X Corporation shortened its corporate life by amending its Articles of Incorporation.

It has no debts but owns a prime property located in Quezon City. How would the said property be liquidated among the five stockholders of said corporation? Discuss two methods of liquidation. (5%) SUGGESTED ANSWER: The prime property of X Corporation can be liquidated among the five stockholders after the property has been conveyed by the corporation to the five stockholders, by dividing or partitioning it among themselves in any two of the following ways: 1) by PHYSICAL DIVISION or PARTITION based on the proportion of the values of their stockholdings; or 2) SELLING THE PROPERTY to a third person and dividing the proceeds among the five stockholders in proportion to their stockholdings; or 3) after the determination of the value of the property, by ASSIGNING or TRANSFERRING THE PROPERTY to one stockholder with the obligation on the part of said stockholder to pay the other four stockholders the amount/s in proportion to the value of the stockholding of each. Rafael inherited from his uncle 10,000 shares of Sta. Ana Corporation, a close corporation. The shares have a par value of P10.00 per share. Rafael notified Sta. Ana that he was selling his shares at P70.00 per share. There being no takers among the stockholders, Rafael sold the same to his cousin Vicente (who is not a stockholder) for P700,000. The Corporate Secretary refused to transfer the shares in Vicentes name in the corporate books because Alberto, one of the stockholders, opposed the transfer on the ground that the same violated the by-laws. Alberto offered to buy the shares at P12.50 per share, as fixed by the by-laws or a total price of P125,000 only. While the by-laws of Sta. Ana provides that the right of first refusal can be exercised at a price not exceeding 25% more than the par value of such shares, the Articles of Incorporation simply provides that the stockholders of record shall have preferential right to purchase said shares. It is silent as to pricing. Is Rafael bound by the pricing proviso under the by-laws of Sta. Ana Corporation? SUGGESTED ANSWER: Yes. In a close corporation, the restriction as to the transfer of shares has to be stated/ annotated in the Articles of Incorporation, the By-Laws and the certificate of stock. This serves as notice to the person dealing with such shares like Rafael in this case. With such notice, he is bound by the pricing stated in the By-laws. ALTERNATIVE ANSWER: No, Rafael is not bound by the pricing proviso under the By-laws of Sta Ana Corporation. Under the corporation law, the restrictions on the right to transfer shares must appear in the articles of incorporation and in the by-laws as well as in the certificate of stock, otherwise, the same shall not be binding on any purchaser thereof in good faith. Moreover the restriction shall not be more onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable term or period stated therein.

Here, limiting the price to be paid, when the right of first refusal is exercised, to not more than 25% par value, without any qualification whatsoever, is not in the articles. It is merely stated in the By-laws. Therefore such limitation shall not be binding on the purchaser.

Robert, Rey and Ben executed a joint venture agreement to form a close corporation under the Corp Code the outstanding capital stock of which the three of them would equally own. They also provided therein that any corporate act would need the vote of 70% of the outstanding capital stock. The terms of the agreement were accordingly implemented and the corresponding close corporation was incorporated. After 3 years, Robert, Rey and Ben could not agree on the business in which to invest the funds of the corporation. Robert wants the deadlock broken. 1. What are the remedies available to Robert under the Corp code to break the deadlock? Explain. 2. Are there any remedies to prevent the paralyzation of the business available to Robert under PD 902-A while the petition to break the deadlock is pending litigation? Explain. SUGGESTED ANSWER: 1. Robert can petition the SEC to arbitrate the dispute, with such powers as provided in Sec 104 of the Corp Code. 2. The SEC can appoint a rehabilitation receiver or a management committee.