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All Jurisprudence based

0 tracked cards Commercial and Taxation Laws

Two Philippine corporations, Quanta Labs, Inc. (QL) and Apexa Components, Inc. (ACI), share a director who sits on both boards. That same director is also a director of Apexa’s supplier, PrimeTech Ltd. (PTL). QL enters into a two-year exclusive licensing agreement with PTL for a patented manufacturing process used to produce a line of sensors, at 26% above current market rate. The director discloses his interest to both boards but does not abstain from voting; no independent monitor or disinterested director review is arranged, and both boards approve the deal. The arrangement would divert profits to PTL and affect QL’s minority stockholders. (a) Identify the controlling doctrine governing dealings between corporations with interlocking directors and the type of fiduciary breach at issue. (b) Distinguish this doctrine from general related-party transaction rules. (c) Apply to these facts: is the contract valid or voidable, and what remedies may be available to the aggrieved party?

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General related-party transaction doctrine; disclosure and abstention suffice to validate the deal if both boards approve, which would make the contract effective despite the interlocking boards. Interlocking-directors self-dealing doctrine; the license agreement is void ab initio regardless of disclosure or board approval. Interlocking-directors self-dealing doctrine; breach is fiduciary conflict of interest; the license agreement is voidable; remedies include rescission and disgorgement of profits, with possible appointment of an independent monitor or ratification by disinterested directors. Corporate opportunity doctrine; not applicable here since the director’s interest is not in a competing business opportunity.

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