WESLEYAN UNIVERSITY-PHILIPPINES

COLLEGE OF LAW
PRELIMINARY EXAMINATIONS
May 6, 2020

1. What are the classes of corporation? Distinguish each.

2. Explain the new rule on Founder’s Shares under the Revised Corporation
Code (RCC).

3. Enumerate the change in the contents of the Articles of Incorporation under

the RCC.

4. Explain the changes on the rule of Corporate Name under the New Code.

5. What is an independent director? How are they elected?

6. Mr. Den Yu incorporated DDS Co. in Davao City on April 2010. DDS Co.
was incorporated to engage in the fuel industry in Davao City. However, years
passed the business operations remained stale and inoperative. The buildings
were used as a storage facility of the Mr. Den Yu’s business in Metro Manila.
Today, ABS Co. questioned DDS Co.’s incorporation and asked the SEC to
investigate thereon. ABS Co. posits that the certificate of incorporation of
DDS Co. shall be revoked on the ground of Non-use of Corporate Charter and
Continuous Inoperations under the Revised Corporation Code. On the other
hand, Mr. Den Yu contends that DDS Co. serves as his storage facility for his
businesses in Metro Manila and should not be considered as non-use of
corporate charter of DDS Co. Is the contention of Mr. Den Yu tenable?

7. Enumerate the grounds for disqualification of Directors, Trustees or Officers.

Answer: Disqualification, Directors, Trustees or Officers. – A person shall

8. A Corp. is owned by the Go family while B Corp. is owned by Cal family. A

Corp. engaged in a joint venture agreement with B Corp. Bong, the President
of the Go family, invested P20 Million for the said agreement. Rodrigo, the
President of the Cal family and a cousin of Bong, invested P15 Million.
 a. Rule on the validity of the contract. Explain.
b. If the contract is approved by 2/3 of the entire membership of the
board, would your answer be the same? Explain.

9. Enumerate the three (3) new corporate powers of every corporation under the
RCC.

10. Explain the concept of the Right of Appraisal. Enumerate the instances that it
may be exercised under the RCC.

11. In May 2018, ABC Corp. entered into a merchandising contract which terms
and conditions were totally lopsided in favor of the counterparty, XYZ, Inc.
As a result, ABC Corp. suffered tremendous financial losses.

A year after, or in May 2019, Mr. X became a stockholder of ABC Corp.

Learning about the circumstances surrounding the merchandising contract,
Mr. X filed a derivative suit against ABC Corp. 's directors to claim damages
on behalf of ABC Corp. due to their mismanagement.

a. What is a derivative suit?

b. Was Mr. X's filing of a derivative suit proper? Explain.

12. In 2016, X Corp. obtained a loan worth ₱50,000,000.00 from J Bank, which
was secured by a third-party mortgage executed by Y, Inc. in favor of X Corp.
Since X Corp. was not able to settle its loan obligation to J Bank when it fell
due, and despite numerous demands, J Bank foreclosed the mortgaged
properties. The properties were sold in a foreclosure sale for ₱35,000,000.00,
thereby leaving a ₱15,000,000.00 deficiency. For failure of X Corp. to pay
said deficiency, J Bank filed a complaint for sum of money against X Corp.,
its President, Mr. P, and Y, Inc.

With respect to Mr. P, J Bank argued that he should be held solidarily liable
together with X Corp. because he signed the loan document on behalf of X
Corp. in his capacity as President. On the other hand, J Bank contended that
Y, Inc. should also be held solidarily liable because the shareholdings of both
 corporations are identically owned and their operations are controlled by the
same people; hence, Y, Inc. is a mere alter ego of X Corp.

a. Should Mr. P be held liable? Explain.

b. Should Y, Inc. be held liable? Explain.

13. Mr. Y filed a case captioned as "Injunction with Prayer for Status Quo Order,
Temporary Restraining Order and Damages" against Z Company to prohibit
the latter from selling shares which Mr. Y purportedly bought from Z
Company. Mr. Y alleged that the subscription for the said shares was already
partly paid by him, but the subject shares were nonetheless being offered for
sale by Z Company to the corporation's other stockholders.

a. Is the case filed by Mr. Y against Z Company considered an intra-

corporate dispute? Explain.
b. Assuming that it was Z Company which instead filed a case against Mr.
Y in order to collect the unpaid balance of his stock subscriptions, is the
case considered an intra-corporate dispute? Explain.

14. The principal office of Sta. Rosa Developers is in Pasig City. It decided to
hold a Board meeting at the office of one of its stockholders located in Hong
Kong, and a shareholders’ meeting at a hotel in BGC Taguig City. In deciding
to hold these meetings in the said venues, is there any violation of the
Corporation Code? Explain and state your legal basis.

15. Ronaldo is a member of the board of directors of PJ Corporation. He raised

several issues regarding the management of the corporation and on many
occasions voted against matters presented to the board for approval. He was
soon labeled a “fiscalizer” and a majority of the directors wanted him to be
removed from the board. They also wanted to have his shares sold at public
auction so he can no longer participate in the stockholders’ meetings. Ronaldo
asks you for legal advice on whether he can be removed as a director and
stockholder even without cause. State your advice with legal basis.

16. JLC Pharmaceuticals, Inc. (JLC) was incorporated on February 1, 1993.

Under its articles, its corporate term was for 25 years. On January 20, 2020,
Bea, a stockholder, demanded that JLC cease doing business and liquidate its
 assets for distribution to the shareholders because JLC’s corporate life had
expired and JLC had not amended its articles to extend its corporate life.

a. Was Bea correct?

b. Assuming Bea was not correct and the JLC’s corporate existence had not
expired, what right, if any, does Bea have with respect to the continued
existence of JLC? Explain with legal basis.

17. SMC, Inc, issued a purchase order for 1,500 pairs of shoes of various designs
and materials from Havanas Company (HC), which the buyer of SMC
believed to be a corporation, for a total price of Php 400,000. HC completed
its delivery to SMC, but the latter withheld payment of the shoes. HC filed a
collection case against SM which raised as a defenses that its supplier
guidelines clearly stated that a supplier of at least Php250,000 worth of goods
must be duly incorporated under Philippine Law, that HC signed a
confirmation that it was qualified to be a supplier under the SMC guidelines
but in fact was merely an ostensible corporation and therefore SMC was not
liable to HC because of its misrepresentation. Was SMC correct? Explain.

18. Mr. Mendoza and Mr. Cruz (jointly “principals”) each own 20% of the
outstanding shares of ABC Land Corporation, which has a 5-man board. The
principals agreed to pool their shares and to vote for common nominees to be
chosen by them by mutual agreement. Further, before election, their nominees
must commit in writing that:
a. They will vote against any resolution to appropriate retained
earnings for any purpose;
b. They will get clearance from the principals on the election of
officers and will vote according to their instructions; and
c. They must seek approval of the principals before voiting on any
transaction that will require an expenditure by ABC of over Php
1 million.

Is the agreement valid? Explain.

19. Good Shepherd Hospital, Inc. (GSH) owns and operates 15 hopsitals all over
Luzon. Each year, the hospitals of GSH has tens of thousands of patients. GSH
has five (5) directors, as provided in its Article of Incorporation, each of whom
hold 15% of GSH’s outstanding shares.

Roberto, who was not a director but owned 10% of GSH’s outstanding shares,
wrote to the board of GSH demanding that the corporation should have
independent directors.

To appease Roberto, the board of GSH elected a 6th director, who was not a
stockholder but was Roberto’s brother, Diego. Leonardo, another GSH
stockholder, asks you for legal advice on whether the action of the board is
legal and whether GSH should have an independent director.

Explain with legal basis.

20. Draft an appropriate Articles of Incorporation under the Revised Corporation

Code.