SPECIAL

MIDTERM EXAMINATIONS
IN CORPORATION LAW
March 13, 2019

INSTRUCTIONS: Read each question very carefully and write your

answers legibly, clearly, and concisely. Your answers should demonstrate your
ability to analyze the facts, apply pertinent laws and jurisprudence, and arrive at
sound and logical conclusions. Answers must fully explain even if the questions
do not expressly require explanations. A “yes” or “No” answer sans explanation
or discussion will not be give full credit. GOOD LUCK!\
1. X Mining Co. is 70% Filipino-owned, the 30% remaining stock being owned by
aliens. Under its Articles of Incorporation, its Board of Directors has 9 members.
At the last election, 3 aliens were elected as Directors, but some stockholders
moved to disqualify all three of them on account of their alien citizenship, the
mining company being engaged in a nationalized business.
Decide with reasons. (10 %)
2. X Corp. operates a call center that received orders for pizzas on behalf of Y
Corp. which operates a chain of pizza restaurants. The two companies have the
same set of corporate officers. After 2 years, X Corp. dismissed its call center
agents for no apparent reason. The agents filed a collective suit for illegal
dismissal against both X Corp. and Y Corp. based on the doctrine of piercing the
veil of corporate fiction. The latter set up a defense that the agents are in the
employ of X Corp. which is a separate juridical entity. Is the defense appropriate?
(10%)

3. Plaintiffs filed a collection action against “X” Corporation. Upon execution of

the court’s decision, “X” Corporation was found to be without assets. Thereafter
plaintiffs filed an action against its present and past stockholder “Y” Corporation
which owned substantially all of the stocks of “X” Corporation. The two
corporations have the same board of directors and “Y” Corporation financed the
operations of “X” Corporation. May “Y” Corporation be held liable for the debts
of “X” Corporation? Why? (10%)

4. Nearing 70 years old, Guetze decided to incorporate his business in Binondo,

Manila. He asked his wife and 3 children to act as incorporators with 1 share of
stock each, while he owned 999,996 shares of the 1,000,000 shares of the capital
stock.
Assuming the corporation has been properly registered, may the Articles of
Incorporation now be amended to reduce the number of directors to two—Guetze
and his wife—to reflect the real owners of the shares of stock? (10%)

5. While the incorporation papers of XYZ, Inc. were pending before the SEC for
approval, A, the designated Treasurer in the Articles of Incorporation held real
estate property worth P20,000 which E turned over for shares he (E) purchased in
XYZ Inc. Before the certificate of incorporation for XYZ, Inc could be issued, H,
who claims to be the owner of said real estate property, filed an action against

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 XYZ, Inc. for recovery of possession of the same.
Will H suit prosper? Why? (10%)

4. Is a by-law provision of “X” Corporation “rendering ineligible or if elected,

subject to removal, a director if he is also a director in a corporation whose
business is in competition with or is antagonistic to said corporation” valid and
legal? State your reason. (5%)

5. YKS Trading filed a complaint for specific performance with damages against
the PWC Corporation for failure to deliver cement ordered by plaintiff. In its
answer, PWC denied liability on the ground, inter alia, that YKS has no
personality to sue, not being incorporated, and that the President of PWC was not
authorized to enter into a contract with plaintiff by the PWC Board of Directors,
hence the contract is ultra vires. YKS Trading replied that it is a sole
proprietorship owned by YKS, and that the President of PWC had made it appear
in several letters presented in evidence that he had authority to sign contracts on
behalf of the Board of Directors of PWC.
Will the suit prosper or not? Reason briefly. (10%)

6. “X” Realty, Inc., a corporation engaged in the subdivision business, has an

authorized capital of P800,000, all of which has been fully subscribed. At a special
meeting of the board of directors, the majority vote decided on the basis of the
recommendation of its Executive Committee, that the corporation purchase a 5-
hectare property offered to it because it was ideal for its subdivision business, the
price offered was lower than the prevailing market price and John Roque, the
owner of the property, was willing to accept P200,000 worth of shares of the
corporation in exchange of, or as payment for, his property. No cash was involved
in the transaction. Thus, the board approved a resolution increasing the authorized
capital stock from P800,000 to 1 Million, stipulating that the additional P200,000
worth of shares be issued in exchange for the 5-hectare property and that the
existing stockholders would have pre-emptive right to subscribe to the additional
shares as the same were being issued to pay for the property.
Was the action of the Board correct and sufficient? (10%)

7. A corporation executed a promissory note binding itself to pay its President/

Director, who had tendered his resignation, a certain sum in payment of the latter’s
shares and interests in the company. The corporation defaulted in paying the full
amount so that the said former President filed suit for collection of the balance
before the SEC.
Is the arrangement between the corporation and its President covered by the trust
fund doctrine? Explain your answers briefly. (10%)

8. On December 9, 1985, Matatag Corporation revalued its assets. On the basis of

the reappraisal, the Board of Directors also declared cash dividends for all
stockholders. On December 16, 1985, Matatag Corporation amassed substantial
profits in a highly lucrative transaction. Some minority stockholders, however, did
not want to complicate their income tax problems for 1985 and refused to accept
the cash dividends. They also filed suit to compel the other stockholders to return
to Matatag Corporation the money received as dividends. Not one of the
stockholders who formed the majority joined in the suit since they were happy
with the money they received. As one of its defenses in court, the board of

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 Directors raised the “business judgment rule.” What is the business judgment rule
and does it have any relevance to this case? Explain. (10%)

--NOTHING FOLLOWS—
N.B. 25% Bonus per item

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