Questions herein were reconstructed based on frail

CORPORATION LAWS human memory. Excuse us for any missing parts.

1
Midterm Examination Answers herein do not purport to be the correct ones.
2017 Disagree if you must.

As a general rule, all persons who assume to act as a corporation

knowing it to be without authority to do so shall be liable as general
ESSAY
partner. However, considering the fact that the 3 partners did not
represent themselves, they shall not be liable.
1. Eight individuals put up money to form a corporation. They executed
an Articles of Incorporation, but for one reason or another, it was not
2. A, B, C, D, and E are stockholders of KITAMURA INC. They each
submitted to the SEC. Only the five individuals represented themselves
contributed 5 million pesos and bought lotto tickets. They won 50
as a corporation and entered into business transactions. Three
million pesos in the lottery. They decided to form a corporation
individuals did not participate in any of the business transactions.
engaged in real estate. They made MAHINAY CORP. but for one
reason or another, their AOI was not approved.
All of its assets have been exhausted by all of its creditors. The three
individuals contended that their liability was only limited to their
Now they represented themselves as AMORA INC. where under its
subscriptions. The five individuals contended that that they should be
name, they were able to purchase construction materials worth 20
liable up to their personal and separate assets because under the
million pesos. Now the hardware was demanding payment from
law, the stockholders of a corporation by estoppel are liable as
them.
general partners. Are the three individuals liable as general partners?
a. If you were the counsel for the hardware, why or why will you
Suggested Answer:
not file a case against:
No, the three individuals shall not be liable as general partners. In a
corporation by estoppel, a group of persons represent themselves as
-A, B, C, D and E
a corporation, with the knowledge that they do not have the
-KITAMURA INC.
authority to do so, and that they have induced third persons to enter
-MAHINAY CORP.
into business transactions. The existence of such corporation by
-AMORA INC.
estoppel cannot be used to deny liabilities incurred; however, the
persons involved are liable as general partners. Suggested Answer:
I will not file a case against Stockholders A, B, C, D, and E. The
In the case at bar, there is no question that the five individuals who
purchase of construction materials were entered into by
represented themselves as a corporation and thereby incurred
AMORA INC. and the hardware. AMORA INC. is considered a
liabilities are liable as general partners. There was a representation to
corporation by estoppel. Hence, a suit against it can prosper
the public and liabilities were incurred. However, as to the three
even if it was not able to comply with the requirements for
individuals who merely contributed money, but did not represent
incorporation. A corporation by estoppel is given corporate
themselves to the public as part of such corporation, they should not existence for the purpose of collection of liabilities incurred by
be held liable as general partners.
such corporation. However, the persons who represented
themselves as such corporation are held liable, under the law,
Alternative Answer:
as general partners.
No. According to the case of Pioneer Insurance and Surety Corp vs.
CA, while the stockholders of a defectively incorporated association
I will not file a case against KITAMURA INC. because the
become, in legal effect, partners inter se, such a relation cannot be hardware did not even transact business with such
made to assume the relation of partners, as between themselves,
corporation. Under the law, a corporation is given a separate
when their purpose is that no partnership shall exist; it should be
corporate existence, separate and distinct from that of its
implied only when necessary to do justice between the parties. Thus,
individual shareholders. It does not matter that the
one who takes no part except to subscribe for stock in a proposed
stockholders of KITAMURA INC. purchased materials from the
corporation which was never legally formed does not become a hardware because they are separate from the corporation
partner with other subscribers who engage in business under the
and cannot bind the latter for such purchases.
name of a pretended corporation, as to be liable as such in an action
for settlement of the alleged partnership and contribution. I will not file a case against MAHINAY CORP. for the similar
reason that the hardware did not enter into a transaction with
 Questions herein were reconstructed based on frail
CORPORATION LAWS human memory. Excuse us for any missing parts.
2
Midterm Examination Answers herein do not purport to be the correct ones.
2017 Disagree if you must.

public as a corporation; Knowledge on their part of their lack

of authority; Inducing third persons to believe that they have
the former. The stockholders did not even act on behalf of
corporate existence; damage or prejudice. A corporation by
MAHINAY CORP. Moreover, under the law, a corporation is
estoppel can be collaterally attacked. The persons who
given a separate juridical personality once a certificate of
assume to act as a corporation are liable as general partners
incorporation is issued in its favor. In this case, MAHINAY
for all liabilities incurred. It shall not be allowed to use a
CORP. was never issued, for some reason or another, a
defense its lack of personality. On the other hand, one who
certificate of incorporation.
assumes an obligation to an ostensible corporation as such is
also precluded from denying liability on the ground that there
I will file a case against AMORA INC. The hardware
was in fact no corporation.
transacted with such corporation. AMORA INC. can be
considered a corporation by estoppel. Stockholders A, B, C, D
Alternative Answer:
and E represented themselves as a corporation, under the
De jure is a corporation which complied with the
name of AMORA INC., and induced the hardware to believe
requirements required by the Corporation Code. It has a valid
that it had the authority to act as such corporation. Hence,
certificate of incorporation.
although not existing under the eyes of the law, a suit can still
be filed against AMORA INC. As stated in Sec. 21 of the
De facto is a corporation that has a defect in its incorporation
Corporation Code, when any such ostensible corporation is
or has not complied with all the requirements required by the
sued on any transaction entered by it as a corporation or on
corporation code.
any tort committed by it as such, it shall not be allowed to use
a defense its lack of corporate personality. Thus, AMORA INC.
A corporation by estoppel is a group of persons who
cannot deny liability in favor of the hardware and the suit can
represent themselves as a corporation knowing that they do
prosper.
not have the authority to do so and have induced third
persons to enter into business transactions.
b. Distinguish the following:
De Jure Corporation
c. Supposing the stockholders A, B, C, D and E issued a check in
De Facto Corporation
behalf of KITAMURA INC., can the corporation be held
Corporation by Estoppel
criminally liable for the issuance of a bouncing check?
Suggested Answer:
No. Generally corporations cannot be held liable criminally
A de jure corporation is one existing in fact and in law. It has
for its acts. Being a juridical entity, a corporation lacks the
complied with all the requirements of incorporation. Its liberty and physical existence in order to hold it criminally
existence cannot be attacked by either the State or private
liable. Unless a special law or statute expressly stipulate that
persons.
aside from natural persons, a juridical entity may be held
criminally liable through fines as penalty, a criminal action
A de facto corporation is one existing in fact but not in law. It
cannot be sustained against a corporation.
has not substantially complied with the requirements of a
corporation. There is a corporation de facto when the 3. A certain corporation wanted to enter into business transaction with
following requisites are present: A valid law under which it
Amping Corporation - however, there was vehement opposition from
may be incorporated; A bona fide attempt to organize and
4 of the 9 directors, which made the corporation decide not to push
comply with the law; Exercise in good faith of corporate
through. After that, it was found out that those 4 directors who
powers. A de facto corporation cannot be collaterally
opposed entered with distributorship with Murakame Corporation. The
attacked and may only be questioned in a quo warranto 5 directors wanting to remove the 4 directors called for a special
proceeding by the Solicitor General.
meeting to remove them on the ground of disloyalty.
A corporation by estoppel exists when the following requisites The 4 directors were then removed and since they still constitute a
are present: Misrepresentation or holding itself out to the
quorum, the remaining 5 directors elected 4 new directors.
 Questions herein were reconstructed based on frail
CORPORATION LAWS human memory. Excuse us for any missing parts.
3
Midterm Examination Answers herein do not purport to be the correct ones.
2017 Disagree if you must.

Alternative Answer:
I would advise them that they should make the 4 directors
a. Can the election of the new directors be questioned?
liable by demanding from them an accounting of the profits
they have obtained. The company can be refunded for the
Suggested Answer:
business opportunity that the company should have earned.
Yes. The Board cannot effect a removal of directors since the
This way, they may be able to get the business earnings that
law requires a vote by the stockholders. Removal affects the
the company is entitled.
right of a lawfully elected director and in order to legally
remove him, the procedure under the law must be observed.
4. Five directors are to elected. The following are the stockholdings of
First, there must be a call for a meeting made by the
the shareholders in the corporation:
Secretary on order of the President or upon written demand
A - 100 Common Shares
by the stockholders holding at least a majority of the OCS.
B - 100 Common Shares
Written notice of the time, place and purpose of such
100 Redeemable Shares
meeting must be given to the stockholders. At the meeting, a
C - 50 Redeemable Shares
vote by the stockholders representing at least 2/3 of the OCS
D - 150 Common Shares
must be cast in order to remove the 4 directors. And since
E - 100 Common Shares
removal was due to the vote of the stockholders, only the
100 Preferred Shares
stockholders can fill the vacancies at a regular or special
F - 150 Common Shares
meeting called for that purpose.
a. Indicate and explain how many votes may each stockholder
b. If you are the counsel for Amping Corporation, how would
cast.
you advice the board of directors so that they could achieve
their intentions?
Suggested Answer:
Under the law, a stockholder is entitled to vote such number
Suggested Answer:
of shares as there are directors to be elected i.e. the number
I would advise for a removal. As part of the Board, the
of his shares shall be multiplied with the number of directors to
President may order the Secretary to call for a special
be elected and the product of such is the votes that he may
stockholders' meeting and give notice to all stockholders of
cast. Moreover the law also provides that no share may be
the time and place thereof, as well as the intended purpose
deprived of voting rights except those classified and issued as
of removing the 4 erring directors. At the meeting, there must
“preferred” or “redeemable” shares.
be a vote by the stockholders representing at least 2/3 of the
outstanding capital stock to remove the 4 directors.
Thus from the above premise, A, B, & E may cast 500 votes
each. It is derived by multiplying the number of their common
If the 4 directors are not removed, the Board can inform the
shares with the number of directors to be elected (100
stockholders at the special meeting of the disloyalty of the 4
Common shares x 5 directors to be elected). D & F may cast
directors. The stockholders can refrain from re-electing those 4
750 votes each. It is derived by multiplying the number of their
directors at the next annual stockholders' meeting when their common shares with the number of directors to be elected
term ends. In the meantime, the 4 directors can be held liable
(150 Common shares x 5 directors to be elected.)
for disloyalty. When a director, by virtue of his office, acquires
for himself a business opportunity which should belong to the
B’s 100 redeemable shares, C’s 50 redeemable shares, and
corporation, thereby obtaining profits to the prejudice of the
E’s 100 preferred shares are not entitled to vote as provided
corporation, he must account for and refund all the profits for in the above premise.
obtained. The 4 directors in this case knew of the business
opportunity by virtue of their being members of the board
b. How may each stockholder cast their votes?
and subsequently opposed the proposal in order to obtain
the business for themselves.
 Questions herein were reconstructed based on frail
CORPORATION LAWS human memory. Excuse us for any missing parts.
4
Midterm Examination Answers herein do not purport to be the correct ones.
2017 Disagree if you must.

shareholdings were not diluted by the fact that the

corporation redeemed such shares. Consequently C has no
Suggested Answer:
pre-emptive right to reacquire the 50 shares.
Under the law, a stockholder is entitled to cast his votes in any
of the following methods i.e. Straight Voting or Cumulative
Alternative Answer:
Voting. In straight voting the stockholder can cast his vote
No, because pre-emptive right is only given to existing
only by distributing it evenly to the directors that he wants.
shareholders who are holding shares of stock at the time of
Thus, in this case, A, B, & E’s 500 votes each can be casted
the issuing of the new shares in order to avoid diminution of
only by evenly distributing it to the five directors that they
the interest of the shareholders.
want to win. For example if there are six candidates who ran
for directorship. A, B, & E can cast their votes under this
Redeemable shares are shares issued that are ought to be
method by giving 100 votes each for the five candidates and
reacquired by the corporation at a specific time agreed
giving none to the one candidate that they don’t like. Same
upon, Shareholders of redeemable shares who are
goes with D & F they can cast their votes under this method
considered temporary holders of the shares are obliged to
by giving 150 votes each for the five candidates and giving
surrender the shares issued to them at the time of
none to the one candidate that they don’t like.
reacquisition by corporation hence once redeemed, the
holders of redeemable shares cease to become shareholders
Under the Cumulative Voting method, stockholders can
of the corporation of which in effect eliminates their pre-
attribute their votes even to only one candidate or they can
emptive right.
distribute it as they please without being constrained of
distributing it equally to the number of directors to be elected.
Thus, in this case A,B, & E can cast their 500 votes each even
MULTIPLE CHOICE
to only and candidate. Same goes for the 750 votes each of
D & F. Or they can distribute it as they please thus they can
1. A company was engaged in the warehouse business. The
give two or three candidates bulk of their votes and the rest President, seeing that most of their customers would require their
of the candidate they would only give minimal amount of
cargo to be transported by a trucking company, decided by
their votes.
himself to buy the assets of the trucking company on behalf of
the warehousing corporation. Was the act of the president valid?
c. Once redeemed, may C exercise any pre-emptive right to
a. Yes because the president acted on behalf of the
reacquire his 50 shares?
corporation.
b. Yes because the warehouse business is related to a
Suggested Answer: trucking business
When the corporation decides to issue new capital stocks,
c. No because ____________
the stockholders are given the right to subscribe these shares
d. No because it was not a valid corporate act
before offering it to the public. The purpose is to eliminate the
diminution of the interest of the stockholders. Since a
2. When may redeemable shares be bought back by the
redeemable share is a share that has already been issued
corporation?
and paid for by the stockholder and is then subsequently a. When the price is reasonable
reacquired by the corporation, it is my submission that the
b. When the period of redeemability arrives
stockholder cannot invoke the pre-emptive right in those kind
c. When the outstanding debts are paid
of share. There is no diminution in the shareholdings of the
d. _______________
existing stockholders when the corporation redeemed those
shares. For example, A,B, & C are stockholder of Corporation Not entirely sure, some people answered letter C
X. They have 100 shares each thus giving each of them 1/3
interest in the corporation. Now, when the corporation will
3. When can a stockholder demand the board to issue dividends?
redeem the 100 shares of C, the holdings of A & B will still be d. When the surplus profits exceed 100% of the paid-up
the same. Even there is no pre-emptive right there
capital
 Questions herein were reconstructed based on frail
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5
Midterm Examination Answers herein do not purport to be the correct ones.
2017 Disagree if you must.

4. When is the commencement of a corporation?

Issuance of the certificate of incorporation

5. When is a corporation deemed to have no existence?

d. Upon the expiration of the term