GLOBAL RECIPROCAL COLLEGE

MIDTERM EXAMINATION IN RFLIB

2ND SEMESTER 2020-2021
PROFESSOR STEPHEN C. ESCARTIN

Instructions:
1. In True or false, write “TRUE” if the statement is correct, on the other hand, write
“FALSE” if statement is wrong and give the correct answer with legal basis. (3 points
each)
2. In Part II, give the distinction of Corporation and Partnership using the “As” question.
(15pts)
3. In Part III. Don’t missed the “Yes or “No” answer before discussing your reason
accompanied by a legal basis. (MINIMUM OF 25 WORDS)
4. Exam is good for 3 hours only.
5. “COPY PASTE” IS PROHIBITED.
6. NO SIMILAR ANSWERS.

PART 1. TRUE OR FALSE (60 pts)

1. A corporation may exist up to the period stated in the articles of incorporation not
exceeding 50 years from the date of incorporation, unless sooner dissolved or unless
said period is extended.
 FALSE, on the Revise Corporation Code (RA 11232) the 50-year term was removed.
General rule is that a corporation exist to have perpetual existence, unless otherwise
provided in the articles of corporation (Sec. 11)

2. A corporation cannot enter into a joint venture.

 TRUE

3. A corporation is created by mere agreement of the parties and governed by the Civil
Code while a partnership is created by operation of law and governed by the
Corporation Code
 FALSE, a corporation in created either by law or by operation of law. Corporation
created by law are the special incorporation law which directly creates the
corporation, the Revised Corporation Code is just a supplementary to them (Sec. 4).
 While Corporation created by operation of law, this are created by means of the
general corporation law, the RA. 11232

4. A Stock – is one which does - not issue shares and is - created not for profit but for
public good and welfare and where no part of its income is distributable as dividends to
its members, trustees, or officers.
 FALSE, a stock corporation is created and operated for the for the purpose of making
profit. Its income, in forms of dividends are distributable to its stockholders (Sec. 3)

5. In all cases, the governing body of a stock corporation is usually the Board of Directors.
 TRUE

6. Under the doctrine of piercing the corporate veil, a corporation will be looked upon as a
legal entity when it is used to defeat public convenience.
 FALSE, under the doctrine of piercing the corporate veil the corporation and its
stockholders or members will be treated identically. Doctrine of corporate personality
will be disregard (Sec. 2, attributes of a corporation)

7. Under the Revised Corporation Code, incorporators must be no less than five except for
special corporations.
 FLASE, the minimum number of incorporators were removed in the revised
corporation code. One Person Corporation (OPC) was also introduced (Sec. 115)

8. Generally, Partnership or Associations are ALLOWED to organized as a corporation

except as provided under special laws or charter creating them.
 TRUE

9. In Religious Corporation, corporate existence is upon the issuance of certificate of

incorporation.
 FALSE, as a general rule that legislative grant is necessary for the creation of operation
(Sec. 4), exception is that it obtains respect to corporation by prescription.
10. The Tenure of office for Board of Trustees shall not exceed 1 year from among the
holders of stocks registered in the corporation’s books.
 FALSE, trustees shall not exceed its 3-year term (Sec. 22)

11. An independent director is a person who, apart from shareholdings and fees received
from the corporation, is independent of management.
 TRUE

12. Under business judgment rule, one of the exception to the general rule is that if the
contracts are so unconscionable and oppressive as to amount to a wanton destruction
of the rights of the minority.
 TRUE

13. A Non-Stock Corporation can validly provide in their by-laws that members’ meetings
may be held anywhere in the Philippines. Provided, That proper notice is sent to all
members indicating the date, time, and place of meeting: Provided, further, That the
place of meeting shall be within the Philippine territory.
 TRUE

14. Under Ultra Vires Acts of the Corporations, it provides that no corporation shall possess
or exercise corporate powers other than those conferred by this Code or by its articles
of incorporation and except as necessary or incidental to the exercise of the powers
conferred.
 TRUE

15. When the capital or a part thereof which a partner is bound to contribute consists of
goods, their appraisal must be made in the manner prescribed in the contract of
partnership, and in the absence of stipulation, it shall be made by experts chosen by the
partners, and according to current prices, the subsequent changes thereof being for
account of the partnership.
 TRUE

16. If there is no agreement to the contrary, in case of an imminent loss of the business of
the partnership, any partner who refuses to contribute an additional share to the
 capital, except an industrial partner, to save the venture, shall he obliged to sell his
interest to the other partners. 
 TRUE

17. A partner who has received, in whole or in part, his share of a partnership credit, when
the other partners have not collected theirs, shall be obliged, if the debtor should
thereafter become insolvent, to bring to the partnership capital what he received even
though he may have given receipt for his share only.
 TRUE

18. Except in cases of fraud, and provided the contract is fair and reasonable under the
circumstances a contract between two (2) or more corporations having interlocking
directors shall not be invalidated on that ground alone: Provided, That if the interest of
the interlocking director in one (1) corporation is substantial and the interest in the
other corporation or corporations is merely nominal, the contract shall be subject to the
provisions of the preceding section insofar as the latter corporation or corporations are
concerned.
 TRUE

19.  No corporate name shall be allowed by the Commission if it is not distinguishable from
that already reserved or registered for the use if another corporation, or if such name is
already protected by law, rules and regulations.
 TRUE

20. Corporations formed or organized under this Code may be stock or nonstock
corporations. Stock corporations are those which have capital stock divided into shares
and are authorized to distribute to the holders of such shares, dividends, or allotments
of the surplus profits on the basis of the shares held. All other corporations are nonstock
corporations.
 TRUE

PART II. DISTINCTION (15pts)

 CORPORATION VS. PARTNERSHIP

A. As to creation and governing law. (2.5pts)

 A corporation is created by law or by operation of law, while partnership is created by
mere agreement of the partners.

B. As to commencement of juridical personality and term of existence (2.5pts)

 Corporation commence from the date of the issuance of Certificate of Incorporation
by the Securities and Exchange Commission, partnership commence from the moment
the contract is executed.

C. As to number of incorporators. (2.5pts)

 Corporation can be formed by a one person but not exceeding 15 pin number, in
partnership it is required a minimum of 2 persons.

D. As to powers. (5pts)
 Corporation can exercise powers only expressly granted by law or incident to the
existence of the corporation. A partnership may exercise its power that are authorized
by the partners provided that is not against morals, goods customs order.

E. As to management (2.5pts)
 A corporation is governed by the board of directors and trustees and partnership acts
through all the general partners that is considered as agent on the partnership, unless
otherwise agreed.

PART III. ESSAY (25 pts)

1. Puyat granted a loan to NS International, Inc. (NSI). The loan was made pursuant to the
Memorandum of Agreement and Promissory Note between Puyat and NSI, represented
by Nuccio. It was agreed that Puyat would extend a credit line with a limit of
P500,000.00 to NSI, to be paid within 30 days from the time of the signing of the
document. The loan carried an interest rate of 17% per annum, or at an adjusted rate of
25% per annum if payment is beyond the stipulated period. NSI and Nuccio received a
total amount of P300,000.00 and certain machineries intended for their business. The
proposed business, however, failed to materialize. When the petitioners defaulted in
the payment of the loan, Puyat filed a collection suit alleging mainly that the NSI and
Nuccio still owe him the value of the machineries. The RTC ordered them, jointly and
severally, to pay the balance. CA also affirmed the RTC ruling that they are one and the
same. Did CA commit a reversible error in affirming the RTC’s decision holding them
 jointly and severally liable for the amount claimed? – (Piercing the veil of corporate
fiction) (10pts)

 Yes, supposedly Nuccio and NSI Inc. should be treated identically by the the law. The
doctrine of corporate personal personality should be disregard by the law because
Nuccio used the NSI as a vehicle for the evasion of his obligation to Puyat. The word
severally should also be disregard because doctrine of piercing the veil means the
corporation will be treated as an association or identically of persons and stockholders,
the liability will also be attached personally to the officers and stockholders of the
corporation (Yao, S. vs. People, G.R No. 168306, June 19, 2007)

2. Meralco and T.E.A.M. Electronics Corporation (TEC) were parties to two separate
contracts for the sale of electric energy. Meralco undertook to supply TEC’s building
known as DCIM with electric power. One day, Meralco conducted a surprise inspection
of the electric meters installed at the DCIM building. Two meters were found to be
allegedly tampered with and did not register the actual power consumption in the
building. Meralco informed TEC of the results of the inspection and demanded from the
latter the payment of its unregistered consumption. TEC failed to pay the same. For
failure to pay, Meralco disconnected the electricity supply to the DCIM building. TEC
demanded from Meralco the reconnection of electrical service, claiming that it had
nothing to do with the alleged tampering but the latter refused to heed the demand.
The ERB immediately ordered the reconnection of the service but Meralco did not
immediately comply. TEC filed a complaint for damages against Meralco before the RTC.
The RTC ruled in favor of TEC and it awarded, among others, moral damages. Is TEC
entitled to moral damages? (10pts)

 No, there is no standing doctrine that corporations are entitle to moral damages
because, not being a natural person, it cannot experience physical suffering or
sentiments like wounded feelings, serious anxiety, mental anguish and moral shock
(Noell Whessoe, Inc., vs. Independent Testing Consultants, Inc., Petrotech Systems, Inc.,
And Liquigaz Philippines Corp., G.R. No. 199851, November 07, 2018). There were no
also present proof by the TEC to justify their complain

3. What is Doctrine of “Secondary Meaning” then give example. (5pts)

Doctrine of secondary meaning is originally connected and associated to trademark law.
It means that there are 2 perceptions in a certain product or object. "Under the doctrine
of secondary meaning, a word or phrase originally incapable of exclusive appropriation
with reference to an article in the market, because geographical or otherwise
descriptive might nevertheless have been used so long and so exclusively by one
producer with reference to this article that, in that trade and to that group of the
purchasing public, the word or phrase has come to mean that the article was his
produce. (Ana Ang vs. Toribio Teodoro, 74 Phil. 56). Best example for this doctrine is the
case of Lyceum of the Philippines vs. Court of Appeals. Lyceum of the Philippines as the
petitioner commenced a proceeding against schools using also the word ‘Lyceum’ in
their corporate name. the proceedings commenced by the petitioner was denied, the
fact that the word ‘Lyceum’ is a generic term, it is not in contrary to Section 17 of the
revised corporation code. Lyceum of Baguio, Lyceum of Appari, Lyceum of Cabagan,
Lyceum of Camalaniugan, Inc. are not deceptive and does not cause confusion because
of the attached geographical names to the word Lyceum. The petitioner also gained
exclusivity to its corporate name in relation to passage of time, so there were no
Doctrine of Secondary meaning involved.