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Question No. 1:
(1) Distinguish between cash dividend and stock dividend.
declarations of these dividends be revoked?

When may the

(2) After one year of operation, Safe Realty, Inc., wanted to declare dividends to
its stockholders. Ramos, its President, asked Santos, its Treasurer, whether this is
feasible, considering the financial standing of the corporation. Santos reported that the
corporation posted a P1 M profit and its real estate has appreciated in value to the tune of
P4 M. The Board then declared dividends to its stockholders computed on the basis of
P5 M representing profits and appreciation in value of its real estate. Is the dividend
declaration proper? Reasons.
(1) Dividends may either be cash (property) or stock. Any dividend other than
from the unissued shares of the corporation is, in contemplation of law, a cash dividend.
A stock dividend is one that is declared and paid out from the unissued shares of
corporation. Declaration of the stock dividends, unlike cash dividends, need the
concurrence of the stockholders.
A declaration of dividends may be revoked if the same was irregularly declared,
such as when the same is violative of the trust fund doctrine; otherwise, it can no longer
be revoked once the right thereto has already vested in the stockholders. Note: Another
way of stating the answer on when declaration may be revoked is in the case of cash
dividends, revocation may be had prior to its announcement and in the case of stock
dividends, prior to the issuance of stock dividends.
(2) The dividend declaration is improper. Dividends may be declared only out of
unrestricted retained earnings (Art. 43, Corporation Code) and, as understood in generally
accepted accounting principles, such declaration would preclude its being sourced from
mere increments in the value of corporate assets which may fluctuate from time to time.
Question No. 2:
(1) A, B, C, D & E decided to form Alphabet, Inc., a corporation dealing with the
manufacture and sale of school supplies, with an authorized capital stock of P1 M. The
five equally subscribed to 25% of the authorized capital stock or P50,000.00 each. Even
before they could pay the 25% of their total subscription, however, they entered into a
contract with Manila College to deliver desks worth P2 M. For lack of funds, however,
they failed to fulfill the contract with Manila College. Determine the liability of A, B, C,
D & E and Alphabet, Inc. vis--vis Manila College.

(2) X subscribed and aid for P10,000.00 worth of shares of stock of Rainbow
Mines, Inc. as an incorporator and original subscriber. He was employed as the mine
superintendent and as such, made the design of certain equipment used in its mines. Due
to some technical error in the design, the corporation suffered a loss of P1 M. The Board
accused X of infidelity
(1) Alphabet, Inc., not having been issued as yet a certificate of registration of its
articles of incorporation (for its failure to meet the minimum paid-up requirements) is
without any legal personality, and it cannot thus itself be made liable for the breach of
contract. The rule, furthermore, is that contracts for and in behalf of a corporation prior
to its incorporation are not binding on it unless and until they are approved, expressly or
impliedly, by its board of directors after due incorporation. A, B, C, D and E themselves,
as a rule, would not themselves be liable for the breach of contract subject however, to
their respective representations and the extent thereof. Pre-incorporation expenses, in
general, are for the account of the corporation and unless the corporation is fictitious, the
incorporators or stockholders are not personally liable therefor. (see Caram vs. Court of
Appeals, 151 SCRA 372). Note: Since the problem has emphasized on the liability and
the subscription on shares of stocks, it is suggested that another answer should be
accepted; viz: The only ones who can be held liable for the breach of contract would be
the stockholders who have contracted for and in behalf of Alphabet, Inc., but only to the
extent of their unpaid subscriptions.
(2) the action of the Board is not legal. The rights and liabilities of X as the Mine
Superintendent (or as an Officer) are apart from his rights and liabilities arising from
being likewise a stockholder. In general, in order that directors and officers may be held
personally accountable they must have voted or assented to a patently illegal act, or are
guilty of bad faith or gross negligence, or are in conflict of interest with the corporation
(see Sec. 31, Corporation Code). A mere technical error committed by X in the design of
an equipment used by the company, absent fault or negligence, would not warrant
liability on his part even as an employee. (Any of the following answers should also be
given full credit:)
a. Since there is no indication of gross negligence, bad faith or conflict of
interest, there is no liability that is created and therefore there is nothing to offset; or
b. Assuming that there is liability on the part of the mine superintendent for
having made an erroneous design of the equipment, the corporation has no authority to
confiscate the shares of stocks since there is no mutual debtor-creditor relation between
the parties.
Question No. 3:
(1) What do you understand by the no fault indemnity provision in the
Insurance Code? What are the rules on claims under said provision?

(2) X applied for life insurance with Metropolitan Life Insurance Company. The
application contained this question: Have you ever had any ailment or disease of x x x
(b) the stomach or intestines, liver, kidney or genitourinary organ? X, a laundry woman
who has no medical knowledge answered No. The application was approved, premium
was paid and six months later, X died from cancer of the stomach. The post medical
examination of X shows that she had the cancer at the time she applied for a policy. Can
the beneficiary of X collect on the policy? Reasons.
(1) The no fault indemnity in the Insurance Code provides that any claim for
death or injury to a passenger or to a third party should be paid without the necessity of
proving fault or negligence, subject to the following rules:
(a) The total indemnity shall not exceed P5,000.00;
(b) Proof of loss, e.g., police report, death certificate or medical report, when
submitted under oath, shall be sufficient to substantiate the claim; and
(c) The claim may be made against one motor vehicle only. In the case of an
occupant of a vehicle, the claim shall lie against the insurer of the vehicle in which the
occupant is riding, mounting or dismounting from. In any other case, the claim shall lie
against the insurer of the directly offending vehicle. The party paying the claim may
recover against the vehicle responsible for the accident (see Sec. 378, Insurance Code).
(2) The beneficiary of X cannot collect on the policy. Concealment, as a defense
against liability by the insurer, may either be intentional or unintentional (see Sec. 27,
Insurance Code, as amended by B.P. 874, revoking the rule in the Ng Gan Ze case, G.R.
30685, 30 May 1983). Lack of knowledge on the part of the insured about her ailment
will not preclude the insurer from raising the defense (see Tang vs. Court of Appeals,
G.R. L-48563, 25 May 1979). The insurer may be held in estoppel only if, having known
of the concealed or misrepresented fact, still accepts the payment of premium (B.P. 874)
which is not the situation in this case.
Alternative Answer:
The beneficiary of X can collect on the policy. There being no indication that
there was knowledge of any ailment or disease, and considering the nature of cancer,
there can be no concealment. Concealment by its very term, whether intentional or
unintentional, still requires knowledge.
Question No. 4:
(1) Queens Insurance Company insured X, a resident of Baguio City, against all
direct loss and damage by fire. X lived in a house heated by a furnace. His servant built

a fire in the furnace using material that was highly flammable. The furnace fire caused
intense heat and great volumes of smoke and soot that damaged the furnishings in the
rooms of X. When X tried to collect on the policy, Queens Insurance refused to pay
contending that the damage is not covered by the policy, where the fire is confined with
the furnace. Decide.
(2) Manpower Company obtained a group life insurance policy for its employees
from Phoenix Insurance Company. The master policy issued by Phoenix on June 1, 1986
contained a provision that eligible employees for insurance coverage were all full time
employees of Manpower regularly working at least 30 hours per week. The policy had
also an incontestable clause. Beforehand, Phoenix sent enrollment cards to Manpower
for distribution to its eligible employees. X filled out the card which contained a printed
clause: I request the insurance for which I may become eligible under said Group
Policy. The cards were then sent to Phoenix and X was among the employees of
Manpower who was issued a certificate of coverage by Phoenix.
On July 3, 1988, X was killed on the occasion of a robbery in their house. While
processing the claim of Xs beneficiary, Phoenix found out that X was not an eligible
employee as defined in the group policy since he has not been employed 30 hours a week
by Manpower. Phoenix refused to pay. May Xs beneficiary invoke the incontestability
clause against Phoenix? Reasons.
(1) Any of the following suggested answers, should be given full credit:
a. The refusal of Queens Insurance Company to pay is justified. The damage is
not covered by the policy which only insures against all direct loss and damage by fire.
The damage being claimed by X was caused by intense heat and great volumes of smoke
and soot and not directly by fire. The stipulation in the policy is paramount, not being
contrary to law.
b. The refusal of Queens Insurance Company to pay is not justified. The
insurance coverage was against all direct loss and damage by fire. Since, clearly, fire
was the proximate cause of the damage, recovery should be allowed as being the real
intendment of the parties. As a rule, recovery is due when the risk insured against is
either the proximate cause or the immediate cause. Even where there is an exclusion, the
primordial rule in determining recovery is whether or not the risk insured against is the
proximate cause. In the affirmative, recovery is allowed.
(2) The beneficiary of X may validly invoke the incontestability clause. If the
incontestability clause can apply even to cases of intentional concealment and
misrepresentation, there would be no cogent reason for denying such application where
the insured had not been guilty thereof. When X filled out the card containing the printed
clause I request the insurance for which I may become eligible under said Group
Policy, it behooved the insurer to look into the qualifications of X whether he can thus

be covered or not by the group life insurance policy. In issuing the certificate of coverage
to X, Phoenix may, in fact, be said to have waived the 30-hour per week requirement (see
Edillon vs. Bankers Life, 117 SCRA 187).
Question No. 5:
(1) What is the test to determine whether an instrument is negotiable or not?
(2) X bought a jeep from Reliable Motors Company for a consideration of
P50,000.00. he paid P25,000.00 in cash and executed the following promissory note on
the balance:
September 1, 1989
I promise to pay the sum of P25,000.00 to Reliable Motors
Company on or before December 31, 1989.
Sgd. X
At the bottom of the note, X wrote in his own handwriting the following:: I will not sell
the jeep until I shall have paid it in full. Is the note negotiable? Reasons.
(1) In determining whether an instrument is negotiable or not, the sole test is
whether or not the requisites of negotiability express in Section 1 of the Negotiable
Instrument Law are met on the face of the instrument itself. The intrinsic validity of the
instrument is of no moment. Even the acceptance or non-acceptance by the drawee of the
instrument would be irrelevant.
(2) The promissory note is not negotiable since the same is payable to Reliable
Motors, Inc., merely and not to order or to bearer or words of similar import.
Question No. 6:
(1) X makes a promissory note for P500.00 payable to A, a minor, to help him
buy school books. A indorses the note to B who, in turn, indorses the note to C. C knows
As minority. If C sues X on the note, can X set up the defenses of minority and lack of
(2) Adam makes a note payable to Bert or order. Bert indorses the note to Cora.
Douglas steals the note and indorses it to Elvin by forging Coras signature. Elvin then
indorses the note to Felix who is not aware of the forgery. What is the right of Felix
against Adam, Bert, , Cora, Douglas and Elvin?

(1) The promissory note not being payable to order or to bearer, is not a
negotiable instrument. Accordingly, the transferee merely steps into the shoes of the
transferor and, being merely a successor-in-interest, has no right greater than that of the
transferor. X may thus set up against C the possible defenses of (without delving into
their merits) minority and lack of consideration (see Consolidated Plywood vs. IFC
Leasing, G.R. 72593, 30 April 1987).
Alternative Answer:
a) On the assumption that it is a negotiable instrument, X cannot invoke the
minority of A as a defense because under Section 22 of the Negotiable Instruments Law
(NIL) title would pass even if the one who indorsed it is a minor and under Section 16of
the NIL, the maker acknowledges the capacity of the payee to contract.
b) Minority as a real defense can only be set up by the minor himself and lack of
consideration is not a defense against the holder in due course, C, which is to be
presumed because the problem did not indicate otherwise.
(2) On the assumption that Bert made a blank endorsement, thereby rendering the
instrument payable to bearer in the hands of Cora, the latters signature would be
unnecessary so as to preserve the juridical relation between parties prior to the forgery
and parties after the forgery. On the further assumption that Felix had acquired the
instrument for value, thus making him a holder in due course, he may accordingly hold
Adam, Bert and Douglas liable. The liability of Adam, as maker, and Douglas, as forger,
is primary and that of Bert, as blank indorser, secondary. If, however, Felix did not
acquire it for value and is not thus a holder in due course, he then acquires no right
greater than that of the immediate transferor and Adam, Bert and Cora would be without
any liability in favor of Felix.
On the assumption that Bert made a special indorsement, the signature of Cora
would be essential to pass title to the instrument. Her signature, forged by Douglas
would be inoperative, and Elvin, whether a holder in due course which is forged is
required to pass title, all parties prior to the forgery may raise the real defense of forgery
against all parties subsequent thereto (Secs. 23, 40, 52, 65-67, Negotiable Instruments
Law; see Republic Bank vs. Ebrada, 65 SCRA 680).
Question No. 7:
(1) What is meant by Over-the-Counter Markets as provided in the Revised
Securities Act?
(2) X has the following plans:
(a) organize the Tagaytay Country Club, Incorporated.

(b) let the club buy a 10 hectare land for P10 M which will be developed into a
sports and health club complete with an Olympic size swimming pool, tennis
and pelota courts, bowling lanes, pool rooms, etc.
(c) Five of the ten million pesos needed to develop the club will be raised thru
the sale of certificates of membership.
(d) The certificate of membership shall give the purchaser the right to use all
club facilities, and shall be transferable. It shall not, however, give the
purchaser any right in the income or assets of the club. The purchaser must
also pay monthly dues.
X wants to know whether the certificate of membership is an investment contract
and hence, a security within the meaning of the Revised Securities Act. What is your
(1) The term Over-the-Counter Markets refers to markets made or created for
the purchase and sale of securities other than on a security exchange. The Securities and
Exchange Commission may provide rules and regulations of transactions therein, a
violation of which renders the same or the trading therein unlawful (see Sec. 35, Revised
Securities Act). Alternative Answer: It is a transaction between the broker and customer
without passing it thru the stock exchange should, it is suggested, be given full credit.
Alternative Answer:
It is a transaction between the broker and customer without passing thru the stock
(2) The certificate of membership, although not providing for a right of income
or right over club assets, gives, however, to the holder thereof privileges on the use of
club facilities, that are of value and transferable. The certificate is thus a security within
the meaning of the Revised Securities Act. (see Sec. 2, Revised Securities Act).
Question No. 8:
(1) Assume that Greater Manila Telephone and Telegraph Company, Incorporated
has 10,000 employees. It has a policy of encouraging stock ownership among its
employees. Its Board of Directors, intends to sell P2 M worth of common stocks to either
(a) its managerial employees only numbering about 1,000 or (b) indiscriminately to all its
10,000 employees. In case it decides to sell to its managerial employees only, does it
have to register its securities? How about if the intended sale is to all its employees?

(2) Philippine Chromite,Incorporated, after registration of its securities, sold P10

M worth of common stocks to the public at P.01 per share. In its registration statement, it
alleged that it holds a perfected mining claim on 100 hectares of chromite land in
Botolan, Zambales. X, a Botolan resident, bought P50,000.00 worth of stocks of the
corporation from the stock exchange. After its public offering, the value of the stock
dropped to half its price. X made some investigations and discovered that the mining
claims of the corporation had not been perfected at the time of the issuance of its
securities. The stock, however, rallied and after two years, commanded a price of one
and a half centavo per share. On its third year, the company collapsed and its stocks
became totally valueless. What is the remedy of X?
(1) Exempt transactions are those that do not require registration either because
the law itself exempts them therefrom or the Securities and Exchange Commission finds
that the enforcement of the registration requirement is not necessary in the public interest
and for the protection of investors by reason of the amount involved or the limited
character of the public offering. The proposed sales stated in the problem do not strictly
fall under any of the exempt transactions in the law itself (see Sec. 6, par. 11, Revised
Securities Act). Accordingly, if the corporation would want to exempt the sales from
registration, it must file an application with the SEC for such exemption which may then
act in accordance with the rule above-stated.
(2) The remedy of X for damages is lost by prescription. Any suit therefor must
be filed within two years after the discovery of the facts constituting the cause of action
(but not beyond five years after such cause of action accrued). Two years having already
elapsed since the time that X had discovered the misrepresentation in the registration
statement of the corporation, the latters civil liability has prescribed (Sec. 14, Revised
Securities Act). X, however, is not prevented from invoking SECs regulatory powers
against the corporation.
Question No. 9:
(1) Felix copyrighted the oil painting showing the oath taking of President C.
Aquino and Vice-President S. Laurel after the EDSA revolution. Val engaged an artist to
paint the same scene for use as picture postcards. Val then started sending the picture
postcards to his friends abroad. Is there a violation of Felixs copyright? Reasons.
(2) X copyrighted a scientific research paper consisting of 50 pages dealing wit
the Tasadays. Y wrote a 100-page review of Xs paper criticizing Xs findings and
dismissing Xs story as a hoax. Ys review literally reproduced 90% of Xs paper. Can X
sue Y for infringement of his copyright? Reasons.

(1) While Felix can have a copyright on his own painting which is expressive of
his own artistic interpretation of the event he has portrayed, the scene or the event itself,
however, is not susceptible to exclusive ownership. Accordingly, there would be no
violation of Felixs copyright if another painter were to do a similar work.
(2) The Copyright Law provides that to an extent compatible with fair practice
and justified by scientific, critical, informatory or educational purpose, it is permissible to
make quotations or excerpts from a work already made accessible to the public. Such
quotations may be utilized in their original form or in translation (Sec. 11, Copyright
Law). Viewed from the foregoing, a review by another that literally reproduced 90%
of the research work done by X may no longer be considered as fair play, and X can sue
Y for the violation of the copyright.
(1) X invented a method of improving the tenderness of meat by injecting an
enzyme solution into the live animal shortly before a slaughter. Is the invention
(2) X invented a bogus coin detector which can be used exclusively on selfoperating gambling devices otherwise known as one-armed bandits. Can X apply for a
patent? Reasons.
(1) To be patentable, the invention must be new and should consist in a useful
machine, manufactured product or process. Among those that cannot be patented are
processes which are not directed to making or improving a commercial product (Sec. 7,
Patent Law). Viewed in the above light, X may lawfully patent his invention.
(2) X may not apply for the patent since the gambling device mentioned in the
problem itself is prohibited and against public order (Sec. 8, Patent Law). But if the
machine is used in legalized gambling such as in cases of exclusive use of casinos
established by the government, such device can be patented.
Question No. 11:
(1) X shipped thru M/V Kalayaan, spare parts worth P500,000.00. The bill of
lading limits the liability of the carrier to P500.00 and contains a notation indicating the
amount of the letter of credit (i.e., P500,000.00) which X obtained from a bank to import
the spare parts. The spare parts were not delivered to X so S sued the carrier for
P500,000.00. Decide.
(2) X boarded an airconditioned Pantranco Bus bound for Baguio. X was given
notice that the carrier is not liable for baggage brought in by passengers. X kept in his
custody his attache case containing $10,000.00. In Tarlac, all the passengers, including
X, were told to get off and to take their lunch, the cost of which is included in the ticket.
X left his attache case on his seat as the door of the bus was locked. After lunch and

when X returned to the bus, he discovered that his attache case was missing. A vendor
said that a man picked the lock of the door, entered the bus and ran away with the attache
case. What, if any, is the liability of the carrier?
(1) The limit liability stipulated in a bill of lading is subordinated to a declaration
therein of the actual value of the goods. Since the bill of lading itself contains a notation
indicating the true value of the goods shipped (supported by the letter of credit), X can
sue the carrier on the basis of such true value. (see National Development Corporation
vs. Court of Appeals, G.R. L-49407, and Maritime Co. vs. Court of Appeals, G.R. L49469, 18 August 1988).
(2) Hand-carried luggages of passengers are governed by the rules on necessary
deposits. Under Article 2000 of the Civil Code the responsibility of the depository shall,
among other cases, include the loss of property of the guest caused by strangers but not
that which may proceed from force majeure. Article 2001 of the same Code considers an
act of a thief as not one of force majeure unless done with the use of arms or through an
irresistable force. Accordingly, the carrier may, given the factual setting in the problem,
still be held liable (See Art. 1754, Civil Code).
Question No. 12:
(1) X took the Benguet Bus from Baguio going to Manila. He deposited his
maleta in the baggage compartment of the bus common to all passengers. He did not
declare his baggage nor pay its charges contrary to the regulations of the bus company.
When X got off, he could not find his baggage which obviously was taken by another
passenger. Determine the liability of the bus company.
(2) X brought seven (7) sacks of palay to the PNR/ He paid its freight charges
and was issued Way Bill No. 1. The cargo was loaded on the freight wagon of the train.
Without any permission, X boarded the freight wagon and not the passenger coach.
Shortly after the train started, it was derailed. The freight wagon fell on its side, killing
X. There is no evidence that X bought a ticket or paid his fare at the same time that he
paid the freight charges for his cargo. Is X a passenger of PNR?
(1) The bus company is liable for the loss of the maleta. The duty of
extraordinary diligence in the vigilance over the goods is due on such goods as are
deposited or surrendered to the common carrier for transportation. The fact that the
maleta was not declared nor the charges paid thereon, would not be consequential so long
as it was received by the carrier for transportation. (Art. 1754, in relation to Arts. 17331753, Civil Code).
Alternative Answer:

The act of the passenger who did not declare his baggage nor pay its charges
contrary to the regulations of the bus company conveys a surreptitious act on his part
which constitutes an act of bad faith and would therefore disentitle recovery.
(2) No, X was not a passenger (see Nueca vs. Manila Railroad, 65 O.G. 3153).
A stowaway, being a trespasser, has been held to assume the risk of damage (see
Pontillas vs. Cebu Autobus Co. 13 CA Reps., 211).
Question No. 13:
(1) X owns the ship M/V Aguinaldo. He bareboat chartered the ship to Y who
appointed all its crew members from the captain down to its last official. Y then
transported a shipment of 10,000 bags of sugar belonging to Z. Thru the negligence of
the ship captain, half of the sugar was damaged due to sea water. Since Y is bankrupt, Z
sued the captain and X. Will the suit succeed?
(2) X chartered the ship of Y to transport his logs from Zamboanga to Manila. In
the course of their voyage, the ship met a storm and had to dock in Cebu for three days.
Z, the captain of the ship, borrowed P20,000.00 from X on the pretext that he would need
the money for the repair of the ship. Z misappropriated the money and converted it to his
own benefit. What is the liability of Y, if any?
(1) The action could prosper against the ship captain whose negligence caused
the damage but not against X who merely was the lessor of the vessel and who was
neither a party to the contract for the shipment of the goods nor an employer of the ship
Note: One author has expressed another view that would hold the owner liable since it is
to be assumed that he is also the registered owner.
(2) A shipowner would only be liable for contracts made by the captain (a) when
duly authorized or (b) even when unauthorized, for ship repairs, or for equipping or
provisioning the vessel when the proceeds are invested therein (Art. 586, Code of
Commerce). Since the loan by the captain from X does not fall under any of the
foregoing cases, the amount borrowed shall be considered a personal liability of Z, the
captain, and Y, the shipowner, cannot thus be held liable.
Question No. 14:
(1) S, a rich trader, boarded the M/V Cebu, a small vessel with a value of P3 M
and owned by Y, plying the route Cotabato to Pagadian City, X had in his possession a
diamond worth P5 M. The vessel had a capacity of 40 passengers. Near Pagadian, the
vessel met squally weather and was hit by six foot waves every three seconds. Soon,
water entered the engine room and the hull of the vessel. The patron of the vessel

ordered the distribution of life belts to the passengers. He told them the vessel was
sinking and for them to take care of themselves. The vessel turned out to be overloaded
by 20 passengers and had no sufficient life belts. X failed to get a life belt and died when
the vessel totally sunk. The heirs of X sued Y for P10 M damages. Y raised the defense
of limited liability. Decide.
(2) X, an 80-year old epileptic, boarded the S/S Tamaraw in Manila going to
Mindoro. To disembark, the passengers have to walk thru a gang plank. While
negotiating the gang plank, X slipped and fell into the waters. X was saved from
drowning, brought to a hospital but after a month died from pneumonia. Except for X, all
the passengers were able to walk thru the gang plank. What is the liability of the owner
of S/S Tamaraw?
(1) The doctrine of limited liability does not apply when death or injury or
damage sustained is attributable to the fault or negligence of the shipowner or shipagent
or to the concurring fault or negligence of the shipowner or shipagent and the captain (or
patron) of the vessel (see Chua vs. Intermediate Appellate Court, G.R. 74811, 30
September 1988). Undoubtedly, the shipowner himself, was guilty of such fault or
negligence in not making certain that the passenger vessel is not overloaded, as well as
and is having failed to provide sufficient life belts on board the vessel.
(2) The owner of S/S Tamaraw is liable for the death of X in failing to exercise
utmost diligence in the safety of passengers. Evidently, the carrier did not take the
necessary precautions in ensuring the safety of passengers in the boarding of and
disembarking from the vessel. Unless shown to the contrary, a common carrier is
presumed to have been negligent in cases of death or injury to its passengers (Arts. 17551756, Civil Code). Since X has not completely disembark yet, the obligation of the
shipowner to exercise utmost diligence still then subsisted and he can still be held liable.
Question No. 15:
(1) X deposited 1,000 sacks of wheat flour with Luzon Warehouse Company, for
which he was issued a negotiable receipt. Y was able to get hold of the receipt, forged
the signature of X, presented the receipt to Luzon Warehouse and was able to withdraw
the wheat flour. What are the rights of X?
(2) X, a public official, is charged with violation of the Anti-Graft Law for
unexplained wealth. The prosecuting official learned that X maintains safety deposit
boxes at Union Bank. May the officials of the bank be subpoenaed and examined about
the safety deposit boxes?

(1) If under the terms of the negotiable warehouse receipt, the goods are
deliverable to the depositor or to his order, X may proceed against Luzon Warehouse
and/or Y. Without the valid indorsement of X to the holder or in blank, the warehouseman
is liable to X for conversion in the misdelivery.
If however, by the terms of the negotiable warehouse receipt, the goods are
deliverable to bearer (either because it is so expressed in the warehouse receipt or
because of a blank indorsement by the person to whose order the goods are deliverable),
X may only proceed against Y. The Warehouseman is not liable for conversion where the
goods are delivered to a person in possession of a bearer negotiable warehouse receipt.
(See Sec. 9, par. C, and Sec. 10, Warehouse Receipts Law).
(2) Yes, the officials of the bank may be subpoenaed and examined about the
safety deposit boxes. The prohibition against inquiry or disclosure of bank accounts
under the Secrecy of Bank Deposits Law does not apply to the case.
Even if the safety deposit box is not considered a bank deposit, the answer is still
in the affirmative because the law provides that one of the exception to the secrecy of
bank deposits is upon order of the court in cases of bribery or dereliction of duty of
public officials.
Also, in the recent case of Banco Filipino vs. Purisima, 161 SCRA 576), the
Supreme Court said that the Anti-Graft and Corrupt Practices Act intends to provide an
additional ground for the examination of bank deposits without violating the Secrecy of
Bank Deposits Law by allowing inquiry into illegally or not legitimely acquired