PRELIM EXAM IN CORPORATION JD-II

Danny Piggery, Inc. is engaged in raising and selling hogs in the local market.
Mr. Mendez, one of its directors, while travelling abroad, met a leather goods
manufacturer who was interested in buying pig skins from the Philippines.
Mr. Mendez set up a separate company and started exporting pig skins to his
foreign contact but the pig skins were not sourced from Danny Piggery. His
fellow directors from Danny Piggery complained that he should have given
this business to Danny Piggery. How would you decide this matter?(5 pts.)

II

Pursuant to its by-laws, Tagumpay Corporation’s Board of Directors created

an Executive Committee to manage the affairs of the corporation in between
board meetings. The Board of Directors appointed the following members of
the Executive Committee: the President, Francis; the Vice-President, John;
and a third member from the board, Brian. On December 1, 2020, the
Executive Committee, with Francis and John present, met and decided to
issue stock dividends to its shareholders.

Is the action of the Executive Committee valid? Explain. (5 pts.)

III

David and his wife have three (3) children: Neymar, 25, who is now based in
Rio de Janeiro, Brazil; Mario, 23, who has migrated to Munich, Germany; and
James, 21, who resides in Bogota, Colombia. Neymar and Mario have since
renounced their Philippine citizenship in favor of their country of residence.
Nearing 70 years old, David decided to incorporate his business in Dipolog
City. He asked his wife and three (3) children to act as incorporators with one
(1) share of stock each, while he owned 999,996 shares of the 1,000,000
shares of the capital stock.

a. David asked you if he can serve as Chairman of the Board of Directors, as

President, and as General Manager of the corporation, all at the same time.
Please advise David.(2.5 pts.)

b. Assuming the corporation has been properly registered, may the Articles of
Incorporation now be amended to reduce the number of directors to two (2) –
David and his wife– to reflect the real owners of the shares of stock?(2.5 pts.)
IV

In the November 2017 during stockholder’s meeting of Stone Corporation,

eight (8) directors were elected to the board. The directors assumed their
posts in January 2018. Since no stockholders’ meeting was held in November
2018, the 8 directors served in a holdover capacity and thus continued
discharging their powers.

In February 2019, two (2) of Stone Corporation’s directors—Director A

and Director B—resigned from the board. Relying on Section 28 of the
Corporation Code, the remaining 6 directors elected 2 new directors to fill in
the vacancy caused by the resignation of Directors A and B.

Stockholder X questioned the election of the new directors. He claimed

that the vacancy in the board should be filled up by the vote of the
stockholders of Stone Corporation. Stone Corporation’s directors defended
the legality of their action.

Rule on the issue raised. (5 pts.)

V

A, B, C, D, E are all duly elected members of the Board of Directors of Motors

Corporation. F, the general manager, entered into a supply contract with,
Downforce Corporation, an American firm licensed to do business in the
Philippines. 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 would like to file a
suit for damages. Can the American firm sue:

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

approved the transaction? (2%)
b. The corporation? (2%)
c. F, the general manager, personally, because the non-delivery was with
his knowledge and consent? (2%)
d. Explain the rules on liabilities of a corporation for the act of its
corporate officers and the liabilities of the corporate officers and Board
of Directors of a corporation acting in behalf of the corporation. (4%)

VI

a. Differentiate by-laws from articles of incorporation. (5 pts.)

b. What is the process in amending the by-laws of a corporation? (5 pts.)

VII

Creative Tech Inc., a corporation engaged in the manufacture of computer

multimedia accessories, rents an office and store space at a commercial
building owned by Harry. Being a start-up company, Creative Tech Inc.
enjoyed some leniency in its rent payment. But after three years, Harry put a
stop to it and asked Creative Tech Inc.’s general manager, Danny, who is a
stockholder, to pay back rentals amounting to P200,000.00 or to vacate the
premises at the end of the month. Creative Tech Inc. neither paid its debt nor
vacated the premises. Harry sued Creative Tech Inc. and Danny for collection
of the unpaid rentals plus interest and cost of litigation. Will the suit prosper
against Creative Tech Inc. and Danny? Why? (5 pts)

VIII

Predator Company is a stock corporation composed of the Rodriguez family

engaged in the processed food business. Because of the crisis brought about
by the pandemic, the stockholders decided to convert their stock corporation
into a charitable non-stock and non-profit association by amending the
Articles of Incorporation

A. Could this be legally done? Why? (2.5 pts.)

B. Would your answer be the same if at the inception, Predator Company

is a non-stock corporation? Why? (2.5 pts)

IX

Pedro owns 70% of the subscribed capital stock of a company which owns an
office building. Paolo and Juan own the remaining stock equally between
them. Paolo also owns a security agency, a janitorial company, and a catering
business. In behalf of the office building company, Paolo engaged his
companies to render their services to the office building. Are the service
contracts valid? Explain. (2.5 pts.)

Define/explain the following concepts: (3 pts. each)

a. Doctrine of Corporate Opportunity

b. Doctrine of Centralized Management
c. Trust Fund Doctrine
d. Business Judgment Rule
e. Doctrine of Piercing the Veil of Corporate Fiction

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