DELMO, MARK ANTHONY R.

CORPORATION LAW – MIDTERM EXAM 2020

PART I
1. 
Under Section 2 of the Revised Corporation code of the Philippines defines a
corporation as an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or
incident to its existence.
2. 
The doctrine of “piercing the veil of corporate entity is defined as a non-
recognition which the law will not recognize a separate corporate existence with
reference to the particular transaction involved. This non-recognition is sometimes
referred to as the doctrine o f piercing the veil o f corporate entity or disregarding the
fiction of corporate entity.
3. 
The rationale of the above doctrine is to remove the barrier between the
corporation from the persons comprising it to thwart the fraudulent and illegal schemes
of those who use the corporate personality as a shield for undertaking certain
proscribed activities.

PART II
1. 
a.) A Corporation to X, Inc. and Y, Inc. - A Corporation is the parent or holding
company of X, Inc. and Y, Inc. X, Inc. and Y, Inc. are only Corporation A’s
subsidiaries.
b.) X, Inc. and Y, Inc. to each other - X, Inc. and Y, Inc. are affiliates of each other.
2.
a.) Authorized to distribute to holders’ shares, dividends or allotments; and
b.) having capital divided into shares;
3. 
a.) By the State through the legislature, either by a special incorporation law or
charter which directly creates the corporation; or
b.) By means of a general corporation law under which individuals desiring to be and
act as a corporation may incorporate.
 4.
a.) De jure corporation or a corporation existing in fact and in law;
b.) De facto corporation or a corporation existing in fact but not in law.
5.
a.) stock corporations; and
b.) Non-stock corporations.

PART III
1. 
a. True
b. False
c. True
d. True
2.  
i. 1,000 (preferred shares) X P100 (par value per share) = P100,000
ii. P100,000 X 5% (guaranteed cumulative dividends) = P5,000 (dividends A
would receive per year)
iii. P5,000 (dividends per year) x 5 years = P25,000 (dividends for 5 years)
iv. P25,000 + P 5,000 (dividends for the current year) = P30,000 (Total dividends)

The total amount that A will receive from his 1,000 shares is P30,000. Under the
Revised Corporation code, in a cumulative preferred share, the holder thereof is not
only entitled to the payment of current dividends but also to dividends in arrears. In the
computation shown above, the total dividends that A would receive per year is
computed by multiplying preferred shares by par value per share, times 5% guaranteed
cumulative dividends. The result will then be multiplied by the number of years the

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dividends were not declared plus the dividends for the current year. Thus, A will receive
a total of P30,000 from his 1,000 shares.

PART IV
1.
a.) voting rights; and
b.) rights to dividends.
2.
a.) Group of persons can act as a single entity;
b.) Limited risk;
c.) A corporation is not affected by death or change of the individual members or
continuity of term; and
d.) Can accumulate large amount of capital.
3.
a.) True
b.) False
c.) False

PART V
1.
a.) a contract between the State and the corporation;
b.) a contract between the corporation and it s stock holders (or members); and
c.) a contract between the stockholders inter se.
2.
a.) False
b.) False
c.) False
d.) False

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PART VI
1.
a.) A valid law under which a corporation with powers assumed might be
incorporated;
b.) A bona fide attempt to organize a corporation under such law;
c.) Actual user or exercise in good faith of corporate powers conferred upon it by
law.
d.) Stockholders of a de facto corporation enjoy exemption from personal liability for
corporate obligations as do stockholders of de jure corporations.
2.
a.) Extension or shortening of the corporate term;
b.) to increase or decrease of the capital stock; and
c.) To amendments in general.
3.
a.) False
b.) False
c.) True

PART VII
1.
a.) adoption of by-laws;
b.) filing of by-laws with the Securities and Exchange Commission;
c.) election of the board of directors or trustees; and
d.) establishment of principal office.
2.
At the base are the Stockholders or members whose votes are required to elect
the board of directors and to pass on other major corporate actions. The next level are
the directors who constitute the policy making body of the corporation and select the
officers annually. And at the top of the pyramid are the officers, who have some
discretion but in general deemed to execute policies formulated by the board.

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3. 
a.) True
b.) True
c.) True
d.) False

PART VIII
1.
a.) straight voting;
b.) cumulative voting for one candidate; and
c.) cumulative voting by distribution.
2. 
a.) False
b.) True
c.) False

3.
If I were the lawyer of A, B, and C, I would advise them that A cannot be both the
president and the treasurer. Under the law, the same person may hold two or more
positions concurrently. However, the positions of president and secretary or treasurer
are considered by law as incompatible with each other due to the very nature
appertaining to each office. The rationale behind the law is to ensure the effective
monitoring of each officer’s separate functions (Ong Yong vs Tiu). Moreover, B cannot
be the treasurer and C cannot be the secretary. Under the Revised Corporation Code,
the treasurer must be a resident in the Philippines, and a secretary must be a citizen
and a resident of the Philippines. In this case, B is a non-resident of the Philippines and
C is an American citizen, respectively. Thus, all of them are disqualified to be officers of
their corporation.

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PART IX
1. a.) If I were the legal counsel of X Corporation, I will advise their
stockholders/members to fill up the vacancy. Section 28 of the Revised Corporation
Code states that any vacancy occurring in the board of directors or trustees other than
by removal or by expiration of term may be filled by the vote of at least a majority of the
remaining directors or trustees, if still constituting a quorum; otherwise, said vacancies
must be filled by the stockholders or members in a regular or special meeting called for
that purpose. In this case, the vacancy is due to term expiration. Thus, the election shall
be held no later than the day of such expiration at a meeting called for that purpose.

b.) If I were the legal counsel of Y Corporation, I would advise their Board of
Directors or Board of Trustees to fill up the vacancy. Under the Revised Corporation
Code, the vacancy may be filled up by the Board of Directors / Trustees when the
vacancy does not result from removal, expiration of term or increase in number of
directors/members. In this case, the vacancy is due to the director’s terminal illness
which the latter resigned.

c.) If I were the legal counsel of Z Corporation, I would advise their Board of
Directors or Board of Trustees to fill up the vacancy. Under Revised Corporation Code,
the vacancy may be filled up by the Board of Directors / Trustees when the vacancy
does not result from removal, expiration of term or increase in number of
directors/members. In this case, the vacancy is due to the director’s death caused by a
vehicular accident.

d.) If I were the legal counsel of a corporation where D was removed by the
stockholders, I would advise the stockholder/members to fill up the vacancy. Under
Section 28 of the Revised Corporation Code, when the vacancy arises as a result of
removal by the stockholders or members, the election may be held on the same day of
the meeting authorizing the removal and this fact must be so stated in the agenda and
notice of said meeting. In all other cases, the election must be held no later than forty-
five (45) days from the time the vacancy arose. A director or trustee elected to fill a

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vacancy shall be referred to as replacement director or trustee and shall serve only for
the unexpired term of the predecessor in office.

e.) If I were the legal counsel of a corporation. I will advise the Board of Directors
or Board of Trustees to undertake a procedure to fill up the vacancy. Under Section 28
of the Revised Corporation Code, when a vacancy prevents the remaining directors
from constituting a quorum and emergency action is required to prevent grave,
substantial, and irreparable loss or damage to the corporation, the vacancy may be
temporarily filled from among the officers of the corporation by unanimous vote of the
remaining directors or trustees. The action by the designated director or trustee shall be
limited to the emergency action necessary, and the term shall cease within a
reasonable time from the termination of the emergency or upon election of the
replacement director or trustee, whichever comes earlier. The corporation must notify
the Commission within three (3) days from the creation of the emergency board, stating
therein the reason for its creation.

2. 
Section 31 on self-dealing of the Revised Corporation Code will apply. Section 31
shall apply on the contract between the corporation where the director has a substantial
interest and the corporations where he had a nominal interest. In this case, C has a
substantial interest of 30% with B Corporation and only nominal interest of 10% with A
Corporation. Therefore, Section 31 of the Revised Corporation Code on self-dealing
directors will apply and not Section 32 of the same Code. Thus, it is considered as self-
dealing.
3.
Section 32 of the Revised Corporation Code will apply. Section 32 of the Revised
Corporation Code shall apply when the interest of the director is nominal in both
corporations and is substantial in both corporations. In this case, C have both
substantial interests with the two Corporations. Thus, section 32 will apply.

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