5A.

The board of directors of X Corporation committed fraud in increasing the authorized capitalization
of the corporation which resulted to the prejudice of several stockholders whose rights were
diminished. Did the corporation commit a violation of the Corporation Code? If so, what penalty shall
be imposed on the Corporation?

Under Sec. 38 of the Corporation Code, no corporation shall increase or decrease its capital stock
or incur, create or increase any bonded indebtedness unless approved by a majority vote of the board of
directors and, at a stockholders meeting duly called for the purpose, two-thirds (2/3) of the outstanding
capital stock shall favor the increase or diminution of the capital stock, or the incurring, creating or
increasing of any bonded indebtedness. Any increase or decrease in the capital stock or the incurring,
creating or increasing of any bonded indebtedness shall require prior approval of the Securities and
Exchange Commission.

Therefore, if such increase in the capitalization of the corporation has been voted by the majority
of the stockholders, such prejudice to the rights of several stockholders cannot be held as violation of the
Corporation Code and the stockholders who went against the decision may thereafter exercise their
appraisal right. Furthermore, being subjected to approval or rejection of SEC, no penalty can be imposed
upon the corporation on the ground that it violated the provisions of the Corporation Code.

5B. The directors and executive officers of Y Inc. decided to hold a meeting at the Plantation Bay in
Mactan, Cebu. They all died in a plane crash on their way back to Manila. They own the majority capital
of the corporation. Is the corporation dissolved? Explain.

The corporation is not dissolved by the death of the directors of Y Inc. The interests of the
deceases the stockholders will be assumed by their heirs after its report to the SEC within 30days, and the
vacated seats in the BOD will be filled again. Under Sec. 29 of the Corporation Code, any vacancy occurring
in the board of directors or trustees other than by removal by the stockholders or members or by
expiration of term, may be filled by the vote of at least a majority of the remaining directors or trustees,
if still constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a regular or
special meeting called for that purpose. A director or trustee so elected to fill a vacancy shall be elected
only or the unexpired term of his predecessor in office.