE BOARD REQUIREMENT
The following are required to have a Board with independent directors (20% of the Board)
Public Companies (Sec. 17.2, RA 8799)—
(a) Securities listed with an exchange; or Companies vested with public interest (to be
(b) 50M assets and with 200 or more determined by SEC)
shareholders, each holding at least 100
shares. [Sec. 22, RCC]
Banks, quasi-banks, Non-Stock Savings Loan Independent means:
Associations (NSSLAs), pawnshops, those
engaged in money service business, preneed, - not part of management
trust, insurance and other financial - free from business relationship
intermediaries.
An INDEPENDENT DIRECTOR is a person who, apart from shareholdings and fees received from the
corporation, is independent of management and free from any business or other relationship which could,
or could reasonably be perceived to materially interfere with the exercise of independent judgment in carrying
out the responsibilities as a director.
SELF-DEALING DIRECTOR (SDD)
X will supply water to DD Company.
Generally, voidable.
To be valid:
1. Presence of the SDD is not necessary for quorum.
2. Vote of SDD is not necessary.
3. The contract is fair and reasonable.
X, Director of DD, Inc.
4. If officer, authorized by the BOD.
Changes in the RCC:
1. Self-dealing rule extends to the X’s spouse and relatives up to the 4th degree of consanguinity.
2. In case of corporations vested with public interest, approval by 2/3 of the entire membership of the
Board with at least a majority of the independent directors in favor of it.
INTERLOCKING DIRECTOR
What if AA Company will supply water to DD Company, where X is a director in both companies.
Valid, as long as the terms of the contract are FF (=fair and reasonable, and no fraud exists), under the
circumstances.
However, take note of this scenario:
AA, Inc ------------------------------------- DD, Inc. (subject to SDD requirements)
60%
The law sees this as a self-dealing
10% transaction.
Thus, to be valid, follow the SDD
requirements above.
X, Director of DD, Inc. X, Director of AA, Inc.
Provided further, that if the interest of
Substantial interest, Nominal interest, the interlocking director is nominal in
more than 20% 20% or less both, or substantial in both, just apply
X sought examination of the books of BBB, Inc.
held as trustee.
PERSONAL LIABILITY OF D-O-T X has a business in direct competition with it.
(DIRECTORS, OFFICERS, TRUSTEES) Inspection in bad faith.
Piercing the Veil of Corporate Fiction Considering the ownership of X of the shares is
being repudiated, can this case still be regarded
1. Patently unlawful act. as an intra-corporate case? Why?
2. Gross negligence or bad faith.
3. Conflict of interest. Answer: Yes. So long as both X and Y are
4. Watered stocks. stockholders of record. Repudiation of Y’s shares
5. Stipulation on solidary liability (piercing is ownership is immaterial. The goal is to stop X from
not required). inspecting corporate books. Even if X is declared
6. Law provides. the true owner of the shares of stock, still, his
disqualification from inspecting the corporate books
BP 22 based on bad faith will be pursued. (Belo Medical
Group, Inc. vs Santos, 2017)
Personally liable only when convicted. If acquitted
on sole basis that the ground for which the crime INTRA-CORPORATE VS DERIVATIVE SUIT
was charge did not actually exist, it is the
corporation which is civilly liable. X Group sued Y Group (majority group) for having
passed a number of resolutions affecting OOO, Inc.
SLEMP or Disposition of all the Business Assets The resolutions relate to pre-emptive right
consideration, subscription price, recording of share
Nell Doctrine (transferee is not automatically transfer and quorum requirement.
liable for transferor’s debts and obligations),
except: Is this intra-corporate case or derivative suit?
Expressly or impliedly agreed to be liable
Merger or Consolidation Answer: This is a derivative suit. The alleged
Mere continuation of business, mere wrongdoings affect OOO, Inc. Thus, it is imperative
instrumentality, alter ego doctrine, mere that the corporation itself be impleaded being the
business conduit) real party in interest and whose cause of action is
Fraudulent transfer being pursued. (Florete vs Florete, 2016)
BUSINESS ENTERPRISE TRANSFER
Transferee purchases the business and not the
assets.
The transferee corporation’s interest goes
beyond the assets of the transferor’s assets and
its desire to acquire the latter’s business
enterprise include its goodwill.
The transferee purchases not only the assets of
the transferor, but also its business. As a result,
of the sale, the transferor merely left with its
juridical existence, devoid of its industry and
earning capacity.
Transferee is liable for the debts and liabilities
of his transferor arising from the business
enterprise conveyed and does not require the
existence of fraud against the creditors before it
takes full force and effect.
INTRA-CORPORATE DISPUTE
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Possible Questions in Commercial Law by Atty. Maria Zarah Villanueva-Castro
