Pamantasan ng Cabuyao

S.Y. 2022-2023
Accounting Integration – Business Law and Taxation

Multiple Choice Questionnaires

In
Corporation Code of the Philippines

Submitted By:
3BSA - A
BALTAZAR, John Arwin
DESATE, Patricia S.
ESTILLERO, April Vannah Mae E.
GALLEGO, Mary Mae B.
HERNANDEZ, John Christian P.
LICO, Erika Ann L.
MALATE, Edcel May A.
MARPURI, Mary Cris S.
MENDOZA, Joyce Anne E.
OCAMPO, John Oliver D.

Submitted To:
Atty. Narciso G. Reyes, Jr., A.B., LL.M.

November 23, 2022

1. Jane subscribed for 2,000 shares with P50 par value for each P60, or a total of
P120,000. Jane was able to pay P60,000 and was unable to pay the other half. Now,
Jane is demanding the issuance of half of the shares, i.e., 1000 shares, since she was
able to pay half of the subscription price. Can Jane do so?

a. Yes. Partial payment of subscription price gives rise to a right to demand issuance
of a proportional number of shares.
b. No. Subscription contracts are considered indivisible.
c. Yes. However, Jane must first secure the vote of a majority of the Board of
Directors constituting a quorum.
d. No. Jane must be able to pay the entire par value of P100,000 (2,000 shares at a
par value of P50 each) before the shares can be issued.

Source: The RFBT Reviewer (Laco, Manuel, Soriano, 2020)

Reason: In this case, Jane is still not entitled to a certificate of stock because the entire
contract is indivisible and there no partial issuance of certificates, which shall be
issued only upon full payment of the subscription price.

2. The Corporation Code sanctions a contract between two or more corporation

which have interlocking directors, provided there is no fraud that attends it and it
is fair and reasonable under the circumstances “his interest of an interlocking
director in one corporation may be either substantial or nominal. It nominal if
his interest:

a. Does not exceed 25% of the outstanding capital stock

b. Exceeds 25% of the outstanding capital stock
c. Does not exceed 20% of the outstanding capital stock.
d. Exceeds 20% of the outstanding capital stock

Source: BUSINESS LAW MOCKBOARD 2013

Reason: According to Corporation Code of the Philippines provides in its section

33 “stockholdings exceeding twenty (20%) percent of the outstanding capital stock
shall be considered substantial for purposes of interlocking directors"

3. ZZZ Corporation is a wholly owned subsidiary of BBB Corporation. To support the

business of ZZZ Corporation, BBB Corporation agreed to give its corporate
guarantee to the loan of ZZZ Corporation. What is required so that the corporate
guarantee will be valid?

a. It only requires the approval of the Board of Directors of BBB Corporation.

b. The Articles of Incorporation must provide such power and be approved by the
Board of Directors.
c. Providing corporate guarantee to another corporation is a necessary exercise of
 power of a corporation.
d. It would require both the approval of the Board of Directors and the stockholders
on record.

Source: 2012 Mercantile Law Exam MCQ (October 21, 2012)

Reason: As a general rule, no corporation has the power, by any form of contract
of endorsement, to become a guarantor or surety or otherwise lend its credit to
another person or corporation. This would be considered as ultra vires as it is not
within the express, implied, and incidental powers of the corporation. However, if
this power is indicated in its articles of incorporation, it could be considered as a
valid act consistent with the terms and spirit of the corporation. For a more
accurate explanation, please see SEC Opinion 08-11

4. Choose the right statement.

I. The Corporation may only acquire its own stocks in the presence of
unrestricted retained earnings.

II. Preferred shares may be acquired even without surplus profit for as long as it will
not result to the insolvency of the Corporation.

a. Only I is true
b. Only II is true
c. Both are true
d. Both are false.

Source: (Boman Environmental Development Corporation vs. CA and Nilcar Y.

Fajilan, G.R. No. 77860, November 22, 1988)

Reason: Redeemable shares may be acquired even without surplus profit as long as
it will not result to the insolvency of the Corporation.

5. A, B, C, D, E are all duly elected members of the Board of Directors of XYZ

Corporation. F, the general manager, entered into a supply contract with an American
firm. The contract was duly approved by the Board of Directors. However, with the
knowledge and consent of F, no deliveries were made to the American firm. As a
result of the non- delivery of the promised supplies, the American firm incurred
damages. The American firm can sue the following for damages except?

a. The members of the Board of Directors individually, because they approved

the transaction.
b. The corporation
c. F, the general manager, personally, because the non-delivery was with his
knowledge and consent.
 Source: https://simplelawstudent.blogspot.com/search/label/corporation%20law

Reason: According to Sec. 30 of the revised corporation Code, the directors are
given a personality separate from that of the corporation. They would be liable only
if they acted willfully and knowingly voted for an unlawful act of the corporation.
They acquire the rights to perform corporate acts that are necessary and implied in
the conduct of its business.

6. Two corporations agreed to merge. They then executed an agreement specifying the
surviving corporation and the absorbed corporation. Under the agreement of merger
dated November 1998, the surviving corporation acquired all the rights, properties and
liabilities of the absorbed corporation. Must the absorbed corporation undertake
dissolution and winding up procedures?

a. No. There is no need to undertake dissolution and winding up procedures.

b. No. For convenience of the inventory.
c. Yes. There must be dissolution and winding up.
d. Yes. For the benefit of the creditors.

Source: CPARME RFBT FINAL PRE-BOARD EXAMINATION, 2018

Reason: According to Sec. 79, The surviving or consolidated corporation shall be

responsible for all the liabilities and obligations of each constituent corporation as
though such surviving or consolidated corporation had itself incurred such
liabilities or obligations.

7. Choose the right statement.

I. The directors of a corporation shall not receive any compensation for being members
of the board of directors, except for reasonable per diems.

II. The two instances where the directors are to be entitled to compensation shall be
when it is fixed by the corporation's by-laws or when the stockholders, representing at
least a majority of the outstanding capital stock, vote to grant the same. In no case
shall the total yearly compensation of the directors, as such directors, exceed 10% of
the net income after income tax of the Corporation during the preceding year.

a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

Source: (Gabriel C. Singson, et. Al. vs. Commission on Audit, G.R. No. 159355,
August 9, 2010).
Reason: The directors of a corporation shall not receive any compensation for being
members of the board of directors, except for reasonable per diems. The two
 instances where the directors are to be entitled to compensation shall be when it is
fixed by the corporation's by-laws or when the stockholders representing at least a
majority of the outstanding capital stock, vote to grant the same at a regular or
special stockholder's meeting, subject to the qualifications that, in any of the two
situations, the total yearly compensation of directors, as such directors, shall in no
case exceed 10% of the net income before income tax of the corporation during the
preceding year.

8. Choose the right statement.

I. The acts of corporate officers within the scope of their authority are binding on
the corporation.

II. Any two or more positions may be held concurrently by the same person, except
that no one shall act as president and secretary or as president and vice-president at
the same time.

a. Only I is true
b. Only II is true
c. Both are true
d. Both are false

Source: (Section 23, RCCP).

Reason: Any two or more positions may be held concurrently by the same person, except
that no one shall act as president and secretary or as president and treasurer at the same
time.

9. A Corporation's board of directors is understood to be that body which:

a. Exercises all powers provided for under the corporation Code.

b. Conducts all business of the corporation.
c. Controls and holds all property of the corporation.
d. All of the above

Source: (Nectarina S. Raniel and Ma. Victoria R. Pag-ong vs. Paul Jochico, et.al,
G.R. No. 153413, March 1, 2007).

Reason: A corporation exercises it powers through its board of directors and/or duly
authorized officers and agents, except in instances where the Corporation Code
requires stockholders' approval for certain specific acts.
A Corporation's board of directors is understood to be that body
which 1. Exercises all powers provided for under the Corporation
Code.
2. Conducts all business of the corporation; and
 3. Controls and holds property of the corporation

10. XYZ Corp. whose business is to manufacture and sell vehicles, invested its funds in
Y Corp., an investment firm, through a resolution of its Board of Directors. The
investment grew tremendously on account of Y Corp.’s excellent business judgment.
But a minority stockholder of XYZ Corp. assails the investment as ultra vires. Is he
right?

a. Yes, it is ultra vires act of the board of directors and consequently void
b. Yes, it is ultra vires act of the board of directors subject to
stockholders’ ratification
c. Yes, it is ultra vires act of the corporation
d. Yes, it is ultra vires act in itself by the corporation and consequently void.

Source: CRC-ACE RFBT FINAL PREBOARD EXAMINATION, MAY 2018

Reason: Ultra vires acts are acts committed outside the object for which a corporation
is created as defined by the law of its organization and therefore beyond the express,
implied, and incidental powers of the corporation.

11. X is a minority stockholder of CCC Corporation. Y is a member of the Board of

Directors of CCC Corporation and at the same time he is the President. X believes
that Y is mismanaging CCC Corporation hence, as a stockholder and on behalf of the
other stockholders, he wanted to sue Y. Which statement is most accurate?

a. X can institute a derivative suit in behalf of himself as a stockholder

b. A derivative suit must be instituted in behalf of the corporation
c. Derivative suit is an exclusive remedy that X can institute
d. Derivative suit is not the remedy in this situation

Source: CRC-ACE RFBT FINAL PREBOARD EXAMINATION, MAY 2018

Reason:
A derivative suit is applicable in this case because the mismanagement of Y as a BOD is
not directly against the stockholders, it is against the corporation itself. In a derivative
suit, it is brought by one or more stockholders on behalf of the corporation to redress
the wrongs committed against it or to protect or vindicate corporate rights, whenever
the officials of the corporation refuse to sue or are the ones to be sued or hold control of
the corporation.

12. A corporation acquires juridical personality:

a. upon the filling of the articles of incorporation.

b. upon the filling of the by-laws.
 c. upon the issuance of the certificate of incorporation.
d. within 30 days from the receipt of the notice of the issuance of the certificate of
incorporation.

Source: Notes in Business Law, 2016 Edition., Fidelito R. Soriano.

Reason: Incorporators are those stockholders or members mentioned in the articles
of incorporation as originally farming and composing the corporation and who are
signatories of such documents.

13. The article of incorporation of ABC Corporation provides for 7 directors. In the
monthly meeting of the board of directors held on April 8, 2009, directors B, C, D
and E were present, and the following resolutions were approved.

I. A resolution for the purchase of a delivery truck from E trading, a sole

proprietorship owned by A, B. C, D and E voted for the resolution.

II. A resolution appointing T as the new corporate secretary where B, C, D and E

voted for the resolution.
Which is correct?

a. Resolution I is not valid. Resolution II needs stockholder’s approval.

b. Resolution I needs stockholder’s approval. Resolution II is valid.
c. Both resolutions are valid and do not need stockholder’s approval.
d. Both resolutions are valid but need stockholder’s approval.

Source: CPARME RFBT FINAL PRE BOARD EXAMINATION, 2018

Reason:
Explanation for case 1
Resolution 1 is valid because every board member or corporate officers has the
power to act in those that are incidental or those acts as are naturally and ordinarily
done which is reasonable and necessary to carry out the corporate purposes.

Explanation for case 2

Resolution 2 is also valid because the exception in the majority of those present
members are when there is an election of corporate officers which requires a majority
vote of ALL the members of the board. Or all the listed members in the articles of
incorporation. But since all the present members voted for the resolution of appointing
T as a new corporate secretary, their act is still sufficient and valid because they still
constitute a majority out of all the members of the board.
14. A is a director and owns 50% of the outstanding capital stock of ace corporation which
is engaged in the trading of computers. Ace corporation purchased computer tables
from a top corporation of which A is also a director and owns 15% of its outstanding
capital stock. The articles of incorporation of both corporations provide for 5 directors.
In the approval of the contract for the said purchase, A did not attend the meeting of
the board of directors of Ace Corporation, while in the meeting of the board of
directors of Top Corporation which was called for the same purpose, directors A, B, C
and D were present with all of them voting for the approval of the contract. Assuming
that there is no fraud and that the contract is fair and reasonable under the
circumstances, the contract between Ace Corporation and Top Corporation is:

a. valid
b. voidable at the option of Top Corporation
c. unenforceable against Top Corporation
d. void because corporations with interlocking directorates should not enter into a
contract with each other.

Source: Notes in Business Law, 2016 Edition., Fidelito R. Soriano.

Reason: In this case, the contract is valid because the interest of the interlocking
director which is A in one corporation or corporations is merely nominal.

15. A, B, C, D, E, F and G are directors of X corporation whose articles of incorporation

provide for 7 directors. X Corporation entered into a contract with A, one of its
directors. A, B, C, D and E attended the meeting for the approval of the contract with
A, B, C and D voting for its approval. Provided the contract is fair and reasonable
under the circumstances.

a. Unenforceable against A.
b. Valid
c. Void because A did not attend the meeting.

Source: Notes in Business Law, 2016 Edition., Fidelito R. Soriano.

Reason: The contract is valid because even if A did not attend the meeting B, C, D and E
would still have constituted a quorum and even if A voted for its approval, his vote
would not have been necessary because B, C and D would still have constituted the
majority among five directors.

16. Fatima Corporation has a statement of capital stock in its articles of incorporation,
but it was stated in the same articles that dividends are not supposed to be declared
that is there is no distribution of retained earnings. Fatima Corporation is:

a. Stock corporation
b. Non-stock corporation
 c. Corporation by prescription
d. Corporation by estoppel

Source: Notes in Business Law, 2016 Edition., Fidelito R. Soriano.

Reason: It is a non-stock corporation because no part of its income is distributable.

A non-stock corporation may have a statement of capital stock as long as it is not
authorized to distribute dividends to its members, trustees or officers.

17. Jackie subscribed for 3,000 shares with P44 par value for P80 each. Jackie was only
able to pay P160,000 of the subscription price, leaving an unpaid balance of P80,000.
Subsequently, the shares became delinquent. Prior to the delinquency sale, the Board
of Directors declared cash dividends and called for a stockholder’s meeting to vote on
the proposed corporate restructuring of the corporation. Which of the following
statements is true?

a. Jackie is entitled to the cash dividends, and she is likewise entitled to vote on the
proposed corporate restructuring.
b. Jackie is not entitled to the cash dividends, and she is likewise not entitled to vote
on the proposed corporate restructuring.
c. Jackie is not entitled to the cash dividends, but is entitled to vote on the proposed
corporate restructuring
d. Jackie is entitled to the cash dividends, but is not entitled to vote on the
proposed corporate restructuring

Source: The RFBT Reviewer (Laco, Manuel, Soriano, 2020)

Reason: Because as a general rule, the effect of delinquency, the stockholder thereof
immediately loses the right person to vote and be voted upon or represented in any
stockholders meeting as well as all the rights pertaining to a stockholder. The
exception is the right to receive dividends.

18. XYZ Corporation borrowed P3,000,000 from ABC Bank. Mr. Benito is the
controlling stockholder, owning eighty percent (80%) of the outstanding capital
stock of XYZ Corporation. ABC Bank seeks to collect the P3,000,000 debt of XYZ
Corporation, but it discovered that the corporation has no more assets. ABC bank is
now going after Mr. Benito to collect the debt. Is Mr. Benito liable to pay the
P3,000,000 debt of XYZ Corporation?
a. No. Mr. Benito can only hold liable for P2,400,000, or 80% of P3,000,000
b. No. The liability of XYZ Corporation is separate from the liability of Mr.
Benito.
c. Yes. Under the doctrine of piercing the veil of corporate fiction, Mr. Benito is
liable for the debts of the corporation.
d. Yes. Under the doctrine of unlimited liability, Mr. Benito's personal assets serve as
 security for the debts of the corporation.

Source: The RFBT Reviewer (Laco, Manuel, Soriano, 2020)

Reason: One of the attributes of a corporation is its corporate entity/doctrine of separate
personality. It has a juridical personality, separate and distinct from the persons
composing it. Aside from this, the liabilities of the corporations are generally its own and
cannot extend to the stockholders in their personal capacities, which is otherwise known
as the Limited Liability Doctrine/Rule.

19. Claude, the registered stockholder of 1,000 shares of ABC Corporation pledged the
shares to Condrad by endorsement in blank of the covering stock certificates and,
execution of a Deed of Assignment of Shares of Stock, intended as collateral for a
loan of Php 1,000,000.00 that was also supported by a separate promissory note.
Under these facts, is there a valid pledge of the shares of stock to Condrad?

a. No, because shares of stock are intangible personal properties whose possession
cannot be delivered and hence cannot be the subject of pledge.
b. No, because the pledge of shares of stock requires double registration with the
Register of Deeds of the Principal place of business of the corporation and of the
residence of the pledgor.
c. Yes, because endorsement and delivery of the certificates of stock is equivalent to
the transfer of possession of the covered shares of the pledge.
d. Yes, because the execution of the Deed of Assignment of Shares of Stock is
equivalent to a lawful pledge of the shares of stock.

Source: CPAR FINAL PREBOARD EXAMINATION RFBT, 2020

Reason: Sec. 63. Shares of stock so issued are personal property and may be
transferred by delivery of the certificate or certificates endorsed by the owner or
his attorney-in-fact or other person legally authorized to make the transfer.

20. . A was one of the directors of X Corporation. B obtained a judgment against A and
had all of A’s shares of stock in X Corporation. A meeting was held and both A and B
appeared in the said meeting, each claiming the right to participate in the deliberation
of the board. A contended that he had the right to continue as a director until the
stockholders could elect his successor. B on the other hand, contended that having
purchased all of A’s shares, he had the right to take the latter’s place in the board.
Under the rule of directorship, which of the following is false?

a. Both A and B are disqualified to sit as directors in the Board of Directors.

b. A cannot qualify as he disposed of all his shares. The requirement is that a director
must continuously have at least one share in the corporation.
c. B can qualify because a corporation as well as the heirs of stockholders of the
same corporation has got a right of succession.
 d. B cannot also qualify if he claims succession to A. He must have to be elected by
the stockholders. The position is personal and does not allow a substitution.

Source: CPAR First Preboard Examinations 2020

Explanation: These may have rights of succession by themselves, but not in the case of
the of directorship. It is required by the Corporation Code that for a person to qualify
as a board member, he must own at least one share in his own name, must be a resident
of the Philippines, and must be eligible according to the corporations by laws. Both A
and B are disqualified to sit in the Board of Directors based on their defenses.