Objective

1. What is Business Judgement Rule

2. Explain what is Doctrine of Secondary Meaning in rules on Corporate Name
3. What are the reasons why corporation acquire its own shares of stocks.
4. In what instances does a corporation who acquires all or substantially all of the corporate assets
of another corporation be held liable for the liabilities of the corporation whose assets were
acquired.
5. What is instrumentality rule
6. When is a stockholder who institutes a derivative suit entitled to reimburse necessary expenses
for the said suit.
7. When is the exercise of pre-emptive right can be denied.

Problem.

ABC Corp was incorporated with a capitalization consisting of 20,000,000 authorized capital stock par
value P1.00 per share, in which 10,000,00.00 were paid in. Answer the questions independently of one
another.

1. ABC Corp. earned 15,000,000.00 net income. Can the BOD declare the whole amount of income
as stock dividend? Why or why not?

2. Assuming that the BOD of ABC Corp is composed of H,I,J,K,L,M,N,O, and P, can H,I,J,K,L pass a
valid corporate act? Why or why not.

3. In relation to number 2. H died in the 6 th month ensuing his tenure, J resigned, K was removed by
the stockholder in a meeting called for the purpose and L was convicted of a crime involving
moral turpitude. Can the remaining BOD appoint for their replacement? Discuss.

4. In problem No. 3, assuming that K was disqualified as a member of the BOD by virtue of not
owning at least one capital stock, and assuming the all the BOD remains. Can the BOD elect for
his replacement? Why or why not.

5. The BOD of ABC Corp. passed a resolution for the issuance of 5,000,000 shares of stocks at .80
per share. Ruben both 2,000,000 shares from ABC Corp. Is Ruben liable for the difference?

6. Assuming in number 5 that the shares are no par value shares, is Ruben liable for the difference?

7. Assuming that ABC is engaged in Land Transport business owning 40 units of bus. The BOD
passed a resolution acquiring a piece of land to be used as parking and repair area in Lucena
City, where the principal office of the corporation is located, without the concurrence of the
stockholders. Q, a stockholder questioned the resolution of the BOD for the reason that it was
an ultravires act being no stockholders’ ratification was obtained. Is the argument of Q tenable?
Why or why not.
8. Assuming that J is the Chairman of the BOD. K, the Secretary called for stockholders’ meeting in
a Hotel in Lucena to inform them of the amendment of the By-Laws. J, being a very busy person
was not able to attend because of some previous commitments. Instead, he appointed Z as his
proxy in the said meeting. X, a rival of J and also a stockholder, asked K that the vote of J not be
counted. Is X correct in asserting that the vote of Z be not counted? Why or why not?

9. The president of ABC Corp., W, died last February 14, 2019 due to the heart break his girlfriend
brought to him by not attending their dinner date. Exasperated by the non-appearance of his
girlfriend, he committed suicide. 8 of the 9 stockholders decided to appoint Y as the replacement
of W as President. All of the 8 members of the BOD approved W’s appointment as President due
to his stellar records in his professional career. Is the appointment of W valid? Why or why not?